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What changed in CALIFORNIA WATER SERVICE GROUP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CALIFORNIA WATER SERVICE GROUP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+421 added−395 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in CALIFORNIA WATER SERVICE GROUP's 2023 10-K

421 paragraphs added · 395 removed · 309 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

124 edited+39 added−39 removed67 unchanged
Biggest changeFactors which may cause actual results to be different than those expected or anticipated include, but are not limited to: • the impact of the ongoing COVID-19 pandemic and related public health measures; • our ability to invest or apply the proceeds from the issuance of common stock in an accretive manner; • governmental and regulatory commissions' decisions, including decisions on proper disposition of property; • consequences of eminent domain actions relating to our water systems; • changes in regulatory commissions' policies and procedures, such as the California Public Utilities Commission (CPUC)’s decision in 2020 to preclude companies from proposing fully decoupled WRAMs in their next GRC filing (which impacted our 2021 GRC Filing related to our operations commencing in 2023); • the outcome and timeliness of regulatory commissions' actions concerning rate relief and other matters, including with respect to our 2021 GRC Filing and our Cost of Capital filing; • increased risk of inverse condemnation losses as a result of climate change and drought; • our ability to renew leases to operate water systems owned by others on beneficial terms; • changes in California State Water Resources Control Board water quality standards; • changes in environmental compliance and water quality requirements; • electric power interruptions, especially as a result of Public Safety Power Shutoff (PSPS) programs; • housing and customer growth; • the impact of opposition to rate increases; • our ability to recover costs; • availability of water supplies; • issues with the implementation, maintenance or security of our information technology systems; 4 Table of Contents • civil disturbances or terrorist threats or acts; • the adequacy of our efforts to mitigate physical and cyber security risks and threats; • the ability of our enterprise risk management processes to identify or address risks adequately; • labor relations matters as we negotiate with the unions; • changes in customer water use patterns and the effects of conservation, including as a result of drought conditions; • our ability to complete, in a timely manner or at all, successfully integrate, and achieve anticipated benefits from announced acquisitions; • the impact of weather, climate change, natural disasters, and actual or threatened public health emergencies, including disease outbreaks, on our operations, water quality, water availability, water sales and operating results and the adequacy of our emergency preparedness; • restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; • risks associated with expanding our business and operations geographically; • the impact of stagnating or worsening business and economic conditions, including inflationary pressures, general economic slowdown or a recession, increasing interest rates, and changes in monetary policy; • the impact of market conditions and volatility on unrealized gains or losses on our non-qualified benefit plan investments and our operating results; • the impact of weather and timing of meter reads on our accrued unbilled revenue; and • the risks set forth in "Risk Factors" included elsewhere in this annual report.
Biggest changeFactors which may cause actual results to be different than those expected or anticipated include, but are not limited to: • the outcome and timeliness of regulatory commissions' actions concerning rate relief and other matters, including with respect to our 2021 GRC; • changes in regulatory commissions' policies and procedures, such as the California Public Utilities Commission (CPUC)’s decision in 2020 to preclude companies from proposing fully decoupled WRAMs (which impacted our 2021 GRC); • our ability to collect eligible customer arrearages and program administrative costs under the California Extended Water and Wastewater Arrearages Payment Program; • our ability to invest or apply the proceeds from the issuance of common stock in an accretive manner; • governmental and regulatory commissions' decisions, including decisions on proper disposition of property; • consequences of eminent domain actions relating to our water systems; • increased risk of inverse condemnation losses as a result of climate change and drought; • changes in California State Water Resources Control Board water quality standards; • changes in environmental compliance and water quality requirements; • electric power interruptions, especially as a result of Public Safety Power Shutoff (PSPS) programs; • availability of water supplies; • housing and customer growth; • the impact of opposition to rate increases; 4 Table of Contents • our ability to recover costs; • our ability to renew leases to operate water systems owned by others on beneficial terms; • issues with the implementation, maintenance or security of our information technology systems; • civil disturbances or terrorist threats or acts; • the adequacy of our efforts to mitigate physical and cyber security risks and threats; • the ability of our enterprise risk management processes to identify or address risks adequately; • labor relations matters as we negotiate with the unions; • changes in customer water use patterns and the effects of conservation, including as a result of drought conditions; • our ability to complete, in a timely manner or at all, successfully integrate, and achieve anticipated benefits from announced acquisitions; • the impact of weather, climate change, natural disasters, and actual or threatened public health emergencies, including disease outbreaks, on our operations, water quality, water availability, water sales and operating results and the adequacy of our emergency preparedness; • restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; • risks associated with expanding our business and operations geographically; • the impact of stagnating or worsening business and economic conditions, including inflationary pressures, general economic slowdown or a recession, increasing interest rates, instability of certain financial institutions, changes in monetary policy, adverse capital markets activity or macroeconomic conditions as a result of geopolitical conflicts, and the prospect of a shutdown of the U.S. federal government; • the impact of market conditions and volatility on unrealized gains or losses on our non-qualified benefit plan investments and our operating results; • the impact of weather and timing of meter reads on our accrued unbilled revenue; • the impact of evolving legal and regulatory requirements, including emerging environmental, social and governance requirements; and • the risks set forth in “Risk Factors” included elsewhere in this annual report.
