California Water Service Group

10/29/2026 | Press release | Distributed by Public on 10/29/2026 14:56

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands unless otherwise stated)
FORWARD-LOOKING STATEMENTS
This quarterly report, including all documents incorporated by reference, contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 (the PSLRA). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the PSLRA. Forward-looking statements in this quarterly report are based on currently available information, expectations, estimates, assumptions and projections, and our management's beliefs, assumptions, judgments and expectations about us, the water utility industry and general economic conditions. These statements are not statements of historical fact. When used in our documents, statements that are not historical in nature, including words like "will," "would," "expects," "intends," "plans," "believes," "may," "could," "estimates," "assumes," "anticipates," "projects," "progress," "predicts," "hopes," "targets," "forecasts," "should," "seeks," "indicates," or variations of these words or similar expressions are intended to identify forward-looking statements. Examples of forward-looking statements in this quarterly report include, but are not limited to, statements describing our intention, indication or expectation regarding our financial performance, dividends or targeted payout ratio, our expectations, anticipations or beliefs regarding governmental, legislative, judicial, administrative or regulatory timelines, regulatory compliance, decisions, approvals, authorizations, requirements or other actions, the anticipated closing and timing of acquisition of Nexus Water Group's (Nexus) Nevada and Oregon systems, and the remaining membership interests in BVRT Utility Holding Company LLC (BVRT) and expected benefits resulting from such transactions, rate amounts, cost recovery or refunds, expected impact of certain per- and polyfluoroalkyl substances (PFAS) regulations, our expected or estimated revenue, our intentions regarding recovery billing, our expectations regarding regulatory asset and operating revenue recognition, estimates of, or expectations regarding, capital expenditures, funding needs or other capital requirements, obligations, contingencies or commitments, our expectations regarding water sources, our beliefs regarding adequacy of water supplies, our anticipation regarding renewing water supply contracts and estimated water prices, estimates and assumptions relating to our significant accounting policies, such as deferred revenue or assets or refund of advances, our expectations or assumptions regarding employee benefit plans and stock-based compensation and estimated contributions to our pension plans and other postretirement benefit plans, our estimated annual effective tax rate and expectations regarding tax benefits, our intentions regarding use of net proceeds from any future equity or debt issuances or borrowings, our ability to complete the issuance of the notes and bonds described in this report on the expected timing or at all, our expectations, intentions or anticipations regarding our sources of funding, capital structure, including authorized return on equity, cost of debt and rate of return, or capital allocation plans, our intentions regarding growth opportunities or our expectations regarding the amount, timing, and use of settlement proceeds relating to certain PFAS-contamination claims. The forward-looking statements are not guarantees of future performance. They are based on numerous assumptions that we believe are reasonable, but they are open to a wide range of uncertainties and business risks. Consequently, actual results or outcomes may vary materially from what is contained in a forward-looking statement.
Factors which may cause actual results or outcomes to be different than those expected or anticipated include, but are not limited to:
•the outcome and timeliness of regulatory commissions' actions concerning rate relief and other matters;
•the impact of opposition to rate increases;
•our ability to recover costs;
•Federal governmental and state regulatory commissions' decisions, including decisions on proper disposition of property;
•changes in state regulatory commissions' policies and procedures;
•changes in California State Water Resources Control Board (Water Board) water quality standards;
•changes in environmental compliance and water quality requirements, such as the United States Environmental Protection Agency's (EPA) finalization of and changes to a National Primary Drinking Water Regulation establishing legally enforceable maximum contaminant levels (MCL) for PFAS in drinking water in 2024 as well as legal challenges to such MCLs;
•the impact of weather, climate change, natural disasters, including wildfires and landslides, and actual or threatened public health emergencies, including disease outbreaks, on our operations, water quality, water availability, water sales and operating results and the adequacy of our emergency preparedness;
•electric power interruptions, especially as a result of Public Safety Power Shutoff programs;
•availability of water supplies;
•our ability to invest or apply the proceeds from the issuance of common stock in an accretive manner;
•consequences of eminent domain actions relating to our water systems;
•increased risk of inverse condemnation losses as a result of the impact of weather, climate change, and natural disasters, including wildfires and landslides;
•shifts in population, including housing and customer growth;
•issues with the implementation, maintenance or security of our information technology systems;
•physical and cyber security risks and threats and the adequacy of our efforts to mitigate such risks and threats;
•the ability of our enterprise risk management processes to identify or address risks adequately;
•labor relations matters as we negotiate with unions;
•changes in customer water use patterns and the effects of conservation, including as a result of drought conditions;
•our ability to complete, in a timely manner or at all, successfully integrate, and achieve anticipated benefits from announced acquisitions, including the Nevada and Oregon systems and BVRT acquisitions;
•restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends;
•risks associated with expanding our business and operations, including into other geographic areas;
•the impact of stagnating or worsening business and economic conditions, including inflationary pressures, general economic slowdown or a recession, changes in tariff policy, the interest rate environment, changes in monetary policy, adverse capital markets activity or macroeconomic conditions as a result of geopolitical conflicts, including ongoing conflicts in Ukraine and the Middle East, and the prospect of shutdowns of the U.S. federal government;
•the impact of market conditions and volatility on unrealized gains or losses on our non-qualified benefit plan investments and our operating results;
•the impact of weather and timing of meter reads on our accrued and unbilled revenue;
•the impact of evolving legal and regulatory requirements, including sustainability requirements;
•the impact of the evolving U.S. political environment and changes effected, proposed or threatened by the U.S. federal government that has led to, in some cases, legal challenges and uncertainty around the funding, functioning and policy priorities of U.S. federal regulatory agencies and the status of current and future regulations; and
•the risks set forth in "Risk Factors" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025 (2025 Annual Report on Form 10-K).
