California Water Service Group - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 EPS of $0.22 beat Wall Street consensus of $0.16; revenue of $204.0M missed consensus of $215.4M. The variance is largely due to non-recurring interim rate relief recorded in Q1 2024; on a non-GAAP comparable basis, revenue rose 13% and EPS rose sharply versus Q1 2024 non-GAAP. EPS consensus and revenue consensus values retrieved from S&P Global.*
• Management highlighted progress on the 2024 California General Rate Case (GRC); although a global settlement wasn’t reached, evidentiary hearings are planned for May with parties aligned on keeping the case on schedule.
• Regulatory tailwinds in Q1 included $27.2M escalation step increases effective Jan 1, Palos Verdes surcharge approval ($3.8M) and rate base inclusion ($14.2M), and Hawaii Ka’anapali rate approval effective May; dividend continuity (321st consecutive quarterly dividend) supports yield visibility.
• Liquidity remains strong with $44.5M unrestricted cash, $45.7M restricted cash, and $315M available credit; Q1 CapEx was $110.1M, continuing the infrastructure investment plan and underpinning expected rate base growth trajectory.

What Went Well and What Went Wrong

What Went Well

• EPS beat vs consensus: $0.22 actual vs $0.16 estimate; management cited rate changes, usage, and approved advice letters (drought and Palos Verdes) adding ~$0.07/share to EPS. EPS consensus values retrieved from S&P Global.*
• Regulatory progress: 2024 California GRC remains on schedule with hearings in May; parties (commissioner, judge, advocates) emphasize timeliness, improving odds of an on-time outcome vs prior cycle.
• Capital deployment and dividend continuity: $110.1M CapEx in Q1 2025; 321st consecutive quarterly dividend declared at $0.30 and anticipated 2025 annual dividend of $1.24 (including Jan special $0.04).

What Went Wrong

• Revenue miss vs consensus: $204.0M actual vs $215.4M estimate; headwind mainly from non-recurring Q1 2024 interim rate relief (GAAP YoY down $66.7M), though non-GAAP comps show underlying growth. Revenue consensus values retrieved from S&P Global.*
• Cost pressures and margin: Depreciation and amortization rose to $36.0M due to new assets; water production costs remained elevated at $63.0M; EBIT margin % for Q1 2025 was lower than recent quarters as the rate relief timing normalized*. EBIT margin values retrieved from S&P Global.*
• Uncertainty on tariffs and financing markets: Management flagged potential tariff impacts on materials and continued volatility in debt/equity markets as watch items, requiring disciplined cost management.

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the California Water Service Group Q1 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press the star one. I would now like to turn the conference over to James Lynch, Senior Vice President, Chief Financial Officer, and Treasurer. You may begin.

James Lynch (SVP, CFO, and Treasurer)

Thank you, Desiree. Welcome, everyone, to the Q1 2025 Results Call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CEO. Replay dial-in information for this call can be found in our quarterly results earning release, which was issued earlier today. The call replay will be available until 30 June 2025. As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8-K and is also available on the company's website at www.calwatergroup.com. Before looking at our Q1 2025 results, I'd like to cover forward-looking statements. During our call, we may make forward-looking statements, and because these statements deal with future events, they are subject to various risks and uncertainties. Actual results could differ materially from the company's current expectations.

As a result, we strongly advise all current shareholders and interested parties to carefully read the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q, press releases, and other reports filed from time to time with the Securities and Exchange Commission. I will now turn the call over to Marty.

Marty Kropelnicki (Chairman and CEO)

Thanks, Jim. Good morning, everyone, and thanks for dialing in this morning to review our Q1 2025 results. We have a few items on the agenda today. One, we'll talk about the strong Q1. Just to remind everyone, we are in the third year of the general rate case in the state of California, which is our largest subsidiary. Typically, the Q1 is one of our more challenging quarters. Q1 of this year, actually, we did surprisingly well. We want to talk to you, an update on our progress with the 2024 General Rate Case, which remains on track. Talk about a couple of favorable decisions that we've had in both California and Hawaii on some other regulatory items. Finally, give you an update on what's happening with the annual water supply in the West.