In some areas, we provide wastewater collection and treatment services, including treatment which allows water recycling. We also provide non-regulated water-related services under agreements with municipalities and other private companies. The non-regulated services include full water system operation, billing and meter reading services.
In some areas, we provide wastewater collection and treatment services, including treatment which allows water recycling. We also provide non-regulated water-related services under agreements with municipalities and other private companies. The non-regulated services include full water system operation, meter reading, and billing services.
We distribute and treat water and treat wastewater in accordance with accepted water 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.
We treat and distribute water and treat wastewater in accordance with accepted water 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.
After the CPUC's decision is issued and final rates are implemented, then we would expect the balance in the IRMA to be reviewed, and customer bills to be adjusted to account for the difference between interim rates and final rates back to January 1, 2023.
After the CPUC's decision is issued and final rates are implemented, we would then expect the balance in the IRMA to be reviewed, and customer bills to be adjusted to account for the difference between interim rates and final rates back to January 1, 2023.
In 2020, the Project was completed and an Advice Letter 2387 asking for authority to increase rates reflecting the Project costs up to the cap, with an effective date of August 27, 2020 was filed. The advice letter was approved on January 29, 2021.
In 2020, the Project was completed and Advice Letter 2387 was filed asking for authority to increase rates reflecting the Project costs up to the cap, with an effective date of August 27, 2020. The advice letter was approved on January 29, 2021.
Cal Water also had a Sales Reconciliation Mechanism (SRM) in place for 2021 and 2022 (the second and third years of its 2018 GRC), that allowed the company to adjust its adopted sales forecast if actual sales vary from adopted sales by more than 5.0% in the prior year in a district.
Cal Water also had a Sales Reconciliation Mechanism (SRM) in place for 2021 and 2022 (the second and third years of its 2018 GRC), that allowed the company to adjust its adopted sales forecast if actual sales vary from adopted sales by more than 5.0% over the prior year in a district.
In the future, if we are required to comply with these regulations, any increase in operating costs associated with meeting these standards will be included in our cost of service paid by our customers as requested in our GRC filings. While recovery of these costs is not guaranteed, we would expect recovery in the regulatory process.
In the future, if we are required to comply with these regulations, any increase in operating costs associated with meeting these standards would be included in our cost of service paid by our customers as requested in our GRC filings. While recovery of these costs is not guaranteed, we would expect recovery in the regulatory process.
The California Public Advocates Office recommended a return on equity of 7.81%, a cost of debt of 4.23%, and a capital structure of 49.4% equity to 50.6% debt ratio. Evidentiary hearings were held in May 2022 and the case was submitted to the CPUC at the end of the second quarter of 2022.
The California Public Advocates Office recommended a return on equity of 7.81%, a cost of debt of 4.23%, and a capital structure of 49.4% equity and 50.6% debt. Evidentiary hearings were held in May 2022 and the case was submitted to the CPUC at the end of the second quarter of 2022.
Amongst other things, the 2021 GRC Filing requested 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.
Amongst other things, the 2021 GRC requested 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.
As a result, seasonality of water usage has a significant impact on our cash flows from operations and borrowing on our short-term facilities. Utility Plant Construction We have continually extended, enlarged, and replaced our facilities as required to meet increasing demands and to maintain the water systems.
As a result, seasonality of water usage has a significant impact on our cash flows from operations and borrowing on our short-term facilities. Utility Plant Construction We have continually extended, enlarged, and replaced our facilities as required to meet increasing demands and to maintain our water systems.
The regulated utility entities also provide some non-regulated services. Utility Services holds non-utility property and provides non-regulated services to private companies and municipalities outside of California (see Non-Regulated Activities below for more details). Cal Water was the original operating company and began operations in 1926.
The regulated utility entities also provide some non-regulated services. Utility Services holds non-utility property and provides non-regulated services to private companies and municipalities outside of California (see "Non-Regulated Activities" below for more details). Cal Water was the original operating company that began operations in 1926.