In light of these risks, uncertainties, and assumptions, investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this quarterly report or as of the date of any document incorporated by reference in this quarterly report, as applicable. When considering forward-looking statements, investors should keep in mind the cautionary statements in this quarterly report and the documents incorporated by reference. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We maintain our accounting records in accordance with accounting principles generally accepted in the United States of America and as directed by the Commissions to which our operations are subject. The process of preparing financial statements requires the use of estimates on the part of management. The estimates used by management are based on historic experience and an understanding of current facts and circumstances. Management believes that the following accounting policies are critical because they involve a higher degree of complexity and judgment, and can have a material impact on our results of operations, financial condition, and cash flows of the business. These policies and their key characteristics are discussed in detail in the 2025 Annual Report on Form 10-K. They include:
•regulated utility accounting;
•income taxes; and
•pensions, which include the supplemental executive retirement plan, and the postretirement health care benefit plan.
For the nine months ended September 30, 2026, there were no material changes in the methodology for computing critical accounting estimates, no additional accounting estimates met the standards for critical accounting policies, and there were no material changes to the important assumptions underlying the critical accounting estimates.
RESULTS OF OPERATIONS
Net Income Attributable to California Water Service Group
Net income attributable to California Water Service Group for the three months ended September 30, 2026 was $65.4 million or $1.05 earnings per diluted common share, compared to net income of $61.2 million or $1.03 earnings per diluted common share for the three months ended September 30, 2025. The $4.2 million increase in net income was due to an increase in operating revenue of $21.0 million primarily due to rate increases and new customers, partially offset by a decrease in customer usage. The operating revenue increase was partially offset by an increase in operating expenses of $8.9 million. The operating expense increase was primarily due to increases in other operations expense of $4.1 million, operating income tax expense of $7.1 million, and property and other taxes of $1.3 million. These operating expense increases were partially offset by decreases in administrative and general expense of $1.2 million and depreciation and amortization expenses of $1.4 million. Additionally, net other income decreased by $6.0 million and net interest expense increased by $1.8 million.
Net income attributable to California Water Service Group for the nine months ended September 30, 2026 was $125.9 million or $2.07 earnings per diluted common share, compared to net income of $116.7 million or $1.96 earnings per diluted common share for the nine months ended September 30, 2025. The $9.2 million increase in net income was due to an increase in operating revenue of $75.1 million primarily as a result of the cumulative adjustment for the impacts of the 2024 CA GRC, retroactive to January 1, 2026, and rate increases and new customers, partially offset by a decrease in customer usage. The operating revenue increase was partially offset by an increase in operating expenses of $48.2 million. The operating expense increase was primarily due to increases in water production costs of $14.1 million, other operations expense of $19.9 million, operating income tax expense of $13.1 million and property and other taxes of $3.4 million. These operating expense increases were partially offset by a decrease in depreciation and amortization expenses of $3.9 million. Additionally, net other income decreased by $9.5 million and net interest expense increased by $8.0 million.
Operating Revenue
For the three months ended September 30, 2026, operating revenue increased $21.0 million, or 6.7%, to $332.2 million as compared to $311.2 million for the three months ended September 30, 2025.
For the nine months ended September 30, 2026, operating revenue increased $75.1 million, or 9.6%, to $855.3 million as compared to $780.2 million for the nine months ended September 30, 2025.
The sources of the change in operating revenue were:
Three Months Ended September 30, Nine Months Ended September 30,
2026 vs. 2025
2026 vs. 2025
Net change due to rate changes, new customers, and other (1) $ 25,940 $ 55,798
Interim Rates Memorandum Account (IRMA) revenue (2) 329 15,654
Customer usage decrease (4,410) (3,874)
Deferred revenue recognition (3) (927) 7,596
Net operating revenue change $ 20,932 $ 75,174
1.The net change due to rate changes, new customers, and other for the three months ended September 30, 2026 was primarily due to rate increases and new customers of $22.1 million and the recognition of Drought Response Memorandum Account (DREMA) related revenue of $3.9 million (see "DREMA" in Regulatory Matters below for more details). For the nine months ended September 30, 2026, the net change due to rate changes, new customers, and other was primarily due to rate increases and new customers of $51.9 million and the recognition of DREMA related revenue of $3.9 million.
2.Due to the delay in the resolution of the 2024 CA GRC, the CPUC authorized Cal Water to track in an IRMA the variances between actual customer billings and those that would have been billed assuming the 2024 CA GRC had been implemented on January 1, 2026. Such variances are recorded as regulatory balancing account revenue. The 2024 CA GRC was approved in April of 2026 and final rates for the 2024 CA GRC were implemented in the second half of 2026; as a result, Cal Water recorded IRMA revenue for the periods in which the 2024 CA GRC was yet to be implemented.
3.Deferred revenue consists of amounts that are expected to be collected from customers beyond 24 months following the end of the accounting period in which the sales transaction occurred. Deferred revenue for the nine months ended September 30, 2026 was recognized due to changes in the amount expected to be collected beyond 24 months.
Total Operating Expenses
For the three months ended September 30, 2026, total operating expenses increased $8.9 million, or 3.7%, to $249.5 million, as compared to $240.6 million for the three months ended September 30, 2025.
For the nine months ended September 30, 2026, total operating expenses increased $48.2 million, or 7.6%, to $683.6 million, as compared to $635.4 million for the nine months ended September 30, 2025.
Water Production Costs
Water production costs decreased $0.6 million, or 0.6%, for the three months ended September 30, 2026 as compared to the same period in 2025.
Water production costs increased $14.1 million, or 5.6%, for the nine months ended September 30, 2026 as compared to the same period in 2025, primarily due to an increase in wholesale rates, partially offset by a decrease in customer usage.
