Q2 2025 California Water Service Group Earnings Call

Operator: Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin momentarily. Until that time, your lines will again be placed on music hold. Thank you for your patience. Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the California Water Service Group's second quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. I would now like to turn the conference over to James Lynch, Senior Vice President, CFO, and Treasurer. You may begin.

Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until the time your lines will. Again be placed on music. Hold thank you for your patience.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the California Water Service Group second quarter 2025 earnings call.

James Lynch: Thank you, Jericho. Welcome everyone to the second quarter 2025 results call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CDO, and Shillan Patel, our Chief Business Development Officer and Vice President of our Texas subsidiary, TWSC. Replay dial-in information for this call can be found in our quarterly results earnings release, which was issued earlier today. The call replay will be available until September 29th, 2025. As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8K and is also available on the company's website at www.calwatergroup.com. Before looking at our second quarter 2025 results, I'd like to cover forward-looking statements. During our call, we may make certain forward-looking statements.

Alliance has been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question. Again, press star 1, I would now like to turn the conference over to James Lynch, senior vice president CFO and Treasurer. You may begin.

Thank you, Jericho. Welcome everyone to the second quarter 2025 results. Call for California Water, Service Group with me today is Marty crop on the key, our chairman and CEO and she'll in Patel, our chief Business Development officer and vice president of our Texas subsidiary twsc.

Replay dialing information for this call can be found in our quarterly results earnings release, which was issued earlier today.

The call replay will be available until September 29th 2025.

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

Before looking at our second quarter 2025 results, I'd like to cover forward-looking statements.

James Lynch: Because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company's current expectations. As a result, we strongly advise all current shareholders and interested parties to carefully read the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q, press releases, and other reports filed with the Securities and Exchange Commission. And now I'll turn the call over to Marty.

During our call, we may make certain forward-looking statements because these statements deal with future events. They are subject to various risks and uncertainties and actual results could differ materially from the company's current expectations.

Martin Kropelnicki: Thank you, Jim. Good morning, everyone. Thank you for joining us here today. We have six main items on the agenda that we want to cover today with everyone and provide an update on. One, we want to talk about the strong performance during the second quarter. Just to remind everyone, earnings look pretty wonky. And as we have been saying on every earnings call, it's really driven by the fact that the 2021 general rate case was 16 months late. So when it was finally approved in 2024, it was retroactive. So that's kind of like the boa constrictor and the egg. Because it was retroactive, it's kind of made earnings look kind of funky year to year.

Martin Kropelnicki: I think kind of the punchline from an earnings perspective is when you look at the non-GAAP EPS, non-GAAP earnings per share, we're up 15% year over year, which is historically very, very good considering it's the third year of the rate case in California, which is our largest operating entity. Secondly, we will give an update on our capital program. Capital spending was up approximately 7%, kind of quarter over quarter. And then we'll give you an update on where we are with the California general rate case. In addition, we have a new person attending us today, not new to the company, who's been around a long time, but new to helping give an update to our stockholders, Shillan Patel, who is a lead executive officer who heads up our business development activities and is also running our Texas operations for us.

As a result, we strongly advise. All current shareholders, and interested parties to carefully. Read the company's disclosures on risks and uncertainties found in our form, 10K form 10, Q, press releases and other reports filed with the Securities and Exchange Commission. And now I'll turn the call over to Marty uh, thank you Jim. Good morning everyone. Thank you for joining us here today. Uh, we have 6 main items on the agenda that we want to cover today with everyone and provide an update on 1. We want to talk about the strong performance uh during the during the second quarter uh just to remind everyone earnings look pretty wonky. Uh and as we have been saying on every earnings call, it's really driven by the fact that the 2021 General rate. Case was 16 months late. So when it was finally approved in 2024 it was retroactive. So that's kind of like the boa constrictor and the Egg um because it was retroactive, it's kind of made earnings look kind of funky year to year. I think kind of

Effective is when you look at the non-gaap EPS, non-gas non-gaap earnings per share. We're up 15% year-over-year, which is historically, very, very good. Considering it's the third year of the rate case in California which is our largest operating entity.

Martin Kropelnicki: So Shillan will give you an update on what's going on in Texas, as well as an exciting new contract we entered into in California in Silverwood, which is a new development that's being built in Southern California. We'll give you a quick update on where we are with PFOS. That's been a little bit of a political football, but we have made steadfast in our approach in making sure that the drinking water we provide our customers is safe and in compliance with our requirements. And then lastly, you know, we did recently get reaffirmed our very good A-plus stable rating from S&P Global. So we're very happy to see that we maintained a very strong credit rating going into the second half of the year.

Uh, second thing we will give an update on our Capital program Capital spending was uh, up approximately 7% kind of quarter over quarter. Uh, and then we'll give you an update on where we are with the California General rate case. In addition, we have a new person attending us today not new to the company. He's been around a long time but new to helping give an update to uh our our stockholders. Uh shilen Patel who is a lead executive officer, who heads up our business development activities, and is also running our Texas operations for us. So she will give you an update on what's going on in Texas, as well as an exciting new contract. We entered into in California, uh, and Silverwood which is a new development that's being built in in Southern California.

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

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

James Lynch: Great. Thanks, Marty. So as Marty mentioned, we had, we have presented both GAAP and non-GAAP metrics for 2024, which you'll be able to see on the next several slides. The non-GAAP measures do remove the impact of the 2023 interim rate relief from our 2024 results. So in Q2 2025, revenue increased $20.7 million, or 8.5%, to $265 million. This compares with revenue of $244.3 million in Q2 of 2024. Compared to Q2 2024 non-GAAP revenue, second quarter revenue increased $17.9 million, or 7.2%. Net income for the quarter was $42.2 million, or $0.71 per diluted share. And this compares with 2024 second quarter net income of $40.6 million, or $0.70 per diluted share. Compared to non-GAAP 2024 net income, Q2 net income decreased $200,000 or $0.02 per diluted share.

So, with that Jim, I'm going to turn over to you, so you can go through the financial results for the quarter. Please, great. Thanks, Marty. Uh, so is Marty mentioned, uh, we, we had, uh, we have presented both, gaap and non-gaap metrics, uh, for 2024, uh, which you'll be able to see on the next several slides, the non-gaap measures. Do remove the impact of the 2023 interim. Rate relief from our 2024 results.

So in cue 2, 2025 Revenue, increase 20.7 million or 8.5% to 265 million.

This Compares with revenue of 244.3 million in Q2 of 2024.

Compared to Q2 2024 non-GAAP revenue, second quarter revenue increased $17.9 million for a 7.2% increase.

Net income for the quarter was $42.2 million, or $0.71 per diluted share. This compares with the 2024 second quarter net income of $40.6 million, or $0.70 per diluted share.

