Thank you, Victor. Welcome, everyone, to the 2020 Year-end and Fourth Quarter Earnings Results Call for California Water Service Group. With me today is Marty Kropelnicki, our President and CEO; Tom Smegal, our Vice President and Chief Financial Officer; Paul Townsley, our Vice President of Business Development and Chief Regulatory Officer; and Shannon Dean, our Vice President of Customer Service and Chief Citizenship Officer. Replay dial-in information for this call can be found in our year-end earnings release, which was issued earlier today. The replay will be available until April 26. As a reminder, before we begin, the company has a slide deck to accompany the earnings call this quarter and year-end. The slide deck was furnished with an 8-K this morning and is also available at the company's website at www.calwatergroup.com. Before looking at the quarter and year-end results, we'd like to take a few minutes to cover forward-looking statements. During the course of the call, the company may make certain forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company's current expectations. Because of this, the company strongly advises all current shareholders as well as interested parties to carefully read and understand the company's disclosures on risk and uncertainties found in our Form 10-K, Form 10-Q, press releases and other reports filed from time to time with the Securities and Exchange Commission.

Thank you, David. Good morning, everyone. Thank you for joining us as we recap our 2020 efforts and release our 2020 results. We thought we would do it a little bit differently this morning. I'm going to start off with some brief comments, an overview of the year and then I'm going to hand it over to Tom, and then we'll go through our normal deck. I want to do that because almost by every measure, 2020 was a year like no other. We started the year with a delayed general rate case that was almost a year late, which we were able to book here in December, and we finished the year 2020 with record earnings. It was a year of record capital spending as we invested almost $300 million in our infrastructure improvement program, which is up 9.1% from 2019, which was our old record. As part of this program, we replaced a record 169,000 feet of main during 2020, and we completed the largest single capital project in the company's history, the Palos Verdes Peninsula Water Reliability Project that went into service in the fourth quarter of 2020. We closed on our acquisition of Rainier View Water, which doubled the size of Washington Water, and as many of you may have noted, we increased our dividend by 8.2% earlier this year in January, given the strong financial position that we were ending the year with. At a time when many companies were cutting spending and adjusting to the economic shock associated with the pandemic, we recognized the critical role our economic activity plays in the communities that we serve. As part of this, we donated thousands of units of PPE to first responders in those communities. Many of these communities that were underprepared were mainly the rural communities. We donated a record $1.7 million to various community support organizations that supported our customers during a difficult time with the pandemic. We increased the size of the Cal Water philanthropic scholarship program for all eligible customers in the communities that we serve, and we recorded a record $51.4 million in diverse spending on diverse suppliers that helped us achieve our mission throughout the service area. We forgave more than $400,000 of overdue balances for customers struggling to pay their bills. And of course, we suspended shutoffs very early on during the pandemic to ensure our customers had the water they needed to fight the pandemic in their homes. On the governance side, we completed the first ever ESG materiality assessment that lays the foundation for our continued work on climate change, sustainability, conservation, and other major ESG and enterprise-wide risks that can affect our operations. We ended the year with zero primary and secondary water quality violations. And despite the worst fire season in California's history, coupled with numerous public safety power shutdowns, none of our customers experienced any major outages during the dry, hot summer months and fire season. The Cal Water team of water professionals operated safely seven days a week, 24 hours a day, 365 days a year, doing what they do best, and we accomplished all this during the worst pandemic in the last 100 years. It was truly a year of countless challenges and many unknowns, and we're very proud to share our results with you here today. Having said that, I do want to take a special moment to thank all the Cal Water employees for their hard work and dedication that has led to the outstanding results that we noted during 2020.

