California Water Service Group Aktie

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the California Water Service Group First Quarter 2026 Earnings Call.

[Operator Instructions]

I will now turn the conference over to James Lynch, Senior Vice President. You may begin.

Thank you, Dani. Welcome, everyone, to our first quarter 2026 results call for California Water Service Group.

With me today is Marty Kropelnicki, our Chairman and CEO, and Greg Milleman, our Vice President of Rates and Regulatory Affairs.

Replay dial-in information for the call can be found in our quarterly results earnings release, which was issued earlier today. The call replay will be available until June 29, 2026.

As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8-K and is also available on the company's website at www.calwatergroup.com.

Before looking at our first quarter 2026 results, I'd like to cover forward-looking statements. During our call, we 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.

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

And now I'll turn the call over to Marty.

Thanks, Jim. Good morning, everyone, and thank you for joining us this morning to review our first quarter 2026.

There are really 6 primary areas that we want to talk about today. The first one being, obviously, the quarter, and I would say Q1 results were in line with our expectations, given the fact that we had a delayed 2024 general rate case.

And to remind everyone, in March, we did get a proposed decision, and there's a comment period that follows that proposed decision, which is 30 days.

Our comments were filed. And then yesterday, we received what's called a revised proposed decision that I've asked Greg to talk about a little bit more in detail later on in our discussion today.

I will generally say that the revised proposed decision we're very happy with, and we are on the docket today for approval at the California Public Utilities Commission.

In terms of the quarter, again, given the light of the rate case, there was stuff we could not book because of the delay. But given where we are in line with expectations, I think the highlight of the quarter is the fact that our infrastructure investment for the first quarter was up 17%, and we continue to make good progress on our PFAS treatment and cost recovery from the polluters who put in the grounds and the waters that we treat.

On the business development side, there are really 2 areas. Obviously, we remain focused on the NEXUS acquisition deal, and we have filed our change in control applications in Texas to advance our purchase of the minority interest in BVRT, which is the Texas partnership that we've been involved in for the last 5 years.

Yesterday, at our Board of Directors meeting, our Board declared our 325th consecutive quarterly dividend, and that follows, of course, the 59th annual dividend increase that we had in January.

Additionally, as I mentioned on our year-end earnings call, we have officially kicked off our centennial year of operations, which means we've been going out to the regions that we operate, doing employee and customer celebrations, which have gotten off to a very, very good start.

I'll talk a little bit more about that later on today. Before getting into some of the details in these 6 subject areas, I'm going to turn it over to Jim to actually go through the financial results for the quarter. Jim, I'm going to hand it off to you, please.

All right. Thanks, Marty. As Marty mentioned, the proposed decision on our California 2024 general rate case is expected later this afternoon.

And having said that, our first quarter results do not include the impact of the revenue requirement or any of the other provisions included in the revised proposed decision.

Recall that the company does have an interim rates memorandum account, and that does authorize us to retroactively apply the decision back to January 1 once it's finalized.

So we're not losing out on any of the potential benefit from the rate case for the time that the decision has been delayed.

In Q1 of 2026, revenue was $214.6 million compared to $204 million in the first quarter of 2025. Net income for the quarter was $4 million or $0.07 per diluted share, compared to the prior year's first quarter of $13.3 million or $0.22 per diluted share.

Moving to Slide 6. You can see the impact of activity during the quarter. The primary earnings drivers were rate increases, which added $0.11 per diluted share, and accrued and unbilled revenue, which added $0.06 per diluted share.

The accrued and unbilled revenue increase was due primarily to warm and dry weather during the last month of the quarter.

The revenue increases were partially offset by an overall decrease in consumption for the quarter, increased depreciation and interest expense related to new capital investments, and an increase in the effective income tax rate due to a reduction in tax credits, which, when combined with other items, reduced EPS by about $0.32 per diluted share.

Turning to Slide 7. We continue to make significant investments in our water infrastructure to ensure the delivery of safe and reliable water.

As Marty mentioned, our capital investments for the quarter were up 17.6% to $129.5 million.

Our total planned capital investments for 2026 are $627 million, and this reflects the amounts included in the revised proposed 2024 California rate case decision.

It also includes our estimated expenditures in the other states. The constructive impact our capital investment program is having on our regulated rate base is presented on Slide 8.

If approved as requested, the 2024 California GRC and Infrastructure Improvement plan, coupled with planned PFAS investments and capital investments in our utilities in the other states, would result in a compounded annual rate base growth of over 11%.

Moving to Slide 9. We continue to maintain a strong liquidity profile to execute our capital plan, and we continue to pursue tuck-in M&A opportunities as we progress on the acquisitions of Nevada, Oregon, and BVRT.

As of March 31, 2026, we had $58.1 million in unrestricted cash and $45.6 million in restricted cash, along with approximately $470 million available on our bank lines of credit.

We maintained credit facilities totaling $600 million that are expandable to $800 million with maturities that extend into March of 2028.

We also have over $340 million remaining on the shelf registration we filed in connection with our ATM program after completing approximately $6.1 million of program sales during the first quarter.

Importantly, both group and Cal Water maintained strong credit ratings of A+ stable from S&P Global, underscoring the strength of our balance sheet.

Turning to Slide 10. We just declared our 325th consecutive quarterly dividend of $0.335 per share. We also announced our 2026 annual dividend of $1.34 per share.

This is our 59th consecutive annual increase and is 8.1% higher than 2025. And with that, I'll now turn the call over to Greg to discuss the revised proposed decision on our rate case.

Thanks, Jim. As Marty mentioned earlier, we received a revised proposed decision on our 24 California general rate case yesterday, and a final decision is expected later today or shortly thereafter.

The revised proposed decision provides clear visibility into revenue growth, including approximately $91 million in 2026, followed by $43 million in 2027 and $49 million in 2028.

Importantly, it continues key regulatory mechanisms like the Monterrey-style RAM and authorizes cost-balancing accounts such as our pension cost-balancing accounts, health care cost-balancing account, and a new general insurance liability balancing account, which helps stabilize earnings despite variability in customer usage and certain operating costs.

While decoupling was not included, the decision introduces a new sales reconciliation mechanism and an updated rate design that better support this fixed cost recovery.

Overall, we view the revised proposed decision as constructive and supportive of continued infrastructure investment and long-term earnings stability.

And now Marty will take us through the remainder of the deck.

Thanks, Greg. And just echoing what I said earlier, I'm very happy with the PD that's going to the commission today for approval.

And obviously, when it's approved, we will issue an appropriate press release and related 8-K with more of the details of what's included in that final decision.

But I think it's fair to say from Greg's perspective, managing our rates department, and Jim's perspective as being our CFO, I think we're very happy with the outcome and look forward to getting the rate case wrapped up and moving on with our plans for 2026.

Moving on to Slide 12, just a quick update on where we are with our NEXUS project. As you may recall, we announced that we reached an agreement with NEXUS to acquire their Nevada and Oregon operations.

We have continued to progress very well, working with NEXUS. They're a great company to work with. We filed our change of control applications with both the state of Oregon and the State of Nevada.

The state of Nevada has a 6-month statutory decision timeline. Oregon does not. We're hoping the 2 will try to stay on track around the same time, and we could drive to close these transactions as early as the end of the year.

In the interim, the subject matter experts continue to work very, very well together, and we are mapping their processes into our systems.

I've also had the pleasure of visiting all the sites in Oregon and Nevada. And very happy to say I was very pleased with all the employees that I met with. They are very, very professional and very, very sound operators, as well as an outstanding management team.

In addition, since we last talked, I have had meetings with all the commissioners in the state of Oregon, as well as the commissioners in the state of Nevada and their staff. Those meetings have all gone very well as well.

When we conclude this acquisition of the NEXUS assets, essentially, it will give us almost 100,000 connections outside of the state of California in total, which is about 20% of our total connections.

So again, diversifying out of California, expanding our footprint on the West Coast.

In addition, I think this is significant and something we don't talk a whole lot about. But for those of you who have been with us for a long time, if you remember, in 2008 and 2009, we started talking more about water and the wastewater business and recycled water.

And back then, we really had the 2 wastewater treatment plants that we operate. When we get this deal closed with NEXUS, as well as the BBRT final buyout of the minority interest, we'll have over 24 wastewater plants that we'll be operating in the western half of the U.S.

And I think, again, that just goes to show our diversification out of California into wastewater and then also recycled water, which I believe is going to play a very important role for water in the western half of the United States.

Looking at Slide 13, on the DBRT slide, we filed the change of control application with the Texas Commission, which is on file with them.

In addition, we added another 210 connections to our existing system. So we are waiting for the Texas Commission there as well, and then we will close on the minority interest that still remains in DBRT, and then that will become a wholly owned subsidiary of Texas Water Service Company.

Moving on to Slide 14. We have started officially celebrating our centennial anniversary. I'd encourage everyone to take a look at our annual report.

Our corporate communications team, headed by Shannon Dean, did an outstanding job going through kind of then now and next, which is the theme of the annual report.

I'm also very happy that we've had over 41,000 people visit our Centennial website, which has a lot of information about the company, the rich history of the company, and how we grew from the idea that started with 3 World War I veterans to being the multibillion-dollar company that we are today.

If you're interested in that site, I encourage you to look at it. You can visit it, and the URL is 100years.talwatergroup.com. In celebrating our 100-year anniversary, we have scheduled a number of events throughout the state of California.

That includes both employees and local officials. We held our first one in Bakersfield. That was a big success, and we'll have another one here in Southern California in June.

The overall goal of the program in celebrating this at a regional level is to allow us to increase awareness of the company's track record among our local communities and our public officials that we are allowed to serve.

In addition to getting people together to celebrate our success, we are also getting a lot of reclamations and resolutions from, for example, the speaker of the California State Assembly, the City of Icealia, the City of Chico, Chamber of Commerce, the Central Valley Aging Chamber of Commerce, and the San Joaquin Hispanic Chamber of Commerce, and there's more to come.

So it's actually fun to be out there talking about 100 years of service and reflecting on where we started to where we are today.

With that, Dani, let's open it up for our Q&A, please, for the guests on the call.

[Operator Instructions]

Your first question comes from the line of Davis Sunderland with Baird.

Two questions for me. Maybe a PFAS question and then a balance sheet question. I guess I'll just start.

I know the EPA has been talking recently about microplastics and potentially regulating some other substances outside the initial PFAS guidelines.

Just wondering if you guys have any early thoughts on this, and specifically if these might be treatable within your current plans, or if this would require further capital investment beyond what you've already laid out?

Yes. Good question, Davis. And some of you have heard me talk about UCMR, which is really the unregulated contaminant list that the EPA publishes, and they update that list every so many years.

If you really want to see what's coming down the pipe, no pun intended, on water regulation, you really want to monitor that UCMR list, and microplastics have shown up, and it has evolved on that list.

And so it is certainly something that is a hotter topic at the EPA right now, and it is something that's in the water supply. And it's something that you will likely see regulations establishing MCL to make sure there are no microplastics in the water.

So there's more to come from the EPA on that. Obviously, they go through a scientific process, and they come up with standards. Those standards get handed off to the states, and the State Department of Health is responsible for implementing those standards at the state level.

So do I believe you ultimately have a standard that will come up on microplastics? Yes, I do. And I think as a society, we've gotten a lot better at not putting microplastics into the ground or into the ocean.

So I think that part of it is actually improving. But I do think at some point, we will actually have a standard that will evolve that we'll have to treat for.

And as part of that process, the EPA will also talk about what the appropriate methods and techniques are to treat the water that has microplastics in it.

Yes. I think it's uncertain or unclear right now whether or not our current treatment that we're putting in place for PFAS will be effective for the microplastics, and that will depend largely on the EPA.

Maybe then just turning Jim, to the balance sheet. I appreciate all the comments on liquidity and available credit.

But maybe if you could just talk a bit about how you're thinking about equity issuance and capital needs more broadly throughout the balance of the year, that would be super helpful.

Yes. I think we're going to knock on wood, we feel very confident that we'll be successful in closing both BVRT and the Nexus acquisitions in Nevada and Oregon.

And so that will be incremental to our normal cadence of debt and equity issuances. We'll take a look in terms of the timing on when we anticipate that's going to occur, and rightsize or determine the most efficient way that we can actually approach the capital markets to fund those transactions when the time comes.