The components of water production costs are shown in the table below:
Three Months Ended September 30, Nine Months Ended September 30,
2026 2025 Change 2026 2025 Change
Purchased water $ 80,781 $ 81,872 $ (1,091) $ 204,936 $ 198,100 $ 6,836
Purchased power 17,318 15,142 2,176 41,375 35,347 6,028
Pump taxes 4,004 5,689 (1,685) 18,964 17,750 1,214
Total $ 102,103 $ 102,703 $ (600) $ 265,275 $ 251,197 $ 14,078
Sources of water as a percent of total water production are listed in the following table:
Three Months Ended September 30, Nine Months Ended September 30,
2026 2025 2026 2025
Well production 51 % 52 % 51 % 52 %
Purchased 43 % 42 % 42 % 42 %
Surface 4 % 4 % 4 % 3 %
Recycled 2 % 2 % 3 % 3 %
Total 100 % 100 % 100 % 100 %
Administrative and General
Administrative and general expenses decreased $1.2 million for the three months ended September 30, 2026 as compared to the same period in 2025. The decrease was primarily due to a $1.0 million decrease in employee related costs and a $0.6 million reduction related to the recovery of previously incurred Drought Memorandum Account (DRMA) costs (see "DRMA" in Regulatory Matters below for more details). These decreases were partially offset by a $0.5 million increase in other general corporate expenses.
Administrative and general expenses increased $1.2 million for the nine months ended September 30, 2026 as compared to the same period in 2025. The increase was primarily due to a $3.5 million increase in consulting services and a $1.8 million increase in other general corporate expenses. These increases were partially offset by a $3.4 million decrease in employee related costs and a $0.6 million reduction related to the recovery of previously incurred DRMA costs.
Other Operations
Other operations expenses increased $4.1 million for the three months ended September 30, 2026 as compared to the same period in 2025. The increase was primarily due to an increase of $2.8 million in conservation program expenses, an increase of $1.7 million in water transmission and distribution costs, and an increase of $0.9 million in miscellaneous office expenses. These increases were partially offset by a $2.3 million reduction related to the recovery of previously incurred PFAS Memorandum Account (PFAS MA) costs (see "PFAS MA" in Regulatory Matters below for more details) and a $1.1 million reduction related to the recovery of previously incurred DRMA costs.
Other operations expenses increased $19.9 million for the nine months ended September 30, 2026 as compared to the same period in 2025. The increase was primarily due to the recognition of $8.1 million of costs associated with recognized deferred revenue, an increase of $5.5 million in conservation program expenses, an increase of $2.0 million in water transmission and distribution costs, and an increase of $1.5 million in labor expense. These increases were partially offset by a $2.3 million reduction related to the recovery of previously incurred PFAS MA costs and a $1.1 million reduction related to the recovery of previously incurred DRMA costs.
Depreciation and Amortization
Depreciation and amortization expense decreased $1.4 million and $3.9 million for the three and nine months ended September 30, 2026, respectively, as compared to the same periods in 2025. The decreases were primarily due to lower depreciation rates in California, which were approved in the 2024 CA GRC.
Operating Income Tax Expense
Operating income tax expense increased $7.1 million and $13.1 million for the three and nine months ended September 30, 2026, respectively, as compared to the same periods in 2025. The increases were primarily due to increases in the effective tax rate due to reductions in Tax Cuts and Jobs Act refunds of excess deferred federal income taxes and increases in pre-tax operating income, which primarily resulted from the 2024 CA GRC decision in the second quarter of 2026.
Property and Other Taxes
Property and other taxes increased $1.3 million and $3.4 million for the three and nine months ended September 30, 2026, respectively, as compared to the same periods in 2025. The increases were primarily due to utility plant placed in service in 2025.
Other Income and Expenses
Net other income decreased $6.0 million for the three months ended September 30, 2026, as compared to the same period in 2025. The decrease was primarily due to a $3.9 million reduction associated with our non-qualified benefit plan investment gains, a $1.5 million reduction in other components of net periodic benefit credit, and an increase of $1.4 million in acquisition-related expenses.
Net other income decreased $9.5 million for the nine months ended September 30, 2026, as compared to the same period in 2025. The decrease was primarily due to a $4.7 million reduction in other components of net periodic benefit credit, an increase of $4.1 million in acquisition-related expenses and a $3.0 million reduction associated with our non-qualified benefit plan investment gains. The decreases in net other income were partially offset by a $0.6 million gain associated with Company-owned life insurance policies.
Net Interest Expense
Net interest expense increased $1.8 million and $8.0 million for the three and nine months ended September 30, 2026, respectively, as compared to the same periods in 2025. The increases were primarily due to higher average outstanding borrowings, partially offset by lower interest rates.
REGULATORY MATTERS
California Regulatory Activity
2024 CA GRC Application
The California Public Utilities Commission (CPUC) approved a decision on April 30, 2026 in the 2024 CA GRC (Decision 26-04-045) affecting Cal Water's Class A districts in California (consisting of all regulated systems except Grand Oaks, a small Class D system). The decision marked the end of an extensive review of Cal Water's water system improvement plans, costs, and rates. The decision, as issued, adopts a revised version of the proposed decision issued on April 29, 2026, to change rates to increase 2026 revenues by approximately $90.5 million retroactive to January 1, 2026. It also potentially increases revenues by approximately $43.2 million for 2027 and $48.9 million for 2028, subject to the CPUC's earnings test and inflationary adjustments.
The decision authorizes Cal Water to invest approximately $1.45 billion from 2024 through 2027 to upgrade infrastructure, such as water quality projects to help protect customers from existing and newly regulated contaminants; pipes and other infrastructure to keep pumping and delivering water reliably; equipment to keep water flowing during power outages and shutoffs; cyber and physical security improvements to help protect employees, customers, and facilities; and water supply initiatives to secure long-term sustainability of water sources. It also authorizes up to $229.0 million of infrastructure projects that may be submitted for recovery via the CPUC's advice letter process.
The decision also authorizes key revenue stabilization mechanisms, including continuation of the Monterey-Style Revenue Adjustment Mechanism (M-WRAM), a higher percentage of revenue collected in fixed charges, and reinstates the annual Sales Reconciliation Mechanism. In addition, it includes provisions that allow for recovery of certain costs through balancing accounts and other regulatory mechanisms designed to mitigate volatility in customer usage and uncertain costs.
