H2O America

10/26/2026 | Press release | Distributed by Public on 10/26/2026 14:34

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, except per share amounts and where otherwise noted)
The information in this Item 2 should be read in conjunction with the financial information and the notes thereto included in Item 1 of this Form 10-Q and the condensed consolidated financial statements and notes thereto and the related "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in H2O America's Annual Report on Form 10-K for the year ended December 31, 2025.
This report contains forward-looking statements within the meaning of the federal securities laws relating to future events and future results of H2O America and its subsidiaries that are based on current expectations, estimates, forecasts, and projections about H2O America and its subsidiaries and the industries in which H2O America and its subsidiaries operate and the beliefs and assumptions of the management of H2O America. Actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors. For more information about such forward-looking statements, including some of the factors that may affect our actual results, please see our disclosures under "Forward-Looking Statements," and elsewhere in this Form 10-Q, including Part II, Item 1A under "Risk Factors" as well as the disclosures under Part I, Item 1A in H2O America's Annual Report on Form 10-K for the year ended December 31, 2025 under "Risk Factors."
General:
H2O America is a holding company whose primary business involves ownership of public utilities that provide water and wastewater services, including the production, purchase, storage, purification, distribution, wholesale and retail sale of water. The water utility business of H2O America is conducted through the following wholly owned subsidiaries: San Jose Water Company ("SJWC"), The Connecticut Water Company ("CWC"), The Maine Water Company ("MWC"), and SJWTX, Inc. doing business as The Texas Water Company ("TWC"). As of September 30, 2026, these subsidiaries provide water service to approximately 409,000 water and wastewater service connections and serve a combined population of over 1.6 million people in California, Connecticut, Maine and Texas. Water utility services provided by these businesses are subject to regulation by the applicable state public utility commissions. These subsidiaries also engage in non-tariffed operations that are not subject to public utility commission regulation, including contract water and sewer operations, maintenance agreements, and antenna site leases.
Together, SJWC, excluding the City of Cupertino ("Cupertino") service concession arrangement operations, CWC, MWC and TWC are referred to as "Water Utility Services," which is our single reportable segment.
Other business activities that are not separately reportable segments are SJWC's Cupertino service concession arrangement operations, Texas Water Operation Services, LLC ("TWOS"), Texas Water Resources, LLC ("TWR"), New England Water Utility Services, Inc. ("NEWUS"), H2O America Land Company and Chester Realty, Inc. and are collectively referred to as "Other Services."
Business Strategy for Water Utility Services:
H2O America focuses its business initiatives in three strategic areas:
(1)Investing in regional regulated water utility operations to support the health, safety and quality of life of our customers;
(2)Regional non-tariffed water utility-related services provided in accordance with the guidelines established by applicable state public utility commissions; and
(3)Out-of-region water and utility-related services.
As part of our pursuit of the above three strategic areas, we consider from time to time opportunities to acquire businesses and assets. However, we cannot be certain we will be successful in identifying and consummating any strategic business combinations or acquisitions relating to such opportunities. In addition, the execution of our business strategy will expose us to different risks than those associated with the current utility operations. We expect to incur costs in connection with the execution of this strategy and any integration of an acquired business could involve significant costs, the assumption of certain known and unknown liabilities related to the acquired assets, the diversion of management's time and resources, the potential for a negative impact on our financial position and operating results, entering markets in which we have no or limited direct prior experience, and the potential loss of key employees of any acquired company. Any strategic combination or acquisition we decide to undertake may also impact our ability to finance our business, affect our compliance with regulatory requirements, and impose additional burdens on our operations. Any businesses we acquire may not achieve sales, customer growth, and projected profitability that would justify the investment. Any difficulties we encounter in the integration process, including the
integration of controls necessary for internal control and financial reporting, could interfere with our operations, reduce our operating margins, and adversely affect our internal controls. H2O America cannot be certain that any transaction will be successful or that it will not materially harm operating results or our financial condition.
