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Ladies and gentlemen, thank you for standing by. And welcome to the California Water Service Group Q4 and Year End 2022 Earnings Call.
I would like to turn the call over to Tom Scanlon, Corporate Controller. Please go ahead.
Thank you, Mandy. Welcome, everyone, to the 2022 year and fourth quarter earnings results call for California Water Service Group. With me today is Marty Kropelnicki, our President and CEO; Tom Smegal, our Vice President, Chief Financial Officer; and Greg Milleman, our Vice President of Rates and Regulatory Affairs.
Replay dial-in information for this call can be found in our year-end earnings release, which was issued earlier today. The replay will be available until May 1, 2023. 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 yesterday afternoon and is also available at the company's website at www.calwater.com.
Before looking at this year's results, we'd like to take a few minutes 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 may 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 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 want to start by pointing out Note 16, in the Form 10-K the company filed yesterday. During the fourth quarter of 2022. The company identified an immaterial error from regulatory liability and corresponding decreases to operating revenue and deferred income taxes that were not recorded in 2019. This is associated with customer refunds. The error does not impact customer billings or cash refunded to customers. The company corrected the error in the financial statements through a restatement of an opening retained earnings balance to the year ended December 31, 2020. For more details, please see the File 10-K.
I'm going to pass it over to Tom Smegal.
Thanks, Tom Scanlon and good morning, everyone, I'm going to walk through as I usually do the results of our full year and our fourth quarter. And I'm going to start on Page five of the slide deck, which is a table of our financial results.
And starting at the bottom of that table, our EPS for the year went from $1.96 in 2021 to $1.77 in 2022, a decrease of $0.19, our net income attributable to California Water Service Group declined by 5.1 million or 5.1%. The capital investments, I do want to highlight, we'll be talking about that a little bit on the call today, increased $34.6 million to a new record of 327.8 million of CapEx for the year.
To try to describe the full year financial results on the next page, remember that the big impact to the year that we've had is an $11 million negative unrealized change in the valuation of our non-qualified retirement plan assets. That was the big impact for the year, obviously, it's also the third-year of the California General Rate cycle. And typically in that third year, we see that rate increases don't keep up with the operating expense increases. And that was certainly the case here in 2022.
I want to jump then to the next slide and talk about the fourth quarter on Slide seven. In the fourth quarter, we did see and I know we talked in the first three quarters of the year about our unbilled revenue. We just see that unbilled revenue bounced right back up to where we had expected it to be as we talked about, and so the quarter was much better than the fourth quarter of 2021. Our EPS for the quarter was $0.35 per share, as compared to $0.07 per share in 2021. And the net income for the quarter in '22 was 19.6 million, it's an increase of 16.1 million.
So as I said, I'm flipping to Slide eight, the primary driver there was the reversal of the unbilled revenue, you saw that we had an increase of 11.1. And overall for the year, we had an increase of about $1.7 million in unbilled revenue. That's fairly typical for us to have anywhere from positive a million, or two to negative a million or two that usually washes out with that factor.
We did again, for the quarter [indiscernible] increased operating expenses for a variety of reasons. And we continue to see a little bit of general rate increase associated with that GRC step increase that we got at the first of the year in 2022. The bridges describe those items that I just talked about, and I'll leave those for you to look at. Again, the big factors on the year is the mark-to-market the big factor on the quarter is the increase in the unbilled getting that back to normal.
So we have a lot of regulatory matters to report on. We have Greg Milleman here with us. And I'm going to start with Greg, talking about our California cost of capital case.
Thank you, Tom.
On Page 11, we discussed the cost of California cost of capital. There's really not much to report since the last quarterly report. There is no new news from the Commission. As of today, the following commission process the earliest that we could see a final decision would be April of 23. And I'll turn it back to you Tom Smegal.
Thank you. Thank you, Greg. And because of the delay in issuing a decision, the company and can't determine whether the commission is factoring in changes in market conditions, or other reasons for reviewing the cost of capital for this long. So we really can't say where are the cases in terms of the timing, as Greg mentioned, as well as outcome. And as we've been talking about on the third bullet there on Slide 11. Given the success of our financing program, we know that we had lower cost of debt that was in the application and we don't yet know whether the commission would apply retroactivity to the eventual cost of capital decision.
