Thank you for standing by. I will be your conference operator today. At this time, I would like to welcome everyone to the California Water Service Group Q2 2024 Earnings Call. Thank you. I would now like to turn the call over to James Lynch, Senior Vice President, CFO and Treasurer. Please go ahead.

Thank you. Welcome, everyone, to our second quarter 2024 results call for California Water Service Group. With me today is Martin Kropelnicki, our Chairman and CEO; and Greg Milleman, Vice President of Rates and Regulatory Affairs. A replay dial-in information for this call can be found in our quarterly results earnings release, issued earlier today. The replay will be available until September 30, 2024. As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8-K and is also available on the company's website. Before looking at second quarter 2024 results, I'd 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. As a result, 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 Forms 10-K, 10-Q, press releases, and other reports filed with the Securities and Exchange Commission. I will now turn the call over to Marty to start this off.

Thank you, Jim. Good morning, everyone. Thanks for joining us here today. It's been a busy quarter, and we have a number of items we want to update you on today. First, I'm going to ask Jim to give you an update on our financial performance for the quarter. And I'll just lead into that by saying what a difference a year makes. Last year, no rate relief; this year, hitting the 21 rate case concluded and on the books has made a big difference. I'll also ask Jim to include some of the highlights of our capital program for the 2024 Infrastructure Improvement Plan. We have Greg Milleman here today to talk about the filing of the 2024 General Rate Case and Infrastructure Improvement Plan for the State of California. This covers our capital forecast for California for years 2025 to 2027. I want to spend a little bit of time talking about the recent California Supreme Court decision that protects water utilities' rights to due process and preserves decoupling. I'll also discuss our emergency response efforts. If you watch the fires in California, it has been a busy fire season. So we want to give you an update on the current fires and our community outreach efforts to improve processes that can assist first responders in combating fires. Additionally, I'll update you on PFAS and the ongoing remediation activities planned for the next three years. I will also discuss our business development activities and conclude by talking about ESG and our recent ESG report that was published in May. Before giving you the operational update, I'm going to turn it back over to Jim for an update on financial results for the quarter year-to-date. Jim?

