Earnings Call Transcript - CWT Q4 2023

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the California Water Service Group Q4 and Year-End 2023 Earnings Call. I would now like to introduce you to David Healey, Principal Financial Officer for California Water Service Group. Please go ahead.

David Healey, Principal Financial Officer

Thank you, John. Welcome everyone to the 2023 year and fourth quarter results call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CEO; Jim Lynch, Senior Vice President, Chief Financial Officer and Treasurer; and Greg Milleman, our Vice President, Rates and Regulatory Affairs Officer. Replay dial-in information for this call can be found in our quarterly results release, which was issued earlier today. The replay will be available until April 29, 2024. As a reminder, before we begin, the company has a slide deck to accompany the earnings call today. The slide deck was furnished with an 8-K yesterday afternoon and is also available at the company's website at www.calwatergroup.com. Before looking at the 2023 year and fourth quarter results, we'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. 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. And now, I'll turn it over to Marty.

Marty Kropelnicki, Chairman and CEO

Good morning, everyone. Thanks for joining us today. We have a little bit of a bigger group today going through the results for year-end. As many of you know, Dave Healey stepped in as our Interim Chief Financial Officer. Dave Healey is wrapping up the year with me. We'll be certifying the financials as the Principal Financial Officer. So Dave and I will be signing the 10-K essentially for the company. And hopefully, everyone's seen the press release after conducting a nationwide search; we ended up hiring someone in our own backyard Jim Lynch. And Jim has joined our company as our Senior Vice President, Chief Financial Officer and Treasurer. I think many of you know Jim from his time at SJW. What many of you probably don't know is Jim was the audit partner on our account for a number of years, going back to when I joined the company. And so I've had the privilege of working with Jim for the last 18 years, and I'm very glad that he's joined our company as our Senior Vice President and CFO. So Jim will be picking up part of the presentation today, but he doesn't get to start certifying the financials until that Q1 10-Q gets filed in April. So that's the plan for today. And then we have Greg Milleman here today to help talk about what's going on with the rates delay, which is probably the big topic of the day is the continued delay in the 2021 general rate case. And as you'll see, we were unable to conclude what was reasonable to book based on the Administrative Law Judges ruling and an Alternate Proposed Decision being issued. So we're going to talk about that throughout the program here today. So let's go ahead and jump into the financials with Dave, and then we will be going back and forth as we present different parts of the presentation, and then I'll conclude with some closing thoughts and then we'll open up to Q&A. So Dave, I'm going to hand it back to you.

