Welcome to the American States Water Company Conference Call discussing the Company's 4th Quarter and Full Year 2020 Results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 5 pm Eastern Time and run through Tuesday, March 2, 2021, on the company's website, www dot aswater.com. The slides that the company will be referring to are also available on the website. From American States Water Company is Bob Sprowls, President and Chief Executive Officer and Eva Tang, Senior Vice President of Finance and Chief Financial Officer.
As a reminder, certain matters discussed during this conference call may be forward looking statements intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company's risks and uncertainties in our most recent Form 10 ks and Form 10 Q on file with the Securities and 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 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 now turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company. Please go ahead.
Welcome, everyone, and thank you for joining us today. I'll begin with some brief comments on the quarter and some highlights for the year. Eva will then discuss some financial details, I would like to start by commenting on our 4th quarter performance. We had a strong quarter with consolidated earnings of $0.54 per share versus $0.45 per share earned during the Q4 of 2019, a 20% increase. You can see from this slide that each of our 3 operating segments contributed to the substantially improved performance.
Eagle will discuss this slide in more detail in a few minutes. Now let's turn our attention to highlights for the full year, where we also had strong financial results in addition to providing essential uninterrupted services to our customers. For the year, we reported Diluted earnings per share of $2.33 as compared to $2.28 reported for 2019 were $2.24 per share after excluding the $0.04 per share retroactive impact of the electric general rate case decision from 2019 related to the full year of 2018. In 2020, American States Water achieved a consolidated return on equity of 13.9%. During the year, we also filed a new Golden State Water Company general rate case for the years 2022 through 20 24, continued our capital improvement work at our regulated utilities, Continue to improve water and wastewater systems on the military bases we serve, raised the dividend by nearly 10% and reached 66 consecutive years of annual dividend increases.
This was a unique and challenging year as a result of the COVID-nineteen pandemic. 1st and foremost, We are proud that we were able to maintain essential, safe and reliable services for our regulated customers and military service personnel across the country. In order to do this, starting in March of last year, We made adjustments for our field workers to keep them safe and instructed our office staff to telecommute. At the local level, we work closely to manage changes and delays in construction schedules, balancing the needs of keeping the water, waste Water and electric systems running well with the uncertainty and needed flexibility that the pandemic has brought to communities. In addition, the California Public Utilities Commission or CPUC has issued orders on service shutoffs due to non payment, helping those households who are unable to keep up with water or electric bills during this unprecedented time.
Recently, the CPUC extended the suspension of service shutoffs due to non payment through June 30th this year. We continue to invest in the reliability of our systems, spending $123,400,000 in company funded infrastructure at our regulated utilities during the year. At ASUS, We continue to perform necessary construction work on the military bases we serve and are well positioned to win more contracts in the coming years. 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 requirements for the 8th consecutive year.
In addition, ASUS continue to exceed the U. S. Government's requirements to hire small businesses to perform work on the basis it serves. In addition to these fiscal 2020 highlights, We have received positive news at our Water segment to start 2021 related to the continued use of the Water Revenue Adjustment Mechanism We at American States Water Company continue our steadfast commitment to our customers, broader communities, Military personnel, shareholders, employees and suppliers, our financial results are just one part of our efforts and success. I will 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 4th quarter financial results on Slide 9. As Bob mentioned, Consolidated diluted earnings for the quarter were $0.54 per share compared to $0.45 per share, again a 20% increase over the same period last year. Earnings at our water segment increased $0.04 per share for the quarter.
The increase in the Water segment's earnings were largely due to a higher water gross margin from new water rates. In addition, the decrease in interest expense and an increase in gains earned on investment held to fund a retirement plan were partially offset by the impact of a higher effective income tax rate. Overall, operating expenses other than supply costs were relatively flat for the Wireless segment. Earnings from the Electric segment for the Q4 of 2020 We were $0.07 per share as compared to $0.05 per share recorded for the same period in 2019. The increase was due to rate increases authorized by the CPUC as well as lower overall operating and interest expenses.