I think that there are some pretty interesting instruments out there relative to forwards that will allow us to time it a little closer to where we can minimize any sort of dilution that could occur in terms of the difference between the time we raise the equity and the time we actually close the transactions. And so we'll be looking into that.

We believe when the transaction is closed, it would likely occur towards the end of the year, and that's when I would take a look at when we would look to raising the capital for those.

Otherwise, we would continue to rely on our ATM and our normal lines of credit taken out by longer-term debt as we work through our capital programs and fund our other capital needs.

Yes. If you don't mind me jumping in. Davis, it's probably worth mentioning too, as you recall, we have our PFAS program, which is fairly substantial, and we have a separate application before the commission that we're waiting to hear on because that will add further pressure on Jim on the capital side.

But the flip side of that is we've been very successful on the litigation side. And just last week, we received another $6.5 million gross from the polluter's trust that has been set up.

So we have recovered about $66.5 million in gross receipts in our recovery process, going after polluters, which in essence just about $50 million. That $50 million will be a direct offset to our PFAS program and help keep those costs lower for our customers.

So we're approaching 20%, 25% of those estimated PFAS costs being covered through our legal efforts. And our legal team continues to do a very, very good job at leading our industry efforts and getting recovery on that.

So that will help a little bit.

And for some perspective on that, we initially anticipated 2 basically segments of the program, one is treatment, and one is well replacement, with our objective to get the treatment in by the end of 2028.

And then the well replacements will take a longer time. Of the total amount we plan to spend on PFAS, about $60 million of that is for the wells, and the remainder is for treatment.

[Operator Instructions]

There are no further questions at this time. I will turn the call back over to Martin Kropelnicki, CEO, for closing remarks.

Thank you, Dani. Thanks, everyone, for joining us today. Obviously, I think the big thing to watch for moving forward is really what happens at the commission today.

We're hoping for approval. And again, I think we're very happy with the revised proposed decision that's on the docket for today.

As we move into the second quarter, what are we going to be focused on? Obviously, we have to implement the results of the rate case. And while that sounds like an easy task, there's a lot involved in doing that.

Obviously, there's a retroactive piece that goes back to January 1, which Jim and his team will have to work on, and we'll give a lot of clarity around that as we wrap up the quarter and have the appropriate disclosures in our financials for our second quarter 10-Q.

In addition, there are thousands of table changes that have to take place on the billing cycle with the new tariffs. And so the rates team, working with our customer service team, the accounting team, and the IT team, will be making those tariff changes and doing the appropriate testing to make sure our tariffs are accurately being built.

We are assuming an approval today, and we'd anticipate starting billing the new tariffs on July 1 of this year.

And then in addition to that, obviously, we're staying very focused on our M&A side and really the Nexus transaction and the BVRT transaction, answering the commission's questions on the change of control applications as well as doing all the integration work and being ready to do a quick close and integrating those assets onto our platform once approved by the appropriate commission.

So it's going to be a busy, busy second quarter, and then throw in the 100-year celebrations on top of that. We have a lot going on. But certainly, the team remains laser-focused on the tasks at hand.

The last thing I want to do before we hang up is this is Greg's last earnings call with us. And if you know Greg Milleman, he's not a person who wants a lot of hoopla and fanfare, but I couldn't let the morning go without recognizing his contributions to California Water Service Group.

We recruited Greg from Valencia Water in 2013, where Greg served as Senior Vice President of Administration. And believe it or not, we're Greg's third job out of college, and started off with Arthur Anderson, and then went to Valencia Water, and then he joined us.

So we brought Greg in as a Manager of Special Projects. We were very impressed with him when we met Greg and didn't really have a spot for him, but we thought he was a very quality hire, a senior hire from within the water industry.

Within a year, he was promoted to the Director of Operations, helping the operations team focus on deploying capital more quickly and more efficiently, and making sure that the plant is getting into service as quickly as possible.

In 2017, he was named the Interim Director of Rates to help lead our rate case efforts. And in 2019, he was named Vice President of Rates for California.

And then in 2022, when Paul Townsley retired, he took the helm as our Vice President of Rates and Regulatory Affairs to lead our overall rate strategy for all of our operating companies.

Greg has only been with us for 13 years. And from a Cal Water standpoint, that's not a lot of time. We have a lot of employees who are in their 30s and have 40 years of service with the company. But Greg's impact on the company has been nothing short of outstanding.

And if you look at our rate cases over the decade that he has been with us, the 13 years he's been with us, we have done the best with our rate cases under his leadership and his management.

So I would be remiss if I didn't take this opportunity to tell Greg, thank you, and to wish him and Jim all the best in retirement, and we look forward to keeping in touch as we do with all of our retirees. So Greg, thank you.

And with that, Dani, we'll wrap it up, and we'll see everyone next quarter. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Desire and I will be your conference operator today. At this time, I would like to welcome everyone to the California Water Service Group Q4 2025 and Full Year Earnings Call. [Operator Instructions] I would now like to turn the conference over to James Lynch, Chief Financial Officer. You may begin.

Thank you, Desire. Welcome, everyone, to the fourth quarter and full year 2025 Results Call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CEO; Shilen Patel, our Chief Business Development Officer; and Greg Milleman, our Vice President of Rates and Regulatory Affairs.

Replay dial-in information for this call can be found in our quarterly results earnings release, which was issued yesterday. The call replay will be available until April 27, 2026. As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8-K and is also available on the company's website at www.calwatergroup.com.

Before looking at our fourth quarter 2025 results, I'd like to cover forward-looking statements. During our call, we may make certain forward-looking statements. And 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. As a result, we strongly advise all current shareholders and interested parties to carefully read the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q, press releases and other reports filed with the Securities and Exchange Commission.

And now I'll turn the call over to Marty.

Thanks, Jim. Good morning, everyone. I can't think of a more appropriate way to kick off our 100th year of operations as an essential utility than by quickly talking about 2 deals we announced. First and foremost, yesterday, we executed an agreement to purchase the Nevada and Oregon operations from Nexus Water. We've been busy working with them over the last few months to put that deal together, and we'll be talking about the deal later on today. Secondly, in December, we announced we've reached an agreement to purchase the outstanding minority in the Texas joint venture that we helped start, BVRT Holdings and become the sole owner of 7 Texas water and wastewater utilities. So big news that continues to allow us to expand our geographical footprint and further solidify our position as a leader in the water industry the Western U.S.

In addition, while we don't have a general rate case for the 2024 rate case for California yet, we know it is actively being worked on and we expect to get a rate decision here soon. It's a little different situation than what we're in in the [ '21 ] rate case where there was a lot of silence based on what we're seeing on where the commissioner is in the process. The questions are asking, et cetera, we know it's actively being worked on and we know it's a priority within the commission to get that done soon. In addition, during the quarter, we we filed and we're expecting a decision for our consolidated rate case in Texas, and we've also filed a rate case in the State of Washington. So we'll talk about that more a little bit later.

So if I can get everyone to go to Page 5, please. We'll do a quick recap on what we did for the year. So first and foremost, we went into the fourth quarter really ahead of budget and performing well. But I think as many of you saw, we had a major storm on the West Coast in December, and the financial results in December were clearly affected by wet cold weather. This is really the second time we've had an [ atmospheric ] river that really kind of hits the whole West Coast. Normally, if you think about California, it's kind of a long state and while we might -- whether in Northern California, demand for water services stay high in Southern California because it tends to be warmer. This is one of those storms that was from all the way from the Canadian border all the way down to the Gulf of Mexico and to the [ AHA ] coast on the California side.

So we had a pretty big weather impact that Jim will be talking about later. So overall, our results in the fourth quarter softened in December really because of these storms. As a highlight for 2025, we invested a record $517 million into our infrastructure systems, and that includes an additional $52.3 million invested in the fourth quarter alone. In 2025, we increased our annual dividend by a record 10.7%, and that was filed by our 59th annual dividend increase earlier this year in 2026 by an additional 8%. We received during the fourth quarter, our extension for our cost of capital in the state of California, which allows us to retain a 10.27% ROE until January 2028. I believe this is one of the highest ROEs of a water utility in North America.

And we have received approval to increase interim rates by the commission. So when the decision didn't come out in December, the commission gave us the green light to implement an interim rate increase of 3% that we [ incorporated ] in January in California. So overall, kind of a busy year from that perspective on the rate side. In addition to that, we also maintained our A+ stable credit rating from S&P, which I believe is one of the highest rate credit utilities in North America. So there's a lot to get into in the details.

So I'm going to turn it back to Jim to go through some of the details on the financial results. Jim?

Great. Thanks, Marty. In Q4 2025, revenue was $220 million, and that compares to $222 million in the fourth quarter of 2024. Net income for the quarter was $11.5 million or $0.19 per diluted share compared to the prior year period of $19.7 million or $0.33 per diluted share. As Marty mentioned, our results in the fourth quarter were negatively impacted by the strong statewide weather pattern over much of California that created exceptionally wet and cold weather during the month of December. .

Moving to Slide 6, you can see the impact of this and other activities during the fourth quarter on our earnings results as compared to 2024. While tariff rate changes and other regulatory activities generated an increase of $0.48 per share, the weather-induced consumption decline led to a $0.59 earnings per share decrease. In fact, of the $12.7 million in consumption decrease experienced in 2025, $14.6 million of it occurred in the fourth quarter. In addition, the 3-year conservation program approved in the 2021 rate case ended in Q4 with final expenses and the expense true-up reducing earnings by $0.10 per share.

Slide 8 shows our 2025 year-end financial results. And as many of you know, the company's delayed 2021 GR rate case decision resulted in 2023 interim rate relief, which was recorded in 2024. So in reporting our results, we presented both the GAAP and non-GAAP measures for 2024. Essentially, the non-GAAP measures remove the impact of the 2023 interim rate relief from our 2024 results. Operating revenue for 2025 was $1 billion. This compared to $1.370 billion in 2024 when compared to non-GAAP 2024 revenue of $949.3 million, our revenue for the year actually increased by $50.8 million or approximately 5.4%. Net income attributed to group was $128.2 million compared to net income of $190.8 million in 2024. Again, when compared to 2024, non-GAAP income of $126.8 million, our net income increased $1.4 million or 1% in 2025. Diluted earnings per share was $2.15 in 2025 compared to $3.25 in 2024. And again, removing the 2023 rate relief from our 2024 numbers, the non-GAAP 2024 earnings per share was $2.16, which was essentially flat when you compare it to 2025.

Turning to Slide 9. The primary drivers of our 2025 diluted earnings per share when compared to non-GAAP 2024 results for tariff rate changes and other regulatory activities. In addition, income taxes were lower year-over-year due to lower taxable income and the related effects on our income tax rate. Combined, these added 1.5 per diluted share. The increases were primarily offset by wholesale water rates that net of the volume decreases reduced diluted earnings per share by $0.27, consumption decreases of $0.19 per share and depreciation expense increases of $0.18 per share.

Turning to Slide 10. We continue to make significant investments in our water infrastructure during 2025, which are the delivery of safe, reliable water service. Our capital investments for the quarter and year-to-date were $152.3 million and $517 million, respectively. This record level of annual investment represents a 19.8% over construction levels in 2024. As a reminder, our capital investment estimates for 2026 and 2027 presented on this slide do not include $235 million of anticipated remaining PFOS project expenditures, which we expect will be incurred over the next few years. In addition, the estimates do not include any capital investments for our recently announced system acquisitions in Nevada and Oregon.

The positive impact of our capital investment program and what is happening on our rate base is presented on Slide 11. If approved as requested, the 2024 [ California GRC Infrastructure Improvement Plan ] coupled with planned capital investments in our utilities and other states would result in a compounded annual rate base growth of almost 12% through 2027. Again, this is without PFOS expenditures or capital investments required in Nevada or Oregon, which would further add to our estimated rate base growth.

Moving to Slide 12. We continue to maintain a strong liquidity profile to execute our capital plan to fund BVRT greenfield utility growth and to integrate Nevada in our Oregon systems. At year-end, we had $51.8 million in unrestricted cash and $45.6 million in restricted cash, along with approximately $470 million available on our bank lines of credit. We maintain credit facilities totaling $600 million that are expandable to $800 million with the maturities extending to March of 2028.