Thanks, Marty. As Marty mentioned, our Q2 2024 financial results benefited from new rates and the rate structure authorized in our 2021 California GRC. Additionally, since Q2 2023, our return on equity increased to 10.27% under our water cost of capital mechanism adjustment, and we benefited from water production offsets and other advice letter filings. As a result, our operating revenue for the quarter increased 25.9% to $244.3 million compared to our prior year Q2 operating revenue of $194 million. Reported net income for the quarter was $40.6 million or $0.70 per diluted share compared to $9.6 million or $0.17 per diluted share in Q2 2023. The quarter-over-quarter growth was primarily driven by a $19.3 million increase in rates billed to customers as authorized in our regulatory filings, an increase in accrued unbilled revenue of $10.4 million due to higher rates, and an increase in the number of unbilled days. We recognized $8.2 million in accrued WRAM revenues and $7.9 million in accrued WRAM revenues. Our 2021 GRC was adopted in Q1 2024 and included 2023 interim rate relief totaling $64 million, of which $18.7 million was attributable to Q2 2023. Q2 2024 operating expenses were $196.1 million compared to Q2 2023 operating expenses of $178.1 million. The $18 million increase was primarily driven by $6.8 million in higher water production costs and $8.4 million in higher income tax expenses related to higher pretax earnings. The impact of Q2 2024 activity on diluted earnings per share is detailed on Slide 6. The significant earning drivers were the 2021 GRC rate increases and increases in accrued revenue, contributing $0.23, $0.26, and $0.14, respectively, to diluted earnings per share. These drivers were partially offset by increases in water production expenses of $0.09 per diluted share and other factors that netted to a $0.01 per diluted share. Our year-to-date 2024 results benefited from the same regulatory outcomes as our quarterly results. Additionally, recall that in Q1 2024, we recorded benefits related to the California extended water arrearages Payment Program, which allowed us to decrease the deferral period of WRAM and MCBA revenue and expenses. Our 2024 year-to-date operating revenue increased 58.4% to $515 million compared to 2023 year-to-date revenue of $325.1 million. Year-to-date 2024 net income was $110.5 million or $1.90 per diluted share compared to a 2023 year-to-date net loss of $12.7 million or $0.23 per diluted share. The year-to-date growth was driven primarily by cumulative rate increases from the 2021 general rate case of $131.5 million, $31.6 million in rate increases billed to customers, and the recognition of $16 million in previously deferred RAM revenue due to securing EWA funds for eligible customer balances. Year-to-date, 2024 operating expenses were $389 million compared to 2023 year-to-date operating expenses of $326.7 million. The $62.3 million increase was primarily driven by increased water production costs of $16 million that included $9.2 million related to the incremental cost balancing account (ICBA). The ICBA is a new water cost recovery mechanism authorized in the 2021 GRC. We also recognized $13.6 million in deferred costs associated with the recognition of deferred RAM revenue, and year-to-date income tax increased $29.5 million due to higher pretax earnings. Regarding the impact of year-to-date 2024 activity on diluted earnings per share, the more significant earnings drivers are the 2021 general rate case, rate increases, and the decrease in deferred RAM revenue, contributing $1.82, $0.44, and $0.22, respectively, to diluted earnings per share. These drivers were partially offset by increases in expenses captured in the ICBA of $0.13 per diluted share and the recognition of deferred RAM expenses of $0.19 per diluted share with other factors netting out to $0.03 per diluted share. We continue to make significant investments in our water utilities to ensure the delivery of safe and reliable water service. Group capital investments during the 3- and 6-month periods ended June 30, 2024, totaled $104.6 million and $214.4 million, respectively, representing increases of 9.8% and 21% over the same period last year. As of June 30, 2024, we've completed 56% of our annual capital budget of $385 million. As a reminder, our planned 2024 capital investments and our estimated capital investments for 2025 to 2027 do not include $226 million of estimated PFAS projects that will be constructed over multiple years beginning in the second half of 2024. Greg will discuss the planned capital expense for 2025 to 2027 later in the call. Our capital investment program is positively impacting our regulated rate base, which grew to an estimated $2.2 billion by the end of 2023, a 9.4% increase over 2022. If approved, as requested in the 2024 California General Rate Case and infrastructure improvement plan, coupled with planned capital investments in other water utilities, this would result in rate base growth of between 9% and 14%. Moving to Slide 11, we maintained a strong balance sheet with a capital structure of 59.5% equity and 45.5% debt. During the 6 months ended June 30, 2024, we raised approximately $52 million from the sale of 1 million shares of stock under our at-the-market stock equity program. We have $80 million remaining under the program to fund general corporate purposes, including planned capital investments and future strategic opportunities. On June 28, S&P affirmed our global credit rating of A plus stable, an upgrade that reflects our ability to navigate the credit markets effectively in our California Water utility space. On July 22, the CPUC issued a proposed decision authorizing Cal Water to issue up to $1.3 billion in new debt and equity securities. We anticipate the CPUC will approve the proposed decision during its August meeting. Additionally, our Board of Directors declared a $0.28 per share dividend for stockholders of record on August 12, 2024. This marks our 318th consecutive quarterly dividend. Wrapping up on Slide 10, we continue to maintain a strong liquidity position. As of June 30, 2024, the company had cash and cash equivalents of $82.7 million, with $45.4 million classified as restricted. Furthermore, we have additional short-term borrowing capacity on our lines of credit of $355 million. With that, I'll turn the call over to Greg to give an update on our 2024 general rate case and other regulatory matters.

Thanks, Jim. On July 8, 2024, California Water Service submitted our Infrastructure Improvement Plans for 2025 through 2027 as part of its triannual general rate case. Cal Water proposes to invest more than $1.6 billion in its districts from 2025 to 2027 to enhance affordability, particularly for low-use, low-income customers. Cal Water's application proposes a low-use water equity program that would decouple revenues from water sales across its regulated service areas. The filing requests total revenue increases of $140.6 million or a 17.1% increase for 2026, $74.2 million or 7.7% for 2027, and $83.6 million or 8.1% for 2028. The triannual filing begins an approximate 18-month review process by the commission. With that, I'll turn it over to Marty.

