California Water Service Group First-Quarter 2018 Earnings Call Presentation

Transcription

1 Califrnia Water Service Grup First-Quarter 2018 Earnings Call Presentatin April 26, 2018

2 Frward-Lking Statements This presentatin cntains frward-lking statements within the meaning established by the Private Securities Litigatin Refrm Act f 1995 ("Act"). The frward-lking statements are intended t qualify under prvisins f the federal securities laws fr "safe harbr" treatment established by the Act. Frward-lking statements are based n currently available infrmatin, expectatins, estimates, assumptins and prjectins, and management's judgment. Wrds such as wuld, expects, intends, plans, believes, estimates, assumes, anticipates, prjects, predicts, frecasts r variatins f such wrds r similar expressins are intended t identify frward-lking statements. The frward-lking statements are nt guarantees f future perfrmance. They are subject t uncertainty and changes in circumstances. Actual results may vary materially frm what is cntained in a frward-lking statement. Factrs that may cause a result different than expected r anticipated include, but are nt limited t: gvernmental and regulatry cmmissins' decisins; changes in regulatry cmmissins' plicies and prcedures; the timeliness f regulatry cmmissins' actins cncerning rate relief; changes in tax laws, the interpretatin f tax laws, and accunting plicies; changes in cnstructin csts and availability f resurces; the ability t successfully implement cnservatin measures; changes in custmer water use patterns; the impact f weather and climate n water sales and perating results; and, ther risks and unfreseen events. When cnsidering frward-lking statements, yu shuld keep in mind the cautinary statements included in this paragraph, as well as the annual 10-K, Quarterly 10-Q, and ther reprts filed frm timet-time with the Securities and Exchange Cmmissin (SEC). The Cmpany assumes n bligatin t prvide public updates f frward-lking statements. 2

3 Marty Krpelnicki President & CEO Tm Smegal Vice President, CFO & Treasurer 3

4 Presentatin Overview Our Operating Pririties Financial Results and Highlights Califrnia Adpted Revenue by Mnth EPS Bridge Q t Q Califrnia Cst f Capital Decisin Tax Cuts and Jbs Act 2018 Califrnia General Rate Case Status f Regulatry Mechanisms and Water Cnditins Other Ntes fr 2018 Capital Investment Histry and Prjectin Regulated Rate Base f CWT Summary 4

5 Our Operating Pririties 5

6 Financial Results: First Quarter (amunts are in millins, except fr EPS) Q Q Variance Operating Revenue $122.0 $ % Operating Expenses $111.5 $ % Net Interest $8.2 $ % Net Incme (Lss) $1.1 ($2.5) Nt Applicable EPS $0.02 ($0.05) Nt Applicable Capital Investments $51.9 $ % 6

7 Q Financial Highlights First quarter always leanest f the year fr earnings and revenue due t seasnality in ur business First quarter earnings decrease f $3.6 millin largely attributable t: Factrs utside Cmpany s immediate cntrl, including: $1.5 millin reductin in unrealized incme frm certain benefit plan investments, $0.8 millin increase in uninsured lss expense, and $0.7 millin reductin in unbilled revenue; these results may r may nt be reflective f expenses in ther time perids Changes in expenses that shuld cntinue thrughut 2018, including: $1.5 millin fr depreciatin & amrtizatin, $0.7 millin fr emplyee wage expense, $0.6 millin in prperty and ther taxes, and $0.5 millin in net interest expense Offsetting these items, Cmpany had: general rate increases f $4.7 millin ffset by $1.2 millin cst f capital reductin in Califrnia, as well as $0.7 millin reductin t maintenance expenses Cmpany- and develper-funded capital investments were $70.7 millin, an increase f 36.3% cmpared t 2017 High spending in Q1 due t treatment fr 1,2,3-trichlrprpane at 34 sites in Califrnia t meet new water quality standard; Cmpany still anticipates capital spending between $ millin in

8 Califrnia Adpted Revenue by Mnth (in Millins) $80 $70 $60 $50 $40 $30 $20 $10 $0 8

9 EPS Bridge Q t Q $0.10 $0.08 $0.06 $0.046 $0.04 -$0.024 $0.02 $0.00 -$ $ $0.02 -$0.04 -$ $ $0.06 -$

10 Ntes n EPS Bridge Items Increased revenue includes Califrnia escalatin increases net f Califrnia cst f capital revenue reductin effective January 1, 2018, as well as rate base ffset rate relief and effect f Hawaii rate increases since crrespnding perid in 2017 Change in unbilled revenue accrual als included within revenue increases; change in unbilled revenue accrual reduced revenue $1.6 millin in first quarter cmpared t reductin f $0.9 millin in first quarter 2017; reduced accruals in first quarter 2018 were result f weather and ther factrs Increased depreciatin cnsistent with additinal capital investment placed int service in