The WRAM and MCBA amounts have been cumulative, so if they were not amortized in a given calendar year, the balance was carried forward and included with the following year balance.
The WRAM and MCBA amounts have been cumulative, so if they were not amortized in a given calendar year, the balance was carried forward and included with the following year's balance.
The WRAM and MCBA were designed to ensure that Cal Water recovers revenues authorized by the CPUC regardless of customer consumption. This removed the historical disincentive against promoting lower water usage among customers. Through an annual advice letter filing, Cal Water can seek to recover any under-collected metered revenue amounts authorized, or refunds over-collected metered revenues, via surcharges and surcredits.
The WRAM and MCBA were designed to ensure that Cal Water recovers revenues authorized by the CPUC regardless of customer consumption. This removed the historical disincentive against promoting lower water usage among customers. Through an annual advice letter filing, Cal Water can seek to recover any under-collected metered revenue amounts authorized, or refund over-collected metered revenues, via surcharges and surcredits.
Purchases for the Bayshore and Bear Gulch districts are in accordance with long-term contracts with the San Francisco Public Utilities Commission (SFPUC) until June 30, 2034. 15 Table of Contents Management anticipates water supply contracts will be renewed as they expire though the price of wholesale water purchases is anticipated to increase in the future.
Purchases for the Bayshore and Bear Gulch districts are in accordance with long-term contracts with the San Francisco Public Utilities Commission (SFPUC) until June 30, 2034. 16 Table of Contents Management anticipates water supply contracts will be renewed as they expire though the price of wholesale water purchases is anticipated to increase in the future.
Many of our well sites are equipped with emergency electric generators designed to produce electricity to keep the wells operating during power outages. Storage tanks also provide customers with water during blackout periods. During 2022, 2021, and 2020 we leased additional emergency generators to respond to potential PSPSs, an electric utility operating paradigm approved by the CPUC.
Many of our well sites are equipped with emergency electric generators designed to produce electricity to keep the wells operating during power outages. Storage tanks also provide customers with water during blackout periods. During 2023, 2022, and 2021 we leased additional emergency generators to respond to potential PSPSs, an electric utility operating paradigm approved by the CPUC.
Milleman (2) Vice President, Rates & Regulatory Affairs since January 1, 2022. Formerly, Vice President, California Rates (2019-2021), Interim Director of Rates (2017-2018), Director of Field Administration & Finance (2014-2017), Manager of Special Projects (2013), and served as Senior Vice President of Administration and Corporate Secretary and various other management positions for Valencia Water Company (1992-2013). 60 Thomas A.
Milleman (2) Vice President, Rates & Regulatory Affairs since January 1, 2022. Formerly, Vice President, California Rates (2019-2021), Interim Director of Rates (2017-2018), Director of Field Administration & Finance (2014-2017), Manager of Special Projects (2013), and served as Senior Vice President of Administration and Corporate Secretary and various other management positions for Valencia Water Company (1992-2013). 61 Thomas A.
The CPUC issued a decision effective August 27, 2020 requiring that Class A companies submitting GRC filings after the effective date be (i) precluded from proposing the use of a full decoupling WRAM in their next GRCs and (ii) allowed the use of Monterey-Style Water Revenue Adjustment Mechanisms (MWRAM).
The CPUC issued a decision effective August 27, 2020 requiring that Class A companies submitting GRC filings after the effective date be (i) precluded from proposing the use of a full decoupling WRAM in their next GRCs and (ii) allowed the use of a Monterey-Style Water Revenue Adjustment Mechanism (MWRAM).
Employee health and safety in the workplace is one of the Company’s core values. Safety efforts are led by the Corporate Safety Committee and supported by safety committees that operate at the local level. Hazards in the workplace are actively identified and management tracks incidents so remedial actions can be taken to improve workplace safety.
Employee health and safety in the workplace is one of the Company's core values. Safety efforts are led by the Executive Safety Committee and supported by safety committees that operate at the local level. Hazards in the workplace are actively identified and management tracks incidents so remedial actions can be taken to improve workplace safety.
See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Water Supply" for more information on adequacy of supplies. 16 Table of Contents Seasonal Fluctuations In California, our customers' consumption pattern of water varies with the weather, in terms of rainfall and temperature.
See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Water Supply" for more information on adequacy of supplies. 17 Table of Contents Seasonal Fluctuations In California, our customers' consumption pattern of water varies with the weather, in terms of rainfall and temperature.
New rates were implemented on February 1, 2021, with the revenue requirement being effective as of August 27, 2020. Due to the complexity of the project, total project costs exceeded the advice letter cap of $96.1 million. Total project costs incurred as of the end of 2022 were $117.2 million.