Great. Thank you so much, Marty. I'm going to start talking about the slide deck on Slide 5. If you want to follow along, if you have a copy of the slide deck in front of you. And this is our traditional table of results, and I'll just highlight a few key results. As Marty mentioned, our net income was a record; it was $96.8 million for the year 2020. That was up a little bit over 50% from the year before. Earnings per share of $1.97, again, was up over 50% from the earnings per share from 2019. And the capital expenditures that Marty mentioned, almost $300 million, was up 9% from the year before. For the fourth quarter, which we'll also talk about briefly, we did see increased earnings per share of $0.31 versus $0.24 in the prior period, and net income of $15.5 million versus $11.3 million in the prior year during the same time. So let me talk a little bit about the financial highlights and what led to this result on Slide 7. The increase was primarily due to the adoption of the California General Rate Case. As those of you who have been following us know, we were waiting for a final decision on that rate case throughout the year and did, in the third quarter, book what we had anticipated to be the final results of that rate case that turned out to be correct. The rate case was adopted on December 3 without any material changes from what was expected to be adopted at the end of our third quarter. So the rate case really added to our revenue and net income. It also lowered the adopted purchase water and purchase power expenses. And when those items came in a little bit higher during the course of 2020, we were allowed to book revenue associated with the balancing accounts that we have or the modified cost balancing account associated with purchase water and purchase power. And so what you'll see is that the margin between revenue and water expense was what really increased our earnings for the year. One other big factor that is both a factor within the rate case and outside the rate case are lower effective income tax rates. So within the rate case, we are returning to customers our excess deferred taxes associated with the lower federal tax rate in the Tax Cuts and Jobs Act. That is a planned program over about a nine-year period. So what you'll see in our rate cases is lower income tax expenses and lower revenue that goes directly back to customers. The second item was we exceeded our expectations for repairs and maintenance deductions. This is the tax treatment that we have on mainline replacements within our water systems, allowing us to expense that for tax purposes, and that exceeded the estimate in the general rate case and added to our earnings for the year and for the fourth quarter. And Marty and I have mentioned enough the capital investment, but just to highlight again, $298.7 million in capital improvements, including the completion of the Palos Verdes Peninsula Water Supply Reliability Project.

Thanks, Tom. So yes, looking ahead with COVID and looking backwards and looking forwards, kind of seeing where we are. We're going to continue to operate with enhanced safety protocols. Cal Water developed a five-stage COVID response plan. We have been operating in stage 3 of that plan, which includes keeping people in pods, strict PPE requirements, and dispatching employees from remote locations instead of having them come into a central location. Ninety percent of the Cal Water employees have been at work every day throughout the pandemic. Some of our corporate staff have worked remotely, but most of our assets are in the field, and most of those assets in the field have been productive all year, which is what helped lead to the record results that we've seen for 2020.

Great. Thank you, Marty. So before I dive into our ESG highlights for 2020, I'd like to start with the strategic framework we developed eight years ago, which you see on Slide 14, if you're following along. The point is, long before ESG was top of mind for so many investors, we were setting strategy around ESG. You can see on our map right there in the center, we said our purpose was to enhance the quality of life for customers, communities, employees, and stockholders. We were driven by our core values of integrity, service, value, and corporate citizenship. Doing the right thing has always been in our DNA. Moving on to 2020, something that we recognized is that even though we were doing so many good things in the ESG space, we weren't doing a very good job of telling our story. As Marty mentioned at the outset, we completed a materiality assessment early in the year to help us identify the top most relevant ESG topics for us to help sharpen our focus. Now we're working on an ESG report that aligns with SASB and references GRI, which will be available in early April. So that's the reporting side. As for ESG performance, 2020 was a very good year despite all of its challenges.

Thank you, Shannon. As Marty reported earlier in 2020, we completed our California General Rate Case and new rates have gone into effect in 2021. This has been positive. However, as 2021 dawns on us, we have a very full regulatory plate this year. We will be filing a cost of capital application with the California Public Utilities Commission on May 1. That is a triennial application, and so we are due to file that this year. Additionally, on July 1, we will also be filing our triennial California General Rate Case. Remember, those rates are expected to be effective on January 1, 2023. There are also a number of other smaller rate cases in our other states that we'll be working on this year. So it is a very busy year for regulatory activity. In the California General Rate Case, we anticipate that we will be filing and requesting continued strong capital investment for our communities in California. We're also going to be working on our rate design in this upcoming rate case, continuing to refine and improve our sales forecast and water cost forecast as we become more adept at this process. We also expect that we will have a discontinuation of our RAM or our revenue decoupling mechanism. So we're really focusing on adjusting all these elements so we can continue to provide affordable and reliable water service while enhancing conservation.