David Healey, Principal Financial Officer

Thank you, Marty. Moving to Slide 5, 2023 year financial highlights. In 2023 and 2022, full year net income attributable to California Water Service Group was $51.9 million and $96 million, respectively, a decrease of $44.1 million, or 45.9%. 2023 diluted earnings per share was $0.91, compared to 2022 diluted earnings per share of $1.77, a decrease in diluted earnings per share of $0.86 or 48.4%. The $44 million decrease in net income was primarily due to the delayed final decision from the California Public Utility Commission, or CPUC, on California Water Service Company, or Cal Water, pending 2021 general rate case, or GRC, to set new revenue rates and regulatory mechanisms. The 2021 GRC was originally scheduled to be completed on December 31, 2022, with new rates effective on January 1, 2023. On January 24, 2024, the assigned CPUC administrative law judges issued a proposed decision on the litigated 2021 GRC, and concurrently, the assigned CPUC commissioner issued an alternate proposed decision, opposing and modifying certain decisions made by the administrative law judges. The proposed decision issued by the administrative law judges was more closely aligned to Cal Water's requested revenue requirement, whereas the alternate proposed decision issued by the assigned commissioner was more closely aligned to the Public Advocates requested revenue requirement. On February 13, 2024, Cal Water filed a request to change several elements in the proposed decision and alternate proposed decision, including correction of possible technical issues. We were unable to determine which of the two proposed decisions will be adopted by the CPUC or if a second alternate proposed decision will be issued. As a result of the uncertainty regarding the decision that will ultimately be made by the CPUC, we are unable to reasonably estimate the impact on 2023 operating revenue and expenses. Once approved by the CPUC, the 2021 GRC cumulative adjustment plus interest, which is retroactive to January 1, 2023, will be recorded. Also, net income was positively impacted by $18.5 million in income tax benefit due primarily to reduction in pre-tax operating income driven by the delay in the 2021 GRC and a $12.1 million increase in net other income mostly due to unrealized gains on certain non-qualified benefit plan investments due to favorable market conditions in 2023. Moving on to Slide 6, 2023 full year operating revenue does not include a revenue adjustment for the 2021 GRC due to the delay. Given that, 2023 full operating revenue decreased $51.8 million, or 6.1%, to $794.6 million, compared to 2022 full year operating revenue of $846.4 million. The revenue decrease was mostly due to a $66.9 million decrease in WRAM and MCBA operating revenue as these mechanisms concluded on December 31, 2022, and a $23.1 million decrease in 2023 customer usage due to heavy precipitation in winter months and continued drought-related conservation efforts. These decreases were partially offset by 2023 rate increases of $30.7 million, mostly from a 4% rate increase in most of our California districts effective May 5, 2023, an increase in Cal Water's authorized return on equity from 9.2% to 9.57% effective July 31, 2023, and cost offset revenue increases for water production, purchase water, purchase power, and hub tax rate increases. 2023 full year total operating expenses decreased $1.3 million to $717.5 million, compared to 2022 full year total operating expenses of $718.8 million. The decrease was mostly due to an $18.5 million increase in income tax benefit, primarily from a decrease in pre-tax operating income due to the delay in the regulatory approval of our 2021 GRC, and a $3.7 million decrease in other operating expenses which were partially offset by increases of $13.4 million in labor cost, $3.2 million in water production cost, and $6.6 million in depreciation and amortization expense. Moving on to Slide 7 financial results year 2023, in 2023, net interest expense increased $5.5 million, or 12.4%, to $49.8 million compared to 2022. The increase was mostly due to higher short-term borrowing rates and higher outstanding borrowings on our short-term credit facilities. And now, I'll turn it over to Jim to cover Slide 8.

Jim Lynch, Senior Vice President, Chief Financial Officer and Treasurer

Thanks, Dave. So on Slide 8, we list some of our notable achievements for 2023, capping off those achievements was our success in terms of our capital investment. We made just under $384 million of capital investment during the year. The total included $326 million that was invested in our Cal Water service territory. The total also includes $17 million of developer-funded CIAC projects. In addition, Dave mentioned our tax benefit of $18.1 million. The benefit was primarily due to our pre-tax lower earnings coupled with our repairs and maintenance deduction and amortization of the excess deferred income taxes that we benefited from in terms from the TCJA Tax Act in 2017. In 2023, we also experienced a $12.1 million increase in other non-regulated revenue and expenses, and that was related to unrealized gains on certain non-qualified benefit plan investments. Turning to Slide 9, our capital investment total spend for the period from 2015 through 2023, in large part due to the success in 2023, has averaged about 3 times our depreciation expense. For 2024, we're planning capital investments totaling $365 million, subject to finalization of the delayed 2021 general rate case. Our 2024 estimate does not include capital expenditures associated with PFAS or AMI/AMR meter replacement programs. Turning to Slide 10, the success of our capital investment efforts is reflected in our rate base growth. CWT rate base, which is based on estimated amounts included in our 2021 Cal Water general rate case plus estimated rate base in our other states grew to $2.25 billion by the end of 2023, an increase of 15.4% over 2022. Turning to Slide 11, wrapping up our 2023 annual financial results on Slide 10 or Slide 11 is our earnings per share bridge. The earnings per share captures the significant income and expense changes between 2023 and 2022 discussed by Dave, and reconciles our 2023 earnings per share with our 2022 earnings per share. The most significant item was the loss of our WRAM and MCBA revenue with no replacement mechanisms due to the 2021 general rate case delay. With that, I will turn it back over to Dave to discuss our quarterly results.