On October 1, 2025, we issued $370 million in long-term financing, which consisted of a combination of group notes and Cal Water first mortgage bonds. We also renewed our ATM program in May of 2025 with a $350 million shelf registration and completed $1.5 million of program sales in the 2025 4th quarter. Importantly, both group and Cal Water maintained strong credit ratings of A+ stable from S&P Global, underscoring the strength of our balance sheet. And finally, in January 2026, we declared our 324th consecutive quarterly dividend of $0.33 per share. We also announced our intended 2026 annual dividend of $1.34 per share. This would be our 59th consecutive announced increase. The $0.10 per share increase represents an 8.1% increase over 2025. So we have a lot going on in 2025, and we're really looking forward to 2026.

With that, I'll turn it back over to Marty.

All right. Thanks, Jim. And just to remind everyone, 2025 was the third year of the rate case. When you look at the press release, you might say, well, you're essentially flat kind of year-over-year, you're off $0.01 year-over-year. But remember, coming out of COVID, there was a pretty big spike in inflation. We have absorbed those costs within that period and we're waiting for a rate to refund that. And historically, the third year of the rate case in California being 92%-ish of our total operations we really feel that inflationary lag in that third year. So kind of all in, I'm happy with how we ended up the year we would end up stronger if we didn't have the atmospheric river take -- really wipe out the West Coast consumption here in December. But overall, I think we finished the year in a good position as we wait for the rate case in California. .

I am on Slide 13, and I want to talk a little bit more about the deal with our friends at Nexus Water. And when you look at Slide 13, this acquisition really is meaningful because it strengthens our position as a leader on the Western U.S. by adding 2 additional states and diversifying our geographic footprint. In addition to that, it also increases our regulatory diversification by -- if you exclude BVRT, this adds about 40% to our operations outside the state of California. So the geographical diversification and the regulatory diversification we think are really, really important.

At year-end 2025, the acquired systems represent about $109 million of rate base at a purchase price of approximately 2x rate base, consistent with our allocation of capital and our disciplined approach to looking at acquisitions. In addition, at the purchase price, the proposed purchase price, we believe this deal will be accretive within the first year backing out some of the onetime integration costs that we'll have to do once the deal is approved by the regulatory commissions that we are talking about in the appropriate jurisdictions. So overall, really happy with this deal. We expect to be accretive in the first year, and we look forward to entering these 2 new markets, closing the deal and welcoming the Nexus employees to California Water Service Group.

Moving on to Slide 14. It just gives you an illustration of what the footprint looks like as we operate and expand into a total of 8 states total. So again, diversifying out of California, extending our footprint in these other states. And I was doing some work in preparation with our Board and looking back in 1926 when we were founded, and we started with really 4 little water systems in Northern California and kind of how they have grown. And then as I look at the growth of the company, at some point, we bought the system called [ Bar Gale ] in the [ 20s ] and early [ 30s ]. And I'm sure some people thought, why would they want to buy a system down in Silicon Valley. All of this is farm land down there. So as we acquire these new systems, we like to think them as seeds and robust markets that will grow over time, and that is consistent with our capital strategy, look for systems in growing markets that we can continue to invest capital and grow their infrastructure to continue to improve service and spread our baseline costs over a larger base. So spread that marginal cost over a larger base. On Slide 14, this deal will add about 36,000 equivalent residential units, so it's water and wastewater. And we think it is a great strategic fit with the company.

If you go to Slide 15, we cover some of the points on the strategic rationalization for this deal. It adds rate base driven growth platforms with meaningful capital investment opportunities consistent with our existing long-term infrastructure investment strategy. Both states, Oregon and Nevada, operate under a hybrid rate-making framework, which supports ongoing infrastructure investment and replacement costs. In addition, Nevada allows for a disk which we think is a regulatory best practice and the framework really provides some visibility into the future rate relief for capital investments that are needed. And with a larger footprint, we see opportunities to optimize our corporate costs and again, leverage our water utilities are high-cost marginal providers having a larger base to spread those costs over to allow us to lower the overall marginal cost for customers while making sure we meet and exceed water quality standards and build resiliency into the system.

We'll also benefit from strong regulatory relationships within the States. We were very impressed with the employees, both in systems in the states of Oregon and in Nevada. And as we know, Cal Water is a big believer in strong regulatory relationships, and we believe that's the underpin of the long-term stability of the system and our success on the regulatory side. In addition, these systems come with embedded growth pipelines that include both tuck-in acquisitions and other opportunities to add around the existing systems to grow out. So we're excited about that. Especially in the state of Nevada, which we deem as a high-growth date. And then finally, we were very impressed with the staff and the assets. I think as a kind of a gold standard utility. When you look at deals, A lot of times you go look at someone and they look different than you or they operate different than you do. We were very impressed with the operations of Nexus Water.

It's not surprising for those of you who know [ Rob McLean ] and the management team at Nexus. They do a very good job operating their systems. So we're very happy with the quality of not only their people, but the quality of their systems that they operate in. So we look forward to a smooth approval process with the commissions in Oregon and Nevada, and integrating the systems onto our platform.

Looking at Slide 16, I'm going to hand that over to Shilen. I think most of you know Shilen as our Chief Business Development Officer. But Shilen has also been our General Manager in Texas managing our Texas operations. So Shilen, do you want to talk about the transaction, we executed and what's going on in Texas.

Yes. Thank you, Marty. We have entered into an agreement to acquire the remaining outstanding membership interest in BVRT in Texas. As you recall, it was a joint venture, and we're acquiring a minority. Upon closing, we'll become the sole owner of 7 regulated water and wastewater utilities located in the high-growth corridor between Austin and San Antonio. We continue to expand through ongoing system build-outs, infrastructure enhancements, really positioning the platform to support contained -- sustained customer growth.

At the end of 2025, as you can see on the slide, we have more than 19,000 committed customers and about -- of that ,5,000 are connected currently with an additional 20,000 likely in the next foreseeable future and then about 100,000 in the long-term potential customers as our systems grow and mature. As reflected in the anticipated customer growth, both connected and committed customers increased meaningfully in recent years, demonstrating the embedded growth profiles of both systems and also just the nature of growth in that quarter of Texas alone. The transaction will require our utility, our Texas subsidiary to file a change control application and the contingent on regulatory approval and other customary closing conditions, including the [ PUCT ] and also Cal Water Group Board approval once we receive [ PUCT ] approval.

Strategically consolidating full ownership enhances both our governance, but simplifies the structure allows us to fully capture the long-term growth and infrastructure investment opportunities within this market and really looking forward to continuing to build on the successes that the team locally have put in place for the last 6 to 7 years. Marty -- Greg, we'll turn it to you.

Sure. Thanks, Shilen. Turning to Slide 17. As Marty said, the key takeaway here on the '24 California general rate cases that we're expecting a proposed decision very soon, given that where we are in the process. As we previously reported, in the case, we proposed to invest $1.6 billion in water infrastructure in order to continue providing safe and reliable water service to our customers. We also requested revenue adjustments over the 3-year period totaling just a little under $3 million given the fact that the commission can vote as early as 30 days after the proposed decision is issued and our oral arguments made, we believe that the commission were to issue a proposed decision by March 5, there would be adequate time for the commission to consider and adopt the final decision at its next voting meeting on April 9. Obviously, we'll provide an update when we receive the proposed decision.

Turning to Slide 18. I I'll provide a brief update on regulatory activity across our other jurisdictions, and I'll start with Hawaii. In November of 2025, we filed a rate case for -- in Hawaii for our [ Capital District ] requesting $2.2 million in annual revenues to recover higher operating costs and system improvements. Additionally, in October 2025, the Hawaii PUC approved a $4.7 million annual revenue increase for Hawaii Water's five Waikoloa systems with a 2-year phase-in that began in October 2025.

Moving to Texas. During the second quarter of 2025, BVRT reached settlement with the consumer advocate on our 2024 GRC and interim rates were adopted and implemented in July of 2025. These rates are not subject to refund, and we're waiting on a final PUC Texas approval that is currently pending.

Moving to Washington. In September of 2025, Washington Water file their rate case with the Washington Utilities and Transportation Commission requesting a $4.9 million annual revenue increase to recover cost of system investments and rising operating costs. We expect the case to be completed and new rates implemented in the second half of 2026.

Overall, these filings demonstrate our continued investment in infrastructure, proactive regulatory engagement and disciplined efforts to align rates with the cost of providing safe, reliable service. Marty, back to you.

Thanks, Greg, and I'm now on that last page. So what are we focused on in 2026, our centennial year. First and foremost, we're committed to a timely completion of the acquisitions we announced with Nexus Water and for Nevada and for Oregon and work with Nexus Water, you completely -- successfully winning those transactions on time and in a way that it is good for customers and good for the employees. So we expect the smooth transition there. .

As Greg mentioned, we have a lot of regulatory activities going on, whether it's the '24 rate case in California. And then we have the rate case that Greg just mentioned in Washington, Mexico, Hawaii as well as change of control applications that we're working on. And then, of course, once we get the '24 rate case done, it's a 3-year cycle in California, we start to pivot on planning the 2027 general rate case. So it's just kind of keeps moving forward. We'll continue to pursue growth opportunities in these high-growth areas and looking for opportunities for systems that are kind of close to where we are that we can easily integrate on our platform and that meet our investment criteria.

Again, just to remind everyone, the primary growth engine at California Water Service Group is really the reinvestment of existing capital into our rate base. And as Jim said, we were just about 10% year-over-year increase in CapEx, that's the primary growth engine and that excludes in either PFOS staff. And then secondary, we plan on continually strategic acquisitions like what we've done here with Nexus that add to the existing platform. So -- but having criteria that we use to evaluate acquisitions is really important because we want to maintain that 10% cadence on the CapEx line. And we also believe that allows us to keep rates affordable while making sure that our systems are resilient and we're building resiliency into our systems as we deal with things like climate change.

And then, of course, lastly, we will continue our disciplined strategy on the regulatory side, working with our regulators. Affordability continues to be an issue. We know and understand that. We've been able to keep our rates affordable. We've been able to maintain our rate base growth and our capital replacement program. So we'll continue looking at that and making sure we're being sensitive to the needs of our customer of balancing public health and sustainability and reliability in the systems.

So with that Desire, we will open it up for questions, please.

[Operator Instructions] Our first question comes from the line of Davis Sunderland with Beard.

Maybe I'll start with what could be viewed as, I guess, the least exciting first just on the GRC delay. Marty, in your prepared remarks, I think you said this case is a little different. It seems from my seat that it may be a lot different than the highly unusual a 15-month delay last time. But I guess my question is just is the delay of cases, something that we should expect as a new norm and fully recognizing that this is a very large and complex case. I guess just what gives you guys confidence in future cases staying on track, so to speak?

I'll go ahead and answer that question. Really, a couple of things that we would say. The California Water Association over the past 3 or 4 years has been really focused on educating the commissioners about the impacts of the delays on customers. And we have seen actions moving to get the cases out on a more timely basis. Second, one of the lead advocates for that is the commissioner that's assigned to our case, Commissioner [ Matt Baker ], and he is very focused on getting decisions done on time. And then the third thing really with where we're feeling -- where this -- our proposed decision should be coming out pretty soon is the water division staff at the commission has been asking us for information to help them process up and get to publish the PD very similar to what they did in the '21 and 2018 GRCs right before the PDs came out. So that's where I feel that long term, it will -- the cases will come out on a more timely basis and then short term for our case side. We see it coming out in the very near future.

Yes. And just to echo what Greg said, I was being politically correct in my opening comments, Davis. But in the last rate case, it was just kind of like a black hole, like stuff was submitted, and then we waited and waited and waited and waited and there wasn't a lot of communication. We weren't getting questions. As Greg said, we got a lot of questions at the very, very end and then the PD came out all of a sudden. It's been really different in this case. The judge -- and when it was delayed, gave us the 3% in our rate increase right away, which we thought was good. They have been asking questions throughout the process, which is good. And so we just -- we've seen a lot of activity, which leads us to believe they're very focused on it.

So, well, they haven't given us any assurances of other date, it's been very clear that they've made it a priority at the commission. I think the other big thing that's changed now from where it was in the '21 rate case is affordability is a big issue. And when you deal with things in California, like the skyrocketing electric rates that people had to deal with and gas rates that are up, the commissions are getting more scrutiny about rate increases. And so the idea of making our rate increase look worse than what it really is because you can't get a rate case out. I don't think the commission likes being in that position.

