CALIFORNIA WATER SERVICE GROUP

California water operations are conducted by Cal Water, which provides service to approximately 500,000 customer connections in 20 separate districts, which are subject to regulation by the California Public Utilities Commission (CPUC). California water operations accounted for approximately 89.0% of our total customer connections and 91.2% of our total consolidated operating revenue in 2025.

We operate the City of Hawthorne and the City of Commerce water systems under lease agreements. In accordance with the lease agreements, we receive all revenues from operating the systems and are responsible for paying the operating costs. The City of Hawthorne and the City of Commerce lease revenues are governed through their respective city councils and are considered non-regulated because they are outside of the CPUC’s jurisdiction. We report revenue and expenses for the City of Hawthorne and City of Commerce leases in operating revenue and operating expenses because we are entitled to retain all customer billings and are responsible for all operating expenses. These leases are considered “nontariffed products and services” (NTPS) by the CPUC and require a 10% revenue share with regulated customers.

In October of 2011, an agreement was negotiated with the City of Hawthorne to lease and operate its water system. The system, which is located near our Hermosa Redondo district, serves about half of Hawthorne’s population. The capital lease agreement required an up-front $8.1 million lease deposit to the city that is being amortized over the lease term. Additionally, annual lease payments are contracted to be adjusted based on changes in rates charged to customers. Under the lease, we are responsible for all aspects of system operation and capital improvements, although title to the system and system improvements reside with the city. Capital improvements are recorded as depreciable plant and equipment and depreciated per the asset lives set forth in the agreement. In exchange, we receive all revenue from the water system, which was $13.0 million, $12.7 million, and $12.2 million in 2025, 2024, and 2023, respectively. At the end of the lease, the city is required to reimburse us for the unamortized value of capital improvements made during the term of the lease. The City of Hawthorne capital lease is a 15-year lease and expires in August of 2026. We do not expect to renew the lease upon expiration.

In April of 2018, a renewal agreement was negotiated with the City of Commerce for us to continue to lease and operate its water system for 15 years. Under the agreement, the operating lease requires us to pay $0.8 million per year in monthly installments. We have operated the City of Commerce water system since 1985 and are responsible for all operations, maintenance, water quality assurance, customer service programs, and financing capital improvements to provide a reliable supply of water that meets federal and state standards to customers served by the City of Commerce system. The City of Commerce retains title to the system and system improvements and remains responsible for setting its customers’ water rates. We bear the risks of operation and collection of amounts billed to customers. In exchange, we receive all revenue from the water system, which was $4.0 million, $4.1 million, and $4.2 million, in 2025, 2024, and 2023, respectively. The agreement allows us to request a rate change annually in order to recover costs.

Hawaii Water provides service to approximately 6,800 water and wastewater customer connections on the islands of Kauai, Maui, Oahu, and Hawaii, including several large resorts and condominium complexes. Hawaii Water’s regulated customer connections are subject to the jurisdiction of the Hawaii Public Utilities Commission (HPUC). Hawaii Water accounted for 1.2% of our total customer connections and approximately 4.6% of our total consolidated operating revenue in 2025.

Washington Water provides domestic water service to approximately 38,500 customer connections in the Tacoma, Olympia, Graham, Spanaway, Puyallup, Rainier, Yelm, and Gig Harbor areas. Washington Water’s utility operations are regulated by the Washington Utilities and Transportation Commission (UTC). Washington Water accounted for approximately 6.8% of our total customer connections and approximately 2.6% of our total consolidated operating revenue in 2025.

New Mexico Water provides service to approximately 11,800 water and wastewater customer connections in our Rio Communities, Rio Del Oro, Meadow Lake, Indian Hills, Squaw Valley, Elephant Butte, Morningstar, Sandia Knolls, Juan Tomas, Monterey, and Cypress Gardens systems. New Mexico’s regulated operations are subject to the jurisdiction of the New Mexico Public Regulation Commission. New Mexico Water accounted for approximately 2.1% of our total customer connections and 0.8% of our total consolidated operating revenue in 2025.

In May of 2021, Texas Water became the majority owner of BVRT, a Texas-based utility development company owning and operating water and wastewater utilities serving growing communities outside of Austin and San Antonio. BVRT provides regulated water and wastewater services under the rules and regulation of the Public Utilities Commission of Texas (PUCT). Texas Water initially invested funds to enable BVRT to continue to build wastewater infrastructure and converted its investment to equity. BVRT’s water and wastewater utilities currently serve or are under contract to serve approximately 4,900 customer connections. On August 16, 2022, BVRT entered into a long-term water supply agreement with the Guadalupe Blanco River Authority (GBRA) that enables BVRT to receive up to 2,419 acre-feet of potable water annually (see Note 15 of the Notes to Consolidated Financial Statements for more details). Texas Water accounted for approximately 0.9% of our total customer connections and 0.8% of our total consolidated operating revenue in 2025. In November of 2025, Texas Water entered into an agreement to purchase the remaining membership interests of BVRT for $45.0 million and become the sole owner. Texas Water expects to file a change of control application with the PUCT in the first quarter of 2026 to request approval for the acquisition. Texas Water’s acquisition of the remaining membership interests is subject to satisfaction of customary closing conditions in addition to PUCT and our Board of Director’s approval.

In February of 2026, we entered into an agreement to purchase Nexus’ Nevada and Oregon water and wastewater systems (the Systems) for approximately $218.0 million, subject to the finalization of closing adjustments. The transaction is expected to close by the end of 2026 and is subject to regulatory approvals and other customary closing conditions. Our Board of Directors has approved the acquisition. The Systems currently serve approximately 36,000 equivalent residential connections and have a combined rate base of approximately $109.0 million.

The state regulatory bodies governing our regulated operations are referred to as the Commissions in this annual report. Rates and operations for regulated customers are subject to the jurisdiction of the respective state’s regulatory Commission. The Commissions require that water and wastewater rates for each regulated district be independently determined based on the cost of service. The Commissions are expected to authorize rates sufficient to recover normal operating expenses and allow the utility an opportunity to earn a fair and reasonable return on invested capital.

We treat and distribute water and collect and treat wastewater in accordance with accepted water and wastewater utility methods. Where applicable, we hold franchises and permits in the cities and communities where we operate. The franchises and permits allow us to operate and maintain facilities in public streets and rights-of-way as necessary.