CALIFORNIA WATER SERVICE GROUP

The Commissions have plenary powers to set both rates and operating standards. As such, the Commissions’ decisions significantly impact the Company’s revenues, earnings, and cash flows. The amounts discussed herein are generally annual amounts, unless otherwise stated, and the financial impact to recorded revenue is expected to occur over a 12-month period from the effective date of the decision. In California, water utilities are required to make several different types of filings. Certain filings, such as GRC filings, escalation rate increase filings, and offset filings, may result in rate changes that generally remain in place until the next GRC. As explained below, surcharges and surcredits to recover balancing and memorandum accounts as well as GRC interim rate relief are temporary rate changes, having specific time frames for recovery.

The CPUC follows a rate case plan that requires Cal Water to file a GRC for each of its regulated districts every three years. For the discussion of California regulatory activity that follows, Grand Oaks is excluded unless its inclusion is expressly stated. In a GRC proceeding, the CPUC not only considers the utility’s rate setting requests, but may also consider other issues that affect the utility’s rates and operations. The CPUC is generally required to issue its GRC decision prior to the first day of the test year or authorize interim rates and an Interim Rates Memorandum Account (IRMA). In accordance with the rate case plan, Cal Water filed its most recent GRC in July of 2024 (2024 CA GRC) requesting rate changes effective January 1, 2026. For additional information on our 2024 CA GRC, see “California Regulatory Activity”.

Between GRCs, Cal Water may file escalation rate increases, which allow Cal Water to recover cost increases, primarily from inflation and incremental investments, generally during the second and third years of the rate case cycle. However, escalation rate increases are district specific and subject to an earnings test. The CPUC may reduce a district’s escalation rate increase if, in the most recent 13-month period, the earnings test reflects earnings in excess of what was authorized for that district or if new assets placed in service are less than authorized amounts.

In addition, California water utilities are entitled to make offset requests via an advice letter. Offsets may be requested to adjust revenues for authorized construction projects or recycled water projects when those capital projects go into service (these filings are referred to as “rate base offsets”), or for rate changes charged to Cal Water for purchased water, purchased power, and pump taxes (which are referred to as “expense offsets”). Rate changes approved in offset requests remain in effect until the next GRC is approved.

California Regulatory Activity

2024 CA GRC Application and IRMA

On July 8, 2024, Cal Water submitted Infrastructure Improvement Plans (the Plans) for its California districts from 2025 to 2027 in its 2024 CA GRC application with the CPUC. The application also proposed a Low-Use Water Equity Program, that would, if approved as filed, decouple revenue from water sales, to assist low-water-using, lower-income customers. The CPUC continues to evaluate the Plans along with the operating budget proposals and the Low-Use Water Equity Program to establish water rates for 2026 to 2028 that reflect the cost of providing safe, reliable water service. The required, triennial filing was the start of an approximately 18-month review process, with any changes in customer rates scheduled to become effective on January 1, 2026.

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

•Water quality upgrades to treat for existing and newly regulated contaminants.

•Infrastructure replacements to help provide reliable delivery of water service.

•Equipment such as generators to help withstand power outages and shutoffs, and solar installation projects to help reduce Cal Water’s dependency on the electric power grid and lessen our environmental footprint.

•Physical and cyber security and safety enhancements to help protect facilities, customers, and employees.

•Water supply initiatives to help safeguard long-term reliability and sustainability of water sources.

•Advanced Metering Infrastructure to aid conservation efforts and enhance water-use efficiency.

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

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

Cal Water concluded an initial pre-hearing conference and an Administrative Law Judge (ALJ) and Commissioner were assigned to the case. The Commissioner issued the Scoping Memo and Ruling in November 2024 identifying the issues to be addressed and setting the schedule for the proceeding. At the start of 2025, public participation hearings were conducted and Cal Water received California Public Advocate Office’s testimony responding to the 2024 CA GRC application. Cal Water submitted rebuttal testimony in late March 2025. The assigned Commissioner also issued an Amended Scoping Memo and Ruling on March 13, 2025 granting in part Cal Water’s request to modify the ex-parte rules established in the Scoping Memo, and denying Cal Water’s request to modify the issues within the scope of the proceeding. Settlement discussions took place during April 2025, and hearings before the ALJ occurred in May 2025. After the hearings, the ALJ issued a ruling requesting additional information that parties to the proceeding responded to in June 2025. Briefs were filed on July 7, 2025 and reply briefs were filed on July 28, 2025. A law and motion hearing occurred on August 5, 2025 and a joint status conference occurred on October 3, 2025 in order to address pending motions and administrative matters. A proposed decision on the case was previously expected to be issued in late 2025 in accordance with the CPUC’s rate case plan, with new rates effective January 1, 2026; however, due to the CPUC requiring additional time to process the case, the timing of a proposed decision is uncertain. In December of 2025, the CPUC issued a decision extending its statutory deadline until June 8, 2026. Normally, the CPUC is subject to a requirement to process applications within 18 months of filing. In our experience, it is the CPUC’s practice to extend its statutory deadline, in some cases multiple times, as needed. The delay in the decision could have a material adverse impact on our revenue, operating results and earnings per share; however, we would expect this to be reversed at the time of a final decision through recognition of revenues that should have been recovered for services delivered beginning January 1, 2026.