David Healey, Principal Financial Officer

Thank you, Jim. Moving to Slide 12, as discussed, fourth quarter 2023 operating revenue does not include a revenue adjustment from the 2021 GRC due to the delay in CPUC approval. Operating revenue for the fourth quarter of 2023 increased $13.6 million to $214.5 million as compared to the same period last year. The increase was primarily from $13.6 million of rate increases, $12.3 million of revenue increases from a decrease in deferred revenue, and a $3.3 million increase in revenue from customer usage, which was partially offset by an $18.1 million decrease in WRAM and MCBA revenue as the mechanisms concluded on December 31, 2022. Fourth quarter 2023 operating expenses increased $4.6 million to $179.3 million as compared to the same period last year. The increase was due mostly to an increase in water production cost of $6.2 million, labor cost of $5.3 million, and depreciation amortization expense of $3.2 million, which was partially offset by an increase in income tax benefit of $11.2 million. Moving on to Slide 13, financial results fourth quarter 2023. As discussed, net income does not include a revenue adjustment from the 2021 GRC due to the delay. For the fourth quarter of 2023, net income attributable to California Water Service Group was $30.1 million and diluted earnings per share was $0.52, compared to net income of $19.6 million and diluted earnings per share of $0.35 for the fourth quarter of 2022. The $10.6 million increase was primarily due to $12.3 million revenue increase from a decrease in deferred revenue, $11.2 million increase in income tax benefit, and $2.8 million increase in net other income, which was partially offset by expense increases of $6.2 million in water production expenses, $5.3 million in employee wages, $3.4 million in depreciation and amortization, and $1.2 million in financing costs. Net interest expense in the fourth quarter of 2023 increased $1.2 million, or 11.2%, to $29.9 million compared to the same period in 2022, primarily due to increases in short-term borrowing rates and higher outstanding borrowings on our short-term facilities. The group invested $109.6 million in infrastructure improvements during the fourth quarter of 2023, which was a 3.7% increase from the same period last year. And now, I'm going to turn it over to Jim to cover Slide 14.

Jim Lynch, Senior Vice President, Chief Financial Officer and Treasurer

Thanks, Dave. We finished the year with a solid liquidity position, holding $85 million in cash, of which $45.4 million was restricted. Additionally, we had short-term borrowing capacity of around $420 million through our group and Cal Water lines of credit. Our collection process for aged accounts receivable improved in the fourth quarter, resulting in a reduction of past due accounts by about $2.1 million compared to the same period last year. We are also involved in the California Arrearage Payment Program, having applied for funds in November to cover past due accounts up to December 31, 2022, with a request of $83 million that was accepted by the state. We anticipate receiving the funds from this program, likely by the end of the fourth quarter or the first quarter of 2024. We declared a dividend of $0.08 for 2024, marking our 316th consecutive quarterly dividend, which represents a 7.7% increase from our previous dividend. Our commitment to ESG goals remains a top priority for the company, with ongoing efforts in climate change, affordability, infrastructure investment, and sustainability, showing progress in these areas throughout the fourth quarter. Moving to Slide 15, the earnings bridge illustrates our performance from the fourth quarter of last year to this year, highlighting the significant decrease in WRAM and MCBA revenue without replacement mechanisms due to the rate case delay. Now, I will hand the call over to Greg for an update on the 2021 California general rate case, which is likely on everyone’s mind.

