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DATE
Thursday, July 31, 2025 at 3:00 p.m. ET
CALL PARTICIPANTS
Chairman, President, and Chief Executive Officer — Martin Kropelnicki
Chief Financial Officer and Treasurer — James Lynch
Chief Business Development Officer and Vice President, TWSC — Shillan Patel
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TAKEAWAYS
Revenue— $265 million in GAAP revenue for Q2 2025, up $20.7 million or 8.5% year over year.
Non-GAAP Revenue Growth— Non-GAAP revenue increased by $17.9 million, or 7.2%, compared to Q2 2024.
Net Income— $42.2 million, or $0.71 per diluted share (GAAP); prior year GAAP net income was $40.6 million, or $0.70 per share.
Non-GAAP Net Income— Non-GAAP net income decreased by $200,000 compared to Q2 2024; earnings per share were $0.02 lower compared to Q2 2024.
Year-to-Date Revenue— $468.9 million for the first six months of 2025, up $41.3 million or 9.7% compared to the same period in the prior year after adjusting for interim rate relief.
Year-to-Date Net Income (Non-GAAP)— For the first six months of 2025, non-GAAP net income increased by $9 million, or 19.4%, with diluted EPS up by $0.12, or 14.8%, compared to year-to-date 2024 results.
Capital Investments— $119.4 million in Q2 2025 and $229.5 million year-to-date, up 14.2% and 7%, respectively.
PFAS Project Capital Expenditure Outlook— An estimated $220 million in remaining PFAS-related project expenditures is expected over the next few years.
Proposed California Rate Case— Requesting $398 million in revenue over 2026, 2027, and 2028, and a $1.6 billion infrastructure budget, with the process on schedule for January 1, 2026, implementation.
Recent Credit Rating— Affirmed A+ stable rating from S&P Global in July.
Dividend— The board approved a $0.30 per share quarterly dividend for Q2 2025; the dividend increase approved earlier in 2025 represented a 10.71% increase, with a five-year 7.7% compound annual growth rate.
Liquidity Position— $50.5 million in unrestricted cash, $45.6 million in restricted cash, and $240 million in available bank credit.
Texas Subsidiary Update— All-party settlement reached in first general rate case for five utilities, pending commission filing.
Silverwood Project— Agreement to build, own, and operate a wastewater facility for a planned 15,000+ connection community near Hesperia, California, targeting over 3 million gallons/day in tertiary treatment capacity.
PFAS Litigation Recoveries— Received $10.6 million in May 2025 from a 3M settlement, with nine additional installments to follow and further settlements anticipated later in the year.
Sustainability Reporting— Goals include a 23.5% reduction in scope 1 and 2 greenhouse gas emissions from a 2021 baseline, and nearly $3 million allocated for energy-efficient upgrades.
SUMMARY
The Q2 2025 results forCalifornia Water Service Group(CWT 0.99%) reflect significant impacts from the timing and mechanics of California's general rate case, with management highlighting volatility in reported earnings due to retroactive adjustments. Management stated that 2025 is the third year of the rate case cycle, typically associated with greater regulatory lag, but emphasized a 15% year-over-year non-GAAP EPS increase for the quarter compared to Q2 2024. The company reported continued advancement on PFAS remediation projects statewide, aligning expenditures with evolving state and federal deadlines, and expects most investment activity to be reflected in capital investments in 2025 and continuing into 2026 and 2027. Management noted that efforts to recover PFAS costs through litigation yielded an initial payment of $10.6 million in May 2025, with additional settlements expected within the year, though the ultimate covered proportion is not yet finalized. The company cited progress in both regulated and development operations, including major Texas regulatory milestones and a new California build-own-operate asset. Execution of planned CapEx and liquidity management are explicitly tied to ongoing regulatory, environmental, and rate outcomes.
CEO Kropelnicki said, "We did not reach a settlement with the ratepayer advocate" on the current California general rate case, leading to a procedural schedule with briefs and hearings extending into October.
EPA has proposed extending PFAS treatment compliance deadlines from 2029 to 2031 at the federal level, but key states—including Washington and potentially California—may maintain earlier deadlines, affecting project scheduling.
CFO Lynch said, "We entered into an equity distribution agreement to sell shares under an at-the-market equity program with an available shelf of $350 million," but did not sell any shares year-to-date in 2025.
