California Water Service Group: Form 10-Q for the period ended Mar 31, 2025

(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, including plans and proposals pursuant to and timing of the California Water Service Company (Cal Water)’s general rate case (GRC) filed on July 8, 2024 (2024 GRC), rate amounts, cost recovery or refunds, certain per- and polyfluoralkyl substances (PFAS) regulations, and associated impacts, such as our expected or estimated revenue, our intentions regarding recovery billing, our expectations regarding regulatory asset and operating revenue recognition, sources of funding or capital requirements, 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, 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 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 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 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, including with respect to the 2024 GRC;
• 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, such as the California Public Utilities Commission (CPUC)’s decision in 2020 to preclude companies from proposing full decoupling (which impacted our 2021 GRC);
• 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 a National Primary Drinking Water Regulation establishing legally enforceable maximum contaminant levels (MCL) for six PFAS in drinking water in 2024;
• 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;
• housing and customer growth;
• our ability to renew leases to operate water systems owned by others on beneficial terms;
• issues with the implementation, maintenance or security of our information technology systems;
• civil disturbances or terrorist threats or acts;
• the adequacy of our efforts to mitigate physical and cyber security risks and threats;
• the ability of our enterprise risk management processes to identify or address risks adequately;
• labor relations matters as we negotiate with the 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;
• 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 geographically;
• the impact of stagnating or worsening business and economic conditions, including inflationary pressures, general economic slowdown or a recession, changes in tariff policy and uncertainty regarding tariffs and other retaliatory trade measures, the interest rate environment, changes in monetary policy, adverse capital markets activity or macroeconomic conditions as a result of geopolitical conflicts, and the prospect of a shutdown 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 unbilled revenue;
• the impact of evolving legal and regulatory requirements, including emerging environmental, social and governance requirements;
• the impact of the evolving U.S. political environment 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, 2024.

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 GAAP and as directed by the Commissions to which our operations are subject. The process of preparing financial statements in accordance with GAAP 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (2024 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 three months ended March 31, 2025, 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

Overview

Net Income Attributable to California Water Service Group

Net income attributable to California Water Service Group for the three months ended March 31, 2025 was $13.3 million or $0.22 earnings per diluted common share, compared to net income of $69.9 million or $1.21 earnings per diluted common share for the three months ended March 31, 2024. The $56.6 million decrease in net income was primarily due to a decrease in operating revenue of $66.7 million primarily as a result of the cumulative adjustment in first three months of 2024 for the impacts of the 2021 GRC delayed approval, partially offset by rate increases and an increase in customer usage. Additionally, total operating expenses decreased $11.3 million. The total operating expense decrease was primarily due to a decrease in income tax expense of $14.5 million, which was partially offset by an increase in depreciation and amortization expenses of $3.1 million.

Operating Revenue

For the three months ended March 31, 2025, operating revenue decreased $66.7 million, or 24.7%, to $204.0 million as compared to $270.7 million for the three months ended March 31, 2024.

The sources of the change in operating revenue were:

1. The net change due to rate changes, usage, and other for the three months ended March 31, 2025 was primarily due to rate increases of $21.4 million, recognition of Palos Verdes Pipeline Memorandum Account related revenue of $3.8 million (see “Palos Verdes Peninsula Water Reliability Project” in Regulatory Matters below for more details), an increase in customer usage of $1.6 million, and an increase in accrued and unbilled revenue of $3.5 million due to increases in rates and unbilled days. This was partially offset by $2.4 million of other 2023 revenue recorded in the first three months of 2024 as a result of the resolution of the 2021 GRC that did not recur in the first quarter of 2025.

2. Due to the delay in the resolution of the 2021 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 2021 GRC had been effective January 1, 2023. Such variances were recorded as regulatory balancing account revenue. The 2021 GRC was approved in March of 2024 and final rates for the 2021 GRC were implemented on May 31, 2024; as a result, Cal Water recorded IRMA revenue of $80.7 million in March of 2024 of which $70.3 million was attributable to 2023.