Before going into our topics of today, I'm going to turn it over to Jim to walk us through the financials, which, Jim, I think are a little confusing. I think in the press release in the back, there's a reconciliation there that I found very helpful in what I was preparing for today. Jim, I'm going to turn it over to you.

James Lynch (SVP, CFO, and Treasurer)

Thanks, Marty. What Marty was referring to is we did present non-GAAP information in our press release, and we'll be discussing some non-GAAP information on today's deck as it relates to 2024. As we've discussed on previous calls, the company's delayed 2021 General Rate Case decision resulted in interim rate relief, which was recorded in 2024. In reporting the Q1 2025 results, we present both GAAP and non-GAAP financial measures, with the non-GAAP financial measures in place to remove the impact of the 2023 interim rate relief from the 2024 results. On a GAAP basis, operating revenue for the quarter was $204 million compared to $270.7 million in the Q1 of 2024. Net income attributed to group was $13.3 million, or $0.22 per diluted share, compared to $69.9 million, or $1.21 per diluted share in Q1 of 2024.

Interim rate relief recorded in the Q1 of 2024 that related to 2023 included revenue of $90.3 million and net income of $65.8 million, or $1.14 per share. When we adjust for the Q1 2024 interim rate relief, Q1 revenue increased 13% over non-GAAP 2024 revenue of $180.5 million. In addition, Q1 net income and diluted earnings per share increased 225% and 214%, respectively, over Q1 2024 non-GAAP income of $4 million, $4.1 million, and non-GAAP earnings per share of $0.07. Moving to our diluted earnings per share bridge, the primary drivers for Q1 2024 were rate changes and increased customer usage, which contributed $0.20 per share, and approval of two advice letters, one to recover drought expenses and one to recover expenses related to the Palos Verdes pipeline project that together contributed $0.07 per share.

Expense offsets included water production wholesale costs and customer usage increases of $0.08 per share, and $0.04 per share in higher depreciation expense due to new assets placed in service. We're really pleased with the outcome of both the Palos Verdes and drought advice letter decisions, and Marty is going to provide some more information on these decisions a little bit later in his remarks. Turning to slide seven, we continue to make significant investments in our water infrastructure to ensure the delivery of safe, reliable water service. Company capital investments during the quarter totaled $110.1 million, a pace that was consistent with the record quarter we reported in Q1 of 2024. As a reminder, our capital investments do not include estimated $222.5 million of remaining PFAS project expenditures.

Also, estimates for 2025 through 2027 are predicated in part on the outcome of our 2024 general rate case in California and normal capital needs in our other subsidiaries. We expect our annual capital expenditures to increase during the next five years due to the continuing need to replace and maintain our water infrastructure. Turning to slide eight, the positive impact of our capital investment program is demonstrated in our regulated rate-based growth presented on the slide. If approved, as requested, the 2024 California GRC and Infrastructure Improvement Plan with our other planned capital investments in other states would result in a compounded annual rate-based growth of approximately 11.7%. Moving to slide nine, we continue to maintain a strong liquidity profile. As of 31 March 2025, we had $44.5 million in unrestricted cash, $45.7 million in restricted cash, and $315 million in availability on our credit lines.

We continue to maintain strong equity and debt credit ratings, and with the cost of capital extension in California through 2026, our authorized 10.27% ROE will be applied to a supportive equity percentage in our authorized capital structure of 53.4%. With that, I'll turn the call over to Marty for a few additional remarks.

Marty Kropelnicki (Chairman and CEO)

Thanks, Jim. I am on slide 10, and I'm pleased to report that yesterday our board of directors approved our 321st consecutive quarterly dividend in the amount of $0.30 a share. As a reminder, in January of this year, we announced a dividend increase of $0.08 a share plus a special one-time increase of $0.04 a share, bringing the annual dividend from $1.24 up from $1.12. The dividend increase for 2025 represents about a 10.7% dividend increase and gives us a five-year compound annual growth rate of 7.7% on the dividend line, which we think is a very healthy number. The special one-time dividend was meant and approved by our board of directors to reward our stockholders who dealt with the delayed 2021 general rate case and the financial challenges that it brought forth with it, including deciphering some of the financial reporting that Jim's been working on.