Legislation—Senate Bill 473—requiring full rate decoupling for California water utilities has advanced with broad legislative support, opposed primarily on grounds of process cost.
Management estimates that $40 million to $60 million could be recovered from PFAS litigation settlements, based on current knowledge as of Q2 2025.
INDUSTRY GLOSSARY
PFAS: Per- and polyfluoroalkyl substances, a class of persistent man-made chemicals subject to emerging federal and state water quality regulations and costly treatment requirements for water utilities.
General Rate Case (GRC): A comprehensive regulatory proceeding in which a utility requests changes to rates, infrastructure budgets, and operational allowances for upcoming years.
Decoupling: A regulatory framework that separates (decouples) a utility's revenue from its volume of sales, typically to support conservation and stable utility earnings despite changing usage patterns.
At-the-Market (ATM) Equity Program: A financing tool permitting a company to issue shares incrementally at prevailing market prices, up to a fixed maximum shelf amount.
Memo Account Treatment: Regulatory accounting that allows utilities to track specified expenses outside of base rates for potential future recovery through regulatory proceedings.
Full Conference Call Transcript
James Lynch: Thank you, Jericho. Welcome everyone to the second quarter 2025 results call for California Water Service Group. With me today is Martin Kropelnicki, our chairman and CEO, 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 29, 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 8-K 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. 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-Ks, Form 10-Q, press releases, and other reports filed with the Securities and Exchange Commission. And now, I'll turn the call over to Martin Kropelnicki.
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 sixteen 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.
I think the punch line from an earnings perspective is when you look at the non-GAAP EPS, non-GAAP earnings per share were 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 7% quarter over quarter. 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 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. 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, and 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 PFAS. That's been a little bit of a political football, but we have remained steadfast in our approach. And making sure that the drinking water we provide customers is safe and in compliance with our requirements.
And then lastly, we did recently get reaffirmed our very good A+ stable rating from S&P Global. So we're very happy that we've maintained a very strong credit rating going into the second half of the year. So with that, Jim, I'm gonna turn it over to you so you can go through the financial results for the quarter, please.
James Lynch: Great. Thanks, Marty. So as Marty mentioned, 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 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. 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 results. 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 2024, we reduced bad debt expense as a result of payments received under the extended water arrearages program in California. As a result, we recognized a $0.06 per share benefit in 2024 that did not repeat in 2025. Slide seven shows our year-to-date financial results. Revenue for the first 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%. The primary drivers of our year-to-date diluted earnings per share when compared to the non-GAAP 2024 results increased customer usage, which combined added $0.75 per diluted share and the Palos Verdes 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. As a reminder, our capital investments do not include an estimated $220 million of remaining PFAS 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 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 base 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. 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+ 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.
Martin Kropelnicki: Thanks, Jim. And I'm gonna 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 three hundred and twenty-second quarterly dividend in the amount of $0.30 a share. Just to remind everyone, that 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 out the balance sheet. So the balance sheet's in good shape, and we have a lot to do in 2024. 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. As you may recall, in the application the company is requesting $398 million over the years 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, settlement discussions did take place during April and before the administrative law judge took place in May. After the hearings in May, the ALJ administrative law judge group requested additional information from the parties, and they were responded to in June. 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 7 and the reply briefs on July 28 to set up the final motion hearing which will take place on August 5. 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 01/01/2026. Moving over to slide 14.
James Lynch: To give you a quick update on what's happening with PFAS. The EPA has confirmed the maximum contaminant level for PFOA and PFAS will remain at four parts per trillion while it continues to evaluate standards for the other PFAS compounds. So other compounds in the PFAS family or in the forever chemicals families. The agency has also proposed extending the compliance deadline for PFOA treatments from approximately two years from 2029 to 2031 with a final ruling expected in 2026.
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 them on a state-by-state basis to see where ultimately each state ends up with the implementation of the PFAS 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. We might push or pull a couple things from year to year now that there's a little bit more room. But the original $222 million to $226 million investment that we forecast is still on the table, and we are moving forward with that program.
Martin Kropelnicki: Looking on page 15, our approach to PFAS-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 is a good chance the states will adopt standards that will keep us in line with the original implementation timeline set by EPA. 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 PFAS and PFOA teams are going full steam ahead as of right now and moving forward with our projects. And most you'll start to see that investment start to show up in the capital investment line as we move forward in 2025 and certainly well into 2026 and '27. In addition, I want to talk a little bit about the settlement on where we are and dealing with the people who contaminated the water supply. We continue to make good progress on recovering those costs through litigation. Cal Water is a party to four separate class action settlements related to PFAS. In May 2025, 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 Cal Water. 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 gonna turn it over to Shillan Patel to give everyone an update on what we have going on the business development side and in Texas. So, Shillan, take it away.
