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 2021 results. This call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 5 P.M. Eastern Time and run through Wednesday, March 2nd, 2022 on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. Should you need assistance during the audio call today, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone, and to withdraw your question, please press star then two. Today's call will be limited to an hour.
Presenting today from the American States Water Company is Bob Sprowls, President and Chief Executive Officer, and Eva Tang, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company's risks and uncertainties in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission.
In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information that are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I will turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company.
Thank you, Rocco. Welcome everyone, and thank you for joining us today. I'll begin with some comments on the highlights for the year. Eva will then discuss some financial details for both the quarter and the year. Then I'll wrap it up with some updates on regulatory filings, ASUS, and dividends. Then we'll take your questions. I'm pleased to report that we had a very strong 2021. Our earnings per share increased 9.4% to $2.55 for 2021, compared to $2.33 reported for 2020, driven by higher year-over-year performance by the water segment, largely as a result of new rates authorized by the California Public Utilities Commission or CPUC. In fact, we had increased earnings in each of our business segments for the year.
Eva will discuss our financial results for the fourth quarter shortly. There were a number of other highlights for the year. We continued to invest in the reliability of our systems, spending a record high $142.6 million in company-funded infrastructure at our regulated utilities during the year and continued to maintain the infrastructure at 11 military bases. Infrastructure investment and improvements is critical to providing safe and reliable service to our customers and allow us to maintain water quality, reduce leaks, promote energy efficiency, and fortify the systems for natural disasters and other events.
In 2021, we reached a joint settlement agreement on key items with the Public Advocates Office of the CPUC on Golden State Water's general rate case to set new rates for the years 2022 through 2024, which, if approved, will allow us to continue our investment in our water systems. The company's environmental, social responsibility, and governance, or ESG profile, remains strong. We increased the breadth and depth of our ESG disclosures during the year. This month, we set a target goal to reduce our greenhouse gas emissions by 60% by 2035, an important step in doing our part to reduce the effects of climate variability. During 2021, we published our first-ever diversity and inclusion policy, formalizing our commitment to this important area and highlighting the sound policies already in place.
With 56% women on our board of directors, we were recognized by the 50/50 Women on Boards organization as gender balanced, a level that only 8% of the Russell 3000 index companies have achieved. Since 2007, our customers have used less water and electricity. For 2021, water usage by our customers is down 29%, and electric usage is down 5% compared to 2007 while the number of customers have increased at both business segments. We remain committed to our communities. Golden State Water continued to spend with diverse business enterprises, achieving results that were well above the CPUC's requirement for the ninth consecutive year. In addition, ASUS continued to proudly provide dependable services for America's service people and their families and receive high marks for its customer service.
We continue to exceed the U.S. government's requirements to hire small businesses to perform work on the bases we serve, and earned the designation Vets Indexes Three-Star Employer as part of the 2021 Vets Indexes Employer Awards. The award recognizes ASUS's commitment to recruiting, hiring, retaining, developing, and supporting veteran employees and others in the military-connected community. During 2021, we increased the annual dividend by 9%, our 67th consecutive year of annual dividend increases. We have consistently executed on our strategies and have been able to deliver a five-year total shareholder return of 148% or a compound annual return of 20%. Our strong performance in 2021 would not be possible without the commitment to our customers, the dedication of our employees, and support of our shareholders. We are optimistic and well-positioned for 2022 and beyond. I'll now turn the call over to Eva to review the financial results for the quarter.
Thank you, Bob. Hello, everyone. Let me start with an overview of our fourth quarter financial results. Consolidated diluted earnings for the quarter were $0.55 per share, compared to $0.54 per share reported for the same quarter of 2020. Earnings at our water segment increased $0.04 per share for the quarter. This increase was largely due to an increase in water revenues from new rates for 2021, authorized by the California Public Utilities Commission. Earnings from the electric segment for the fourth quarter of 2021, as well as 2020, were $0.07 per share. Higher electric revenues and lower electric supply costs were offset by an overall increase in operating and interest expenses as compared to the fourth quarter of 2020.
Earnings from the contracted services segment were $0.13 per share, as compared to $0.17 per share for the same quarter of 2020. The decrease was largely due to a decrease in construction activity, partially offset by an increase in management fee revenue and an overall decrease in operating expenses. The decrease in construction activity was due largely to timing differences of when construction work was performed as compared to the fourth quarter of 2020. Consolidated revenue for the three months ended December 31, 2021 decreased by $7.6 million as compared to the same period in 2020. The decrease was due to lower construction activity at our contracted services segment due to timing, as just discussed, partially offset by increase at our water segment. Turning to slide 10.
