Q4 2023 California Water Service Group Earnings Call

Participants

David Healey; Principal Financial Officer; California Water Service Group

Martin Kropelnicki; President, Chief Executive Officer; California Water Service Group

James Lynch; Chief Financial Officer, Senior Vice President, Treasurer; California Water Service Group

Greg Milleman; VP, Rates and Regulatory Affairs; California Water Service Group

Gregg Orrill; Analyst; UBS Equities

Jonathan Reeder; Analyst; Wells Fargo Securities LLC

Presentation

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, and 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 and dial in information for this call can be found in our quarterly results release, which was issued earlier today, and the replay will be available until April 29th, 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 web site 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 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, our 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.

Martin Kropelnicki

And good morning, everyone, and thanks for joining us today. We have a little bit of a bigger group today going through the results for year end on as many of you know, Dave Healey stepped in as our Interim Chief Financial Officer. Dave Healey is wrapping up the year with me only certifying the financials and as the Principal Financial Officer, Dave and I will be signing that the 10 K essentially for the Company and hopefully a once in the press release after conducting a nationwide search, we ended up hiring someone in our own backyard, as Jim mentioned, and Jim, it has joined our Company as our Senior Vice President, Chief Financial Officer and Treasurer. And I think many of you know, Jim, from his time at HKW, 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 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 the Q one 10 Q gets filed in April. So that's the plan for today. And we have Craig Melman here today to help talk about what's going on with rates delay, which is probably the big topic of the day as that 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 that APD. and APD. being issued. And so when I 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, full year financial highlights from 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% to 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%, a $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 for Cal Water pending 2021 General Rate Case or GRC as set new revenue rates and regulatory mechanisms.
The 2021 GRC was originally scheduled to be completed on December 31st, 2022, with new rates effective on January first, 2023. On January 24th, 2020, for the assigned CPUC administrative law judges issued a proposed decision, the PV. on the litigated 2021 GRC and concurrently, the assigned CPUC Commissioner issued an alternate proposed decision or EPP. opposing and modifying certain decisions made by the administrative law judges, the PD. issued by the administrative law judges force 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 13th, 2020 for Cal Water filed a request to change several elements in the PB. 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 first, 2023, will be recorded. Also, net income was positively impacted by $18.5 million in income tax benefit due primarily to a reduction in pretax operating income driven by the delayed 2021 GRC and a $12.1 million increase in net other income, mostly due to unrealized gains on certain nonqualified 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 1H 22 full year operating revenue of $846.4 million revenue decrease was mostly due to a $66.9 million decrease in RAM and MCBA operating revenue as these mechanisms concluded on December 31st, 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 sub 4% rate increase in most of our California districts effective May fifth, 2023, an increase in calendars authorized return on equity from 9.2%, 9.57% effective July 31st, 2023, and cost offset revenue increases for water production purchased water purchased power pump tax rate increases 2023 full year total operating expenses decreased $1.3 million to seven 700, $17.5 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 and pretax operating income due to the delay in the regulatory approval of our 2021 GRC and at $3.7 million decrease in other operating expenses, which were partially offset by increases of $13.4 million in labor costs, $3.2 million in water production costs and $6.6 million in depreciation and amortization expense.
Moving on to slide 7, financial results. Year 2023 and 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.

James 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 investments we made just under $300 million or $384 million of capital investment during the year. The total included $326 million that was invested in our Cal Water Service terror territory. The total also includes $17 million of developer funded CIAC. projects. 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 of rate from the TTGA. Tax Act and in 2017 and 2023, we also experienced a $12.1 million increase in other nonregulated revenue and expenses, and that was related to unrealized gains on certain nonqualified 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 is to average about three times 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 P. phos 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, our 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 number 11, wrapping up our 2023 annual financial results.
On slide 10, our Slide 11 is our earnings per share bridge, the earnings per share and captures a 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 RAM and MCBA revenue with no replacement mechanisms to 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 at 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. The increase in RAM and MCBA revenue as the mechanisms concluded on December 31st, 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 costs of $6.2 million. Labor costs of $5.3 million and depreciation and 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 I discuss, 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, diluted earnings per share of $0.35 for the fourth quarter of 2022.
The $10.6 million increase was primarily due to a $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 and interest expense in the fourth quarter of 2023 increased $1.2 million or 11.2% at $29.9 billion 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 and Dave.

James Lynch

So we ended the year in a strong liquidity position. Our Group maintained CWT and 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 two 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 participate or we are participating in the California arrearages payment program in November. We applied for funds through that program to cover past-due accounts up through December 31st, 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 or ended the first quarter in 2024, we did declare a dividend. I think a lot of the 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 advance advances in each of these areas as we progress through the fourth quarter and including our efforts earlier in the year.
Turning to slide 15, again, our earnings bridge, which 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 RAM 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 was probably at on the most everybody's minds here. The 2021, California General Rate Case update.