We've seen and we've talked about a few things that lead us to conclude that that is not probable, given the facts and circumstances that we have right now. But if the commission were to go back and go back to the beginning of '22, we would expect that the reduction in cost of debt alone would be an $11 million annual negative impact for the company. But that would be recorded in any current period, when we do see a final decision from the Commission, if they go retroactive. Greg, turn it back to you for the rate case update.
Okay. On Slide 12, is the California general rate case update. As of today, the decision is two months late. There is no new news on when we will see a proposed decision. However, since the decision is late, we have opened an interim rate memo accounts that will allow us to track the difference between the current rates and the final rates that come out of the decision, which will be effective. or which is effective of January 1, 2023. Additionally, we received approval to increase rates in most of our districts by 4%. That we will commence starting April 15. 2023.
Moving on to Slide 13, with a focus on the coupling. It's a reminder that at start of this year, we are no longer decoupled. So we will be back to pre-2008 conditions. There will be annual --because of there is no decoupling there'll be annual variability in the sale and production, the water sales revenues as well as the production costs. But we knew that was coming. So to mitigate this in our 2021 rate case, we addressed it primarily by shipping more recovery at fixed costs to fix service charge of more of our revenue to fix service charge. And then, also use more realistic water mix sources -- water mix from various sources to have a more realistic water production costs. And I'll turn it to you now, Marty.
Great. Thanks. Greg. As we talked about, in the last conference call data the third quarter, Governor Newsom did sign in California on September 30 a new law asking the CPUC to reconsider decoupling, which was a big win for the water industry in the state of California. Shortly after that law was signed by the Governor, the California Public Utilities Commission filed a motion to dismiss our California Supreme Court case. They said it was now null and void based on the new law signed by the Governor. We disagree with that notion. I'm very happy to report that the courts dismissed CPUC motion to dismiss and so we are moving forward with our case with the California Supreme Court here during the first quarter of 2023. That case has been fully briefed. And we anticipate having an oral arguments before the State Supreme Court, no later than mid-year of this year. So that court case is moving forward. I think all indications are going in the right direction. And we look forward to having our discussion with the courts here sometime over the next quarter or so.
Greg, do you want to go through that California tracker status for 2023 of the delayed rate case?
Certainly. Thank you. On Slide 14, you will see various mechanisms, or trackers that the Commission allows to track loss revenues and expenses, these will all become effective January 2023. All but two of them cannot be calculated until the 2021 rate case is finalized. And the component parts and pieces are set by the final commission decision. The first two items, however, the incremental cost balancing account, and the conservation balancing account. We settled with Public Advocates, in this case on the component parts of those accounts. And so we're able to calculate those now.
The other mechanisms, we'll need to get the final commission decision before we can actually calculate them, but the mechanisms themselves are not in dispute.
I believe it goes to you now, Marty?
Yes, thank you.
I want to give a little update on where we are at the drought of everyone has been following the storms during the first quarter of 2023. It's been wet and wild winter in California. Having said that, a storm really is a drop in the bucket. We had a lot of rain, the first two weeks of the year as atmospheric river hit the West Coast all up and down the state which was good news for water supply perspective, filled up a lot of reservoirs in Northern California. And then we had a very, very dry February up until this week where we got more snow and blizzard like conditions in the CRS. I think as many of you know, groundwater levels wrapped very slowly to seasonal changes and one storm really doesn't kind of change things. Snowpack is very, very healthy right now well above 100%. But the thing to really watch as we go into the spring is what happens to the snowpack during the month of April.
If you remember during April of last year, we lost the majority of our snowpack and melted quickly as the weather warmed up. And this is really -- that's the part that's really driven by climate change. The other thing I would say is that the economics of water in California haven't changed, you still have 40 plus million people. You're the largest ag base state in the union. And you have a very strong industrial base being the fourth largest economy in the world. So people get really excited about the storms we do as well. We're happy to see the rain. But the reality is we're far from out of this thing. And the thing to really look at is kind of what's the effect of climate change longer term on the state. And that's why monitoring that snowpack, and how long that snowpack lasts for -- will become really, really important.
