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Financial report summary
?Competition
American Water WorksRisks
- Our business is heavily regulated by state and federal regulatory agencies and our financial viability depends upon our ability to recover costs and investments from our customers through rates that must be approved by state public utility commissions.
- Our evaluation of the probability of recovery of regulatory assets is subject to adjustment by regulatory agencies and any such adjustment could adversely affect our results of operations and financial condition.
- Regulatory agencies may disagree with our valuation and characterization of certain of our assets.
- Changes in laws, rules, and policies of our regulators or operating jurisdictions can significantly affect our business.
- We expect environmental health and safety regulation to increase, resulting in higher operating costs in the future and the potential that the company fails to meet these regulatory standards.
- New and/or more stringent water quality regulations could increase our operating costs.
- Legislation and regulation designed to mitigate or adapt to climate change may affect our operations.
- We have been and may in the future be party to environmental and product-related lawsuits, which could result in us paying damages not covered by insurance.
- We are at risk for litigation under the principle of inverse condemnation for activities in the normal course of business that are deemed to have a damaging effect on private property.
- The effects of natural disasters, attacks by third parties, or poor water quality or contamination to our water supply may result in disruption in our services and litigation, which could adversely affect our business, operating results and financial condition.
- Failure of critical elements of our infrastructure could result in interruption of service, damage to others, or injuries, and could adversely affect our business, operating results, and financial condition.
- We rely on our information technology (IT), operational technology (OT), and a number of complex business systems to assist with the management of our business and customer and supplier relationships, and a disruption of these systems, including from cyber-attacks, could adversely affect our business.
- The adequacy of our water supplies depends upon a variety of factors beyond our control. Interruption in the water supply may adversely affect our reputation and earnings.
- Our water supplies and other aspects of our operations may be affected by climate change.
- Natural disasters, climate change, economic conditions, and other factors may change the population in our service areas.
- Wastewater operations entail significant risks.
- Demand for our water is subject to various factors and is affected by seasonal fluctuations.
- Changes in water supply costs affect our operations.
- Dependency upon adequate supply of electricity, certain chemicals, and third-party suppliers of parts and skilled labor could adversely affect our results of operations.
- Our business requires significant capital expenditures to replace or improve aging infrastructure that are dependent on our ability to secure appropriate funding. If we are unable to obtain sufficient capital or if the rates at which we borrow increase, there would be a negative impact on our results of operations.
- Our inability to access the capital or financial markets could affect our ability to meet our liquidity needs at reasonable cost and our ability to meet long-term commitments. Changes in economic conditions in our markets could affect our customers' ability to pay for water services. Any of these could adversely affect our results of operations, cash flows, and financial condition.
- We are a holding company that depends on cash flow from our subsidiaries to meet our obligations and to pay dividends on our common stock.
- An important element of our growth strategy is the acquisition of water and wastewater systems. Risks associated with potential acquisitions, divestitures or restructurings may adversely affect us.
- We may not be able to increase or sustain our recent growth rate, and we may not be able to manage our future growth effectively.
- We have a number of large-volume commercial and industrial customers and a significant decrease in consumption by one or more of these customers could have an adverse effect on our operating results and cash flows.
- Our operating cost and costs of providing services may rise faster than our revenues.
- Demand for our stock may fluctuate due to circumstances beyond our control.
- Adverse investment returns and other factors may increase our pension liability and pension funding requirements.
- Labor relations matters could adversely affect our operating results.
- Our operations are geographically concentrated in California and this lack of diversification may negatively affect our operating results.
- Our business and financial performance may be adversely affected by high inflation and other macroeconomic conditions.
- Municipalities, water districts, and other public agencies may condemn our property by eminent domain action.
- We depend significantly on the services of the members of our management team, and the departure of any of those persons could cause our operating results to suffer.
- We retain certain risks not covered by our insurance policies.
- Our enterprise risk management processes may not be effective in identifying and mitigating the risks to which we are subject, or in reducing the potential for losses in connection with such risks.
- The accuracy of our judgments and estimates about financial and accounting matters will affect our operating results and financial condition.
- Our commitments and stakeholder expectations relating to environmental, social, and governance (ESG) considerations may expose us to liabilities, increased costs, reputational harm, and other adverse effects on our business.
- Our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired by a material weakness in our internal control over financial reporting, which could result in loss of investor confidence in the accuracy and completeness of our financial reports and materially adversely affect our results of operations and stock price.
Management Discussion
- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
- In 2023 and 2022, net income attributable to California Water Service Group was $51.9 million and $96.0 million, respectively. Earnings per diluted common share decreased $0.86 from $1.77 to $0.91 or 48.6% in 2023.
- The $44.1 million decrease in net income was primarily due to the delayed final decision from the CPUC on Cal Water's pending 2021 GRC to set new revenue, rates, and regulatory mechanisms. The 2021 GRC was originally scheduled to be completed on December 31, 2022 with new revenue, rates, and regulatory mechanisms effective on January 1, 2023. On January 24, 2024, the assigned CPUC ALJs issued a PD on the litigated 2021 GRC, and concurrently, the assigned CPUC Commissioner issued an APD opposing and modifying certain decisions made by the ALJs. The PD issued by the ALJs was closer aligned to Cal Water’s requested revenue requirement whereas the APD issued by the assigned Commissioner was closer aligned to the Public Advocates’ requested revenue requirement. On February 13, 2024, Cal Water filed a request to change several elements in the PD and APD, including correction of possible 2021 GRC technical issues. We are 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 by the CPUC. As a result of the uncertainty of the decision that will ultimately be made by the CPUC, we are unable to reasonably estimate the impact on 2023 operating revenue and expenses. The 2021 GRC cumulative adjustment plus interest which is retroactive to January 1, 2023, will be recorded when the final decision is issued by the CPUC.