California Water Service Group Announces 2023 Earnings for Year and Fourth Quarter
- None.
- Net income for 2023 decreased by $44.1 million compared to 2022 due to regulatory delays impacting revenue.
- Operating revenue decreased by $51.8 million in 2023 mainly due to the conclusion of WRAM and MCBA mechanisms.
- The delay in CPUC approval of the 2021 GRC affected operating revenue and expenses for 2023.
- The company's net income was negatively impacted by expense increases in various categories such as water production, administrative, general, and financing costs.
Insights
The reported decline in net income for California Water Service Group (CWT) is a significant financial event that merits analysis. The decrease from $96.0 million in 2022 to $51.9 million in 2023 is primarily attributed to regulatory delays, specifically the CPUC's pending decision on the 2021 GRC. This has a direct impact on the company's ability to adjust rates and impacts revenue projections. The financial health of utility companies like CWT is heavily influenced by regulatory decisions, as they operate within a framework that limits their ability to independently set prices. The delay in approval of new rates and the conclusion of the WRAM and MCBA revenue mechanisms have led to a noticeable drop in operating revenue, despite incremental gains from rate increases and new customers.
Investors should be aware of the implications of regulatory outcomes on CWT's financial performance. The eventual decision by the CPUC will have retrospective financial implications due to the retroactive adjustment to January 1, 2023. This introduces a degree of unpredictability into the company's financial forecasting. Moreover, the company's increased investment in infrastructure, despite the regulatory challenges, suggests a long-term strategic focus on improving service quality and reliability, which could have positive implications for sustainability and customer satisfaction.
Lastly, the increase in dividends by 7.7% indicates management's confidence in the company's financial stability and commitment to shareholder returns, despite the current regulatory hurdles and the adverse impact on earnings.
From a market perspective, the performance of CWT is reflective of broader trends affecting the utility sector. The decrease in customer usage by $23.1 million highlights a potential shift in consumption patterns, possibly influenced by environmental factors or increased conservation efforts. This could signal a longer-term trend affecting utility companies, where water conservation and efficiency become more prevalent, potentially leading to sustained decreases in usage revenue.
The company's proactive approach to requesting funds from the State of California Water Arrearages Payment Program to offset customer delinquencies indicates a strategic move to stabilize revenue and manage the risk of uncollectible accounts. This action, if approved, could mitigate the financial impact of unpaid bills on the company's balance sheet and improve cash flow.
Furthermore, CWT's focus on ESG (Environmental, Social and Governance) topics and the forthcoming 2023 ESG Report may resonate with socially responsible investors and could enhance the company's reputation and investor appeal in a market that increasingly values sustainable practices.
The legal intricacies of the regulatory process are central to understanding CWT's financial performance. The CPUC's role in determining rates and revenue mechanisms for utility companies is a critical factor that can significantly influence a utility's financial outcomes. The issuance of a Proposed Decision and an Alternate Proposed Decision reflects a complex regulatory environment where multiple viewpoints must be reconciled before a final decision is made.
The technical issues raised by Cal Water in the PD and APD and the potential for a second alternate proposed decision, underscore the legal challenges and uncertainties faced by regulated utilities. The legal proceedings and the outcome of these decisions will have retrospective financial implications for CWT, affecting not only past but also future revenues and operating expenses.
For stakeholders, the legal process may seem opaque, but it is a fundamental aspect of the utility industry that directly affects a company's financial stability and operational planning. The resolution of these regulatory issues will be critical for CWT's ability to implement its strategic initiatives and maintain financial health.
SAN JOSE, Calif., Feb. 29, 2024 (GLOBE NEWSWIRE) -- California Water Service Group (NYSE: CWT) (“Company” or “CWT”) today announced 2023 full year net income attributable to CWT of
The
Financial Results for 2023
Net income was positively impacted by increases of
Operating revenue in 2023 was
Total operating expenses in 2023 were
Water production costs increased
Administrative and general expenses increased
Other operations expenses decreased
Maintenance expense was
Depreciation and amortization increased
Income tax benefit increased
Property and other taxes increased
Net other income increased
In 2023, net interest expense increased
According to Chairman and Chief Executive Officer Martin A. Kropelnicki, the Company achieved several positive outcomes in 2023, despite the continued California 2021 GRC regulatory delays.