Thank you, Greg. Thank you, Jim. I want to start off by discussing the California Supreme Court case that came out on July 8. As many of you may have read, the California Supreme Court in a unanimous decision ruled in favor of the four investment water utilities that brought suit against the PUC. It's crucial to note that this decision helps preserve decoupling and protects utilities' rights to due process in the rate-making process. We have always believed in conservation, and decoupling in California has played a major role in helping the state achieve its sustainability and renewability goals since it was first used in the 1970s. This outcome reinforces the importance of due process in rate making. In other words, the commission must adhere to the established rules in the rate-making process, just as the company does. This allows us to continue to better align with California's goals around sustainability, reliability, affordability, and conservation. If you follow California's regulations over the past few years, the state has become very aggressive in making water conservation a priority. As I mentioned, decoupling is an essential tool that ensures our customer rates remain affordable even as we promote conservation efforts to improve the sustainability of critical water resources. We're very pleased with the outcome from the court. As Greg mentioned, in our recent filing submitted earlier this month, we have again proposed plans for approval to reimplement decoupling for our customers in California. Moving on to Slide 14, I want to discuss our status regarding fire season and our emergency response programs. California is currently experiencing a busy fire season, with three major fires near our service territories: the Thompson fire, the Park fire, and the Borel fire. The Park fire and the Borel fire are still ongoing. The Thompson fire, which occurred in early July, burned approximately 3,800 acres in a small community in Northern California. The Park fire, which started recently near Chico, has burned approximately 391,000 acres to date and is around 18% contained. The Borel fire in Bakersfield has burned approximately 59,000 acres and is 39% contained. I'm pleased to report that despite these fires coming close to Cal Water assets, none of our assets have been damaged. Our team has worked diligently with first responders to coordinate water supply and ensure firefighters have the necessary resources to combat these wildfires. Unfortunately, this indicates that we are likely to experience a prolonged fire season, particularly in August, September, and October. Each year, we set specific corporate goals to host community emergency operations center exercises. Recently, we hosted two such events in Hawaii, one on Maui and one on the Big Island, which were well attended by first responders and local officials, including members of the Hawaii Public Utilities Commission, civil defense, and critical infrastructure companies. In my part of the presentation in Hawaii, I emphasized the critical importance of connection, communication, and coordination in our efforts to assist first responders and protect lives. Moving to the next slide, I want to provide a brief update on PFAS and PFOS standards. We are progressing with our plans to implement treatment on approximately 101 wells. As noted in Jim's slides, the estimates for treatment costs have increased approximately $11 million to $226 million due to more data collection. This $226 million estimate reflects the costs to treat those 101 wells, representing a small portion of our overall portfolio of approximately 1,170 wells. Notably, this $226 million is not included in the capital forecast or the rate base slide. We expect to refine these costs further as additional information becomes available. Overall, we remain committed to adopting the standards ahead of schedule within our service territory, with a goal to implement them in the next three years. An important milestone reached this quarter is that we filed our Phase 1 plan as part of the 3M and DuPont Class Action settlements, representing Cal Water as the class representative for the industry in these discussions. Overall, we are moving forward with the PFAS treatment plans, and while our estimates have increased, we are executing our strategy as planned. Moving on to Slide 16, I'll provide a brief update regarding business development and M&A activity. It was a relatively quiet quarter for us, but we did complete a small yet strategic acquisition of the Kings Mountain Park Mutual Water Company. This system is strategically positioned between the Bear Gulch and Skyline systems in the Bay Area. Our extensive history with Bear Gulch allows us to integrate these systems, improving capital deployment and enhancing reliability, ultimately serving our customers better. Since 2019, we've completed over 36,000 connections to our platform using this tuck-in strategy and plan to continue adding 1% to 1.5% new connections going forward. I also want to highlight our ESG report filed in May, which aligns with the sustainability accounting standards board and references the Task Force on Climate-Related Financial Disclosures as well as the Global Reporting Initiative Standards. In our report, we are committed to reducing our greenhouse gas emissions, specifically Scope 1 and Scope 2 emissions, by 63% by 2035. This will be achieved through a multi-platform approach, including fleet electrification, aggressive water conservation efforts, and alternative energy sourcing. The water utilities sector requires significant energy for pumping and transporting water, and we believe our multi-platform strategy will enable us to meet these goals ahead of schedule. Additionally, I'd like to mention our scholarship program, which has just completed its 10th year. This year, we awarded more than $80,000 to 12 students in California, Hawaii, and Washington. Since the program's inception in 2014, we've awarded over $750,000 to students in our service area, emphasizing our commitment to education and community support. Lastly, I want to share that ISS updated our ESG score to 72.28, reflecting our continued implementation of strategies that address climate change and support our communities, employees, and shareholders. In conclusion, we had a solid quarter, as Jim mentioned. Although the numbers may seem confusing due to circumstances beyond our control, we're witnessing the benefits of rate relief collecting. I'm pleased with the capital numbers that Jim shared, indicative of our continued focus on infrastructure improvement plans. Q3 is typically our busiest quarter, both in terms of operations and demand. Given the significant fire season we are currently experiencing and the ongoing rate case, we expect to allocate many resources in the coming months. Overall, I'm happy with our performance for the quarter, our timely rate case filing, our growth in capital programs, and our emergency response efforts. I'm confident that by focusing on connection, communication, and coordination, we can continue to save lives and deliver exceptional service to our customers. Dee, I'll hand it back to you to open the floor for questions.

We will now begin the question-and-answer session. Our first question comes from the line of Michael Gaugler from Janney Montgomery Scott.

Just one question. Back on Slide 9, your CapEx deck. Looking out, I think you referenced that the estimates for 2024 to 2027 exclude PFAS-related capital investments. Given those investments are probably going to be made, I'm wondering what their cadence would look like across the years, not so much for 2025, but maybe '26, '27, '28. What are your thoughts on that?