James Lynch: The $1.8 million GAAP to non-GAAP difference is due to the finalization of amounts recorded in 2024 that were related to the 2023 interim rates. Moving to slide six, you can see the impact of the activity during the second quarter on our earnings result as compared to the 2024 non-GAAP result. The primary drivers were tariff rate changes and increased customer usage, which combined added $0.52 per diluted share. The increases were offset mainly by revenue regulatory account decreases of $0.21 per share and water production rates and depreciation increases of $0.12 and $0.05 per share, respectively. Also, in the second quarter of 2024, we reduced bad debt expense as a result of payments received under the Extended Water Averages Program in California. As a result, we recognized a $0.06 per share benefit in the second quarter of 2024 that did not repeat in 2025.

Compared to non-gaap 20/204 net income. Due to net income decreased or 2 cents per diluted. Share the 1.8 million dollar gaap to non-gaap difference is due to the finalization of amounts, recorded in 2024 that were related to the 2023 interim rates.

Moving to slide 6, you can see the impact of the activity during the second quarter on our earnings result as compared to the 2024 non-gaap results.

The primary primary drivers, were tariff rate. Changes and increased customer usage, which combined added 52 cents per diluted share.

The increases were offset. Mainly by Revenue regulatory account decreases of 21 cents, per share and Water Production rates, and depreciation increases of 12 cents and 5 cents per share respectively.

James Lynch: Slide seven shows our year-to-date financial results. Revenue through the first three to six months of 2025 was $468.9 million compared to $515 million for the same period in the prior year. When adjusting 2024 results for interim rate relief, year-to-date 2025 revenue increased $41.3 million, or 9.7%. Net income attributed to the group was $55.5 million, or $0.93 per diluted share, compared to $110.5 million, or $1.90 per diluted share in the prior year. When adjusting for the 2023 interim rate relief, net income increased $9 million, or 19.4% over non-GAAP 2024 year-to-date net income, while diluted earnings per share increased $0.12 or 14.8%.

Also in the second quarter of 2024, we reduced bad debt expense as a result of payments received under the extended water or Rees program in California as a result. We recognized a 6 cents per share benefit in the second quarter of 2024 that did not repeat in 2025.

Slide 7 shows our year-to-date Financial results.

Revenue for the first Revenue. Through the first 3 weeks of 2025 was 468.9 Million compared to 515 million for the same period in the prior year.

When adjusting 2024 results for interim, rate relief year to date 2025 Revenue increased 41.3 million or 9.7%.

Net income attributed to the group was $55.5 million, or $0.93 per diluted share, compared to 110.5% in the prior year.

James Lynch: Turning to slide eight, the primary drivers of our year-to-date diluted earnings per share when compared to the non-GAAP 2024 results were tariff rate changes and increased customer usage, which combined added $0.75 per diluted share, and the Palis Vertice pipeline recovery that added $0.05 per share. These increases were partially offset by regulatory revenue account decreases of $0.26 per share, water production rate and usage increases totaling $0.18 per share, and depreciation expense increased of $0.09 per share. We continue to make significant investments in our water infrastructure to ensure the delivery of safe and reliable water service. Our capital investments for the quarter and year to date were $119.4 million and $229.5 million, respectively. This represents a 14.2% increase for the quarter and a 7% increase year to date compared to the same periods in 2024.

When adjusting for the 2023 in room rate relief, net income, increased $9 million or 19.4% over non-gaap 2024 year to date. Net income, while diluted earnings per, share increased, 12 cents or 14.8%.

Share, these increases were partially offset by regulatory revenue account, decreases of 26 cents per share.

Water production rate and usage increases totaling, 18 cents, per share and depreciation expense increase of 9 cents per share.

We continue to make significant investments in our water infrastructure to ensure the delivery of safe and reliable Water Service.

Our Capital Investments for the quarter and year to date for 119.4 million and 229.5 million respectively.

James Lynch: As a reminder, our capital investments do not include an estimated $220 million of remaining PFOS project expenditures, which we expect will be incurred over the next few years. The positive impact of our capital investment program is having on our regulated rate basis presented on slide number 10. If approved as requested, the 2024 GRC and Infrastructure Improvement Plan, coupled with planned capital investments in our utilities and other states, would result in a compounded annual rate-based growth of almost 12%. Moving to slide 11, we continue to maintain a strong liquidity profile to execute both our capital plan and strategic M&A investments. As of the end of the quarter, we had $50.5 million in unrestricted cash, $45.6 million in restricted cash, and $240 million in available credit on our bank lines.

This represents a 14.2% increase for the quarter and a 7% increase year-to-date compared to the same periods in 2024.

As a reminder, our Capital Investments do not include an estimated 220 million dollars of remaining POS project expenditures which we expect will be incurred over the next few years.

The positive impact of our capital investment program is having on our regulated rate base is presented on slide number 10.

If approved is requested, the 2024 GRC and infrastructure Improvement plan, coupled with plan Capital investments in our utilities and other states would result in a compounded annual rate based growth of almost 12%.

Moving to slide 11, we continue to maintain a strong liquidity profile to execute both our Capital plan and strategic m&a Investments.

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

As of the end of the quarter, we had 50.5 million in unrestricted, cash 45.6, million in restricted, cash and 240 million in available credit on our bank lines.

Earlier in the quarter, we entered into an equity distribution agreement, to sell shares under an at the market Equity program with an available shelf of 4. 350 million.

While we expect to use the ATM strategically and from time to time, we did not use it in 2025 year to date.

Martin Kropelnicki: Thanks, Jim, and I'm going to piggyback off those last comments about the credit rating. Obviously, the company's balance sheet continues to be very, very strong, which is important given the growth that we have in our capital investment program and our infrastructure improvement plans. Likewise, that also dovetails right into our dividend program. And I'm very proud to announce that yesterday our board of directors approved our 322nd quarterly dividend in the amount of $0.30 a share. I just remind everyone the dividend increase that the board approved earlier this year represented a 10.71% increase, which gives us a five-year 7.7% compound annual growth rate for our dividend. We believe this dividend growth rate reflects our continued growth in our balance sheet, as well as our continued expansion on our infrastructure improvement plan, which we think is important as we continue to build up the balance sheet.

