Good day, ladies and gentlemen. Thank you for standing by. Welcome to the American States Water Company Conference Call discussing the company's Fourth Quarter and Full Year 2022 Results. The call is being recorded. If you would like to listen to a replay of this call, it will begin this afternoon at 5:00 p.m. Eastern Time and run through Thursday, March 9, 2023, on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. All participants are currently in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity for questions. [Operator Instructions] Please also note that today's conference call will be limited to one hour. Presenting today from American States Water Company are 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 and 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'd like to turn the conference call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company.

Thank you, Jamie, and welcome everyone and thank you for joining us today. I'll begin with some brief comments on the year. Eva will then discuss some financial details, and then I'll wrap it up with some further thoughts on the quarter and the year, updates on regulatory activities, ASUS, dividends, and then we'll take your questions. During a year of high inflation, rising interest rates, volatile markets and supply chain challenges, we stayed focused on providing safe and reliable water, wastewater and electric services to over 1 million people in 9 states. To accomplish this, we spent 2022 successfully executing on our strategic plans, continuing our financial discipline, building and fortifying our infrastructure, providing excellent customer service, ensuring employee safety and well-being and managing the water and wastewater for our country's military personnel and family. In 2022, we invested a record high $167.4 million in infrastructure at our regulated utilities and received $34.4 million in new capital upgrade awards at ASUS, nearly double the amount from 2021. These significant investments will allow us to serve our customers for generations to come. As we turn to the financial results, the largest impact on our earnings per share for the year was the delayed decision from the California Public Utilities Commission, or CPUC, on Golden State Water's general rate case. New rates are to be effective January 1, 2022. And if approved, as settled would have resulted in an increase of $0.38 per share for the year. However, we continue to wait for a decision and because of that, we're not able to include the effect of any new rates on 2022 financial performance. As soon as the decision is received, new rates will go into effect and still be retroactive to January 1, 2022, which also means that the resulting increase in earnings per share is expected to be recognized in 2023's financial results. Secondly, we experienced losses incurred on our investments to fund one of the company's retirement plans, which negatively impacted earnings per share by $0.10 for the year as compared to gains of $0.08 per share in 2021. Excluding the effects of these two items from both years, adjusted consolidated diluted earnings for 2022 were $2.59 per share as compared to adjusted diluted earnings of $2.47 per share for 2021, an increase of $0.12 per share. On the regulatory front, there are several critical filings pending, which I will discuss later. And we remain proud of our dividend history and growth. In 2022, we increased the annual dividend by 8.9%, our 68th consecutive year of annual dividend increase. Eva will discuss the earnings and liquidity, and I'll turn the call over to Eva.

Thank you, Bob, and hello, everyone. Let me start with our fourth quarter financial results. Consolidated earnings as reported were $0.50 per share as compared to $0.55 per share last year in 2021, a decrease of $0.05 per share. This included gains of $1.3 million, or $0.03 per share, on the investments held to fund a retirement plan as compared to gains of $2 million, or $0.04 per share, in 2021. This item resulted in an unfavorable variance of $0.01 per share. In addition, due to the delay in receiving a final decision on the pending water general rate case while the revenues for 2022 were based on 2021 adopted rate. As the new rates being approved and implemented on January 1, 2022 consistent with the settlement agreement reached between Golden State Water and the Public Advocates Office at the CPUC, we would have recorded additional revenues and water supply costs that would have resulted in higher earnings of $0.09 per share for the fourth quarter of 2022. Also had we received the decision in the fourth quarter, we would have recorded a full year impact of $0.38 per share in Q4. Excluding the gains on investments from both periods and including the impacts caused by the delay in the water general rate case in the results, adjusted consolidated earnings for the quarter were $0.56 per share as compared to adjusted earnings of $0.51 per share for the fourth quarter of 2021, an increase of $0.05 per share or nearly 10% despite a $0.03 per share reduction in earnings for Q4 of 2022 as a result of recording a lower debt cost in the pending cost of capital proceeding for the Water segment. For our water utility subsidiary, Golden State Water Company reported earnings for the quarter were $0.28 per…

