© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to the California Water 2020 Third Quarter Earnings Conference Call. [Operator Instructions].
I would now like to hand the conference over to David Healey, Vice President and Corporate Controller. Thank you, and please go ahead, sir.
Thank you, Bridgette. Welcome, everyone, to the 2020 third quarter results call for California Water Service Group. With me today is Martin Kropelnicki, our President and CEO; Thomas Smegal, our Vice President, Chief and Chief Financial Officer; and Paul Townsley, our Vice President of Business Development and Chief Regulatory Officer.
Replay dial-in information for this call can be found in our third quarter earnings release, which was issued earlier today. The replay will be available until February 5, 2021.
As a reminder, before we begin, the company has a slide deck to accompany the earnings call this quarter. The slide deck was furnished with an 8-K this morning and is also available at the company's website at www.calwatergroup.com.
Before looking at this quarter's results, we'd like to take a few moments to cover forward-looking statements. During the course of the call, the company may make certain forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company's current expectations. Because of this, the company strongly advises all current shareholders as well as interested parties to carefully read and understand the company's disclosures on risk 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'm going to pass it over to Tom to begin.
Thank you, Dave, and good morning, everyone. It's a pretty exciting quarter here for us at California Water Service Group. We get to talk quite a bit about our California General Rate case and some of the other things that are going on in the quarter. I'm going to go through the slide deck, as Dave mentioned, and I'll refer to slide numbers as we go through the presentation as well the other speakers. And I'm going to begin on Slide 6, which is a slide about the recognition of the 2018 California General Rate case.
So as most everyone knows at this point, on October 14, the California Public Utilities Commission published a proposed decision in our California GRC. That's a delayed GRC that should have been effective on January 1, 2020. And the proposed decision approved the settlement that we had announced back in October of 2019. And it also proposed to adopt Cal Water's positions on the disputed financial matters in the case. And for the first 2 quarters of the year, we had been reluctant to record regulatory assets for some of our continuing balancing account mechanisms, such as the RAM and the MCBA decoupling mechanism as well as our pension and medical cost balancing accounts because those accounts, we did not know whether they were probable for recovery. We have concluded, based upon the proposed decision and a couple of things subsequent to that, that the GRC decision is very probable to award us those accounts on a continuing basis. And so we are recognizing the regulatory assets associated with the water revenue adjustment mechanism, modified cost balancing account and the pension medical cost balancing account, regulatory assets. And those will - those add significantly to our revenue for the quarter and for the year-to-date.
In addition, the commission will grant us interim rate recovery. And since we now know the proposed decisions take on the revenue requirement, we're able to calculate what is in the interim rate memorandum accounted. So we've also booked a regulatory asset for the interim rate memorandum account.
I did want to talk briefly about the subsequent event that is giving us further confidence in the General Rate Case. And that is that on Tuesday, among other things that happened on Tuesday in the United States, the Cal PA, the Public Advocates office, issued their comments on the proposed decision. And while they gave extensive comments on a variety of areas, they did not comment on the 3 major areas that we're recovering here. In other words, their comments do not take issue with the proposed decisions granting of a continued water revenue adjustment mechanism, modified cost balancing count or pension and medical cost balancing account. And so we feel very strongly that the final decision, which can be rendered by the commission, though, earlier than November 19, is going to allow those balancing accounts for us. And so that's very good news for the company.
In addition to those 3 items, I would mention that as part of this rate case, we are refunding to customers the excess deferred tax associated with the Tax Cut Job Act reduction in the federal income tax rate. And that refund is being applied. It's applied to the customer rates, and it's shown up in our income statement as a reduction to our effective tax rate. And so you'll see a lower effective tax rate for the company on a go-forward basis as we refund those excess deferred taxes.
I do want to emphasize that these assessments of probability do have some risk associated with them. We are dependent upon the CPUC adopting the proposed decision with no material changes. But as I say, given the evidence that we have right now, we think that is likely, and that's why we've gone ahead and included these in our third quarter estimates, or rather, third quarter earnings results, not estimates.
And so turning to Slide 7. The result of that determination means that we have a very significant increase in our net income for the third quarter. That is going from $42.4 million to $96.4 million as compared to 2019. Earnings per share, $1.94 for the third quarter as compared to $0.88 in the third quarter of 2019.