And having a commissioner signed your case used to run the office rate or advocates. I think it's good because they deal with those complaints from customers and rates go up. And so [ Baker ] has been very, very clear that this thing is getting rate cases on time. So it can vary commissioner by commissioner. And while you have an assigned ALJ, the real hearing officer really is the commissioner in these cases. And so the commissioner kind of sets the tone in this case, I think we're fortunate we have [ Baker ] who has been setting the tone. We need to get the rate cases out on time. It'd be reasonable and diligent in our approach. So I think for now, I frankly expect to get a decision here relatively soon. And obviously, when it comes out, it's material, so it will be '18 and right away when it comes out.

That is super helpful. Maybe my second question, Marty, I appreciate you bringing it up the [ disc ] in Nevada. I was just going to ask about maybe the friendliness of operating environments or specifically any key regulatory mechanisms in either Oregon or Nevada that are worth calling out? Either that are in place now or that you might be pursuing, that would be helpful. And I think, Jim, you also mentioned in your comments, CapEx, of course, does not include potential investments in these, and maybe it's too early to say, but any thoughts on what those might look like would be helpful, too.

Yes, sure. Let's start with Nevada. And Nevada has got a very reasonable commission which is positive with me for our water systems that we're acquiring there, they're allowing consolidated or statewide rates to be phased in over 6 years for the water systems. The 2 wastewater systems are already on a statewide rate. As we mentioned, the hybrid rate environment, which means the historic test year with about a half year capital improvements into your first year being included in the case. As you said, they have the [ DSIC ]. They also have decoupling in Nevada and their rate case processes to approve them the last about 6 months in Oregon. They also have a hybrid system of a rate case. They allow construction work and progress in rate case. They have a mechanism for interim rate memorandum account if your case is late. They allow adjustments for changes in your water production costs from your wholesalers and their cases take about 6 months to complete. In Oregon, about half of the systems are nonregulated wastewater systems. We -- Nexus has treated them as they treat their regulated entities. And so they file a rate case annual adjustment on an annual basis. Those are kind of the high-level benefits of each of the rate-making areas in each state.

Yes. And I think as far as the CapEx goes, Davis, clearly, we're working -- first of all, they're historically [ in ] state. So what we don't get preapproval like we do in California, but Nevada did file a capital plan in their last rate case. And as a result of that, there's kind of pre recognition of what the levels are going to be at least in Nevada as we kind of move forward. But I would expect in the first couple of years, somewhere between $20 million to $30 million in CapEx between the 2 systems. And then as we get more familiarity with the systems, that number could change. We feel there's also a lot of opportunity there for tuck-in -- potential tuck-in acquisitions around the systems, especially in Nevada. So I think there's some great opportunity there that we're going to be able to take advantage of not only because it provides us the diversification that Marty talked about, but because there is an opportunity for us to to continue investment growth.

Super helpful again. Maybe if I could be greedy and just sneak in one more quick one. I saw yesterday the EPA appears to officially be moving forward now with the PFOS pushout that's been talked about now for a few quarters. I know we've talked about this before, and Marty, you've said your plans here probably won't change, continue to make the upgrades as they come. But maybe just give any update on funds that are flowing as a result of the class action suit and then if that first piece is indeed correct.

Yes. No. Good question, Davis. I think I've used the example, it's really hard to look at a mother with their child and say, yes, there's something in the water that's not safe, but don't worry about it for 3 years, right? That just doesn't work. And I think consumers have gotten fairly well educated on water. And because as a utility, our product is consumable and it's ingested there's no room for error on water quality. It is absolutely critical. That's why it's in our bonus plan. That's why it's published right upfront. We show what the ramifications are. Our goal is to meet primary and secondary water quality standards every moment that we operate in. And obviously, as this becomes a new MCL, we got to be compliant with it.

So we're moving forward with our plans. What we've seen when you had this fight between the states and Feds on kind of when is [ a ] go, where it go if the stats have said, hey, we might delay this 3 years. We've seen states, okay, but then we're going to make it effective sooner, right? Because again, I don't think anyone wants to not protect their citizens. I think that's really important. So we're moving ahead as planned. In 2025, Jim, I believe we spent about $20 million on our PFOS programs. And that's really getting all the program logistics up, the planning for all the constructions, putting the contracts at the bid, procuring all the materials and scheduling now. We're running it as a corporate group sponsored program.

So there's a PMO, project management office, just really down the hall from me here. We have a very, very good engineers living in that program. The senior management team gets updates on it all the time, and everything is being scheduled out. So we're going to continue going kind of full steam ahead. I expect in 2026, Jim, if I remember correctly, we're going to spend between $15 million, $17 million on PFOS in 2026. Again, that's incremental to the capital numbers that Jim has shared and we're going to keep going for it. In terms of recoveries, Jim, what's our net amount that we've recovered so far is it 40-some-odd million?

But the net amount is just slightly above, I think slightly below $40 million after the attorneys have taken their share of the proceeds. But we continue to work on other opportunities to fund those investments. I know we've got a pretty strong ramp program underway that's really is going to help us, I think, in some of our more challenged districts and states. So we're looking at potential grant dollars in addition to the recovery dollars.

The other thing I would just add is that if you take a look at the $235 million that we are anticipating in terms of spend for PFOS probably you have to think of it in 2 kind of tranches. One is the treatment and the other is where new wells need to be drilled in order to take out to replace old wells or to put new wells in where we don't believe there is as big of a contamination problem. And so the treatment is going to be in place much quicker the wells. It usually takes us 3, 4, 5 years depending upon the permitting process to get those wells going up. But a majority of the treatment we do anticipate right now being put in place by the end of 2027.

It's based, yes.

[Operator Instructions] There are no further questions at this time. I would like to turn the call back over to Marty Kropelnicki for closing remarks.

All right. Thank you, everyone, for joining us here today. Obviously, 2026 is starting off with a bang. We have plenty to do on our agenda in California Water Service Group, and we'll look forward to integrating the acquisitions that we talked about, the Nexus acquisitions as well as the BVRT acquisitions that we announced. Getting the rate cases, staying focused on the rate cases, getting those equipment as quickly as possible and then continue with the PFOS treatment in our capital program. So there'll be plenty to talk about at the end of Q1, and we'll look forward to giving an update then. So until then, thanks for joining us today. Be safe, and we'll talk to everyone soon. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Hello. My name is Dustin and I will be your conference operator today. At this time, I would like to welcome you to California Water Service Group Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to James P. Lynch, Senior Vice President, CFO and Treasurer. Please go ahead.

Thank you, Justin. Welcome, everyone, to the third quarter 2025 results call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CEO; and Greg Milleman, our Vice President of Rates and Regulatory Affairs. Replay dial-in information for this call can be found in our quarterly results earnings release, which was issued earlier today. The call replay will be available until November 29, 2025. As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8-K and is also available at the company's website at www.calwatergroup.com.

Before looking at our third quarter 2025 results, I'd like to cover forward-looking statements. During our call, we 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. As a result, we strongly advise all current shareholders and interested parties to carefully read the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q, press releases and other reports filed with the Securities and Exchange Commission.

And now, I will turn the call over to Marty.

Thank you, Jim. Good morning, everyone. Thanks for joining us today. Happy Fall. A few items to update you on. First and foremost, I want to start and give a quick update on our 2024 General Rate Case. The administrative law judge assigned to this case a few weeks ago indicated that he may need additional time to process the rate case given the size and complexity. It's a little different than the rate case we had last time that was significantly delayed. We know this judge is actively working on the case. Additionally, the assigned Commissioner continues to stress the importance of getting decisions out on time if not early.

In addition, during that meeting, the judge also authorized us to file a Tier 1 advice letter on January 1 for inflationary offset if their decision is delayed. That is really different than what we've gone through before historically at Cal Water with the California Public Utilities Commission. This would essentially, if they are late, allow us to put an inflationary step increase with a Tier 1 advice letter effective January 1. Additionally, the judge also granted us a memo account, which gives us the authority to track and recover our cost, revenue and cost that would normally be recovered if the rate case was effective on January 1, 2026. So I think this is all good news.

Again, we don't believe the delay is going to be significant given the commissioner's comments both in meetings with us as well as in public forums as well as the judge actively working on the rate case. And I give the Commission some huge kudos for being more transparent. For some of those of you that were with us in the last rate case, we didn't know nothing for a long time while the rate case was delayed. So there's good communication going on. They're putting steps in place in the event that if the decision is slightly delayed. But given where we are right now, I do not believe there will be a significant delay. Greg Milleman will talk about that a little bit later in the deck.

Before I turn the call back over to Jim, I want to update you on a couple of things, including a strong financial performance as well as our operational highlights for the first 9 months of 2025. First and foremost, we continue to invest in our water infrastructure. During the quarter, we invested $135 million. That's up 14.8% so almost 15% Q3 of this year over Q3 of last year and were up 10% year-to-date over 2024. In addition, during the quarter, Jim's team was busy. They refinanced short-term borrowings with the issuance of $370 million of long-term notes and bonds.

This transaction was significantly oversubscribed. In fact I will tell you for a bond deal, it was the most oversubscribed bond deal I've ever had the pleasure of working on in my 30 years of doing this. The nice thing about having a significantly oversubscribed deal is it helps minimize credit spreads, which lowers costs for our customers over the long run. We have continued our expansion in Texas while we wait for the commission to approve our General Rate Case settlement. We do have an all-party settlement in Texas that we're just waiting for final commission approval on.

And we received an additional $24 million in net PFAS settlement proceeds during the quarter, which brings our year-to-date total recovery to about $35 million. Again, this will be a direct offset for customer costs as we implement the new PFAS rules. In addition to that, we've made steady advancement across multiple regulatory proceedings in the service territories that we operate in. So it was a very, very, very busy third quarter. The third quarter this year is the third year of the rate case, which is always the hardest year for us in California and California is by far our largest operating entity. And as Jim is going to walk through, the financial performance continues to be quite good during the third year of a rate case as we wait for regulatory relief.

So Jim, I'm going to turn it over back to you.

Great. Thanks, Marty. Well, as Marty mentioned, we did experience a strong financial performance and again, that is all the more meaningful considering we are in the third year of the rate case and that tends to be the year where we're most constrained from an earnings perspective and a cash flow perspective. So we're very pleased with the performance. Q3 2025 revenue increased $11.6 million or 3.9% to $311.2 million and that compares with revenue of $299.6 million in Q3 of 2024. Net income for the quarter was $61.2 million or $1.03 per diluted share and that's consistent with our prior year net income of $60.7 million or $1.03 per diluted share.

If we move to Slide 6, you can see the impact of the activity during the third quarter and the impact that that activity was having on our results as compared to 2024. The primary drivers were the tariff rate increases and income tax rate changes, which combined added $0.30 per diluted share. And that was mainly offset by consumption decreases, unbilled revenue changes and water production rate increases, which combined totaled $0.19 per share. In addition, depreciation and interest rate expenses combined added $0.09 of additional expenses per share.

Slide 7 shows our year-to-date financial results. And as we discussed on our Q2 2025 call, the company's delayed 2021 general rate case decision did result in interim rate relief that was recorded in 2024. In reporting our 2025 year-to-date results, we present both GAAP and non-GAAP metrics for 2024, which you can see on the next several slides. The non-GAAP financial measures effectively remove the impact of the 2023 interim rate relief from the 2024 results. Operating revenue for the first 9 months of 2025 was $780.2 million compared to $814.6 million for the first 9 months of 2024. That represents a decrease of $34.4 million or 4.2%.

However, when you remove the 2023 interim rate relief from 2024 results, our year-to-date revenue in 2025 actually increased $53.1 million or 7.3% over the non-GAAP 2024 revenue. Net income attributable to group was $116.7 million or $1.96 per diluted share. That's a $54.4 million or 31.8% decrease compared to $171.1 million or $2.93 per diluted share compared to the same period in 2024. But again, in 2023 when you remove the interim rate relief from the 2024 results, our 2025 year-to-date net income actually increased $9.8 million or 9.9% over non-GAAP 2024 year-to-date net income and earnings per share. That's an increase of $0.12 in terms of our earnings per share.

