SJW Group (NYSE:SJW) Q3 2022 Results Conference Call October 28, 2022 1:00 PM ET
Company Participants
Eric Thornburg – Chairman, President & CEO
Andrew Walters – CFO & Treasurer
John Tang – Vice President of Regulatory Affairs & Government Relations
Conference Call Participants
Richard Sunderland – JPMorgan
Angie Storozynski – Seaport Research
Jonathan Reeder – Wells Fargo
Operator
Good day, and thank you for standing by. Welcome to the SJW Group Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.
I would now like to hand the conference over to your speaker today, Andrew Walters, Chief Financial Officer and Treasurer. Please go ahead.
Andrew Walters
Thank you, Shannon. Welcome to the 2022 third quarter financial results conference call for SJW Group. I will be presenting today with Eric Thornburg, Chair of the Board, President and Chief Executive Officer; and John Tang, Vice President of Regulatory Affairs & Government Relations. For those who would like to follow along, slides accompanying our remarks are available at our website at www.sjwgroup.com.
Before we begin today, I would like to remind you that this presentation and related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of its experience, historical trends, current conditions and expected future results, as well as other factors that the company believes are appropriate under the circumstances.
Many factors could cause the company’s actual results and performance to differ materially from those expressed or implied by the forward-looking statements. For a description of some of the factors that could cause actual results to be different from statements in this presentation, we refer you to the financial results press release and our most recent Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission, copies of which may be obtained on our website.
All forward-looking statements are made as of today and SJW Group disclaims any duty to update or revise such statements. You will have an opportunity to ask questions at the end of the presentation. As a reminder, this webcast is being recorded and an archive of the webcast will be available until January 23, 2022. You can access the press release and the webcast at our corporate website.
I will now turn the call over to Eric Thornburg. Eric?
Eric Thornburg
Welcome, everyone, and thank you for joining us. I’m Eric Thornburg, and it is my honor to serve as Chair, President and CEO of SJW Group. We thank our 700 plus employees for building and maintaining a culture of service and their commitment to serve customers, communities, the environment and each other. They know that there is no substitute for clean drinking water, reliable service and a healthy natural environment.
We welcomed Bruce Hauk to our team in August. His leadership style aligns with our company’s values and he is already making an impact as a member of our executive leadership team. Over his 26 years in the water industry, he has built productive working relationships with regulators and local officials. Bruce’s expertise and strong track-record in utility operations, acquisitions and business development will build on SJW Group’s successful growth strategy that has expanded our footprint and transformed us into a multistate water and wastewater company.
We had a solid third quarter despite some continuing headwinds, led by regulatory delays in our California General Rate Case and cost of capital proceedings. Our GRC settlement agreement with the Public Advocates Office was approved by the California Public Utilities Commission on October 6th, just after the quarter ended. The increase in authorized 2022 revenues, which will be retroactive to January 1st 2022 will be reflected in Q4.
Our team has overcome supply-chain issues that have caused longer lead times for some materials necessary to deliver our capital projects. Despite the challenge, our capital spending is on target for 2022. Likewise, inflation is affecting our operating expenses as it is across many sectors of the economy. In California, we are allowed an annual inflation adjustment. In all our other operations, we’re focused on blunting the impact of inflation where possible. But this will not come at the expense of our commitment to water quality, reliable service, our people and the environment.
In the third quarter, we also celebrated the commissioning of our $60 million water treatment facility in Biddeford, Maine. The Saco River Drinking Water Resource Center is a generational investment that will serve the customers and communities into the next century. High quality drinking water and reliable treatment is just the start. The center is a resource in the community to raise awareness about the importance of protecting and preserving drinking water and the environment. We reaffirm our 2022 guidance of $2.30 to $2.40 per share.
Andrew Walters will now discuss our financial results. Andrew?
Andrew Walters
Thank you, Eric. Yesterday at the close of business we released our third quarter 2022 operating results. Reported net income for the quarter of $25 million or $0.82 per diluted share on revenues of $176 million, this compares to 2021 quarterly net income of $19.1 million or $0.64 per diluted share on revenue of $166.9 million.