As previously disclosed, on October 1, 2026, H2O America, through its indirect subsidiary, TWC, completed the acquisition of substantially all of the assets of Quadvest, including the assets of Quadvest, L.P. and Quadvest Wholesale LLC. The aggregate cash consideration transferred at closing was approximately $542.7 million, consisting of $480.9 million related to Quadvest L.P. and $61.8 million related to Quadvest Wholesale LLC. Please see Note 10 "Acquisitions" for further discussion. On the completion of these acquisitions, Quadvest brings operational scale, a strong development pipeline, and increased exposure to one of America's fastest growing regions, Houston, TX. Quadvest brings a strong legacy of local relationships and reliable service. It has been providing water and sewer service in Southeast Texas for nearly 50 years through its operating entities.
Critical Accounting Estimates:
The discussion and analysis of our financial condition and results of operations is based on the accounting estimates used and disclosed in our 2025 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted in the United States of America and included as part of our Annual Report on Form 10-K for the year ended December 31, 2025, that was filed with the Securities and Exchange Commission on February 26, 2026.
Our critical accounting estimates are described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2025. Our significant accounting policies are described in the notes to the 2025 consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no changes to critical accounting estimates or significant accounting policies during the three and nine months ended September 30, 2026.
New Accounting Pronouncements:
See Note 1 "General" for a discussion of new accounting pronouncements.
Results of Operations:
Water sales are seasonal in nature and are influenced by weather conditions. The timing of precipitation and climatic conditions can cause seasonal water consumption by customers to vary significantly. Due to the seasonal nature of the water business, the operating results for interim periods are not indicative of the operating results for a 12-month period. Revenue is generally higher in the warm, dry summer months when water usage and sales are greater, and lower in the winter months when cooler temperatures and increased precipitation curtail water usage and sales.
Overview
H2O America's financial results and highlights include:
Three months ended September 30, Increase/
(decrease) 		% Change Nine months ended September 30, Increase/
(decrease) 		% Change
2026 2025 2026 2025
(In thousands, except per share data)
Operating Revenue $ 250,229 240,550 9,679 4 % $ 643,996 606,404 37,592 6 %
Operating Expenses 189,740 175,923 13,817 8 % 503,327 462,016 41,311 9 %
Net Income 43,044 45,132 (2,088) (5) % 88,646 86,358 2,288 3 %
Earnings Per Share - Basic $ 1.03 1.27 (0.24) (19) % $ 2.18 2.49 (0.31) (12) %
Earnings Per Share - Diluted $ 0.99 1.27 (0.28) (22) % $ 2.13 2.48 (0.35) (14) %
Operating Revenue
H2O America has a single reportable segment, referred to as "Water Utility Services." All other business activities not separately reportable are included in "Other Services." Operating revenue for the Water Utility Services reportable segment and Other Services was as follows:
Operating Revenue by Segment
Three months ended September 30, Nine months ended September 30,
2026 2025 2026 2025
(In thousands)
Water Utility Services $ 245,634 236,222 $ 631,738 596,052
Other Services
4,595 4,328 12,258 10,352
Total operating revenue $ 250,229 240,550 $ 643,996 606,404
The change in consolidated operating revenue was due to the following factors:
Increase/(decrease)
Three months ended
September 30,
2026 vs. 2025
Nine months ended
September 30,
2026 vs. 2025
(In thousands)
Water Utility Services:
Consumption changes $ (4,083) (2) % $ (2,039) - %
Increase in customers 455 - % 1,141 - %
Rate increases for:
Pass-through water costs1
7,537 3 % 17,507 3 %
All other increases2
8,733 4 % 25,170 4 %
Regulatory mechanisms3
(2,628) (1) % (4,255) (1) %
Service and other revenue
(602) - % (1,838) - %
Other Services
267 - % 1,906 - %
Total change in operating revenue $ 9,679 4 % $ 37,592 6 %
____________________
(1) Consists of rate increases specifically associated with changes in the water supply costs that are passed through to customers.
(2) Primarily associated with general rate cases and related annual escalation adjustments, infrastructure surcharges, and cost of capital adjustments.