On a year-to-date basis, on Slide 8, the net income is up. It's up about $30 million. So it's $81.3 million, up from $51.8 million in the year-to-date period of 2019. And that means our earnings per share is $1.66. On a year-to-date basis as compared to $1.08 on a year-to-date basis in 2019.
And then going through Slide 9 and Slide 10, I'll go through very quickly. Just the other changes that we have to earnings, revenues and expenses are pretty standard for us, the things that we've talked about in prior quarters. So we've increased operating expenses for wages and other things that just generally increase depreciation and amortization. We do have variations from time to time in our unbilled revenue accruals, and you'll see that on a couple of these slides as well as the mark-to-market adjustment that we have on some of our retirement plan assets. So there's nothing major, either in the quarter or in the year-to-date period in those areas, but those do end up affecting earnings.
I do want to focus very briefly on Slide 11, the earnings bridge, to emphasize the point about the third quarter earnings. And if you're there on Slide 11, you'll notice the first bar change is $0.80, which were - which is titled delayed recording of Q1 and Q2 regulatory assets. And because we're recording the effect of the General Rate Case through the third quarter, in the third quarter, that $0.80 that's in the first bar represents net earnings that would have been achieved in the first quarters of the year had the rate case been adopted on time. And so we're putting this - just highlighting this for you so that when we get to the third quarter of 2021, there's a recognition that we're probably not going to earn $1.94 again per share in the third quarter of 2021. Although, obviously, that would be nice if we could.
And then I do want to focus on Slide 13. I think just to run through this again as a basis of calculation for analysts and others thinking about the company's stock. The earnings power of the company. And again, we're a predominantly regulated utility in all 4 states, and that drives most of our revenues and net income. The California rate case, if it is adopted - if the proposed decision is adopted, it actually allows for a specific net income of about $76 million in test year 2020, and that reflects the authorized equity return on the equity portion of $1.5 billion in rate base. In addition to California, we have about $110 million rate base in other states that should earn a similar equity return, again, on a normalized test year kind of basis. But do remember that our equity returns on the regulated businesses are dependent on our costs being in line with the dotted costs. And also, in particular, in the other 3 states in New Mexico, Washington and Hawaii, our returns are also affected by our water sales. And as Paul will talk about in a minute, beginning in 2023, we expect the earnings in California will also be affected by water sales.
And another point for the quarter and the year-to-date is to make sure that everyone understands that on an annual basis, we do not anticipate a net income effect from changes in our unbilled revenue accruals or unrealized changes in the value of retirement assets, the mark-to-market that we talk about from time to time. Those factors through the third quarter are adding about $9.6 million to our year-to-date net income. And so just be cognizant of that as we go toward the end of the year, that we expect, particularly the unbilled to drop back down to where it was at the end of 2019.
And then finally, there are a couple of other factors that cause our earnings to be a bit higher than the otherwise core regulated earnings. And those are our unregulated activities operational maintenance contracts, the antenna leases for various things - various cellular antennas on our facilities. The regulatory asset that we book associated with the equity portion of construction funding the AFUDC, if you will, and then state tax timing differences can play a factor there.
And so I just wanted everybody to be aware of that. Happy to take questions on that as well. Marty, I'm going to turn it over to you to talk about COVID-19.
Great. Thanks, Tom. I want to give everyone a quick operational update with the backdrop of COVID-19. But even with COVID-19, it was the worst fire season in California history. So in addition to COVID, we had to deal with a number of fires and then folding in the public safety power shutdowns that we had throughout the state at various times during the state as well as a couple of earthquakes, it's been a very, very busy year for operations. We've opened our emergency operations center a total of 18 times year-to-date. I think that's a new record for us. The EOC, our emergency operations centers, we basically follow a FEMA-type protocol terms of how we deal with emergency situations. And very happy to say that despite dealing with a number of potential emergencies throughout the year, the company's operations have gone very, very well, and we avoided having any major disruptions of water service or lack of water service, especially during fire season.
Having said that, we still continue to operate with enhanced safety protocols to protect customers and employees from infections. Protecting employees and customers in public health remains our #1 priority. I'm very happy to share with everyone, and you may have seen this, we received the Stevie Award, the Silver Stevie Award as the most valuable employer for a COVID response. That was out of 700-plus companies competing for a Stevie Award. So we're very happy to win that award for our work on the COVID response on keeping our employees safe.
