California Water Service Group Announces Year to Date September 30, 2021 and Third Quarter 2021 Results

Thursday, 28. October 2021 15:00

SAN JOSE, Calif., Oct. 28, 2021 (GLOBE NEWSWIRE) -- California Water Service Group (NYSE: CWT) ( “Company”) today announced net income of $97.6 million or $1.91 earnings per diluted common share for the nine-month period ended September 30, 2021, compared to net income of $81.3 million or $1.66 earnings per diluted common share for the nine-month period ended September 30, 2020.

The $16.3 million increase in net income was primarily due to rate relief from the Company’s California General Rate Case (2018 GRC). The increase in net income was partially reduced by increases in depreciation expense of $7.8 million and property taxes of $1.7 million.

Additional factors outside the Company’s immediate control that contributed to the increase in net income included an $8.7 million increase in accrued unbilled revenue and a $1.5 million increase in unrealized gain on certain benefit plan investments. Seasonal weather patterns and the number of unbilled days are the primary drivers of accrued unbilled revenue.

According to President and Chief Executive Officer Martin A. Kropelnicki, third quarter results were in line with the Company’s expectations. He said the company continued to focus on its responses to the drought and the pandemic, particularly in the areas of supporting customers, keeping employees safe, and procuring equipment and materials well in advance to avoid having supply chain issues impact investment in water system infrastructure.

“I am extremely pleased with our efforts to help customers who’ve been impacted by Covid-19 get access to government relief funds. On behalf of our California customers, we requested $16.9 million from the State of California’s Water Arrearage Payment Program to pay customer delinquent account balances as of June 15, 2021. This is one of the many ways we’ve shown our commitment to supporting our customers and communities during these difficult times,” Kropelnicki said.

Third Quarter 2021 Results

For the third quarter of 2021, the Company had net income of $62.5 million or $1.20 earnings per diluted common share, compared to a net income of $96.4 million or $1.94 earnings per diluted common share for the third quarter of 2020.

Additionally, the Company had rate relief revenue of $6.1 million and balancing account net revenue of $16.3 million during the quarter.   

Comparatively, in the third quarter of 2020, the company recognized $14.5 million of GRC rate relief and $37.0 million of regulatory balancing account revenues due to the proposed decision of its 2018 California GRC. Approximately $8.4 million of 2020 GRC rate relief and $25.5 million of 2020 regulatory balancing account revenues were attributable to prior quarters and were recorded in the third quarter of 2020 due to a change in regulatory certainty. This was the primary driver of a $33.9 million decrease in net income in the third quarter compared to the third quarter of 2020.  

The quarter-over-quarter change in net income was partially offset by a $3.6 million decrease in administrative and general and other operations expenses and by an increase in depreciation expense of $2.5 million.

Additional factors outside the Company’s immediate control decreased net income, including a $5.8 million decrease in accrued unbilled revenue and a $1.7 million decrease in unrealized gain on certain benefit plan investments. Seasonal weather patterns and the number of unbilled days are the primary drivers of accrued unbilled revenue.

Additional Financial Results for the third quarter of 2021

Operating revenue decreased $47.4 million to $256.7 million in the third quarter of 2021, a decrease of 15.6%, as compared to $304.1 million in the third quarter of 2020. The decrease was primarily due to three months of 2018 GRC rate relief and regulatory balancing account adjustments in the third quarter of 2021 as compared to nine months of 2018 GRC rate relief and regulatory balancing account revenue in the third quarter of 2020. In the third quarter of 2021, rate relief revenue was $6.1 million and regulatory balancing account net revenue was $16.3 million, as compared to 2018 GRC rate relief revenue of $37.6 million and regulatory balancing account net revenue of $37.0 million in the third quarter of 2020. Additionally, accrued unbilled revenue decreased $5.8 million primarily due to decreases in the number of unbilled days in the third quarter of 2021 as compared to the third quarter of 2020.

Total operating expenses decreased $12.5 million, or 6.3%, to $185.6 million in the third quarter of 2021 compared to the prior year.

Water production expenses decreased $0.4 million, or 0.5%, to $85.0 million in the third quarter of 2021, primarily due to a decrease in purchased water quantities partially offset by higher wholesale water rates. As a result of the California revenue decoupling mechanisms, we recorded a decrease to revenue equal to the decrease in California water production costs.

Administrative and general and other operations expenses decreased $3.6 million or 6.0%, to $55.4 million in the third quarter of 2021, due to decreases in bad debt expenses of $4.2 million and costs associated with deferred WRAM revenue of $3.1 million, which was partially offset by increases in employee and retiree medical costs of $1.1 million. Changes in conservation program expense, employee pension benefits, and employee and retiree medical costs for regulated California operations generally do not affect net income, as the Company has been allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

Depreciation expense increased $2.5 million, or 10.3%, to $27.2 million in the third quarter of 2021 due to utility plant placed in service in 2020.