Greg Milleman

Thanks, Jim. I will repeat what Dave summarized that the start of the call discussing that. You all know that those decisions, the two decisions were issued. What I will say that is in our in our opinion, the proposed decision was some supported significantly by the evidence in the proceeding and the ADD. was not. And the filings that we made in February reflected on those those thoughts exactly.
Turning to slide 17, it wasn't just Cal Water's opinion that the per head of 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 and Southern California Edison also put together a letter reflecting that and submitted that to the commission as well through Slide 18, we also during the last week, we met with the four commission offices and expressed our concerns in regards to the MAPD. and we urge them to vote for the PD. So based based on all the comments that have been filed by multiple parties as well as SPEAKERS that public participation hearing and the just the differences between the PD. and the APC. 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 of matters related to decoupling. We had some some good news that we received that a letter from the California Supreme Court that in June we received in January the parties notice 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 eliminate decoupling, and 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 2020 for 2024. In February of 2024, we received approval to defer cost of capital proceedings scheduled for later this year. We received approval to defer for one year, and that's the good news as well. So for 2025, we will also start with a return on equity of 10.27 and with wind may move it up or down based on the 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 turn it over to Marty.

Martin Kropelnicki

Great. Thanks, Craig. I'm going to talk a little about where we are at peak s regulations, give an update on business development and then give you some closing thoughts and we'll open up for comments.
On the people side, nothing really new to report on. We're still waiting for the final adoption of EPA's regulations for in their maximum capacity levels for PFO. and P. phos, which the targets in the draft or four parts per trillion. As of right now, I would say we anticipate that coming out in the second and third quarter. That is our best guess at this time on the company, continues to develop their plans for a rapid implementation to deal with approximately 72 wells, seven to wells that have some trace elements are people and pay us what we haven't mentioned before. As in the last rate case cycle, we had seven wells that we included for P plus 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 P. phos 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 gives you about 97 wells in total out of about 1,000, and that will require this type of treatment. So as Jim mentioned on 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 of any type of recovery that as anticipated, with the current pending peak loss litigation. And we do think there'll be some dollars that come back in the Company that will be a direct offset to those costs to help keep the P faster than 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 on. If you look at the last five years, we've closed a total of 21 deals. These are typical things that we announced when we signed the contract and we provide an update in our quarter 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 2026, including one significant at p p p public-private partnership initially, the Camino Real utility water pipeline, that's a public-private partnership with the water will be basin River Authority to extend their water transmission line into the southern Austin market, which we believe will open up our water services for an additional about 10,000 connections both on the water and wastewater side. I think as many of you heard Eversource made announcements that they are going to be selling their water utility, which is build 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 public process. It's outside our service area, but it's not that often you see at large our utility, especially a water utility come on the market for potential acquisition. But 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. And so in getting the summary, I'd just 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 year end cut off. I don't believe their intent was to create more confusion, but essentially issuing a PD. and APD. at the same time has simply created more uncertainty given the differences between the two decisions.
As Dave and Jim have 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 as well that it's disappointing. I'd like to remind everyone we do have a memo account treatment for the 2021 General Rate Case. And when a final decision is reached, it will be retroactive back to January first, 2023. So said a different way when we do get the final final conclusion, the carrying cost of billing tariffs get adjusted, and there's a surcharge that will essentially go on the customer's bill, taking those adjustments back to one one 23. It also means it will not be recorded in 24. And we'll be I tried 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 those at home page memo account is accruing interest. It cost us more money going through the audit because we got to refine our public company disclosures. We had our accountants comfortable 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.
Next bleeding at the CPUC is on March seventh 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 APDR. 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. So obviously, we will come out with our public company disclosures once we have finalization on the 2021 General Rate Case.
Well, the general rate case is 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 of $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, Connecticut, and 290 fees overall.
Additionally, number four, we continue to make good progress on our efforts to improve reliability, sustainability and climate change. And I would just call everyone's attention to the events that happened in West now in the behind the 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 now 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 and as 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'll 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 it when we get to the end of the performance period.
So looking forward, a couple of key things that we're focused on Blue. Clearly, the CPUC meetings in the delayed 2021 General Rate Case March seventh. This next meeting, as I mentioned, after that, it's March 21st and there's a meeting on April 18th and also on May ninth. 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 one and Scope two 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. And so the team has done a very good job. I'm working on Scope one and Scope two greenhouse gas emissions, scientifically based process, and we'll be announcing those in March. And in May, we'll release our third annual SaaS, Beeline ESG report. In fact, 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 rate case has created a lot of extra work for the team and a lot of confusion, I think for the public is not detract us from our core mission of taking care of our customers and running our utility. As we look forward, we look forward, excuse me, we look forward to working with the CPUC on concluding the 2021 General Rate Case and filing 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.