While dealing with the pandemic, we've seen an increase in customer accounts aging from the suspension of collection activities. If you recall, early on in the process, Cal Water suspended our collections and shutoffs, and it was further ordered by the Governor to do so, but we had done it prior to any orders of the government because we recognize the need for water for our customers to help fight the virus. So our over-90 balances has increased to about $5.4 million. Only a portion of such amounts are typically uncollectible. We continue to monitor that very, very closely. We think it's indicative of hard financial times as the pandemic has hit people and people have been ordered to shelter in place and maybe been on some type of assistance program and not able to meet their ability to pay their bills.
We've increased our reserve for doubtful accounts by about $1.6 million and $2.7 million. So roughly 50% of that balance is reserved for, and we'll continue to monitor that as we move into the fourth quarter. Our incremental expenses dealing with the COVID was less than $100,000 in the third quarter, which we think is good. We do have a Menlo account in California and also a memo-type account in Hawaii. And as most of you know, a memo account, you expense the cost in the right - in the period it's incurred, but you track it kind of off the books. And when it gets to be a certain amount, you potentially have the ability to go back to the commission and seek recovery for those costs as they are incremental to what was planned in the business model. So we continue to attract costs in our memo accounts associated with COVID in our operations.
Water sales, in aggregate, have been close to the adopted level. So about 95% of adopted sales in California, with the increases in customer usage, obviously, with people being home, using more water, and that was offset by lower business in industrial uses during the quarter.
In terms of liquidity, our liquidity remains strong. As of September 30, we had a $13 million in cash and additional current capacity of $170 million through our line of credit. So liquidity has remained strong with the company throughout the pandemic, and we're positioned very well going into the fourth quarter.
I'm going to turn it over to Paul Townsley now for an update on California regulation.
Thank you, Marty. So turning to Slide 15 is the California regulatory update. It has been a very busy year for Cal Water on the regulatory front. As Tom mentioned, the company received a proposed decision in October, and in the PD or the proposed decision, the commission established a new revenue requirement for Cal Water of $698.7 million for test year 2020. In the proposed decision, it also authorized $828 million of new capital expenditures or new capital investments across the 3 years of the rate case cycle.
Now we filed a settlement agreement as part of this rate case. And the settlement agreement that we filed resolved the majority of the issues in the general rate case. However, there were 11 items, 11 litigated items, litigated financial items, which were not part of the settlement agreement that we filed with the commission.
In the proposed decision, the judge agreed with Cal Water's position on all 11 of the litigated financial items. They were ruled in our favor by the administrative law judge, and these included the continuation of the water revenue adjustment mechanism; RAM/MCBA; a continuation of the sales reconciliation mechanism, or SRM; the continuation of the pension and health care balancing accounts; inclusion of an equity component in our AFUDC calculation; an approval of capital projects for AMI, or advanced meter infrastructure; and for some water quality or water treatment projects down in the Los Angeles area. The commission is set to rule on the proposed decision at earliest on its November 19 open meeting.
I will also note on Slide 15 that Cal Water, along with the other parties, have filed a request for rehearing on the August 27 decision by the commission, which bars Cal Water and others from continuing to use the RAM/MCBA beginning, in our case, in our 2021 rate case filing, which will be effective in 2023. 2021, as I said - 2020 has been a busy year. 2021 will also be a busy year because as I just mentioned, we will be filing our 2021 rate case next spring, and we will also be filing our cost of capital case next spring. So we - our regulatory team will be very busy next year putting all of those together.
With that, I will turn it back to Marty.
All right. Thanks, Paul. And I'm going to give a quick update on the capital investment program for 2020. Capital investments for the third quarter were $84.7 million, up 16% over the same period last year. Year-to-date, our capital investments are $221.3 million, up $13.5 million year-to-date over 2019. The company has previously estimated we'd spend between $260 million and $290 million. We think we're in good shape going into the fourth quarter to achieve our capital investment program goals for this year despite what has been really a challenging operating environment.
In addition, we announced on October 13 that we had completed and put into service our Palos Verdes water reliability project, which is the largest project in the company's history, just shy of $100 million project to bring redundancy to the PV peninsula down in Southern California. So it's nice to have that wrapped up. The team did a fantastic job, again, working in difficult operating environments to get that project wrapped up this year.