3. MWRAM revenue is the variance between actual metered sales billed through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate had been in effect. In March of 2024, Cal Water received approval of the 2021 GRC which authorized the use of the MWRAM effective January 1, 2023. For the three months ended March 31, 2025 and 2024 Cal Water recorded MWRAM revenue of $14.8 million and $31.1 million, respectively. Of the $31.1 million recorded MWRAM revenue for the three months ended March 31, 2024, $17.6 million was attributable to 2023.

4. 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 three months ended March 31, 2025 decreased and revenue increased by $1.8 million due to a change in the amount expected to be collected beyond 24 months.

Total Operating Expenses

For the three months ended March 31, 2025, total operating expenses decreased $11.3 million, or 5.8%, to $181.6 million, as compared to $192.9 million for the three months ended March 31, 2024. The decrease was primarily due to lower income tax expense partially offset by an increase in depreciation and amortization expense.

Sources of Supply

Sources of water as a percent of total water production are listed in the following table:

Water Production Costs

Water production costs decreased $1.2 million, or 1.9%, for the three months ended March 31, 2025 as compared to the same period in the prior year primarily due to a decrease in Incremental Cost Balancing Accounts (ICBA) expense of $9.3 million. For the three months ended March 31, 2024, Cal Water recorded $7.0 million of ICBA expense attributable to 2023. The decrease was partially offset by an $8.1 million increase in water production costs primarily due to an increase in customer usage and wholesale rates.

The components of water production costs are shown in the table below:

Other Operations

Other operations expenses increased $1.9 million, or 7.1%, for the three months ended March 31, 2025 as compared to the same period in 2024. The increase was primarily due to the recognition of $0.9 million of costs associated with recognized deferred revenue, an increase of $0.5 million in miscellaneous office expenses, a $0.3 million increase in bad debt expense, a $0.3 million increase in labor expense, and a $0.3 million increase in water treatment fees. These increases were partially offset by a $0.7 million reduction in conservation program expenses. Other than costs associated with deferred revenue, these increases were primarily due to inflation.

Depreciation and Amortization

Depreciation and amortization expense increased $3.1 million for the three months ended March 31, 2025, as compared to the same period in 2024. The increase was primarily due to utility plant placed in service in 2024.

Income Tax Expense

Income tax expense decreased $14.5 million for the three months ended March 31, 2025, as compared to the same period in 2024. The decrease in income tax expense was primarily due to a decrease in pre-tax operating income for the three months ended March 31, 2025, compared to the same period in 2024.

REGULATORY MATTERS

California Regulatory Activity

2024 GRC Application

On July 8, 2024, Cal Water submitted Infrastructure Improvement Plans (the Plans) for its California districts for the period of 2025 to 2027 in its 2024 GRC application with the CPUC. The application also proposes a Low-Use Water Equity Program, that would, if approved as filed, decouple revenue from water sales, to assist low-water-using, lower-income customers.

The required, triennial filing begins an approximately 18-month review process by the CPUC, which will analyze the Plans, operating budget proposals, and the Low-Use Water Equity Program to establish water rates for 2026 to 2028 that reflect the cost of providing safe, reliable water service. Associated rates set by the CPUC would become effective no sooner than January 2026. Cal Water has concluded an initial pre-hearing conference and an administrative law judge and Commissioner have been assigned to the case. The Commissioner issued the Scoping Memo and Ruling in November 2024 identifying the issues to be addressed and setting the schedule for the proceeding. At the start of 2025, public participation hearings were conducted and Cal Water received California Public Advocate’s testimony responding to the 2024 GRC application. Cal Water submitted rebuttal testimony in late March 2025. The Assigned Commissioner also issued an Amended Scoping Memo and Ruling on March 13, 2025 granting in part Cal Water’s request to modify the ex-parte rules, and denying Cal Water’s request to modify the issues within the scope of the proceeding. Settlement discussions took place during April 2025, and hearings before the Administrative Law Judge are expected to occur in May 2025.

