California Water Service Group (NYSE:CWT) Q4 2023 Earnings Call Transcript

California Water Service Group (NYSE:CWT) Q4 2023 Earnings Call Transcript February 29, 2024

California Water Service Group misses on earnings expectations. Reported EPS is $0.52 EPS, expectations were $1.24. CWT isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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: 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: 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 APD and an APD 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: 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 the PD on the litigated 2021 GRC, and concurrently, the assigned CPUC commissioner issued an alternate proposed decision or APD, opposing and modifying certain decisions made by the administrative law judges. The PD issued by the administrative law judges was more closely aligned to Cal Water’s requested revenue requirement, whereas the APD 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 PD and APD, 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 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 customers 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, 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: 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 project. 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 3x 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: 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 $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 primary 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. 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: Thanks, Dave. So we ended the year in a strong liquidity position. Group maintained CWT maintained $85 million of cash, of which $45.4 million was classified as restricted. In addition, we had short-term borrowing capacity of about $420 million on our combination of our Group and our Cal Water lines of credit. Our collection process in terms of our aged accounts receivable improved in the fourth quarter and we ended the year by reducing our past due accounts receivable by approximately $2.1 million as compared to the same time in the prior year. In addition, we are participating in the California Arrearage Payment Program. In November, we applied for funds through that program to cover past due accounts up through December 31, 2022.

Our request was for $83 million and our application was accepted by the state. We’re looking forward to receiving the proceeds from the program, hopefully by the end of the fourth quarter in 2024, end of the first quarter in 2024. We did declare a dividend. I think a lot of folks on the call saw that we declared an $0.08 dividend for 2024. That is our 316th consecutive quarterly dividend and it increases our prior dividend by approximately 7.7%. And we continue to remain focused on our ESG goals. It’s a very high priority of the company. We are looking at each aspect of ESG, including climate change, affordability, our infrastructure investment and sustainability, and made advances in each of these areas as we progress through the fourth quarter and including our cap rates earlier in the year.

Turning to Slide 15, again, our earnings bridge, which demonstrates our performance from the prior year fourth quarter earnings per share to the current year fourth quarter earnings per share. And again, Dave touched on a lot of these items, with the most significant item being the decrease in WRAM and MCBA revenue and no replacement mechanisms due to the rate case delay. With that, I will turn the call over to Greg to talk a little bit about our — what’s probably on most everybody’s minds here, the 2021 California general rate case update.

Greg Milleman: All right. Thanks, Jim. I won’t repeat what Dave summarized at the start of the call discussing this. You all know that those decisions, the two decisions were issued. What I will say that is, in our opinion, the proposed decision was supported significantly by the evidence in the proceeding and the APD was not. And the filings that we made in February reflected those thoughts exactly. Turning to Slide 17, it wasn’t just Cal Water’s opinion that the PD was supported by the evidence and more in line with what the policies of the commission are, but also our trade association, California Water Association filed comments to that effect and the seven other Class A water utilities in Southern California Edison also put together a letter reflecting that and submitted that to the commission as well.

Turning to Slide 18, we also — last week, we met with the Board commission offices and expressed our concerns in regards to the APD and we urged them to vote for the PD. So based on all the comments that have been filed by multiple parties, as well as speakers at public participation hearings and the — just the differences between the PD and the APD, there’s a lot of uncertainty right now on how the commission will decide on this matter. Moving forward to Slide 19, speaking on a couple matters related to decoupling. We had some good news that we received a letter from the California Supreme Court that we received in January. The parties noticed that the court would set arguments in the next few months. So that’s a good sign. We haven’t seen movement on that for quite some time.

We are hoping that the court will invalidate the commission’s decision and that eliminates decoupling. That would be a very positive outcome for us. But regardless, under the new 2022 law, we will be requesting decoupling again in our 2024 general rate case. Moving to Slide 20, as you know, we already have a return on equity of $10.27 for 2024. In February of 2024, we received approval to defer the cost of capital proceedings scheduled for later this year. We received approval to defer it for one year, and that’s good news as well. So for 2025, we will also start with a return on equity of $10.27 and may move it up or down based on if the Moody’s utility bond index fluctuates by 100 basis points or more in accordance with the procedures of the water cost of capital adjustment mechanism.