Earnings from the contracted services segment were $0.17 per share as compared to $0.12 per share for the 4th quarter of 2019. This was largely due to an increase in construction activity as well as an overall decrease in operating expenses. Consolidated revenue for the 3 months ended December 31, 2020, It increased by approximately $11,200,000 as compared to the same period in 2019. The decrease was due to rate increases at both of our water and electric utilities and an increase in construction work at our contracted service Turning to Slide 11, our water and electric supply costs were 24 $100,000 for the quarter, an increase of $900,000 from the same period last year. Any changes in supply costs for both the water and electric segments as compared to the adopted supply costs are tracked in balancing accounts.
Looking at total operating expenses excluding supply costs, consolidated expenses increased U. S. As a result of higher construction activity and the property and other taxes, partially offset by lower maintenance expenses resulting from timing differences and a decrease in outside service costs. Other income and expense for the Q4 of 2020 was a net expense of $2,100,000 which was $1,800,000 lower in the same period of last year due to lower interest rate as well as an increase in gains generated on investments held in a trust to fund the retirement benefit plan. Slide 12 shows the EPS bridge comparing the Q4 of 2020 with the Q2 of 2019.
This slide shows the full year results. Consolidated earnings for 2020 were $2.33 per share as compared to $2.28 per share for 2019. The 2019 CPUC final decision on the electric channel rate case was retroactive to January 2018 And as a result, the cumulative retroactive earnings impact related to 2018 of $0.04 per share was recorded as part of 20 nineteen's results. Excluding this retroactive impact, Consolidated earnings for 2020 increased to $0.09 per share as compared to $2.24 per share for 2019 as adjusted. Earnings from the Water segment increased by $0.05 per share as compared to 2019, mostly due to new water rates as a result of the full 2nd year step increase effective January 1, 2020, which added $10,400,000 in water gross margins for 2020.
The increase in earnings from the higher gross margin was partially offset by an increase in operating expenses and a higher effective income tax rate due to changes in flow through adjustments. Moving on to the electric segment, earnings were $0.05 per share higher than In 2019, after excluding the retroactive impact for 2018 from the 2019 CPUC final decision, The higher electric earnings were due to new rates authorized in the final decision as well as lower interest expense and a lower effective income tax rate due to changes in certain flows and taxes as compared to the year before. These increases to earnings were partially offset by an overall increase in operating expenses. For both 2020 2019, diluted earnings from contracted services were $0.47 per share, excluding a retroactive price adjustment of $0.01 per share recorded in 20 Related to periods prior to 2019, earnings from the Contracted Services segment for 2020 increased by $0.01 per share, largely due to an increase in management fees and construction revenue. There's also overall lower operating expenses, partially offset by higher construction costs.
AWR parent's earnings decreased $0.01 per share compared to 2019 due to higher state unitary taxes recorded at the parent level. Turning to liquidity. Net cash provided by operating activities were $122,200,000 as compared to $116,900,000 in 20 19. The increase was primarily due to the refunding of $7,200,000 to customers in 2019 related to the Tax Cuts and Jobs Act with no similar refund in 2020 and an increase in water customer usage. These increases were partially offset by decreases in cash flows from accounts receivable from utility customers Due to the economic impact of the COVID-nineteen pandemic and the CPUC mandated suspension of service disconnection and from the timing of billing of and cash receipts for construction work at military bases.
As Bob mentioned, our regulated utility invested $123,400,000 In company funded capital projects in 2020, we expect to invest $120,000,000 to $135,000,000 in 2021. At this time, we do not expect American States Water to issue additional equity. So with that, let me turn the call back to Bob.
Thank you, Eva. I'd like to provide an update on our recent regulatory activity.
As you
may know, The Water segment has an earnings test it must meet before implementing the second and third year step increases in the 3rd year rate cycle. I'm pleased to report that we have timely invested our capital projects and achieved capital spending consistent with the amount authorized by the CPC. As a result, substantially all of the 3rd year step increases have been authorized in effective January 1, 2021. These new rates are expected to Generate an additional $11,100,000 of water gross margin. We continue to make prudent and timely capital investments.