And finally, as Marty mentioned in July, we received our annual credit rating update from S&P Global in which we retained. Our A+ stable rating. We're proud that we continue to maintain this strong credit rating with that. I'll turn the call back over to Marty. Uh thanks Jim. And I'm gonna piggy back off those last comments about the credit rating. Obviously. Uh, the company's balance sheet. Uh, continues to be very, very strong, which is important. Given the the growth that we have and our capital investment program and our infrastructure Improvement plans. Likewise that also that also dovetails right into our dividend program, uh, and I'm very proud to announce that yesterday, our board of directors approved, our 322nd quarterly dividend in the amount of 30 cents, a share. I just remind everyone

Martin Kropelnicki: So balance sheet's in good shape, and we have a lot to do in the second half of 2024. Moving on to slide 13, I want to give everyone an update on where we are with the rate case in the state of California. As you may recall, in the application, the company is requesting $398 million over the years and over the years of 2026, 2027, and 2028, and a corresponding $1.6 billion budget for infrastructure improvements in the state of California, especially as we continue to move forward with our climate change adaptation plans. During the quarter, well, first of all, the rate case continues to be on schedule from where it is, and that's really the good news here. So far, the administrative law judge and the assigned commissioner have kept everything on task to date.

The dividend increase that the board approved earlier this year represented a 10.71% increase, which gives us the 5-year. 7.7% compound annual growth rate, uh, for our dividend. Uh, we believe this dividend, uh, growth rate, reflects our continued growth in in our balance sheet, as well as uh our continued um expansion on our infrastructure Improvement plan, which we think is important as a continue to build out the balance sheet. So balance sheet is in good shape and we have a lot to do in the second half of 2024.

Martin Kropelnicki: Settlement discussions did take place during April, and hearings before the administrative law judge took place in May. After the hearings in May, the ALJ, Administrative Law Judge, requested additional information from the parties, and he was responded to in June. We then filed opening briefs on July 7th with reply briefs that were filed earlier this week as we move into the last phase of the rate case. So there was no settlement that was reached. While there were a number of undisputed items in the rate case process, we did not reach a settlement with the ratepayer advocate. And so hence, we had to file the opening briefs on July 7th and the reply briefs on July 28th to set up the final motion hearing, which will take place on August 5th.

Moving on to slide 13, I want to give everyone an update on where we are at the rate case in the state of California. Uh, as you may recall, uh, and and the application the company is requesting 398 million, uh, over the years. Uh, you know, and over the years is a 2026 2027 and 2028 and a corresponding 1.6 billion. Uh, budget for infrastructure. Improvements in the state of California, especially as we continue to, um, move forward with our climate change, adaptation plans, uh, during the quarter. Uh, well first of all, the rate case continues to be on schedule, uh, from where it it is. And, and that's really the good news here. So far the administrative law judge in the sign Commissioner of cap cap everything on task to date settlement discussions did take place during April and hearings before the administrative law judge took place.

Martin Kropelnicki: After that August 5th hearing, that's the point in which all the information is submitted to the ALJ to draft the proposed decision. So August and September and October are critical months for the commission as they work through the rate case and hopefully keeping it on time so it goes into effect on 1/1/2026. Moving over to slide 14 to give you a quick update on what's happening with PFOS. The EPA has confirmed the maximum containment level for PFO and PFOS will remain at four parts per trillion, while it continues to evaluate standards for the other PFOS compounds. So other compounds in the PFOS family or in the forever chemicals families. The agency has also proposed extending the compliance deadline for PFO and PFOS treatments from approximately two years from 2029 to 2031, with a final ruling expected in 2026.

On July 7th. And the reply briefs on July 28th, to set up the final motion hearing which will take place on August 5th after that August 5th. Uh, hearing that's the point in which all the information is submitted to the alj to draft the proposed decision. So August, and September, and October are critical months for the commission as they work through the the rate case, uh, and hopefully keeping it on time. So it goes into effect on 1 120th.

Martin Kropelnicki: Some states, such as Washington or what's currently going through the legislature in the state of California, are looking at implementing their own regulatory rules around this consistent with the four parts per trillion, but on the original implementation timeline. So we're closely monitoring that on a state-by-state basis to see where ultimately each state ends up with the implementation of the PFOS rules. From a group perspective, we remain committed to investing in the water quality and infrastructure across Washington, New Mexico, California, and making sure that we do everything we can to make sure that we stay ahead of schedule to ensure water quality for all of our customers. And we'll continue with our plans as we are right now.

Moving on to slide 14, uh, to give you a quick update on what's happening with pfos. Uh, the EPA is confirmed the maximum contaminant level for pfoa and pfos will remain at 4 parts per trillion, will it continue to evaluate, uh, standards for the other POS compounds. So other compounds in the, in the, in the P box, family or in the forever chemicals families. The agency is also proposed extending the compliance deadline for Po and people as treatments from, uh, I said approximately 2 years from 2029 to 2031 with a final ruling expected in in 2026, uh, some states such as Washington or what's currently going to the legislature in the state of California, um, are looking at implementing their own regulatory, um, rules around this consistent with the the 4 parts per trillion but on the original implementation timeline. So, we're closely monitoring that on a state-by-state basis, uh, to see where ultimately 8,

State ends up with the implementation of the POS rules.

Uh from a a group perspective we remain committed to investing in the water quality and infrastructure across Washington New Mexico, California.

Martin Kropelnicki: We might push or pull a couple of things from year to year now that there's a little bit more room, but the original $22 million or $226 million investment that we forecast is still on the table, and we are moving forward with that program. Looking on page 15, our approach to PFOS-related investments is intentionally aligned with the evolving EPA guidelines. It has been a little bit of a moving ball, but if you think about it, they just extended the implementation date a couple of years. And given what we're seeing within a few of the larger states that we operate in, there's a good chance the states will adopt standards that will keep us in line with the original implementation timeline set by EPA.

Uh, and making sure that we do everything we can to make sure that we stay ahead of schedule to ensure water quality for all of our customers and our and will continue with our plans as we are right now. We might push or pull a couple things, uh, from year to year. Now that there's a little bit more room but the original 200 uh and and 22 million, uh 226 million investment that we forecast is still on the table and we are moving forward with with with that program.

Looking on page, 15.

Martin Kropelnicki: So again, we're watching that, but nonetheless, we remain committed to doing what we need to do to make sure that we exceed the water quality standards every day that we operate. And the PFOS and PFOA teams are going full steam ahead as of right now and moving forward with our projects. And we'll start to see that investment start to show up in the capital investment line as we move forward in the second half of 2025 and certainly well into 2026 and '27. In addition, I want to talk a little bit about the settlement on where we are in dealing with the people who contaminated the water supply. We continue to make good progress on recovering those costs through litigation. CalWater is a party to force separate class action settlements related to PFOS.

Uh, our our approach to POS related Investments is, is intentionally aligned with the evolving EPA guidelines. It has been a little bit of a moving Ball, but if you think about it, they just extended the implementation date, uh, a couple years. Uh, and given what we're seeing within a few of the larger states that we operate in, uh, there's a good chance that the states will will adopt standards that will keep us in line with the original, uh, implementation set the timeline set by EPA. So, again, we're we're watching that. But nonetheless, we are remain committed to doing what we need to do to make sure that we exceed the water quality standards every day that we operate. And the, the POS uh, and poet teams are are going full steam ahead as of right now, and moving forward.

