Thank you for standing by and welcome to the California Water Service Group Fourth Quarter and Year End 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, today’s program is being recorded. And now I would like to introduce your host for today’s program, Dave Healey, Vice President, Controller. Please go ahead.

Thank you, Jonathan. Welcome everyone to the 2021 year-end and fourth quarter earnings results call for California Water Service Group. With me today are Martin Kropelnicki, our President and CEO, Thomas Smegal, our Vice President, Chief Financial Officer; and Paul Townsley, our Vice President of Business Development. 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 27, 2022. As a reminder, before we begin, the company has a slide deck to accompany the earnings call. The slide deck was furnished with an 8-K this morning and is also available at the company's website at calwatergroup.com. Before looking at this quarter’s results and year-end results, we would like to take a few moments 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 risks 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. I'm going to pass it over to Tom to begin.

Thanks, Dave, and good morning, everyone. Happy to be with you to talk about California Water Service Group's results and expectations going forward for 2022. I'm going to start on slide 5 of the slide deck and run through the financial results for the full year. I want to spend a little bit more time on this first slide than I normally do because there are a couple of new things to identify for the group. First, our operating revenue was down slightly for the year, and yet the net income attributable to the company was up $4.3 million. That's certainly good news, and we're proud of that result. You might scratch your head a little bit regarding the lower revenue and higher net income; the reason is that through the California regulatory process, we are returning to customers excess deferred income taxes, which affects customer rates and, therefore, the revenue, but also lowers income tax expense. So you'll notice if you look into the financials attached to the press release or into the 10K, we have lower income tax for the year. On an earnings per share basis, we were down very slightly for the year from $1.97 to $1.96. The divergence between the net income being up and the earnings per share being down is due to the issuance of 3.3 million new shares in 2021 as part of our ATM program. Our fourth-quarter financial results, which are on slide 6, showed a decline in net income and earnings primarily due to the impact of reduced unbilled revenue. We had an unusually high unbilled revenue accrual in the second and third quarters, and that came back down to normal for the end of the year, which impacted the fourth-quarter results. We can get into that further with the bar charts in a few slides. Next, I want to turn it over to Martin to recap.

Thanks, Tom. Good morning, everyone. Thanks for joining us this morning on what's a very busy news morning. We appreciate you taking the time to be here today. As Tom mentioned, we had a very solid year while dealing with the continued pandemic, a drought, and a lot of regulatory activities, particularly in California with the cost of capital proceeding and our 2021 general rate case. During the year, we had total infrastructure investment of $293 million. That's down slightly, but we were basically happy with the outcome given the continuation of COVID and some supply chain issues we've all seen and read about. We're not immune to those issues, and they affect our ability to execute some capital projects. Additionally, we continue to act on our growth opportunities by adding our Texas subsidiary, and we'll talk more about that. We also published our first ever ESG report. Additionally, the state of California appropriated federal pandemic relief bill money for utilities for risk management, and in February, we received over $20 million to help customers reduce their water bill-related debt from the pandemic. So we're applying those funds. Overall, from an EPS perspective, we were down a penny per share, but as Tom mentioned, we issued 3.3 million shares for the ATM program. So our net income for the first time in our history was over $100 million, ending the year at $101.1 million. This allowed us to increase the dividend by $0.08, or 8.7%, from $0.92 a share to $1.00 a share for 2022. Looking at the fourth quarter highlights on slide 8, our net income decreased by $12 million to $3.5 million for the quarter, primarily driven by a $9.2 million decrease in accrued unbilled revenue. For the full year, unbilled revenue decreased $0.5 million, so it's a minor change. Our rate increases added $2.1 million, and we had increases in depreciation and maintenance costs that raised expenses by $3.7 million. Also, we had a $2 million reduction in unrealized gains associated with our non-qualified retirement plan assets as compared to the prior year. You can see these on the earnings bridges on slide 9, which reflect similar results for the year, along with rate relief and the impact of reducing our bad debt expense associated with the state funding for risk management. I would like to focus on 2022 on slide 11 and highlight a few major factors. In 2022, we have an adopted rate base in California of $1.84 billion, with an adopted net income of $90.5 million as the commission would expect us to earn under normal circumstances. Our other states have about $110 million of rebates, and you'd expect them to earn in line with their rebase. Keep in mind, this is the third year of the California GRC process, and the new rates from the new case won't be effective until 2023. As expenses change over time, this provides some pressure on earnings in the third year of the California rate case. This year, we also face inflationary pressures that may impact us in 2022. We experienced a significant step rate increase for 2020 to $21.7 million in general rate increase, recognizing that recorded inflation was high. The cost of debt we proposed to the California Commission as part of the cost of capital case wasn't challenged by the rate payer advocate, and just by itself, lowering the cost of debt from 5.51% to 4.23% would reduce revenues by $11 million once rates become effective. The $4.6 million reduction in bad debt reserve was associated with the $20 million received from California state funding this year; we don't expect additional funding to continue reducing that bad debt reserve in 2022. Lastly, mark-to-market variations from year to year can change earnings. In 2021, we saw a $3.8 million increase, and in 2020, it was $4.3 million. Unbilled revenue caused a $1.3 million decrease in earnings in 2021 and $0.8 million in 2020, but this has been neutral overall. Now, I'm going to turn it over to Paul to give an update on the California general rate.