Hot off the press. Yesterday, the CPUC adopted a decision granting Cal Water's request for an additional $700 million of additional financing authority which is expected to be used to help finance the CA's capital program through 2025 or later. So this will allow us to go out and raise an additional $700 million of debt or equity to finance our capital growth program in the next 5 years. So that was good news as well.
One of the areas that we've been super busy in, and frankly, we're probably the busiest business development that we've been probably in the last 20 years is BD. And so Paul is going to give us an update on what's happening on the business development side, Paul?
Yes, sure. On Slide 17, I have an update for our business development efforts. Cal Water is continuing a very strong new business development process and has had a lot of success this year. Year-to-date, our new development efforts have put over 25,000 new customer connections under contract, representing over a 5% growth in new customer connections across the company's subsidiaries.
So far, in 2020, the company has closed on 2 acquisitions. The Rainier View Water system in Washington and the Kalaeloa water and sewer system in Hawaii. And we have entered into contracts for acquisitions of the Animas Valley Water Company in New Mexico and the Gunnar Ranch Sewer System in California, which are both subject to regulatory approval.
On the regulatory approval side, we are still undergoing regulatory review on 2 other acquisitions, that being the Kapalua Water and Sewer Company in Hawaii and the preserve at Millerton Water and Sewer in California.
If you turn to Slide 18, you can see some of the details of those projects that I have just talked about.
In summary, our business development efforts are strong, as you can see from this matrix, and our pipeline of potential deals is robust. And I will turn that back over to Tom.
Thanks, Paul. So I'll just spend a couple of seconds going over our next 2 slides, which are the traditional bar charts showing our CapEx and rate base. A little bit more certainty on these 2 charts than in the past. Obviously, as Marty and Paul mentioned, the CapEx authorized by the commission is getting closer to realization. We do have the midpoint of our target of $275 million for CapEx. That's very achievable here in 2020 and how much we've done so far.
If you flip to the estimated regulated rate base, we have updated this chart to reflect the proposed decision rate base in California. And then it adds the rate base that I mentioned earlier in the call from the other states. So we estimate that our rate base in 2020, after the CPUC adopts, assuming they adopt the proposed decision and the settlement, the California and other state-regulated rate base is going to be about $1.6 billion. That does not include the Palos Verdes pipeline project. As Marty mentioned, that was close to $100 million. That is one of these advice letter projects. We expect that to be included in rates pretty close to the start of the year in 2021 or maybe even a little bit before that, depending upon the timing as it flows through the rate case process here in California. So that will be almost 2/3 of the advice letter rate base that we show on this chart.
So I do want to emphasize, though, that 2021 and 2022 rate bases in California are subject to the earnings test. We haven't been talking - we didn't have an earnings test this year because of the rate case test year, but 2 out of every 3 years, we do have an earnings test that looks at the progress we've made on our capital investments and the effective rate of return before it grants us additional rates in the districts in California. So I think we'll have an update on that by the time we get to the year-end call and what that increment will add to 2021. So what's shown in 2021 here is the authorized rate base if we were to pass all of those earnings tests. And so that is what it is there.
And Marty, I'll turn it over to you for a wrap-up.
Great. Thanks, Tom. First, I just want to take a moment to thank Tom and Dave, it's been a real busy couple of weeks since we got the PD to figure all this out and to get everything booked and work with our independent registered certified public accountants, Deloitte and Touche. So I just want to acknowledge both of you have done an outstanding job and your team. I know you're on a lot of hours to get this stuff booked.
It's great to have the 2018 general rate case close to being wrapped up and getting that done. It was disappointing for us that it was so late. It's nice to have it done and allow us to kind of move forward. And we've already been working on our 2021 general rate case, as Paul mentioned.
As we move into the last 6 weeks, what has truly been a disruptive year, maybe the biggest disruptive year anyone in our generation has ever experienced. Cal Water has continued to be well positioned with the execution of our business plan, including our business development growth plans and our dividend growth plans and our capital investment programs, most importantly is our safety program that has allowed us to continue our operations. 91% of our employees have been at work every single day. Most of our employees or our assets are in the field, and they've been on the job every single day with COVID, which required us to adopt a lot of very tight COVID protocols to protect them. So we figure we're executing well. We're positioned really well. And I thought in a year that's hasn't had a lot of really good news, I want to close on, I think, is fairly significant.