Martin Kropelnicki: And in May of 2025, so May of this year, we received the first $10.6 million in net proceeds from a settlement with 3M. This represents the first of 10 scheduled installments that we will get from 3M, and we expect to begin receiving proceeds from the other three settlements potentially later on this year. Now I want to take a moment to introduce someone new to the call, but not new to CalWater. He's been here a while driving all our business development efforts, and he's certainly a veteran in the water space. So I'm going to turn it over to Shillan Patel to give everyone an update on what we have going on on the business development side and in Texas. So Shillan, take it away.

The projects in most, you'll start to see that Investments start to show up in in the capital investment line, as we uh move forward uh in the second half of 2025 and certainly well, into 2026 and 27. Uh, in addition, I want to talk a little bit about the settlement on where we are uh and dealing with the people who contaminated the water supply. We uh continue to make good progress on recovering. Those costs through litigation Cal Water is a party to force separate class action, settlements related to Pas and in May of 2025. So may of this year, we received the first 10.6 million dollars in net proceeds, from a settlement with 3m. This represents the first of 10, scheduled installments, that we will get from 3M and we expect to begin receiving proceeds from the other 3 settlements, uh, potentially later on this year.

Shillan Patel: Thank you, Marty. On slide 16, you'll see that California Water continues to prioritize growth through acquisitions and capital investments. A key example is our agreement with DMB Development, a national developer working on a master plan community near the city of Esperia in San Bernardino County. Under this agreement, CalWater will build, own, operate, and finance the wastewater treatment facility that will serve the development. Once fully built out, the community will consist of over 15,000 customer connections. At full capacity, the facility will deliver more than 3 million gallons per day of tertiary treated wastewater. More importantly, 100% of this water will be reused within the community, and it will be the largest wastewater treatment and reuse facility in CalWater's asset portfolio.

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

Shillan Patel: We plan to file a certificate of public convenience and necessity with the CPUC to establish a regulated service area and include this district in future general rate case filings. And now turning to slide 17, our Texas utility subsidiary continues to grow in step with the rapid expansion of the state. As a reminder, California Water made its initial investment in this subsidiary in 2021. The goal was to support water and sewer utility development in the Austin-San Antonio mega region. This region currently has a population of about 5 million people and is projected to exceed 8 million by 2050, which is comparable to the Dallas-Fort Worth region today. The biggest challenge to this growth is timely infrastructure development, especially roads and water systems.

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

In an out, turning the slide 17, our Texas utility subsidiary continues to grow in step with the rapid expansion of the state as a reminder, California Water Maintenance. Initial investment in this subsidiary in 2021. The goal was to support Water and Sewer utility development in the Austin. San Antonio, Mega region this region currently has a population of about 5 million people and projected to exceed 8 million by 2050, which is comparable to the Dallas Fort Worth region today.

Shillan Patel: This presents a strong opportunity for California Water to partner with state and local governments and the private sector to align our utility investments to support the state's economic development objectives in the region. On slide 18, you'll see continued momentum in customer growth for our utility in Texas. Both connected customers and paid customer commitments are increasing, which reflects the sustained demand in the Austin-San Antonio mega region. Additionally, BVRT filed a general rate case for five utilities in June of 2024. A settlement agreement has been reached and is currently awaiting commission approval. Thank you. And I'll hand it back to Marty.

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

On slide 18, you'll see continued momentum in customer growth for our utility in Texas. Both connected customers and paid customer commitments are increasing, which reflects the sustained demand in the Austin-San Antonio mega region. Additionally, BVRT filed a general rate case for 5, and utilization is currently awaiting commission approval.

Martin Kropelnicki: Great, Shillan. Shillan, I believe DMB, we've done other business with successful projects with them in other sites. I believe Kokio, which is the high-end estates on the Big Island of Hawaii, was one of the ventures we did with them a number of years ago, correct?

Shillan Patel: That is correct. And we have another one as well as KSSCS in Hawaii.

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

Thank you and I'll hand it back to Marty Rachel. I believe DMV we've done other business with successful projects with them in other states like believe kukio which is a high-end Estates on the big island of Hawaii was 1 of the ventures. We did with them a number of years ago. Correct. That is correct. And we have another 1 as well as kscs in Port in kawaii kawaii. So so it's it's good to work with a partner. We have uh,

Boy, I guess.

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

16 years of experience with working with them which is good um on the settlement with with bvrt it's not filed yet with the commission, right? But we have an all party settlement.

Martin Kropelnicki: Perfect. So that means for everyone on the call, we can't take any questions as to the particulars of the settlement, but overall, I would say we're very pleased that we reached an all-party settlement, and Shillan and the team in Texas have done a really good job working on that rate case. And that's their first rate case that's being filed, which will actually establish the rate base for the Texas entities for us. So really good work there. All right. Moving ahead to slide 19, I want to take a moment to talk about our sustainability report and just hit a couple of highlights on that. In June, we published our 2024 report. I believe this is our third report that we've published, and we continue to focus on four key areas: protecting the planet, serving our customers, engaging the workforce, and governing with integrity.

That is correct. We do have an all-party settlement and it is not filed with the commission yet. It should be filed shortly and we'll share more information with us within that settlement when it's filed perfect. So that means Forever on the call. We can't uh, take any questions as to the particulars of the settlement but overall I would say we're very pleased that we reached an all-party settlement and showing in the team in Texas that are really good job. Uh working on that right case now,

Martin Kropelnicki: Among some of the highlights are our goals of reducing Scope 1 and Scope 2 greenhouse gas emissions by 23.5% from our 2021 baseline and the fact that we're investing nearly $3 million in energy-efficient upgrades within our service territory. In addition, we had 100% compliance with the water quality standards, the primary and secondary water quality standards, and we conducted more than 615,000 water quality tests on behalf of our customers in the states that we operated in. From a philanthropic perspective, the company donated more than $1.1 million to community organizations, including our FireFire grant program, which is very successful, as well as our local scholarship programs for children of our customers, especially those that are first-generation college students. In addition, we expanded our employee training program by approximately 17%, and we continue to develop new career pathways for our employees, which have been very successful.

That's our first rate case. That's being filed, which will actually establish the rate base for the, the Texas entities for us. So, really good work there. Um, all right, moving ahead to slide 19. I want to take a moment to talk about, uh, our sustainability report and just hit a couple highlights on that. Uh, in June, we we published our 2024 report. I believe this is our third report that we we published. And we we continue to focus on 4 key areas protecting the planet serving, our customers engaging, the workforce, and governing with Integrity. Among some of the highlights, our our, our our, our goals of reducing scope 1 scope, 2, greenhouse gas emissions by 23.5% from our 2021 Baseline. And the fact that we're investing near like 3 million dollars in energy efficient upgrades uh within our service territory.

