• Operating Revenue: Increased 17.5% to $299.6 million in Q3 2024 from $255 million in Q3 2023.
• Net Income: $60.7 million or $1.03 per diluted share in Q3 2024, compared to $34.4 million or $0.60 per diluted share in Q3 2023.
• Operating Expenses: $232.8 million in Q3 2024, up from $211.5 million in Q3 2023.
• Year-to-Date Operating Revenue: Increased to $814.6 million in 2024 from $580 million in 2023.
• Year-to-Date Net Income: $171.1 million or $2.93 per diluted share in 2024, compared to $21 million or $0.38 per diluted share in 2023.
• Capital Investments: $332.2 million for the nine-month period ended September 30, 2024, representing 86% of the $385 million 2024 capital budget.
• Rate Base Growth: Projected to grow to $2.36 billion by the end of 2024, a 7.3% increase over 2023.
• Capital Structure: 61% equity and 39% debt.
• Cash and Cash Equivalents: $105.2 million as of September 30, 2024, with $45.6 million classified as restricted.
• Short-term Borrowing Capacity: $340 million available on company and Cal Water lines of credit.

• Warning! GuruFocus has detected 9 Warning Signs with CWT.

Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• California Water Service Group (NYSE:CWT) reported a 17.5% increase in operating revenue for Q3 2024, reaching $299.6 million compared to $255 million in Q3 2023.
• Net income for Q3 2024 was $60.7 million or $1.03 per diluted share, a significant increase from $34.4 million or $0.60 per diluted share in Q3 2023.
• The company received approval from the California Public Utilities Commission to collect $94.2 million in regulatory balances through 2027.
• CWT has invested a record amount of capital in 2024, with $332.2 million spent on water infrastructure improvements by September 30, 2024.
• The company was recognized for its environmental leadership, receiving the WaterSense Excellence Award from the US Environmental Protection Agency for the second consecutive year.

Negative Points

• Operating expenses increased by $21 million in Q3 2024, primarily due to higher water production costs and increased depreciation and amortization.
• The Monterey Water Rate Adjustment Mechanism (MWRAM) saw a $9.4 million reduction, impacting revenue.
• Higher income taxes related to increased pretax earnings contributed to a rise in operating expenses.
• The company faces significant future capital investment needs, including $226 million for PFOS projects starting in Q4 2024.
• There is uncertainty regarding the CPUC's stance on decoupling, which could impact future rate structures and revenue.

Q & A Highlights

Q: What is your view on the CPUC's recent decision regarding CalAm's rate case and the potential for restoring decoupling? A: Greg Milleman, Vice President - Rates and Regulatory Affairs: The industry feels the decision to hold the PD indicates potential changes, but it's unclear if it will tighten or loosen language around decoupling. Martin Kropelnicki, CEO: Our application focuses on conservation and low-income community support, which aligns with CPUC's goals and may influence the outcome.

Q: Could the CPUC's decision to lower energy utilities' ROEs affect water utilities' ROEs in 2025? A: Martin Kropelnicki, CEO: It's possible, but our ROEs have historically lagged behind energy industries. We have a growing need for capital investment, which supports maintaining our current ROE. Greg Milleman, Vice President - Rates and Regulatory Affairs: Energy utilities have different mechanisms, which might explain different treatments.

Q: Is the 10.27% ROE safe for 2025, and would you consider an extension with adjustments? A: Martin Kropelnicki, CEO: The 10.27% ROE is secure for 2025. While we are open to discussions, it's hard to speculate without specific proposals. Our focus is on maintaining an ROE that supports capital attraction and growth.

Q: How does your actual capital structure reconcile with the authorized structure? A: James Lynch, CFO: Our current capital structure is at the group level, and we are working to align it with authorized amounts at operating utilities. We recently issued $125 million in debt to help balance this.

Q: What impact does the EPA's lead and copper rule have on your CapEx budget? A: Martin Kropelnicki, CEO: The impact is minimal due to newer infrastructure on the West Coast. Only one district has hit the action level, and it's likely due to specific customer homes. Our focus remains on addressing PFOS, which is a larger concern.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.