And with that, I’ll hand it over to you, Marty.

Marty Kropelnicki: Great. Thanks, Greg. I’m going to talk a little bit about where we are at PFAS regulation, give an update on business development, and then give you some closing thoughts and we’ll open up for comments. On the PFAS side, nothing really new to report. We’re still waiting for the final adoption of EPA’s regulations for — and the maximum contaminant levels for PFOA and PFAS, which the targets in the draft are at four parts per trillion. As of right now, I would say we anticipate that coming out in the second or third quarter, but that is our best guess at this time. The company continues to develop their plans for a rapid implementation to deal with approximately 72 wells, 7-2 wells that have some trace elements of PFOA and PFAS.

What we haven’t mentioned before is in the last rate case cycle, we had seven wells that we included for PFAS type treatment that we were able to implement over the last few years, and those are in production. So we’ve actually had a fair amount of experience implementing this type of treatment for PFAS in some of our Central Valley districts. So in total, if you take the 25 wells total that we have current treatment on and add the 72, it’s about 97 wells in total out of about 1,000 that will require this type of treatment. So, as Jim mentioned, the numbers that we put on the Street for our capital expenditures do not include anything associated with the PFAS treatment, nor does it include anything — any type of recovery that is anticipated with the current pending PFAS litigation.

We do think there’ll be some dollars that come back through the company that will be a direct offset to those costs to help keep the PFAS treatment costs, making it lower for customers. Moving on to Slide 22, looking at our business development slide. In 2024 — excuse me, 2023, we closed six deals. If you look at the last five years, we’ve closed a total of 21 deals. These are typical things that we announce when we sign the contract, and we provide an update in our quarterly earnings deck that talks about the status of where we are filing with the commission and getting it to close. So we closed six deals in 2023, including one significant PPP, public private partnership. And you see the Camino Real utility water pipeline, that’s a public private partnership with the Guadalupe Basin river Authority to extend their water transmission line into the Southern Austin market, which we believe will open up water services for additional 10,000 connections both on the water and wastewater side.

I think as many of you heard, Eversource made announcements that they’re going to be selling their water utility, which is the old Aquarion. Obviously, we’re going to be very interested in that, and we will evaluate that as I assume they will go through a public process. It’s outside our service area, but it’s not that often you see a large utility especially a water utility come on the market for potential acquisition. Having said that, we’re also very concerned about the regulation in Connecticut, and what we’ve seen over the last couple of years has been less constructive than what it has been historically. So we will take all that into consideration as the process starts and we do our own internal evaluation. So in getting this summary, I’ll just — I’ll be really frank about this.

Look, I’m clearly disappointed in the continued delays associated with our 2021 California general rate case. I appreciate the CPUC’s efforts to get a decision out before our year-end cutoff. I don’t believe their intent was to create more confusion, but essentially issuing a PD and an APD at the same time has simply created more uncertainty given the differences between the two decisions. As Dave and Jim had mentioned, given the differences between the two, we were unable to conclude which of the two decisions will ultimately be adopted and therefore cannot book anything in 2023 and that is clearly reflected in our financial results for the year. While that is disappointing, I’d like to remind everyone we do have memo account treatment for the 2021 general rate case, and when a final decision is reached, it will be retroactive back to January 1, 2023.

So said a different way, when we do get the final conclusion, the carrying cost, the billing tariffs get adjusted, and there’s a surcharge that will essentially go on the customers’ bill, taking those adjustments back to 1/1/2023. That also means it’ll be recorded in 2024. And we’ll be — try to be very clear on the disclosures, what that impact is in 2024, so the Street can understand what the dollar amounts are. I think the sad thing associated with the continued delays is it just gets more costly. It costs more money for the customers with the continued delays because the memo account is accruing interest. It costs us more money going through the audit because we got to refine our public company disclosures and get our accountants comfortable with where we are with these PUC matters.