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

Martin Kropelnicki: And the significance of those pathways, it's not just a way to get promoted, but there are certification requirements that go along with it. And so for everyone that operates a water system, we all know how important those certifications are. So it's a way to let people grow and move up their certification chain and move into higher-level jobs as they get those higher-level certifications. In fact, we always say, "Hire, pay for hire, serve." So it's been a very, very successful program. In addition, we've expanded our supplier oversight and our diversity efforts in terms of adding more suppliers that we procure goods and services from at the local level. So I encourage everyone to read the report.

Martin Kropelnicki: It's in the consistent reporting format that meets the majority of standards out there for sustainability reports, and we remain 100% dedicated to our ESG efforts, emphasizing the strong G for governance. So lastly, I want to talk about what to watch for in the fourth quarter because certainly we have a lot going on. First and foremost, we're maintaining our focus on the 2024 general rate case. That's really important. And as I mentioned before, it represents 90% of our business as a utility. In addition to that, we also have important rate proceedings in Hawaii, Washington, and Shillan has just talked about Texas, as well as New Mexico. So the rates team is very, very busy with everything they got going on. As we move into the warm, dry summer months, that allows us the opportunity to speed up our capital investment program.

Pay for higher search. So it's been a very, very successful program. Uh, in addition, we've expanded our supplier oversight and our diversity efforts in terms of adding more suppliers that we procure goods and services from at the local level. So I encourage everyone to read the report. It's in the consistent reporting format that meets the majority of Standards out there for uh, sustainability reports. And we remain 100% dedicated to our ESG efforts, uh, emphasizing the strong G for governance.

So, lastly, I want to talk about what to watch for in the fourth quarter because certainly we have a lot going on. First and foremost, we're we're maintaining our focus on the 2024 General rate case. Uh, that's really important. And as as I mentioned before, it's, you know, it's a represents 90% of our business as a utility. Uh, in addition to that, we also have an important rate, proceedings in Hawaii. Washington has shown us just talked about Texas, as well as New Mexico. So the rates team is very, very busy with everything. They got going on.

Martin Kropelnicki: So the third quarter is one of the busiest quarters from an investment standpoint. So the team's busy working on that. It is interesting to note that while the southeast of the US is going through a heat wave, in California, we are having a below-average summer. So it's been cooler. It's been a little more pleasant, which has been great from a fire season perspective. But all this means it allows us to really kind of put the pedal to the metal on the capital investments as we go through the summer months and prepare to go into winter. Obviously, with the cool weathers, it gives us a little bit of a break from fire season, but nonetheless, that does not allow us to slow down our efforts or back off our efforts for wildfire readiness.

As we move into the warm dry summer months uh that allows us the opportunity to speed up our capital investment program. So the third quarter is 1 of the busiest quarters from a from an investment standpoint. So the team's busy working on that it is interesting to note that while the southeast of the us is going through a heat wave. Uh, in California. We are having a below average summer, so it's been cooler. It's been it's been a little more.

Pleasant, which has been great for a Mafia season perspective, but all this means it allows us to really kind of put the the pedal to the metal on the capital Investments as we go through the summer months and prepare to go into winter.

Martin Kropelnicki: And the operating teams have been very, very busy since May implementing our readiness programs for 2025. So overall, there's a lot going on. And of course, lastly, we have to continue to execute prudently and efficiently. And as I started with this discussion here today, it is the third year of the rate case. The third year of the rate case is where we tend to see the most regulatory lag. And overall, I'm very happy to see that 15% growth in our earnings for the second quarter of 2025, given the fact it's the third year of the rate case. So with that, Jericho, we will open it up for questions from the analyst, please.

Operator: Yes. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw the questions, you can press star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your headset to ensure that your phone is not on mute when asking your question. And our first question comes from David Sunderland from Baird. Please go ahead.

Obviously uh, with the cool weathers, it gives us a little bit of break from Fire season but nonetheless, that does not allow us to slow down our efforts our back off our efforts for Wildfire Readiness and the operating teams have been very, very busy, uh, since May implementing our Readiness programs for 2025. So overall, there's a lot going on. And of course, lastly, uh, we have to continue to execute prudently, uh, and efficiently. And, and as I started with this discussion here today, it is the third year of the rate case, the third year of the rate cases where we tend to see the most regulatory lag and and overall, I'm very happy to see that 15% growth in your earnings for the second quarter of 2025 given. The fact, it's the, it's the third year in the rate case. So, with that, uh, Jericho we will open it up for questions, um, from the analyst please.

Yes. Uh, we will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press *1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, please press *1 again.

If you're called upon to ask your question and are listening by a speaker phone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question.

And our first question comes from Davis, Sunderland from period. Please go ahead.

Martin Kropelnicki: Hey, good morning, guys. Marty, Jim, Shillan, thank you for the update. Thank you for taking my question. Maybe I could start. You started actually to answer my question at the tail end of your last comments there, Marty, just about the GRC. But it sounds like you guys are still expecting a decision by year end. So I guess, one, is that correct? And then maybe more specifically, I mean, what is there that you guys are looking for in the case or what can we monitor in that timeframe of August to October that you kind of defined as the critical months? And then I have one follow-up.

James Lynch: Yeah, I mean, so far, the assigned commissioner has given us every indication that it's a top priority for him to get the rate case done on time. Obviously, because there's no settlement, there's a lot for the assigned administrative law judge to go through. I will say the judge who is assigned to our case is very procedural and has just really been kind of following the schedule, which so everything's been lining up to be on schedule year to date. But now is really when the rubber meets the road for the assigned law judge to kind of pull the case all together. And one of the things that the judge did ask us for was a list of non-disputed items. So that's been provided.

Hey, good morning, guys. Uh, Marty, Jim, thank you for the update. Thank you for taking my question. Um, maybe I could start—you started actually to answer my question at the tail end of your last comments there, Marty, just about the GRC. But it sounds like you guys are still expecting a decision by year-end. So I guess, one, is that correct? And then maybe more specifically, I mean, what is there that you guys are looking for in the case, or what can we monitor in that time frame of August to October that you kind of defined as the, uh, the critical months? And then I have one follow-up.

Yeah, I mean so far the the assigned commissioner has given us every indication. It's a top priority for him to get the right case, done on time. Uh, obviously because there's no settlement, there's, there's a lot for the, uh, assigned, uh, administrative law judge to go through. Um, I will say, uh, the judge who is a signer of a post, is very procedural. Uh, and has just just just, really been kind of following the schedule which so everything's been lining up to be on schedule a year to date. But now is really when the rubber meets the road for the assigned uh a law judge to kind of pull the case. All together,

James Lynch: So I think he's seen it the right way, but we kind of go into this blackout period other than answering questions from the administrative law judge for October or, excuse me, for August, September, and potentially October. So we'll just have to wait and see. But so far, what the commissioner is saying is his goal. The judge has been sticking to the schedule. He's been very procedurally driven. He's asked a lot of good questions. So we have every indication that it's heading the right way. Now it's where the rubber meets the road from the commission side. Our work is done as of August 5th when we have that final hearing and everything's handed off to the judge. So it'll be up to the judge. So I'm guardedly optimistic. You know, will it be right on time?