In July 2020, Golden State Water filed a general rate case application for all of its water for new water rates for the years 2022, 2023 2024. Golden State Water requested capital budgets in this application of approximately $450,600,000 for the 3 year rate cycle and another $11,400,000 of capital projects to be filed for revenue recovery through advice letters when those projects are completed. A decision in the water general rate case is scheduled for the Q4 of 2021 with new rates to become effective January 1, 2022. In a procedural hearing held earlier this month On this pending general rate case, the assigned administrative law judge confirmed that Golden State Water to continue using the Water Revenue Adjustment Mechanism or RAM and the modified cost balancing account also known as the MCBA, until its next general rate case application covering the years 2025 through 2027. If you recall, the CPUC issued a final decision In the first phase of its order instituting rulemaking, evaluating the low income ratepayer assistance and affordability objectives contained in the PUC's 20 10 Water Action Plan.
This final decision, among other things, removed the continued use of the RAM and MCBA by California Water Utilities in any general rate case application filed after the August 27, 2020 effective date of this decision. Golden State Water's pending water rate case application was filed in July 2020 prior to this effective date. As a result of this procedural Hearing, we will continue using the RAM and MCBA mechanisms through the year 2024. In January 2021, Golden State Water, along with the 3 other large California water utilities, Requested a 1 year deferral of the date by which each of them must file their next cost of capital application. Just yesterday afternoon, the CPUC rejected the request for deferral.
Golden State Water will file its Turning our attention to Slide 17. This slide presents the growth in Golden State Water's rate base As authorized by the CPUC for 2018 through 2021, the weighted average water rate base has grown from $752,200,000 in 20.18 to $980,400,000 in 2021, a compound annual growth rate of 9.2%. The rate base amounts for 2020 One, do not include any rate recovery for advice letter projects. Let's move on to ASUS on Slide 18. After adjusting the 2019 financial results for the $0.01 per share retroactive earnings impact related to periods Prior to 2019, that Eva discussed earlier, ASUS's earnings contribution for 2020 increased by $0.01 per share as compared to 2019.
This was accomplished despite weather delays and slowdowns in permitting for construction projects and government funding for new capital projects experienced throughout 2020. 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. During 2020, the U.
S. Government awarded ASUS $15,500,000 in new construction projects for completion in 2020 2021. 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 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. Due to our strong relationship with the U. S. Government as well as our expertise and experience in managing bases, we are well positioned to compete for these new contracts.
In light of our continued uncertainty associated with the effects of COVID-nineteen, we reaffirm our projection that ASUS will contribute $0.45 to $0.49 per share for 2021. I would like to turn our attention to dividends outlined on Slide 19. In 20 '20, we increased the annual dividend by 9.8 percent to $1.34 per share. American States Water Company has paid dividends to shareholders every year since 1931, increasing the dividends received by shareholders each calendar year for 66 consecutive years, which places it in an exclusive group of companies on the New York Stock Exchange that have achieved that result. On February 2nd, our Board of Directors approved a quarterly dividend of $0.335 per share.
As a reminder, our dividend policy is to achieve a compound annual growth rate in the dividend of more than 7% over the long term. Our strength and attractiveness to customers and shareholders alike is our ability to execute on our business strategies, stability, continued timely investment in our systems And customer service, our regulated operations in a constructive regulatory environment in California, A growing contracted service business with strong market share and an unwavering commitment to reliability and safety. Our capital investment includes replacing and upgrading critical infrastructure as well as ensuring we can meet our customers' needs for generations to come, all while driving operational efficiency and delivering outstanding customer service. I'd like to conclude our prepared remarks by thanking you for your interest in American States Water. And we'll now turn the call over to the operator for questions.
And our first question comes from Angie Storozynski of Seaport Global. Please go ahead.
Thank you. So I wanted to start with the you have more visibility On the use of 4 RAM, but you've been asking for rehearing of that Decision removing the full ramp for you beyond 2024. So I was just wondering how this request has been proceeding?
