Ladies and gentlemen, thank you for standing by, and welcome to the American States Water Company Conference Call discussing the company's First Quarter 2022 Results. This call is being recorded. And if you would like to listen to the replay of this call, it will begin this afternoon at approximately 5 P.M. Eastern Time and run through until Tuesday, May 10, 2022 on the company's website at www.aswater.com. The slides that the company will be referring to are also available on the website. After today's presentation, there will be time for a question-and-answer session. [Operator Instructions] Today's call will be limited to an hour. Presenting today from American States Water Company is Bob Sprowls, President and Chief Executive Officer; and Eva Tang, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company's risks and uncertainties in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with Generally Accepted Accounting Principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information, but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I will turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company.

Thank you, Joe, and welcome everyone, and thank you for joining us today. I'll begin with some brief comments on the quarter. Eva will then discuss some financial details and then I'll wrap it up with some further thoughts on the quarter, updates on regulatory filings, California's drought condition, ASUS, dividends, and then we'll take your questions. This was an unique quarter with earnings per share coming in lower than the first quarter last year due to timing issues with receiving a final decision from the California Public Utilities Commission or CPUC on our water general rate case at Golden State Water. Eva will discuss these results in detail. We continue to deliver high-quality water, wastewater and electric services to customers during the quarter. We are making good progress on our goal to spend the $140 million to $160 million this year and infrastructure investments at our regulated utilities that we discussed during the year-end call, strengthening the pipes, wells, hydrants, tanks, power lines and more that our customers need for the long term. Along with awaiting a decision from the CPUC and Golden State Water's general rate case, we are also actively involved in processing our cost of capital application. In fact hearings begin today in that application. We also strengthened the leadership at ASUS with the addition of Chris Connor who joined the company as Senior Vice President and was previously at Jacobs Engineering. Chris brings a strong leadership background and among other things proven business development and sales track records working with the Department of Defense. I will now turn the call over to Eva.

Thank you, Bob and hello everyone. Let me start with our first quarter financial results. Consolidated earnings were $0.38 per share as compared to $0.52 per share last year. Due to the delay in receiving a final decision in the pending water GRC as mentioned by Bob, revenue -- water revenue billed and recorded for the first quarter of 2022 were based on 2021 adopted rates. As the new rates being approved and implemented on January 1 this year, consistent with the November 2021 settlement agreement reached between Golden State Water and the Public Advocates Office at CPUC. Golden State Water would have recorded additional revenue of approximately $6.3 million or $0.12 per share and additional water supply costs of $1.6 million or $0.03 per share for the first quarter of 2022. Including these additional revenues and water supply costs consolidated adjusted diluted earnings for the first quarter ended March 31, 2022, were $0.47 per share. For our water utility subsidiaries, Golden State Water Company earnings were $0.23 per share as compared to $0.33 per share last year. Included in the results for the first quarter of 2022 were losses of $1.7 million or $0.03 per share, on investments held to fund one of the company's retirement plan as compared to gains of $628,000 or $0.01 per share for the same period in 2021. Excluding the gains and losses on investments from both periods, adjusted diluted earnings at the water segment for the quarter were $0.26 per share as compared to adjusted earnings of $0.32 per share for the same period in 2021 that is an adjusted decrease of $0.06 per share. Also included in the results for the first quarter of this year was a $1.4 million reduction in revenues or $0.03 per share, to reflect the estimated impact…

Thank you, Eva. Before I get into regulatory matters, I'd just like to reiterate a few factors impacting our first quarter's earnings. At 2022, water rates been approved, consistent with the settlement agreement and implemented on January 1, 2022, Golden State Water's earnings contribution for the quarter would have been $0.09 per share higher. Once a final decision is issued by the CPUC and the general rate case, the new rates will be retroactive to January 1, 2022. Therefore, we will record the retroactive impact at the time a decision is issued. So we view this as a timing difference for the year. We also adjusted the water revenues to reflect the lower cost of debt in Golden State Water's pending cost of capital application, which decreased the quarterly earnings by $0.03 per share. The investment loss of $0.03 per share on one of our retirement plans during the first quarter of this year, negatively impacted earnings by $0.04, as compared to last year's first quarter. We also expect ASUS to catch up on its construction activity during the remaining three quarters and we reaffirm our projection that ASUS will contribute $0.45 to $0.49 per share for 2022. I will now discuss our water general rate case filed in July 2020, to set new rates for the years 2022, 2023 and 2024. As I mentioned in our last earnings call, we reached a settlement agreement with the Public Advocates Office in November of last year on this general rate case. Only three issues were not settled. Let me briefly recap some of the key points in the settlement. The settlement among other things authorized Golden State Water to invest approximately $404.8 million in capital infrastructure for the three-year rate cycle. The amounts included in the settlement agreement, if approved, would…

We will now take your questions. [Operator Instructions] We will begin with a question from Angie Storozynski with Seaport. Please go ahead.

Thank you. Okay. So maybe starting with the cost of capital proceeding. So you've lowered your -- you lowered your first quarter earnings to account for the lower cost of debt. Can you comment about -- can you comment on the equity layer and the potential increase in the ROE? So maybe like a rule of thumb any -- every 10 bps of an increase in the ROE, how big an earnings impact it could have? And also how this requested 57% equity layer compares to the actual equity that you currently have?

Okay. And I'll start with the equity piece. We have a requested 57% equity in the case that's what our actuals have shown historically. Public Advocates report recommends equity layer of 56.85%. So we're pretty close on that.