The change in diluted earnings per share for the quarter was primarily driven by cumulative rate increases of $0.32 per share, a $0.26 per share production cost savings due to lower customer consumption, an increase in our California utilities surface water production and $0.13 per share increase due to the impact of our California Utilities Water Conservation Memorandum Account. These increases were partially offset by production cost increases of $0.31 per share, a decrease of $0.14 per share due to lower water sales and a $0.10 per share decrease as a result of changes in our Connecticut utilities water revenue adjustment account, otherwise known as the WRA regulatory mechanism, which I will discuss later in my comments.
As Eric noted, we received approval from the California Commission on the settlement agreement with the Public Advocates Office on October 6, 2022. The decision will be applied retroactively to January 1, 2022. John will provide further information on the decision and the impact in his comments to follow.
Also of note, our California utility continues to operate under a mandatory call for water conservation declared by Valley Water our wholesale water supplier. The declaration calls for a 15% reduction in 2022 water consumption as compared to 2019. During the third quarter conservation by our California customers resulted in a usage decrease of 16% for residential customers and 10% for business customers.
Turning to revenues. We recognized a quarterly revenue increase of $9.1 million compared to the third quarter of 2021. The increase was primarily attributable to $9.5 million in cumulative water rate increases and $5.1 million in the recognition of balancing and memorandum accounts in California. Which included $3.9 million related to RWCMA and $1 million related to our Monterey Water Revenue Adjustment Mechanism. These increases were partially offset by a $4.3 million decrease in customer usage and a decrease of $2.9 million due to the Connecticut Utilities WRA. Of the $2.9 million WRA reduction, $4 million of the decrease occurred to align actual regulated revenues to allowed regulated revenues under the mechanism.
Connecticut Water actual regulated revenues for the quarter exceeded authorized regulated revenues by 12%. The decrease was partially offset by a change in timing of monthly usage under the mechanism, which shifted $1.1 million in revenue from the previous periods in 2022 to the third quarter. Water production expenses increased $1.5 million compared to the third quarter of 2021. The expense increase included $9.2 million in higher average per unit water cost, partially offset by $6 million in lower customer usage and $1.8 million as a result of an increase in our California surface water production.
Other operating expenses increased $3.7 million during the third quarter, primarily due to an increase in depreciation expense of $1.7 million and a $1.2 million increase in general and administrative expenses, primarily due to increases in labor costs and higher operating costs.
The effective income tax rate for the third quarter was 1% compared to 13% for the third quarter of 2021. The effective tax rate decrease was primarily due to a tax accounting method change related to repairs tax in our Connecticut utility.
Turning to our results for the first nine months of 2022. Revenue was $449.3 million, 4% increase compared to the same period in the prior year. Net income for the first nine months of 2022 was $40.3 million or $1.33 per diluted share, compared to $42.5 million or $1.43 per diluted share during the same period a year-ago. The change in diluted earnings per share for the first nine months of 2022 was primarily due to cumulative rate increases of $0.79 per share. A $0.66 per share decrease in production costs attributable to lower-usage and an increase in California surface water production. A $0.20 per share increase in the balancing and memorandum accounts in California and then $0.11 per share nonrecurring gain on the sale of non-utility property net of non-recurring TWA purchase price hold back we recorded in 2021. These increases were offset by production cost price increases of $0.73 per share, a decrease of $0.33 per share in customer consumption, and a $0.28 per share decrease from the impact of Connecticut WRA.
In addition, depreciation increased $0.27 per share. General and administrative expenses increased $0.16 per share. And the change in California cost recovery balancing and memorandum accounts resulted in an increase of $0.12 per share. Our year-to-date 2022 nine month revenue increase was primarily due to $22.2 million in cumulative rate increases, $5.8 million in balancing and memorandum account changes, which included a $2.8 million related to WCMA and $2 million related to Monterey RAM and $3.7 million in new customers. This increase was partially offset by a decrease in customer usage of $9.1 million and a decrease of $8.3 million related to the Connecticut WRA. Of the $8.3 million WRA $4.8 million of the decrease occurred the align general rate case revenues to allowed rate case revenues under the mechanism. Connecticut Water actual general rate case revenues year-to-date has exceeded authorize general rate case revenues by 6%. In addition, the change in timing of monthly usage under the mechanism noted in my comments on the quarter resulted in a $3.5 million revenue decrease for the first nine months of 2022. The timing difference will reverse in the fourth quarter of this year.
