CALIFORNIA WATER SERVICE GROUP Q3 FY2024 earnings call

• Strong third quarter financial performance benefiting from California's regulatory release date. - 2024 general rate case update: completed initial prehearing conference, assigned administrative law judge and commissioner, proposed to invest $1.6 billion in districts from 2025 to 2027 with an innovative low-use water equity program and rate increase proposals. - Record capital investment in 2024: $332.2 million invested in the 9 months ended September 30, 86% of the 2024 capital base, with more to be invested by year-end. - Environmental leadership and corporate recognition: won multiple awards including WaterSense Excellence Award from EPA, being named one of the world's most trustworthy companies by Newsweek, and recognized as a great place to work for nine consecutive years. - HR change: Vice President and Chief Human Resource Officer Ron Webb to retire on April 1, 2025, with a national search underway for replacement.

In the third quarter of 2024, operating revenue increased 17.5% to $299.6 million compared to the prior year's $255 million. Net income for the quarter was $60.7 million or $1.03 per diluted share versus $34.4 million or $0.60 per diluted share in Q3 2023. Year-to-date 2024 operating revenue reached $814.6 million, up from $580 million in the same period of 2023. Year-to-date net income was $171.1 million or $2.93 per diluted share, compared to $21 million or $0.38 per diluted share in 2023. Revenue growth was driven by cumulative rate increases, MRAM balance changes, and increased usage. Operating expenses also saw increases due to factors like water production costs and depreciation and amortization.

• 2024 general rate case in the 18-month review process, 4 months in, actively responding to data requests and preparing for public participation hearings. - Cost of capital adjustment mechanism locked in ROE for 2025 at 10.27%. - Expected to collect approximately $94.2 million from approved advice letters over the next 3 years, with about $11.6 million expected to be collected in 2024 from these balances.

• Regulatory risk: Uncertainty in CPUC's decisions regarding rate cases, which may impact rate structures. - Cost change risk: Water production costs have increased due to higher wholesale water rates and usage, which may affect profits.

Q: What's your view on the CPUC's recent decision to hold the PD and Calum's rate case and the support for decoupling?

A: Greg said the industry is divided on the matter and it's too soon to tell; Marty added the company's application focused on conservation and underserved communities' rate design.

Q: CPUC recently lowered the energy utilities' allowed ROE for 2025, will there be a similar situation for water in 2025?

A: Marty said water's ROE has historically lagged energy's, 2025 ROE is locked at 10.27% for now but may need a cost of capital application in 2025; Greg added energy has different cost of capital adjustment options.

Q: How does the authorized California capital structure in Slide 11 reconcile with the last cost of capital situation?

A: James said the actual cap structure is being adjusted, and a $125 million first mortgage bond was issued post-quarter end to balance debt and equity.

Q: What are the potential impacts on the CapEx budget from the EPA's recently finalized lead and copper rule?

A: Marty said the impact is not significant for the California service area as infrastructure is newer on the West Coast, with PFOS being the major concern for the next few years.