Okay. And then every changes of an increase in the ROE, how big of an earnings impact that would have?

I think Angie if the ROE changes by 10 basis points, we're thinking about a little bit over $0.01 net earnings impact for every changes of 10 basis points.

Okay. Because you guys again maybe I'm just too optimistic who knows. But you in a sense lowered your numbers for the lower cost of equity, but without any potential offset that comes from the potentially higher ROE. And I know that that's more -- a more conservative approach. But again that's understates your earnings versus those of your peers at these -- as far as the first quarter is concerned?

So may I go into a little bit on that subject, Angie.

Okay.

As you know it's difficult to predict the final outcome of the pending results from this decision. And, however, given the significant increase in our cost of debt component alone, we decreased from 6.6% to 5.1% in this proceeding and we're pretty close to ORA's accommodation. So that's a 150 basis point difference there. And high-profitability this piece being approved, we'll have to refund this to customers. That's why we recorded $1.4 million for the lower cost of debt piece only in Q1, because it's pretty -- it's very certain -- known at this point. And it will be retroactive to January 1st. That's why we booked it in the first quarter. With regard to the other items, ROE and cap structure at this time we cannot really predict the outcome of the ROE especially, the cap structure is pretty close. We think we'll win that piece, but we'll see the final decision. So some information becomes more available, we'll revise our estimates along the way. I think we booked the cost of debt, which is pretty certain at this time.

Okay, okay. That’s fine. And then secondly on the electric side. So I understand that you're going to file a rate case in June. There was no growth in earnings in the first quarter. Can you talk about your expectations for the entire 2022? Given that it's the last year of the current rate cycle, would you expect some earnings growth for the electric segment year-over-year?

Yes, you accurately point out that it is the last year of the rate cycle. So you wouldn't expect as much growth, I would say in this case year five as you would see in earlier years. The other part of that is, we are spending money on wildfire mitigation expenditures and those have -- so we're spending on them in advance of getting them in rate recovery. So those will be included in the general rate case that we filed in June.

Okay. And then the last thing, the earnings hit from the pension performance of -- parts of your pension funds. So this $0.04 hit that's a year-over-year hit. But can you say how that compares to for instance your annual expectations? I know that you don't issue guidance. But how does that look versus what you had hoped for 2022?

Well, when we're starting out the year, we didn't expect what's happened in the stock market over the course of the first three months of the year. So we generally typically expect, a sort of net positive from the assets there. And these things -- this is a timing difference we hope that maybe you know better than we as -- what the prospects for the S&P 500 are. But yes, so this is timing last year we – 2021, we had a very nice gain on those assets. So these things are -- they do bounce around from year-to-year.

And then just circling back to the cost of capital in California. So as you mentioned the hearings are starting. Typically, settlement happened before those hearings begin. Now given that the record in this case was based on a completely different interest rate environment not to mention valuations of water stocks. I mean, is it fair to say that you might be actually better off having the case fully litigated because it's going to be then more reflective of the current interest rate environment?

Angie, it's difficult to handicap that to be honest. First of all, you do have an opportunity to continue to work on settlement. I think the way the rules are written you have up until 30 days after the completion of the hearings to settle the case. So continued discussions are ongoing. Yes so it's -- we've got a relatively new commission, with a couple of new commissioners there. So again, really difficult to handicap whether the -- whether we'll get a better outcome by litigating it but it -- you do make a very valid point that interest rates have moved up since we filed our testimony. And that should help, I think get a positive outcome here. I'm not saying, we'll do better than the 8.9% but I think the rising interest rate environment can only help the utilities in this case.

Yeah. Fingers crossed. Thank you.

Thank you, Angie.

Our next question comes from Jonathan Reeder with Wells Fargo. Please go ahead.

Hey, Bob and Eva. How are you all today?

Okay.

Thank you, Jonathan.

How are you?

Not too bad. So, on the GRC, since it sounds like you're not expecting a final decision until Q3 at earliest. Just wondering if you have a sense what the impact to the second quarter might be presumably, it's greater than Q1 the $0.09?

Yes. I think well, we don't have it. Do we have a number, do we Eva.

Yeah.

But I think you're right in terms of it will be greater than $0.09, because more usage in Q2 than Q1.

Right.

Okay. And then just my other question could an adverse outcome and the cost of capital proceeding, namely around the ROE, impact that goal of 7% plus dividend CAGR over the long-term, or do you think the board would be comfortable letting the dividend payout ratio increase a bit, especially given the strength of the balance sheet and not having external equity needs?

Yeah. I would think Jonathan that the Board would take into account. Our payout ratio is real solid. And there is -- we look at other water utilities, we look at the electrics that are highly regulated and highly regulated gas companies. And we're -- we as an industry in the water space are at the lower end of those payout ratios. So, I would think that if we got a negative outcome we would still be pretty focused on meeting our dividend target of more than 7%. And there's quite a bit of headroom in that payout ratio.

Right. Okay. Well hopefully it doesn't come to that hopefully this rising interest rate environment does help you guys. So, good luck as the hearings continue on today and the rest of the week and look forward to seeing what comes out of it.

Thank you, Jonathan.

Thank you.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Bob Sprowls for any closing remarks.

Thank you, Joe. Yes, I just want to wrap it up today by thanking all of you for your participation today, and letting you know that we look forward to speaking with you for the next quarterly earnings call. Thank you all very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.