Conservation continues and our customers did a good job. Some of you may have seen we put a press release out earlier this week that our customers had nine straight months of conservation savings. Overall for Q4 2022 was 8.2% lower than last year and 70% below adopted. Again, that's the work of the conservation team, our conservation messaging taking place throughout the state. Our drought expenditures for the quarter were about $500,000, they're reported in a memorandum account. So they're expensed in the period, but we're allowed to track them.
Our total balance in that accounts is just under $2 million as of right now. So all eyes are on April to see what happens with the snowpack. Hopefully we get more and more snow between now and then. But really, we have to see how long it lasts. And I think that the big thing that has really changed kind of over the last year has been the heightened awareness of the issues with the Colorado River. And well, that doesn't have a per se direct effect on Cal water. It does affect some of our wholesalers in Southern California, who we get water from.
And so we will continue to monitor that. And obviously, our drought efforts work hand in hand with our wholesalers to make sure we have enough supply for Southern California. So there'll be more to come on the drought as we move into spring.
Moving on to Page 16, we want to talk a little bit about capital investment, as Tom said, I think the silver lining to what has been a challenging year has been the capital investment. We had a revenue record of $328 million of total capital invested, which is very, very healthy, frankly, better than what we thought we would do to those to the procurement engineering and operations team for putting that capital in the ground. There are many supply chain challenges during 2022 that we had to overcome to keep that capital flowing.
Q4 capital spending increased, given the good weather conditions up until the first of the year. And also, we've had more capital being invested in our subsidiary companies. And we think that's a very, very good sign as our business development endeavors continue to pay off and we add new service connections and other states. We're putting more capital in those other states and bringing those service connections up to our standards.
We expect to increase in capital expenditures in non-California utilities in 2023. Again, with our subsidiary companies, we expect that level of capital investment to continue to move up, albeit not as the size of California in terms of total dollars as a percentage increases, the capital expenditures and the subsidiaries are growing at a very, very healthy clip. And I'll come back and talk about that in just a minute, when we talk about PD exercises.
If you go over to Page 17, on the business development side, we have highlighted in yellow kind of what has changed since we last talked. And I'll just go through the changes here quickly. Keahou in Hawaii, which is a wastewater management system that adds 1500 equivalent units or basically 1500 customers to our wastewater base in Hawaii, that adds 24% of the connection base for our Hawaii operations.
Up in the Pacific Northwest in Washington, we added Stroh's water and Bethel Green Acres, they were approved by the WUTC in January of this year, that'll add 3% to the customer base for our connections in the state of Washington. And if you go down to the very bottom of the page, Lake section, New Mexico, we announced in January of 2023, definitive agreement and that has been filed with the New Mexico Public Service Commission that'll add 5000 connections or 58%, to our connection base in New Mexico.
So we've continued to have good luck on the business development side and growing our business outside of the state of California. And we'll look forward to updating you on these business development endeavors as we move forward in 2023.
Back to you Tom?
So I'll just do a quick update on our capital investment and read the slides on Slide 18. We've shown the capital investment for 2022. We continue to achieve CapEx that is 3x our depreciation rate. That's now a total of seven years where we've been doing the best case, CapEx. And you'll see that remember, 2023, 2024 are dependent upon the CPUC decision and direction that we get from the CPUC in California with respect to the 2021 general rate case.
There have been no changes to Slide 19. Again, that's our estimated regulated rate base, particularly as it relates to California. We're awaiting a ruling as we talked about that would determine what the regulated rate basis in 2023 as well as '24 and '25. So Marty, I will turn this back to you.
Great. And on Page 24, we are going to wrap up and what's going to happen during 2023, looking forward. First and foremost, as we talked about on this call, not a lot of new news on the cost of capital in the general rate case, we are waiting, as our most of the water utilities in the state of California that are regulated by the PUC that will create some short-term regulatory uncertainty as we wait for the two key decisions. We continue to work with the Commission, and we'll do everything we can to get those decisions out as quickly as possible, but ultimately the ball is in their court.