I think he's done a good job with the financial statements this quarter. Looking to slide 11, moving on to some stuff on the regulatory side, the California 2021 General Rate Case continues to move forward on schedule. Following the issuance from the California Public Advocates, their basically review or their report of our rate case, we submitted our rebuttal testimony, and we participated in settlement discussions during the month of April. While we are not able to reach a global settlement with the California Public Advocates, we are now working to identify areas of agreement in order to streamline the upcoming evidentiary hearings, which will take place this month, the month of May. We remain confident in our testimony that we provided in the rate case.

I think, as most of you know, the last three cycles, we've invested heavily in how we plan for capital and execute our capital programs, and we remain confident in our testimony, and we look forward to moving into the evidentiary hearing phase of the process with the commissioner and with the judge. Moving on to slide 12, a couple of other things that are noteworthy on the regulatory side. First and foremost, as part of the 2021 General Rate Case decision, we're authorized to get what's called an annual escalation rate. And so, for 2025, that was filed. It is subject to an earnings test, and I'm very pleased to report that the majority of our districts passed that earnings test, and it represents a $27.2 million additional revenue requirement that was adopted for this year. These rates went into effect on 1 January.

In addition, in California, the Palos Verdes—excuse me—Palos Verdes Peninsula Water Reliability Project. That's what happens when you let engineers name projects. They get really long. I call it the Palos Verdes Project. It was the largest project in the company's history, which is replacing about 15mi of main in kind of downtown Palos Verdes and kind of urban LA area. In January, we received a final decision approving the inclusion of $14.2 million in incremental capital costs for this project. That's been added to rate base. In addition, the decision allows us for a temporary surcharge to recover $3.8 million in carrying costs associated with that project. These new base rates were implemented in February, and the surcharge will begin in April, last month.

In addition, in California, in January, we received approval to recover $1.4 million in drought-related costs that have been tracked through the DRMA account. The related surcharges were implemented on 1 April of this year. Looking at a couple of other regulatory events that are happening around our systems, turning to Hawaii, during the Q1, we reached a settlement with the Kāʻanapali General Rate Case with the Hawaii Consumer Advocates. The settlement sets a test to revenue of $7.5 million. That is a $1.1 million increase in revenue. That will be going into effect later this month. Lastly, kind of looking on to slide 13, looking at our water supply going into the spring, that is always a hot topic out west with climate change. Overall, it has been a very healthy winter out here on the West Coast.

We have a strong snowpack, and overall, in California, it was 99% of normal for the month of April. For those of you that know the topography associated with California, the Sierras, it's a very, very long range. You can be as far south as Southern California, down in LA, and all the way up well past Tahoe into Northern California. The range within the range is 85% to 120%. Overall, we're about 99% of normal on the snowfall for the state of California. This, coupled with very heavy rainfall during the winter and spring months, has put us in really good shape. The major reservoirs remain above historical averages, and we feel really good about the decision California is going into going into the summer months.

We do not expect any other water supply issues in other states, including Washington, New Mexico, and for the majority of Hawaii, although in West Maui, West Maui continues to be in a drought and targeted conservation efforts are underway, but we do not expect any material issues in that area. Hawaii is a state that we're spending—let me say it this way—taking a lot of the lessons learned in California in our conservation programs and applying that to states that have newer issues associated with drought and drought management. We are taking a lot of the lessons learned in California and applying those in our conservation programs in the West Maui area. With that, moving to slide number 14, looking at the year ahead. As I mentioned in the beginning, it is the third year of the rate case cycle in California.

This is historically a period where we see heightened regulatory lag, and that coupled with market volatility, inflation, and the potential for tariff effects on a lot of the goods and services we use during our construction projects means that tight management of controllable expenses remains a priority, and it will be throughout the year. In addition to staying focused on the budget and execution of the capital plans, keeping the general rate case on focus and to avoid any major delays like we saw in 2021, I will say I've been generally pleased with the feedback we've been getting from the advocates, the commissioner's office, and the judge's offices in terms of doing everything they can to keep the rate case on schedule, which I think is really good news.