Thank you, Eva. I'll discuss a few key regulatory matters. As mentioned in previous earnings calls, we reached nearly a full settlement agreement with the Public Advocates Office of the CPUC on Golden State Water's 2022 through 2024 general rate case and filed a settlement agreement with the CPUC in November 2021. If approved, this settlement agreement resolves all the issues related to the calculation of the 2022 annual revenue requirement. It authorizes Golden State Water to invest approximately $404.8 million in capital infrastructure over the three-year cycle, plus $9.4 million of capital projects that have been completed and filed as advice letter project, the revenue for which was in effect February 15 of last year. It increases Golden State Water's adopted operating revenues for 2022 by approximately $30.3 million, which includes an increase for higher adopted supply costs of $9.6 million as compared to the 2021 adopted revenues, excluding the advice letter project revenue. And it allows for potential, additional increases in adopted revenues for 2023 and 2024, subject to an earnings test and changes to the forecasted inflationary index value. Obviously, we're disappointed that we have not received a proposed decision for 2022 water rates, which as previously mentioned, could have added $0.38 per share to our 2022 financial results. We are now in the process of preparing our next water general rate case to be filed in July of this year, for rates for the years 2025 through 2027. One key issue in the next application is related to the Water Revenue Adjustment Mechanism or WRAM. On September 30 of last year, the Governor of California signed Senate Bill 1469 effective January 1, 2023, it allows Class A Water utilities to request the use of the full WRAM in their next general rate case. So with the…

Ladies and gentlemen at this time we will being the question-and-answer session. [Operator Instructions] And our first question today comes from Angie Storozynski from Seaport. Please go ahead with your questions.

Thank you. So maybe first, you have the $0.13 of a drag reflected in your earnings and it's unique for you guys compared to the other two California utilities, right, because you are reflecting the lower cost of debt from the pending cost of capital proceeding even though there hasn't been a decision rendered or we're not sure if it's going to be retroactive. So in other words if the decision does not require a retroactive adjustment to the cost of debt, that $0.13 is going to return in 2023, meaning it's going to be an earning – it will be additive to 2023 earnings. Is that correct?

That is correct.

Okay.

How are you doing Angie?

Very good. Again, I mean, what a mess. Just so unfortunate that we haven't had a decision in your rate case or cost of capital proceeding. And looking at your electric rate case, it also seems like it's likely to split. So it will be in a sense a recurring headache, right? You know what the true earnings power of your business is now?

Yes. It's – yes, the electric rate case given its very small size, it's likely that the commission, particularly on the electric side of the house, which is who processes that particular case. It's quite possible that that will get delayed given the size and what everything else that they've got going there.

Okay. So – okay. Now the – just trying to understand the 8.9% dividend increase and the messaging that it spends about the longer-term earnings growth potential of the company. Obviously, I see the rate base growth. If you were to extrapolate from what you have settled for in your general rate case for Golden State, what would be the rate base growth going forward? So if I were to take 2022 through 2024 based on the settlement, what would be the rate base CAGR there?

Yes. So we've got a pretty good step-up between 2021 and 2022, which is on a particular slide here.

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Yes. Yes. And then I don't know what that percent change is, but that's a big jump there. And then I would say it's not as significant for 2023 and 2024. That's...

That's fair. And Angie, we have $404.5 million CapEx authorized over the three years. So it's on average here is one-third of that amount. So you will use the 2022 adopted rate base of that amount minus depreciation, of course. So the second, third year probably much less than the increase in the first test year as the regulator [indiscernible]. So we are preparing for the next rate case, which will be effective 2025. So that will be – we anticipate a much higher increase in rate base from last year.

Okay. For 2025 onwards, okay. And then lastly, via the $0.04 parent drag, it's a pretty meaningful increase from previous years. Is it, and then I see the drivers, right, interest expense and taxes? I mean when I look forward for the next year or two, is that – and given the rising interest rates, do I see the parent drag creep up further. So I'm growing at like $0.01 to $0.02 a year from the current level, meaning on a negative side, obviously?

No, it's really a function of interest rates. And if they're flat – if they're flat relative to 2022, you won't see it grow because it's really – it's really the jump in interest rates that created that drag, not necessarily the borrowing levels. Now I want to go back to your other question if I could.

Yes.

Subject to check, I just did the math on the 2022 versus 2021, rate base growth, and that's a 17.5% growth from 2021 to 2022.

Yes. I understand. Yes. Okay, very good. But just one last one. So Eva, are you saying there's been a change in the wording about the equity needs. So is that also a function of rising interest rates? Hence, you were signaling that there could be some need for equity beyond the next 24 months?

No, not so much the rising interest rate. And we're still waiting for the Water GRC. So it depends on the timing of when we receive the recovery of it. And also, our CapEx continues to go up and we prepare for our next GRC we anticipate the capital expenditure continue to increase. So just to support the overall capital spending for the utility and fair value, also spend a lot of money on their capital expenditures as well. So that’s really to support the capital expenditure need for the company. So we'll continue to assess that. We're hoping we can last for 24 months, but that the market now for sure if we're ready to do that.

Okay. Thank you.

Thanks Angie.

[Operator Instructions] Our next question comes from Jonathan Reeder from Wells Fargo. Please go ahead with your question.