The primary drivers of our year-to-date diluted earnings per share when compared to non-GAAP 2024 results were tariff rate changes, consumption and income tax rate changes, which added $0.76 per diluted share. In addition, recall that in Q1 2025, we recorded the recovery of the California Palos Verdes pipeline memorandum account, which added another $0.05 per share. These increases were partially offset by water production rate volume increases, which totaled $0.29 per share and an increase in depreciation expense that was $0.13 per share.

Moving to Slide 9. We continue to make significant investments in our water infrastructure, as Marty mentioned, in order to continue the delivery of our safe and reliable water service. Our capital investments for the quarter and year-to-date were $135.2 million and $364.7 million, respectively, and that represents on a year-to-date basis a 9.8% or roughly 10% increase compared to 2024. As a reminder, our capital investments do not include an estimated $217 million of remaining PFAS project expenses. We expect we'll incur those over the next several years.

Turning to Slide 10. The positive impact of our capital investment program and what it is having on our regulated rate base is presented on this slide. If approved as requested, the 2024 California GRC and infrastructure improvement plan coupled with the planned capital investments in our utilities and other states will result in a compounded annual rate base growth of almost 12%.

Moving to Slide 11. We continue to maintain a strong liquidity profile to execute our capital plan and explore strategic M&A investments. As of the end of the quarter, we had $76 million in unrestricted cash and $45.6 million in restricted cash. We also had $255 million available on our bank lines of credit. As Marty mentioned, in October we successfully completed $370 million in long-term financing. That included $170 million of senior unsecured notes that we issued at group and $200 million of first mortgage bonds that we issued at Cal Water.

The notes carry interest rates of 4.87% and 5.22% and have maturities in 2032 and 2035. The notes also received an A rating from S&P. The bonds, again those are at Cal Water, will mature in 2025 and carry an S&P rating of AA-. The transaction closed on October 1 and it will further strengthen our balance sheet and support our ongoing infrastructure investments.

With that, I'll now turn the call back over to Marty.

Jim, one clarification. The bonds, which will mature in 2055.

The bonds do mature in 2055, yes.

Thank you for clarifying that. I'm on Slide 12 looking at our dividend program. We're pleased that yesterday, our Board announced and declared our 323rd consecutive quarterly dividend in the amount of $0.30 a share. Earlier this year in January, the Board approved our 58th annual dividend increase as a publicly traded company. This dividend increase for 2025 represents a 10.71% dividend increase and results in a 7.7% 5-year compound annual growth rate for our dividend.

Looking ahead on Slide 13 and talking about some of our priorities on growth. As mentioned last quarter, BVRT, which is a joint venture that we own 94% or 95% of, continues to represent a strong area of interest and growth for the company. California Water Service Group made an initial investment in this subsidiary in 2021 with the goal that was to support the water ancillary utility development in the South Austin, San Antonio mega region.

Year-to-date we've added 1,100 new connections to our utility services, the utilities that we started in that area back in 2021 and 2022. That puts us just shy of 5,000 connections added to our system. In addition to the 1,100 connections that we've added so far year-to-date this year, we have another 15,500 committed, but not connected customers. These are customers who have provided deposits or developers who put deposits in escrow waiting to connect to our systems as new houses are being built. This region currently has a population of 5 million people and is projected to exceed 8 million by 2050, which makes it comparable to the Dallas-Fort Worth region today.

The biggest challenge for growth in this area is timely infrastructure development, especially roads, water and wastewater systems. We believe this area continues to provide a strong opportunity for Cal Water to partner with state and local and the private sector to align our utility investments to support the state's economic development in this region. So very happy with the growth that we're seeing in BVRT. And these were greenfield developments that 5 years ago there was nothing there, basically ranch land where developers went in and established permitting to build large frac family housing.

On other fronts on the Texas side, we have reached a full settlement with the Public Utilities Commission in Texas with our first rate case. We're waiting for approval for that and we expect that to come in the fourth quarter of this year. From a growth perspective, we're working closely with major developers to support their water and wastewater infrastructure needs and expect several new deals in Q4 of 2025 as well as when we move into 2026. To further that, we're pursuing alternative water resources to serve the growth in that area, including a private public partnership with the Guadalupe Basin River Authority to bring water into that South Austin market through pipeline expansion.

I'd like to move on to Slide 14 to give you an update on PFAS. The EPA has reaffirmed the maximum contaminant level for PFOA and PFAS at 4 parts per trillion and we continue to assess the standards for additional PFAS compounds. So this is really the start of the PFAS family in forever chemicals. For those of you that have really studied it, you'll know there's an estimated 5,000 elements out there they think that are these PFOA and PFAS families that still have to be discovered and researched. So this is the first 2 PFOA and PFAS and the EPA has reaffirmed the target 4 parts per trillion.

The agency has proposed extending the compliance deadline for PFOA and PFAS treatment for the first 2 from 2029 to 2031 with the final rule expected in 2026. States are taking varied approaches. Some like the State of Washington, as I mentioned last quarter, have adopted their own rules, which align to the prior EPA guidelines while others continue to evaluate the local implementation timelines and the effects within their state. From a group perspective, we are managing our PFOA and PFAS programs across the enterprise with 1 project team that's responsible for coordinating across the enterprise.

Cal Water remains focused on delivering safe high quality water through continued investment in treatment systems and well replacements across California, Washington and New Mexico. As part of this effort, certain treatment will potentially shift between the years. And as Jim talked about our capital growth rate, and just to remind everyone, we have separated out PFAS and it's not included in those estimates. It's included in the footnotes on that slide. So we estimate there's approximately $217 million of PFAS investment needed between 2025 and 2029 to better align with the requirements that are coming out.

Our phased adoptive approach helps ensure that we meet the compliance requirements while managing our capital deployment to minimize the impact on our customers. Speaking of minimizing the impact on customers: from a legal standpoint, we continue to make progress recovering PFAS related costs through litigation. Cal Water is a participant in 4 separate class action settlements related to PFAS contamination. Shawn Bunting, our General Counsel, has played a leadership role for the water industry in these proceedings.

In May of '25, we received $10.6 million in proceedings net of legal fees from the first 3M settlement, the first of 10 scheduled installments. In addition, in September of this year, we received an additional $24.2 million in net proceeds bringing the total year-to-date net of legal fees to almost $35 million. This $35 million will be a direct offset to the $217 million that we're talking about, again in an effort to keep rates affordable for our customers and to hold flouters accountable for the damage they've done to the water systems. We expect to begin receiving payments from the remaining settlements later this year and well into 2026.

I'm now going to turn the call over to Greg Milleman for an update on the regulatory side. Greg?

Thank you, Marty. If you'd please turn to Slide 15, I'd like to provide some additional comments on our California 2024 General Rate Case. Our General Rate Case continues to move forward. As we mentioned last quarter, hearings before the administrative law judge occurred in May. After the hearings, the ALJ requested additional information that the parties to the proceeding responded to in June. We then filed our briefs on July 7 and our reply briefs were filed on July 28. A final law and motion hearing was scheduled for August 5, at which point the case was turned over to the ALJ to draft a proposed decision.

As Marty mentioned, in October, the ALJ requested more time due to the complexity and size of the case. At the same time in the event of a decision delayed beyond January 1, 2026, he authorized the company to implement an interim rate increase effective January 1, 2026 tied to CPI. He also approved an Interim Rate Memorandum Account to capture lost revenues resulting from a decision delay. While we are disappointed with the prospect of a delayed decision, we are pleased with the ALJ's action to allow an interim rate increase and the lost revenue tracking account and are still confident that we will see a resolution in the near term.

Turning to Slide 16. We have other regulatory updates in the other states where we operate. In Hawaii, the Public Utility Commission approved a $4.7 million revenue increase for Hawaii Water's 5 Waikoloa systems effective October 9, 2025. In Washington State, Washington Water filed a rate case with the Washington Utilities and Transportation Commission seeking a $4.9 million revenue increase to recover system investments and higher operating costs. The utility also has completed key infrastructures aimed at enhancing reliability and water quality. The proposed effective date of these new rates would be December 15, 2025.

And finally, as Marty mentioned, in Texas, our BVRT utility filed a rate case in June 2024 with the Public Utility Commission of Texas covering 5 systems. During the second quarter of 2025, BVRT reached a settlement with consumer advocates and the Public Utility Commission of Texas approval is currently pending.

With that, I will now turn the call back over to you, Marty.

Greg, can you just comment the communications of the commission this rate case cycle versus the last rate case cycle in California? Because from my perspective, it's been really different, a huge improvement in terms of transparency and communication with the Commissioner and judges. Can you please just give me your perspective on that as well?

Yes, absolutely. Actually since we received the -- had the October 3 update from the ALJ, we've spoken with the Commissioner 4 times during that time frame at various meetings and events. And all 4 times, he's commented that he would like to see this decision moved out on a timely basis. We've never had that in the 2021 case. And so I think that's why we're optimistic that even if the case is delayed a little bit, we will be seeing something much sooner in this 2024 case.

Yes. It's great seeing the Commissioner was really the assigned hearing officers where the Commissioner is so involved in the rate case and really sticking to it as well as the communications from the judge I think have been, I would almost call them, outstanding. I don't want to get too far ahead of our skis, but I mean the proactiveness on both the judge and the Commissioner I think is really different than what we've experienced before.

Thanks, Greg. Before I close out, I want to take a moment to reflect on what we achieved so far this year. Despite operating in the third and most challenging year of our rate case cycle in California, we delivered solid financial performance and operational performance. We've continued to strengthen our balance sheet with the $370 million of long-term financing that Jim and his team concluded in the third quarter. And we've continued to invest heavily in sustainability and the reliability and the quality of our water systems with the $365 million invested in the 9 months year-to-date for 2025.

We've also continued to make meaningful progress on PFAS treatment and the recovery of the $35 million in net settlement proceeds received year-to-date. Again the PFAS treatments, we'll continue to call those out separate from our normal capital program so you can clearly see what the net impact is to our customers as well as to rate base and any offset on the recoveries that we have. As Greg said, we've been busy on the regulatory side making meaningful progress in Hawaii as well as Washington and Texas as we stayed laser focused on getting our 2021 rate case done -- 2023 rate case done for California '24.

As we look ahead to 2025, a couple of things I think are important. On October 14 of this year, we celebrated our 99th anniversary since our founding in 1926. Some of you heard me talk about this. We were founded by 3 World War I veterans who came back from the war who had a profound sense of service not only to their country, but to customers, communities and the stockholders. As we move into 2026, which will be our 100th year or our centennial year of operations, our priorities really haven't changed.

It's maintaining operational excellence, executing our capital programs responsibly and achieving timely outcomes in our rate cases and continue to deliver value for both our customers and our stockholders. With our disciplined financial approach, constructive regulatory relations and our commitment to sustainable and reliable growth, we're confident that California Water Service Group is well positioned as we move into our 100th year of operations, which we look forward to celebrating next year.

So Dustin, with that, I'm going to turn it over to you and we'll start the Q&A, please.

[Operator Instructions] And our first question comes from the line of Angie Storozynski from Seaport.

So my main question is about your rate base growth projections. I understand that those are slide, I don't see even the number. Again the rate base growth implying 11.7%. That's based on a filed rate case, GRC rate case. Now we have a partial settlement in this rate case, which seems to take down CapEx projections and I know that there's PFAS spending that could be additive here. But as we sit today, how much of a drag do I have on those projections for rate base versus what you're showing in that slide, in Slide 10?

So Angie, thanks for the question. So right now we don't have a partial settlement in California, which is the largest driver of our capital expenditures. We are building in anticipation of achieving most of what we have asked for in the rate case. As you know, 2025 is the first year of the '26 rate case just because of the wonkiness in California and the way that they line their capital requirements up with the rate case delivery. So at this point, the settlements that we've talked about -- the settlement that we did talk about was the one in Texas, which we're really pleased on and we're waiting for regulatory approval there on that particular rate case.

We still feel committed to the projections that we've provided in the slide. We think that we have made a good case in California to get the majority, if not all, of what we have asked for recognizing the fact that historically, there's a discount that we receive from the commission as we go through the remaining portions of the rate case to get to the final decision. I don't know, Marty, if you want to...

Yes. I think Angie's question so if you look at the forecasted growth those 3 years out, they're kind of boxed and I say this is what we filed for. And as Greg always reminds me, we never get 100% of what we ask for in the rate case process. Having said that, if you go back and look at the last 10- to 15-year average, we typically average about a 10% compound annual growth rate on our capital spending year-over-year, which ultimately flows into the rate base. So for planning purposes, Angie, probably around 10% is probably a decent number to use excluding the PFAS.