Total operating expenses decreased approximately $8.3 million versus the fourth quarter of 2020, mostly due to a decrease in construction costs at ASUS as a result of lower construction activity, a decrease in property and other taxes, and a sale of non-utility related land at the water segment, resulting in a gain of $409,000 recorded during the fourth quarter of 2021, with no equivalent item in 2020. Slide 11 shows the EPS bridge compared to the fourth quarter of 2021 with the same quarter of 2020. This slide shows the full year results. Consolidated earnings for 2021 were $2.55 per share as compared to $2.33 per share for 2020.
Included in the results for 2021 were gains on investments held for one of the company's retirement plans totaling $4.3 million or $0.08 per share, as compared to $3 million or $0.06 per share in gains generated during 2020, largely due to market conditions. Excluding this gain from both years, adjusted diluted earnings for 2021 were $2.47 per share, as compared to $2.27 per share for 2020.
Earnings from the water segment increased by $0.21 per share compared to 2020 due to an increase in water revenues of $16.5 million, largely from new water rates as a result of the full third-year step increase effective January 1, 2021, partially offset by an increase in supply costs of $4.1 million and other operating expenses of $3.1 million. There was also a decrease in effective income tax rate due to changes in flow-through adjustments. Moving on to the electric segment. Earnings were $0.01 per share higher than in 2020. The higher electric earnings were due to new rate authorized by the CPUC and lower interest expense. These increases in earnings were partially offset by higher electric supply costs and other operating expenses.
Diluted earnings from the contracted services segment was $0.48 per share as compared to $0.47 per share for 2020, an increase of $0.01 per share. This was due to an increase in management fee revenue as well as a decrease in overall operating expenses, partially offset by lower construction activity as compared to 2020. AWR parent earnings decreased $0.01 per share compared to 2020 due to higher state unitary taxes recorded at the parent level. Turning to liquidity, net cash provided by operating activities was $115.6 million as compared to $122.2 million in 2020.
The decrease was primarily due to timing of income tax installment payments, lower surcharges to recover regulatory assets, and timing differences of billing off and cash receipts for construction work at military bases. These decreases were partially offset by improved cash from utility accounts receivable. As Bob mentioned, our regulated utility invested $142.6 million in company-funded capital projects in 2021. We expect to invest $140 million-$160 million in 2022. As I noted during our last quarter's call, we do not expect American States Water to issue additional equity for at least the next 3 years to fund its current businesses. With that, let me turn it back to Bob.
Thank you, Eva. I'd like to provide an update on our recent regulatory activity. In July 2020, Golden State Water filed a general rate case application for all of its water regions and the general office for new water rates for the years 2022, 2023, and 2024. In November of last year, we reached a settlement agreement with the Public Advocates Office on this general rate case. Only three issues remain. Among other things, the settlement authorizes Golden State Water to invest approximately $404.8 million in capital infrastructure for the three-year rate cycle. The settlement also authorizes Golden State Water to complete certain advice letter capital projects approved in the last general rate case, which have recently been completed for a total capital investment of $9.4 million.
The additional annual revenue requirements generated from these capital investments are $1.2 million and became effective February 15th, of this year. Excluding the advice letter project revenues, the amounts included in the settlement agreement, if approved, would increase the 2022 adopted revenues by approximately $30.3 million as compared to the 2021 adopted revenues, and increase the 2022 adopted supply costs by $9.7 million as compared to the 2021 adopted supply costs. The three issues not included in the settlement agreement were contested through the briefing process rather than hearings and include Golden State Water's requests for a medical cost balancing account, a general liability insurance cost balancing account, and consolidation of two of the company's smaller customer service areas for rate-making purposes.
A proposed decision in the water general rate case is expected in mid-2022. Once a final decision is issued by the CPUC, new water rates will be effective retroactive to January 1st, 2022. Turning our attention to slide 15, we present the growth in Golden State Water's average rate base as authorized by the CPUC for 2018 through 2021. The weighted average water rate base has grown from $752.2 million in 2018 to $980.4 million in 2021. Based on the general rate case settlement agreement, the 2022 rate base amount is $1.152 billion, which, if approved, would result in a compound annual growth rate of 11.3% since 2018.
The rate base amount shown for 2021 and 2022 do not include any rate recovery for advice letter projects. Let's move on to ASUS, which had another strong year, achieving record net income of $17.7 million and record earnings per share of $0.48. This was accomplished despite some reduction in overall construction activity in 2021, which we've discussed. We continue to work closely with the U.S. government for contract modifications relating to potential capital upgrade work for improvement of the water and wastewater infrastructure at the military bases we serve. As a result, during 2021, the U.S. government awarded ASUS $17.3 million in new construction projects. Some of the projects were completed in 2021, while the majority are expected to be completed in 2022.