Greg Milleman, Vice President, Rates and Regulatory Affairs Officer

Thank you, Jim. I won't reiterate what Dave mentioned at the beginning of the call. You're all aware that two decisions were issued. What I want to emphasize is that we believe the proposed decision was strongly supported by the evidence presented, while the alternate proposed decision was not. Our filings from February clearly reflect this viewpoint. Regarding Slide 17, it’s not just Cal Water's opinion that the proposed decision aligns with the evidence and the commission’s policies; our trade association, the California Water Association, also submitted comments to that effect. Additionally, the seven other Class A water utilities in Southern California Edison collectively submitted a letter expressing similar sentiments to the commission. On Slide 18, we met last week with the Board commission offices to express our concerns about the alternate proposed decision and advocated for the proposed decision. Given the numerous comments filed by various parties and the public participation hearings, along with the differences between the proposed and alternate decisions, there is considerable uncertainty about how the commission will ultimately rule. Moving on to Slide 19, I want to address some aspects of decoupling. We received good news in January when we got a letter from the California Supreme Court indicating that arguments would be scheduled in the coming months, which is a positive sign after a long period of no action. We are optimistic that the court will invalidate the commission's decision on decoupling, which would be a significant win for us. Nevertheless, under the new 2022 law, we will be pursuing decoupling again in our 2024 general rate case. As for Slide 20, we currently have a return on equity of $10.27 for 2024. In February 2024, we obtained approval to defer the scheduled cost of capital proceedings for a year, which is encouraging news. Therefore, for 2025, we will continue with a return on equity of $10.27, with the potential to adjust it based on fluctuations in the Moody's utility bond index by 100 basis points or more, as per the procedures outlined in the water cost of capital adjustment mechanism. With that, I’ll turn it over to you, Marty.

Marty Kropelnicki, Chairman and CEO

Thank you, Greg. I will discuss our status regarding PFAS regulation, provide an update on business development, and share some concluding thoughts before we open the floor for comments. Regarding PFAS, there are no new developments to share. We are still awaiting the final adoption of EPA regulations and the maximum contaminant levels for PFOA and PFAS, with the targets in the draft set at four parts per trillion. At this moment, we expect this to be finalized in the second or third quarter, though that is our best estimate. The company is actively developing plans for the prompt implementation of treatment for approximately 72 wells with trace elements of PFOA and PFAS. Additionally, in our last rate case cycle, we included seven wells for PFAS treatment, which have been successfully implemented and are currently in production. Overall, if we consider the 25 wells already receiving treatment and add the 72, we are looking at around 97 wells in total that require this type of treatment out of approximately 1,000. Furthermore, the capital expenditure figures shared with the market do not include any costs related to PFAS treatment or recovery from ongoing PFAS litigation. We believe there will be some financial returns that will help offset treatment costs for our customers. Moving to our business development update for 2023, we successfully closed six deals, bringing our total to 21 deals over the last five years. We publicly announced these contracts when signed and included updates on their status in our quarterly earnings presentations. One significant deal this year is a public-private partnership for the Camino Real utility water pipeline with the Guadalupe Basin River Authority, aimed at expanding water services for an additional 10,000 connections in the Southern Austin market. We are also closely monitoring Eversource’s announcement of the sale of their water utility, previously known as Aquarion. Although outside our service area, it is rare for large utilities to become available for acquisition, and we will assess this opportunity as they progress through a public process. However, we are concerned about the regulatory landscape in Connecticut, which has been less favorable in recent years. I want to express my disappointment regarding the ongoing delays in our 2021 California general rate case. Although I appreciate the CPUC's efforts to issue a decision before year-end, the introduction of both a proposed decision and an alternate at the same time has led to increased uncertainty due to the discrepancies between the two. As noted, this situation has prevented us from booking any revenue in 2023, a fact reflected in our financial results. Nonetheless, I want to emphasize that we have a memo account treatment for the 2021 general rate case, which will allow us to adjust billing tariffs retroactively to January 1, 2023, once a final decision is made. Consequently, we will record this adjustment in 2024, and we will clarify the financial impacts for the Street when that final decision is available. Unfortunately, the delays are costly, accruing interest in the memo account, making the public company disclosures more complex for our auditors, and ultimately being disadvantageous for our customers. We do not believe that the commission had any bad intentions; their goal was to do the right thing. We hope for resolution as we approach the next CPUC meeting on March 7. At that meeting, the commission can take various actions related to our case, and we will closely monitor their decisions. Despite the challenges of the general rate case, I want to highlight that we met and exceeded all primary and secondary water quality standards in the states we serve, including California, Washington, Hawaii, and New Mexico. We achieved a record capital investment of $384 million in our infrastructure improvement plan, representing a 17% increase year-over-year. We were honored with our second J.D. Power award for the highest overall customer service in the West and recognized by the Los Angeles Business Journal for our corporate responsibility. Additionally, Newsweek named us one of the Most Responsible and Most Trustworthy Companies in the U.S., ranking us first among water utilities and 16th overall in the energy and utility sector. We have also made substantial progress in enhancing reliability, sustainability, and climate change initiatives. I would like to highlight the response to the Mahina fires in West Maui. Our investment in wildfire preparedness allowed us to maintain water services during this crisis, illustrating the effectiveness of our efforts in emergency situations. Lastly, we began 2024 with a 10.27% return on equity in California, and the state has agreed to extend our cost of capital proceedings, which we will not need to file until spring 2025, positioning us for a return on equity of 10.275% at the beginning of 2025. Looking ahead, our focus remains on the CPUC meetings regarding the delayed 2021 general rate case. Upcoming meetings are scheduled for March 7, March 21, April 18, and May 9, where we hope to work with the commission to finalize decisions. In March, we will update our ESG program and announce our greenhouse gas reduction targets, emphasizing our commitment to addressing climate change. Additionally, we will file our 2024 general rate case in July, which will include a new decoupling mechanism that is vital for both our customers and the state in terms of climate adaptation. In closing, despite the challenges posed by the general rate case, our core mission remains focused on serving our customers and operating our utilities effectively. We look forward to finalizing the 2021 general rate case and advancing our initiatives related to the upcoming 2024 rate case and decoupling mechanism. Our commitment to service excellence remains unwavering even amidst regulatory challenges. With that, we will now open it up for questions.