“The continued delay in Cal Water’s 2021 GRC clearly had an adverse impact on full year 2023 earnings results. I am hopeful the issuance of the PD and APD on January 24, 2024 will result in a final decision during the first half of 2024. While the continued delay coupled with inflation was challenging, there are other updates to report at year-end:
- The CPUC postponed Cal Water’s Cost of Capital filing to May 1, 2025. As a result, Cal Water’s authorized return on equity will be
10.27% in 2024, and in 2025 it will be10.27% plus or minus any changes from the Water Cost of Capital Adjustment Mechanism. - The Company invested
$383.7 million in infrastructure improvements in 2023, which was a17.1% increase from the same period last year. We continue to invest diligently in our water system infrastructure so that we are positioned to provide reliable quality service to our customers and adapt to the effects of climate change. - Our efforts to reduce customer monthly bills include requesting
$83.0 million from the State of California Water Arrearages Payment Program in November 2023 to pay residential and commercial customer delinquent and uncollected account balances. Our request is pending approval. - We remain focused on the ESG topics that we believe are most important to our business and to our key stakeholders, and we are proud of the significant progress made in 2023 in the areas of climate change, affordability, infrastructure investment, and sustainability. The details of our accomplishments will be reported in our 2023 ESG Report, which we expect to publish in May 2024.
- We declared our 316th consecutive quarterly dividend and increased the Company’s 2024 annual dividends by
7.7% .
The bottom line, we expect the California regulatory delay to be resolved soon, and we remain laser focused on executing our strategy and serving our customers,” Kropelnicki said.
Fourth Quarter 2023 Results
For the fourth quarter of 2023, net income attributable to CWT was
Results for the fourth quarter of 2023 were negatively impacted by the delayed decision on Cal Water’s pending 2021 GRC to establish new revenue, rates, and regulatory mechanisms.
Operating revenue for the fourth quarter increased
Total operating expenses for the fourth quarter increased
Income tax benefit for the fourth quarter of 2023 increased
In the fourth quarter of 2023, net other income increased
Net interest expense in the fourth quarter of 2023 increased
Liquidity and Financing
CWT’s liquidity remains strong. As of December 31, 2023, CWT maintained
CWT’s capital investments in 2023 was
On January 25, 2024, the Board of Directors increased the quarterly cash dividend by
Other Information
All stockholders and interested investors are invited to attend the conference call on February 29, 2024 at 8:00 a.m. PT (11:00 a.m. ET) by dialing 1-800-715-9871 or 1-646-307-1963 and keying in ID# 4241548, or you may access the live audio webcast at https://edge.media-server.com/mmc/p/denrydyv. Please join at least 15 minutes in advance to ensure a timely connection to the call. A replay of the call will be available from 2:00 p.m. ET on Thursday, February 29, 2024 through Monday, April 29, 2024, at 1-800-770-2030 or 1-609-800-9909, ID# 4241548, or by accessing the webcast above. The call will be hosted by Chairman and Chief Executive Officer Martin A. Kropelnicki, Senior Vice President, Chief Financial Officer and Treasurer James P. Lynch, Principal Financial Officer David B. Healey, and Vice President, Rates and Regulatory Affairs Greg A. Milleman. Prior to the call, Cal Water will furnish a slide presentation on its website at 9:00 a.m. ET.
About California Water Service Group
California Water Service Group is the parent company of regulated utilities California Water Service, Hawaii Water Service, New Mexico Water Service, and Washington Water Service, as well as Texas Water Service, a utility holding company. Together, these companies provide regulated and non-regulated water and wastewater service to more than 2.1 million people in California, Hawaii, New Mexico, Washington, and Texas. California Water Service Group’s common stock trades on the New York Stock Exchange under the symbol “CWT.” Additional information is available online at www.calwatergroup.com.