And Jim has been very careful on all the slides that we put out there to footnote what our estimates are and those estimates are still evolving, but they're obviously getting more firmed up every time we go into another quarter because the engineers are doing more and more work on the treatment that we need to provide. But that will be incremental rate base growth net any legal proceeds. And that's also why we'll update everyone every quarter on what we've recovered on the legal side. So right now you could take that $217 million less the $35 million. That would be the net rate base estimate as of right now when we have to be in full PFAS compliance. But I expect we'll get some more legal proceeds to come in to help bring that number down.

Right. I understand the PFAS component that seems relatively small vis-a-vis what's actually in the GRC. But I'm looking at the August filing, right, the undisputed parts with the California advocates, even based on that, there is actually more than this reduction to that rate base projection versus what you're guiding to. Again, it seems like it's actually pretty substantial. It's almost like a 20% reduction versus what you have projected in the rate base. Again just a rough math. And again, I understand that this is just the portion of the settlement. But there was a filing August 4, I mean I'm looking at it right now.

Angie, what that would be is it's a listing of undisputed items that per the commission, we needed to file it as a settlement and most likely what you're looking in that in there, you're seeing what Cal Water proposed contrasted to what the public advocates proposed. Those are not settlement numbers of capital. That's just the parties' positions and it needed to be attached to the document.

And in fact I think the judge asked the parties to do that to help him expedite doing his legal review to make his conclusion and finding the facts while comparing the 2 parties. So he lined everything up and this is just one of the areas that he lined up what we asked for versus what the advocates are saying.

Okay. So the hope is that the judge doesn't adopt the advocates position basically?

Correct, yes.

Yes. I think, Angie, if you go back and look at the last 3 rate cases, kind of the thing I look at is kind of how successful have we been in the last 3 rate cases. And Greg, I think we've been north of 80% of our ask as high as 90% of our ask over the last 3 cycles.

Correct. Yes.

Okay. I understand. But yes, okay. I'm going to actually look at the 2021 rate case, how it compared to the position of [ Cal Water ]. It's just that the way I look at it is that you're overstating the rate base growth again at this stage of the rate case proceeding and I'm rooting for you. It's just that I'm looking at the current status of the proceeding. It doesn't seem like you can get close to these numbers.

Angie, let me correct something you said. We haven't overstated anything. That is a really bad word as a public company. Again, what we put in the disclosures is what was asked for in the rate case and that's why we carefully footnoted it so people can clearly see it. Our typical growth rate is about 10% on the CapEx line kind of year-over-year over the long haul and obviously those numbers will change. But I'm a little cautious when you say what you said because the disclosures are pretty clear and that's also that way in the 10-Q and 10-K.

And Angie, I just would encourage you to give me a call if you take a look at the 2021 rate case because the way the actual capital delivery number was in that rate case was divided between what was allowed in the rate case and subsequently allowed through advice letter filings and it's differentiated in there. Our view is to take a look at what was allowed through both avenues in order to evaluate how successful we were in our capital ask.

[Operator Instructions] And our next question comes from the line of Davis Sunderland from Baird.

As you said, Happy Fall, Marty. Actually I should give credit to Angie for this question, who asked a similar question on the H2O call earlier this week. So I'm going to steal and just kind of modify a little bit. But I guess my first question is just obviously big news earlier this week with American and Essential and the merger, which will bring American into the State of Texas. And I guess my question is does this change how you guys think about growth or willingness to lean into this market or the opportunity there? And then I have one follow-up.

Yes. I think our stated position kind of on M&A and growth is really kind of the same. Obviously from a planning standpoint, we've been very happy with our organic rate base growth because it's been kind of north of 10% for the last 15 to 20 years. So we're clearly focused on executing our business plans internally. Our primary growth engine is that reinvestment in our existing infrastructure. Being a West Coast utility, a lot of our infrastructure was built out kind of post World War II and it's now coming to the end of its useful life.

So we think we're going to be busy just with replacement infrastructure on the West Coast for the foreseeable future and we don't see that piece of the business slowing down anytime soon. From a growth perspective, we think our investment in BVRT has proven to be very, very valuable in terms of being in the right market. Real estate is about location, location, location and that is such a rapidly growing corridor. So we now own 7 utilities in that area. We have the partnership with GBRA to bring water in for another 10,000 customers in the South Austin market. So we'll continue to build out that market. And then from an M&A perspective, it's about being opportunistic.

I think American and Essential, we know them really well, they're great companies. I'm sure they had their reasons for why they ended up merging. I'm sure those will be in their proxy agreements when they put those out. And so I think there's a lot of reasons why the overlap service territories in our East Coast-based utility. I think Essential has been more in Texas and not as much American. So I think with Chris Franklin being in charge of kind of the integration work, they will be evaluating all that, what the footprint is going to look like. So I think there'll be more to come on that. For us, obviously, we're kind of Western states focused from Texas all the way to Hawaii and we're going to stay focused on our business plan as it's developed.

That is super helpful. And then maybe just 1 more for me. We've obviously been in this higher for longer rate environment for a lot longer than many expected, myself included, and some hawkish comments yesterday from Powell and potentially a lesser likelihood, I'll say, of rates coming down quickly. Just wondering how you guys build this into your guys' planning for the rest of the year looking into 2026 and any other thoughts on that?

That's a really good question, Davis. For us and look, I'm really happy with our financial results this quarter because if you lay out the timing of the rate case, all the inflation we saw in the last 3 years, we've really absorbed in the P&L and we've been able to still kind of grow the company. So getting the rate case done in California is going to be really important because that kind of trues up our costs, including that inflationary bubble that we lived in. A couple of things that I think are important especially given California is our largest operating entity is we do have that cost of capital adjustment mechanism. That's a 2-way mechanism.

So as rates kind of move up and down annually, we are going to evaluate that and we can apply for changes using that mechanism, which I think is a very beneficial mechanism that a lot of people tend to overlook. So I think for us, we like to focus on earning our regulatory rate of return. As an economist, my team knows I keep a keen eye on interest rates and what's happening in the economy and we try to stay a step ahead of what's happening. And so we've been able to preserve the balance sheet, continue to grow rate base, continue to grow earnings despite some of the economic headwinds we've really had the last 3 years or 4 years.

And really what will be nice about the next rate case in California assuming rates start to stabilize a little bit more is this bubble that we have, the inflationary bubble that we've had to absorb will be behind us. But again, not too much worried about the bubble because we do have that cost of capital adjustment mechanism in California and that is our largest operating entity. I don't know, Greg, if you want to add anything or Jim, add anything on that?

Yes. I would only say, Davis, we did talk a little bit about the fact that we refinanced our short-term debt into long-term debt. I think we got some really favorable rates on that long-term debt and we basically took almost $355 million off of the lines of credit and moved that into the longer-term interest rate environment, if you will. So I think we're positioned very well right now in terms of moving forward. I don't think that if the Fed slows down significantly in terms of bringing the short-term rates down, that would give us any cause to change our current plans.

Yes. I think one of the challenges for the Fed is most people forget about the fact that the Fed is very quant-based. They look at numbers. While with the government shutdown, they have a limited data set that they're evaluating off of. And I think while it wasn't too bad for them for the meeting yesterday, the longer this government shutdown goes on, the more absentee data they won't have to look at as they do their evaluations. And again, if anyone's ever gone to any of the regional quarterly Fed meetings, they are very, very quant focused.

And obviously the big thing I think they were focused on yesterday, I haven't read the minutes of the meeting, but I would speculate is that you're seeing a kind of a rapid softening on labor. And I think that was the key component that the Feds were looking at and certainly we're seeing that right now.

This is all super helpful. Appreciate the time, guys. Thank you very much and best of luck with the rate case rest of the year.

And we'll see you in a few weeks at the Baird Industrial Conference in Chicago. We look forward to seeing you.

Thank you. There are no further questions. I will now turn the call back over to our Chairman, President and CEO, Marty Kropelnicki, for closing remarks.

Thanks, Davis. That was a good robust discussion today. Obviously if you may ask any questions, feel free to reach out to us. There's a lot of investor stuff happening in the fourth quarter so Jim and I will be on the road quite a bit; Chicago, New York, et cetera. So please reach out if you have questions. And we look forward to reporting our year-end results to everyone in February of 2026. So have a great Thanksgiving and a happy holiday. Be safe and we'll talk to everyone really soon. Thank you.

The meeting has now concluded. Thank you all for joining. You may now disconnect.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the California Water Service Group Second Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to James Lynch, Senior Vice President, CFO and Treasurer. You may begin.

Thank you, Jericho. Welcome, everyone, to the Second Quarter 2025 Results Call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CEO; and Shilen Patel, our Chief Business Development Officer and Vice President of our Texas subsidiary, TWSC.

Replay dial-in information for this call can be found in our quarterly results earnings release, which was issued earlier today. The call replay will be available until September 29, 2025. As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8-K and is also available on the company's website at www.calwatergroup.com. Before looking at our second quarter 2025 results, I'd like to cover forward-looking statements.

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

And now I'll turn the call over to Marty.

Thank you, Jim. Good morning, everyone. Thank you for joining us here today. We have six main items on the agenda that we want to cover today with everyone and provide an update on. One, we want to talk about the strong performance during the second quarter. Just to remind everyone, earnings look pretty wonky.

And as we have been saying on every earnings call, it's really driven by the fact that the 2021 general rate case was 16 months late. So when it was finally approved in 2024, it was retroactive. So that's kind of like the boa constrictor and the egg because it was retroactive, it's kind of made earnings look kind of funky year-to-year.

I think kind of the punchline from an earnings perspective is when you look at the non-GAAP EPS, non-GAAP earnings per share were up 15% year-over-year, which is historically, very, very good considering it's the third year of the rate case in California, which is our largest operating entity.

Second thing, we will give an update on our capital program. Capital spending was up approximately 7% kind of quarter-over-quarter, and we'll give you an update on where we are with the California General Rate Case. In addition, we have a new person attending us today, not new to the company, who's been around a long time, but new to helping give an update to our stockholders. Shilen Patel, who is the Lead Executive Officer, who heads up our business development activities and is also running our Texas operations for us. So Shilen will give you an update on what's going on in Texas as well as an exciting new contract we entered into in California and Silverwood, which is a new development that's being built in Southern California.

We'll give you a quick update on where we are with PFAS. That's been a little bit of a political football, but we remain steadfast in our approach. and making sure that the drinking water we provide our customers are safe and in compliance with our requirements. And then lastly, we did recently get reaffirmed our very good A+ stable rating from S&P Global. So we're very happy to see that we maintained a very strong credit rating going into the second half of the year.

So with that, Jim, I'm going to turn it over to you, so you can go through the financial results for the quarter, please.

Great. Thanks, Marty. So as Marty mentioned, we had -- we have presented both GAAP and non-GAAP metrics for 2024, which you'll be able to see on the next several slides. The non-GAAP measures do remove the impact of the 2023 interim rate relief from our 2024 results.

So in Q2 2025, revenue increased $20.7 million or 8.5% to $265 million. This compares with revenue of $244.3 million in Q2 of 2024, compared to Q2 2024 non-GAAP revenue, second quarter revenue increased $17.9 million or 7.2%. Net income for the quarter was $42.2 million or $0.71 per diluted share, and this compares with 2024 second quarter net income of $40.6 million or $0.70 per diluted share.

Compared to non-GAAP 2024 net income, Q2 net income decreased $200,000 or $0.02 per diluted share. The $1.8 million GAAP to non-GAAP difference is due to the finalization of amounts recorded in 2024 that were related to the 2023 interim rates.

Moving to Slide 6, you can see the impact of the activity during the second quarter on our earnings result as compared to the 2024 non-GAAP results. The primary drivers were tariff rate changes and increased customer usage, which combined added $0.52 per diluted share. The increases were offset mainly by revenue regulatory account decreases of $0.21 per share and water production rates and depreciation increases of $0.12 and $0.05 per share, respectively.

Also in the second quarter of 2024, we reduced bad debt expense as a result of payments received under the extended water arrearages program in California. As a result, we recognized a $0.06 per share benefit in the second quarter of 2024 that did not repeat in 2025.