Operator, Operator

Thank you. Your first question comes from Gregg Orrill at UBS. Please go ahead.

Gregg Orrill, Analyst

Yes. Thank you. So the Supreme Court arguments on decoupling are going to be heard. Was there something you were implying further about that?

David Healey, Principal Financial Officer

Yes. All the utilities that are parties to the proceeding received a letter earlier this year, in 2024, saying that the court is looking to expecting to set a date for arguments later this year. So we all received notice of that.

Marty Kropelnicki, Chairman and CEO

Yes. So the briefings involved and filed, the court has taken that into consideration. And essentially they put us on notice that they will likely be scheduling the oral arguments here sometime. We hope probably within the next few months. It'll be determined ultimately by the court. But again, we're very happy that that discussion is moving forward, and I look forward to bringing that to a conclusion as well.

Gregg Orrill, Analyst

Yes, for sure. And so when do you really expect that there could be a GRC outcome? I know it's on the agenda for the 7th, but your guidance seemed to be that you expected a decision in the first half of the year. And maybe the second part of that is, you've got fairly different outcomes between the PD and the APD, and yet, you had the confidence to raise the dividend the way you did. How did you get there?

Marty Kropelnicki, Chairman and CEO

Sure. Well, let's go with the first part of your question. As Greg mentioned, we spent the last 10 days meeting with the commission via Ex Parte Communications, talking about the differences between the proposed decision and the alternate proposed decision and which one we felt was better. In my mind, this is in Marty's head, so I'm not saying it's the way the world works, but the company spent millions of dollars putting on a general rate case, and we were forced in a situation that we had to litigate that rate case because the advocates did not want to settle. So we litigated that rate case, and two assigned judges concluded on that rate case, and they issued the proposed decision. And obviously the commission, our commissioner had a different opinion than what the two judges concluded based on the finding of facts and the records that were provided during the litigation process. So I believe that the proposed decision is best because we went through a full process of vetting everything in that going through a fully litigated rate case, usually in California, we have a settled rate case. This is one we had to fully litigate other than the rate design. So I think, again as I said, I don't think they intended to create confusion. I'm not sure what their intents were, other than to try to bring some of the costs down. But for those of you that have studied Cal Water, we're very affordability focused because we know you have to have a balanced nature to your capital plan and try to have some continuity of rates and not just kind of build out infrastructure, which is why we've spent a lot of effort over the last 10 years building out capital plans that are 10, 20, 30 years out. So I think the commission's got to decide which decision they think is right based on the findings and facts. We've done our part now. We have provided comments. I've been very happy to see, you know, SoCal Edison and the other water companies have kind of jumped into the fray, especially as it pertains to some of the errors and things that were included in the alternate proposed decision that could potentially change the rate making process in the State of California, primarily around the use of contingencies, when you forecast projects that go out multiple years, as well as taking previously approved projects from prior rate cases and then saying no, you got to file those via advice letter now. That's essentially more historic rate making in California. It's been a prospective rate making state for a long, long time. So I think that the commission has to conclude on that. The second part of your question, can you repeat it, Gregg, for me, please?