(3) Excludes portion attributable to rate increases, which are shown in the rate increase lines above.
Operating Expense
Operating expense is summarized below:
Operating Expense by Segment
Three months ended September 30, Nine months ended September 30,
2026 2025 2026 2025
(In thousands)
Water Utility Services $ 181,738 172,178 $ 482,298 449,185
Other Services
3,386 3,127 8,652 7,698
Unallocated Corporate
4,616 618 12,377 5,133
$ 189,740 175,923 $ 503,327 462,016
The change in consolidated operating expense was due to the following factors:
Increase/(decrease)
Three months ended
September 30,
2026 vs. 2025
Nine months ended
September 30,
2026 vs. 2025
(In thousands)
Water production expenses:
Change in surface water use $ (1,197) (1) % $ (3,588) (1) %
Change in consumption (2,450) (1) % (162) - %
Change in new customers 161 - % 237 - %
Purchased water and groundwater extraction charge, energy price change and other production expenses, net 7,910 4 % 16,236 4 %
Balancing and memorandum account cost recovery
562 - % 4,332 1 %
Total water production expenses 4,986 3 % 17,055 4 %
Administrative and general 4,135 2 % 11,013 2 %
Maintenance 331 - % 1,193 - %
Property taxes and other non-income taxes 652 - % 929 - %
Depreciation and amortization 3,713 2 % 11,121 2 %
Total change in operating expense $ 13,817 7 % $ 41,311 8 %
Sources of Water Supply
The Company's water supply for its regulated utilities is diversified across groundwater, surface water, and purchased sources, with the mix of and reliance on such sources varying by region. Operations in California and Texas face greater hydrologic variability and drought-related pressures, partially mitigated by long-term contracts, conservation measures, and regulatory cost recovery mechanisms, while operations in Connecticut and Maine maintain more stable supply conditions with fewer near-term constraints. Across all regions, the Company relies on long-term agreements with regional authorities and continues to invest in infrastructure and supply reliability initiatives. Overall, management expects existing supplies to be adequate to meet anticipated customer demand throughout 2026, although cost and availability remain sensitive to weather patterns and regional conditions.
Three months ended September 30, Increase/
(decrease) 		% of Total Change Nine months ended September 30, Increase/
(decrease) 		% of Total Change
2026 2025 2026 2025
(billion gallons)
Purchased water 6.3 6.3 - - % 13.5 13.8 (0.3) (1) %
Groundwater 5.8 5.9 (0.1) (1) % 16.0 15.3 0.7 2 %
Surface water 3.1 2.9 0.2 1 % 9.0 8.3 0.7 2 %
Reclaimed water 0.3 0.4 (0.1) (1) % 0.7 0.7 - - %
15.5 15.5 - (1) % 39.2 38.1 1.1 3 %
The changes in the source of supply mix were consistent with the changes in the water production expenses.
Water Production Expenses
The increase in water production expenses of $5.0 million for the three months ended September 30, 2026, compared to the same period in 2025, was primarily attributable to increases in average per unit costs for purchased water and groundwater extraction, partially offset by lower usage.
The increase in water production expenses of $17.1 million for the nine months ended September 30, 2026, compared to the same period in 2025, was primarily attributable to increases in average per unit costs for purchased water and groundwater extraction and increases in water production balancing and memorandum accounts, primarily relating to the FCBA, partially offset by decreases in costs as a result of increased availability of surface water.
Depreciation and Amortization
Depreciation and amortization expenses increased $3.7 million for the three months ended September 30, 2026 compared to the same period in 2025. The increase is associated with utility plant additions placed in service compared to the same period last year.
Depreciation and amortization expenses increased $11.1 million for the nine months ended September 30, 2026 compared to the same period in 2025. The increase is associated with utility plant additions placed in service compared to the same period last year.
Other Operating Expenses
Operating expenses, excluding water production expenses, increased $5.1 million for the three months ended September 30, 2026, compared to the same period in 2025. The increase was primarily attributable to a net increase in general and administrative expenses driven by higher merger and acquisition costs and outsourced services costs.