In addition, completion of filings for economic price adjustments, requests for equitable adjustment, asset transfers, and contract modifications awarded for new projects provide ASUS with additional revenues and dollar margin. We remain confident that we can effectively compete for new military-based contract awards in the future based on our proven track record of managing water and wastewater-related services for military bases since 2004. We are actively involved in various stages of the proposal process at a number of other bases considering privatization. The U.S. government is expected to release additional bases for bidding over the next several years. During the last two years, there's been a reduction in new capital upgrade awards, largely due to the effects of COVID-19.
In light of continued uncertainty associated with the effects of the pandemic, we reaffirm our projection that ASUS will contribute $0.45-$0.49 per share for 2022. I would like to turn our attention to dividends outlined on slide 17. In 2021, we increased the annual dividend from $1.34 per share to $1.46 per share, an increase of 9%. Over the last 10 years, our dividend compound annual growth rate is nearly 10%, consistent with our policy to achieve a compound annual growth rate in the dividend of more than 7% over the long- term.
American States Water Company has paid dividends to shareholders every year since 1931, increasing the dividends received by shareholders each calendar year for 67 consecutive years, which places us in an exclusive group of companies on the New York Stock Exchange that have achieved that result. I'd like to conclude our prepared remarks by thanking you for your interest in American States Water, and will now turn the call over to the operator for questions.
Thank you. We will now take your questions. If you would like to ask a question, please press star then one on your touchtone phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Today's first question comes from Angie Storozynski with Seaport. Please go ahead.
Thank you. I was actually just updating the model, and I just a couple of like simple modeling questions. It seems like the maintenance expense for 2021 seems much lower versus that for 2020. I understand that it's not a fourth quarter item, but Eva, do you remember what was the reason for the decrease here?
I think it's the unplanned maintenance work, Angie. I mean, those kinds of things are hard to expect. We plan our maintenance work, but if there are emergency comes along and there are things happen during the year that we have to address it immediately. They will have some fluctuation of the maintenance cost going forward. We expect to be maintaining that. Hopefully not. There are no a lot of emergency work happening in 2022. That was what's happening in 2020 at the beach. Bob, do you have anything to add?
Yeah. I mean, it's a really good sign that our unplanned maintenance, we didn't have to do a lot of it, you know, in terms of leaks, et cetera. I think it's a really good sign.
Yeah, for sure, especially in this inflationary environment. Now, the second question, again, based on your reported numbers. I see that you have this $31 million in notes payable. There's like a very de minimis increase in long-term debt, but there is this big, you know, short-term debt. Is the timing of when you plan to issue long-term debt?
Golden State Water, you mean, Angie?
Well, I'm looking at your 10-K. I mean, on a consolidated basis, I see this, you know, big seemingly short-term debt increase. Again, I can follow up offline. That's not a problem. Just moving on to more, you know, crucial issues here. You know, I'm looking at your settlement, and you mentioned that those revenue and supply cost increases are versus the approved revenue levels, meaning I cannot simply use the recorded revenues for the water segments that you showed me in 2021 as a basis of this increase?
Yes. We reported the change in adopted revenues from 2021 to 2022. As you know, with the full RAM, revenues tend to be very close to adopted. What we were trying to do is give you a sense of where, if the settlement agreement gets approved, the 2022 revenues will end up.
Okay. It's very close to basically if I just use the reported water revenues, and I use this $30.3 million increase that is in the settlement.
Right. We also gave you the change in the supply cost.
Yes. That's absolutely sure. On top of it, there is also an increase associated with those projects that are excluded from the GRC, right? There is still some small upward adjustment to the water revenue in 2022 on the back of those additional projects.
Right. $1.12 million is the annual effect of those advice letter projects.
Right. That started February 15th. It's not a full year for 2022. In addition to that, Angie, for 2022, when the cost of capital proceeding got approved, w e will have to retroactive to January of this year for the revenue requirements to reflect the final cost of capital, both debt and equity. You have to estimate an adjustment for that.
Speaking of the cost of capital, that's definitely an interesting proceeding that you guys are going through. Actually, electric utilities in California are going through it as well. We're seeing the arguments of the consumer advocate, at least on the electric side, very interesting to say the least, with a 7% handle on the allowed ROE. The argument that there is no connection between the cost of equity and performance of utility stocks, which is again an interesting argument.