Let's go back to our basic goal which is we try to balance affordability and new capital while keeping the investment rate at about 3x the rate of depreciation. That usually gives us about a 9% to 10% compound annual growth rate on the CapEx line. Clearly, there's a significant step-up in 2025 and '26 associated with the rate case. Now those numbers represent the full ask to the rate case. Generally, you don't get 100% of what you ask for; in the last rate case, we received about 79% of what we requested. For planning purposes, we're looking at a 9% to 10% CAGR on the CapEx. The PFAS compliance costs are new standards that we have to adhere to, and we have a dedicated team managing PFAS projects across our company. That treatment will be incremental. You can expect higher numbers in '26 and '27 driven by PFAS investment, particularly as the new standards have become more relevant.

Our next question comes from the line of Davis Sunderland from Baird.

I wanted to ask about the business development pipeline. Are there any thoughts on how smaller systems are shaping up, especially given their difficulties in complying with PFAS standards? Have you seen any changes or opportunities in the acquisition pipeline as a result?

That's an interesting question. This week, we had our water quality experts present to commissioners about PFOS and PFOA standards. While we received good feedback about our efforts, there was significant concern about what smaller systems will do in light of these new regulations. There's a realization of the substantial capital requirements these undercapitalized small systems will need, which could create opportunities for us. Our Head of Business Development reports that while the cost of capital has increased and seller expectations remain high, they are softening. In the case of the Kings Mountain acquisition, we purchased that system for $1 because the previous operators weren't managing it well. We can invest the necessary capital to improve service levels and efficiency in the region. Overall, we're seeing more movement in acquisitions, especially as PFAS requirements come into play.

And for my follow-up question, have you encountered or do you anticipate any pushback on the proposed rate increases? How do you view the consumer response?

It's still too early in the case; we just filed on July 8 and have started receiving data requests. At this point, it's too early to determine overall feelings.

I’d like to add that inflation is impacting everyone, including our customers. When addressing the Board regarding our rate cases, I shared data on our cost increases over the last three years: labor is up 15% to 20%, chemicals up 35%, and some inputs have increased by over 200% since 2022. This context is crucial in maintaining affordability. Decoupling allows us to implement a rate design that helps those who use less water, especially fixed-income customers, while charging more to higher users. We have a rate design that benefits underserved communities and users with lower consumption while ensuring that those who use more contribute appropriately.

Our next question comes from the line of Jonathan Reeder from Wells Fargo.

You addressed my questions regarding the GRC, CapEx, and rate impact. But was there anything in the $0.70 EPS that was nonrecurring or perhaps a result of the rate adjustments from the 2021 GRC decision?

Definitely, in the year-to-date numbers, we had $64 million in net income recorded in 2024 due to 2023 activities. The $18.7 million of interim rate relief was specifically attributable to Q2 2023. If you're assessing 2023's impact, refer back to this interim relief. For the quarterly results, no unique factors impacted this quarter except for the new rates from the rate case that will continue going forward.

Can you explain the Q2 EPS bridge slide, specifically the 2021 GRC bucket versus the rate increase bucket? Where do the new mechanisms fall?

On the diluted earnings per share bridge— the general rate case bucket relates to the new rate structure while the rate increase bar captures other increases like water offsets and advice letter filings. The change in accrued revenue represents unbilled amounts at the end of the quarter, impacted by the rate changes from the 2021 general rate case.

Does the $0.26 rate increase include the '24 attrition increase related to the 2021 GRC?

No, that's not included in the rate increase, and I believe it is captured in the 2021 general rate case figures.

Is the change in accrued revenue indicative of earnings pulled forward from Q3?

No, that revenue represents what's already delivered in water service but hasn't been billed yet. We record it as an unbilled amount at the end of Q2, and a similar amount will be billed at the end of Q3. If there's a delta between the two, it will be accounted for in terms of unbilled revenue changes.

It's been a warm summer, contributing to these results.

Yes, particularly in June 2024, we experienced a warm summer across all service territories. This contributed to our results and usage rates.

How has the usage been tracking vs. the rate case assumptions?

Currently, we're tracking about 2% ahead of where we were at the same time last year, primarily due to normal weather conditions compared to last year’s wet winter. We had a good July, and we're tracking well as we enter Q3. I’ll investigate how this compares to the rate case projections and circle back with you.

There are no more questions at this time. I will now turn the conference back over to Martin Kropelnicki, Chairman, President, and Chief Executive Officer, for closing remarks.

Thanks, everyone, for joining us today. As we move into Q3, it will be our busiest quarter operationally, typically experiencing peak demand for our services. I look forward to updating you on Q3 and the progress we're making on our infrastructure improvement plans and PFOS, PFOA implementation plans. We are closely monitoring fire season, which has been particularly active this year. Thank you and please stay safe; we'll be in touch soon.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.