Operating expenses, excluding water production expenses, increased $13.1 million for the nine months ended September 30, 2026, compared to the same period in 2025. The increase was primarily attributable to a net increase in general and administrative expenses driven by higher merger and acquisition costs and outsourced services.
Other (Expense) Income
For the three months ended September 30, 2026, compared to the same period in 2025, the change in other (expense) income of $1.5 million was primarily due to an increase in gains on sale of non-utility properties, increase in investment income from higher investment balances and an increase in pension non-service credits.
For the nine months ended September 30, 2026, compared to the same period in 2025, the change in other (expense) income of $4.6 million was primarily due to an increase in investment income from higher investment balances, higher income from the equity portion of the AFUDC, an increase in pension non-service credits and an increase in gains on sale of non-utility properties.
Non-GAAP Financial Measures
H2O America's net income and diluted EPS are prepared in accordance with GAAP. Adjusted net income and Adjusted diluted EPS are non-GAAP financial measures representing GAAP earnings adjusted to exclude the effects of non-utility real estate transactions and costs associated with mergers and acquisition activities, if any. These non-GAAP financial measures are provided as additional information for investors to evaluate the performance of H2O America's business activities excluding these items. Management also believes these non-GAAP financial measures help investors and analysts better understand our actual results compared to our guidance on a non-GAAP basis. H2O America uses adjusted net income and/or adjusted diluted EPS as the primary performance measurements when communicating with analysts and investors regarding our outlook and results. Adjusted net income and Adjusted diluted EPS are also used internally to measure performance. However, these non-GAAP financial measures may be different from non-GAAP financial measures used by other companies, even when the same or similarly titled terms are used to identify such measures, limiting their usefulness for comparative purposes. Further, these non-GAAP financial measures should be considered as a supplement to the financial information prepared on a GAAP basis rather than an alternative to the respective GAAP financial measures.
The following tables reconcile Net Income and EPS, each as defined under GAAP, to our non-GAAP financial measures of Adjusted Net Income and Adjusted EPS for the three and nine months ended September 30, 2026, compared to the same periods in 2025:
Three months ended September 30, Nine months ended September 30,
2026 2025 2026 2025
(In thousands)
Reported GAAP Net Income: $ 43,044 45,132 $ 88,646 86,358
Adjustments:
Gain on sale of real estate investments1
(1,152) (273) (1,324) (273)
Expense for merger, acquisition and integration related activities1
3,774 700 10,185 3,048
Non-recurring tax adjustment due to merger, acquisition and integration related activities2
264 - 264 -
Tax effect of above adjustments3
(733) (109) (2,479) (766)
Adjusted Net Income (non-GAAP) 45,197 45,450 95,292 88,367
Reported GAAP Diluted Earnings Per Share $ 0.99 1.27 $ 2.13 2.48
Adjustments:
Gain on sale of real estate investments, net of tax (0.02) (0.01) (0.02) (0.01)
Expense for merger, acquisition and integration related activities, net of tax 0.06 0.01 0.18 0.06
Non-recurring tax adjustment due to merger, acquisition and integration related activities 0.01 - 0.01 -
Adjusted Diluted Earnings Per Share (non-GAAP) $ 1.04 1.27 $ 2.30 2.53
1 Included in the "Administrative and general" and "Other, net" lines on the condensed consolidated statements of comprehensive income.
2 Included in the "provision for income taxes" line on the condensed consolidated statements of comprehensive income.
3 The tax effect of the pre-tax adjustments is calculated using the applicable statutory tax rates and excludes the adjustment described in footnote ², as it is already reflected as a tax item.
Regulation and Rates
Almost all of the operating revenue of H2O America results from the sale of water at rates authorized by the subsidiaries' respective state utilities commissions. The state utilities commissions set rates that are intended to provide revenue sufficient to recover operating expenses and the opportunity to achieve a specified return on common equity. The timing of rate decisions could have an impact on the results of operations.
Please also see Note 2 "Regulatory Matters".