In the Plans, Cal Water proposes to invest more than $1.6 billion in its districts from 2025 to 2027, including approximately $1.3 billion of newly proposed capital investments. About 46% of the proposed new infrastructure improvements are to replace aging water pipelines. Such improvements are designed to enhance water supply reliability to support customers’ and firefighters’ everyday and emergency needs. The Plans also include, among other projects:

• Water quality upgrades to treat for existing and newly regulated contaminants.
• Infrastructure replacements to help ensure reliable delivery of water service.
• Equipment such as generators to help withstand power outages and shutoffs, and solar installation projects to help reduce Cal Water’s dependency on the electric power grid and lessen our environmental footprint.
• Physical and cyber security and safety enhancements to help protect facilities, customers, and employees.
• Water supply initiatives to help safeguard long-term reliability and sustainability of water sources.
• Advanced Metering Infrastructure to aid conservation efforts and enhance water-use efficiency.

Cal Water’s proposed Low-Use Water Equity Program would, if approved as filed, decouple revenue from water sales across its regulated service areas. The program is designed to work in conjunction with Cal Water’s proposed four-tier rate design and sales forecast proposals to enhance affordability—particularly for low-use and low-income customers—plus reinforce conservation goals, while providing the utility an opportunity to recover the authorized revenue requirement associated with water consumption in a timely manner.

To support these investments, Cal Water has proposed to change 2024 rates to increase 2026 total revenue by $140.6 million, or 17.1%. Cal Water also proposes rate increases of $74.2 million, or 7.7%, in 2027; and $83.6 million, or 8.1%, in 2028.

Escalation Increase Requests

As a part of the decision on the 2021 GRC, Cal Water was authorized to request annual escalation rate increases for 2025 for those districts that passed the CPUC’s earnings test. In November of 2024, Cal Water requested 2025 escalation rate increases for 18 of its regulated districts. The increase in annual adopted gross revenue associated with the November 2024 filing was $27.2 million. The new rates were approved and subsequently implemented on January 1, 2025.

Rate Base Offset Requests

For construction projects authorized in the 2021 GRC as advice letter projects, Cal Water is allowed to request rate base offsets to increase revenues after the project goes into service. In October of 2024, Cal Water submitted a $5.7 million rate base offset advice letter to recover $0.9 million of annual revenue increases in 9 of its regulated districts. The new rates were approved and subsequently implemented on January 1, 2025.

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 October of 2024, Cal Water submitted an advice letter to request offsets for increases in purchased water costs and pump taxes in 8 of its regulated districts totaling $17.1 million. The new rates were implemented on January 1, 2025.

Palos Verdes Peninsula Water Reliability Project

On January 30, 2025, a final decision was issued that approved Cal Water’s request to include $14.2 million of incremental capital costs in rate base and for a temporary surcharge to recover $3.8 million of carrying costs tracked in the Palos Verdes Pipeline Memorandum Account. New base rates were implemented on February 1, 2025 and new surcharges were implemented on April 1, 2025.

California Drought Memorandum Account (DRMA)

On January 30, 2025, a final decision was issued that approved Cal Water’s request to recover $1.4 million of incremental costs tracked in the DRMA. New surcharges were implemented on April 1, 2025.

Regulatory Activity - Other States

Washington Water Service – Stroh’s 2025 Rate Case

On March 14, 2025, Washington Water filed a rate case with the Washington State Utility and Transportation Commission to increase revenues in the Stroh’s water system by $0.2 million, implemented into rates over two years. The first implementation of new rates, if approved, is expected to be effective May 23, 2025.

Hawaii Water Service – 2024 Ka’anapali General Rate Case (2024 Ka’anapali GRC)

During the first quarter of 2025, a settlement was reached in the 2024 Ka’anapali GRC between Hawaii Water and the Hawaii Division of Consumer Advocacy. The settlement calls for total test year revenue requirement of $7.5 million, representing an increase over the $6.4 million previously approved, on rate base of $13.4 million. The settlement agreement was filed with the Hawaii Public Utilities Commission and was approved on April 7, 2025. The rate change is expected to be effective in May 2025.

