California Water Service Group Stock

Thank you for standing by, and welcome to the 2026 Second Quarter California Water Service Group Earnings Call. [Operator Instructions].

It is now my pleasure to turn the call over to Mr. James Lynch, Senior Vice President and Chief Financial Officer. You may begin.

Thank you, Jeanine. Welcome, everyone, to the Second Quarter 2026 Results Call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CEO. 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 September 28, 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 second quarter '26 results, I'd like to cover some forward-looking statements. During the call, we may make certain forward-looking statements. And because these statements deal with future events, they are subject to various risks and uncertainties. Our 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-Qs, press releases and the other reports we filed with the Securities and Exchange Commission.

And now I'll turn the call over to Marty to provide a brief overview.

Thanks, Jim. Good morning, everyone. Consistent with our past earnings call, I'm going to give you a quick overview of the agenda, and then Jim and I are going to jump into some of the details for the quarter. There's really kind of 6 items on the agenda today that we want to go through.

Starting obviously, in the second quarter, the end of April, we received a decision on our California general rate case. As part of that decision, during the quarter, we recognized our IRMA, which is the balancing account that takes the retroactive portion of the rate case back to January 1. So this rate case was close to being on time, which is very good news. It was approximately 90 to 100 days delayed, but we are made all that to the original date of January 1. That was recognized in the quarter as well as other items that Jim will be talking about.

In addition, during the quarter, we reached this full settlement in our rate case up in Washington. I'll provide some more details about that when we get to that slide. During the second quarter, we had record capital. We invested a record $276 million in new plant for the first 6 months of the year. That continues to move ahead, especially as we start to invest in our PFAS treatment programs throughout our service territory. And to partially offset that growth, we did raise about $88 million through our ATM or at-the-market stock program and the company declared its 326 quarterly consecutive dividend of $0.3350 shares.

In addition to the quarter, we continue to work on our Nexus integration plans. Nexus has been great to work with and things are progressing there. We'll give you some more details on that. And then lastly, for those of you that like to look at some of the numbers on sustainability and some of our ESG numbers, we did publish our water quality and sustainability reports as well as received a number of awards during the quarter. And later on towards the end, I'll introduce the 2 new officers. As some of you may know, Greg Milleman is not here. As you remember at the last call, that was his last call with us, and he retired, officially retired from the company, and I'll be talking a little bit about his replacement as well as one of the promotion, key promotion we had during the quarter.

So that's the agenda for today. Jim, why don't I turn it over to you, and we'll go through the numbers.

Thanks, Marty. So as Marty mentioned, the Q2 results reflect the decision that we received in our 2024 California GRC and also the retroactive application of the decision through the IRMA to the beginning of 2026. The net income for the quarter was $56.5 million or $0.93 per diluted share. That compares to Q2 2025 net income of $0.42 or $42.2 million or $0.71 per diluted share. Our revenue for the quarter was $308.6 million compared to $265 million in the second quarter of 2025. The primary earnings drivers included $15.3 million of IRMA revenue related to the delayed 2024 California GRC and of which about $9.2 million of that was related to the first quarter. So that was the look-back portion that was recognized in Q2.

We also had $15 million that was due to rate changes and changes in regulatory mechanisms and $9.3 million of remaining deferred WRAM revenue that's now expected to be collected over the next 2 years. If you remember, when we stopped decoupling, we still had some residual WRAM balances that were deferred until we reached the proper accounting guidance that would allow us to report the revenue. So we've now reached that place. And at this point, we have recognized the remaining deferred balances. These increases were partially offset by $6.3 million in higher per unit water supply costs, about $7.9 million in costs related to the deferred WRAM revenue and $7 million in higher income taxes that was due primarily to higher income and an increase in our effective tax rate.

If we move on to Slide 6, you can see the impact of the activity of our second quarter on our diluted earnings per share. The primary drivers were customer rate changes, the IRMA, the deferred WRAM revenue, each of which contributed $0.20, $0.15 and $0.11 per diluted share, respectively. And these increases were partially offset by the water production costs and deferred WRAM-related expenses of $0.08 and $0.10 per diluted share, respectively.

If we turn to Slide 7, on a year-to-date basis, net income through the end of the quarter was $60.5 million or $1.01 per diluted share, and that compared to year-to-date net income in the prior year of $55.5 million or $0.93 per diluted share. Revenue was $523.2 million compared to $468.9 million year-to-date in 2025. The primary earnings drivers were largely the same as those we experienced for the quarter.