In June of 2025, Cal Water filed a motion requesting authority to increase rates by inflation on January 1, 2026 (interim rates) and for the establishment of an IRMA in the event the CPUC did not issue a final decision for the 2024 CA GRC in time for new rates to be implemented on January 1, 2026. In October of 2025, the ALJ granted Cal Water’s motion for interim rates and the establishment of the IRMA. In November of 2025, Cal Water filed an advice letter implementing a three percent increase in interim rates and the IRMA as of January 1, 2026. The IRMA tracks the difference between interim rates and the rates that will ultimately be approved pursuant to the CPUC’s decision on the 2024 CA GRC.

Escalation Increase Requests

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

Rate Base Offset Requests

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

In May of 2025, Cal Water submitted an $11.4 million rate base offset advice letter to recover $1.6 million of annual revenue increases for all of its regulated districts. The new rates were implemented on July 1, 2025.

In November of 2025, Cal Water submitted a $12.3 million rate base offset advice letter to recover $1.5 million of annual revenue increases for 6 of its regulated districts. The new rates were implemented on January 1, 2026.

Expense Offset Requests

Expense offsets are dollar-for-dollar increases in revenue to match increased expenses, and therefore do not affect net operating income. In October of 2024, Cal Water submitted an advice letter to request offsets for increases in purchased water costs and pump taxes in 8 of its regulated districts totaling $17.1 million. The new rates were implemented on January 1, 2025.

In June of 2025, Cal Water submitted an advice letter to request expense offsets for increases in purchased water costs and pump taxes in 5 of its regulated districts totaling $5.1 million. The new rates were implemented on July 1, 2025.

In July of 2025, Cal Water submitted an advice letter to request expense offsets for increases in purchased water costs and pump taxes in 2 of its regulated districts totaling $2.6 million. The new rates were implemented on August 1, 2025.

In November of 2025, Cal Water submitted an advice letter to request expense offsets for increases in purchased water costs, pump taxes, and purchased power offsets in 18 of its regulated districts totaling $15.7 million. The new rates were implemented on January 1, 2026.

Monterey-Style Water Revenue Adjustment Mechanism (MWRAM) Filing

In September of 2025, Cal Water submitted an advice letter requesting surcharges to bill for the MWRAM-related revenue undercollection for 2024 in its regulated districts with tiered rates. The advice letter was approved and $18.7 million is being recovered from customers in the form of 12-, 18-. and 24-month surcharges. The new surcharges were implemented on October 1, 2025. These new surcharges are in addition to surcharges authorized in the prior year which have not yet expired.

Incremental Cost Balancing Account (ICBA) Filing

In September of 2025, Cal Water submitted an advice letter to recover a net $3.4 million undercollection in its ICBA for 2024 in 18 of its regulated districts. The advice letter was approved and the new surcharges/surcredits were implemented on October 1, 2025. Additionally, $10.5 million is being recovered via a 12-month surcharge and $7.1 million is being refunded via either a one time or 12-month surcredit.

Cost of Capital Application

The CPUC issued and adopted a proposed decision for the Cal Water 2021 Cost of Capital Application in the second quarter of 2023. The decision authorized Cal Water’s return on equity, cost of debt, and capital structure for 2023 and 2024. The CPUC also reauthorized the Water Cost of Capital Mechanism (WCCM) for 2023 and 2024, which automatically adjusts the rate of return when the Moody’s Utilities Bond Index (Index) fluctuates between cost of capital applications.