Thanks, Paul. So just as a bit more color on our capital investment update, as we've been mentioning, we invested $298.7 million in developer and company-funded capital investments in 2020. This exceeded our target range of $260 million to $290 million, primarily due to the favorable working conditions we had throughout the year with COVID. There was a lot less traffic and much more availability of contractors and subcontractors, so we accomplished more than anticipated. Our target for 2021 is $270 million to $300 million. Remember, we are in the third year of the California General Rate Case authorization that came out of the 2018 General Rate Case, which had a total of about $830 million over three years. The California spending, along with spending in other states, brings us to that target range for 2021. When we do file the rate case, as Paul just mentioned, we anticipate releasing our capital plans for 2022 through 2024, which will be our estimate based on the rate case filing, and that filing will be subject to adjustment based on the Commission's action throughout that process.

Thanks, Tom. Looking at the business outlook for 2021, there are a couple of things to note. First and foremost, we have a new Commissioner at the California Public Utilities Commission. We look forward to working with Commissioner Houck in her new assignment as she begins her new role at the commission. She has a legal background and has spent a number of years as an ALJ. She has been a commission adviser, so she knows the rate-making and regulatory world well, and we think she was a fine pick to add to the California PUC following Liane Randolph, who has termed out. Additionally, we have a new Head of the Water Division named, Terence Shia. We look forward to working with Terence in his new role as he heads up the Water Division at the California Public Utilities Commission. We have a handful of focuses for the first half of the year. One, as Tom mentioned, is filing the 2021 general rate case, particularly with the new rate design to eliminate decoupling. We're keenly focused on that aspect. We're also very attentive to the affordability impacts of not having decoupling and its effects on lower-income customers. The team is busy working on that to develop a progressive rate design that meets the needs of all our customers. Second, we will be filing our cost of capital. The PUC denied our request for a one-year extension on our cost of capital, which made sense since we hadn't had a cost of capital proceeding in four years, and it was just time to come in. Our rates team is busy working on that. Moreover, COVID is still affecting us and we will continue to monitor and track changes in the CDC guidelines and what that means for our employees, making necessary tweaks and adjustments as we navigate through the pandemic's peaks and valleys. With the same goal in mind: to keep our customers and employees safe. Lastly, as Shannon mentioned, we are going to continue our investment in ESG efforts. We took a big leap forward in 2020 by completing the materiality assessment. It's in our DNA, and we realized we need to explain things a little better and be more transparent. Expect to see significant strides on the ESG side to enhance our transparency for our investor base. In summary, as we wrap up what was a challenging year, we performed very well through the pandemic. With the delayed General Rate Case finally completed, we ended the year with record earnings paired with record capital spending. We kept our employees and customers safe and did everything possible to help those affected, including our employees and customers. We must thank our Board for allowing us to overspend our budgets on contributions and for forgiving some of the bad debt. The Cal Water Board was fantastic to work with during the crisis and quickly recognized the critical role we play in helping our communities. It was a strong year of business development, probably the best year we've had in the last 20 years, and our business development team has maintained a full pipeline of potential opportunities to consider. Overall, we look forward to starting the new year with a fresh set of challenges as we leave 2020 behind. It truly was a long year. Although we had great results, those achievements required the efforts of many people, and we're very thankful for the team that achieved these record results. With that, Victor, we're going to open it up for Q&A, please.

Our first question will come from the line of Ben Kallo from Baird.