Thank you, Tom. Turning to slide 12, we're making good progress on our California general rate case, which we filed on July 1. We are requesting $1.02 billion in capital investment during 2022 to 2024, with $913 million allocated for new capital projects. Two significant investment categories included in this rate case are the continuation of our pipeline replacement program and our wildfire hardening program due to the wildfires California has experienced in recent years. This rate case filing also anticipates losing our decoupling mechanism, so we've sought to mitigate this loss by refining our sales forecasts and adjusting the mix of our production sources and our rate design to include more revenue in fixed monthly costs for customer bills. Earlier this year, we received testimony from the California Public Advocates in the rate case, and we are preparing a rebuttal on the issues we believe they are incorrect about. The rate case is anticipated to be decided before the end of this year, with new rates going into effect January 1, 2023. With that, Tom, I'll hand it back to you for the cost of capital update.

Thanks, Paul. The other proceeding that's occurring in California is our cost of capital filing. On May 1 of last year, we filed for review of cost of capital effective for 2022 through 2024. We requested an ROE of 10.35% on the same 53.4% equity capital structure and a cost of debt reduced to 4.23%. The California advocates' testimony came out late January, early February, recommending a 7.81% ROE on a 49.44% equity capital structure while agreeing with our cost of debt analysis. Our rebuttal will be filed in March, and we anticipate a final decision in the case by the third quarter of 2022. Additionally, we have engaged in significant financing activities over the last few years, particularly in 2021. Some of the notable accomplishments include selling $280 million in first mortgage bonds in May and $197.9 million in stock through the ATM program. This financing activity is crucial, and we will emphasize to the commission and rate payer advocate that we need to maintain the equity capital structure proposed for the period of 2022 through 2024. However, at the end of 2021, Cal Water had 48.5% equity, and through additional financing anticipated for 2022 through 2024, we expect to raise that equity level in line with our request.

Great. Thanks, Tom. It's been an interesting winter, to say the least, here on the West Coast. As some of you may recall, Governor Newsom declared a drought emergency in California on October 19, 2021. We had two major storms that brought heavy rains and snow, but since then, there has been no rain in January and February, which are now the driest on record for those months in California. Our drought plans remain unchanged, with all districts in a drought emergency. Six of our districts are under stage 2 drought while the others are in stage 1. We're focusing on water supply resiliency and have continued to meet as a drought task force throughout the winter. We need to monitor weather conditions over the last few weeks of winter and hope to receive more rain and snow in March, but we are planning for both outcomes as we move into spring.

Thank you, Marty. On slide 15, you will see a recap of our 2021 acquisitions. We were very busy finalizing multiple acquisitions while prospecting for new ones. Our investments in Texas continue to grow, with a total of 2,500 customer connections at the end of the year. We closed the acquisition of two water and sewer services in Hawaii last year, adding 1,000 new customers, and earlier this year, we closed on Valencia Mesa Water in New Mexico, adding another new system in that state. In 2021, the California PUC approved our CCN for a new service area in Madera County, California. The service area is known as the Preserve at Millerton, and we expect to add our first new customers to that Greenfield system sometime later this year. On slide 16, you can see other acquisitions we are currently working on. In New Mexico, we received approval from the New Mexico Public Regulatory Commission for the acquisition of the Animas Valley Water System, which will add 2,000 new customers in that state. In Hawaii, we are awaiting the Hawaii Public Utilities Commission's approval of two acquisitions, HOH Utilities on the island of Hawaii and Keahou Utility on the Big Island, which will add over 3,300 wastewater customers to our operations. We have two small systems in California and Washington that we announced and are proceeding through due diligence, regulatory filings, and other closing processes. In Texas, we've added another new utility to our BVRT Partnership known as the Railyard Utility, which will open another growth area for us. That's the status of our business development. I will turn this back to Marty.