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 DNB Development, a national developer working on a master plan community near the city of Hesperia in San Bernardino County. Under this agreement, Cal Water 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 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. 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. This presents a strong opportunity for California Water to partner with state and local government and the private sector to align our utility investments to support the state 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, BBRT filed a general rate case for five utilities in June 2024. A settlement agreement has been reached and is currently awaiting commission approval. Thank you, and I'll hand it back to Marty.
Martin Kropelnicki: Great, Shillan. Shillan, I believe DNB, we've done other business with successful projects with them in other sites. I believe Kokio, which is the high-end estates on 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 Port and Kauai.
Martin Kropelnicki: Kauai. So it's good to work with the partner we have. What, I guess, sixteen years of experience with working with them, which is good. On the settlement with BBRT, it's not filed yet with the commission. Right? But we have an all-party settlement.
Shillan Patel: That is correct. We do have an all-party settlement, and it is not filed with the commission yet. Should be filed shortly, and we'll share more information with us within that settlement when it's filed.
Martin Kropelnicki: Perfect. So that means for everyone on the call. We can't take any questions as to 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. That's our 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. Alright. Moving ahead to slide 19. I want to take a moment to talk about our sustainability report and just hit a couple 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: tapping the planet, serving our customers, engaging the workforce, and governing with integrity. Among some of the highlights are our goals of reducing scope one, scope two 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 operate 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 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. 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. 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 and move into higher-level jobs as they get those higher-level certifications. In fact, we always say higher pay for higher certs. 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. 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.
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 South 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 weather, 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. 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 relevant lag.
And overall, I'm very happy to see that 50% growth in earnings for 2025, given the fact it's the third year of the rate case. So with that, Jerica, we will open it up for questions from the analysts, 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 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw the questions, please press 1 again. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking a question. And our first question comes from Davis Sunderland from Baird. Please go ahead.
Davis Sunderland: Hey. Good morning, guys. Marty, Jim, and 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? 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 critical months? And then I have one follow-up.
Martin Kropelnicki: 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 appeal is very procedural. And he's just really been kind of following the schedule, which so everything's been lining up to be on schedule year to date. But now it's really when the rubber meets the road for the assigned law judge to kind of pull the case together.
And one of the things that the judge did ask us for was a list of nondisputed items. So that's been provided. So I think he's seeing 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 with the commissioner saying it's his goal, the judge has been sticking to the schedule. 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 5 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. Will it be right on time? You know, 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 our 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.
Davis Sunderland: I appreciate the detail. Thank you, Marty. And then maybe just one more from me. Just on the comments relating to the PFAS pushout or potential pushout, 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 return on those investments? And then maybe a negative or a slowdown in potentially accelerating some M&A for smaller systems? I guess any other thoughts there would be helpful.
James Lynch: Yeah. Thanks, Davis. 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. 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.
So 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 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, Davis, 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 PFAS 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. Don't worry about it. The water is safe to drink. So I was happy to see that the state of Washington is keeping the original timelines. I know in the legislature and state of California that's seriously being looked at right now.
I think from a customer perspective, we'll always put the customer's health and safety first. Even if it means we need some depreciation dollars for a year or so if something gets messed up on the EPA side. But, you know, PFAS, the train's moving. The projects are planned. We have contracts that are all been signed. The engineers are working on it, and we have moved 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 gonna see hundreds of millions of dollars shift out two more years. I think you're gonna see pretty much stay on track with the acceptance.
Some stuff will get pushed and pulled a little bit.
James Lynch: Yeah. And I think with regards to the impact 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.
Davis Sunderland: Yeah. Absolutely. This is super helpful, guys. I've got you loud and clear, and thank you very much for the time.
Martin Kropelnicki: Thank you. Thanks, Davis.
Operator: Our next question comes from Jonathan Reeder from Wells Fargo. Please go ahead.
Jonathan Reeder: Hey. Good morning, team. How are y'all doing today?
Martin Kropelnicki: Good morning, Jonathan.