Congrats on 2020. You navigate through all of that. It's hard from our standpoint to know all the work that your employees did. But thank you. On the numbers, just for '21, I think that consensus has numbers ticking down. I think that's a product of maybe not having the rate case fully baked in. But maybe if you could just help us with that. And then point two, how should we think about longer-term growth as you go through the next rate cases and onwards?

Yes, Ben, let me start, and this brings us back to Slide 12 in the deck, and we can talk certainly more about that with other questioners as well as yourself. We do see, if you look, if you compare Slide 11 and Slide 12, we do see an increase in earnings in that core California regulated authorized earnings because of the jump in rate base. We're looking at a rate base of $1.6 billion in 2020 and $1.7 billion in 2021. That is a positive to earnings. Think about that in the longer term. When I showed the CapEx growth, we've got about $175 million of additional CapEx minus depreciation every year that's going to keep adding to the rate base of the company, and that will continue to grow the company's earnings. These other factors that we talked about on Slide 12, some of which were additive to earnings in 2020, may or may not be as additive in 2021. That's the message there is that there are many variables outside of that kind of core regulated earnings potential. I mentioned a couple of things that were very favorable for us this year, particularly the depreciation expense. The depreciation was lower than what was adopted. We made more money on the California regulated operations than was adopted for us, and that's really a timing issue because as we complete plant projects, the depreciation reflects in the next year. We had a lot of major project completions in 2020. That's going to hit us in increased depreciation in 2021. So factors like that may lead you to believe that 2021 is going to be a little bit more moderate, but as I say, we do have the increase in rate base, and you would expect that to generally increase earnings. Does that make sense, Ben?

It does. Look, maybe on, go ahead.

Go ahead. No, no. Go ahead.

No, on the biz dev front, Marty or Paul or Tom, the Washington deal was good. How do we think about where you're focused geographically? I know you probably don't want to do this on a live conference call, but where you're looking to acquire assets? And how do you think about any kind of infrastructure, from what you've seen, could impact you or not?

Ben, this is Paul. I will talk about the biz dev side of it. We have a very full pipeline of opportunities we are working on. It's an exciting time for us to be in business development. We continue to focus on the states we operate in, particularly in the western part of the U.S. We believe that's our sweet spot. You've seen a number of other acquisitions we've announced over the last couple of years, and you should continue to see that kind of activity from us. But I can't talk about anything in the pipeline until we're ready to announce it.

Yes. The only thing I would add to what Paul said, Ben, this is Marty, is we tend to be value buyers. We like acquisitions that are potentially undercapitalized that maybe have some operating challenges that need capital and where we can elevate them to our operating standards. We're not pursuing M&A because we have a lack of growth in the core rate base. Clearly, at a three times depreciation rate, we're growing the rate base by following our capital improvement program. We are looking in all corners of the states we operate in for good small to midsized companies that are ready to sell and require capital infusion. Those are the ideal targets for us. We will stay focused on the value side of the equation as we evaluate these deals.

And congrats on the ESG front.

Thanks, Ben.

Thanks, Ben. We appreciate it. Tom, just the one thing I would add to your point about the depreciation. We had record investment of almost $300 million in 2020, but we also closed a record $391 million to plant. That's a big bubble that will come through and show up in depreciation in 2021.

Our next question comes from the line of Angie Storozynski from Seaport Global.

I have a question on the cost of capital proceeding. As you noted the Commission wants you to come in because it's been four years since the last proceeding. They talk about lower interest rates. I'm just wondering if it's mostly about the cost of debt or the cost of equity, and how that change coming in 2022 would impact your earnings. Are you currently meaningfully benefiting from lower interest rates on the debt side as far as your earnings are concerned?