In late September, the legislature in the state of California passed a bill that we have been working on to help us address some of our concerns regarding wildfire liability. Senate Bill 1386, which is the bill, which is now law after being signed by Governor Newsom, specifies that fire hydrants connected to public water systems are generally not designed or installed to provide water service to aid in the extinguishment of fires that threaten property not served by a water service provider are wildfires. The government affairs team worked very hard with California lawmakers to get this law put into place. And we believe this is another significant milestone to further differentiate our risk profile from the profiles of the electric and gas utilities in the state of California. So it's a big step in the right direction. Kudos for the team for getting that done.
And Bridgette, with that, we're going to open it up for Q&A, please.
[Operator Instructions]. Our first question comes from the line of Ryan Connors with Boenning Scattergood.
And thanks for very comprehensive remarks there in the quarter. I think you provided a lot of the detail we need there. But a couple of bigger quick picture questions. One is just in terms of the big picture impact of COVID-19 on the regulatory tenor, if you will, in California, and it doesn't sound like there's any impact so far. You talk about the CapEx program approved, the approval of the increased financing capability. But is there any sense that there's - whether it's on a cost of capital and ROEs or whether it's on prudency of investments, that there's a view that given all the economic pressures, maybe there's any evidence that they might want things to slow down. I know a lot of municipal systems are kind of deferring some investments for now. Any evidence that there might be that, that kind of thing could creep in and you might be asked to sort of hold some things off? Or does it seem like it's all systems go?
I'll start, and then I'll let Paul and Tom jump in as well. I think as of right now, it looks like it's all systems go. I think you're asking a very good question in that with COVID, hotel occupancy rates are down. There's no tourism. No one's going to Disneyland and Southern California. So you're going to have this multiplier effect that certainly affect the municipal systems. But for us that are rate-regulated investor on water systems, I think it's all systems go right now. The big thing that we're watching is really the customer accounts receivable and the aging of those receivables. And when we went through the recession in '08 and '09, the sub-prime crisis, it was interesting, our bad debt went up, I think, 10 basis points. So clearly, the governor's order to suspend collections has popped up our receivable balances a little bit, but that's really limited to about 60,000 customers so far. So we're looking at that.
The other thing I would say, Ryan, is for us, and it's been a difficult operating year, but we haven't stopped our outreach programs. We haven't stopped our philanthropic programs. You may have seen, we doubled our firefighter grants this year. We just did a community EOC exercise, where we had 43 government officials from local and municipal areas that we operate, who participated in a co-run emergency operations center. So we essentially set it up. They may not have the funding to do those exercises, so we'll set it up, and they'll come and participate with us. So we think all those things kind of get into kind of the ESG side of being a utility. And so I think we got to all watch and see what happens. I think for us, with the rate case starting to wrap up, we're positioned well going into 2021. And I'm very happy with the business development work we've been able to continue to work on despite having COVID. Tom, any thoughts?
Maybe I'm going to let Paul go first. I do have some thoughts, but I'll let - because Paul's closer to that regulatory side, I'll let him go first.
Sure. I really agree with what Marty said. The commission is concerned, and they've asked questions of all of their regulated utilities in terms of what are we doing to support our customers during this time of COVID. And we've been able to provide them good answers, many of which Marty just articulated. But I have not seen any evidence of changes in tenor at the California Commission or the other commissions that we do business in, in terms of changes to our business model or the commission's posture on us as a utility.
So the thing that I was going to add was a little bit more blue sky, if you will. But I see trends, and they may just be short-term trends, but we've talked a little bit about how people are moving - really wanting to move from high-density areas to kind of medium-density areas where they can have their own spaces, this work from home and just the COVID situation that we're in. A lot of the areas that particularly Cal Water serves and some of the - I guess, all 4 of our utilities serve, are predominantly suburban-type areas rather than urban areas with a lot of apartment buildings and condos and whatnot. I think we've actually seen a lot of interest in people moving to those communities. And so if you look at the disparate economic impact, I think that there's actually likely to be an uptick in interest in living in a lot of the communities that we serve. And certainly, we need to be able to provide the infrastructure and the operations capabilities in those areas to meet those growing demands. So I just wanted to add that.