Income taxes decreased $12.1 million to $1.7 million in the third quarter of 2021 due to decreases in pre-tax net operating income and the effective tax rate. The effective tax rate decrease resulted from a $7.5 million increase in refunds of excess 2017 deferred federal income taxes, which was partially offset by a reduction in state tax benefits from repairs deductions in the third quarter of 2021 as compared to the third quarter of 2020.

Property and other taxes increased $0.4 million, or 5.3%, to $8.5 million in the third quarter of 2021, due primarily to an increase in our assessed property values for utility plant placed in service.

Other income and expenses increased $1.8 million in the third quarter of 2021, due primarily to a $2.9 million decrease in other components of net periodic benefit cost, which was partially offset by a $1.7 million decrease in unrealized gain from nonqualified benefit plan investments.

Liquidity and Financing

As of September 30, 2021, the Company had unused short-term borrowing capacity of more than $430.0 million, subject to meeting the borrowing conditions on the Company’s lines of credit facilities.  

The Company invested $207.7 million in infrastructure improvements during the first nine months of 2021 and estimates annual investments for 2021 between $270.0 and $300.0 million.

On October 27, 2021, the Board of Directors approved its 307th consecutive quarterly cash dividend of $0.23 per share of common stock.

WRAM Receivable

The net receivable balance in the WRAM and modified cost balancing account (MCBA) was $72.7 million as of September 30, 2021, an increase of 7.2%, or $4.9 million, from the balance of $67.8 million as of December 31, 2020.

Other Information

All stockholders and interested investors are invited to attend the conference call. To attend, please dial 1-833-832-5130 or 1-509-844-0151 and key in ID# 3773803, or you may access the live audio webcast at https://ir.calwatergroup.com/calendar/upcoming-events. 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, October 28, 2021 through December 29, 2021, at 1-855-859-2056 or 1-404-537-3406, ID# 3773803, or by accessing the webcast above. The call will be hosted by President and Chief Executive Officer Martin A. Kropelnicki, Vice President and Chief Financial Officer Thomas F. Smegal, Vice President, Corporate Development and Chief Regulatory Officer Paul Townsley, and Vice President, Corporate Controller David B. Healey. Prior to the call, the Company will furnish a slide presentation on its website at 9:00 a.m. ET

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 along with TWSC, Inc., a utility holding company in Texas. Together, these companies provide regulated and non-regulated water and wastewater service to more than 2 million people in California, Hawaii, New Mexico, Texas, and Washington. 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 ("Act"). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the Act. Forward-looking statements are based on currently available information, expectations, estimates, assumptions and projections, and management's judgment about the Company, the water utility industry and general economic conditions. Such words as would, expects, intends, plans, believes, may, estimates, assumes, anticipates, projects, predicts, targets, forecasts or variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are subject to uncertainty and changes in circumstances. Actual results may vary materially from what is contained in a forward-looking statement. Factors that may cause a result different than expected or anticipated include, but are not limited to: the impact of the ongoing COVID-19 pandemic and related public health measures, including our receipt of state COVID-19 financial relief funds in a timely manner; 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; the outcome and timeliness of regulatory commissions' actions concerning rate relief and other matters; increased risk of inverse condemnation losses as a result of climate conditions; inability 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; 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 draught conditions; our ability to complete, successfully integrate and achieve anticipated benefits form announced acquisitions; the impact of weather, climate, 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; and, other risks and unforeseen events. 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). The Company assumes no obligation to provide public updates of forward-looking statements.

Contact
Tom Smegal
(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)September 30, December 31,
    2021   2020 
ASSETS    
Utility plant:   
 Utility plant$4,124,024  $3,890,423 
 Less accumulated depreciation and amortization (1,327,655)  (1,239,865)
  Net utility plant 2,796,369   2,650,558 
Current assets:   
 Cash and cash equivalents 140,368   44,555 
 Receivables:   
  Customers, net 67,807   44,025 
  Regulatory balancing accounts 85,027   96,241 
  Other, net 20,448   20,331 
 Unbilled revenue, net 54,129   34,069 
 Materials and supplies at weighted average cost 9,383   8,831 
 Taxes, prepaid expenses, and other assets 16,246   17,964 
  Total current assets 393,408   266,016 
Other assets:   
 Regulatory assets 328,505   325,376 
 Goodwill 36,815   31,842 
 Other assets 124,592   120,456 
  Total other assets 489,912   477,674 
TOTAL ASSETS$3,679,689  $3,394,248 
      