Water production expenses increased $3 million in the first nine months of 2022. The increase was primarily due to $20.4 million in higher average per unit water supply cost, partially offset by a $13.3 million decrease in customer usage and a $5.4 million increase in our customer — our California surface water production. Other operating expenses increased $11.3 million in the first nine months of 2022 primarily due to a $7.6 million increase in depreciation expense and $6.4 million in higher general and administrative expenses, primarily due to increases in labor and higher operating cost. In addition, cost recovery balancing and memorandum accounts increased $2.1 million and taxes other than income increased by $1.5 billion. Also in 2022 we recorded a $5.5 million gain on the sale of non-utility property. No similar gain was recorded in 2021.
The change in other income and expense was primarily attributed to our 2017 TWA sales hold back, which was released in the second quarter of 2021. No similar activity occurred in 2022. The effective income tax rate for ‘22 was 8% compared to 11% for 2021. The effective tax rate decrease was primarily due to a tax accounting method change related to repairs tax in our Connecticut utility.
Turning to our capital expenditure program, we’ve added $58.9 million in company funded utility plant in the third quarter of 2022, bringing the total company funded additions for 2022 to $160.5 million. Our 2022 cash flows from operations increased approximately $29 million over the same period in 2021. The increase was primarily due to an increase of $34.2 million in regulatory assets due to balancing and memorandum account activity and an increase in general working capital and net income, adjusted for non-cash items of $5.2 million. These increases were partially offset by $4.5 billion of payments for previously invoiced and accrued — an increase of payments for post-retirement benefits of $3 million and a decrease of $2.9 million related to higher accounts receivable balances.
At the end of the quarter we had $150.8 million available on our bank lines of credit for short-term financing of utility plant additions and operating activities. The average borrowing rate on the line of credit advances during the first-nine months of 2022 was 2.79%. The average borrowing rate for the same period of 2021 was approximately 1.34%. Recent borrowing costs on the line of credit or around 4% to 4.6% as a comparison and our projected by the Street to increase even further in 2023.
With that, I will stop and turn the call over to John.
John Tang
Thank you, Andrew. As mentioned earlier, in October the CPUC approved the settlement agreement between San Jose Water and the Public Advocates Office for the 2021 GRC, that covers 2022 through 2024. We are appreciative of the CPUCs and Public Advocates Office’s recognition of the critical work water utility profession has each and every day and this is reflected in our GRC decision.
I also extend my deep appreciation to our customers, employees and community leaders who have and continue to support the essential work we do. The decision benefits both San Jose Water and its customers by recognizing the need for continued investments in the water system to deliver safe and reliable water service and authorizes a three year $350 million capital budget. The $25.1 million in additional 2022 revenues authorized in the GRC will be retroactive to January 1, 2022. And because the decision came after the close of the third quarter, those revenues will be reflected in our fourth quarter results.
We estimate an additional revenue — we estimate the additional revenue will be about $0.51 per share — per diluted share, a three year revenue increase of $54.1 million was approved prior to authorize inflation adjustments, if any. The constructive decision also reduces earnings volatility by addressing the water supply mix and further aligns actual versus authorized usage. The water supply contribution from San Jose Water’s surface water has been lowered to 1.8 billion gallons from 2.6 billion gallons and a decision establishes a full-cost balancing account for water and energy costs.
Among other provisions in the final decision, recovery of $18.2 million from various existing balancing and memorandum accounts and an increase in fixed charges on water bills to recover 45% of the authorized revenue requirement, which is up from 40%. Filings are being processed to implement new rates, as well as recover memorandum and balancing and interim revenue accounts we will provide an update in Q4 results. The 2022 to 2024 cost of capital proceeding for the [first] (ph) large Class-A California utilities is pending before the CPUC. San Jose Water’s cost of capital application requested a return on equity of 10.3% and capital structure of 55% equity to 45% debt and a decrease in the average cost of debt. The application also requested to maintain the water cost of capital mechanism authorized in previous proceedings. This mechanism allows the ROE to be adjusted by half of the change in the Moody’s AA Utility Bond Index Rate.