Hey Bob and Eva. Just wanted to continue that last discussion on equity. Just trying to get a sense of the amount that you can need after that 18- to 24-month period that you mentioned. Can you talk about like the targets that AWR has for FFO-to-debt, debt-to-EBITDA and just the consolidated equity ratio?

We definitely want to maintain the equity ratio – the cap ratio aligned with the CPUC authorized rate, right, Jonathan. So if you have to maintain that and the equity coming from parent need to support that. And for the parent, we would like to maintain our credit rating with the rating agencies. So we'll continue to look at their benchmark to make sure we are meeting their requirements to hopefully maintain our credit rating at the parent level as well.

Okay. Do you know what those like metrics are on an FFO-to-debt basis for your A+ and everything?

Yes. So it's a bit of a debate between us and Standard & Poor's, I'll tell you that because they are – we're kind of looking at the, what 20 to 25 FFO-to-debt for American States and Golden State. And one of the issues here is whether because we have the revolver at the parent, we have to look at this 20 to 25. If we had the revolver at Golden State, perhaps the FFO-to-debt would be lower the benchmark.

Yes, I believe that benchmark for [indiscernible] will appeal while it will be slower.

Yes. As we have other things under the American States umbrella and just too states, our FFO-to-debt perhaps is a bit higher benchmarks than what you might see for a pure water facility.

Okay. Any thoughts on like putting a revolver or having a different revolver at the utility level than to address that or not really?

Yes. I mean we're thinking through that as we speak. With that S&P we've got the A+ rating for both parent and Golden State and with a negative outlook. And so we're working hard to maintain our ratings there. Whenever you have a negative outlook, as you know, Jonathan, you got to work hard to try to keep your rating and so we are.

Okay. Okay. Makes sense. GRC, I mean any idea what the heck happened with ALJ. I know they had put out the time extension saying that the proposed decision was going to come in January. So I mean I understand things can kind of slip, but to say that, with a couple of weeks ago and now are over a month after January. Any – what's going on there?

Well, the sense we have is just to say we've got more work to do than people could do it. But we're – we've been pushing and pushing and pushing at it doesn't seem to be getting the ball across the goal line here. So I know Jonathan and Angie both are really frustrated by this, you can imagine how frustrated we are with all-party settlement sitting in front of them. But it doesn't do any good. I don't know what issues they have there. It just seems like maybe they don't have enough people to do the work.

Yes. It just seems kind of odd. I mean, I forget when January came out, but are they the same?

Very early in January. In January 12, I think, that the CPUC approved the ALJ's request for a deferral.

Yes.

And then there was commentary about trying to get PD [ph] out in January. And then January came and went, and then now February has come and gone and we kind of met with everybody we think we can meet with this issue and just hard to put your finger on. I don't know if it's this particular ALJ has got too many things on his plate. That seems to be what the issue is. And so we'll continue to try to push as much as we can. But I think at this point, as long as we get a reasonable decision from the commission we'll be fine with it. And it does create this lumpiness. It makes it difficult for analysts on track, but we do understand they've got staffing issues that we're trying to deal with too.

Yes. I mean do you think it's appreciated at the top of the house with the commission, like I mean I think President Reynolds, when she was brought in one of our task was to try to get timely decisions out there. Do you think she has an understanding of the extent of the delays at the water side? Or it's just – is water really taken a backseat at the commission to all of the energy policy stuff?

Well, I think she's aware that there's been delays on the water rate base. How that fits into her do list. It is – I always defend the commission on this particular standpoint. California is a huge state. We've got five commissioners that have to basically deal with line up California with what you see on the East Coast. And how many commissions are they doing with the issues that one commission in California standpoint. You may have, what, seven or eight state commissions. So I do have a great appreciation for the difficulties and the challenges that the commission has to deal with. I'm not happy that our case is being delayed. I don't completely understand it, but I believe that group, the CPUC works hard and they try to get things done on time, et cetera, just perhaps it's more things to do than time to do it.

Yes. Well, you're patient person Bob. Hopefully, your patient is rewarded here and we can get some proposed decisions on the two big ones out here shortly. So good luck. Appreciate you taking my call and the update today.

Thank you, Jonathan.

Thank you.

[Operator Instructions] And ladies and gentleman at this time I am showing no additional questions. I'd like to turn the conference call back over to Bob Sprowls for any closing remarks.

Thank you, Jamie. I just wanted to thank you all again for your participation today, and we look forward to speaking with you next quarter, which will be couple of months here, I guess. And thank you for your interest in the company. Have a good rest of your week. Thank you.

And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining today's conference. You may now disconnect your lines.