LIQUIDITY

Cash Flow from Operating Activities

During the three months ended March 31, 2025, we generated cash flow from operations of $38.4 million compared to $26.5 million for the same period in 2024. Cash generated by operations varies during the year due to customer billings, and timing of collections and contributions to our benefit plans.

The decrease in net income for the three months ended March 31, 2025 as compared to the same period from prior year was primarily due to the recording of $111.8 million of operating revenue for the MWRAM and IRMA during the first three months of 2024 due to the resolution of the 2021 GRC. There was an associated increase to regulatory assets related to MWRAM and IRMA operating revenue. The Company started billing for the recovery of these regulatory assets in the fourth quarter of 2024.

During the three months ended March 31, 2025, we made cash contributions of $2.3 million to our employee pension plan and did not make any cash contribution to our other postretirement benefit plans. During the three months ended March 31, 2024, we did not make any cash contributions to our employee pension plan or to our other postretirement benefit plans. The 2025 estimated cash contribution to the employee pension plan is expected to be approximately $5.2 million and no cash contributions are expected to be made for the other postretirement benefits plans.

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 three months ended March 31, 2025 and 2024, we used $110.1 million and $109.8 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 2025, our utility capital expenditures are estimated to be between $450.0 million and $550.0 million based on the 2024 GRC in California and expected capital needs in the other subsidiaries.

Cash Flow from Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2025 was $65.9 million compared to $86.6 million for the same period in 2024. For the three months ended March 31, 2025 and 2024, we paid dividends of $20.2 million and $16.2 million, respectively. For the three months ended March 31, 2025 and 2024, we issued $0.7 million and $0.8 million, respectively, of Company common stock through our employee stock purchase plan.

For each of the three months ended March 31, 2025 and 2024, we borrowed $170.0 million, on our unsecured revolving credit facilities. We made repayments on our unsecured revolving credit facilities of $90.0 million and $70.0 million during the three months ended March 31, 2025 and 2024, respectively.

The net IRMA, MWRAM, Water Revenue Adjustment Mechanism and Modified Cost Balancing Account receivable balances were $121.7 million and $57.9 million as of March 31, 2025 and 2024, 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 significantly lower than Cal Water’s short-term financing rates.

Short-term and Long-term Financing

During the three months ended March 31, 2025, we utilized cash generated from operations and temporary borrowings on our unsecured revolving credit facilities to fund operations and investments.

In future periods, management anticipates funding our utility plant needs through a balance of long-term debt and equity.

Short-term liquidity is provided by the Company’s revolving credit facility (the Company facility) and the Cal Water 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 March 31, 2025 and December 31, 2024, short-term borrowings of $285.0 million and $205.0 million, respectively, were outstanding on the Company and Cal Water facilities.

Given our ability to access our lines of credit 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. Minimal operating levels of unrestricted cash are maintained for Washington Water, New Mexico Water, Hawaii Water and Texas Water.

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 March 31, 2025, we are 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 in 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, 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.

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Dividends

During the three months ended March 31, 2025, our quarterly common stock dividend payment was $0.34 per share, which includes a one-time special dividend in the amount of $0.04 per share, compared to $0.28 per share for the three months ended March 31, 2024. For the full year 2024, the payout ratio was 34.3% of net income. On a long-term basis, our goal is to achieve a dividend payout ratio of 60% of net income.

At the April 30, 2025 meeting, the Company’s Board of Directors declared the second quarter dividend of $0.30 per share payable on May 23, 2025, to stockholders of record on May 12, 2025. This was our 321st consecutive quarterly dividend.

2025 Financing Plan

We intend to fund our utility plant needs in future periods through a relatively balanced approach between long-term debt and equity. The Company and Cal Water have a syndicated unsecured revolving line of credit of $200.0 million and $400.0 million, respectively, for short-term borrowings. As of March 31, 2025, the Company’s and Cal Water’s availability on these unsecured revolving lines of credit was $150.0 million and $165.0 million, respectively.