Drought conditions continue in our California service area. We have regulatory mechanisms in-place balancing the need to aggressively promote Water Conservation with the company’s opportunity to earn its authorized returns. Furthermore, the combination of the full cost balancing account authorized in our GRC and our Water Conservation Memorandum Account perform in the same manner as would a full decoupling mechanism and should further minimize our earnings volatility and maximize the opportunity to earn our ROE.
On a related note, the industry will benefit from Senate Bill 1469, which was signed into law by Governor Newsom last month. As you recall the low-income proceeding decision from 2020 eliminated the future use of the full decoupling mechanism. Water utilities could no longer request them going-forward. For those that enjoy decoupling at the time, this decision phased it out as they completed their current GRC cycle or application. Senate Bill 1469 restores water utilities ability to request to establish or reestablish the mechanism in a future GRC application. The ultimate authorities have proved decoupling still rest with the CPUC. Given the drought conditions which demand a strong conservation response, we believe decoupling will allow us to be aggressive on that front, while also ensuring we can recover our fixed costs. We anticipate seeking to establish decoupling in the future application.
Planning is underway for advanced metering infrastructure project. The $100 million project which is separate from the three year capital budget approved in the GRC was authorized by the CPUC this June. We anticipate the bulk of the spend to occur in 2024 through 2026. The current level at Lake Elsman will likely support approximately 1.8 billion gallons in total production for 2022. As shown on this chart Lake Elsman is slightly below the five year average and higher than in the same-period in 2020 and 2021. This should bring total service water production in 2022 close to or equal to the volume authorized in the recently approved GRC. We now have a full cost balancing account for water supply and energy cost providing protection in instances where actual water supply mix divergence from what is authorize, thereby allowing us to recover our actual costs.
With that, I will turn the call back over to Andrew.
Andrew Walters
Thank you, John. In Connecticut, the Public Utility Regulatory Authority authorized recovery of $10 million in completed projects through the Water Infrastructure and Conservation Adjustment Mechanism. The increase in the WICA surcharge was effective January — I’m sorry, July 1, 2022. WICA contributed approximately $1.2 million in revenue in the third quarter. The cumulative WICA is now 3.26%, which is expected to generate approximately $3.4 million in annualized revenues.
On September 23, Connecticut Water completed the acquisition of the assets of Miami Beach Water Company in Old Lyme. This is a water system for a small beach community that serves 118 customers. Maine Water Company has General Rate Case applications pending with the Maine Public Utility Commission for four of its divisions. The GRCs in those divisions were required through the prior settlement agreements related to the Tax Cuts and Jobs Act. If approved this file, the increase in annualized revenues would be $532,000, a decision is expected in the fourth quarter. Step two of the company’s multiyear rate GRC and the benefits Biddeford-Saco Division went into effect on July 1, 2022 and is expected to generate annual revenue of $6.3 million. This was related to our $60 million generational investment in the Saco River Drinking Water Resource Center that went online in June. This was the middle step in a multiyear plan that is gradually raising rates in the division.
The third and last filing to reflect the operating cost of the new treatment facility is expected to be submitted in early 2023. On August 1 a water infrastructure charge filing for the Skowhegan division was approved by the MPUC which increased annualized revenues by $50,000. On September 29, the city of San Antonio approved our customer — our proposal for service area transfer with the San Antonio water system, there are no current customers associated with this transfer, but there is developer interest in adding as much as 1,500 water and sewer connections. If completed, it will add approximately 520 acres to our water service area and 317 acres towards sewer service area. SJWTX now serves more than 26,000 water and wastewater connections between Austin and San Antonio. And its service areas are located in three of the five fastest growing counties in the United States. SJWTX has more than tripled its customer base in 16 years under SJW Group ownership, providing service to about 76,000 people today. With a diverse portfolio of water supplies, a growing wastewater business and continued additions to the customer base through organic growth and acquisitions. We are bullish about the prospects of SJWTX and the increased contributions to consolidated earnings.