James Lynch: I have no reason to believe that the assigned commissioner is not telling us the truth, and he said it's his top priority to get it done on time. So we'll see what the commissioner does with it. And in the meantime, we'll continue to answer all their questions. So that's a long-winded question of saying, as of right now, it's on schedule, and the commissioner is focused on it as well as the judge.

Rubber meets the road from the commission side. Our work is done as of August 5th when we have that that that final hearing and everything's handed off to the judge. So it'll be up to the judge so I'm guardedly optimistic. You know, will it be right on time?

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

You know, I have no reason to believe that the sign Commissioners, you know, not telling us the truth and he said it's his top priority to get it done on time. So we'll see what the commissioner does with it. And in the meantime, we'll continue to answer all their questions. So that's a long-winded question of saying, as of right now, it's, it's on schedule, and the commissioner is focused on it as well as the judge.

James Lynch: Yeah, thanks, David. So I think from the perspective of the timing of the CapEx investments, we're still focusing on delivering the treatment according to the original schedule that we had put in place. Since our last call, we've taken a look at whether or not it makes sense for us to put treatment in some of our well locations as opposed to replacing the wells. And we have identified a couple of areas where we are going to go ahead and just replace those wells. That's typically a little longer process. That takes about five to seven years from the time we first identify property to the time we actually get the well and place it in service.

I appreciate the detail. Thank you, Marty. Um and then maybe just 1 more from me just on the comments related to The Pest push out or potential push out. I should say from the EPA is the right way to think about this as a positive that you guys are still moving forward. On your timeline, as it relates to, maybe getting some regulatory recovery and earning a return on those Investments. And then maybe a negative or a Slowdown in potentially accelerating some m&a for smaller systems or I guess, any other thoughts that will be helpful.

Yeah. Thanks Davis. I think from from, uh, the perspective of the timing of the, the capex Investments, we're still, uh, focusing on on delivering the treatment. Uh, according to the original schedule that we had put in place, uh, since our last call, we've taken a look at uh, whether or not it makes sense for us to put treatment in some of our Well locations as opposed to replacing the wells and we have

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

Martin Kropelnicki: Yeah, and I would say, David, too, kind of putting politics aside for a moment, it's really hard. The EPA could shift the dates, but the fact is PFOA and PFOS is a known cancer-causing agent. And so it's really hard to look at customers in the eye saying, "Yes, there's a compound in the water. It may cause cancer, but the government just moved the implementation out a couple of years. Don't worry about it. The water is safe to drink." So, you know, I was happy to see that the state of Washington is keeping the original timelines. I know in the legislature in the state of California, that's seriously being looked at right now.

Identified a couple areas where, uh, we'll we are going to go ahead and just replace those Wells. That's typically a little longer process that takes about, you know, 5 to 7 years. From the time, we first identify property the time, we we actually get the well and place it in service. So, you know, initially we were, we were, uh, going to treat all of the wells we identified but uh, since it's reassessment we probably have about uh 160 million or so that we expect to be in place in the next 2 years, uh, related to treatment, uh, with the remainder being pushed out a little bit further, as we look at our well replacements,

Martin Kropelnicki: And I think from a customer perspective, you know, we'll always put the customer's health and safety first, even if it means we eat some depreciation dollars for a year or so if something gets kind of messed up on the EPA side. But, you know, PFOS, the train's moving, the projects are planned. We have contracts that have all been signed. The engineers are working on it. And we have room to move a couple of things around, as Jim said, and we'll change a couple of treatment options. But I don't think you're going to see hundreds of millions of dollars shift out, you know, two more years. I think you're going to see pretty much stay on track with the exception of some stuff will get pushed and pulled a little bit.

Yeah, and I, I would say David too. Kind of putting politics aside for a moment it's really hard. Uh the EPA could shift the dates but but the the fact is people and POS is a, No 1 hands are causing agent. And so it's really hard to look at customers in the ice and yes, there's a component on the water. It may cause cancer but but the government just moved the implementation out a couple years. Don't worry about it. The water is safe to drink. So, um, you know, I was happy to see that the state of Washington is, is, is keeping the original timelines. I know in the legislature in the state of California, that seriously being looked at right now. I think from a customer perspective, you know we'll always put the customer's health and safety first. Uh even if it even if it means we eat some depreciation dollars for a year or so if something gets kind of messed up on on the EPA side but you know, Poss the trains moving uh, the project

Are planned. We have contracts that have all been signed. The engineers are working on it and we have room to move a couple things around. As Jim said it will change a couple treatment options but I don't think you're going to see hundreds of millions of dollars shipped out.

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

Martin Kropelnicki: Yeah, absolutely. This is super helpful, guys. I've got you loud and clear. And thank you very much for the time.

You know, 2 more years I think you're going to see pretty much stay on track with the exception of some stuff will get pushed and pulled a little bit. Yeah. And I think with regards to the uh, impact that that would have on our m&a. We've had a really strong balance sheet right now and I I think you can look at those 2 initiatives independent uh, of 1. Another yeah, absolutely.

James Lynch: Thank you.

Martin Kropelnicki: Thanks, David.

This is super helpful, guys. I've got you out and clear and thank you very much for the time.

Thank you. Thanks. David.

Operator: Our next question comes from Jonathan and Peter from Wells Fargo. Please go ahead.

Martin Kropelnicki: Hey, good morning, team. How are y'all doing today?

Our next question comes from Jonathan Peter from Wells Fargo. Please go ahead.

James Lynch: Good morning, Jonathan.

Hey, good morning team. How are you all doing today?

Martin Kropelnicki: A couple of questions for me. First, the rate-based outlook, you know, how I'm on slide 10 did not change, but it looks like there were some shifts in the CapEx by year, including like pushing out $50 million from 2025. I apologize if you mentioned it in the prepared remarks, but what caused the shift? I mean, as it sounds like, you know, that anticipated PFOS well replacement CapEx shift has not yet been incorporated. And then further, does the increase in 2027 represent any of the $60 to $70 million of anticipated investment related to the Silverwood opportunity?

Good morning. Jonathan Jonathan.

Uh, a couple of questions for me first. Um, the rate-based outlook, you know, how long I'm on, slide 10 did not change, but it looks like there were some shifts in the capex by year, including like pushing out $50 million from 2025. I apologize if you mentioned it in the prepared remarks, but what caused the shift? I mean, as it sounds like, you know, that anticipated POS.