Likewise, as we go into the end of the first quarter, it means the financial reporting is going to be a little bit more challenging because we are officially decoupled from decoupling, but you don't have a rate order that as all your mechanisms laid out yet, as Greg mentioned. So like we've done in previous year GRC is, where we have anticipated mechanisms and trackers that we think we'll be using when ultimately approve, we will provide as much information on both sides of the fence so to speak. So you can see what the numbers are kind of pre and post based on what we think those trackers are going to be.
So if we can just ask everyone to bear with us till we get through the two decisions, once the decisions that'll clear a lot of it out, but it will be a little choppy making sense of all this in the interim, while we are no longer decoupled and waiting for a GRC decision that ultimately approval attractors as well as cap structure, cost to capital, et cetera.
We'll stay focused on regulation. Clearly, we're going to continue making progress in business development, the business development team has been very busy. We have a very full pipeline. We'll also continue to stay focused on risk management and paying attention to our supply chain issues, drought and climate change issues that affect the company long-term. We'll be publishing our third ESG report here. Over the next few weeks, we look forward to sharing that with everyone in the progress we've made on our battles with climate change and what we're doing to ensure sustainability for our customers.
Lastly, I want to deviate a little bit and some of you might be thinking, who in the heck is this Tom Scanlon guy and what the heck happened to Dave Healy. Dave Healy, retired as our Corporate Controller. Some of you probably saw the 8-K last year, it was a planned retirement. So we're lucky to have Tom Scanlon. Tom has an undergraduate degree from Finance from Marquette University in Wisconsin, an MBA from the University of Illinois. He is a CPA and has a strong background in financial reporting and construction management. So Tom has been our Director of Financial Reporting since 2010. So he has been part of our succession planning process here at Cal water, certainly very, very well qualified. And frankly, with a strong background in construction accounting, he was a big add for us when we added him in 2010. Since construction and getting [indiscernible] is a big part of what we do. So Tom, welcome.
I also want to note that Justin Skarb, was promoted to Vice President of Community and Governmental Affairs just joined Cal Water in 2009. He was promoted to Director in 2017 and became an officer of the company effective January 1, with Tom Scanlon. Justin has his BS in Political Science from Arizona State University, a Master's in Communication from Cal State Hayward, and he's currently finished up his Juris Doctor, which he expects to have in 2024.
Likewise, you may have saw a press release from a couple weeks ago announcing Shawn Bunting has joined the company as our Vice President, General Counsel. Sean will be replacing Lynn McGhee who will officially retire at the end of this month after 19 years of service with the company. Shawn has been with American Waterworks for 15 years, serving in several various senior leadership roles. Shawn has a Bachelor of Arts in political and criminal justice from Gettysburg College and a Juris Doctor from the University of Pittsburgh Law School. He's also a U.S. Marine Corps vet. So officially welcome to Tom, Justin and Shawn.
And then, lastly, I want to close out by just thanking Lynn and Dave, we've been very blessed at Cal Water to have a smart, thoughtful and creative leadership team. And although leadership changes are never easy, because we all get used to working together, and this has just been a marvelous team to have together for the last number of years without having any changes. We also understand and we encourage people to go retire and enjoy life. One of the great things about working at a company like Cal Water is we do have excellent benefits and excellent retirement program.
So as much as change is painful to see our good friends and colleagues go, it's a good thing because it gives people room to move up and succession planning is a core competency of management and the board here at Cal Water that we take very, very seriously. So with Dave and Lynn, we just want to say thank you for all you've done for us over the years, you've been a major part of our team, you will be dearly, dearly missed, and we wish you all the best in your retirement. So with that funding, we want to open it up to questions please.
The floor is now open for your questions. [Operator Instructions]. We have a question from the line of Angie Storozynski from Seaport. Please proceed.