As Eric commented earlier, we are reaffirming our 2022 guidance to $2.30 to $2.40 per diluted share. Our guidance is dependent on the decision in the cost of capital case in California and the completion of the four divisional GRCs in Maine in 2022.
With that, I will stop and turn the call back over to Eric. Eric?
Eric Thornburg
Thank you, Andrew. We continue to have strong Institutional Shareholder Services, ISS ESG ratings. Further [GRESBs] (ph) infrastructure assessment places SJW Group in the top-quartile of our comparison group, which includes many of our water utility peers. GRESB is a global ESG reporting and benchmarking framework.
Connecticut Water Company and San Jose Water Company have helped our customers secure nearly $10 million so far in 2022 through various state and federal programs, such as the low income household assistance program and the California water and wastewater arrearage payment program. Both companies also offer additional assistance programs including a reduced water rate for income eligible customers. I’m proud of the strides we continue to make in our supplier diversity efforts. In September, San Jose Water Company received the prestigious Trailblazer Award from the Institute for Supply Management for our supplier diversity efforts.
In addition, Connecticut Water for the second year in a row has been named a top workplace in the State of Connecticut by the Hartford Courant and Hearst Connecticut Media, only about 60 companies to receive that designation from each publication. We’re especially pleased that the Top Workplace award is based on an anonymous survey of employees on areas that include culture and company leadership.
Looking ahead to 2023 our Board has authorized a $258.1 million capital spending plan with $1.3 billion planned over the next five years. We are making progress on our goal to reduce greenhouse gases by 50% by 2030. We will be documenting our progress on this and other goals in the near future with an update to our last corporate sustainability report.
And with that, I will turn the call back over to the operator.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Richard Sunderland with JPMorgan. Your line is now open.
Richard Sunderland
Hi. Thank you for the time today. Good morning.
Eric Thornburg
Hey, good morning.
Andrew Walters
Hi, Rich.
Richard Sunderland
Maybe starting on the inflation side, given some of the commentary there. I’m curious if you could speak a little bit more to what you’re seeing? And also is this something that could impact regulatory strategy or rate case timing going forward?
Eric Thornburg
Thank you, Richard. I appreciate the question. And let me ask Andrew to make a few comments on that, perhaps John as well.
Andrew Walters
Rich, I think we’ve got the inflation picture in mind in the existing strategy that we have. We are planning to move forward on a regular cycle in our Connecticut utilities. And it means that we would file sometime during 2023 with an idea towards having rates effective for 2024.
I will — maybe turn it over to John to talk about California other major utility as it relates to Texas before I do that though, Texas continues to grow and is continuing to outpace that. But we are looking at regulatory mechanisms there that will continue to manage our revenues and with our investment in that utility.
John Tang
Yes. Hi, good morning, Richard. So the inflation factors will be reflected in our escalation and attrition year increases for 2023 and 2024, those are really just published indexes that are going to be used. It’s fairly standard here in California to do that. Having said that, as we think about our 2025 general rate case application — I’m sorry, our 2024 general rate case application I should say. We are going to true up those costs, which will include the pressures of inflation on those true up costs. As you know, we have a tri annual cycle here in California, which essentially means we true up our cost once every three years. And so we will be truing up those costs to reflect those pressures when we file our application on January 1, somewhere around there 2024.
Richard Sunderland
Understood. It’s very helpful commentary there. Thank you. And then on the decoupling legislation, how do you see the backdrop here and what’s changing with the legislation? There’s certainly been kind of a long history in the state in terms of decoupling on the water side and some of the twists and turns there. Just curious how you see that going forward?