On February 2, 2024, Cal Water received a letter from the CPUC addressed jointly to Cal Water and three other Class A water companies granting their request for a one-year extension in their next cost of capital filing with the CPUC to May 1, 2025. The WCCM remained in effect during the one-year extension.

In October of 2024, Cal Water evaluated the WCCM for 2025 and determined that it was not triggered. Since the WCCM was not triggered, there was no change to Cal Water’s 10.27% return on equity, 4.23% cost of debt, and 7.46% authorized rate of return for 2025. Cal Water’s authorized capital structure is 53.4% equity and 46.6% debt.

On January 14, 2025, Cal Water received a letter from the CPUC addressed jointly to Cal Water and three other Class A water companies granting a second extension for an additional one-year period in their cost of capital filing with the CPUC to May 1, 2026. The WCCM remained in effect during the one-year extension.

In October of 2025, Cal Water evaluated the WCCM for 2026 and determined that it was not triggered. Since the WCCM was not triggered, there was no change to Cal Water’s 10.27% return on equity for 2026.

On November 18, 2025, Cal Water received a letter from the CPUC addressed jointly to Cal Water and three other Class A water companies granting a third extension for an additional one-year period in their cost of capital filing with the CPUC to May 1, 2027. The WCCM will remain in effect during the one-year extension. As a result, Cal Water’s authorized return on equity in 2027 is expected to remain at 10.27% plus or minus any changes from the WCCM. The next measurement date for the WCCM is September 30, 2026.

PFAS Memorandum Account (PFAS MA)

Public water systems have been ordered by the Water Board to detect, monitor, and report certain PFAS in drinking water. In the third quarter of 2020, the CPUC approved the PFAS MA which allows Cal Water to track incremental expenses related to compliance with the order. The tracking of capital costs was excluded due to the lack of a MCL at that time.

In June of 2025, Cal Water filed an application with the CPUC requesting authorization to spend $125.0 million (net of litigation settlement proceeds after deducting fees and expenses) for PFAS treatment in 6 of its regulated districts in 2026 and 2027. The associated requested annual revenue increase for 2027 and 2028 is $6.7 million and $9.0 million, respectively. The impact to the annual revenue requirement is expected to be adjusted downwards for additional litigation or grant proceeds that Cal Water receives. The application also includes a proposal for the amortization of incremental costs tracked in the PFAS MA for these 6 regulated districts totaling $2.5 million.

Palos Verdes Peninsula Water Reliability Project

In 2002, Cal Water commissioned a Water System Master Plan (Master Plan) for the Palos Verdes water system. The Master Plan identified the high-priority need to augment the existing potable water system with new transmission mains and a new pump station to improve the capacity and reliability of the water system. This resulted in the development of a capital project known as the PV Project. Before the PV Project, a single pipeline that was over 60 years old delivered potable water to approximately 90 percent of the Peninsula, and a second pipeline of the same age delivered water to the remaining 10 percent. Both of these pipelines were approaching the end of their useful lives.

The CPUC authorized Cal Water to recover revenue associated with costs up to a cap of $96.1 million after the PV Project was placed in service, subject to the CPUC’s reasonableness review. Due to the complexity of the PV Project, total project costs exceeded the advice letter cap of $96.1 million. Total project costs incurred were $117.2 million. Amongst other things, the 2021 CA GRC approved an additional $6.4 million of capital costs to be included in base rates plus authority to open a memorandum account allowing Cal Water to track incremental capital-related costs associated with this project.

In July of 2024, Cal Water submitted a Tier 3 advice letter to recover the remaining $14.7 million of capital costs not in base rates. Cal Water requested an increased revenue requirement for Palos Verdes customers of $1.8 million which is obtained by adding $14.2 million to rate base for the additional capital costs of the PV Project (which equals the $14.7 million above less two years of depreciation). Cal Water also requested to recover $3.8 million of revenue tracked in the memorandum account through a temporary surcharge of $0.2832 per ccf for 24 months. This includes $3.6 million of the revenue requirement for 2023 and 2024 from the increase in total capital costs above what was already included in base rates and $0.2 million of interest.

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

California Drought Memorandum Account (DRMA)

In June 2021, Cal Water submitted an advice letter to request a DRMA to track the incremental operational and administrative costs incurred to further implement updated Rule 14.1 for voluntary conservation measures and Schedule 14.1 for implementation of our Water Shortage Contingency Plan, including activities related to enhanced conservation efforts, staffing, and capital expenditures to provide a safe, reliable water supply. The DRMA would also track monies paid by customers for fines, penalties, or other compliance measures associated with water use violations and penalties paid by Cal Water to its water wholesalers. The DRMA was approved by the CPUC with an effective date of June 14, 2021.

