Key Points
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Third-quarter results improved:Net income rose to $65.4 million, or $1.05 per share, while revenue increased 6.7% to $332.2 million. Higher authorized rates and customer additions more than offset lower water usage and rising costs.
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Infrastructure investment remains a major growth driver:Capital spending reached $425 million through nine months, supporting projected rate-base growth of nearly 12% annually to approximately $3.5 billion by 2028. The company expects to seek roughly $49 million in 2027 step-rate increases and close its Oregon and Nevada acquisitions before year-end.
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Shareholders and regulatory initiatives remain supported:The board declared its 327th consecutive quarterly dividend, with the indicated 2026 dividend up 8.1% to $1.34 per share. Regulators also authorized processes for about $113 million in California PFAS-related capital recovery, while litigation proceeds are expected to offset part of the company's planned investments.
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California Water Service Group (NYSE:CWT) reported third-quarter net income of $65.4 million, or $1.05 per diluted share, compared with $61.2 million, or $1.03 per share, a year earlier, as higher authorized rates and customer additions outweighed lower water usage and increased costs.
Revenue rose 6.7% year over year to $332.2 million. Chief Financial Officer Jim Lynch said rate changes and new customers contributed $22.1 million of additional revenue, while changes in the Drought Response Memorandum Account added $3.9 million. Those gains were partly offset by a $4.4 million reduction associated with lower customer water usage.
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For the first nine months of 2026, net income increased to $125.9 million, or $2.07 per diluted share, from $116.7 million, or $1.96 per share, in the comparable 2025 period. Year-to-date revenue increased 9.6% to $855.3 million.
Expenses Rise as Company Funds Conservation and Growth
Third-quarter operating expenses increased 3.7% to $249.5 million. Water production costs were largely unchanged, as higher wholesale water costs were offset by lower customer usage, Lynch said. Other operations expenses rose $4.1 million, primarily because of a $2.8 million increase in water-conservation program expenditures.
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Year-to-date operating expenses rose 7.6% to $683.6 million. The increase included a 14.1% rise in water production costs, reflecting higher wholesale-water costs, as well as $19.9 million in higher other operating expenses. The company cited $8.1 million in deferred Water Revenue Adjustment Mechanism costs and $5.5 million in higher conservation-program spending.
The company also reported higher income taxes due to increased pretax operating income and a scheduled reduction in Tax Cuts and Jobs Act refunds. In addition, gains on investments supporting its non-qualified benefit plan declined, while business acquisition expenses increased by $4.1 million year over year through the first nine months.
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Chairman and Chief Executive Officer Marty Kropelnicki said the company has been managing inflation within its operating budgets, though costs for fuel and materials have risen. He said the company is paying "essentially 20%-30% more for fuel year-over-year" while operating nearly 1,000 vehicles daily.
Lynch said the company strengthened its supply chain during the COVID-19 period by advancing purchases of hard-to-obtain inventory, leaving it relatively well positioned from an availability standpoint. "It's really a cost issue," he said.
Capital Spending Reaches $425 Million Through Nine Months
California Water Service spent $148 million on capital projects during the third quarter, bringing year-to-date infrastructure investment to $425 million. Lynch said the company's 10-year compounded annual growth rate for capital investment is about 11%.
Kropelnicki said the company expects its 2026 capital spending to support its ability to seek a portion of an estimated $49 million in available step-rate increases for 2027. Under California's regulatory framework, the increases are subject to an earnings test tied to the company's ability to place preapproved capital into service.
The company expects to file for the step increase around Nov. 15. Kropelnicki said he anticipates the company will "do very well" in seeking the increase.
Management projected compounded annual rate-base growth of nearly 12%, reaching approximately $3.5 billion by the end of 2028, assuming planned capital investments are completed on schedule.
Capital spending can shift between years because of permitting, weather and other conditions, Kropelnicki said. The company plans to accelerate as much fourth-quarter work as possible ahead of potentially heavy El Niño-related rainfall, which could slow construction in the first quarter.
Financing, Dividend and Acquisitions
At quarter-end, the company had $45.1 million in cash and cash equivalents, $45.8 million in restricted cash, $200 million in available short-term borrowing capacity at the parent company and $225 million at its California Water Service subsidiary, subject to borrowing conditions.
During the quarter, California Water Service raised $49.8 million through its at-the-market equity program and entered forward-sale agreements expected to generate another $77.8 million in net proceeds when settled. It also signed agreements for $125 million in unsecured parent-level debt and $150 million in mortgage bonds at Cal Water, with maturities ranging from 2031 to 2056.
Lynch said the company believes it has funding sufficient to reduce short-term debt balances and finance initiatives into the first half of 2027, including planned acquisitions of Oregon and Nevada systems from Nexus Water Group. He added that the company was well positioned into the first half of 2027 and potentially through the third quarter before evaluating additional financing needs.
The company's board declared its 327th consecutive quarterly dividend of $0.34 per share. That puts the indicated 2026 dividend at $1.34 per share, up 8.1% from 2025. Kropelnicki said management targets dividend growth of at least 7% and generally seeks a payout ratio between 50% and 60%, recognizing that the ratio may vary during a California rate-case cycle.
California Water Service received Oregon regulatory approval for the Nexus change-in-control application, following Nevada approval in August. Kropelnicki said the company expects to close the Oregon and Nevada acquisitions before year-end. Estimated one-time integration costs are between $7 million and $9 million, with expenses spanning 2026 and 2027.
Regulatory Updates and PFAS Program
During the quarter, the Washington Utilities and Transportation Commission approved a $4.1 million revenue increase effective Oct. 1 for the company's Washington subsidiary. Hawaii regulators approved a $1.94 million increase for its Kapalua systems.
In California, regulators authorized an advice-letter process for the company to seek approximately $113 million in PFAS-related capital costs and an additional $2.5 million in expenses for certain PFAS projects.
The company has approximately $228 million in gross planned PFAS investments across California, New Mexico and Washington, including treatment facilities and new wells. It invested $23.3 million through the third quarter, bringing total PFAS program investment to date to $47.5 million. The company has 65 projects planned, including 18 California sites under construction.
Kropelnicki said the company has recovered $59.4 million in net litigation proceeds from parties it said contributed to PFAS and PFOA contamination. Those proceeds are expected to offset the planned investment, resulting in an estimated net rate-base addition of roughly $169 million.
The company also said its median California customer bill represented about 0.88% of median household income, below the Environmental Protection Agency guideline that bills below 2% of average household income are generally considered affordable.
Separately, Kropelnicki said the Texas Commission had placed the company's rate-case decision on its Nov. 5 agenda for approval. Its BVRT subsidiary's consolidated rate case remains under review with interim rates in effect, while the company said BVRT added 12% more customers year to date during the third quarter.
About California Water Service Group (NYSE:CWT)
California Water Service Group (NYSE:CWT) is a holding company that provides water utility services through its regulated operating subsidiaries. The company supplies clean water for residential, commercial, industrial and institutional customers, and its operations include the production, treatment, storage, distribution and delivery of water. Some of its subsidiaries also provide wastewater collection and treatment services.
The company's principal subsidiary, California Water Service Company, serves communities throughout California.
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The article " California Water Service Group Q3 Earnings Call Highlights " was originally published by MarketBeat.