Slide 7 shows our year-to-date financial results. Revenue through the first 6 months of 2025 was $468.9 million compared to $515 million for the same period in the prior year. When adjusting 2024 results for interim rate relief, year-to-date 2025 revenue increased $41.3 million or 9.7%. Net income attributed to group was $55.5 million or $0.93 per diluted share compared to $110.5 million or $1.90 per diluted share in the prior year.

When adjusting for the 2023 interim rate relief, net income increased $9 million or 19.4% over non-GAAP 2024 year-to-date net income, while diluted earnings per share increased $0.12 or 14.8%.

Turning to Slide 8. The primary drivers of our year-to-date diluted earnings per share when compared to the non-GAAP 2024 results were tariff rate changes and increased customer usage, which combined added $0.75 per diluted share and the Palos Verdes Pipeline Recovery that added $0.05 per share. These increases were partially offset by regulatory revenue account decreases of $0.26 per share, water production rate and usage increases totaling $0.18 per share and depreciation expense increase of $0.09 per share.

We continue to make significant investments in our water infrastructure to ensure the delivery of safe and reliable water service. Our capital investments for the quarter and year-to-date were $119.4 million and $229.5 million, respectively. This represents a 14.2% increase for the quarter and a 7% increase year-to-date compared to the same periods in 2024.

As a reminder, our capital investments do not include an estimated $220 million of remaining PFAS project expenditures, which we expect will be incurred over the next few years. The positive impact of our capital investment program is having on our regulated rate base is presented on Slide #10. If approved as requested, the 2024 GRC and infrastructure improvement plan, coupled with planned capital investments in our utilities and other states would result in a compounded annual rate base growth of almost 12%.

Moving to Slide 11. We continue to maintain a strong liquidity profile to execute both our capital plan and strategic M&A investments. As of the end of the quarter, we had $50.5 million in unrestricted cash, $45.6 million in restricted cash and $240 million in available credit on our bank lines.

Earlier in the quarter, we entered into an equity distribution agreement to sell shares under an at-the-market equity program with an available shelf of $350 million. While we expect to use the ATM strategically and from time to time, we did not use it in 2025 year-to-date. And finally, as Marty mentioned, in July, we received our annual credit rating update from S&P Global in which we retained our A+ stable rating. We're proud that we continue to maintain this strong credit rating.

With that, I'll turn the call back over to Marty.

Thanks, Jim. I'm going to piggyback off those last comments about the credit rating. Obviously, the company's balance sheet continues to be very, very strong, which is important given the growth that we have in our capital investment program and our infrastructure improvement plans.

Likewise, that also dovetails right into our dividend program. And I'm very proud to announce that yesterday, our Board of Directors approved our 322nd quarterly dividend in the amount of $0.30 a share. I'd just remind everyone the dividend increase that the Board approved earlier this year represented a 10.71% increase, which gives us a 5-year 7.7% compound annual growth rate for our dividend.

We believe this dividend growth rate reflects our continued growth in our balance sheet as well as our continued expansion on our infrastructure improvement plan, which we think is important as we continue to build out the balance sheet. So balance sheet is in good shape, and we have a lot to do in the second half of 2024.

Moving on to Slide 13. I want to give everyone an update on where we are with the rate case in the state of California. As you may recall, in the application, the company is requesting $398 million over the years and over the years of 2026, 2027 and 2028 and a corresponding $1.6 billion budget for infrastructure improvements in the state of California, especially as we continue to move forward with our climate change adaptation plans.

During the quarter, well, first of all, the rate case continues to be on schedule from where it is. And that's really the good news here. So far, the administrative law judge and the assigned commissioner have kept everything on task to date. Settlement discussions did take place during April and hearings before the administrative law judge took place in May.

After the hearings in May, the ALJ administrative law judge has requested additional information from the parties, and they were was responded to in June. We then filed opening briefs on July 7 with reply briefs that were filed earlier this week as we move into the last phase of the rate case. So there was no settlement that was reached while there were a number of undisputed items in the rate case process, we did not reach a settlement with the ratepayer advocate.

And so hence, we had to file the opening briefs on July 7 and the reply briefs on July 28 to set up the final motion hearing, which will take place on August 5. After that August 5 hearing, that's the point in which all the information is submitted to the ALJ to draft the proposed decision. So August and September and October are critical months for the commission as they work through the rate case and hopefully keeping it on time, so it goes into effect on 1/1/2026.

Moving on to Slide 14 to give you a quick update on what's happening with PFAS. The EPA has confirmed the maximum contaminant level for PFOA and PFAS will remain at 4 parts per trillion, while it continues to evaluate standards for the other PFAS compounds, so other compounds in the PFAS family or the Forever chemicals families. The agency has also proposed extending the compliance deadline for PFOA and PFAS treatments from approximately 2 years from 2029 to 2031 with a final ruling expected in 2026.

Some states such as Washington or what's currently going to the legislature in the state of California are looking at implementing their own regulatory rules around this, consistent with the 4 parts per trillion, but on the original implementation time line. So we're closely monitoring that on a state-by-state basis to see where ultimately each state ends up with the implementation of the PFAS rules.

From a group perspective, we remain committed to investing in the water quality and infrastructure across Washington, New Mexico, California and making sure that we do everything we can to make sure that we stay ahead of schedule to ensure water quality for all of our customers and we'll continue with our plans as they are right now.

We might push or pull a couple of things from year-to-year now that there's a little bit more room, but the original $222 million -- $226 million investment that we forecast is still on the table, and we are moving forward with that program.

Looking on Page 15, our approach to PFAS-related investments is intentionally aligned with the evolving EPA guidelines. It has been a little bit of a moving ball. But if you think about it, they just extended the implementation date a couple of years. And given what we're seeing within a few of the larger states that we operate in, there's a good chance that the states will adopt standards that will keep us in line with the original implementation time line set by EPA. So again, we're watching that.

But nonetheless, we remain committed to doing what we need to do to make sure that we exceed the water quality standards every day that we operate. And the PFAS and PFOA teams are going full steam ahead as of right now. and moving forward with our projects. And we'll start to see that investment start to show up in the capital investment line as we move forward in the second half of 2025 and certainly well into 2026 and '27.

In addition, I want to talk a little bit about the settlement on where we are in dealing with the people who contaminated the water supply. We continue to make good progress on recovering those costs through litigation. Cal Water is a party to 4 separate class action settlements related to PFAS. And in May of 2025, so May of this year, we received the first $10.6 million in net proceeds from a settlement with 3M.

This represents the first of 10 scheduled installments that we will get from 3M, and we expect to begin receiving proceeds from the other 3 settlements potentially later on this year.

Now I want to take a moment to introduce someone new to the call, but not new to Cal Water. He's been here a while driving all our business development efforts, and he's certainly a veteran in the water space. So I'm going to turn over to Shilen Patel to give everyone an update on what we have going on, on the business development side and in Texas.

So Shilen, take it away.

Thank you, Marty. On Slide 16, you'll see that California Water continues to prioritize growth through acquisitions and capital investments. A key example is our agreement with DMB Development, a national developer working on a master-planned community near the city of Hesperia in San Bernardino County.

Under this agreement, Cal Water will build, own, operate and finance the wastewater treatment facility that will serve the development. Once fully built out, the community will consist of over 15,000 customer connections. At full capacity, the facility will deliver more than 3 million gallons per day of tertiary treated wastewater.

More importantly, 100% of this water will be reused within the community and will be the largest wastewater treatment and reuse facility in Cal Water's asset portfolio. We plan to file a certificate of public convenience and necessity with the CPUC to establish a regulated service area and include this district in future general rate case filings.

Now turning to Slide 17. Our Texas utility subsidiary continues to grow in step with the rapid expansion of the state. As a reminder, California Water made its initial investment in this subsidiary in 2021. The goal was to support water and sewer utility development in the Austin, San Antonio Mega region. This region currently has a population of about 5 million people and is projected to exceed 8 million by 2050, which is comparable to the Dallas-Fort Worth region today.

The biggest challenge to this growth is timely infrastructure development, especially roads and water systems. This presents a strong opportunity for California Water to partner with state and local governments and the private sector to align our utility investments to support the state's economic development objectives in the region.

On Slide 18, you'll see continued momentum in customer growth for our utility in Texas. Both connected customers and paid customer commitments are increasing, which reflects the sustained demand in the Austin, San Antonio Mega region. Additionally, BVRT filed a general rate case for 5 utilities in June of 2024. A settlement agreement has been reached and is currently awaiting commission approval. Thank you, and I'll hand it back to Marty.

Great, Shilen. Shilen, I believe DMB, we've done other business with successful projects with them in other states. I believe Kukio, which is the high end estates on the Big Island of Hawaii was one of the ventures we did with them a number of years ago, correct?

That is correct. And we have another one as well as KSSCS in Kauai.

Kauai. So it's good to work with a partner we have boy, I guess, 16 years of experience with working with them, which is good. On the settlement with BVRT, it's not filed yet with the commission, right? But we have an all-party settlement.

That is correct. We do have an all-party settlement, and it is not filed with the commission yet. It should be filed shortly, and we'll share more information with us within that settlement when it's filed.

Perfect. So that means for everyone on the call, we can't take any questions as to the particulars of the settlement. But overall, I would say we're very pleased that we reached an all-party settlement and Shilen and the team in Texas have done a really good job working on that rate case.

And that's our first rate case that's being filed, which will actually establish the rate base for the Texas entities for us. So really good work there. All right. Moving ahead to Slide 19. I want to take a moment to talk about our sustainability report and just hit a couple of highlights on that. In June, we published our 2024 report.

I believe this is our third report that we published, and we continue to focus on 4 key areas: protecting the planet, serving our customers, engaging the workforce and governing with integrity. Among some of the highlights are our goals of reducing Scope 1 and Scope 2 greenhouse gas emissions by 23.5% from our 2021 baseline and the fact that we're investing nearly $3 million in energy-efficient upgrades within our service territory.

In addition, we had 100% compliance with the water quality standards, the primary secondary water quality standards, and we conducted more than 615,000 water quality tests on behalf of our customers in the states that we operated in. From a philanthropic perspective, the company donated more than $1.1 million to community organizations, including our firefighter grant program, which is very successful as well as our local scholarship programs for children of customers, especially those that are first-generation college students.

In addition, we expanded our employee training program by approximately 17%, and we continue to develop new career pathways for our employees, which have been very successful. And the significance of those pathways, it's not just a way to get promoted, but there are certification requirements that go along with it. And so for everyone that operates a water system, we all know how important those certifications are.

So it's a way to let people grow and move up their certification chain and move into higher-level jobs as they get those higher-level certifications. In fact, we always say higher pay for higher certs. So it's been a very, very successful program. In addition, we've expanded our supplier oversight and our diversity efforts in terms of adding more suppliers that we procure goods and services from at the local level. So I encourage everyone to read the report.

It's in the consistent reporting format that meets the majority of standards out there for sustainability reports, and we remain 100% dedicated to our ESG efforts, emphasizing the strong G for governance. So lastly, I want to talk about what to watch for in the fourth quarter because certainly, we have a lot going on. First and foremost, we're maintaining our focus on the 2024 general rate case.

That's really important. And as I mentioned before, it represents 90% of our business as a utility. In addition to that, we also have an important rate proceedings in Hawaii, Washington, as Shilen has just talked about, Texas as well as New Mexico. So the rates team is very, very busy with everything they got going on.

As we move into the warm dry summer months, that allows us the opportunity to speed up our capital investment program. So the third quarter is one of the busiest quarters from an investment standpoint. So the team is busy working on that. It is interesting to note that while the Southeast of the U.S. is going through a heat wave, in California, we are having a below average summer. So it's been cooler. It's been a little more pleasant, which has been great from a fire season perspective.

But all this means it allows us to really kind of put the pedal to the metal on the capital investments as we go through the summer months and prepare to go into winter. Obviously, with the cool weathers, it gives us a little bit of break from fire season. But nonetheless, that does not allow us to slow down our efforts, or back off our efforts for wildfire readiness.

And the operating teams have been very, very busy since May implementing our readiness programs for 2025. So overall, there's a lot going on. And of course, lastly, we have to continue to execute prudently and efficiently. And as I started with this discussion here today, it is the third year of the rate case. The third year of the rate case is where we tend to see the most regulatory lag.