Gregg Orrill, Analyst

I guess it was the action on the dividend would seem to imply that there's not really that much of a difference between the PD and the APD. Can you help correct me where I'm wrong there?

Marty Kropelnicki, Chairman and CEO

Sure. So from a dividend standpoint, let's just talk about the governance process that goes in behind it. Every year in the fall, the Cal Water Board does a lot around officer succession planning, comp and benefits, and also capital and dividend planning as well. So we start the discussion on the dividend usually in October and November, and then we conclude as a Board in January. Look, we believe the fundamentals of the company are strong. As Jim pointed out, the estimated rate base growth year-over-year. We believe that the fundamentals of California regulation have remained good. That's why we got a 10.275% ROE. So obviously, there's a little bit of consternation around this delayed rate case and why it's so delayed. And I'm not in a position to make excuses for the commission. I don't like it. And frankly, if pancakes rates on customer increases, that's not good. But I think we will get through this. I believe the fundamentals of the company are strong. And so we have increased our dividend every year going back decades. And we believe the fundamentals of the company are good and the rate base growth is good. And you saw that in the capital spending, which is good, it was up 17% year-over-year. That all translates into rate case and that all, as it goes through the rate making process helps increase revenue and cash flows. And we use that cash flow to reward investors who invest in us, and we use the other part of the cash flow to reinvest in infrastructure. So we believe the fundamentals are still good.

Gregg Orrill, Analyst

Thanks for your answer.

Marty Kropelnicki, Chairman and CEO

Thanks, Gregg. Have a good day.

Jonathan Reeder, Analyst

Hey, so you kind of touched on one of my questions there, in response to Gregg, but at this point, with the filing of the written comments and the other parties jumping in the mix and everything, like, have all the pushes by the parties been made in terms of these filings and ex parte meetings such that the case is just like truly in the commission's hands at this point.

Marty Kropelnicki, Chairman and CEO

The Ex Parte Communications have all been filed. I think there are some more comment letters coming in from some of the firefighters' association and fire chiefs. But again, those are all things that, that we're not involved in the drafting of their letters or their comments. Those are things that are all done by third-parties. So my sense is there's still some more coming in. But yes, ultimately when those are done, it's really up to the commission. And the commission did have an open meeting, Greg, remember the date on that?

Greg Milleman, Vice President, Rates and Regulatory Affairs Officer

February 15.

Marty Kropelnicki, Chairman and CEO

February 15. And they had how many people speak?

Greg Milleman, Vice President, Rates and Regulatory Affairs Officer

20.

Marty Kropelnicki, Chairman and CEO

20 people spoke, raising concerns about the alternate proposed decision versus the proposed decision. And they were all saying they believe the proposed decision is best and let's continue on adapting to climate change, wildfire harming and building resiliency and sustainability in the State of California. So I think we're close, Jonathan. I think the commission ultimately has to take all that data in and then decide what they're going to do.

Jonathan Reeder, Analyst

Okay. You kind of indicated that 2024 plan CapEx, it was $365 million, but it depends on the outcome of the GRC. I'm assuming that number reflects an outcome more consistent with the proposed decision and your request. Can you discuss how I guess the capital budget might change if the alternate proposed decision were to be adopted?