Book Value and Stockholders of Record

Book value per common share was $27.35 at March 31, 2025 compared to $27.49 at December 31, 2024. There were approximately 1,680 stockholders of record for our common stock as of February 10, 2025.

Utility Plant Expenditures

During the three months ended March 31, 2025, utility plant expenditures totaled $110.1 million, including Company-funded projects of $104.8 million and developer-funded projects of $5.3 million. For 2025, we estimate utility capital expenditures to be between $450.0 million and $550.0 million based on the 2024 GRC in California and expected capital needs in the other subsidiaries.

As of March 31, 2025, construction work in progress was $378.4 million. Construction work in progress includes projects that are under construction but not yet complete and placed in service.

WATER SUPPLY

Our source of supply varies among our operating districts. Certain districts obtain all of their supply from wells; some districts purchase all of their supply from wholesale suppliers; and other districts 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 ground water from water basins under state ordinances. These are 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 7.8 billion gallons or 14.9% of our total average annual (2023 to 2024) 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 ground water from managed or unmanaged water basins. There are no set limits for the ground water extracted from these water basins. Our average annual groundwater extraction from managed groundwater basins approximates 29.6 billion gallons or 56.4% of our total average annual (2023 to 2024) water supply pumped from wells. Many managed groundwater basins we extract water from have groundwater recharge facilities for which we financially support the recharge activities by paying well pump taxes. For the three months ended March 31, 2025 and 2024, our well pump taxes were $5.7 million and $4.8 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 the Company’s 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 April 11, 2025, the State of California snowpack water content in California’s northern Sierra region for the 2024-2025 water year was 117% of long-term averages (per the California Department of Water Resources). The northern Sierra region is the most important for the state’s urban water supplies. The central and southern portions of the Sierras have recorded 89% and 79%, respectively, of long-term averages. Management believes that supply pumped from underground aquifers and purchased from wholesale suppliers will be adequate to meet customer demand during 2025 and thereafter. However, water rationing may be required in future periods, if declared by the state or local jurisdictions. Long-term water supply plans are developed for each of our districts to help assure an adequate water supply under various operating and supply conditions. Some districts 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, that compares 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 U.S. Environmental Protection Agency (EPA) finalized a National Primary Drinking Water Regulation establishing legally enforceable levels, known as maximum contaminant levels (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. We estimate a capital investment of approximately $226.0 million will be required to comply with the regulation. The Company is a party to four separate class-action settlements with the following companies: 3M Company; E.I. Du Pont de Nemours and Company (n/k/a EIDP, Inc.), DuPont de Nemours, Inc., The Chemours Company, The Chemours Company FC, LLC, and Corteva, Inc. (collectively, DuPont); Tyco Fire Products LP; and BASF Corporation. These settlements are designed to resolve certain claims for PFAS contamination of drinking water in active public water systems. The estimated proceeds from these settlements will provide partial funding for treatment solutions to remove PFAS from water sources in which PFAS has been detected, future testing, and operational expenses. The Company expects to receive proceeds from settlements with the 3M Company and DuPont in the second quarter of 2025 and expects to receive proceeds from settlements with Tyco Fire Products LP and BASF Corporation in approximately late 2025 or early 2026. The Company plans to use any settlement proceeds received (after deducting legal fees and expenses) to offset capital expenditures required to comply with the PFAS 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. We anticipate installing treatment for the remaining impacted sources before the regulatory deadline.

CONTRACTUAL OBLIGATIONS

During the three months ended March 31, 2025, there were no material changes in contractual obligations outside the normal course of business.

There have been no material changes to the Company’s quantitative and qualitative disclosures about market risk set forth in Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year-ended December 31, 2024 filed with the Securities and Exchange Commission (SEC) on February 27, 2025.

(a) Management’s Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management, including the Chief Executive Officer and Chief Financial Officer, recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Accordingly, our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2025. Based on that evaluation, our management including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes to Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the first quarter of 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the Company’s risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year-ended December 31, 2024 filed with the SEC on February 27, 2025.