And so turning to Slide 8, you can see the impact on the year-to-date drivers with regards to our diluted earnings per share. Customer rate changes, the IRMA and deferred WRAM revenue contributed $0.30, $0.20 and $0.11 per diluted share, respectively, and these were partially offset by higher water production costs and the deferred WRAM-related expenses of $0.19 and $0.10 per diluted share. So that's kind of a summary of the financial performance.

And so now I'll turn the call back over to Marty to walk us through some capital -- some of our capital activities.

Great. Thanks, Jim. I'm on Slide 9 for everyone on the call. So looking at our infrastructure investment through the second quarter. For the quarter, CapEx was $147 million. That was up from $119.4 million in the prior year. That's about a 23% increase year-over-year. Our 10-year compound annual growth rate, increasing capital, our growth capital is hovering right around 11% right now. As a reminder, the capital estimates for 2026 and going out now until they complete the projects include an estimated net $155 million that's been budgeted for PFAS. And I say net because we have approximately $60 million of recovery from polluters that's being used. So the sum of the 2 numbers will get you back close to the original essence that we provided about 1.5 years ago, 2 years ago when we started looking at that PFAS.

I will say the PFAS numbers will still tend to move around a little bit as our legal team has continued to do an outstanding job at getting recoveries to offset the cost of the PFAS treatment on behalf of our customers from the polluters. So they continue to get more dollars coming in as well as some grant dollars are coming in. But kind of the main theme is being consistent with what we've had in the last 20 years, which is our compound annual growth rate on the capital investment or our growth capital is holding in a little north of 10%. And our internal target that we try to strive for is 10%. So it's up a little bit driven by the PFAS investment.

I think as everyone knows, when you go to the next slide, when you are increasing your rate base at 10% plus a year, your CapEx -- excuse me, you're growing your rate base. And right now, we have a compound annual growth rate of almost 12% on our rate base growth. The slides that you see here today have all been trued up for the California decision based on the numbers that were in that decision. So we anticipate having approximately $3.5 billion in rate base by the end of 2028, assuming we can get all the capital in the ground on time. So obviously, the company remains very capital focused.

So obviously, CapEx continues to be strong. The company continues to execute the capital plans well. We're able to get that capital built into rates in California. It's preapproved. So I think it's a little bit easier in California for rate -- for earnings modeling because it is a prospective state. The other states we have are all historical. But overall, we're very happy kind of with the CapEx growth and the rate base growth that we have as we move through this next rate cycle on the West Coast.

So Jim, why don't I turn it back to you to cover liquidity and some of our capital plans for the second half of '26.

Great. Thanks, Marty. So we do continue to maintain a really strong liquidity profile to execute the capital plan and also as we continue to pursue tuck-in M&A and look to integrate Nevada, Oregon and the BVRT acquisitions. As of June 30, 2026, we had $43.4 million in unrestricted cash and about $45.7 million in restricted cash, along with approximately $395 million available on our bank lines of credit. Just as a reminder, that restricted cash is really earmarked for a project we have in Texas with a water agency there, GBRA and building a pipeline into one of the new areas that we hope to be delivering potable water here in the near term in Texas. So it's our first potable water system in Texas, and we're really looking forward to that initiative.

In addition, we maintain credit facilities totaling $600 million. Those credit facilities are expandable up to $800 million, and they have maturities that extend into March of 2028. So we're really well positioned with regards to our existing credit facilities. We also renewed our ATM stock program in May of 2025 with $350 million on the shelf registration. During the second quarter, we did raise $88 million in proceeds from stock sales under the ATM program.

We believe the balance sheet is in pretty good shape and that additional -- any additional financing we raised in the second half of 2026 will be primarily tied to growth, and that growth is really earmarked for constructing the remaining of our 2026 capital program and closing of Nevada and Oregon in terms of those acquisitions. And we also will look to pay down our line of credit in California as we head towards the end of the year and begin to prepare for our activities in 2027. Importantly, both Group and Cal Water maintained a strong credit rating of A+/Stable from S&P Global. And I think that really just serves to underscore the strength of our balance sheet. And finally, yesterday, we did declare our 326th consecutive quarterly dividend of $0.3350 per share, and that represents about a 7.6% CAGR growth in our 5-year dividend.