In May of 2026, pursuant to standard procedures, Cal Water submitted a request for expedited corrections to the appendices of the April 30, 2026 decision. The appendices contained certain language, numbers, and calculations that were inconsistent or did not fully reflect the substantive outcomes described in the approved decision. On June 1, 2026, the Executive Director of the CPUC issued a decision approving the corrections (Decision 26-06-001).
In May of 2026, Cal Water submitted an advice letter requesting approval of the calculations for new 2026 rates effective back to January 1, 2026. The calculations included the GRC decision-approved base rates plus all rate base offsets and water production offsets approved by the CPUC since July of 2024 (when the 2024 CA GRC was filed), including those discussed in the rate base offset and expense offset sections below. These calculations resulted in the "final" customer rates that are considered effective back to January 1, 2026, and that are used in the IRMA tracking calculations (further discussed below).
In March and May of 2026, Cal Water also submitted rate base offset advice letters requesting revenue increases of $1.5 million and $9.9 million, respectively, for additional capital projects completed in its Class A water systems. Cal Water implemented new rates incorporating all the items discussed above (GRC revenue increases and various offsets) on July 1, 2026 for most of its ratemaking areas, and implemented new rates on August 1, 2026 and October 1, 2026 for a small subset of its ratemaking areas.
2024 CA GRC IRMA
In June of 2025, Cal Water filed a motion requesting authority to increase rates by inflation on January 1, 2026 (interim rates) and for the establishment of an IRMA in the event the CPUC did not issue a final decision for the 2024 CA GRC in time for new rates to be implemented on January 1, 2026. In October of 2025, the CPUC granted Cal Water's motion for interim rates and the establishment of the IRMA. In November of 2025, Cal Water filed an advice letter implementing a three percent increase in interim rates for most districts, and creation of the IRMA, effective as of January 1, 2026. The IRMA tracks the difference between interim rates and the final rates that were approved pursuant to the CPUC's final decision on the 2024 CA GRC during the period in which final rates are yet to be implemented. The 2024 CA GRC was approved in April of 2026 and final rates based on the 2024 CA GRC were implemented in the second half of 2026.
In September of 2026, Cal Water submitted an advice letter requesting approval to recover a net $14.2 million tracked in the IRMA. The net balance included $15.7 million to be recovered for the difference between final rates and interim rates. This difference was recorded as a net regulatory asset with a corresponding change to revenue. The net recovery also included $1.5 million to be refunded for Rate Support Fund and Customer Assistance Program credits that would have been given to customers had the rate case been approved on time. This difference was recorded as a net regulatory liability and does not impact revenue. The advice letter was approved and the new surcharges/surcredits were implemented on October 1, 2026. The surcharges and surcredits are generally being billed/refunded over 12 months.
Rate Base Offset Requests
For construction projects authorized in the 2021 and 2024 CA GRCs as advice letter projects, Cal Water was allowed to request rate base offsets to increase revenues after the project goes into service.
In November of 2025, Cal Water submitted a $12.3 million rate base offset advice letter to recover $1.5 million of annual revenue increases. The new rates were implemented on January 1, 2026.
In March of 2026, Cal Water submitted an $8.9 million rate base offset advice letter to recover $1.5 million of annual revenue increases. Rates including these revenues were implemented with the 2024 CA GRC decision-approved base rates and went into effect on July 1, 2026.
In May of 2026, Cal Water submitted a $65.6 million rate base offset advice letter to recover $9.9 million of annual revenue increases for all of its regulated Class A districts. Rates including these revenues were implemented with the 2024 CA GRC decision-approved base rates and went into effect July 1, 2026.
Expense Offset Requests
Expense offsets are dollar-for-dollar increases in revenue to match increased expenses, and therefore do not affect net operating income. In November of 2025, Cal Water submitted an advice letter to request expense offsets for increases in purchased water, pump tax, and purchased power costs in most of its regulated Class A districts totaling $15.7 million. The new rates were implemented on January 1, 2026.
In September of 2026, Cal Water submitted an advice letter to request offsets for increases in purchased water costs and pump taxes totaling $10.7 million. The new rates were implemented on October 1, 2026.
M-WRAM Filing
In June of 2026, Cal Water submitted an advice letter requesting surcharges to bill for the M-WRAM related undercollections for 2025 for its regulated districts with tiered residential rates. The advice letter was approved and $26.1 million is being recovered from customers in the form of 12- and 24-month surcharges. The new rates were implemented on July 1, 2026. These new surcharges are in addition to surcharges authorized in prior years that have not yet expired.
Incremental Cost Balancing Account (ICBA) Filing
In May of 2026, Cal Water submitted an advice letter to recover a net $4.6 million undercollection in its ICBA for 2025 in most of its regulated districts. The advice letter was approved and the new surcharges/surcredits were implemented on July 1, 2026. Additionally, $7.6 million is being recovered via a 12-month surcharge and $3.0 million is being refunded via a 12-month surcredit.
2021 CA GRC Conservation Expense Balancing Account (CEBA), Health Cost Balancing Account (HCBA), Pension Cost Balancing Account (PCBA) Filing
In May of 2026, Cal Water submitted an advice letter and was approved to amortize the CEBA, HCBA and PCBA from the 2021 CA GRC that tracked the difference between the costs authorized in customer rates and actual costs incurred for the period of 2023-2025. For the CEBA, $4.8 million is being refunded to customers in the form of one-time or 12-month surcredits as actual conservation program costs during 2023-2025 were lower than authorized costs in customer rates. For the HCBA, $4.2 million is being refunded to customers in the form of one-time or 12-month surcredits as actual employee and retiree medical costs during 2023-2025 were lower than authorized costs in customer rates. For the PCBA, $17.9 million is being refunded to customers in the form of one-time or 12-month surcredits as actual costs for employee pension benefits during 2023-2025 were lower than adopted costs in customer rates. The new credits for these accounts were implemented on July 1, 2026.