This news release contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 ("PSLRA"). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the PSLRA. Forward-looking statements in this news release are based on currently available information, expectations, estimates, assumptions and projections, and our management’s beliefs, assumptions, judgments and expectations about us, the water utility industry and general economic conditions. These statements are not statements of historical fact. When used in our documents, statements that are not historical in nature, including words like will, would, expects, intends, plans, believes, may, could, estimates, assumes, anticipates, projects, progress, predicts, hopes, targets, forecasts, should, seeks or variations of these words or similar expressions are intended to identify forward-looking statements. Examples of forward-looking statements in this news release include, but are not limited to, statements describing Cal Water’s expected financial performance, authorized return on equity and expectations regarding the 2021 GRC Filing and the regulatory process, including timing and business and financial impact. Forward-looking statements are not guarantees of future performance. They are based on numerous assumptions that we believe are reasonable, but they are open to a wide range of uncertainties and business risks. Consequently, actual results may vary materially from what is contained in a forward-looking statement. Factors that may cause actual results to be different than those expected or anticipated include, but are not limited to: our ability to invest or apply the proceeds from the issuance of common stock in an accretive manner; governmental and regulatory commissions' decisions, including decisions on proper disposition of property; consequences of eminent domain actions relating to our water systems; changes in regulatory commissions' policies and procedures, such as the CPUC’s decision in 2020 to preclude companies from proposing fully decoupled WRAMs, which impacted the 2021 GRC Filing; the outcome and timeliness of regulatory commissions' actions concerning rate relief and other matters, including with respect to the 2021 GRC Filing; increased risk of inverse condemnation losses as a result of climate change and drought; our ability to renew leases to operate water systems owned by others on beneficial terms; changes in California State Water Resources Control Board water quality standards; changes in environmental compliance and water quality requirements; electric power interruptions, especially as a result of Public Safety Power Shutoff (PSPS) programs; housing and customer growth; the impact of opposition to rate increases; our ability to recover costs; availability of water supplies; issues with the implementation, maintenance or security of our information technology systems; civil disturbances or terrorist threats or acts; the adequacy of our efforts to mitigate physical and cyber security risks and threats; the ability of our enterprise risk management processes to identify or address risks adequately; labor relations matters as we negotiate with the unions; changes in customer water use patterns and the effects of conservation, including as a result of drought conditions; our ability to complete, in a timely manner or at all, successfully integrate and achieve anticipated benefits from announced acquisitions; the impact of weather, climate change, natural disasters, and actual or threatened public health emergencies, including disease outbreaks, on our operations, water quality, water availability, water sales and operating results and the adequacy of our emergency preparedness; restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; risks associated with expanding our business and operations geographically; the impact of stagnating or worsening business and economic conditions, including inflationary pressures, general economic slowdown or a recession, increasing interest rates, instability of certain financial institutions, changes in monetary policy, adverse capital markets activity or macroeconomic conditions as a result of the geopolitical conflicts, and the prospect of a shutdown