And overall, I'm very happy to see that 15% growth in our earnings for the second quarter of 2025, given the fact it's the third year of the rate case.

So with that, Jericho, we will open it up for questions from the analysts, please.

[Operator Instructions] And our first question comes from Davis Sunderland from Baird.

Maybe I could start. You started actually to answer my question at the tail end of your last comments there, Marty, just about the GRC, but it sounds like you guys are still expecting a decision by year-end. So I guess, one, is that correct?

And then maybe more specifically, I mean, what is there that you guys are looking for in the case? Or what can we monitor in that time frame of August to October that you kind of defined as the critical months? And then I have one follow-up.

Yes. I mean, so far, the assigned commissioner has given us every indication that it's a top priority for him to get the rate case done on time. Obviously, because there's no settlement, there's a lot for the assigned administrative law judge to go through.

I will say the judge who has assigned our case is very procedural and has just really been kind of following the schedule, which -- so everything has been lining up to be on schedule year-to-date. But now is really when the rubber meets the road for the assigned law judge to kind of pull the case all together. And one of the things that the judge did ask us for was a list of nondisputed items.

So that's been provided. So I think he's seen it the right way, but we kind of go into this blackout period other than answering questions from the administrative law judge for October -- or excuse me, for August, September and potentially October. So we'll just have to wait and see. But so far, with the commissioner saying it's his goal, the judge has been sticking to the schedule. He's been very procedurally driven. He's asked a lot of good questions.

So we have every indication that it's heading the right way. Now it's where the rubber meets the road from the commission side. Our work is done as of August 5 when we have that final hearing and everything is handed off to the judge, so it will be up to the judge. So I'm guardedly optimistic. Will it be right on time? I have no reason to believe that the assigned commissioner is not telling us the truth, and he said it's a top priority to get it done on time. So we'll see what the commissioner does with it. And in the meantime, we'll continue to answer all their questions. So that's a long-winded question of saying, as of right now, it's on schedule and the commissioner is focused on it as well as the judge.

I appreciate the detail. And then maybe just one more for me. Just on the comments relating to the PFAS pushout or potential pushout, I should say, from the EPA. Is the right way to think about this as a positive that you guys are still moving forward on your time line as it relates to maybe getting some regulatory recovery and earning a return on those investments and then maybe a negative or a slowdown in potentially accelerating some M&A for smaller systems? Or I guess any other thoughts there would be helpful.

Yes. Thanks, Davis. I think from the perspective of the timing of the CapEx investments, we're still focusing on delivering the treatment according to the original schedule that we had put in place.

Since our last call, we've taken a look at whether or not it makes sense for us to put treatment in some of our well locations as opposed to replacing the wells. And we have identified a couple of areas where we are going to go ahead and just replace those wells. That's typically a little longer process. That takes about 5 to 7 years from the time we first identify property to the time we actually get the well and place it in service.

So initially, we were going to treat all of the wells we identified. But since this reassessment, we probably have about $160 million or so that we expect to be in place in the next 2 years related to treatment with the remainder being pushed out a little bit further as we look at our well replacements.

Yes. And I would say, David, too, kind of putting politics aside for a moment, it's really hard. The EPA could shift the dates, but the fact is PFOA and PFAS is a known cancer-causing agent. And so it's really hard to look at customers in the eyes saying, yes, there's a compound of water, it may cause cancer, but the government just moved the implementation out a couple of years. Don't worry about it. The water is safe to drink.

So I was happy to see that the state of Washington is keeping the original time lines. I know in the legislature in the state of California, that's seriously being looked at right now. I think from a customer perspective, we'll always put the customers' health and safety first. Even if it means we need some depreciation dollars for a year or so if something gets kind of messed up on the EPA side.

But PFAS, the train is moving. The projects are planned. We have contracts that have all been signed. The engineers are working on it. And we have room to move a couple of things around, as Jim said, and we'll change a couple of treatment options. But I don't think you're going to see hundreds of millions of dollars shift out 2 more years. I think you're going to see pretty much stay on track with the exception of some stuff will get pushed and pulled a little bit.

Yes. And I think with regards to the impact that, that would have on our M&A, we've got a really strong balance sheet right now. And I think you can look at those two initiatives independent of one another.

Yes, absolutely.

Our next question comes from Jonathan Reeder from Wells Fargo.

A couple of questions for me. First, the rate base outlook outlined on Slide 10 did not change, but it looks like there were some shifts in the CapEx by year, including like pushing out $50 million from 2025. I apologize if you mentioned it in the prepared remarks, but what caused the shift?

I mean, as it sounds like that anticipated PFAS well replacement CapEx shift has not yet been incorporated? And then further, does the increase in 2027 represent any of the $60 million to $70 million of anticipated investment related to the Silverwood opportunity?

Well, with regards to Silverwood, yes, we are right now coming up with a budget with regards to what that plant is going to entail, and that is going to provide an opportunity for us to invest additional capital over the next few years. Shilen, I think we have a 2-year time window with which to get that plant up and operating.

That's correct.

So those are numbers that we will be incorporating into the deck, and that will ultimately work its way into rate base as we kind of work through the regulatory process. As far as our CapEx plans, it really haven't changed relative to our core CapEx investments.

We're still moving ahead with the anticipation of receiving a good portion, if not all, of what we've asked for in the general rate case. And as you remember, 2025 is the first year of the current rate case, even though it's not effective -- the other parts of the rate case aren't effective until 2026. So we're pushing forward assuming that whatever we're allowed to put in place in terms of our rate base plan, we're in a position to deliver on that.

Okay. So the shift was just some like timing stuff because yes, I mean, overall, the 3-year period pretty much the same thing?

I think that's a good characterization, yes.

I'll just say this is also why we got memo account treatment for part of the PFAS stuff because part of this is we're going through the process of discovery, what do we need to do at locations. You got to do all the testing, then you got to develop the implementation plans.

And so it meets the criteria of memo account treatment with the PUC, especially in California, where we got the most number of wells that we got to treat. And that's why that number is carved out and put in a footnote because ultimately, most of those costs will kind of roll into a memo account.

Okay. But the Silverwood spend, that $60 million to $70 million you say on the slide, that's still incremental to the current budget?

Yes. In fact, our Board yesterday just approved the expenditures for that over the next 2 years. Yesterday, I was at our Board meeting, we go through the annual capital program in detail. So the engineering team comes in, the finance committee meets and we go through all the details of the plan for the next year and the next really couple of years because they authorize us to start some other capital projects in advance. And so that was approved yesterday.

Okay. And then my other question relates to something that AWK mentioned earlier today that there's a water decoupling bill working its way through the California legislature this session.

Can you discuss what all the bill may do? Like does it mandate that the CPUC adopt fully decoupled rates if requested by the utility? And what sort of support do you believe it has to pass both chambers and hopefully garner governing news and signature?

Yes. So that bill has been a key focal point of our government affairs team, and we have been leading the effort on that bill individually initially and then collectively as some of the other water purveyors have jumped in to support us.

So yes, it's Senate Bill 473 and 473 would require the Public Utilities Commission to implement full decoupling for water utilities. And so we think it's a real important bill. We think, especially as we deal with climate change out West and water scarcity, it just -- as I talked to the governor before about this topic, it's really -- if you think about it, when we go in there with this bill, we're basically saying kind of cap our earnings, right, as a regulated utility.

But it's the right thing to do for the long term for the customers because it allows you to deal with affordability in some underserved communities. It allows you to better plan for things like climate change and actually kind of smooth out rates a little bit. So as of July 28, right, the bill has passed the Senate on a 37 to 0 vote. It's moved through the assembly. It's moved through the assembly committee on utilities and energy with a 15 to 0 vote. And now it's waiting on the assembly committee for appropriations.

Now there is one opposing party to this bill. And it's the California advocates they oppose the bill, and they are bringing up the point that it's going to increase the commission's operating cost by $1 million. So that's the opposition. It's a $1 million issue with the commission. We, of course, have been saying, well, wait a minute, we were decoupled for a number of years and you didn't have a blip in your operating cost. And the other utilities, electric and gas have been decoupled since the '70s, so that doesn't make a whole lot of sense.

So overall, it's -- this bill has kind of sailed through everything, and now we're waiting to see what happens next as it goes to the appropriations committee. Now that $1 million could become a hanger. California's budget is in the best shape. And there's not a lot of mercy for utility issues in Sacramento right now, given the large number of electrical cost increases that have been experienced in California to deal with some of the wildfire hardening.

But so far, we've built a very large coalition. All the lawmakers that we've met with and we met with a lot of lawmakers have been very, very supportive of decoupling and how it works. And so we'll just have to see what happens next. They're on recess right now in the state of California. So this will get picked up again in the fall when they come back from their recess.

Thank you, Marty. I know you're always very plugged into what's going on in Sacramento, so I didn't expect anything less in terms of color.

Well, again, Jonathan, you know how we are. I mean we were the first water company to decouple. And we took a couple of hard knocks for that and people say, why would you want to do it? But decoupling when you deal with water scarcity, when you deal with sustainability type of issues and tiered rates, I mean, it really helps drive down consumption over the long term.

And we've got to stay focused on that in California. It's a massive state that continues to grow. And so you have the largest ag business in the union in the state of California. You got some of the largest urban centers in the state of California compared to anywhere else in the U.S. and you've got a growing population, you got to be very proactive with this stuff. And so we believe in taking a leadership role, and that's what we've been doing.

Yes. No, good luck with it. It's hard to imagine that the $1 million figure would become a hangup in a state besides California, but yes, I guess you never know. So good luck with that and best of luck as you move into the second half of the year with keeping the GRC on time.

Yes. And obviously -- and you know this, Jonathan, because we attend your conference as well. I mean as we move into the fall, Jim and I are out quite a bit talking to investors. And so we'll be happy to give people updates as we move through various IR meetings in the fall.

Our next question comes from Michael Gaugler from Janney Montgomery Scott.

Just one question on PFAS. Looking through your deck today, it seems like visibility is improving on the settlements across all 4 class actions. I'm just wondering at this point, what percentage of the total costs that you're going to incur do you think you can cover with the settlements?

That's -- Michael, you would ask a very difficult question. It's -- I mean that always in a good way. I think it's a very, very fair question. It's really hard to gauge. My best guess would be $40 million to $60 million of the $226 million estimate. If I had to put a number on the table and make a bet, that's probably the range I would put it in.

Consistent with the point I was just making with Jonathan about kind of taking a leadership role, Shawn Bunting, our Senior Vice President and General Counsel, has been the industry rep associated with these 1 of 2 industry reps associated with the lawsuit that represent the water industry. So we are very kind of up to our neck in these lawsuits working with outside counsel and representing the water space.

So we're at the table when the deal gets cut, we know how it's going to work, et cetera. And part of the reason why we wanted to make that investment was to make sure that it's fairly allocated. So we're continuing that leadership role. Shawn Bunting is doing an absolutely fantastic job representing the water industry. He's a very, very good attorney. And if I had to bet, I would say $40 million to $60 million would probably be a probable range as of where I am right now. I don't know, Jim, if you'd add anything on that.

Yes, Michael, the only thing I'd say is part of the difficulty in estimating it is that it's predicated not only on the settlement dollars we're able to negotiate, but then the application for those dollars by the different water providers that could benefit from it. And until the total applications are known and can be identified in terms of how much they're requesting, it's hard to say how much is going to go to the individual water companies. So they're working through that process right now.

As we said on the call, by the end of this year, we think we'll have a real good sense of where that's going to land. And quite frankly, we believe we'll start to get some of the other payments by the end of this year also. So more to come on that. But right now, it's moving ahead in a real good direction for us.

There are no further questions at this time. I would now like to turn the call back over to Martin Kropelnicki, Chairman, President and Chief Executive Officer.

Great. Thank you, Jericho, and thanks, everyone, for joining us here today. First half of the year is done and dusted, as they say, in my spin class. It's been recorded, and we're moving forward. Looking forward to the second half of the year, obviously, we got a lot going on, but the company is in very, very good shape, very happy with earnings, very happy with the balance sheet. And we just got a lot going on.

And with everything Shilen's got going on in Texas on the business development side with Silverwood, et cetera, as well as the rate case. It's going to be a very, very busy second half of the year, and we will look forward to updating you at the end of Q3. So until then, be safe, and have a good day. Thank you very much.

Thank you.

This concludes today's conference call. You may now disconnect.