So really pleased and happy with our ability to deliver that to the shareholders. Marty?

Thanks, Jim. I'm now on Slide 12, and I want to talk a little bit of what's happening on the regulatory front. Again, just to recap the major components of the approved 2024 general rate case in the state of California. The approved rate case requires significant infrastructure investment from 2024 to 2027. I know that's a little confusing, but it's '24, '25, '26 and '27, you have to include kind of a stubs year of the year that you file your general rate case.

So in total, in California, it's a prospective year, so the capital gets approved in advance. We got about $1.45 billion of preapproved capital. In addition, the commission approved approximately $229 million of advice letter projects, and that gets us to just shy of $1.7 billion over that 4-year period. In addition, in the rate case, the commission also affirmed the Monterey-style WRAM. We have continued to have in the past and continued for this next cycle, a pension balancing account, health care balanced account, a conservation expense balanced account and an incremental cost balanced account for water production costs.

In addition, what's new in the settlement that was authorized is we have a sales adjustment mechanism, which I think really is a big deal since we did not get full decoupling, but we got the Monterey-style WRAM. The sales adjustment mechanism allows us to adjust our sales forecast the following year if the sales numbers are out of a certain percent from what the forecast was. So previously, when we decoupled, we didn't have that option. And that tended to set up growing balances, uncollected balances from customers as the decoupling mechanism would bounce from month-to-month, quarter-to-quarter. So having a sales assessment mechanism, I think, is a big deal that will help smooth out the revenue forecast and actual revenue in the second and third year of the rate case.

In addition, a new thing that we got this year that we asked for was a liability balance account. And I think we're well into the wildfire season for all of you that have studied trying to procure insurance as a homeowner or as a consumer out on the West Coast. I think it's harder even as a company. So the commission did authorize us to have an insurance balancing account for the state of California, which I think is a good thing. So overall, it's nice to have the '24 rate case wrapped up. We started recognizing the revenue from that rate case in the actual billings on July 1. So it is live, and now we're moving on to fully implementing that capital.

In addition, during the quarter, we reached a settlement on the Washington Water general rate case. Now keep in mind, Washington is a historic pasture for capital purposes. We filed our rate case on September 25, 2025. We asked for just under $4.3 million, $4.29 million was the actual filing number. And it was for increases across 2 of our largest Washington systems, and we have requested a 10.2% ROE. And the final settlement that we reached with the commission, we reached a full all party settlement of $4.12 million as well as an ROE of 10.18%. So overall, pretty close to the ask. So very happy with the outcome. With the all-party settlement, it's been filed and it has not been approved yet by the commission, but we expect it to get approved here sometime in the third quarter, and we'll start recognizing that revenue from Washington in the third quarter.

So overall, good news on the rate case front. Going to the next slide, talking about our strategic initiatives. The other big thing the company is working on in addition to the capital is really acquiring the Nexus assets in Oregon and Washington. Change applications have been filed, integration planning with Nexus and Cal Water has been moving very, very well. Nexus is an excellent partner to work with. We're very happy with the level of support we're getting from them. And we're continuing to move forward for a close through -- for year-end, excuse me. I anticipate with Nevada, we will likely get their decision first to have a statutory time line to approve the merger, and we've been in discussions with them and answering their questions. Oregon does not have a statutory time line, but we are in the process of answering their questions and working with them as well.

So our goal would be to try to close this acquisition before the end of the year and moving forward. In addition, with the BVRT joint venture, as you may recall, we have submitted an application to buy out the rest of that partnership the sole owner of BVRT. That change of control application was deemed -- it was reviewed by the commission. They go through a review process. It was deemed "complete" meaning it goes to the commission for approval. So we're waiting to hear back from them. In addition, we also have a consolidated rate case that was settled, and we're waiting for final commission in Texas. So Texas has been very busy between the rate case settlement as well as the application. In addition, during the quarter, the team connected an additional 200 new connections to our wastewater systems in that South Austin market. So that market kind of continues to go -- grow excuse me.

Looking at Slide 14, looking at some of our other highlights for the quarter. Obviously, we have been celebrating the company's 100 years of service essentially, and we set up a number of regional events. So we're halfway through that process. Those have been well received by our employees and a lot of the government officials in the areas that we serve. So we're trying to make it a highly visible, well-branded, we're in your community, here's what we do type of event. So that process continues to go very, very well. The company has a lot of pride in the fact that we've been around for 100 years and the fact that we were started by 3 World War I veterans back in 1926.