Well, replacement capex ship has not yet been Incorporated and then further uh, does the increase in 20127 represent any of the 60 to 70 million of anticipated invested investment related to the Silverwood opportunity.

James Lynch: Well, with regards to Silverwood, yes, we are right now coming up with a budget with regards to what that plant is going to entail. And that is going to provide an opportunity for us to invest additional capital over the next few years.

Martin Kropelnicki: Shillan, I think we have a two-year time window with which to get that plant up and operating.

James Lynch: That's correct. So those are numbers that we will be incorporating into the deck, and that will ultimately work its way into rate base as we kind of work through the regulatory process. As far as our CapEx plans, they really haven't changed relative to our core CapEx investments. We're still moving ahead with the anticipation of receiving a good portion, if not all, of what we've asked for in the general rate case. And as you remember, 2025 is the first year of the current rate case, even though it's not effective. The other parts of the rate case aren't effective until 2026. So we're pushing forward, assuming that whatever we're allowed to put in place in terms of our rate-based plan, we're in a position to deliver on that.

Chill. I think we have a 2-year time window with which to get that plant up and operating, correct?

So, so those, those are numbers that that, uh, we will be incorporating into the uh, into the deck and that will, uh, ultimately, uh, work its way into rate base, as we kind of work through the regulatory process. Um, as far as uh, our our capex plans, it really haven't changed, uh, relative to our core capex Investments. We're still moving ahead, uh, with the uh, anticipation of of receiving, uh, a good portion, if not all of what we've asked for and the general rate case. Uh, and if, as you remember, 2025 is the first year of the current rate case, even though it's not effective, the the other ports of the rate case aren't effective until 2026. So, uh, we're pushing forward, uh, assuming that, uh, whatever we're allowed to put in place in terms of our rate based plan. We're, we're in a position to deliver on that.

Martin Kropelnicki: Okay, so the shift was just some like timing stuff. So yeah, I mean, overall, the three-year period pretty much didn't change.

James Lynch: Yeah, I think that's a good characterization, yes.

okay, so the the shift was just some like timing stuff because yeah, I mean overall the the 3 year period,

Martin Kropelnicki: Yeah, I think it's and the stuff is cool.

James Lynch: And I'd say this is also why we got memo account treatment for part of the PFOS stuff because you know part of this is we're going through the process of discovery. What do we need to do at locations? You got to do all the testing, and you got to develop the implementation plans. And so it meets the criteria of memo account treatment with the PUC, especially in California where we got the most number of wells that we got to treat. And that's why that number is carved out and put in a footnote because ultimately most of that goes cost will kind of roll up into a memo account.

Pretty much. Yeah, I think that's a good characterization. Yes, good stuff is still.

No, I just say this is also why we got memo account treatment for part of the POS stuff? Because it, you know, you you you know, part of this is we're going to the process of discovery. What do we need to do at locations? You got to do all the testing and you got to

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

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

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

Martin Kropelnicki: Okay. And then my other question relates to something that AWK mentioned earlier today, that there's a water decoupling bill working its way through the California legislature this session. Can you discuss what all the bill may do? Like, does it mandate that the CPUC adopt fully decoupled rates if requested by the utility? And you know, what sort of support do you believe it has to pass both chambers and hopefully garner Governor Newsom's signature?

Okay, with the silver, would spend that 60 to 70 million you say, on the slide, that's still incremental to the current budget. Yes. In fact, our our board yesterday just approved the expenditures for that, uh, over the next 2 years, yesterday was right at a board meeting. We go through the annual Capital program, uh, in detail. Uh, so the engineering team comes in the finance committee meets and and we go through all the details of the plan for the next year. And the next really couple years because they authorize us to start some other capital projects in advance. And so that was approved yesterday.

Okay, and then uh my other question relates to something that uh awk mentioned earlier today that there's a water decoupling Bill. Uh, working its way through the California legislature, this session can you discuss? Um, what all the bill may do like, does it make

James Lynch: Yeah, so that bill has been a key focal point of our government affairs team, and we have been leading the effort on that bill individually initially, and then collectively as some of the other water purveyors have jumped in to support us. So yeah, it's Senate Bill 473, and 473 would require the Public Utilities Commission to implement full decoupling for water utilities. And so, you know, we think it's a real important bill. We think, especially as we deal with climate change out west and water scarcity, it just, you know, as I talked to the governor before about this topic, you know, it's really, if you think about it, when we go in there with this bill, we're basically saying kind of cap our earnings, right, as a regulated utility.

Mandate that the CPUC adopt fully decoupled rates if requested by the utility. And, you know, what sort of support do you believe it has to pass both Chambers and hopefully garner Governor Newsom's signature?

Yeah, so so that that bill has been a key focal point of our government Affairs team, and we have been leading the effort on that bill, um, individually initially, and then collectively as some of the other, uh, water purveyors of of jumped into to support us. So yeah, it's it's Senate, Bill 473 and 473 would acquire the Public Utilities Commission, uh, to implement full decoupling for water utilities. Um, and so, you know, we we think it's a real important bill. We think uh, especially as we deal with climate change out west and water scarcity. It just

James Lynch: But it's the right thing to do for the long term for the customers because it allows you to deal with affordability in some underserved communities. It allows you to better plan for things like climate change and actually kind of smooth out rates a little bit. So as of July 28th, right, the bill has passed the Senate on a 37 to 0 vote. It's moved through the Assembly. It's moved through the Assembly Committee on Utilities and Energy with a 15 to 0 vote. And now it's waiting on the Assembly Committee for appropriations. Now, there is one opposing party to this bill, and it's the California Advocates. They oppose the bill, and they are bringing up the point that it's going to increase the commission's operating costs by a million dollars. So that's the opposition. It's a $1 million issue, you know, with the commission.

You know, as, as I talked to the to, to the governor before, about this, this topic, you know, it's really, if you think about it, when we go in there with this bill, whereas, basically saying kind of cap our earnings right as a regulated utility. Um, but it's the right thing to do for the long term for the customers, because it allows you to deal with affordability and some underserved communities, it allows you to better plan for things like climate change and actually kind of smooth out rates of a little bit. So, as of July 28th, right? The, the the the bill has passed the the Senate on a 37 to zero. Vote. It's uh, moved through the assembly, it's moved through the assembly committee on.

James Lynch: We, of course, have been saying, well, wait a minute, we were decoupled for a number of years, and you didn't have a blip in your operating costs. And the other utilities, electric and gas, have been decoupled since the '70s, so that doesn't make a whole lot of sense. So overall, it's, you know, this bill has kind of sailed through everything, and now we're waiting to see what happens next as it goes through the Appropriations Committee. Now, that million dollars could become a hangup. California's budget is in the best shape, and you know, there's not a lot of mercy for utility issues in Sacramento right now, given the large number of electrical cost increases that have been experienced in California to deal with some of the wildfire hardening. But so far, we've built a very large coalition.

