Business Overview and History
California Water Service Group (CWT) is a leading publicly traded water utility serving over 2 million people in California, Hawaii, New Mexico, Washington, and Texas. With a history spanning nearly a century, the company has established itself as a trusted provider of essential water services, continually investing in infrastructure improvements and adapting to evolving industry challenges.
California Water Service Group was founded in 1926 as California Water Service Company, initially providing water utility services. Over the decades, it has evolved into a holding company with seven operating subsidiaries offering regulated water, wastewater, and non-regulated utility-related services across five states. The company's regulated utility subsidiaries - Cal Water, Washington Water, New Mexico Water, and Hawaii Water - operate under the rules and regulations of their respective state regulatory commissions, accounting for over 92% of the company's total consolidated operating revenue in 2024.
In addition to its regulated operations, California Water Service Group has expanded into non-regulated services through its subsidiaries CWS Utility Services and HWS Utility Services LLC. These entities provide non-regulated water utility and utility-related services, complementing the company's core business.
A significant milestone in the company's expansion occurred in 2021 when it made a strategic investment in BVRT Utility Holding Company, a Texas-based utility development company. This move marked California Water Service Group's entry into the Texas market, which has since become one of its fastest-growing areas.
The company has faced and overcome various challenges throughout its history. In 2020, the California Public Utilities Commission issued a decision that temporarily prevented the company's California subsidiary from proposing full revenue decoupling mechanisms in its rate cases. This resulted in increased financial volatility until the California Supreme Court overturned the CPUC's decision in 2024. Additionally, the company successfully navigated the COVID-19 pandemic, which led to an increase in customer bill arrearages. California Water Service Group was able to obtain relief funding to assist customers and minimize the financial impact of the pandemic.
Cal Water, the company's largest subsidiary, serves approximately 499,400 customer connections across 100 communities in California, accounting for 89.2% of the group's total customer connections and 92.3% of its consolidated operating revenue in 2024. The company's other subsidiaries serve customers in Washington, New Mexico, Hawaii, and Texas, providing diversification and growth opportunities outside of its core California market.
Throughout its history, California Water Service Group has been committed to investing in its water infrastructure to ensure the delivery of safe, reliable, and high-quality water services to its customers. In 2024, the company invested a record $471 million in capital improvements, exceeding the previous high of $384 million set in 2023 by 23%. This investment is part of the company's ongoing efforts to replace aging pipelines, upgrade treatment facilities, and enhance the resilience of its water systems in the face of natural disasters and climate change.
Financial Performance and Liquidity
California Water Service Group's financial performance in 2024 was marked by significant growth, with operating revenue increasing by 30.5% to $1.04 billion, compared to $794.6 million in 2023. This substantial revenue increase was primarily driven by the cumulative impact of the company's 2021 California General Rate Case (GRC) decision, including 2023 interim rate relief and revenue from the Monterey-Style Water Revenue Adjustment Mechanism (M-WRAM), totaling $123.9 million. Additionally, the company benefited from higher rates and increased water consumption, contributing an additional $122.1 million to the revenue growth.
Net income for the full year 2024 reached $190.8 million, or $3.25 per diluted share, representing a remarkable 267.6% increase from the $51.9 million, or $0.91 per diluted share, reported in 2023. This significant growth was largely attributable to the recognition of the 2021 GRC decision and the associated revenue impact.
The company's balance sheet and liquidity position remain strong, with $50.1 million in unrestricted cash and $45.6 million in restricted cash as of December 31, 2024. Additionally, the company had $395 million in available credit under its $600 million credit facilities, which were recently extended to mature in March 2028. This ample liquidity provides California Water Service Group with the financial flexibility to execute its capital investment plans and pursue strategic growth opportunities.
The company's debt-to-equity ratio stood at 0.44, with total debt of $1.38 billion and total equity of $1.64 billion. The current ratio and quick ratio were both 0.60, indicating the company's ability to meet its short-term obligations.
In the fourth quarter of 2024, California Water Service Group reported revenue of $222.2 million, a 3.6% increase from $214.5 million in Q4 2023. This increase was driven by $24.2 million from higher rates and $5.5 million from the Monterey Water Rate Adjustment Mechanism (M-WRAM), partially offset by $8.1 million in lower unbilled revenue and $19.4 million from previously deferred WRAM balances. However, net income for Q4 2024 decreased to $19.7 million from $30.1 million in Q4 2023, primarily due to higher operating expenses, including $3.4 million in higher water production costs and a $9.9 million decrease in income tax benefit.