You know, there have been changes at the commission, so we don't really know, at least from our vantage point, how the commission is going to opine on those future allowed ROEs. Is there anything that you guys can share, any sort of, you know, gauge of your sentiment of how the commission, you know, will act here? Again, this seems to be such a wide range of expectations between what you guys had filed for and what we just saw in the comments from the consumer advocate, at least on the electric side.
Angie, just to mention here, the Public Advocates Office in the water case has issued their report. For us it was 7.51% ROE. You know, we had requested 10.5, so we're, you know, miles apart there.
Yes, exactly. Very wide.
Yeah. Although they did mention in their report a recommended capital structure of 56.85% equity. We had requested 57%, so we're close on that, but clearly miles to go on the ROE. Yeah, it's a relatively new commission, as you know, with two new commissioners there, so we're not entirely certain how this is going to go. We think the 7.51% is ridiculous, of course. So we'll see. But we'll have hearings on April 5th through 8th on this process, and perhaps we'll know better after the hearings. You know, we've got two new commissioners, although, you know, they're both lawyers, so that's a good sign. Commiss ioner Reynolds, you know, he worked at the commission for many years and was a commissioner's advisor for many years. I feel like, you know, he's probably got his arms around how the commission works. Not real sure about, you know, the president of the commission because she's new to the commission.
Yeah. Just one other one. Eva, you mentioned that there was some pressure on the electric utility side related to rising purchased power costs. I mean, that pressure is probably only likely to intensify given what we're seeing happening with natural gas and thus power prices. There is this annual step up, right, in electric revenue under the electric GRC. Again, if there is this inflation in the purchased power cost, that is basically sort of mitigating any meaningful earnings increase on the electric side. Is that fair?
Yes, Angie. We do have a full supply cost balancing account at Bear Valley Electric t o the extent the purchased power is higher than authorized, we'll be able to recover that. Yeah, we'll book to the adopted supply cost and recover that in the future through surcharges.
Awesome. Okay. Thank you.
Thank you.
That's a fair point. Thank you. Bye-bye.
Ladies and gentlemen, as a reminder, to ask a question, please press star, then one. Today's next question comes from Jonathan Reeder at Wells Fargo. Please go ahead.
Hey, Bob and Eva. How are y'all today?
Good, Jonathan.
Good, Jonathan.
How are you?
N ot doing too bad. Just wondering if we strip out the $0.08 investment gain, you know, would you say the $2.47 is a good starting point as we're thinking about, you know, 2022 EPS and the growth, you know, from the potential uplift from the pending GRC settlement offset by any cost to capital adjustment? A re there, you know, some other things in there that, you know, we may need to adjust for, you know, that allowed you to come in a little stronger in 2021?
Yeah. Jonathan, if you could give the step back again, please, in terms of how you're building 2022?
Well, no, I'm just wondering if using the $2.47, so taking out the $0.08 investment gain, you know, is that a good starting point, you know, to kind of think about layering on, you know, the other drivers such as the uplift from the GRC settlement, you know, offset by the cost of capital adjustment or, you know, are there some, you know, expense items or you know, stuff at the utilities that may have led to, you know, some overearning situations or something in 2021 that aren't, you know, perhaps repeatable?
You'll have to adjust for the true up of the cost of debt, because you know, our prior cost of capital had 6.6%. The filing we did here, which is sort of truing up the debt cost, is 5.1%.
That's right.
That'll be effective January 1, 2022. You'll have to factor that in, Jonathan.
Do you know what that is offhand, just from a revenue perspective?
It's about $7.5 million, Jonathan. If everything stay the same, you know, we have our requested equity, we remain at 8.9%. Just the decrease in debt from 6.6% to 5.1% would probably impact revenues by $7.5 million.
Okay. Otherwise from the expense side of the equation, you know, you just had kind of your normal ebbs and flows throughout the year and, you know, there's no kind of one-timers tucked in there that we should be adjusting for?
I can't think of any majority one. If we go to hearings, then we may incur additional you know, legal regulatory costs for the cost of capital proceedings. Other than that, everything seems to be working normally.
Okay. Then on the electric side, I saw in the 10-K that, you know, it said Bear Valley expects to spend $13 million in 2022 just on wildfire mitigation, you know, projects. It looks like maybe the electric utility, you know, 2021 CapEx is close to $20 million. Should we be thinking like $15 million-$20 million as like an annual type CapEx number? Does that wildfire mitigation spend, you know, decrease considerably in 2023 and beyond, you know, such that we get back closer to, you know, electric CapEx, you know, around $10 million?
Yeah. $10 million seems light to me, but $20 million seems too high. Maybe in between there is probably the way to think about it.
Okay. As we're thinking about 2023 and beyond?
Yes.
Okay.