New rates were implemented on February 1, 2021, with the revenue requirement being effective as of August 27, 2020. Due to the complexity of the Project, total project costs exceeded the advice letter cap of $96.1 million. Total project costs incurred as of the end of 2023 were $117.2 million.
The opportunities could include system acquisitions, lease arrangements similar to the City of Hawthorne and City of Commerce contracts, utility development investments similar to the BVRT investment, full service system operation and maintenance agreements, meter reading, billing contracts and other utility-related services. 7 Table of Contents Geographical Service Areas and Number of Customer Connections at Year-end Our principal markets are users of water within our service areas.
The opportunities could include system acquisitions, lease arrangements similar to the City of Hawthorne and City of Commerce contracts, utility development investments similar to the BVRT investment, full service system operation and maintenance agreements, meter reading, billing contracts, customer service functions, and other utility-related services. 8 Table of Contents Geographical Service Areas and Number of Customer Connections at Year-end Our principal markets are users of water within our service areas.
Formerly, Vice President, Corporate Secretary (2021), Corporate Secretary (2015-2020), Assistant Corporate Secretary (2014), Treasury Manager (2012-2013), Assistant to the Chief Financial Officer (2011), Regulatory Accounting Manager (2008-2010), held various accounting positions at Piller Data Systems (2006-2007), Hitachi Global Storage (2005), Abbot Laboratories (1998-2004), and Symantec (1998-2001). 48 Elissa Y.
Formerly, Vice President, Corporate Secretary (2021), Corporate Secretary (2015-2020), Assistant Corporate Secretary (2014), Treasury Manager (2012-2013), Assistant to the Chief Financial Officer (2011), Regulatory Accounting Manager (2008-2010), held various accounting positions at Piller Data Systems (2006-2007), Hitachi Global Storage (2005), Abbot Laboratories (2002-2004), and Symantec (1998-2001). 49 Elissa Y.
The agreement allows us to request a rate change annually in order to recover costs. Hawaii Water provides service to approximately 6,200 water and wastewater customer connections on the islands of 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).
The agreement allows us to request a rate change annually in order to recover costs. Hawaii Water provides service to approximately 6,500 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).
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 $4.2 million, $3.4 million, and $2.9 million in 2022, 2021, and 2020, respectively.
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 $4.2 million, $4.2 million, and $3.4 million in 2023, 2022, and 2021, respectively.
While we do not make public comments on our security programs, we have been in contact with federal, state, and local law enforcement agencies to coordinate and improve our water delivery systems' security Competition and Condemnation Our principal operations are regulated by the Commission of each state.
While we do not make public comments on our security programs, we have been in contact with federal, state, and local law enforcement agencies to coordinate and improve our water delivery systems' security. 18 Table of Contents Competition and Condemnation Our principal operations are regulated by the Commission of each state.
These provisions establish criteria for drinking water and for discharges of water, wastewater, and airborne substances. The EPA, state water quality regulators, and other state regulatory authorities promulgate numerous nationally and locally applicable standards, including maximum contaminant levels (MCLs) for drinking water. We believe we are currently in compliance with all of the MCLs promulgated to date.
These provisions establish criteria for drinking water and for discharges of water, wastewater, and airborne substances. The EPA, state water quality regulators, and other state regulatory authorities promulgate numerous nationally and locally applicable standards, including MCLs for drinking water. We believe we are currently in compliance with all of the MCLs promulgated to date.
The CPUC authorized Cal Water to recover revenue associated with costs up to a cap of $96.1 million after the Project is in service, subject to the CPUC’s reasonableness review.
The CPUC authorized Cal Water to recover revenue associated with costs up to a cap of $96.1 million after the Project was in service, subject to the CPUC's reasonableness review.
Purchases for the Los Altos, Livermore, Oroville, Redwood Valley, Stockton, and Bakersfield districts are pursuant to long-term contracts expiring on various dates after 2022.
Purchases for the Los Altos, Livermore, Oroville, Redwood Valley, Stockton, and Bakersfield districts are pursuant to long-term contracts expiring on various dates after 2023.
The CPUC follows a rate case plan which requires Cal Water to file a GRC for each of its regulated operating districts (except Grand Oaks) every three years. 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 follows a rate case plan which requires Cal Water to file a GRC for each of its regulated operating districts (except Grand Oaks, which is filed as needed) every three years. 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 DRMA was approved by the CPUC with an effective date of June 14, 2021. The DRMA also tracks 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 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.
The advice letters generally have been filed in April of each year and addressed the net WRAM and MCBA balances recorded for the previous calendar year. The majority of WRAM and MCBA balances have been collected or refunded through surcharges/surcredits over 12 and 18 months.