Yes. With regard to the request for rehearing, we have not heard back from the CPUC at this point on that. Hope I understood your question, Angie.
Yes, exactly. Yes. So we're basically waiting for their decision. If they decide not to rehear it, Should we expect that you will challenge this decision in courts?
Yes. So that was something we and others have given a lot are giving a lot of thought to the Unfortunately, in California, the only option we have is to challenge it at the California Supreme Court level. And then, of course, the Supreme Court will would need to be able to Here is the case. They have to we have to choose to hear the case. So we're still kind of thinking through that.
There's positives and potential negatives to doing that.
Okay. And then separately, given yesterday's decision, and that's the requirement to file your Cost of capital application by early May and the fact that the 10 year treasury yield is almost 100 bps lower Now versus where it was when the current ROEs were set, could you maybe talk us through your thought process or your expectations, What those returns are going to be like given that you already earn Or your lateral lease already below average for water utilities across other states?
Right. Yeah, there's, as you know, a lot that goes into the mix When determining an appropriate cost of capital and specifically the authorized return on equity. Yes, I don't difficult to predict how things are going to move forward there. The fact that California's ROEs are already low relative to the rest of the country, I think, It would be an advantage to us going forward. There will also be comments about Losing the RAM and that creates perhaps some additional risk that we could make.
And throughout the period where the application is filed and you go through the hearing process, We and others do keep a pretty close tab on where interest rates are and where they're headed. So Pretty difficult to speculate at this point whether our ROE will be adjusted up or down or Remain the same at this point.
And just the last question on ASUS. So I appreciate your comments that you're hoping for additional contract awards. We were hoping to see some additional contract awards in late 20 '20, they didn't happen. I understand that the change in administration doesn't help here. So Do you have any sense when exactly roughly in which quarter we should hear about more contracts?
Hard to predict. Just be myself, I would say it's It's going to probably at least be the Q2 before we hear anything on Those bases where we've submitted a bid and it's gotten to the final bid process. I think you hit the nail on the head with the change in administration always seems to delay things. And it's very understandable, but that's we're very patient And you have to be, and we think we've got some good things ahead of us for that business.
Thank you.
Thank you,
And the next question will come from Jonathan Reeder of Wells Fargo. Please go ahead.
Hey, Bob and Eva. How are you all?
Hey, John. Doing well, Jonathan.
Hey, I apologize in advance for some background noise. I have a little work being done at the house today, so it might be noisy. Hopefully, you can hear me okay. Just Kind of following up on that last question, how many bases, Bob, do you think could be awarded, say, in the next 12 months? Is it still, I think, like 2 to 3 is what you were kind of Anticipating we're in the final stage?
Yes, I would say, You might think about 2. I mean, that's how I think about it. There was one base in Hawaii that the Government decided not to privatize ultimately, and that was sort of on the list Of basis folks were bidding on. So that's why I would say 2 rather than 3.
And then what sort of total level of ASUS construction expenses are you anticipating for full year 2021? I know you were running in the $50,000,000 to $55,000,000 range before this bump up in 2020, but I did The $15,000,000 award is a little lower than the $23,000,000 to $24,000,000 I think you've got in the past 2 years. So Should we expect it kind of gets back down to that $50,000,000 to $55,000,000 range in 2021?
Well, we do expect to we think the 15.5 was an Outlier, I mean, it was a we think it was a function of COVID-nineteen largely, and we do expect that number to improve in 20 '21, I know Eva you
Yes, I think Jonathan it all depends on construction Activity and what kind of work we do. If we can if we have a spot set and get more awarded on our new capital upgrade, I We'll continue to incur construction expenses. So to us, it's the higher construction expenses maybe Apply for higher revenue as well if everything goes well. So I would then look at construction expenses as one of your benchmark for your protection.