Question and Answer Session

Operator

(Operator Instructions) Gregg Orrill, UBS.

Gregg Orrill

Yes, thank you. So the Supreme Court arguments on decoupling are going to be heard it was there something you were implying further about that yes, we all the utilities that are party to the proceeding received the letter earlier this year in 2024, saying that the Corps is looking to add. Second, have we set a date for arguments later this later this year?

Martin Kropelnicki

So we all received notice of that yesterday, the briefings evolving files, necessary margins, taking that into consideration and essentially they put us on notice that they will likely be scheduling the oral arguments here sometime cap. We hope no, probably within the next few months. That will be determined ultimately by the court. But again, we're very happy that that discussions moving forward.

Gregg Orrill

And I look forward to bringing that to conclusion as well for sure, from Penn. So when when do you really expect that there could be a boom TRC outcome. I know it's on the agenda for the seventh, but you know, 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? And how do you how do you get there?

Martin Kropelnicki

Sure. Well, it was the first part of your question. As Greg mentioned, we spent the last 10 days meeting with the commission, the ex parte communications, talking about the differences between the PD. and APD. and which one we felt was better in my mind, this is in Marty's headed. 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 we were enforced 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 to assign judges concluded on that rate case and they issued the PD. and obviously the commission our commission or had a different opinion than what the two judges concluded based on the finding of facts and the records ever provided during the litigation process. So yes, I believe that the PTs 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 you know, again, as I said, I don't think they intended to create confusion. I'm not sure what their intents were other than just trying to bring some of the costs down. But for those of you that have studied and no Cal Water, we're very affordability focused because we know you have to have a balance nature to your capital plan and trying 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. We are building out capital plans that are that are 10, 20, 30 years out. And so I think the commission's got to decide which decision they think is right based on the financing backs and we've done our part now. We have provided comments. I've been very happy to see that.
Okay. So Cal 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 you got to file a CTA advice letter. Now that's essentially on a more historic rate making in California has been a prospective rate-making state for a long, long time. So I think that the commission has to conclude on that. And the second part of your question can repeat I Greg forming please.

Gregg Orrill

I guess it was a, you know, the the action on the dividend would would seem to imply that there's not really that much of a difference between the PD. and the APD. Can you can you help correct me where I'm wrong there.

Martin Kropelnicki

Sure. So from a from a dividend standpoint, let's just talk about the governance process that goes in behind it from 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 on in October and November, and then we conclude as a board and in January, look, we believe the fundamentals of the Company are strong. In our as Jim pointed out, the estimated rate base growth year over year. And 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 to, frankly, have pancakes rates on customer rates on customers, that 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 on. And we believe the fundamentals of the Company are good and the rate base 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 base. And then I'll jump as it goes through the rate-making process. It 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.

Martin Kropelnicki

Thanks, Gregg. Have a good day.

Operator

Jonathan Reeder, Wells Fargo.

Jonathan Reeder

Hey, so you kind of touched on one of my questions there in response to Greg. But at this point on, you know, with the filing of the written comments and the other party jumping in the mix and everything like half of all the pushes by the parties have been made in terms of these filings and ex parte meetings such that the case is just like truly in the commission's hands at this point.

Martin Kropelnicki

You know, the ex parte communications have all been filed. I think there are some more comment letters coming in on from some of the firefighters association and Barra fire fire, firefighting chiefs, fire chiefs on. But again, those are all things that we're not involved in the drafting of their letters or their comments, those are things that are all done by third parties. So my sense is there's still some more coming in. But yes, ultimately, when those are done, it's really open it up to the commission and the commission did have an open meeting.
Greg, I remember the date on our February 15th, February 15th demand, how many people story 20 people speak on raising concerns about that in a PET versus PD, and they were also enabling the PD. is best. And let's continue on adapting to climate change while fire hardening and building resiliency and sustainability in the state of California.
So I think for close, Jonathan, I think the commission ultimately has to take all that data and then decide what they're going to do.
Okay.

Jonathan Reeder

From then you kind of indicated that 2024 planned CapEx, it was $365 million, but it depends on the outcome of the GRC I'm assuming, you know that number reflects an outcome more consistent with the PD in your request. Can you discuss how I guess the capital budget might change if the APD. were to be adopted.