On July 28, 2023, Cal Water submitted a Tier 3 advice letter requesting authority to amortize $1.4 million of incremental expenses incurred in 18 of its districts from June 2021 to December 2022 tracked in the DRMA.

On January 30, 2025, a resolution was issued that approved Cal Water’s request to recover $1.4 million of incremental costs incurred in 18 of its districts from June 2021 to December 2022 tracked in the DRMA. New surcharges were implemented on April 1, 2025.

In September of 2025, Cal Water submitted a Tier 3 advice letter requesting to recover $1.9 million of incremental expenses incurred from January 2023 to August 2024 tracked in the DRMA. The effective date of the advice letter is uncertain as Tier 3 advice letters require a resolution to be adopted by the CPUC.

Drought Response Memorandum Account (DREMA)

The DREMA was established to track lost revenues associated with reduced sales as a result of the activation of Rule 14.1 and Schedule 14.1 of Cal Water’s Water Use Restrictions of its Water Shortage Contingency Plan in 18 of its districts.

In September of 2025, Cal Water submitted a Tier 3 advice letter to recover a net $3.9 million undercollection tracked in its DREMA for the period January 2023 to August 2024. The effective date of the advice letter is uncertain as Tier 3 advice letters require a resolution to be adopted by the CPUC.

Regulatory Activity - Other States

Washington Water Service – Stroh’s 2025 Rate Case

On March 17, 2025, Washington Water filed a tariff update with the UTC for the Stroh’s water system to increase revenues by $0.2 million. The general rate increase was approved on May 22, 2025, implemented into rates over two years. The first implementation of new rates was effective May 23, 2025, and the second implementation of new rates will be effective May 23, 2026.

Washington Water Service – 2025 East Pierce and Legacy Water Systems General Rate Case

On September 25, 2025, Washington Water filed a tariff update with the UTC for the East Pierce and Legacy water systems to increase revenues by $4.9 million. The general rate increase, which includes recovery of expenses, capital expenditures and PFAS-related expenses incurred in 2023 and 2024, is expected to be implemented in the second half of 2026.

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

During the first quarter of 2025, a settlement was reached in the 2024 Ka’anapali GRC between Hawaii Water and the Hawaii Division of Consumer Advocacy (DCA). The settlement calls for a total test year revenue requirement of $7.5 million, representing an increase over the $6.4 million previously approved, on rate base of $13.4 million. The settlement agreement was filed with the HPUC and approved on April 7, 2025. The updated rate tariff was effective on April 18, 2025.

Hawaii Water Service – 2024 Waikoloa General Rate Case

In October of 2024, Hawaii Water filed a rate case with the HPUC to increase revenues across the five utilities operating in the Waikoloa service territory. A settlement agreement was reached between Hawaii Water and the Hawaii DCA and filed with the HPUC in August of 2025 to increase revenues by $4.7 million over two years. HPUC approved the settlement on October 7, 2025. The initial phase of the new rates was implemented on October 9, 2025, and the second implementation of new rates will be effective October 9, 2026.

Hawaii Water Service – 2025 Kapalua General Rate Case

In November of 2025, Hawaii Water filed a rate case with the HPUC to increase revenue in its Kapalua water and wastewater systems by $2.2 million. The request seeks to recover increases in purchased water costs, higher operating expenses, and the cost of completed capital investments. The new rates, if approved, are expected to be effective in the fourth quarter of 2026.

Texas Water Service

In June of 2024, BVRT filed a consolidated rate case with the PUCT comprised of 5 subsidiary utilities, Camino Real, Forest Glen, Windy Hill, Zipp Road, and Spanish Trail Utility Companies. A comprehensive settlement was filed on October 20, 2025. On December 15, 2025, after the final deadline, a customer filed a late objection to the proposed settlement. Parties are awaiting a decision from the PUCT regarding the objection. The initial phase of the new rates was implemented on July 25, 2025, and the next phase is scheduled to be implemented in October 2026.

In December of 2023, Camino Real Utility filed a new water Certificate of Convenience and Necessity (CCN) application with the PUCT to establish a water service area that initially covers 229.1 acres in Caldwell County. On December 30, 2025, a Notice of Approval was received from the PUCT establishing the CCN and initial water tariff rates.