For the full year 2024, the company generated operating cash flow of $290.9 million. However, due to the significant capital investments made during the year, free cash flow was negative $179.9 million.
Regulatory Environment and Growth Initiatives
California Water Service Group operates in a highly regulated environment, with its rates and operations subject to the jurisdiction of the respective state regulatory commissions. In 2024, the company filed its 2024 General Rate Case (GRC) with the California Public Utilities Commission (CPUC), seeking to invest over $1.6 billion in its California districts from 2025 to 2027, including approximately $1.3 billion in newly proposed capital projects.
The 2024 GRC filing also includes an innovative Low-Use Water Equity Program, designed to decouple revenue from water sales while keeping rates affordable and reinforcing conservation goals. The company is currently in the midst of the 18-month review process for the 2024 GRC, with a decision expected by the end of 2025. The proposal includes rate increases to generate an additional $140.6 million for 2026, $74.2 million for 2027, and $83.6 million for 2028.
In addition to its core regulated utility operations, California Water Service Group has been actively pursuing growth opportunities through its non-regulated activities. The company's subsidiary, TWSC, Inc. in Texas, has been particularly successful, connecting an additional 1,200 customers to its systems in 2025, representing a 39% year-over-year increase. The company also has a committed connection pipeline of nearly 16,000 additional customers in the rapidly growing South Austin and North San Antonio markets.
Furthermore, the company has initiated a program to be more proactive in pursuing rate adjustments in its other state subsidiaries, including Washington, Hawaii, and New Mexico. This strategy aims to enable more timely recovery of the company's costs and provide smaller, more incremental rate adjustments for customers, rather than relying on less frequent, larger rate increases.
Risks and Challenges
As a regulated utility, California Water Service Group faces several risks and challenges that can impact its operations and financial performance. These include the ability to recover costs and investments through customer rates, the timeliness of regulatory decisions, and the potential for natural disasters or climate change-related events to disrupt water supply and infrastructure.
The company's financial results can be significantly affected by regulatory decisions, as demonstrated by the delayed 2021 GRC decision in California, which caused financial challenges for the company in 2023. The company is actively working to avoid similar delays with the ongoing 2024 GRC process, but there is no guarantee that the CPUC will issue a timely decision.
Additionally, the company's water supply and infrastructure are vulnerable to natural disasters, such as wildfires, earthquakes, and droughts, which can disrupt operations and result in costly repairs or service interruptions. California Water Service Group has invested heavily in infrastructure hardening and emergency preparedness to mitigate these risks, but the potential impact of climate change-related events remains a concern.
Outlook and Conclusion
Looking ahead, California Water Service Group is well-positioned to continue delivering reliable water services and sustainable growth. The company's record-setting capital investments in 2024 and its proposed $1.6 billion infrastructure improvement plan for its California districts from 2025 to 2027 demonstrate its commitment to maintaining and enhancing its water systems.
The company expects its annual capital expenditures to increase over the next five years due to the continuing need to replace and maintain its water infrastructure. This aligns with the broader water utility industry trend, which is expected to see a compound annual growth rate of around 5-6% over the next five years, driven by infrastructure investments, acquisitions, and population growth.
Furthermore, the company's diversification into new markets, such as Texas, and its proactive approach to rate adjustments in its other state subsidiaries provide avenues for future growth and improved financial performance. California Water Service Group plans to continue evaluating strategic growth areas through targeted domestic mergers and acquisitions opportunities and ongoing greenfield development in Texas.
The company's strong financial position, with a solid balance sheet and ample liquidity, supports its ability to execute on these growth initiatives. Additionally, the company's focus on implementing programs to enhance emergency preparedness, wildfire mitigation, and sustainability demonstrates its commitment to long-term resilience and environmental stewardship.
Overall, California Water Service Group's strong financial performance, dedication to infrastructure investments, and strategic initiatives position the company well to continue serving its customers and creating value for its shareholders in the years ahead. As the company navigates the regulatory landscape and addresses the challenges posed by climate change and aging infrastructure, it remains focused on delivering reliable water services and sustainable growth across its diverse service areas.