Marty Kropelnicki, Chairman and CEO

Yes and no. In theory, you're correct. The timing of the decision could impact the capital program for 2024. However, if you were to review the 600 pages of either decision, you would notice that the alternate proposed decision allows for capital spending via advice letters. A significant part of our argument is that much of this capital was previously authorized in the last rate case. This is why other utilities have shown keen interest in the situation, as it involves a forecasted capital state and changes the rules retroactively. I’m uncertain how they will ultimately decide. When Greg and I met with the commission, we strongly pointed out that they are altering rules that have been longstanding in California's regulatory process. It ultimately depends on their direction. Nonetheless, they have indicated that you can still proceed with capital spending using advice letters, which means the company must continually assess where capital is most needed and efficient each year. If we decide to invest capital outside of a rate case, we can file an advice letter or include it in the next rate case filing. The process does not prevent the company from taking necessary actions to operate effectively and pursue our objectives. The main concern is how this will be funded—whether through pre-approved capital with an earnings test, traditional advice letters, or inclusion in the next general rate case. Greg, do you have anything to add?

Greg Milleman, Vice President, Rates and Regulatory Affairs Officer

Yes, I would like to add that there were a few projects they deemed not appropriate, but the majority of the projects we disallowed were more about building first and seeking recovery later, which goes against the forward-looking rate-making philosophy we discussed. My main point is that they did not categorically label these as bad projects; they acknowledged the necessity for them but questioned how the rate recovery could be achieved.

Jonathan Reeder, Analyst

Given the higher levels of capital expenditures you have been implementing, we should expect this trend to continue or potentially increase due to PFAS and rising spending needs. Looking beyond 2024, should we maintain expenditure levels similar to either $265 million or $283 million, or $365 million and $383 million from this year?

Marty Kropelnicki, Chairman and CEO

Yes. Jonathan, I can say, look, the company has done a really good job building a long-term capital plan that allows us to try to balance affordability with the needs of the infrastructure as well as kind of building out more resiliency and reliability and dealing with climate change. So I don't see that slowing down. This is probably a hiccup we're going through right now with the commission because the rate case is just so late. But what we need to do needs to continue, and that's why I think West Maui, I wanted to point that out. That was all work that we worked with the Hawaii Commission on and harden those systems. And I don't think it should surprise anyone that at the end of the day, when the fires were out, we were the only water company pumping water on the whole West side of Maui. That was by design, that was by good planning. That was by good employee training. That was by putting in backup generation, that was by doing the wildfire inspections to make sure properties are cleared. So there's a cost to be ready for these things. But I think ultimately we have performed well. Even take the storms earlier this year and all the storms last year; you had no real Cal Water outages. We didn't run out of power. And then there are other kind of marginal benefits that don't get counted when California hasn't had enough energy for the grid, for example, and the Governor's Office calls and said, hey, give us what you got, we were able to take 6 megawatts off the grid by using our backup systems we put in place. So the all the pieces have to fit together. And it's really important that the commission take a long-term comprehensive view, and that's the view the company has taken on their capital. So I don't see capital could slow down a little bit. I don't see it slowing down dramatically because we got a lot of work to do.

Jonathan Reeder, Analyst

Okay. That's very helpful. Good luck with the rate case. And yes, we'll see if you get anything on March 7 or if you have to wait a little longer.

Marty Kropelnicki, Chairman and CEO

All right. Thanks, Jonathan. Thanks for your comments.

Operator, Operator

As we have no further questions in our queue at this time, I will now turn the call over to Marty Kropelnicki for brief closing remarks. Please go ahead.

Marty Kropelnicki, Chairman and CEO

Thanks, John. Everyone, thanks for joining us today. Again, we will keep everyone applied to what's happening with the commissions, watch for a press release and 10-K sort of the appropriate public company disclosures. In the meantime, that we are going to continue to run our utility the best way that we know how, and that's really by focusing on our customer and doing the right thing. So thank you for your time today. And if you have any follow-up questions, feel free to reach out to any one of us. Thank you and have a good day.

Operator, Operator

This concludes today's conference call. Thank you for your participation. And you may now disconnect. Have a nice day, everyone.