CAPITALIZATION AND LIABILITIES   
Capitalization:   
 Common stock, $.01 par value; 68,000 shares authorized, 52,608 and 50,334 outstanding in 2021 and 2020, respectively$526  $503 
 Additional paid-in capital 580,760   448,632 
 Retained earnings 534,685   472,209 
 Noncontrolling interests 4,689   - 
  Total equity 1,120,660   921,344 
 Long-term debt, net 1,059,724   781,100 
  Total capitalization 2,180,384   1,702,444 
Current liabilities:   
 Current maturities of long-term debt, net 5,180   5,127 
 Short-term borrowings 120,000   370,000 
 Accounts payable 148,415   131,725 
 Regulatory balancing accounts 19,273   34,636 
 Accrued interest 17,170   6,178 
 Accrued expenses and other liabilities 50,900   41,040 
  Total current liabilities 360,938   588,706 
Deferred income taxes 284,193   276,032 
Pension and postretirement benefits other than pensions 114,192   115,581 
Regulatory liabilities and other 257,108   247,810 
Advances for construction 198,344   195,625 
Contributions in aid of construction 284,530   268,050 
Commitments and contingencies   
TOTAL CAPITALIZATION AND LIABILITIES$3,679,689  $3,394,248 
      



CALIFORNIA WATER SERVICE GROUP   
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS   
Unaudited   
(In thousands, except per share data)   
      
For the Three Months ended:   
   September 30, September 30,
    2021   2020 
      
Operating revenue$256,723  $304,108 
Operating expenses:   
 Operations:   
  Water production costs 84,951   85,344 
  Administrative and general 30,712   29,208 
  Other operations 24,686   29,746 
 Maintenance 7,739   7,129 
 Depreciation and amortization 27,232   24,699 
 Income taxes 1,705   13,804 
 Property and other taxes 8,546   8,116 
 Total operating expenses 185,571   198,046 
  Net operating income 71,152   106,062 
Other income and expenses:   
 Non-regulated revenue 5,813   3,934 
 Non-regulated expenses (5,779)  (2,865)
 Other components of net periodic benefit credit (cost) 1,853   (1,008)
 Allowance for equity funds used during construction 898   973 
 Income tax expense on other income and expenses (207)  (245)
  Net other income 2,578   789 
Interest expense:   
 Interest expense 11,737   11,162 
 Allowance for borrowed funds used during construction (506)  (671)
  Net interest expense 11,231   10,491 
Net income  62,499   96,360 
Net income attributable to noncontrolling interests 70   - 
Net income attributable to California Water Service Group$62,429  $96,360 
Earnings per share of common stock    
 Basic$1.20  $1.94 
 Diluted$1.20  $1.94 
Weighted average shares outstanding   
 Basic 51,823   49,576 
 Diluted 51,823   49,576 
Dividends per share of common stock$0.2300  $0.2125 
      
      
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS   
Unaudited   
(In thousands, except per share data)   
      
For the Nine Months ended:   
   September 30, September 30,
    2021   2020 
      
Operating revenue$617,583  $605,155 
Operating expenses:   
 Operations:   
  Water production costs 214,688   210,462 
  Administrative and General 92,837   85,827 
  Other operations 63,318   69,618 
 Maintenance 21,118   20,924 
 Depreciation and amortization 81,516   73,733 
 Income taxes 3,576   10,489 
 Property and other taxes 24,213   22,470 
  Total operating expenses 501,266   493,523 
  Net operating income 116,317   111,632 
Other income and expenses:   
 Non-regulated revenue 16,759   11,969 
 Non-regulated expenses (12,354)  (11,811)
 Other components of net periodic benefit credit (cost) 7,520   (3,770)
 Allowance for equity funds used during construction 2,290   4,292 
 Income tax expense on other income and expenses (1,077)  (152)
  Net other income 13,138   528 
Interest expense:   
 Interest Expense 33,165   33,573 
 Allowance for borrowed funds used during construction (1,253)  (2,747)
  Net interest expense 31,912   30,826 
Net income  97,543   81,334 
Net loss attributable to noncontrolling interests (79)  - 
Net income attributable to California Water Service Group$97,622  $81,334 
Earnings per share of common stock   
 Basic$1.91  $1.66 
 Diluted$1.91  $1.66 
Weighted average shares outstanding   
 Basic 51,119   49,034 
 Diluted 51,119   49,034 
Dividends per share of common stock$0.6900  $0.6375 
      





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