Thank you. So I wanted to start with the fact that the decoupling mechanism went away, but you are still under the conservation mandate. So, again, I'm just trying to understand where the exposure is, right? Because under the conservation mandate, the sales volume or changes in sales forecasts is not something that should impact your earnings. Again, I'm just trying to understand where is the sensitivity here, given that conservation mandate is still in place?
Sure, Angie. This is Tom Smegal. And, Greg, if you could fill in, when I get to the end of my knowledge here. We do have a filed account -- one of the accounts that Greg mentioned, that's called the DRMA, which is the drought lost decision lost revenue memorandum account. And that is something for the for the non-decoupled companies like an SJW, or some of the other smaller companies that's been in place with them for some years.
It does allow us to track and record lost sales during a declared drought. And so we are in a declared drought right now. The Governor Newsom declared the drought a couple of years ago. And obviously, we've mentioned that we're tracking the costs associated with that. So if you're not decoupled, you do get to track loss revenue, and potentially recover that later. There's a couple things about that. One is that it's subject to a little bit of an earnings haircut, I think a 20 basis point reduction in ROE associated with that. And then, the thing that is unknown at this time, because we've had such a wet winter to-date, is whether or when the Governor might declare that the drought is over. Now, there's obviously as Marty mentioned, major water supply challenges in California, particularly in Southern California at the moment with the Colorado River supply, we're not sure if and when the Governor might to declare the drought over. But if and when that happens, that account would no longer track the lost revenue. Greg, do you have anything to add to that?
No. You hit all the relevant points, Tom.
Okay, I understand. So previously, I looked at the fourth quarter slides from previous years, you guys had this slide where you showed us, I would call it a simplified math for your earnings. And I understand that this year, it's difficult given that you're waiting for at least two major decisions. But can you actually, please give us a sense, for example, what is the non-California rate base? How should we think about those other drivers, as you typically have? Yes, well, I know that a lot is unknown, but at least what would help us estimate the earnings power for this year?
Yes. I think that we don't report in segments. And so from our filed documents, it's a little bit difficult to get the non-California rate base. We've described the company as being somewhere between 90% and 92% of our revenue and our businesses in California. And so that would tend to be about true with rate base as well. But I don't have the numbers in front of me. And I don't know that we describe them publicly. There is -- somebody's calculations that are embedded in that number on Slide 19, which is the rate base. And I want to say that that follows that pattern as well, where about 90% of that rate base that's being shown there is projected rate base for '23, '24, '25 is the California rate base.
But I can't get into much more detail than that. There are a lot of systems and unfortunately, the regulations are different in all states. And so in some cases, we have predicted rate base, in some cases, we have reported rate case. It gets a little complicated. But California is fairly obvious because it'll be written in the decision with the rate base in California.
Okay. And then, lastly, on the financing side, so you've been very active with acquisitions of assets. So how are you financing those acquisitions? So that's one and number two is what was the actual equity ratio at the California utility at the end of 2022?
So the answer to that first question is that most of these acquisitions, if you look back to the acquisition, slide 17 are relatively small. We've been funding those with corporate cash that's obtained through retained earnings and the ATM equity program, as well as the lines of credit that we have. The biggest acquisition that is on that list currently is probably the lake section at the very bottom. And we just announced that acquisition, so we actually haven't paid for it yet. And so that will come out of those sources later on.
As far as the equity layer at California Water Service Company, I see Tom across the table with me with a calculator. We don't have that information published. We'll have to calculate that. And try to get that out in another way. We don't have that information right now.
That is, if I were to say that it's around 50%, would that be?
I think as of the third quarter that was trending upward. And as you know, one of the issues and the cost of capital case was whether the capital structure was appropriate, and it certainly was getting close to 50%. As of the third quarter, I remember calculating but I don't have that number, unfortunately for year end.
Okay. Thank you, guys. Thanks.
Our next question comes from the line of Jonathan Reeder from Wells Fargo. Please proceed.
Hey, good morning, gentlemen. I was hoping you could elaborate a little bit on the drivers of this substantial 35% increase in other operating expense, I think it was about $30 million higher than in 21. The items in there they're not likely to [indiscernible] or, is that a good base to assume 23 grows off of?
