California Water Service Group Reports Third Quarter Results
SAN JOSE, Calif., Oct. 31, 2024 (GLOBE NEWSWIRE) -- California Water Service Group ("Group" or "Company," NYSE: CWT), a leading publicly traded water utility serving California, Hawaii, New Mexico, Washington, and Texas, today reported financial results for the third quarter of 2024.
Highlights included:
-- Recorded diluted earnings per share of $1.03 in Q3 2024 and $2.93
year-to-date, compared to $0.60 in Q3 and $0.38 year-to-date in 2023.
-- Invested a record $332.2 million of capital in infrastructure during the
first nine months of 2024.
-- Retained authorized return on equity ("ROE") of 10.27% for 2025 for
California Water Service (Cal Water).
-- Declared the 319th consecutive quarterly dividend in the amount of $0.28
per common share.
-- Received approval on advice letter filings related to regulatory
mechanisms expected to result in the recovery of $94.2 million in cash
over the next three years.
-- Received awards from the U.S. Environmental Protection Agency ("EPA"),
Great Place to Work, and Newsweek.
According to Chairman and Chief Executive Officer Martin A. Kropelnicki, financial results were in line with expectations, as Group continued to benefit from the effects of the 2021 California General Rate Case ("2021 California GRC") decision received on March 7, 2024.
"In addition to solid financial performance, our teams did exceptionally well on many fronts, including water system improvements, water conservation, and emergency response. During the third quarter, we invested $117.8 million in infrastructure; earned a WaterSense Excellence Award for conservation from the EPA; and were honored with the National Association of Water Companies Living Water Award for our employees' response to the 2023 Lahaina fires on Maui. We were also recognized as a Great Place to Work and one of the World's Most Trustworthy Companies," he said.
Q3 2024 Financial Results
-- Q3 2024 net income attributable to Group was $60.7 million, compared to
net income of $34.4 million in Q3 2023.
-- Operating revenue was $299.6 million in Q3 2024, compared to $255.0
million in Q3 2023, an increase of $44.6 million.
-- Increased rates added $42.2 million in revenue.
-- Increased customer usage and new customers added $9.6 million.
-- The increases were offset by the Monterey Water Rate Adjustment
Mechanism ("MWRAM") approved in the 2021 California GRC, which
reduced revenue by $9.4 million.
-- Operating expenses were $232.8 million in Q3 2024, compared to $211.5
million in Q3 2023, an increase of $21.3 million.
-- Water production costs increased by $2.7 million to $95.1 million
in Q3 2024 compared to the same period last year, primarily due to
an increase in wholesale water rates and water usage.
-- Income tax expenses increased primarily due to the increase in
pre-tax income.
Year-to-Date 2024 Financial Results
-- Year-to-date net income attributable to Group was $171.1 million,
compared to net income of $21.8 million for the nine-month period ended
September 30, 2023.
-- Operating revenue was $814.6 million in the first nine months of 2024,
compared to $580.1 million in the first nine months of 2023, an increase
of $234.5 million.
-- A cumulative adjustment for the 2023 impacts of the 2021
California GRC decision and 2024 MWRAM added $99.9 million in
revenue.
-- Increased rates, including recognition of the 2024 Interim Rates
Memorandum Account ("IRMA"), increased revenue by $95.0 million.
-- Deferred revenue decreased by $15.6 million primarily due to
recognition of previously deferred Water Revenue Adjustment
Mechanism ("WRAM") revenue as a result of securing California
Extended Water and Wastewater Arrearage Payment Program funds for
the payment of eligible customer balances.
-- Accrued and unbilled revenue increased revenue by $6.7 million.
-- Operating expenses were $621.8 million for the nine-month period ended
September 30, 2024, compared to $538.2 million in the same period last
year.
-- Water production costs increased by $18.7 million, mostly due to
an increase in wholesale water rates and water usage.
-- Other operations expense increased $11.4 million, primarily due to
the recognition of $13.1 million of costs associated with the
recognized deferred revenue.
-- Income taxes increased $41.1 million primarily due to the increase
in pre-tax net operating income.