And overall, it just doesn’t benefit the customers. But again, I don’t think the commission had a bad intent. I think they were trying to do a good thing. And hopefully, as we go into March, we will have this situation resolved. The next meeting at the CPUC is on March 7. At that time, they can issue a stay, they can vote in the PD, they can vote in the APD, they can issue a new APD or make changes to either one of the two decisions that are on the table now. So all eyes will be on March and we’ll see what the commission ultimately ends up doing. Obviously, we will come out with our public company disclosures once we have finalization on the 2021 general rate case. While the general rate case has clearly dominated and created a lot of work for us, there are a number of other things that I think are just worth highlighting for the year.

First, we met and exceeded all our primary and secondary water quality standards and all the states we provide drinking water, so California, Washington, Hawaii and New Mexico. As Jim mentioned, we had new record capital investing associated with our infrastructure improvement plan at $384 million that’s up 17% year-over-year. We won our second J.D. Power award for highest overall customer service invest in the West. We were recognized by the Los Angeles Business Journal for outstanding corporate responsibility, and Newsweek once again named us one of the Most Responsible Companies and Most Trustworthy Companies in the U.S., ranking us number one among the water utilities, number 16 among all energy and utilities and 298 overall. Additionally, number four, we continue to make good progress on our efforts to improve reliability, sustainability, and climate change.

I would just call everyone’s attention to the events that happened in West Maui, the Mahina fires. If anyone doesn’t think that investment in wildfire harmony doesn’t work, as many of you will recall, we were the only water pumper in West Maui that stayed in service the whole time, during and after those fires. And so that was a direct result of incremental investment that the Hawaii Water Service Company made to make sure we were ready for wildfires. And so it clearly worked, and kudos to the team for doing a good job in a very, very hectic set of circumstances. And lastly, I just want to point out, and we mentioned this earlier, we started 2024 with a 10.27% return on equity in California. Additionally, California has agreed to our extension of our cost of capital proceeding, which we will not have to file until the spring of 2025.

That means we will go into 2025 with a 10.275% ROE plus or minus any adjustment associated with the cost of capital adjustment mechanism that we will announce when we get to the end of the performance period. So looking forward, a couple of key things that we’re focused on. Clearly, the CPUC meetings in the delayed 2021 general rate case. March 7 is the next meeting, as I mentioned. After that, it’s March 21, and there’s a meeting on April 18 and also on May 9. We look forward to working with the commission on getting this decision done and moving forward. Second, in March, we’ll announce our continued progress on our ESG program, and we’ll be setting and publicly disclosing our Scope 1 and Scope 2 greenhouse gas reduction targets. I think, as many of you know, we’ve put together a very thoughtful ESG program that’s very Cal Water centric, focused on how we support our customers and how we affect climate change.

So the team has done a very good job working on Scope 1 and Scope 2 greenhouse gas emissions scientifically-based process, and we’ll be announcing those in March. And in May, we’ll release our third annual SaaS be aligned ESG report. Likewise, as Greg mentioned, we’ll be filing our 2024 general rate case in July, inclusive of a new decoupling mechanism that I believe is very important for customers and the state as we deal with climate change adaptation. In closing, while the general ATS has created a lot of extra work for the team and a lot of confusion, I think for the public is not detracted from our core mission of taking care of our customers and running our utilities. As we look forward to working with the CPUC on concluding the 2021 general rate case and following the 2024 rate case, including the decoupling mechanism.

While the regulatory process can ebb and flow at different times, our service standards and commitments to service do not. And we remain steadfast and focused on executing our business plan and doing what’s right for our customers. And so with that, John, we will open it up for questions.

Operator: Thank you. [Operator Instructions]. Your first question comes from the line of Gregg Orrill from UBS. Please go ahead.

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Q&A Session

Gregg Orrill: 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: 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: 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: 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: 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 PD and the APD 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 PD. 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 PD 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 and 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 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 APD 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: 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: 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 based 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 based 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: Thanks for your answer.

Marty Kropelnicki: Thanks, Gregg. Have a good day.

Operator: Question comes from the line of Jonathan Reeder from Wells Fargo. Please go ahead.