Looking at our growth strategy, the ongoing greenfield development that we have in Texas is continuing to develop very, very well and continue strong results. We plan to stay focused in that South Austin corridor, which continues to grow. We are also continuing to evaluate a number of domestic M&A opportunities. Although I just want to be clear, the main growth objective of California Water Service Group really is the rate-based growth that Jim talked about earlier on the slide deck and that 11.7% compound annual growth rate. M&A is a supplemental growth process for us. Additionally, as we go into the warmer summer months, we want to maintain our best-in-class customer service and our water quality goal of no primary or secondary water quality violations.

Obviously, we got a lot of infrastructure investment to do over the remaining nine months of 2025, especially coming out of a wet winter. As Jim referenced, we kept with the same pace that we had last year in the quarter on the capital investments, which we're very happy with given the fact it was a very, very wet winter in California, and that tends to slow us down on the construction management side. Of course, lastly, today being 1 May, believe it or not, is the official start of the fire season. Our teams are busy doing all the wildfire hardening projects that we do, clearing brush, etc., getting all the equipment ready for the long dry summer months that lie ahead. With that, overall, it was a very good quarter. We're very pleased with the results, financial results.

Again, I'll apologize that they're confusing, but again, that was nothing that the company can control. I would just call your attention to the non-GAAP information that Jim provided in the deck to look at the quarters on a more normalized basis. Desiree, with that, let's open it up to questions, please.

Operator (participant)

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. Our first question comes from the line of Angie Storozynski with Seaport. Your line is open.

Angie Storozynski (Senior Equity Research Analyst)

Thank you. I wanted to talk about the California GRC. We have not seen a settlement, even though we were hoping for one. I just wonder, can you just give us a sense, for example, what are the key points of contention here? Is it decoupling? Is it O&M expense? CapEx? Just any sense of—or maybe from a different angle, what can you agree on with the consumer advocate? Thank you.

Marty Kropelnicki (Chairman and CEO)

Yeah, thanks, Angie. As I mentioned in my previous comments, obviously, we did not reach a global settlement with the Cal Advocates. Because we are in settlement discussions, I really can't get into the details of that. The comments I made were obviously going through a process right now and identifying areas that were non-contested. That will be submitted to the judge in the pre-hearing conference as we move into the hearing part of the process. We really can't say a whole lot other than it's moving forward. Again, even with us not able to reach a global settlement with the commission, the commissioner, the judge, and the advocates have all indicated a desire to keep the rate case on schedule. I anticipate this next phase going through the hearing components will continue to move on schedule as the rest of the rate case.

I can't really say much more than that right now, but obviously, we'll be filing briefs and stuff, etc., with the PUC here during the month of May.

Angie Storozynski (Senior Equity Research Analyst)

Okay. That's all I have. Thank you.

Marty Kropelnicki (Chairman and CEO)

Thanks, Angie. Have a good day.

Operator (participant)

Our next question comes from the line of David Sunderland with Baird. Your line is open.

David Sunderland (Equity Research Associate)

Hey, Marty. Tim, good morning, guys. Thank you for taking my question.

Marty Kropelnicki (Chairman and CEO)

Good morning, David.

David Sunderland (Equity Research Associate)

If I could start, I actually would like to piggyback on Angie's question just about the GRC. Thank you, Marty, for the updates on this. Just trying to get a frame of reference for the 2021 GRC and when you guys were able to see for the first time, "Hey, this might get delayed," or, "It's getting off the rails a little bit." How is this case progressing relative to that one? I guess any insight to compare the two or what that inflection point was, if you can see what I'm getting at, would be helpful. I have maybe one follow-up.