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

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

All and it it's, you know, this bill is kind of sailed through everything and and now we're waiting to see what happens next. As it goes through, the Appropriations Committee. Now that million dollars could become a hang-up California's budget is, is the best shape. And, you know, there's not a lot of Mercy for, uh, utility issues in Sacramento right now, given the large number of electrical cost increases that have been experienced in California, uh, to deal with some of the Wildfire hardening. Um, but so far, we've built a very large Coalition, uh, all the lawmakers that we've met with, and we've met with a lot of lawmakers have been very, very supportive of of decoupling and how it works. And so we'll just have to see what happens next. Um, they're on recess right now in the state of California. So let's look at picked up again in the fall when they come back from their recess,

James Lynch: Well, you know, again, Jonathan, you know how we are. I mean, you know, we were the first water company to decouple, and we took a couple of hard knocks for that. And people say, why would you want to do it? But decoupling, when you deal with water scarcity, when you deal with sustainability type of issues and tiered rates, I mean, it really helps drive down consumption over the long term. And you know, we got to stay focused on that in California. It's a massive state that continues to grow. And so, yeah, the largest ag business in the union in the state of California, you've got some of the largest urban centers in the state of California compared to anywhere else in the US, and you've got a growing population. You know, you got to be very proactive with this stuff.

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

Water company to decouple and and we we took a couple Hard Knocks for that. And and people say why would you want to do it? But decoupling when you deal with water scarcity, when you deal with um sustainability type of issues and and tear grades. I mean it really helps drive down consumption over the long term and, you know, we got to stay focused on that in California. It's a massive State, uh, that continues to grow. And so yeah, the largest

James Lynch: And so we believe in taking a leadership role, and that's what we've been doing.

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

Business in the Union, in the state of California. You got some of the largest urban centers, uh, in the state of California, compared to anywhere else in the US and you got a growing population. You know, you got to be very proactive with this stuff and so we believe in taking a leadership role and and that's what we've been doing.

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

Yeah. Now, good luck with it. It's hard to imagine that the $1 million figure would become a hangup in the state besides California. But yeah, I guess you never know. So, good luck with that. And, you know, best of luck as you move into the second half of the year with keeping the GRC on time.

Martin Kropelnicki: Excellent. Thanks a lot, guys. Appreciate you taking the time to answer my questions.

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

James Lynch: Thanks, take care, Jonathan.

Excellent. Thanks a lot. I appreciate you taking the time to answer my questions.

Operator: Our next question comes from Michael Galger from Janey Markhammerstop. Please go ahead.

Shillan Patel: Yeah, good morning, everyone.

Our next question, comes from Michael gulner from Janie Montgomery's stuff. Please go ahead.

Martin Kropelnicki: Morning, Michael.

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

Hey, good morning, everyone morning Michael.

Uh, just one question on POS.

Looking through your deck today seems like visibility is improving on the settlements across all 4 class actions.

Martin Kropelnicki: Michael, you would ask a very difficult question. I mean, that's an oversight in a good way. I think it's a very, very fair question. You know, it's really hard to gauge. My best guess would be $40 to $60 million of the $226 million estimate. If I had to put a number on the table and make a bet, that's probably the range I would put it in. Consistent with the point I was just making with Jonathan about kind of taking a leadership role, Sean Bunting, our Senior Vice President General Counsel, has been the industry rep associated with. He's one of two industry reps associated with the lawsuit that represents the water industry. So we are very kind of up to our neck in these lawsuits working with outside counsel and representing the water space. So, you know, we're at a table when the deal gets cut.

Just wondering at this point? What percentage of the total costs that you're going to incur? Do you think you can cover with the settlements?

That that's a.

Michael, you would have you would you would ask a very difficult question. It, it it's it's it's I mean that in our respect in a good way, I think it's a very, very fair question. You know, it's really hard to to, to gauge my best guess.

Would be 40 to 60 million of the 226 million estimate. If I had to to to, you know, put a number on the table and make a bet that's probably the range. I would put it in, um, consistent with the point. I was just making with Jonathan about kind of taking a leadership role. Um, Sean bunting our, our senior vice president general counsel has been the industry rep associated. With these 1 of 2 industry reps associated, with the lawsuit, that represent the water industry,

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

So we are, we are very kind of, uh, up to our neck in these lawsuits working, um, with outside counsel, and representing the water space. So so, you know, we're at the table, when the deal gets cut, we know how it's going to work, you know, Etc. And and part of the reason why we wanted to make that was investment was to make sure that it's fairly allocated. So, um, we're continuing that leadership role of Sean.

Bunting is doing an absolutely fantastic job, representing the water industry, he's a very, very good attorney. Uh, and if I had the best, I would say 40 to 60 would probably be a, a, a

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

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

Operator: All right. That's all we had, gentlemen. Thank you.

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

Martin Kropelnicki: Thanks, Michael.

Jericho: Thanks, Michael.

All right. Uh, that's all I had gentlemen. Thank you.

Thanks Michael.

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

Martin Kropelnicki: Great. Thank you, Jericho. And thanks, everyone, for joining us here today. First half of the year is done and dusted, as they say in my spin class. It's been recorded, and we're moving forward. Looking forward to the second half of the year. Obviously, we got a lot going on. But the company is in very, very good shape, very happy with earnings, very happy with the balance sheet. And we just got a lot going on. And with everything Shilling's got going on in Texas on the business development side with Silverwood, et cetera, as well as the rate case, it's going to be a very, very busy second half of the year. And we will look forward to updating you at the end of Q3. So until then, be safe and have a good day. Thank you very much.

Turtle further questions at this time. I would now like to turn to call all over back over to Martin palinki chairman president and chief executive officer.

Jericho: Thank you.

Operator: This concludes today's conference call. Let me now disconnect.

Great. Uh, thank you Jericho and, and thanks everyone for joining us here today. Um, first half of the year is, is done invested as they say, in my spin class. It's it's, it's, it's, it's been recorded and we're moving forward. Uh, looking forward to the second half of the Year. Obviously, we got a lot going on, but the, the company, uh, is in very, very good shape, very happy with earnings, very happy with the balance sheet. Uh, and uh, we just got a lot going on and, uh, with everything shilling's got going on in Texas, uh, on the business development side, uh with Silverwood Etc. As well as the rate case, it's going to be a very very busy second half of the year and we will look forward to updating you at the end of Q3. So until then be safe and have a good day. Thank you very much. Thank you.

this concludes today's conference call, we may now disconnect