Jonathan Reeder: Couple questions for me. First, the rate base outlook outlined 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 that anticipated PFAS well replacement CapEx shift has not yet been incorporated. And then further, does the increase in 2027 represent any of the $60 million to $70 million of anticipated 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. Shillan, I think we have a two-year time window with which to get that plant up and operating.
Shillan Patel: That's correct.
James Lynch: So those are numbers that we will be incorporating into the deck, and that will ultimately work its way into the rate base as we kind of work through the regulatory process. As far as our CapEx plans, it really hasn'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. 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.
Jonathan Reeder: Okay. So the shift was just some, like, timing stuff. Because they yeah.
James Lynch: Mean, overall, the three-year period pretty much.
Jonathan Reeder: Yeah. I think that's a good characterization. Yes.
Martin Kropelnicki: And the cost with stuff is still to say, this is also why we got memo account treatment for part of the stuff because it, you know, we you know, part of this is we're going through the process of discovery. What do we need to do at locations? You gotta do all the testing. And you gotta develop the implementation plans. And so it meets the right 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 it's ultimately most of those costs will kind of roll up into a memo account.
Jonathan Reeder: Okay. But the Silverwood that $60 to $70 million you say on the slide, that's still incremental to the current budget?
James Lynch: Yes. In fact, our board yesterday just approved the expenditures for that over the next two years. Yesterday was I had a board meeting, 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 years because they authorize us to start some other capital projects in advance. And so that was approved yesterday.
Jonathan Reeder: 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?
Martin Kropelnicki: 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. 73 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. But it's the right thing to do for the long term for the customers because it allows you to deal with affordability. 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 28, right, the bill has passed the Senate on a 37 to zero vote. It's moved through the assembly. It's moved through the assembly committee on utilities energy with a 15 to zero 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 gonna increase the commission's operating cost by a million dollars. So that's the opposition. It's a $1 million issue. You know, with the commission. 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 cost. And the other utilities, and gas, have been decoupled since the seventies, so that doesn't make a whole lot of sense. So overall, this bill has kind of sailed through everything, and now we're waiting to see what happens next as it goes to the appropriations committee. Now that million dollars could become a hangout. 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. 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 so this will get picked up again, in the fall when they come back from their recess.
Jonathan Reeder: 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. We 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 gotta stay focused on that in California.
It's a massive state that continues to grow. And so yeah, the largest ad business in the union in the state of California. You 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 gotta be very proactive. With stuff. And so we believe in taking a leadership role, and that's what we've been doing.
Jonathan Reeder: Yeah. No. Good luck with it. It's hard to imagine that the $1 million figure would become a hang-up in the state of 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: Yes. 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.
Jonathan Reeder: Excellent. Thanks a lot, guys. Appreciate you taking the time to answer my questions.
Martin Kropelnicki: Alright. Take care, Jonathan.
Operator: Our next question comes from Michael Gaugler from Janney Montgomery Scott. Please go ahead.
Michael Gaugler: Hey. Good morning, everyone.
Martin Kropelnicki: Good morning, Michael.
Michael Gaugler: Just one question on PFAS. Looking through your deck today, seems like visibility is improving. On settlements across all four class actions. I'm 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?
Martin Kropelnicki: Oh, that's a Michael, you would ask. You would ask a very difficult question. I mean, 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 represent the water industry.
So we are very kind of up to our neck in these lawsuits working with outside counselors. And representing the water space. So, you know, we're at the table when the deal gets cut. We know how it's gonna work, you know, etcetera. 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 a fantastic job representing the water industry. He's a very, very good attorney. And if I had to guess, I would say $40 to $60 million would probably be a probable range as of where I am right now.
I don't know, Jim, if you'd add anything on that.
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 is gonna go to the individual water companies. So they're working through that process right now. As we said on the call, by the end of this year, we think we'll have a real good sense of where that's gonna 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.
Michael Gaugler: Alright. That's all I had, gentlemen. Thank you.
Martin Kropelnicki: Thanks, Michael.
Operator: There are no further questions at this time. I would now like to turn the call 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. The 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 but everything Shillan's got going on in Texas, on the business development side with Silverwood, etcetera, as well as the rate case. It's gonna be a very, very busy second half of the year.
And we will look forward to updating you at the Q3. Until then, be safe, and have a good day. Thank you very much.
Operator: This concludes today's conference call. You may now disconnect.