General District Balancing Account (GDBA)
In May of 2026, Cal Water submitted an advice letter to recover a net $12.5 million undercollection in its GDBA for amounts tracked as of April 30, 2026. The GDBA tracks the residual balances from memorandum and balancing accounts that have been aggregated into one balancing account for future recovery. The advice letter was approved and new surcharges and credits were implemented on July 1, 2026. $12.9 million is being recovered via either a one-time or 12-month surcharge and $0.4 million is being refunded via either a one-time or 12-month surcredit.
Drinking Water Fee Balancing Account (DWFBA)
In May of 2026, Cal Water submitted an advice letter to recover a net $1.5 million undercollection in its DWFBA for amounts tracked from July 2021 to December 2023. The DWFBA tracks the difference between actual drinking water fees charged by the Water Board's Division of Drinking Water and amounts authorized in customer rates. The advice letter was approved and new surcharges and credits were implemented on July 1, 2026. $1.5 million is being recovered via either a one-time or 12-month surcharge and less than $0.1 million is being refunded via one-time surcredits.
DRMA
In August of 2026, Cal Water was approved to recover $1.9 million of incremental drought-related costs incurred from January 2023 to August 2024 tracked in the DRMA. The new surcharges were implemented on October 1, 2026.
DREMA
In August of 2026, Cal Water was approved to recover a net $3.9 million of revenue changes as a result of the activation of Rule 14.1 and Schedule 14.1 of Cal Water's Water Use Restrictions of its Water Shortage Contingency Plan for the period from January 2023 to August 2024. The new surcharges were implemented on October 1, 2026.
PFAS MA
In September of 2026, the CPUC approved a decision adopting a settlement agreement related to the PFAS application that Cal Water submitted in June of 2025. Cal Water is authorized a total capital budget of $113.1 million, net of litigation settlement proceeds after deducting fees and expenses, for PFAS treatment projects in 2026 and 2027. Cal Water will be able to use the tier 2 advice letter process for recovery of these capital costs. The decision also authorized the amortization of incremental costs tracked in the PFAS MA of $2.5 million through December 31, 2024. The new surcharges are expected to be implemented on January 1, 2027.
Water Cost of Capital Mechanism (WCCM)
The WCCM automatically adjusts the rate of return when the Moody's Utilities Bond Index fluctuates between cost of capital applications. In October of 2026, Cal Water evaluated the WCCM for 2027 and determined that it was not triggered. Since the WCCM was not triggered, there will be no change to Cal Water's 10.27% return on equity for 2027.
Regulatory Activity - Other States
Washington Water Service Company (Washington Water) - 2025 East Pierce and Legacy Water Systems GRC
In September of 2025, Washington Water filed a tariff update with the Washington Utilities and Transportation Commission for the East Pierce and Legacy water systems to increase revenues by $4.9 million. The general rate increase includes recovery of expenses and capital expenditures. In the third quarter of 2026, a decision was issued authorizing a revenue increase of $4.1 million. The new base rates were effective on October 1, 2026.
Hawaii Water Service Company (Hawaii Water) - 2025 Kapalua GRC and 2026 Request for Water Production Regulatory Asset
In November of 2025, Hawaii Water filed a rate case with the State of Hawaii Public Utilities Commission (HPUC) to increase revenue in its Kapalua water and wastewater systems by $2.2 million. The request seeks to recover increases in purchased water costs, higher operating expenses, and the cost of completed capital investments. In October of 2026, a final decision was issued to increase water and wastewater revenues by a combined $1.9 million. The new rates were effective on October 21, 2026.
In March of 2026, Hawaii Water filed a petition with the HPUC to establish a regulatory account in the Kapalua system to capture the cost of purchasing water from a third party that is above or below the revenues recovered for the purchases. Disposition of the costs captured in the regulatory account will be sought in a future application. A ruling on this proposal is expected in the fourth quarter of 2026.
Hawaii Water - 2026 Kona Water GRC
In August of 2026, Hawaii Water filed a GRC with the HPUC requesting an annual revenue increase of $2.7 million for its Kukio water and wastewater systems. The request seeks to recover costs of capital investment, inflation and overall cost increases since the prior GRC.
TWSC, Inc. (Texas Water) - 2024 GRC
In June of 2024, BVRT filed a GRC for 5 utilities with the Public Utility Commission of Texas (PUCT). Consumer advocates reviewed the filing and submitted reports in April and May of 2025, and BVRT filed its rebuttal testimony in June of 2025. The initial phase of the interim rates was implemented on July 25, 2025, and the second phase of the interim rates was implemented on October 1, 2026. Subsequently, a comprehensive settlement agreement was reached, establishing the framework for the final rates. The final PUCT approval of the settlement agreement is pending.
Texas Water - Certificate of Convenience and Necessity (CCN)
In February of 2022, Camino Real Utility filed a new wastewater CCN and Sale, Transfer, or Merger application with the PUCT to transfer an existing sewer service area and establish a new sewer service area in Caldwell and Travis Counties. PUCT has set a year-end 2026 schedule to complete the application.
Texas Water - Change of Control
On March 6, 2026, a change of control application was filed with the PUCT to acquire the remaining membership interests of BVRT. On October 7, 2026, the PUCT issued a draft preliminary order. The Texas Office of Public Utility Counsel has requested a hearing on the application which should be scheduled shortly. The final PUCT approval of the transaction is expected in early 2027.
Nexus in Oregon and Nevada
On April 2, 2026, we filed a change of control application for the purchase of 100% of the equity interest in Nexus's water systems in Oregon with the Oregon Public Utility Commission (OPUC). Regulatory approval is a required closing condition for the acquisition. On October 27, 2026, the OPUC approved our change of control application and we expect to close the acquisition before the end of 2026.
On April 10, 2026, we filed a change of control application for the purchase of 100% of the equity interest in Nexus's water and wastewater systems in Nevada with the Public Utilities Commission of Nevada (PUCN). Regulatory approval is a required closing condition for the acquisition. On August 11, 2026, the PUCN issued an order authorizing the transfer of control, and we expect to close the acquisition before the end of 2026.