Thanks, Paul. I want to talk about our 2021 ESG accomplishments, which were significant. Over the last couple of years, we have focused on incorporating ESG components into our business strategy, specifically around climate change mitigation and adaptation. First and foremost, we published our inaugural ESG report that aligns with SASB standards and follows TCFD principles. We adopted four new ESG-related policies, including human rights, environmental sustainability, political involvement, and diversity, equality, and inclusion. We published our ESG framework, detailed in our proxy and 10K, showing board-level oversight of ESG efforts from our Corporate Governance Committee. We have officer-level accountability through an officer ESG oversight committee, and subject matter experts within our company established an ESG working group to help us formalize our goals and objectives. Yesterday, we updated our board on our climate change strategy, completing a new climate change study. We developed a 5.0 plan to address climate change, including reducing our own contribution to climate change, understanding impacts on our business, ramping up collaboration, setting time-bound goals, and improving disclosures around our objectives. Recently, we completed a robust ESG goal-setting process that establishes short-term and long-term objectives. I am proud to announce that our board approved five ESG goals for our long-term incentive plan, increasing from one to five. This plan will pay out in three years, aligning the goals of our officers and department heads across all five states. We're making significant progress on the ESG front and look forward to publishing our updated ESG report in April.

Thanks, Marty. On slides 18 and 19, we have updates on the year-end 2021 numbers, with capital investment shown as $293 million. Slide 19 confirms that the current adopted rate base of the company is $1.95 billion, reflecting our expectations in the California general rate case and other anticipated capital investment. Please keep in mind that results may differ as we navigate through the regulatory process in California and other states. Now I’m going to turn it back to Marty to discuss our business priorities.

On slide 20, we address our business priorities. I want to mention some management changes made effective January 1, 2022, to help us achieve our goals and objectives. Ms. Sophie James was named Chief Water Quality Officer for California Water Service Group, having been our lab manager and promoted to Director of Water Quality. She is uniquely qualified for this role, with a master's degree in analytical chemistry and various related certifications. Additionally, Ken Jenkins was promoted to Chief Water Resource Sustainability Officer, focusing significantly on sustainability and climate change adaptation. Paul Townsley has relocated to Texas to lead our business development efforts and is now focused solely on that aspect. Greg Millman was promoted to VP of Rates and Regulatory Affairs for all states, while Michelle Mortensen became Vice President, Corporate Secretary and Chief of Staff. Congratulations to all on their promotions as we move into 2022. Our priorities for 2022 are sixfold: successfully navigating the California general rate case, continuing our capital investments while addressing supply chain challenges, responding to the ongoing California drought, and addressing our ESG progress with our latest climate change study and updated ESG report. In summary, 2021 was a solid year with net income exceeding $100 million for the first time. Despite pandemic challenges and robust business development efforts, we will continue to focus on regulatory proceedings, drought responses, and sustainability in 2022.

Certainly. Our first question comes from the line of Ben Kallo from Baird, your question please.

Hey guys, thanks for taking my question. First, on the unbilled revenue, Tom, could you walk us through how we should think about it for ’22, and maybe talk about the mechanics a bit too.I appreciate understanding that context.

Sure. Unbilled revenue is accounted for each quarter, and we review it every month. We consider customers who have taken service but haven’t been billed. This involves estimating the number of unbilled days and average customer bills. During the year, unbilled revenue tends to peak in the second and third quarters due to higher consumption compared to the start and end of the year. For 2022, it's hard to predict those spikes, but generally, by the end of the year, they won’t heavily affect overall earnings, as those fluctuations balance out across the year.

Got it. And can we delve into the new rate design to mitigate the loss of decoupling?

Certainly. We aim to shift more revenue from the variable usage component of customer bills to the fixed part—a monthly service charge. This approach allows for revenue stability despite consumption variations. We’ve been working on increasing that amount in our service areas, and in this rate case, we're attempting to do so without a significant leap, ensuring more stability than before.

Thanks. And can you speak about the capital structure?

Of course. We proposed a 53.4% equity capital structure due to a historical need. However, the California Commission’s advocates reported a lower number, suggesting our structure should reflect that outcome. We believe our recent debt financing benefits customers and that variance in equity should not determine future rates. We're optimistic about our arguments and expect the commission to uphold our proposed capital structure.

Considering the recent actions, our average cost of capital decreased, and by maintaining a balanced approach, we anticipate benefits for ratepayers. We believe the commission should recognize this.

Got it. Thanks, guys.

Thanks, Ben.

I'm not showing any further questions from the phone lines at this time. I'd like to hand the program back to Marty.

Thank you, Jonathan. Look for our 10K to be filed later today; we are finalizing everything this morning. Also, our ESG report will be published in April. I want to thank everyone for your continued support of California Water Service Group. As we wrap up two years of the pandemic, we look forward to a more normal operating environment. Appreciate your consideration and support, and we hope to see everyone soon. Thank you, and have a good day.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.