This is Tom Scanlon. I'll answer that. The increase in other operational expense. A good portion of that relates to requirements of deferral based on accounting, a guidance that we look at the future and estimate the collect collection of receivables. And anything that's over 24 months, we have to defer the revenue and costs. Each quarter, we reforecast that out, reverse it and rebook it. And because of our anticipated collections, we've reversed out revenue and cost. And that's the large adjustment in the other operations expense. Also, we record our conservation expense in that category. And since we're at the end of our GRC, we have subvention balancing account, in which there's a number of programs that were accelerated during the final year of our rate case.
And again, note that the conservation expenses are covered by a balancing account. We also had an increase in bad debt expense or the reserves that we take for uncollectible accounts. Mid-year in 2022 we were allowed to begin turning off service for non-payment. But we have a number of accounts that are under review, and we can't -- it's going to take some time to employ -- to turn off non-payments. And so those were the primary drivers of the increase in other operating expense.
Okay. So it sounds like a lot of that increase, do you have an associated kind of revenue impact as well, or revenue increase?
That's right, Jonathan. Yes.
Okay. And then, I don't know if this is for Marty, but why did the board only go with a 4% dividend increase in '23? I know, it had that increase and it more like an 8% pace, the last three years and the payout ratio on -- at least what should be a normalized EPS, our 2023 is going to be a little messy, but it's still pretty low, maybe around like 50%. So why did the dividend kind of not grow as fast as it has been historically?
Yes, good question, Jonathan. Obviously, we keep our payout ratio pegged within a certain band. Clearly, it's just uncertainty right now, right? We're pinning the right case. We are pinning the cap structure. And we think one of the most important things we do as a company, besides serving customers is getting the capital on the ground, right? That's the benefits for stockholders as we're rolling out rate base. And so given the uncertainty that we've seen at the Commission, we thought it was more prudent to have a lower dividend increase this year. And keep plowing that capital back into the ground. And obviously, as things change, we'll reevaluate that, we've increased the dividend every year for the past 70 some odd years. I don't see us kind of changing directions from something like that. But we just felt it was time to be a little bit conservative until we get through these two hurdles here with the California Public Utilities Commission.
Okay. Thanks for that. And then, just lastly, that Lake Section, New Mexico acquisition, is there anything that you can disclose in terms of the purchase price? Or associated rate base amount there? And is that a deal that you expect to close in 2023?
We think it'll close in 2023. Obviously, we haven't filed it yet, with the New Mexico Public Utilities Commission. When we do, we'll be able to talk more about the purchase price. But I will say this, and Jonathan how we are from a business development standpoint. We are value buyers. We're not interested in buying something that three, four- or five-times rate base, right? We look at the cost per connection. We look at how much headroom or availability there is to invest in that system, to bring them up to our standards, et cetera. So keep in mind when we look at all our business development efforts. We have a pretty strong value slant on how we buy things.
So I think once we file the application with the Commission, we'll be able to talk more about it. But until then, I really can't say what the purchase price is. Other than I would say it's not material, it's a 5000-connection system. It's not really big numbers here that are going on really kind of density thing.
Our final question comes from the line of Davis Sunderland from Baird. Please proceed.
I wanted to ask about visibility into the current supply chain environment. I know you guys mentioned maybe having an impact that was greater last quarter than this quarter. It sounds like you overcame some difficulties, but just wanted to ask maybe specifically on lead times for lead piping or anything else significant. And if you think that's going to have any impact on the capital investment this year? And then, I have a brief follow up.
Sure. Well, I think I got supply chain tattooed on my arm, which has been a key focus of what I worked on with the procurement team and the engineering team throughout the last two years. First, we're not buying any lead pipe, we just set the record straight, there's no lead pipe. We have seen substantial changes in lead time requirements for ductile iron, PVC, et cetera. And those look like they may have peaked in the third to fourth quarter. So ductile iron used to be able to order it, four to six weeks out and you'd be fine in a job site. In some cases, it's up to a year lead time now. So part of what happens behind that, and I've met with a majority of our suppliers is, they cannot ramp up production that quickly at their plant sites. So they try to match their supply with the demand and not have overcapacity because it costs them, and their margins are fairly tight.