LIQUIDITY
Cash Flow from Operating Activities
During the nine months ended September 30, 2026, we generated cash flow from operations of $262.2 million, compared to $254.7 million for the same period in 2025. The increase in the first nine months of 2026 as compared to the same period in 2025, was primarily due to an increase in cash collections due to an increase in customer rates. Cash generated by operations varies during the year primarily due to customer billings and timing of collections.
The water business is seasonal. Billed revenue is lower in the cool, wet winter months when less water is typically used compared to the warm, dry summer months when water use is typically the highest. This seasonality results in the possible need for short-term borrowings under our bank lines of credit in the event cash is not sufficient to cover operating costs during the winter period. The increase in cash flow during the summer allows for a pay down of short-term borrowings. Customer water usage can be lower than normal in years when more than normal precipitation falls in our service areas or temperatures are lower than normal, especially in the summer months. The reduction in water usage reduces cash flow from operations and increases the need for short-term bank borrowings.
Cash Flow from Investing Activities
During the nine months ended September 30, 2026 and 2025, we used $424.8 million and $364.7 million, respectively, of cash for Company-funded and developer-funded utility capital expenditures. Cash used in investing activities fluctuates each year largely due to the availability of construction resources and our ability to obtain construction permits in a timely manner. For 2026, our utility capital expenditures are estimated to be between $600.0 million and $620.0 million based on the 2024 CA GRC and normal capital needs in the other subsidiaries.
Cash Flow from Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2026 was $157.8 million compared to $139.1 million for the same period in 2025. For the nine months ended September 30, 2026, we issued $143.9 million of Company common stock through our at-the-market equity program and $2.0 million of Company common stock through our employee stock purchase plan. For the nine months ended September 30, 2025, we issued $1.9 million through our employee stock purchase plan. We received $18.5 million and $34.8 million of PFAS settlement proceeds for the nine months ended September 30, 2026 and 2025, respectively. We also made payments of $10.8 million as required by the membership interest purchase agreement (see Acquisitions below) during the first nine months of 2026. For the nine months ended September 30, 2026 and 2025, we paid dividends of $61.0 million and $56.0 million, respectively.
For the nine months ended September 30, 2026 and 2025, we borrowed $655.0 million and $420.0 million, respectively, on our unsecured revolving credit facilities. We made repayments on our unsecured revolving credit facilities of $610.0 million and $280.0 million during the nine months ended September 30, 2026 and 2025, respectively.
The combined total net IRMA, M-WRAM, Water Revenue Adjustment Mechanism and Modified Cost Balancing Account receivable balance was $81.5 million and $98.0 million as of September 30, 2026 and 2025, respectively. The receivable balances were primarily financed by Cal Water using short-term financing arrangements to meet operational cash requirements. Interest on the receivable balances, which represents the interest recoverable from customers, is limited to the then-current 90-day commercial paper rates, which typically are lower than Cal Water's short-term financing rates.
Short-term and Long-term Financing
Short-term liquidity is provided by the Company's unsecured revolving credit facility (the Company facility) and the Cal Water unsecured revolving credit facility (the Cal Water facility) and internally generated funds. Long-term financing is accomplished through the use of both debt and equity. The Company and subsidiaries that it designates may borrow up to $200.0 million under the Company facility. Cal Water may borrow up to $400.0 million under the Cal Water facility; however, all of Cal Water's borrowings under the Cal Water facility must be repaid within 24 months as authorized by the CPUC. The proceeds from the Company and Cal Water facilities may be used for working capital or other business purposes.
As of September 30, 2026 and December 31, 2025, short-term borrowings of $175.0 million and $130.0 million, respectively, were outstanding on the unsecured revolving credit facilities.
Given our ability to access the Company and Cal Water credit facilities on a daily basis, cash balances are managed to levels required for daily cash needs and excess cash is invested in short-term or cash equivalent instruments.
The Company and Cal Water facilities contain affirmative and negative covenants and events of default customary for credit facilities of this type including, among other things, limitations and prohibitions relating to additional indebtedness, liens, mergers, and asset sales. Also, the Company and Cal Water facilities contain financial covenants that require the Company and its subsidiaries' debt portion of the Company's consolidated total capitalization ratio not to exceed 66.7% and an interest coverage ratio of three or more to one (each as defined in the respective credit agreements). As of September 30, 2026, we were in compliance with all of the covenant requirements and are eligible to use the full amount of the undrawn portion of the Company and Cal Water facilities.
Long-term financing, which includes first mortgage bonds, other debt securities, and common stock, has typically been used to replace short-term borrowings and fund capital expenditures. Internally generated funds, after making dividend
payments, provide positive cash flow, but have not been at a level to meet the needs of our capital expenditure requirements. Management expects this trend to continue given our capital expenditure plans for the next five years. Some capital expenditures are funded by payments received from developers for contributions in aid of construction or advances for construction. Funds received for contributions in aid of construction are non-refundable, whereas funds classified as advances for construction are refundable. Management believes long-term financing is available to meet our cash flow needs through issuances of both debt and equity instruments.
Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities
On April 17, 2009, Cal Water (Issuer) issued $100.0 million aggregate principal amount of 5.5% first mortgage bonds due 2040 (the Bonds), all of which are fully and unconditionally guaranteed by the Company (Guarantor). Certain subsidiaries of the Company do not guarantee the security and are referred to as Non-guarantors. The Guarantor fully, absolutely, irrevocably and unconditionally guarantees the due and punctual payment when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise, of the principal of, premium, if any, and interest on the Bonds. The Bonds rank equally among Cal Water's other first mortgage bonds.
The following tables present summarized financial information of the Issuer and the Guarantor. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. In presenting the summarized financial statements, the equity method of accounting has been applied to the Guarantor interests in the Issuer. The summarized information excludes financial information of the non-issuers, including earnings from and investments in these entities.