Martin Kropelnicki

Yes and no, I mean, in concept, you're absolutely right. The decision could affect the because of delayed could affect the capital program for 2024. But if you read if you're lucky enough to read the 600 pages of either decision you'll see in that APD., they say you can still do the capital and you have to do it via advice letter. And part of our pushback is a lot of that capital was previously approved in the last rate case and so that's why I think you saw the other utilities become very interested in what's going on here because again, it's a forecasted capital state and they're changing the rules after the fact. So I don't know how they're going to rule on that. Obviously, when when Greg and I met with the commission, that was one of our big pushback points, is that you're changing the rules that have been launched along set standard in the regulatory process in the state of California. So it just depends which way they go.
Now. Having said that, obviously, they're saying, hey, you can still do your capital and you can do it advice, lenders. And look, it's incumbent upon the Company on an annual basis and on a continual basis to do a risk assessment where that capital is the most efficient and most needed. So and to the extent we do put capital to work outside of a rate case we can either filing an advice letter are it gets picked up in the next rate case filing. So there's nothing in the process that prohibits the company from doing what they think they need to do to run a good water utility and to continue on our team. Our path is our goals and objectives. What it doesn't mean, it's just how is that going to be recovered, is it going to be pre-approved capital that you get it in the ground and you have the earnings test, which has historically worked hard?
You got to do it via the advice letter means you got to do the investment, get the plant and service and then start depreciating it and buy upfront Lifeline or do you pick it up in the next general rate case.
Greg, anything that you'd add on that?

Greg Milleman

Yes, I would just add that there were a handful of projects that they didn't think were appropriate. But the rest of the projects were that we allowed more along the lines of build it and then seek recoveries, which as you mentioned, Marty goes away from the forward looking rate, meaning freight making state philosophy. But that my point being is that very they didn't say these were bad projects. They recognize the need for it, but just how you get the rate recovery?

Jonathan Reeder

Yes. I mean, I guess with that mining, it sounds like, right, the the higher levels of CapEx you've been deploying, we should kind of anticipate that that moves forward or if not kind of increases given, can you give us just kind of, I guess, rising expenditure needs where now if we're looking even beyond 2024. I mean, should we be keeping the levels more consistent with either the kind of the $365 million or the $383 million from this year?

Martin Kropelnicki

Yes, Jon, I would say it looks like the company has done a really good job at building a long term capital plan and that allows us to trying to balance affordability with the needs of the infrastructure as well as kind of building up more resiliency and reliability and dealing with climate change. So I don't see that slowing down?
Bob, you know, this is probably a hiccup we're going through right now with we know with the commission because the rate cases is so late and but what we need to do needs to continue. And that's why I think West Valley, I wanted to point that out and that was all work that we worked with the Hawaii commission on and harden those systems. And I don't think it should surprise anyone that you know, at the end of the day when the fires are out, we were the only water company pumping water on the whole West Side O'Malley that was that was by design that was by good planning, that was by good employee training, and that was by putting in backup generation that was by doing the wildfire annual Wirefly wildfire hardening process. We go through and inspections to make sure properties declared So know there's a cost to be ready for these things. But I think ultimately, you know, we have performed well, even take the storms earlier this year, all the storms. Last year, we had no real Kemwater outages. We didn't run out of power on. And then there are other kind of marginal benefits that don't get counted when California hasn't had enough energy for the grid, for example, and the governor's office calls and said, hey, yes, give us what you got. We were able to take six megawatts off the grid by using our backup systems we put in place. So in all the all the pieces have to fit together. And it's really important that the commission take a long-term comprehensive view, and that's the view the company has taken on the capital. So I don't see capital could slow down a little bit. I don't see it slowing down dramatically because we've got a lot of work to do.
Okay.

Jonathan Reeder

That's very helpful. Good luck with the rate case.

Greg Milleman

And yes, we'll see if we get anything on March 7 or if you have to wait a little longer this time.

Martin Kropelnicki

Thanks, Jonathan. And thanks for your comments.

Operator

As we have no further questions in our queue at this time. I will now turn the call over to Martin Kropelnicki for brief closing remarks. Please go ahead.

Martin Kropelnicki

Thanks, John. Everyone, thanks for joining us today. Again, we will keep everyone apprised of what's happening with the commission's watch for a press release and eight K sort of the appropriate public company disclosures in the meantime know that we are going to continue to run our utility the best way that we know how, and that's really by focusing on our customer and doing the right thing. So thank you for your time today. And if you have any follow-up questions, feel free to reach out to any one of us. Thank you and have a good day.

Operator

This concludes today's conference call. Thank you for your participation, and you may now disconnect and have a nice day.