CALIFORNIA WATER SERVICE GROUP

Results of Operations

Operating Revenue

Operating revenue in 2024 was $1,036.8 million, an increase of $242.2 million, or 30.5%, over 2023. Operating revenue in 2023 was $794.6 million, a decrease of $51.8 million, or 6.1%, over 2022. The sources of change in operating revenue were:

(1)In 2024, the net change due to rate changes, usage, and other items in the above table was primarily due to rate increases of $98.5 million and an increase in consumption and new customers of $17.5 million.

(2)Due to the delay in the resolution of the 2021 GRC, the CPUC authorized Cal Water to track in an IRMA the variances between actual customer billings and those that would have been billed assuming the 2021 GRC had been effective January 1, 2023. Such variances are recorded as regulatory balancing account revenue. The 2021 GRC was approved in March of 2024 and final rates for the 2021 GRC were implemented on May 31, 2024. Cal Water recorded IRMA revenue of $88.6 million in 2024, of which $67.6 million is attributable to 2023.

(3)MWRAM revenue is the variance between actual metered sales billed through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate had been in effect. In March of 2024, Cal Water received approval of the 2021 GRC which authorized the use of the MWRAM effective January 1, 2023. As a result, Cal Water recorded MWRAM revenue of $35.3 million for 2024 of which $17.4 million is attributable to 2023.

(4)Deferred revenue consists of amounts that are expected to be collected from customers beyond 24 months following the end of the accounting period in which the sales transaction has already occurred. Deferred revenue for 2024 increased due to an increase in the balancing account revenue expected to be collected beyond 24 months.

Water Production Costs

Water production costs, which consist of purchased water, purchased power, and pump taxes, comprise the largest segment of total operating expenses. Water production costs accounted for 38.3% and 40.2%, of total operating costs in 2024 and 2023, respectively. The rates charged for wholesale water supplies, electricity, and pump taxes are established by various public agencies and utilities. As such, these rates are beyond our control.

The table below provides the change in water production costs during the past 2 years:

The principal factors affecting water production costs are the quantity, price, and source of the water. Generally, water pumped from wells costs less than water purchased from wholesale suppliers. The 2021 GRC approved an ICBA for purchased water, purchased power, and pump taxes. The ICBA mechanism is designed to recover changes in supplier prices from authorized amounts and has been recorded as part of the associated water production expense type.

The table below provides the amounts, percentage change, and source mix for the respective years:

For 2024, the $17.4 million increase in purchased water expenses is mostly due to a blended purchased water wholesaler rate increase of 8.2% partially offset by a 0.4% decrease in purchased quantities. In 2024, Cal Water recorded $8.3 million of ICBA expense, of which $6.9 million was attributable to 2023.

For 2024, the $2.8 million increase in pump taxes is primarily due to increases in pump tax rates. In 2024, Cal Water recorded a reduction to pump taxes of $0.8 million for the ICBA, of which $0.1 million was attributable to 2023.

Purchased power expenses are affected by the quantity of water pumped from wells and moved through the distribution system, rates charged by electric utility companies, and rate structures applied to usage during peak and non-peak times of the day or season. In 2024, purchased power expenses increased $2.0 million to $47.7 million mainly due to an increase in rates from our power providers. In 2024, Cal Water recorded a reduction to purchased power of $4.8 million for the ICBA, of which $0.3 million was attributable to 2023.

Changes associated with climate change regulations could increase the cost of power that in turn would result in an increase in the rates our power suppliers charge us. Any change in pricing of our purchased power in California would be recovered from our customers through the ICBA mechanism. Any change in power costs in other states would be requested to be recovered by the customers in those states. The impact of such regulations is dependent upon the enacted date, the factors that affect our suppliers’ cost structure, and their ability to pass the costs to us in their approved tariffs. These items are not known at this time.

Other Operations Expenses

The components of other operations expenses include payroll, material and supplies, and contract service costs of operating the regulated water systems, including the costs associated with water transmission and distribution, pumping, water quality, meter reading, billing, operations of district offices, and water conservation programs.

For 2024, other operations expense increased $6.0 million, or 5.3%, compared to 2023. The increase was primarily due to an increase in employee wage expense of $2.3 million, water treatment costs of $1.8 million primarily related to the HOH Water Utilities system acquisition that closed in December of 2023, and software licensing fees of $1.3 million.

Depreciation and Amortization

For 2024, depreciation and amortization increased $10.7 million, or 8.8%, to $131.9 million compared to 2023 primarily due to utility plant placed in service in 2023.

For 2024, income tax expense increased $51.1 million, or 336.6%, to $35.9 million compared to an income tax benefit of $15.2 million for 2023. The increase in 2024 was primarily due to an increase in pre-tax operating income in 2024 attributable to the recognition of income related to the 2021 GRC decision in 2024.

Property and Other Taxes

For 2024, property and other taxes increased $4.3 million, or 11.8%, compared to 2023. The increase was mostly due to an increase in our assessed property values for utility plant placed in service during the year.

Other Income and Expenses

For 2024, net other income and expenses decreased $1.5 million, or 6.1%, to $22.6 million compared to 2023. The decrease was due primarily to a $4.4 million decrease in other components of net periodic benefit credit and a $1.3 million decrease in the unrealized gains from certain non-qualified benefit plan investments due to market conditions, which was partially offset by a $1.4 million increase in allowance for equity funds used during construction and an increase in interest income of $1.0 million.

Net Interest Expense

For 2024, net interest expense increased $7.7 million, or 15.5%, compared to 2023. The increase was primarily due to higher average short-term borrowing rates and higher outstanding borrowings on our short-term credit facilities.