Summarized Statement of Operations
(in thousands) Nine Months Ended September 30, 2026
Twelve Months Ended
December 31, 2025
Issuer Guarantor Issuer Guarantor
Net sales $ 779,441 $ - $ 912,596 $ -
Gross profit $ 528,948 $ - $ 609,333 $ -
Income from operations $ 168,694 $ 1,902 $ 169,549 $ 1,479
Equity in earnings of guarantor $ - $ 123,073 $ - $ 121,748
Net income $ 126,329 $ 125,886 $ 128,048 $ 127,848
Summarized Balance Sheet Information
(in thousands)
As of September 30, 2026
As of December 31, 2025
Issuer Guarantor Issuer Guarantor
Current assets $ 303,458 $ 5,156 $ 260,566 $ 13,713
Intercompany receivable from guarantor & non-issuer subsidiaries
9,240 177,962 7,055 69,246
Other assets 688,889 1,564,465 689,390 1,478,043
Long-term intercompany receivable from non-issuer subsidiaries
- 144,637 - 135,016
Net utility plant 4,495,246 - 4,187,250 -
Total assets $ 5,496,833 $ 1,892,220 $ 5,144,261 $ 1,696,018
Current liabilities $ 540,779 $ 2,820 $ 383,953 $ 3,882
Intercompany payable to guarantor & non-issuer subsidiaries
80,838 2,398 - 2,498
Long-term debt 1,302,812 169,150 1,302,788 169,092
Other liabilities 2,015,392 3,284 1,988,083 3,284
Total liabilities
$ 3,939,821 $ 177,652 $ 3,674,824 $ 178,756
Dividends
During the nine months ended September 30, 2026, our quarterly common stock dividend payments were $1.005 per share compared to $0.94 per share, which includes a one-time special dividend of $0.04 per share, for the nine months ended September 30, 2025. For the full year 2025, the payout ratio was 57.6% of net income. On a long-term basis, our goal is to achieve a dividend payout ratio of approximately 60% of net income.
At the October 28, 2026 meeting, the Company's Board of Directors declared the fourth quarter dividend of $0.335 per share payable on November 20, 2026, to stockholders of record on November 9, 2026. This was our 327th consecutive quarterly dividend.
2026 Financing Plan
We intend to fund our utility plant investment financing requirements in future periods through a relatively balanced approach between long-term debt and equity.
We utilize the Company and Cal Water facilities for our short-term financing needs. As of September 30, 2026, the availability on the Company and Cal Water credit facilities was $200.0 million and $225.0 million, respectively.
On October 14, 2026, the Company entered into a Note Purchase Agreement, which provides for the issuance of (i) $75.0 million principal amount of 6.08% Senior Unsecured Notes, Series C, due December 15, 2031 (2031 Notes) and (ii) $50.0 million principal amount of 6.41% Senior Unsecured Notes, Series D, due December 15, 2036 (2036 Notes). Also on October 14, 2026, Cal Water entered into a Bond Purchase Agreement, which provides for the issuance of (i) $50.0 million principal amount of 6.49% First Mortgage Bonds, Series 4, due December 15, 2046 (2046 Bonds) and (ii) $100.0 million principal amount of 6.54% First Mortgage Bonds, Series 5, due December 15, 2056 (2056 Bonds). The notes and the bonds are expected to be issued on or before December 31, 2026. The bonds are expected to be issued pursuant to a Sixty-Sixth Supplemental Indenture.
Interest on the 2031 Notes and the 2036 Notes will accrue semi-annually and be payable in arrears on June 15 and December 15 of each year, commencing on June 15, 2027. The 2031 Notes and the 2036 Notes will rank equally with the Company's unsecured revolving credit facility.
Interest on the 2046 Bonds and 2056 Bonds will accrue semi-annually and be payable in arrears on June 15 and December 15 of each year, commencing on June 15, 2027. The 2046 Bonds and 2056 Bonds will rank equally with all of Cal Water's other First Mortgage Bonds and are secured by liens on its properties, subject to certain exceptions and permitted liens.
We intend to use the net proceeds from the sale of the 2031 Notes, the 2036 Notes, the 2046 Bonds, and the 2056 Bonds to refinance existing indebtedness and for general corporate purposes. The 2031 Notes, the 2036 Notes, the 2046 Bonds, and the 2056 Bonds are not registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
Book Value and Stockholders of Record
Book value per common share was $30.28 at September 30, 2026 compared to $28.33 at December 31, 2025. There were approximately 1,681 stockholders of record for our common stock as of August 10, 2026.
Utility Plant Expenditures
During the nine months ended September 30, 2026, utility plant expenditures totaled $424.8 million, including Company-funded projects of $377.8 million and developer-funded projects of $47.0 million. For 2026, we estimate utility capital expenditures to be between $600.0 million and $620.0 million based on the 2024 CA GRC and normal capital needs in the other subsidiaries. The range includes an estimated PFAS compliance cost of $50.0 million for 2026.
As of September 30, 2026, construction work in progress was $486.9 million. Construction work in progress includes projects that are under construction but not yet complete and placed in service.
PFAS Settlement Proceeds
See Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements for details on settlement proceeds from PFAS manufacturers.
Acquisitions
In November of 2025, we entered into an agreement to purchase the remaining membership interests of BVRT for $45.0 million. As required by the membership interest purchase agreement, we made an initial payment of $7.0 million in the first
quarter of 2026. An additional payment of $3.8 million was made in July of 2026, with the remainder due upon closing of the acquisition. Acquisition of the remaining membership interests is subject to satisfaction of customary closing conditions in addition to PUCT and our Board of Directors' approval. On October 7, 2026, the PUCT issued a draft preliminary order for our change of control application and final approval of the transaction is expected in early 2027. We expect to fund the purchase with cash from operations.