Marty Kropelnicki (Chairman and CEO)

Sure. That's a very good question, David. The 2021 rate case, right out of the chute, there were significant disagreements with Cal Advocates and us. Not only disagreements, it was hard to even get people in a room to even really talk about it. You add that, and you add COVID, and the fact that the commission was still on a work-remote basis. There are just a lot of different factors then to now. To me, the most significant factor that I'm tracking is kind of what are people saying? I go back to Commissioner Baker's clearly indicated in public comments he thinks California needs to do a better job getting rate cases done on time. I think that's a big positive comment. We didn't have that before in the last rate case.

The fact that the Cal Advocates in our discussion, even though we couldn't reach a global settlement, have indicated they want to do everything they can to get the rate case out on time. The judge, I think the judge that we have assigned to this case, I think he is unbiased. I think he is very focused on the procedural law, which I think is a very good thing. He is driving the rate case process really hard. To me, the big thing is kind of what the parties are saying involved in the process and the fact they're saying it. You didn't have a whole lot of that going on in the last rate case. I think a big stumbling block was the fact you were coming out of COVID, and people could not get in a room to even talk.

I look at how the comments are lining up. They're very consistent. Everyone's indicating a desire to get this rate case done on time. I didn't have comments like that in the last rate case cycle. I'm a lot more bullish this time that, obviously, you can hit a procedural snag as we go through the process. Look, we're almost a year in. I guess we're 10 months into an 18-month process. So far, every indication we've had is it's staying on schedule, which I think is a good sign.

David Sunderland (Equity Research Associate)

That is super helpful. Thank you for that. Maybe if I could just ask one more. You mentioned tariffs and potential impacts and managing costs throughout the rest of the year. I do not know if you could share any more just about how you guys are baking in potential elevated costs or the impact of rerouting supply chains into your outlook for the year, or specifically if there is any meaningful year-over-year comps the rest of the year that we should consider as it relates to costs. Thank you again, guys.

Marty Kropelnicki (Chairman and CEO)

Yeah. That's another good question. I think it's still too early to tell. If you look at the volatility associated with comments coming from the administration about the effects of tariffs, who's going to be tariffed, who's not going to be tariffed, what's going to be tariffed, which countries are negotiating, which countries are not. I still think it's a little too early to tell. Obviously, in what we do, and especially given our large construction project, we have stuff that comes from all around the world. Panel boards have chips. Chips come from Taiwan. We have steel and pipe, and both PVC and steel that's manufactured domestically, and some of it comes from foreign sources. Some of the steel that's manufactured domestically has iron ore that comes from Europe. It's a very, very, very kind of murky situation.

What I would say, and this is why I remain guardedly optimistic, is we went through supply strain constraints during COVID. Our materials management team and our engineering management team, program management teams, were able to navigate those supply constraints without disrupting our capital flow and our ability to get capital to the ground. Up to this point, we've managed it. Likewise, we've had a fair amount of inflation the last two years. We've been able to manage, absorb that inflation, and still maintain our earnings momentum and our growth momentum. I remain guardedly optimistic, but I would be lying to you if I had a crystal ball, David, and I look at the economic indicators and say, "Oh, there's clear sailing ahead," because clearly the market's not saying that.

For us, it's continue to button down the hatches, continue to make sure that you're managing your overtime, your expenses. Obviously, we have things like wildfire management programs we have to do. We're not going to cut costs on that, but do everything we can to keep everyone focused on kind of a disciplined budgetary approach and then being able to adapt to those things when they happen. Cal Water's had a good history of being able to hit their budgets during difficult times and will maintain. Jim, anything you want to add on that?

James Lynch (SVP, CFO, and Treasurer)

Yeah. I think, Marty, the only other thing I would mention, David, is the financial markets have been whipsawed over the last, since April, the beginning of April.

We're continuing to keep an eye on what's happening in the debt markets as well as the equity markets in terms of our future financings. Right now, there's a lot of volatility out there. We're hoping that as we go from the Q2 to the Q3, that volatility kind of settles down, and we'll have a better sense of what's available and the timing with which we want to enter the debt and equity markets. To where we are right now, we're in a really strong position in terms of our short-term availability of financing to continue our strategic initiatives. We'll just kind of keep an eye and hope for the best in terms of getting a little more, I guess, settled down financial markets that we can take advantage of later in the year. Yeah.