of the U.S. federal government; the impact of market conditions and volatility on unrealized gains or losses on our non-qualified benefit plan investments and our operating results; the impact of weather and timing of meter reads on our accrued unbilled revenue; the impact of evolving legal and regulatory requirements, including emerging environmental, social and governance requirements; and other risks and unforeseen events described in our SEC filings. In light of these risks, uncertainties and assumptions, investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this news release. When considering forward-looking statements, you should keep in mind the cautionary statements included in this paragraph, as well as the Annual 10-K, Quarterly 10-Q, and other reports filed from time-to-time with the Securities and Exchange Commission (SEC). We are not under any obligation, and we expressly disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
Contact
James P, Lynch
(408) 367-8200 (analysts)
Shannon Dean
(408) 367-8243 (media)
| CALIFORNIA WATER SERVICE GROUP | |||||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
| Unaudited | |||||||||||
| (In thousands, except per share data) | December 31 | December 31 | |||||||||
| 2023 | 2022 | ||||||||||
| ASSETS | |||||||||||
| Utility plant: | |||||||||||
| Utility plant | $ | 4,925,483 | $ | 4,536,272 | |||||||
| Less accumulated depreciation and amortization | (1,152,228 | ) | (1,063,341 | ) | |||||||
| Net utility plant | 3,773,255 | 3,472,931 | |||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | 39,591 | 62,100 | |||||||||
| Restricted cash | 45,375 | 22,925 | |||||||||
| Receivables: | |||||||||||
| Customers,net | 59,349 | 55,079 | |||||||||
| Regulatory balancing accounts | 64,240 | 66,826 | |||||||||
| Other, net | 16,431 | 20,932 | |||||||||
| Unbilled revenue, net | 36,999 | 33,140 | |||||||||
| Materials and supplies | 16,170 | 12,564 | |||||||||
| Taxes, prepaid expenses, and other assets | 18,130 | 21,969 | |||||||||
| Total current assets | 296,285 | 295,535 | |||||||||
| Other assets: | |||||||||||
| Regulatory assets | 257,621 | 283,620 | |||||||||
| Goodwill | 37,039 | 36,814 | |||||||||
| Other assets | 231,333 | 175,913 | |||||||||
| Total other assets | 525,993 | 496,347 | |||||||||
| TOTAL ASSETS | $ | 4,595,533 | $ | 4,264,813 | |||||||
| CAPITALIZATION AND LIABILITIES | |||||||||||
| Capitalization: | |||||||||||
| Common stock, $.01 par value; 136,000 shares authorized, 57,724 and 55,598 outstanding in 2023 and 2022, respectively | $ | 577 | $ | 556 | |||||||
| Additional paid-in capital | 876,583 | 760,336 | |||||||||
| Retained earnings | 549,573 | 556,698 | |||||||||
| Noncontrolling interests | 3,579 | 4,804 | |||||||||
| Total equity | 1,430,312 | 1,322,394 | |||||||||
| Long-term debt, net | 1,052,768 | 1,052,487 | |||||||||
| Total capitalization | 2,483,080 | 2,374,881 | |||||||||
| Current liabilities: | |||||||||||
| Current maturities of long-term debt, net | 672 | 3,310 | |||||||||
| Short-term borrowings | 180,000 | 70,000 | |||||||||
| Accounts payable | 157,305 | 140,986 | |||||||||
| Regulatory balancing accounts | 21,540 | 12,240 | |||||||||
| Accrued interest | 6,625 | 6,490 | |||||||||
| Accrued other liabilities | 64,197 | 61,624 | |||||||||
| Total current liabilities | 430,339 | 294,650 | |||||||||
| Deferred income taxes | 352,762 | 330,251 | |||||||||
| Pension | 82,920 | 78,443 | |||||||||
| Regulatory liabilities and other | 760,493 | 701,355 | |||||||||
| Advances for construction | 199,448 | 199,832 | |||||||||
| Contributions in aid of construction | 286,491 | 285,401 | |||||||||
| Commitments and contingencies | |||||||||||
| TOTAL CAPITALIZATION AND LIABILITIES | $ | 4,595,533 | $ | 4,264,813 | |||||||
| CALIFORNIA WATER SERVICE GROUP | |||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||
| Unaudited | |||||||||
| (In thousands, except per share data) | |||||||||
| For the Three Months ended: | |||||||||
| December 31 | December 31 | ||||||||
| 2023 | 2022 | ||||||||
| Operating revenue | $ | 214,512 | $ | 200,937 | |||||
| Operating expenses: | |||||||||
| Operations: | |||||||||
| Water production costs | 70,290 | 64,069 | |||||||