In addition, we're seeing a lot of customer engagement. We've had tens of thousands of customers visit our website that's been dedicated to our 100-year anniversary. And likewise, I encourage you to look at that if you want to see some of the history of the company and how we've grown from 3 small districts in Northern California to now being the largest investor on water utility in the state of California as well as in Hawaii and Washington.

During the quarter, we won a number of awards, which is great recognition. We tend not to talk about that a lot, but it is something the company takes a lot of pride in. We recently won the Alliance for Water Efficiency Award. We've been named a Top Workplace by USA TODAY, and we've been noted by TIME as being one of the World's Most Impactful Companies for our continued work on sustainability and renewability. So all really good stuff, all happening around our 100-year anniversary, and we will be ringing the bell on the NYSE on November 30 with our Board and a number of employees to celebrate our 100 years of service as we like to say.

As you may recall, at the end of the last conference call, we did a little tribute to Greg Milleman. For those of you who work with Greg, he's a big personality. And before the call, Jim and I were joking around about it's kind of hard not having Greg in the room with us because he's a fun person to work with. So Greg has officially retired. He is consulting on some of our great projects for us and still available to help us. But I think he's actually in the Caribbean this week, which really -- as Jim and I worked a lot of hours in the last couple of weeks. I wish we were Greg actually and we razz him up a little bit.

Having said that, we had a great internal candidate ready to replace Greg. And it's Greg another Greg. So the last name changes first name doesn't. Greg Shimansky was named Vice President of Rates by our Board of Directors. And Greg has a long history in the rate and regulatory world, starting way back working with San Diego Gas & Electric. He worked for American Water for a number of years and joined us a few years ago, very, very well qualified as a grad from UCLA and economics as well as an MBA in finance from Purdue University. So Greg has officially taken over leading our Rates team, and he's certainly well qualified to do so.

In addition, given the growth of the company, we added a VP of Operations who just runs the California entity. We've had a Senior Vice President of Operations who's run all of our operations in all 5 of our states. And given the growth that we've been experiencing, we thought it was time to have a Vice President of Operations just for California, who reports to the Senior VP of Operations. So very, very happy to announce the promotion of Tammy Johnson. Tammy is no stranger to the water business. She has 40 years of experience. Tammy started as a field worker in the union back in the '80s.

And I say that because she started in the field at a time when there wasn't a lot of female utility workers in the field, and she started in Bakersfield which I think was a great place to start, but I would imagine it was a pretty rough group to break into being a female. And she's just done a fabulous job. She continued to move up through the union ranks. She was a union officer. She has all our certification. She's actually at B-5. So she is the highest level operating license you can have in the state of California. She went back to school after she had kids and completed her bachelor's degree and then went on to complete her MBA as well and just knows operations very, very well. And for those of you that know me, I'm very big about having someone who's been an actual operator operating our system. So we're very happy that we have both Tammy Johnson and Greg Shimansky joining the officer team here effective July 1.

So with that, looking ahead into the second half of 2026, the agenda is really simple, right? We got to continue to get the capital in the ground, including our PFAS program. Year-to-date, we spent about $30 million on that program, and we'll give you an update every quarter on where the spending is on that program. We have a couple of new officers. We have a lot of rate case going on. And of course, our goal is to get the Nexus deal closed before the end of the year. So we have plenty to do, a lot of capital to get into the ground and the company remains very, very focused on executing on those tasks.

So with that, Jeanine, we will take a pause and why don't we open it up for questions, please.

[Operator Instructions] We have a question from Davis Sunderland from Baird.

Maybe if I could start off, Marty, would just be curious to get your thoughts on affordability. And I know there's been a lot of rhetoric around utility models, pushback in rate increases, just some different things happening in different parts of the country. And just would love to hear if any of this has changed your guys' strategy or how you guys think about this?

Yes. Well, and Davis, you've been following us for a while, and we've been out on a number of non-deal roadshows with Baird. And so affordability has always been on the forefront for us. There are 2 broad measures that you use for affordability. One is the EPA generally looks at water bills and the average household budget. And as long as you're below 2%, you're considered affordable. We're below 2% in all of our districts. And then in the state of California, before we can actually file a rate case, we have to do this affordability test and file it review with the commission.