David Sunderland (Equity Research Associate)

This is great. Thank you both. Appreciate it.

James Lynch (SVP, CFO, and Treasurer)

Thanks, David. Have a good day.

Operator (participant)

Our next question comes from the line of Jonathan Reeder with Wells Fargo. Your line is open.

Jonathan Reeder (Equities Research Associate Analyst)

Hey, good morning, team. How are you?

Marty Kropelnicki (Chairman and CEO)

Morning, Jonathan.

Jonathan Reeder (Equities Research Associate Analyst)

It sounds like, Marty, the Q1 results were a little better than your internal expectations. Can you just kind of elaborate on what drove that beyond what the waterfall chart shows? Was it higher usage now that you're no longer decoupled, or were there perhaps some favorable expense timing issues?

Marty Kropelnicki (Chairman and CEO)

Jonathan, it was a number of things. One, obviously, when we had to delay general rate case, Jim did a really good job with the financing, really buttoning down the budgets. As the rate case was delayed, we really just cut spending every place we could until we got the rate case decision kind of put in place. We had to really prioritize our capital, where we're spending it, and any of the discretionary spend that the company had. I think in operations, the team has continued to do a good job with their budgets, even though we've loosened some of those budgets up once we got the rate case resolved. I think you can kind of start with that. In addition to that, I think the water mix in this rate case is much more closely aligned to what actual is.

If you recall, when we were decoupled, you had some big differences between adopted and actual. The fact that the water mix is tracking closely together means that the rate case is a more accurate forecast. I think that's helping us. I mean, you're absolutely right, Jonathan. You've followed us for a while. Usually, when it's the third year of the rate case, we always tell people, "Hey, don't expect anything in the Q1." I was really happy with the quarterly results, the year-over-year increase in earnings. We'll just have to keep executing to the plan. Again, to the question that David just asked, there's going to be curveballs thrown at us with everything that we're seeing in the market.

I think our ability to absorb those curveballs, we are positioned really well, whether it is the liquidity in the balance sheet that we have right now or our ability to reprioritize capital and expenses to meet our obligations and goals for the company for the year. Water mix, rate case, and tariff differences is what I would attribute to, as well as good kind of budget management by the operating teams within Cal Water.

James Lynch (SVP, CFO, and Treasurer)

Yeah. We did get, from a usage perspective, we were at authorized into the first couple of months. The third month in March, we got a little bit wet weather, colder weather as compared to last year. That brought us back kind of close to where we were last year, about the same time. Year-over-year, a little better usage than we saw.

We were hoping for a little bit better usage than what we saw. I think not having the WRAM did not hurt us in any way in Q1.

Marty Kropelnicki (Chairman and CEO)

Yeah. Jim, I think the other thing that's noteworthy too are the step increases. That $27 million step increases, you're starting to see the effect of that into the tariffs. It used to be, if you go back two rate cycles, our step increases would be $4 million, maybe $10 million. Because we've done a much better job at executing our capital plan, the amount of uptake that we get on our step increase has been a lot higher. That step increase, it's basically an inflationary offset, but it is subject to an earnings test. That earnings test is based on invested capital. That plays into this as well. Yeah.

James Lynch (SVP, CFO, and Treasurer)

I guess Marty's initial comments were, "Well, it's a lot of things, Jonathan." We're kind of going through some of them, but we can't point to one individual kind of pop that benefited the company in Q1. It's just a culmination of a number of items.

Jonathan Reeder (Equities Research Associate Analyst)

All right. Great. Yeah. It sounds like things are on track, and hopefully, you can keep them that way throughout the remainder of the year. I did want to shift quickly to the GRC. Previously, you mentioned that a settlement could potentially come either before or after the hearings. As such, do you believe a more expansive settlement or even a global settlement could still be achievable? Or based on the comments you're making today, has that ship sailed?