The following table describes current rate related activities as applicable for Water Utility Services:
Company
Jurisdiction
Regulatory Mechanism / Filing
Revenue Impact
Approval / Decision Date
Rates Effective
Approved Regulatory Proceedings
SJWC California
Advice Letter No. 613 - Revenue Requirement and Balancing and Memorandum account Recovery
$21.3 million increase; $15.8 million recovery
Approved December 2024 (D.24-12-077)
January 1, 2025
SJWC California Advice Letter No. 616 - Purchased Water / Groundwater Offset
$22.5 million increase
Approved May 2025 July 1, 2025
SJWC California
Advice Letter No. 617 - Advanced Metering Infrastructure ("AMI") Project Recovery
$6.8 million increase
Approved May 2025 July 1, 2025
SJWC California
Advice Letter No. 618 - Water Contamination Litigation Memorandum Account ("WCLMA")
No immediate revenue impact Approved July 2025 June 24, 2025
SJWC California
Advice Letter No. 620 - Ground Water Regulation Legal Expenses Memorandum Account ("GWRLEMA")
No immediate revenue impact Approved October 2025 November 14, 2025
SJWC California Advice Letter No. 621A - Revenue Requirement Increase
$17.2 million increase
Approved December 2025 January 1, 2026
SJWC California
Cost of Capital ("COC") Filing Deferment
No change expected
Approved November 2025
The timing for the next COC filing will be May 1, 2027, approximately effective January 1, 2028
SJWC
California
Advice Letter No. 627A - Monterey Water Revenue Adjustment Mechanism ("M-WRAM") $13.3 million surcharge
Approved June 2026
July 1, 2026
SJWC
California
Advice Letter No. 628A - Purchased Water / Groundwater Offset
$22.8 million increase
Approved June 2026
July 1, 2026
SJWC
California
Advice Letter No. 629A -
AMI Project Recovery 		$8.38 million increase; $52.9 million rate base increase Approved June 2026
July 1, 2026
CWC Connecticut
2024 Water Infrastructure Conservation Adjustment ("WICA") Reconciliation and Increase
$1.6 million surcharge, $6.0 million annual collection
Approved March 2025
April 1, 2025
CWC Connecticut
2024 Water Rate Adjustment mechanism ("WRA")
$4.6 million surcharge
Approved March 2025
April 1, 2025
CWC Connecticut
2025 WICA Increase
$3.1 million surcharge, $9.1 million annual collection
Approved July 2025
October 1, 2025
CWC Connecticut Water Quality and Treatment Adjustment ("WQTA")
$0.6 million surcharge
Approved March 2026
April 1, 2026
CWC Connecticut 2025 WRA
$7.2 million surcharge
Approved March 2026
April 1, 2026
CWC Connecticut 2025 WICA Reconciliation and Increase
Increase of $2.7 million surcharge and reconciliation surcharge of $0.3 million. $12.1 million annual collection
Approved March 2026
April 1, 2026
MWC Maine Camden Rockland General Rate Case
$0.9 million increase
Approved June 2025
July 1, 2025
MWC Maine
Water Infrastructure Surcharge ("WISC") for Oakland and Biddeford Saco divisions
$0.5 million surcharge
Approved June 2025
July 1, 2025
MWC Maine Request to establish a unified tariff across its ten separate rate divisions. No revenue impact
Approved January 2026
February 1, 2026
MWC Maine WISC
$0.9 million surcharge
Approved May 2026 May 1, 2026
TWC Texas
Amended System Improvement Charge ("SIC")
Increase of $3.9 million for water and $0.2 million for sewer
Approved May 2025
May 15, 2025
TWC Texas Second SIC Amendment Approved revenue requirements decreased by approximately $0.03 million for water operations and $0.2 million for sewer operations compared to Docket No. 56974 Approved October 2026 October 1, 2026
Pending Regulatory Proceedings
SJWC
California
Cost of Recovery of Per- and Polyfluoroalkyl Substances ("PFAS") Compliance Program
No immediate revenue impact
Filed April 10, 2026
Expected Q2 2027
CWC Connecticut General Rate Case $28.8 million increase Filed May 11, 2026 Expected February 2027
MWC Maine General Rate Case
$9.5 million increase
Filed April 13, 2026 Expected Q2 2027
In addition to filings included in the above table, TWC is required to file a general rate case on or before March 21, 2028.