Okay. Okay. That's very, very helpful. I appreciate all 3 of you weighing in there. Now my other question had to do with this issue of this decoupling, right? And as you know, we've got a bit of a different perspective there. We believe that while there could be a little bit more earnings volatility, we think that could be limited and that there could be a positive impact on the ROE side. And my question to you is your closest - you're - probably your closest peer in California made some comments earlier this week that seem to support the view that although there might be some higher volatility in earnings, the general tone was like, "Hey, this is pretty manageable. We'll get through this. Even if we don't have it, it's not that big a deal," I'm kind of paraphrasing, but it definitely wasn't sort of a real draconian view. So my question is, what is your response to that in terms of how a good deal is it from an earnings volatility standpoint? And especially in terms of - is there any way you can quantify that? Because obviously evaluating the equity, the magnitude of that potential increase in earnings volatility is important. So any kind of quantifiable metrics you can put around that would be helpful.
So let me emphasize a couple of things, first of all, and they have to do with regulatory. So Paul, feel free to pipe in as well. But I've been looking at this over the course of the summer since we got the proposed decision in the low-income rule making. The key thing for us, if we're to remove decoupling, is to remember where we were before decoupling was implemented. And if you look at the rate structures that we had, we were allowed to collect about 50% of our fixed costs in our service charges, and about 50% of our fixed costs were recovered through quantity rates.
In many of our districts, and it's a little bit different from the peer utility that you're talking about, Ryan. In many of our districts with low-cost of water. So remember, we're about half of our water is pump groundwater. And in those districts where it's predominantly pump groundwater, there's not a lot of incremental water costs there. And so when we went to this decoupling mechanism, we really tried to push the cost into the quantity rate to try to promote conservation. And what we've really done in those areas, in particular, is skewed our cost recovery way more toward the quantity rates.
And so the volatility concern is primarily in places we serve like Bakersfield, like a Chico, where we've really kind of pushed the rates into a quantity format. Where - if you just charge people where the costs fell, they would pay $40 a month base rate and $0.10 a unit for water or something like that. And that's not going to get anybody to conserve, and that's not what the state wanted us to do. And so we've skewed the rates there. We're going to have to work in the next rate case and in future rate cases to push those rates back into a normal position which could affect the conservation incentives for customers.
But the most critical factor, I think, is the volatility that we talk about needs to be symmetrical. And so that - it is incumbent upon us to work in the rate case process to identify a forecast that we can get the [indiscernible] advocate or at least the commission to buy into that gives us an equal chance of earning above or below the authorized return in any given year and in an average year, allows us to earn an authorized return. And that's the real focus of the rate case, kind of those 2 things is modifying the rate design, particularly in those lower water cost areas and also just getting those sales forecast right. And if we can do those 2 things successfully, we'll both limit the volatility and we'll also make that volatility symmetrical. And I'm sure Paul has some other comments.
Yes. Well, thank you, Tom. I think you said that very well, and I just wanted to reemphasize a couple of points. We were a successful utility before we had decoupling. We were - have been successful during our period with decoupling, and we will be successful financially after decoupling. One of the issues that we have been most concerned about were the decision that the commission made. And why we think the decision was wrong is that it takes away the important tool of pricing for water conservation, which is the state - policy goal in the state. If we are not able to charge high users significantly higher cost per water, we've lost a very important tool for water conservation. The other issue is we believe that the low-use customers, who are often lower income customers, will be hurt by this decision because it will require us to put more of our costs into the fixed rates and to bring the steps from first tier to second tier to third tier back down again. So low user - low - potentially low-income customer will have a relatively higher bill compared to what they would have had under a decoupled mechanism. And we really felt it was the wrong decision for state policy and the wrong decision for our customers, and that's why we have filed for rehearing on this.
And our next question comes from the line of Jonathan Reeder with Wells Fargo.
Yes, I appreciate the slide details. Can you discuss how the $0.80 related to Q1 and Q2 breaks down between the two quarters? When I was trying to reconcile it, I was in closer to like $0.85 or $0.86. So I don't know if something kind of shifted a little bit from your previous quarterly reports.