And in the '24 rate case, we passed the affordability test really in all of our districts, but one, but in that one district was a very small district that had a lot of capital needs. And in California, we have a couple of tools. We have a rate support fund, and we have a low-income rate assistance fund. And so we work with the commission through the rate case process to apply some of those things to make sure the rates are affordable for this one small district. So we haven't had any big issues with that. As you may recall, prior to filing a large rate case, we always meet with our customers. We hire a third-party firm. We do a number of focus groups and interview literally thousands of customers to get their ideas, their thoughts, their perceptions on things. And part of that discussion of those focus groups is really affordability.

So for us, we haven't had really any major issues with affordability. And even when you look at things I think what you're seeing in back East is you're seeing a lot of government agencies, not just the commissions, but governors, et cetera, push back on rates, especially electrical rates because they've been raising so high and then the fear with data centers are rising those costs and passing those costs on to customers as they build out new infrastructure. We haven't had any of those problems. And we have a 10.27% ROE in California. We just got through a rate case. The rate case was approved. We didn't have really any major interveners in California. Rate case up in Washington that's pending approval, that's a 10.18% ROE that's in that settlement. And so we're not seeing any signs. We're not getting any feedback from the commission that we have affordability issues as of right now.

But again, there's a lot of care and nurturing that goes in when we prepare the rate case to make sure we're not tripping some of those trip wires. And I think the rates team and our government affairs team and our community affairs team have done an outstanding job at navigating the headwaters on that. And I think we're going to continue to keep doing what we're doing and trying to balance affordability with the needs of the capital investment. And the best thing I can say to you or any of the analysts covering our stock is go back and look at our 20-year history. We've been able to do this 10% kind of growth rate on CapEx, which is growing rate base. and we've been able to do it and be successful at getting rate recovery and again, not trip these affordability things that are popping up.

So am I concerned about it? I am. I'm concerned about it because you have things like the Democratic Socialist Americans popping up, and it's an agenda item for them. We've certainly seen our electric rates increase. California has the second highest electric rate increase electric rates in the U.S. So that affects our cost of production. But we are not driving the affordability prices in America. It is not water. It's driven by the rate side. And so continuing to differentiate ourselves on that front, I think, is part of the process when we meet with regulators and lawmakers in the state at the federal government level. So watching it, concerned about it. Obviously, I think we've been navigating the waters around affordability quite well.

Awesome. Great details. Maybe if I could ask another one. Lots of, I guess, forecast now calling for a higher interest rate environment looking forward, maybe as soon as a couple of months from now, if not sooner. Just wondering any impact this might have on willingness to pursue other M&A or liquidity outlook or just any other facets of the business, I guess, that might be impacted by this.

Sure. And Dave, you're asking a question. This is a subject of great debate with our Board meeting. We spent a lot of time talking about the economic landscape, in particular, the instability of some of your major macroeconomic indicators that are out there. Now inflation was down. If you saw the inflation numbers that came out this morning. They continue to trend down. So I think that gives the Fed a little bit more breathing room. I think that was a good sign. But concurrently, you have a whole bunch of government spending given the conflict with Iran. And government spending, especially with military spending tends to be a boom for the economy, but not when it's deficit spending. And so that's the piece that kind of gives me a little bit of concern on the interest rate side.

Just to remind everyone, especially in California, which is our largest entity, we do have this cost of capital adjustment mechanism that, frankly, it's a 2-way mechanism. It's good for our stock. It's also good for ratepayers. And so if the Moody's AA utility bond index swings by more than 50 basis points up or down, we can apply to adjust our ROE with that mechanism. And so I don't think that mechanism gets a lot of PR. But frankly, one of the reasons why we have one of the highest ROEs in the country is because we've got this mechanism and that mechanism triggered upward during this last cycle. And so I think we have to watch and see.

I'm glad I'm not Kevin Warsh as I told the Board. I know his boss is demanding lower interest rates. And I'm always looking at the Fed consensus of the Board, and he had consensus in his first meeting that I have not seen the minutes for the second meeting, they won't be out for a couple of weeks. They met yesterday. But there is some instability in the economy. And interest rates, if you look at the mix as of yesterday, about 38% of the economists were calling for increase and about 62% were calling in to be flat or maybe trend down. So depending on what inflation does, you may see a tick up in interest rates here in the short term, i.e., the next 6 months. But I think as you go through 2027, if you get the conflict in the Middle East resolved, those interest rates will ultimately start trending down.