John Tang
Yes. I mean, I think certainly the Senate Bill 1469 is really going to benefit the industry. We want to be treated the same as the electric utilities. We wanted to have the same mechanism that they do. And so, we have that — we have that, I guess, approval to go ahead and reestablish or request to reestablish or establish a decoupling mechanism for those utilities that don’t have it already. And so we certainly think it’s a positive step in the right direction. Having said that, we also worked very hard, as you know, in this rate case to really align our actual versus authorized usage, we’re getting greater recovery in the fix charge, we have the full cost balancing account now. So all of those things, including decoupling are working together, if you will, to really give us the opportunity to earn our greater return on equity.
Richard Sunderland
Understood. And if I could just slip one more in here. The 2023 budgeted CapEx, $258 million. Can you give a flavor of just the changes there versus 2022? I guess I’m curious on one hand, is this inflation on the capital side that’s also showing up? Or just what are some of the new projects in there versus your activities in this year?
Eric Thornburg
Thank you, Richard. I’ll start on that and see if my colleagues have anything further to comment. Again, pretty consistent with prior years, so lot of the basic blocking and tackling, replacing old water mains and the like and recovering those investments through our surcharges in Connecticut and Maine. We anticipate activating a similar surcharge in Texas in 2023 depending on conditions there. And then, of course, California is all part of the tri annual plan. So as we finish construction each year, we can recover that through a timely rate adjustment in January.
Other than that, there’s not any really large notable project that’s worked its way in. As John mentioned in his commentary, we’re excited about launching AMI. That’s just a significant win here for our customers and our company and we look forward to executing on that. That’s a multiyear project and really going to set the tone going forward. So we’re super excited about that.
Andrew Walters
[Multiple Speakers]
Richard Sunderland
Sorry, I didn’t mean to cut you off there. Okay, great. We’ll leave it at that. Thank you again for the time today.
Eric Thornburg
Thank you, Richard. Appreciate your support.
Operator
Thank you. Our next question comes from Angie Storozynski with Seaport Global. Your line is now open.
Angie Storozynski
Thank you. Okay. So just a couple of things. So first on the cost of capital, you did reiterate your guidance. If I understand correctly, that guidance assumes that there’s going to be about a dime of a drag associated with true up in the cost of debt from the cost of capital proceeding. And I understand that there is some uncertainty when exactly this adjustment is going to happen if it’s going to be impactful for 2022. So if there were not to be an adjustment, do I add back the entire $0.10 or is there some offsets to that drag?
Andrew Walters
That number is reflected in the guidance. And if it didn’t come to fruition, then it would change our range.
Angie Storozynski
Okay.
Andrew Walters
That’s the right way, but just you would add back approximate $3.5 million that we’ve said calculated for that cost.
Angie Storozynski
Okay. And then you show, obviously, inflation in SG&A costs. So what percentage of it like roughly is going to be recovered under the California GRC? And which — and what portion of it, again, roughly is a drag versus your original expectation?
Andrew Walters
Angie, we haven’t necessarily made that exact calculation, but I will tell you that the authorized versus actual, we do have a drag of approximately 10% it takes between the authorized and actual for — that could be due to disallowance, that can be due to inflation outpacing the adjustments and the time that it takes when we file the rate case to the time it actually is effective. So there’s a few different factors, but that at least gives you a sense of kind of the versus authorized differential.
Angie Storozynski
Okay. And then just moving on to this potential filing for decoupling with the next year GRC. So as you said, I mean, under the current GRC, the recently approved GRC. you’re protected against changes in the cost of purchase order and the mix of the cost of the purchase order, but there is some exposure from sales volume perspective, right? So the decoupling mechanism could basically remove this last true risk factor that you currently face in California. Is that fair?
John Tang
Yes. Angie, its John Tang. I think that’s absolutely fair. And we’re recovering more in the fixed cost now than we’ve ever before. And so that will blunt some of that risk. Certainly, with the climate change predictions and the water supply challenges that we’re seeing here in a more compressed way, we’re kind of oscillating between drought and floods. Certainly it adds to that volatility. And so, if we can get the decoupling — a full decoupling mechanism authorized in our next rate case, so we certainly view that as a positive benefit.
Having said that, and I think I mentioned it in my comments, we do have a full decoupling mechanism now essentially through the WCMA as well as our full cost balancing account. And we will continue to have that as long as this drought continues.