Liquidity:
Water Utility Services' business derives the majority of its revenue directly from residential and business customers. Management asserts that the collection rate for its accounts receivables has improved as the ability to use service disconnections has returned to normal.
Funds collected from Water Utility Services' customers are used to pay for water production expenses, in addition to costs associated with general operations. Funds were also generated from borrowings.
In the nine months ended September 30, 2026, H2O America and its subsidiaries received $620.2 million in proceeds from an underwritten offering of common stock, which excludes $1.6 million in offering-related fees and expenses. The net proceeds were used to finance the acquisition of Quadvest L.P. and Quadvest Wholesale LLC and to support ongoing capital investment activities. See Note 3 "Capitalization" and Note 4 "Lines of Credit and Long-term Liabilities" for discussion on the equity and debt financing activities of H2O America. In addition, H2O America paid cash dividends on its common stock of $52.8 million during the nine months ended September 30, 2026.
In 2025, the dividends declared and paid on H2O America's common stock represented approximately 57% of net income. H2O America and its predecessor have increased the annual dividend amount in each of the last 58 years. While historically H2O America has generally paid dividends equal to approximately 50% to 60% of its net income, H2O America cannot guarantee that this trend will continue in the future.
The following table provides a summary of our operating, investing and financing cash flows for the nine months ended September 30, 2026 and 2025:
Nine months ended September 30, Increase/
(decrease)
2026 2025
(In thousands)
Net cash provided by (used in):
Operating activities $ 184,694 181,283 3,411
Investing activities (346,013) (369,542) 23,529
Financing activities 713,590 188,459 525,131
Net increase in cash and cash equivalents 552,271 200 552,071
Cash and cash equivalents - beginning of the period 20,686 11,114
Cash and cash equivalents - end of the period $ 572,957 11,314
Cash Flow from Operating Activities
In the nine months ended September 30, 2026, H2O America generated cash flow from operations of $184.7 million compared to $181.3 million during the nine months ended September 30, 2025. Cash flows from operations are primarily generated by net
income from revenue producing activities, adjusted for non-cash expenses for depreciation and amortization, deferred income taxes, share-based compensation, allowance for equity funds used during construction, gains on the sale of assets and other changes in working capital items.
In the nine months ended September 30, 2026, the increase in cash flows from operations was primarily attributable to higher net income, changes in working capital balances and changes in regulatory assets and liabilities.
Cash Flow from Investing Activities
Cash flows from investing activities consist of cash payments and cash receipts for capital expenditures and investments. Net cash used in investing activities for the nine months ended September 30, 2026, decreased by $23.5 million from the same period in the prior year related to lower company-funded utility capital expenditures of $47.0 million. These decreases were offset by increased developer-funded capital expenditures of $22.2 million and by amounts obtained in connection with the sale of real estate.
Cash Flow from Financing Activities
Cash flows from financing activities consist of cash payments to and cash receipts from creditors, investors, and developers. Net cash provided by financing activities for the nine months ended September 30, 2026 increased by $525.1 million from the same period in the prior year, primarily as a result of an increase in net proceeds from common stock equity offerings of $510.5 million and an increase in net borrowings on the lines of credit of $106.2 million. These increases were partially offset by (1) a decrease in proceeds from the issuance of long-term debt of $47.7 million, (2) a decrease attributable to higher repayments of long-term debt of $14.6 million, (3) a decrease in cash receipts from advances and contributions in aid of construction of $14.1 million and (4) a decrease in proceeds from PFAS litigation settlement of $7.1 million.