11 Califrnia Cst f Capital Decisin On March 22, Califrnia Public Utilities Cmmissin (CPUC) issued final decisin in Cmpany s Califrnia cst f capital filing with three ther water utilities Cal Water was authrized return n equity (ROE) f 9.20%, cst f debt f 5.51%, and capital structure including 53.4% equity Cst f capital adjustment will reduce custmer rates by estimated $6.7 millin in 2018, primarily due t lwer weighted cst f debt achieved in Cmpany s financing prgram Decisin retractive t January 1, set authrized returns thrugh 2020 CPUC als apprved cst f capital adjustment mechanism that wuld trigger ROE adjustment with 100 bps change in Mdy s AA utility bnd index 11

12 Tax Cuts and Jbs Act In all fur f ur state peratins, Cmmissins initiated prcedures t ensure custmers benefit frm tax refrm Cal Water will incrprate initial change in custmer rates t reflect lwer federal rate in peratins and eliminatin f Sectin 199 deductins in secnd quarter Cmpany has recrded liability fr excess tax expense cllected in rates in ur ther state peratins but des nt anticipate changing custmer rates until late 2018 Cmpany expects t pay taxes in 2020 nce prir year NOL exhausted Remeasurement f deferred incme taxes at 12/31/17 resulted in excess deferred incme tax liability f $108 millin Remeasured deferred incme taxes in all subsidiaries will generally be addressed in the next rate case filing in each jurisdictin 12

13 2018 Califrnia General Rate Case Cal Water will file its 2018 GRC in July Cmpany anticipates requesting mre capital than was awarded in last cycle, primarily due t replacement f aging infrastructure including transmissin and distributin mains Cmpany will begin t frecast preliminary capital investment and rate base grwth fr 2019 thrugh 2022 with secnd quarter earnings release Rates wuld change effective January 1, 2020 Cvers capital investments in Cmpany staff has been wrking fr mre than tw years t prepare and supprt case Cal Water reviews capital needs n nine-year (three rate case) planning hrizn and anticipates increasing replacement cycle capital needs thrugh that perid 13

14 Status f Regulatry Mechanisms and Water Cnditins Alng with escalatin filing, Cal Water received adjustment in adpted sales vlumes thrugh Sales Recnciliatin Mechanism f 9% Recrded sales vlumes in first quarter were 101% f new adpted sales vlumes and WRAM receivable balance declined by $0.9 millin, gd sign that mechanism is wrking Cal Water began billing surcharges t recver $50.1 millin in net WRAM/MCBA receivables in April 2018 Califrnia had clse t miracle March with high rain and snw ttals, leading t near-nrmal winter in Snwpack is 44% f average and precipitatin is 84% f average as f April 20, with gd reservir cnditins Cntinuing shrtfalls in snwpack, even in nrmal t wet years, are lngterm water supply cncern acrss Califrnia 14

15 Net WRAM Receivable Balance (in millins; end-f-year balance except 2018) $80 $70 $69.1 $68.2 $60 $50 $40 $51.3 $45.7 $44.5 $45.2 $40.5 $37.0 $30 $20 $10 $ Q

16 Other Ntes fr 2018 Thrugh January 1, CPUC had apprved advice letter prjects ttaling additinal $2.8 millin annual revenue ut f authrizatin f up t $30 millin thrugh 2019 N additinal advice letter prjects included in rates in first quarter We estimate 2018 effective tax rate f 23-25%, clse t statutry rate f 28% due t reduced budget fr repairs-eligible prjects, thugh this culd change as law gets interpreted Beginning with first quarter 2018, nn-service cmpnents f pensin expense are included with ther incme and expense as ther cmpnents f net peridic benefit cst due t implementatin f FASB ASU

17 Capital Investment Histry and Prjectin (in millins) $300 $250 $200 CAGR = 12.9% ( ) $177 $229 $259 $210 $150 $100 $50 $76 $99 $108 $113 $111 $118 $116 $131 Q $70.7M $ *2018 *2018 estimated capital investment is the midpint in the Cmpany s stated range f $200-$220 millin. 17

18 Regulated Rate Base Rate f CWT Base f CWT (in millins) $1,600 $1,400 $1,200 $1,000 $978 $1,004 $1,058 $1,119 $1,249* $1,399* $800 $600 $400 $200 $ Est Est

19 Summary Q1 typically clse t breakeven fr Cmpany given ur rate designs and usage patterns in ur service territries While Califrnia cst f capital decisin will reduce rates this year, we are pleased that CPUC mved significantly frm its initial prpsal We are seeing psitive effects f ur regulatry mechanisms, particularly sales recnciliatin mechanism, which has started t reduce net WRAM/MCBA receivable balance We are fcused n filing Califrnia General Rate Case n schedule in July 19

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