But we are seeing the suppliers ramp up production. It's been about 12 months coming, they started working on it early on. So we're seeing that some of that production come into Q, which is going to speed things up. The other thing that has helped tremendously is, we have been a consistent buyer of that pipe from our wholesalers. And so those relationships really make a difference when there's been a kind of a scramble and everyone out there trying to buy stuff that we've gotten bumped up to the top of the list because of our relationships and our consistency of ordering goods and services from certain vendors.
So I think we've peaked, I think it's starting to get better. We have seen a pretty big increase in some of the costs. We've seen increases in our year-over-year inventory balances as well. So as we found excess supply available, the team would grab it and we would go store it. So, I think it's easy to talk about on earnings call, but the reality is that the procurement team and the engineering team really did a fantastic job.
And if you go back and listen to our earnings calls through last year, we will softly say, it's a tough year for capital. It's a tough year for capital. It's a tough year for capital. And clearly, it was but in the fourth quarter, we had a record fourth quarter, which resulted in a record year, the team has done a fantastic job. We are seeing price increases, obviously, with all the inflationary pressures as well, but I think we're managing through it. And I hope we're through the worst of it. The indications I've seen so far is that it's starting to get a little bit better now. So barring any other major disruptive global events, I think we'll be on the downside of the problem. And hopefully, things will start leveling off.
Thank you. That is helpful. And my follow-up question would just be about the business development project pipeline, obviously very exciting to hear about New Mexico and just wanted to ask if there's anything in particular that -- to the extent that you can share, of course that you are looking into or weighing options as far as water versus wastewater, or certain geographies that are more attractive. Any details that would be great. Thank you very much.
Sure. Very good question, obviously. Well, we back up. So at 50,000 feet, we've closed deals in in all five states, including Texas. So I think that the market continues to be decent. The pipeline continues to be full, sellers’ expectations and buyers' expectations, that's always for the challenge is going to be. We're doing deals on both sides, water and wastewater. We've had very good growth in Texas. We've obviously in the state of California, and in the state of Washington, it's been more kind of water systems in Hawaii. And Texas has been more wastewater systems. So we're growing on both sides of it. And it just depends on where the market is and where the growth is happening.
As I mentioned to Jonathan's question, we're very kind of valued focused on a system, we're not interested in buying a system and overpaying for it, and then not having the ability to invest more capital into that system. And that is a lose, lose situation for stockholders and for our company. So we like to buy it on a value basis where we got room to invest, make capital improvements, bring somebody up to our operating standards, and then, the selling shareholder of the entity, it's their buy out, we get the asset at a fair price, not an inflated price, but a fair place. And then, our stockholder gets the ability to invest capital in that system, which allows us to start generating a greater return.
So I'm still kind of bullish on the PD side, obviously, inflation is going to be a factor and what happens with the economy in 2023. But the PD team has been hot, and it's been hot in all five states. And I don't see our momentum slowing down. And having said that, these aren't really big deals either, but obviously, they're big deals to the subsidiary companies, because they're growing exponentially with these deals. So I think '23 is going to be another decent year for business development barring any global catastrophic changes in the market.
I would now like to turn the call over to Martin Kropelnicki for closing remarks.
Thanks, Mandy. Well, obviously, as we move into the first quarter, all eyes are on the California Public Utilities Commission, resolving the cost of capital and getting a PD out, and hopefully getting a general rate case decision out sometime in 2023. The other two things, we're focused on importantly is, our Supreme Court case with the California Supreme Court on decoupling. And then as I mentioned earlier, everybody wants to snowpack, that's going to be the key to answering questions about the drought, what happens to the snowpack during the month of April. So with that, thanks for joining us for another year end conference call. We appreciate everyone's support, and we'll look forward to updating everyone at the end of the first quarter. The end of April. Thank you very much. Have a great day.
Thank you, ladies and gentlemen. This does conclude today's call. Thanks for your participation. You may now disconnect.