Budgeted Capital Expenditures
Water Utility Services' estimated utility capital expenditures for 2026, exclusive of capital expenditures financed by customer contributions and advances, are anticipated to be approximately $440 million. The budgeted capital expenditures exclude capitalizable costs of approximately $25 million forecasted in 2026 that are associated with cloud-based computing arrangements. As of September 30, 2026, $304.1 million, or approximately 69%, of the $440 million has been invested.
Water Utility Services' capital expenditures are incurred in connection with normal upgrading and expansion of existing facilities and to comply with environmental regulations. Over the next five years, Water Utility Services expects to incur approximately $2,568 million in capital expenditures, which includes replacement of pipes and mains, maintaining water systems, and installing approximately $400 million in PFAS treatment facilities. A significant portion of this amount is subject to future respective state regulatory utility commissions' approval. Capital expenditures have the effect of increasing utility plant rate base on which Water Utility Services earns a return. Water Utility Services' actual capital expenditures may vary from their projections due to changes in the expected demand for services, weather patterns, actions by governmental agencies, and general economic conditions. Total additions to utility plant normally exceed company-financed additions as a result of new facilities construction funded with advances from developers and contributions in aid of construction.
The Water Utility Services' distribution systems were constructed during the period from the early 1900's through today. Expenditure levels for renewal and modernization will occur as the components reach the end of their useful lives. In most cases, replacement costs will significantly exceed the original installation costs of the retired assets due to increases in the costs of goods and services and increased regulation.
In addition to these capital expenditures, Water Utility Services expects to incur approximately $100 million over the next five years, including $25 million in 2026, in capitalizable costs associated with cloud-based computing arrangements. For the nine months ended September 30, 2026, Water Utility Services incurred $21.0 million in cloud-based computing expenses.
Sources of Capital:
H2O America's ability to finance future construction programs and sustain dividend payments depends on its ability to maintain or increase internally generated funds and attract external financing. The level of future earnings and the related cash flow from operations is dependent, in large part, upon the timing and outcome of regulatory proceedings.
Short-term Financing Agreements
H2O America and its subsidiaries have unsecured line of credit agreements where borrowings are used to refinance existing debt, for working capital, and for general corporate purposes.
A summary of the line of credit agreements as of September 30, 2026 is as follows:
Maturity Date Line Limit Amounts Outstanding Unused Portion
(In thousands)
Syndicated credit agreement: September 12, 2031
H2O America $ 50,000 30,000 20,000
SJWC 160,000 116,000 44,000
CWC 80,000 49,000 31,000
MWC 10,000 - 10,000
SJWTX 50,000 2,000 48,000
Total syndicated credit agreement 350,000 197,000 153,000
SJWC credit agreement June 11, 2027 10,000 - 10,000
CTWS credit agreement August 2, 2028 10,000 3,275 6,725
$ 370,000 200,275 169,725
On June 11, 2026, SJWC extended the termination date of its uncommitted loan facility under the SJWC Credit Agreement from June 11, 2026 to June 11, 2027. On September 25, 2026, H2O America and its subsidiaries, SJWC, SJWTX, CWC and MWC, extended the maturity of the Syndicated Credit Agreement from September 12, 2030 to September 12, 2031.
Total outstanding borrowings under the unsecured lines of credit as of September 30, 2026 were $200.3 million. For the nine months ended September 30, 2026, the cost of borrowing on the lines of credit averaged 4.62% compared to 5.42% in the same period in 2025. As of September 30, 2026, the borrowing capacity of the lines of credit was $168.8 million, which excludes a $0.9 million standby letter of credit issued on behalf of H2O America Risk Solutions and guaranteed by H2O America under the Syndicated Credit Agreement.
All of H2O America's and subsidiaries' credit facilities contain customary financial and operating covenants. As of September 30, 2026, H2O America and its subsidiaries were in compliance with all covenants in their lines of credit.