Jonathan, I think there's a little bit more detail in our 10-Q that we're going to file later today, and maybe we could go to that and help walk you through that after you read that. But part of the difference between the estimates for the first 2 quarters that we were making and what we're concluding now is we just now have the exact rate design that the commission is going to adopt. And we kind of plug - we plug that into our billing system. And so there may be, for instance, some variation between what's interim rates versus what is RAM/MCBA just because of very slight changes in the way that the rates are calculated. And so that may be one of the things that's going on there.
The other thing that's a bit of esoteric, but - and I apologize for those that don't want to get into the weeds here, but one of the things that we do end up with the RAM is evaluating how much of that is collectible in the next 12 months and how much of that is collectible in future periods. And there is a bit of a discounting of the RAM balances that are not collectible within 12 months due to the accounting rules there. And so that may be having a little bit of an effect. So bear with us, Jonathan, and we'll try to get that information and point out to you where that is in the Q.
Okay. Great. And then regarding the earnings power side, I guess, if my math is correct, the two regulated pieces get you to about $1.60 of EPS, assuming you earn the low returns. Is that accurate? And then where do you see your earned ROEs [indiscernible] relative to the allowed?
So generally, in the first year of a rate case, we're going to do very well in California relative to the earned ROE on a regulated basis. And so I think we're getting pretty close - we're getting pretty close to that in terms of California and frankly, even the other states. I think that's been a drag on us over the years, particularly as we ramped up our investment in Hawaii. And that really, we've started to catch up a lot on the Hawaii earned rate of return, and that's a significant part of our non-California assets. And so from a core regulated side of the business, I think we're in - obviously, we're just 3 quarters the way in, but I think we're in pretty good shape from a revenue and expense compared to the rate case. And then it's really these other factors that I talked about that would tend to move the net income most likely higher than that for the year.
Right, right. No, I'm thinking, just if we take out the [indiscernible] impact from the unbilled sales and the unrealized gains and exclude other income, just the core, I guess, utility rate base, that gets you around the $1.60, is that - is that right?
Yes, I don't have the exact calculation in front of me, but it's something like that. We could [indiscernible] over the math. But just for everybody else, and not have just a conversation with Jonathan since I'm sure you're all - the others are listening as well. It's just the rate base multiplied by the weighted capital structure in California, California is 53.4% equity allowed, and that return is 9.2%. So everybody can do that math on essentially $1.5 billion rate base. And then in the other states, it's probably closer to 50-50 at equity. But typically, we're getting that same authorized return of about 9.2% on the equity side. And so whatever that number is, it is.
Okay. And then on the equity program side of your $300 million program, how much should you expect to pull down in 2020? I think you're at like $50 million halfway through the year.
Yes. I think that we - Dave, do you - sorry, Dave, do you have that number? I know it's in the Q, and we didn't talk about it on the slide deck about how much additional there was in the third quarter on the equity program. We might have - we might have to follow-up on that or direct people to the spot in the Q where that's listed.
Yes. I can't remember it right now.
Do you know what the total amount is you expect to do in 2020, though or?
I think it's slightly under $100 million that we would expect to do. What we found in the program, particularly, there's been some volatility in the market from time to time, and there have been some days where we couldn't trade or couldn't trade very much. And we're pretty new to this ATM program, to be honest. And so our objective of getting $300 million over 3 years, we're probably a little shy of that on a 12-month basis as we look at it right now. But that doesn't mean that we can't overachieve in year 2 and year 3 of the program. We're still targeting about $300 million of equity over that time span.
I was just looking at the Q line. It's - for the first 9 months, it's $58.6 million.
Okay. And there's a little bit more to go in the fourth quarter.
[Operator Instructions]. I'm not showing any further questions. I'll now turn the call back over to Marty Kropelnicki for closing remarks. Thank you.
All right. Thanks. Thanks, Bridgette. So obviously, there's a lot of details that come out in our 10-Q that will get filed later today that we'll be around for to answer any questions anyone has.
In the meantime, thank you for your continued interest in California Water Service Group. We appreciate your support, especially during these COVID times, and we hope everyone stays safe as we go into the Thanksgiving season. And we'll look forward to talking to everyone at the end of February or early March as we wrap up 2020 and release our financial results for the full year. So thank you. Be safe. And we'll talk to everyone later. Thank you. Bye-bye.
Ladies and gentlemen, that concludes the program. Thank you for participating. Everyone, have a great weekend.