| Administrative and general | 37,058 | 33,293 | |||||||
| Other operations | 37,723 | 34,227 | |||||||
| Maintenance | 7,912 | 8,326 | |||||||
| Depreciation and amortization | 31,576 | 28,188 | |||||||
| Income tax benefit | (13,823 | ) | (2,665 | ) | |||||
| Property and other taxes | 8,540 | 9,212 | |||||||
| Total operating expenses | 179,276 | 174,650 | |||||||
| Net operating income | 35,236 | 26,287 | |||||||
| Other income and expenses: | |||||||||
| Non-regulated revenue | 4,866 | 4,504 | |||||||
| Non-regulated expenses | (583 | ) | (2,389 | ) | |||||
| Other components of net periodic benefit credit | 5,462 | 2,960 | |||||||
| Allowance for equity funds used during construction | 1,405 | 1,106 | |||||||
| Income tax expense on other income and expenses | (4,106 | ) | (1,903 | ) | |||||
| Net other income | 7,044 | 4,278 | |||||||
| Interest expense: | |||||||||
| Interest expense | 13,018 | 11,714 | |||||||
| Allowance for borrowed funds used during construction | (676 | ) | (620 | ) | |||||
| Net interest expense | 12,342 | 11,094 | |||||||
| Net income | 29,938 | 19,471 | |||||||
| Net loss attributable to noncontrolling interests | (190 | ) | (98 | ) | |||||
| Net income attributable to California Water Service Group | $ | 30,128 | $ | 19,569 | |||||
| Earnings per share of common stock | |||||||||
| Basic | $ | 0.52 | $ | 0.36 | |||||
| Diluted | $ | 0.52 | $ | 0.35 | |||||
| Weighted average shares outstanding | |||||||||
| Basic | 57,715 | 55,083 | |||||||
| Diluted | 57,756 | 55,133 | |||||||
| Dividends per share of common stock | $ | 0.26 | $ | 0.25 | |||||
| CALIFORNIA WATER SERVICE GROUP | |||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||
| Unaudited | |||||||||
| (In thousands, except per share data) | |||||||||
| For the Twelve Months ended: | |||||||||
| December 31 | December 31 | ||||||||
| 2023 | 2022 | ||||||||
| Operating revenue | $ | 794,632 | $ | 846,431 | |||||
| Operating expenses: | |||||||||
| Operations: | |||||||||
| Water production costs | 288,512 | - | 285,264 | ||||||
| Administrative and general | 142,235 | 132,718 | |||||||
| Other operations | 112,481 | 116,172 | |||||||
| Maintenance | 31,975 | 31,715 | |||||||
| Depreciation and amortization | 121,212 | 114,575 | |||||||
| Income tax (benefit) expense | (15,189 | ) | 3,262 | ||||||
| Property and other taxes | 36,271 | 35,065 | |||||||
| Total operating expenses | 717,497 | 718,771 | |||||||
| Net operating income | 77,135 | 127,660 | |||||||
| Other income and expenses: | |||||||||
| Non-regulated revenue | 18,509 | 21,276 | |||||||
| Non-regulated expenses | (11,807 | ) | (24,821 | ) | |||||
| Other components of net periodic benefit credit | 20,215 | 14,476 | |||||||
| Allowance for equity funds used during construction | 5,551 | 4,127 | |||||||
| Income tax expense on other income and expenses | (8,408 | ) | (3,113 | ) | |||||
| Net other income | 24,060 | 11,945 | |||||||
| Interest expense: | |||||||||
| Interest expense | 52,809 | 46,686 | |||||||
| Allowance for borrowed funds used during construction | (2,990 | ) | (2,344 | ) | |||||
| Net interest expense | 49,819 | 44,342 | |||||||
| Net income | 51,376 | 95,263 | |||||||
| Net loss attributable to noncontrolling interests | (535 | ) | (748 | ) | |||||
| Net income attributable to California Water Service Group | $ | 51,911 | $ | 96,011 | |||||
| Earnings per share of common stock | |||||||||
| Basic | $ | 0.91 | $ | 1.77 | |||||
| Diluted | $ | 0.91 | $ | 1.77 | |||||
| Weighted average shares outstanding | |||||||||
| Basic | 56,952 | 54,320 | |||||||
| Diluted | 56,983 | 54,363 | |||||||
| Dividends per share of common stock | $ | 1.04 | $ | 1.00 | |||||
FAQ
What was the net income for California Water Service Group (CWT) in 2023?
What caused the decrease in net income for CWT in 2023 compared to 2022?
How much did operating revenue decrease by in 2023 for CWT?
What were the main factors contributing to the decrease in operating revenue for CWT in 2023?
What investments did CWT make in infrastructure improvements in 2023?
How did the delay in the 2021 GRC impact CWT's financial results?
What actions did CWT take to address customer monthly bills?
How did CWT's dividend policy change for 2024?