Yeah. I mean, there are other projects that could get included that. You know, we did a filing years ago for a renewable solar facility and then needed to pull the filing because of some issues. You know, we're very interested in putting a solar facility up there. It will take some time to get that through the commission, but you know, that would be a sort of a kind of a one-off, I would say. You know, that may add to the CapEx. It's just hard to predict when that'll be.
Yeah. You're stealing, kind of stealing my next question. Well anticipated there, Bob.
Okay.
No imminent plans to, I guess, kind of refile that solar project?
Well, I mean, we're working on it. We're working to find land for it. That's, you know, we got to start with the land and then, you know, there's a lot of steps in the critical process or the critical path there. The first is getting appropriate land that would accommodate it. I mean, it's something we're very interested in doing. We think the state policy supports it, and we're working through it. It just takes time.
Okay. Should we think of it as being driven by meeting the next kind of RPS hurdle? I think in the K, you know, you cited 50% by 2026, and you're at, you know, 37% or something like that.
Yeah, there's a lot of benefits to a solar facility. One is to help with the RPS requirements. Also, reduction in greenhouse gas emissions is another issue. Having you know generation technically on at the location is important too, given although this hasn't been a problem, but given that we've got you know power coming from places to go to the facility. If Edison had to ratchet back their power because of public safety power shutoffs, you know we understand that's a bit of a risk for us, although it has not been a problem to date.
Got you. Okay. I mean, when Bear Valley filed its electric rate case, I think it's here in a couple months. Can you give us any sense, you know, the size of the case, both in terms of, you know, what kind of value the Bear Valley, you know, rate base is up to? You know, maybe what kind of rate increase we're talking about? You know, it kind of sounds like on an ongoing basis, the $15 million CapEx is somewhere to kind of bogey that around.
We're still working on the numbers, Jonathan. You're right, we plan to file a rate case later this year. One of the things everyone should be aware of that these wildfire mitigation expenditures, you know, we've been including those in memorandum accounts, and none of those are in rates yet. Part of the process in the general rate case will be to include those through 2021. We're very sensitive to the increase in rates this will have on our customers. We do feel these expenditures were necessary and, you know, are important for safety, et c.
All right. Any guidance you can give in terms of the value of the rate base? I mean, I know there's a disconnect right now between what you're kind of technically allowed to earn on versus, you know, what it is with a lot of that CapEx, the wildfire, at least CapEx, not in rates.
I think, Jonathan, the adopted rate base is approximately, you know, right now for Bear Valley is about $69 million. We spend $10 million-$12 million wildfire capital projects. You know, we can kind of estimate how much the rate base when we file the starting point will be. Because all those wildfire plans since 2020, I think, right, Bob?
Yeah. 2019 even, I think.
Yeah. It will be included in our filing per Commission's decision on the wildfire plan. We're not supposed to get recovery until the GRC process. Those will all be included in the filing. Plus the annual regular, you know, CapEx that we have to do for the electric segment. That should give you some good approximation there.
Okay. The $69 million, that's the average value for 2022, or was it for 2021?
For 2021, actually.
Okay, awesome. I guess just lastly, I know AWK on their call, they indicated, you know, they have a couple active bids out there, said, you know, one being Naval Station Mayport, they thought would be decided this summer. Is that one that you guys are involved with in terms of, you know, trying to win that RFP? You know, any additional color in terms of when we might get some new bases awarded?
Yeah. You know, Jonathan, we're very active in the space. I think you could assume that we're bidding on a number of bases. Mayport is one that we have submitted a bid on.
Any besides Mayport that you think are near in terms of award, or is that, you know, the only one that kind of seems like maybe a 2022 event?
I would say of the traditional utility privatization, Mayport is one that we would think would be awarded. Perhaps there's another one that'll get awarded. I don't know if it would be earlier than what is normal. There's a Pax River RFP that's out there by the Navy, but it's earlier. I mean, it's earlier in the process than Mayport is. It's possible there'll be quasi awards that are out of the norm. You know, not part of the utility privatization process that may look a little different. I don't know what our competitors are working on, so you know, it's possible you'll see some other awards, but probably not. Some non-traditional things going on in the space and we're. I think it's fairly early on in the process, but, you know, we're just looking at some projects, I guess.
Got you. Okay. Well, we'll just stay tuned on that and good luck as those RFP come out. Hopefully, ASUS can be successful.
Thank you.
Ladies and gentlemen, this concludes our question- and- answer session. I'd like to turn the conference back over to Bob Sprowls for closing remarks.
Yeah. I just want to wrap it up today by again thanking everyone for their participation on the call today and for their interest in American States Water Company. Wish you all a good 2022.
Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.