Sure. Let's figure out, Paul. Maybe I will start with the last side of that. A couple of things are going on that are difficult throughout 2020 and continuing through 2021. We have a lower cost of debt on a weighted average cost basis, but we have a bit more debt than we would normally anticipate. This is due to collection issues, primarily the collections issue and also the RAM issue. Additionally, the delay in California's rate case has pushed us to increase our financing cost to maintain the cash reserves of the company. Are we benefiting net-net from lower interest rates? I think it's more or less a wash right now, and we expect it to improve as we collect the cash from the 2021 General Rate Case. Going forward, it's important to pass on to customers the lower cost of debt, and this will be a key consideration in our cost of capital filing. Overall, the rate change associated with the cost of capital we will file in May is expected to be moderate given the lower cost of debt out there. Hopefully, that helps. Paul, do you have any other thoughts on that issue?

Yes. On the equity side, to be honest, we're still in the middle of doing the analysis of all of that. We still have over two months before we make our filing. We're conducting our research now on the appropriate cost of equity to include in the filing. It’s too early for us to say what we're anticipating filing for. Of course, the consumer advocate will also file their points of view, and we're doing this in conjunction with three other water utilities, so what the Commission ultimately decides towards the end of this year is really unknown at this point.

Good. One more question: As you prepare to file your next GRC, which will have no full RAM, and I understand that you're talking about changes in the rate design embedded in this filing. I'm wondering if there are lessons learned from what you're seeing from San Jose Water, which has experienced two years of coming in below their water production volumes. Do you feel that’s a risk that you are ready to manage, and how are you planning to address it in that filing?

I will start; this is Paul. With the loss of full decoupling, it's critically important that we are as accurate as we can be, not only on the water sales side but also on the water production cost side, the RAM, and the MCBA. We have been spending a tremendous amount of time focused on both issues in preparation for this case. At the end of the day, they're forecasts. What we actually see in 2023, '24, and '25 are uncertain, but we're trying to anticipate potential downturns in sales due to drought or economic conditions to ensure our risk exposure is balanced. This is an iterative process, and we have been working on it for months. We expect to have solid numbers ready when we file in July, but we will have to see how that all plays out.

Good. And lastly, on the non-California systems. I assume that given that Hawaii is in its downturn and the downturn in tourism, you would expect to see higher realized ROEs on that non-California rate base as soon as 2021, simply because there will be a pickup in sales volumes. Is that fair?

From a business perspective, as Marty said, this is key. It looks really good now. If you draw a straight line through the direction of the COVID cases and vaccinations, you'd say, 'Boy, we're going to be out of this by summer, and everything will be wonderful.' However, we don’t know if that will be the actual case. There could be another surge and other variants that come in. If we assume the COVID situation improves to the point where people want to travel to Hawaii, that will be a positive. We have favorable rate designs in Hawaii, and we did not see a significant profitability downturn given that hotels were closed. We did well in Hawaii this year. There would be an uptick if COVID dramatically diminishes, but I don't think it will be as big as you might expect.

In our other states, Washington and New Mexico, our customer base is almost entirely residential with minimal commercial accounts. We haven’t seen too much effect there due to the downturn.

Just one follow-up on this. Some of these systems were added mid-year. If you were to give us the annualized earnings impact from those systems so that we have a better year-over-year comparison, what would be the incremental earnings if you owned all these systems for the entire year in 2020?

Yes, the most significant one and the only one that would matter in any way to the company is Rainier View. You could check the Washington UTC and look up the regulatory filing; I believe the last adopted rate base was approximately $13 million for that system. I know we have a rate case coming in that we'll be filing this year as mandated by the acquisition. So, again, it's a straightforward return on that rate base you can calculate. The other systems have been relatively small. The biggest acquisition in Hawaii is not yet closed, and that's the Kapalua system. We expect that to close soon, hopefully in the first quarter, which could add a little to Hawaii.

I'm showing no further questions in the queue. I'd like to turn the call back over to the speakers for any closing remarks.

Great. Thanks, Victor. On behalf of the team here at Cal Water, thank you for joining us here today. Any follow-up questions, feel free to reach out to us, and we'll look forward to announcing our Q1 results in late April or early May. So be safe, have a great day, and thank you for your support during 2020.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.