And I think as an economist, I think this is a real important point and the economists tend to talk about in their circles, but you don't hear a lot of coverage about it, broadly speaking, in the finance community. But if you think about from the subprime crisis until COVID, you had an ultra-low interest rate environment and change in economics, a big part of the economy is interest rates and you model the economic effects of GDP given those changes in interest rates. But what that period of ultra-low interest rates showed to some extent is that interest rates are a lot -- has a lot smaller effect on the economy, I think, than what John Maynard Keynes thought about when he was developing his classic economic theories. And so it could have a little bit of effect on us.

But obviously, our capital program, especially in California is preapproved -- the cost of debt is a pass-through cost as we do our cost of capital applications. And then we have this cost of capital adjustment mechanism, which I think is a very good thing to help protect our stockholders in the event of rapid increases in interest rates. So that's a long answer and a lot of economic jargon, but I do love this stuff, and it was a source of discussion with our Board over dinner on Tuesday night as well as into the boardroom yesterday. I don't know if Jim you want to add anything.

Dave, just one other thing. Just a reminder, we're on, I think, our third extension on our cost of capital in California. And remember that the cost of capital is separate from the -- that proceeding is separate from the general rate case proceeding. So we'll be filing or asking -- if we are unsuccessful in getting another extension, we would need to file in May for new rates in 2027 for new rates to begin 1/1/2028. And so that does provide an opportunity not only for a relook at ROE, but also for a recasting of our average cost of debt. So any debt that we raise that is higher than our current average cost of debt recovery, we will have an opportunity to kind of rightsize or get into that calculation when we go through that proceeding.

Yes. I would add one thing, Davis, on that. One of the things that's been nice in the western half of the U.S., we haven't had any push back from the commission about the need to invest in infrastructure I think given the fact we've been dealing with climate change and the wildfires and you're going into an El Nino, super El Nino year, readiness of the infrastructure has been important. And so as we've gone through our rate cases, affordability has not been a big discussion with the commission. They've been very focused on our expansion capital, which is replacing kind of infrastructure in our existing model and understanding the reasons why we need to do that. And based on the results of the rate case, I think the commission is understanding the mission at hand and supporting it.

From an M&A side to the last part of your question, our primary growth engine is this replacement capital. It's doing great. It's above 10%. Strategic M&A is a secondary growth engine, but there -- let me make sure I'm really clear about this. There's no gun to our head to go out and buy anyone because we need growth. We have plenty of growth internally in the states that we operate in, which is with the replacement capital that we have. So we'll continue to be opportunistic like we were with the Nexus acquisition. It gets us into Oregon, it gets us into Nevada. It's a good-sized acquisition. The valuation we thought was fair. But we're not going to go out on a blind screen and buy assets at multiples of book because we need kind of rate base growth. We don't need rate base growth. We have plenty of rate base growth in our existing book of business.

Super, super helpful. Lots of great details. Maybe if I could just be and sneak in one more quick one, I guess, more of a housekeeping than anything potentially for you, Jim. But just having not seen the Q1 I'm sure there will be more details, but the big step-up in other ops expenses and then the step down in G&A wondering if this is IRMA related or if there's just any other color you could give on the dynamics there.

Yes. I think the big increase in other ops is really related to the deferred WRAM revenue that we related that we had. So rather than presenting those 2 net, we had to show the change in the revenue line item, but then there was also associated cost with that revenue. So net-net, recognition of the WRAM deferred revenue was about $1 million, $1.2 million, $1.3 million. But when we present it on lot of items, it's $7.9 million in terms of cost and about $9.2 million, $9.3 million in terms of the revenue.

[Operator Instructions] There are no further questions at this time. This concludes our question-and-answer session. I will now turn the call over to the management.

Great. Thanks, Jeanine. Thanks, everyone, for joining us. It's nice to have the 2024 general rate case done in California. We're just about done with the general rate case in Washington. Second half of the year is going to be busy with a lot of capital investment and obviously closing on the Nexus transaction as well as celebrating our 100-year anniversary. So thank you all for joining us today and your support on our endeavors, and we look forward to updating everyone on these major programs at the end of the third quarter in 2026. So thank you very much, and everyone, have a great day. Bye-bye.

Thank you for participating for today's call. 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 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.