Marty Kropelnicki (Chairman and CEO)

I don't know if I can really honestly answer that, Jonathan. I mean, one of the things we did when we couldn't reach a global settlement, we went back and we looked at previous rate cases with other water utilities in the state. It's really been a mixed bag. I mean, we've seen where there's been a fully reached settlement, but then it takes 12 months to a year and a half to get the settlement approved within the commission. We've seen two of the companies get a settlement and being done close to being on time. It's been really kind of a mixed bag. That's why I go back to kind of, in my analysis, what's the commissioner saying? Because the commissioner is only the assigned hearing officer. What's the judge saying, and what are the advocates saying?

I suppose there's always a chance you could still reach a global settlement here during the month of May. The indicators we are is we're moving into kind of the pre-conference hearings and taking their report and our report and things that are identified that there's no disagreement on. We're identifying those, and we'll submit that to the judge and then see what he says. I suppose there's always hope. From my position, I'm happy things are tracking on schedule. Couldn't reach a global settlement. Can we still reach something? Hard to tell, but we need to proceed as if we're not going to and head into the hearings in May and see where it goes from there. Generally, very happy with the fact that the commissioner, the advocates, and the judge have all been aligned saying the same thing.

We're going to do everything we can to get this rate case done on time. Jim, anything you want to add?

James Lynch (SVP, CFO, and Treasurer)

I guess the only thing I'd add, Jonathan, is remember there's kind of two areas that where there were significant differences between us and the Cal Advocate, that being the approach to decoupling. The second is we identified some significant capital expenditures that are required in our system. Those two aspects of our rate case kind of permeate throughout a lot of the different elements within the rate case. There was a big difference between where we were coming from and where Cal advocate was coming from on the larger issues. It is not really a surprise that we were not able to get a global settlement. I think if we can knock out some of the smaller items that Marty was talking about, it puts us in a good position, I think, to move forward timely on the case.

Jonathan Reeder (Equities Research Associate Analyst)

Yeah. I mean, that's what I was going to say. I mean, in the past, you've kind of reached, called a partial settlement. I mean, it sounds like that's what you've kind of got here again with some of these undisputed items that take those off the table. Like you said, Jim, I mean, based on the last GRC, CapEx, decoupling, those were major issues that ultimately had to get fully litigated. It sounds like that's where we are again this time around.

James Lynch (SVP, CFO, and Treasurer)

Yeah. I think that's right, Jonathan. I think that's right. That is why this next step, looking at their report, our report, lining up things that there is no disagreement on and submitting that to the judge, that may very well take those elements off the table. Then we just focus on the major areas of disagreement, which would be kind of rate design, decoupling, etc.

Jonathan Reeder (Equities Research Associate Analyst)

Yeah. Okay. Last question for me, and I apologize if you did mention it, but where do you stand on renewing the ATM program, and what size do you think you'll need when you do renew it?

James Lynch (SVP, CFO, and Treasurer)

We're in the process of kind of working with banks and whatnot. We do intend to renew it, and it'll probably be this spring sometime, early this spring. We always like to have that availability for us to take advantage of the equity markets when opportunities and the timing is right for us to do so. At this point, we're still in the process of reviewing with our finance committee the size of the ATM and the different features that we may want to pursue on it. I would expect we would announce something probably early spring here in the not-too-distant future.

Jonathan Reeder (Equities Research Associate Analyst)

Okay. Great. Thanks so much for the time this morning.

James Lynch (SVP, CFO, and Treasurer)

All right. Thanks, Jonathan.

Marty Kropelnicki (Chairman and CEO)

Thanks, Jonathan.

Operator (participant)

There are no more further questions at this time. I would like to turn the call back over to Martin Kropelnicki for closing remarks.

Marty Kropelnicki (Chairman and CEO)

Great. Thanks, Desiree. Thanks everyone for joining us today. Q1 is done and in the books, as they say. We'll move on to Q2. Obviously, as things change with the general rate case, we'll look forward to updating everyone in July for our Q2 Earnings Call. Thanks for calling in today. Any questions, feel free to reach out. Everybody, have a great day. Thank you.

Jonathan Reeder (Equities Research Associate Analyst)

Thank you.

Operator (participant)

This concludes today's conference call. Thank you all for joining, and you may now disconnect.