Long-term Financing Agreements
On November 12, 2025, SJWC entered into a Note Purchase Agreement with certain institutional investors. Under the agreement, SJWC issued an aggregate principal amount of $70.0 million of senior notes in two series consisting of $55.0 million of 5.83% of Senior Notes, Series R ("Series R Notes"), and $15.0 million of 5.91% Senior Notes, Series S ("Series S Notes"). The issuance of the Series S Notes was subject to approval by the CPUC which closed on May 14, 2026. The Series S Notes are unsecured obligations of SJWC and are due on November 1, 2055. Interest is payable semi-annually in arrears on May 1st and November 1st of each year, commencing November 1, 2026.
The balance of long-term debt outstanding, net of unamortized debt issuance costs and debt premium and discount, as of September 30, 2026 was $1,881.4 million. The current portion of long-term debt as of September 30, 2026 was $7.9 million.
All of H2O America's and subsidiaries' debt and credit agreements contain customary covenants and events of default. As of September 30, 2026, H2O America and its subsidiaries were in compliance with all covenants related to their debt and credit agreements.
Equity Financing Arrangements
In October 2024, H2O America entered into an equity distribution agreement (the "Equity Distribution Agreement") with BofA Securities, Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC, pursuant to which the company may offer and sell shares of its common stock, $0.001 par value per share, from time to time in "at-the-market" offerings, having an aggregate gross sales price of up to $200.0 million. The Equity Distribution Agreement replaced the previous agreement that ended in 2024. For the three and nine months ended September 30, 2026, H2O America did not issue or sell any shares of its common stock under the Equity Distribution Agreement and, accordingly, received no net proceeds therefrom. Since the inception of the Equity Distribution Agreement, H2O America has issued and sold 2,763,359 shares of common stock at a weighted average price of $52.39 for total net proceeds of $143.0 million, and has $55.2 million of aggregate gross sales price of shares remaining to issue under the Equity Distribution Agreement as of September 30, 2026.
In March 2026, H2O America issued 3,937,654 shares of common stock in an underwritten offering pursuant to an Underwriting Agreement with J.P. Morgan Securities LLC and Wells Fargo Securities LLC, as representatives of several underwriters named in the Underwriting Agreement (the "Offering"). In connection with the Offering, H2O America entered
into two-year forward purchase agreements to issue an additional 7,547,170 shares of common stock with an initial forward purchase price of $51.28 per share, subject to adjustment based on the overnight bank funding rate and expected dividend amounts due upon settlement through maturity in March 2028. The forward purchase agreements can be settled or net settled for delivery of physical shares or settled for cash at the option of H2O America. In addition, the underwriters in the Offering, through the exercise of a 30-day overallotment option, purchased an additional 1,722,723 shares of common stock at a price of $51.28 per share. Total net proceeds to H2O America for the common stock offering were $290.2 million after deducting the underwriting discounts and before estimated offering expenses payable by H2O America of $1.6 million, which are recognized as a reduction of additional paid-in capital.
During the three and nine months ended September 30, 2026, H2O America settled forward purchase agreements relating to 6,439,308 shares of common stock and received net proceeds of $330.0 million. Upon settlement, the Company issued the related shares of common stock, with the proceeds recognized as increases to common stock and additional paid-in capital. As of September 30, 2026, forward purchase agreements relating to 1,107,862 shares remained outstanding.
Credit Rating
The condition of the capital and credit markets or the strength of financial institutions could impact H2O America's ability to draw on its lines of credit, issue long-term debt, sell its equity or earn interest income. In addition, government policies, the state of the credit markets and other factors could result in increased interest rates, which would increase H2O America's cost of capital. While our ability to obtain financing will continue to be a risk, we believe that based on our 2026 and 2025 activities we will continue to have access to the external funding sources necessary to implement our ongoing capital investment programs in the future. On July 15, 2025, Standard & Poor's Ratings Services revised the outlook for H2O America, CTWS and CWC from stable to negative following the announcement of the Quadvest acquisition.
The following table presents the current Standard & Poor's Ratings Services assigned company ratings:
Entity Rating Outlook
H2O America A-
Negative
SJWC A
Stable
CTWS A-
Negative
CWC A-
Negative
H2O America published this content on October 26, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 26, 2026 at 20:34 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]