Angie Storozynski
Okay. And then my last question is, Andrew, so you guys do not mention any drag associated with the drop in the value of pension accounts, like those — the ones that are not tracked. I think I — you know, it continues to weigh on earnings of your peers in California, right? but you don’t have it.
Andrew Walters
It’s not that we don’t have it, but it hasn’t reached to the level that it’s been material relative to the other things that we’ve talked about. So it is something that we are experiencing and there’s times when we have positive adjustments as well as negative adjustments.
Angie Storozynski
Okay. And the last question, the effective tax rate for the entire 2022 and if you could give me a chance for 2023 as well?
Andrew Walters
I’m sorry, can you say that question one more time?
Angie Storozynski
Yes. Just on average, the effective tax rate for 2022 and maybe what you would expect for 2023 given this repair tax adjustment in Connecticut?
Andrew Walters
Let us come back to you on that question. We’re still doing a little bit of work on 2023. But just as a baseline assumption, I would assume that the tax rate that we have had prior to this most recent quarter adjustment for the repair tax would be the more consistent tax rate to use as a baseline. So kind of around that 10% to 13$ range.
Angie Storozynski
Okay. Thank you.
Eric Thornburg
Thank you, Angie.
Operator
Thank you. [Operator Instructions] Our next question comes from Jonathan Reeder with Wells Fargo. Your line is now open.
Jonathan Reeder
Hey, thanks for taking my questions. I was just wondering if you had any insight into the timing of the proposed decision and the cost of capital that you can share? I know in the slides, you said — you expect the decision in Q4 2022, but I think that require a proposed decision in the next few weeks, by mid-November.
John Tang
Yes. Jonathan, its John Tang. Good to hear from you. You’re absolutely right. So the procedural schedule right now has this proceeding wrapping up by December 31 of this year. And so that window in terms of getting a proposed decision and then getting a final decision to be voted out is getting narrower and narrower. And so we are — like you, we are waiting really on a proposed decision and once we have that proposed decision, we’ll be able to work on that and figure out where we need to go. But it’s a little bit of a waiting game at this point right now.
Jonathan Reeder
Okay. All right. It does not — the comment in the slide is more just on the current schedule as opposed to necessarily concrete expectations that we’ll see something in the next couple of weeks, other than hope?
Andrew Walters
Yes. No, I don’t have any concrete expectations.
Jonathan Reeder
Okay. And then, I guess, Andrew, can you remind us about SJW’s variable rate debt exposure? I believe there’s only exposure at the utility level, whereas the parent debt is all fixed rate with maturities not starting until late in the decade?
Andrew Walters
That’s right. We have — in terms of our variable rate exposure, it’s really on the line of credit is where the significant exposure is. We do not have a significant amount of variable rate notes or any other variable instruments that we are seeing significant moves in the interest rate. So that’s positive at least from our perspective. And the other thing I’ll just comment on from a debt perspective is, we have a number of issues that we’ve disclosed previously. Those issues will be funding anywhere from this month all the way through till January. So that will continue to fix our cost. We raise those debt issues when the interest rate environment was better. And the next timing that we will need to look at raising debt will really be more towards the back end of 2023 at the earliest, based off of where we stand today. So I think we feel like we’re in a pretty good position and that obviously includes some of the equity rates that we’ve disclosed as well.
Jonathan Reeder
Great. I appreciate that additional detail. Thanks.
Operator
Thank you. And I’m currently showing no further questions at this time. I’d like to hand the call back over to Eric Thornburg for closing remarks.
A – Eric Thornburg
Yes. Thank you, operator. SJW Group is an organization with high quality regulated water utilities in economically vibrant regions. We enjoy constructive regulatory environments with capital supportive mechanisms in place with a long track record of executing accretive acquisitions and providing sustainable and consistent long term growth in earnings. All of that supports our 78 year track record of paying a dividend with 54 consecutive years of increasing that dividend. And we thank you for your investment in SJW Group and wish you a happy holiday season. Thank you.
Operator
This concludes today’s conference call. Thank you for your participation. You may now disconnect.
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