As a result of the Q1 2024 adoption of the 2021 California GRC decision, interim rate relief related to 2023 totaling $64.0 million was included in 2024 net income, including $15.2 million and $50.4 million that were attributable to the three and nine months ended September 30, 2023, respectively.
Liquidity, Financing, and Capital Investment
As of September 30, 2024, Group maintained $105.2 million of cash, of which $45.6 million was classified as restricted, and had additional short-term borrowing capacity of $340 million, subject to meeting the borrowing conditions on the Group and Cal Water lines of credit.
On August 2, 2024, the California Public Utilities Commission ("CPUC") approved Cal Water to issue up to $1.3 billion in new debt and equity securities.
On October 22, 2024, Cal Water issued $125 million aggregate principal of its 5.22% First Mortgage Bonds ("Bonds") due October 22, 2054. The Bonds include terms and conditions similar to Cal Water's existing First Mortgage Bond indebtedness. In addition, during Q3 2024, Group sold 639,000 shares of common stock under its at-the-market stock issuance program raising net proceeds of approximately $34.5 million.
Group capital investments during the nine-month period ended September 30, 2024 increased to a record total of $332.2 million, up 21% over the same period last year.
California Regulatory Activity
2024 Infrastructure Improvement Plan and General Rate Case
As reported last quarter, on July 8, 2024, Cal Water submitted a GRC that included Infrastructure Improvement Plans for 2025-2027. Cal Water proposes to invest more than $1.6 billion in its districts from 2025-2027 in order to support its ability to provide a reliable supply of high-quality water and enhance sustainability. In its application, Cal Water proposes to adjust rates to increase total revenue by $140.6 million, or 17.1%, in 2026; $74.2 million, or 7.7%, in 2027; and $83.6 million, or 8.1%, in 2028. Importantly, the application also proposes a Low-Use Water Equity Program that would decouple revenue from water sales to assist low-water-using, lower-income customers.
Cal Water has concluded an initial pre-hearing conference and an administrative law judge and Commissioner have been assigned to the GRC. The triennial filing begins an approximately 18-month review process by the CPUC.
Cost of Capital
Cal Water's authorized Cost of Capital includes a mechanism that adjusts authorized ROE in the event there is a 100-basis point movement in the 12-month (October 1 through September 30) average of Moody's Aa utility bond index as compared to the same period in the previous year. The average movement in the index during the measurement period was less than 100-basis points. As a result, no adjustment to Cal Water's current ROE of 10.27% is required for 2025.
Other Regulatory Mechanisms and Filings
Cal Water recently filed advice letters pertaining to the IRMA, the 2023 MWRAM, and the 2023 Incremental Cost Balancing Account ("ICBA"). These filings were approved and became effective on October 1, 2024. Over a three-year period, Group anticipates recovering approximately $94.2 million in cash, primarily derived from the IRMA, MWRAM, and ICBA.
Group expects that $11.6 million of this amount will be collected from customers in the fourth quarter of 2024. This will further bolster Group's financial position and support its ongoing operations and investments in water infrastructure.
Water Conservation, Emergency Response, and Workplace Leadership Awards
The Company continued to demonstrate its industry leadership and commitment to excellence during the third quarter of 2024, earning several prestigious awards.
For the ninth consecutive year, the Great Place to Work$(R)$ Institute certified the Company as a Great Place to Work in August. This recognition, based on employee feedback, reflects the Company's ongoing commitment to fostering a positive work environment and supporting its workforce through enhanced engagement initiatives and benefit programs.
In early September, Newsweek named the Company one of the "World's Most Trustworthy Companies" for the second year running. This global recognition, which considered feedback from customers, investors, and employees, places the Company among only five water utilities honored in the energy and utilities category.
Shortly thereafter, the National Association of Water Companies honored Hawaii Water Service Operations Manager John "Kani" Kadowaki with the Living Water Award in recognition of his leadership of the team that kept water flowing to local communities during the devastating fires in Lahaina in 2023. Hawaii Water Service was the only water provider in West Maui that did not need to issue boil water advisories or experience water service interruptions during the tragedy.
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