In February of 2026, we agreed to purchase Nexus's Nevada and Oregon water and wastewater systems for approximately $218.0 million, subject to the finalization of closing adjustments. Our Board of Directors has approved the acquisition and we have obtained the required regulatory approvals for the change of control from the OPUC and the PUCN. We expect to close the acquisition before the end of 2026 and fund the purchase with a combination of cash from operations and debt and equity capital raises.
Commitments
In the first half of 2027, we expect to transfer $43.8 million to Guadalupe Blanco River Authority for our share of the cost of a pipeline project in Texas (see Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements for more details).
WATER SUPPLY
Our source of supply varies among our service areas. Certain service areas obtain all of their supply from wells; some purchase all of their supply from wholesale suppliers; and others obtain supply from a combination of wells and wholesale suppliers. A small portion of supply comes from surface sources and is processed through Company-owned water treatment plants. To the best of management's knowledge, we are meeting water quality, environmental, and other regulatory standards for all Company-owned systems.
Historically, approximately half of our annual water supply is pumped from wells. State groundwater management agencies operate differently in each state. Some of our wells extract groundwater from adjudicated groundwater basins, in which a court has settled the dispute between landowners, or other parties over how much annual groundwater can be extracted by each party. All of our adjudicated groundwater basins are located in the State of California. Our average annual groundwater extraction from adjudicated groundwater basins approximates 8.2 billion gallons or 15.0% of our total average annual (2024 to 2025) water supply pumped from wells. Historically, we have extracted less than 100% of our annual adjudicated groundwater rights and have the right to carry forward up to 20% of the unused amount to the next annual period. All of our remaining wells extract groundwater from locally managed or unmanaged water basins or aquifers. There are currently no set limits for the groundwater extracted from these water basins or aquifers. Our average annual groundwater extraction from managed groundwater basins approximates 30.9 billion gallons or 56.2% of our total average annual (2024 to 2025) water supply pumped from wells. Many managed groundwater basins from which we extract water have groundwater recharge facilities that we financially support by paying well pump taxes. For the nine months ended September 30, 2026 and 2025, our well pump taxes were $19.0 million and $17.8 million, respectively. In 2014, the State of California enacted the Sustainable Groundwater Management Act of 2014 (SGMA). The law and its implementing regulations required most basins to create a sustainability agency by 2017, develop a sustainability plan by the end of 2022, and show progress toward sustainability by 2027. We expect that after the SGMA provisions are fully implemented, all of our California groundwater will be produced from sustainably managed and/or adjudicated basins.
California's normal weather pattern yields little precipitation between mid-spring and mid-fall. The Washington Water service areas receive precipitation in all seasons, with the heaviest amounts during the winter. New Mexico Water's rainfall is heaviest in the summer monsoon season. Hawaii Water receives precipitation throughout the year, with the largest amounts in the winter months. Typically, water usage in all service areas is highest during the warm and dry summers and declines in the cool winter months. Rain and snow during the winter months in California replenish underground water aquifers and fill reservoirs, providing the water supply for subsequent delivery to customers. As of October 13, 2026, statewide precipitation was 117% of long-term averages and statewide reservoir storage was above long-term averages during the 2026 to 2027 water year (per the California Department of Water Resources). Management believes that supply pumped from underground aquifers and purchased from wholesale suppliers will be adequate to meet customer demand during 2026 and thereafter. However, water rationing may be required in future periods, dependent on local conditions or if declared by the state or local jurisdictions. Long-term water supply plans are developed for each of our service areas to help assure an adequate water supply under various operating and supply conditions. Some service areas have unique challenges in meeting water quality standards, but management believes that supplies will meet current standards using currently available treatment processes or by installing the best available technologies.
On May 31, 2018, California's Governor signed two bills (Assembly Bill 1668 and Senate Bill 606) into law that were intended to establish long-term standards for water use efficiency. The bills revise and expand the existing urban water
management plan requirements to include five-year drought risk assessments, water shortage contingency plans, and annual water supply/demand assessments. The Water Board, in conjunction with the California Department of Water Resources, has adopted long-term water use standards for indoor residential use, outdoor residential use, water losses, and other uses. Cal Water is also required to calculate and report on urban water use targets each year, which compare actual urban water use to the targets. Management believes that Cal Water is well positioned to comply with all such regulations.
In April of 2024, the EPA finalized a National Primary Drinking Water Regulation (NPDWR) establishing legally enforceable MCLs for six PFAS in drinking water. Under the PFAS regulation, water utilities across the country are required to complete initial PFAS monitoring by 2027 and to implement treatment for sources exceeding the MCL by 2029. In January of 2026, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit unanimously denied an EPA request to vacate and remove MCLs on four PFAS. Multi-party litigation continues regarding the PFAS MCLs. Final briefs were submitted in March of 2026, oral argument was held in September of 2026, and a decision is possible in late 2026. In May of 2026, the EPA proposed two new rules. The first proposed rule would retain MCLs for perfluorooctanoic acid and perfluorooctane sulfonate while providing a mechanism for water systems to seek an extension of the MCL compliance deadline from April 2029 to April 2031. The second proposed rule would rescind the NPDWR for four PFAS as well as related changes. It is anticipated that the EPA will issue final rules in the fourth quarter of 2026. We estimate a capital investment of approximately $228.0 million will be required to comply with the currently effective regulation.
On April 17, 2024, the Water Board adopted an MCL of 10 parts per billion for Chromium-6 in drinking water. Our water systems in California will be required to comply with the regulation within two to four years. We developed and installed treatment for this contaminant at most of our impacted water sources when the same MCL was originally set in 2014, which was subsequently vacated for administrative reasons. After the MCL was vacated, we continued to treat our impacted water systems where treatment was installed. We anticipate installing treatment or taking wells out of service for the remaining impacted sources before the regulatory deadline.
CONTRACTUAL OBLIGATIONS
During the nine months ended September 30, 2026, there were no material changes in contractual obligations outside the normal course of business.
California Water Service Group published this content on October 29, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 29, 2026 at 20:57 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]