Jonathan, I will point out we have some new leadership at ASUS in the form of Stuart Harrison, who joined us in July of last year, and He is someone that's had a real strong history of working with the Department of Defense. And So our strategy on some of these things are changing a bit. We're trying some different angles to try to get More projects approved, how successful we will be on that in 2021 It's a bit of a question mark at this point given the kind of the long runway it takes to Go through the process with the federal government. So we're optimistic, but The new administration, of course, just getting people in the right chairs, etcetera, it takes time For the federal government, we understand that and then we'll see, but we are optimistic about 20 'twenty one, although our the earnings contribution of $0.45 to $0.49 is Pretty close to what we did in 2020. So we Our company has always been one that doesn't want to get too far out in front of its skis on what it talks to the market about.
We're expecting a really good year in 2021 and but it is the I would say the landscape is Probably more difficult to predict this year than it's probably been in the last few years because of new administration, COVID-nineteen, etcetera.
Okay. So I mean, when you say this is your guidance based on the COVID uncertainties, it's like if things kind of clear up and maybe you are able Yes, some more of the construction work, that's where we could see either something above the midpoint of that range or something like that for ASUS. That's where the uncertainties are not kind of on the expense side of the equation. It's more on the construction activity.
It is. Yes, that's a fair statement. If things clear up, we could be more on the higher end of that range Then around the midpoint.
Okay. And then I haven't seen that the CPUC denied the expansion, so sorry to hear that. Did they give any rationale as to why it was denied? Or was it just pretty much pretty vanilla, just no luck filed the application?
I'm just going to read to you the paragraph from the letter. It says, with the 1 year extension that you've already received, It has been 4 years since your last cost of capital filings. During that period, interest rates have fallen significantly. A development that should be reflected in your authorized cost of capital and the rates ultimately adopted in your general rate cases. That was it's a very short letter.
That was the Most important paragraph, the other paragraph talked about denying the deferral.
Okay. So they do Sight the fact that interest rates are lower now. Okay, that's interesting. Have you in your attempts to get the extension, did you have or Engage like the PAO in any sort of like potential settlement discussions? Or Did you kind of file you filed, they submitted their opposition and you kind of it was left in the hands of the CPUC?
Yes. So it's a kind of an industry effort. I mean, it was interesting public advocates, their Opposition to the deferral request was largely a function of, gee, you're getting money and rates to file this application, Therefore, you should. It wasn't a very strong opposition, but I know the companies have done things in terms of working to try to meet with the PUC. I'm not sure If there was reaching out to the public advocates to get them to change their view, It is a little surprising given that the commission can't seem to get anything done on time.
And then Beth, do you want to add one more thing to the plate, but I don't know.
Yes, I just wasn't sure like in the past on the electric side, there was some precedent where They got together with the consumer advocate and proposed a 2 year extension, but then it did include like a little bit of A step down in the ROE. I didn't know if you guys if the water is trying to broker any sort of deal like that and just couldn't Get there with the public advocates as opposed to going through the full process, but it sounds like maybe not.
Yes. Historically, we haven't we've kind of done things differently than the electric. Electric usually would try to get public advocates or turn Involved in the initial request of the deferral, we in the water space haven't historically done that.
Okay. And then, Eva, maybe this one's for you. What kind of consolidated tax rate do you expect in 2021? I think '18 and 'nineteen were closer to 22% before jumping up to like 24% this year.
I think we'll be probably go back to a lower effective tax rate. There are certain things impacted this year on the income tax Great. So if you look at not 2020, but 2019 prior year, it's probably a better benchmark for your projection.
Okay. And then finally, the comment about not seeing the need to issue equity, what kind of period does that cover? Is that like a 3 year Forward outlook, is it 5 years?
At least 3 years, I would say, Johnson.
Okay. Okay, great. All right. Thank you. That's all the questions I have.
I appreciate you taking them and congrats on a good year and what was a challenging year.
Thanks, John. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Bob Sprowls for any closing remarks.
Yes. Thank you, Andrea. I just want to thank everyone for their participation today and let them know that we look forward to speaking with them next quarter. So thank you everyone.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.