The advice letters generally have been filed in April of each year and addressed the net WRAM and MCBA balances recorded for the previous calendar year. The majority of WRAM and MCBA balances have been collected or refunded through surcharges/surcredits over 12 and 18 month periods.
Local independent state certified labs provide water sample testing for the Washington, New Mexico and Hawaii operations. 18 Table of Contents In recent years, federal and state water quality regulations have resulted in increased water sampling requirements. The SDWA continues to be used to monitor and regulate additional potential contaminants to address public health concerns.
Local independent state certified labs provide water sample testing for the Washington, New Mexico, and Hawaii operations. In recent years, federal and state water quality regulations have resulted in increased water sampling requirements. The SDWA continues to be used to monitor and regulate additional potential contaminants to address public health concerns.
The approximate number of customer connections served in each regulated district, the City of Hawthorne and the City of Commerce, at December 31 is as follows: (rounded to the nearest hundred) 2022 2021 SAN FRANCISCO BAY AREA/NORTH COAST Bay Area Region (serving South San Francisco, Colma, Broadmoor, San Mateo, San Carlos, Lucerne, Duncans Mills, Guerneville, Dillon Beach, Noel Heights and portions of Santa Rosa) 56,000 56,000 Bear Gulch (serving portions of Menlo Park, Atherton, Woodside and Portola Valley) 19,000 19,000 Los Altos (including portions of Cupertino, Los Altos Hills, Mountain View and Sunnyvale) 19,000 19,000 Livermore 19,000 19,000 113,000 113,000 SACRAMENTO VALLEY Chico (including Hamilton City) 31,300 31,100 Oroville 3,700 3,700 Marysville 3,800 3,800 Dixon 3,100 3,100 Willows 2,400 2,400 44,300 44,100 SALINAS VALLEY Salinas Valley Region (including Salinas and King City) 31,700 31,700 31,700 31,700 SAN JOAQUIN VALLEY Bakersfield 74,100 73,700 Stockton 45,200 44,900 Visalia 48,100 47,400 Selma 6,600 6,600 Kern River Valley 4,100 4,000 178,100 176,600 LOS ANGELES AREA East Los Angeles 27,000 27,000 Hermosa Redondo (serving Hermosa Beach, Redondo Beach and a portion of Torrance) 27,200 27,200 Dominguez (Carson and portions of Compton, Harbor City, Long Beach, Los Angeles and Torrance) 34,400 34,400 Los Angeles County Region (including Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills Estates, Rolling Hills, Fremont Valley, Lake Hughes, Lancaster and Leona Valley) 25,900 25,800 Westlake (a portion of Thousand Oaks) 7,100 7,100 Hawthorne and Commerce (leased municipal systems) 7,700 7,600 129,300 129,100 CALIFORNIA TOTAL 496,400 494,500 HAWAII 6,200 6,200 NEW MEXICO 10,700 8,600 WASHINGTON 37,500 36,400 TEXAS 2,200 1,900 COMPANY TOTAL 553,000 547,600 8 Table of Contents Rates and Regulation The Commissions have plenary powers setting both rates and operating standards.
The approximate number of customer connections served in each regulated district, the City of Hawthorne and the City of Commerce, at December 31 is as follows: (rounded to the nearest hundred) 2023 2022 SAN FRANCISCO BAY AREA/NORTH COAST Bay Area Region (serving South San Francisco, Colma, Broadmoor, San Mateo, San Carlos, Lucerne, Duncans Mills, Guerneville, Dillon Beach, Noel Heights and portions of Santa Rosa) 56,000 56,000 Bear Gulch (serving portions of Menlo Park, Atherton, Woodside and Portola Valley) 19,100 19,000 Los Altos (including portions of Cupertino, Los Altos Hills, Mountain View and Sunnyvale) 19,000 19,000 Livermore 19,000 19,000 113,100 113,000 SACRAMENTO VALLEY Chico (including Hamilton City) 31,500 31,300 Oroville 3,700 3,700 Marysville 3,800 3,800 Dixon 3,100 3,100 Willows 2,400 2,400 44,500 44,300 SALINAS VALLEY Salinas Valley Region (including Salinas and King City) 31,800 31,700 31,800 31,700 SAN JOAQUIN VALLEY Bakersfield 74,400 74,100 Stockton 45,200 45,200 Visalia 48,700 48,100 Selma 6,600 6,600 Kern River Valley 4,000 4,100 178,900 178,100 LOS ANGELES AREA East Los Angeles 26,900 27,000 Hermosa Redondo (serving Hermosa Beach, Redondo Beach and a portion of Torrance) 27,300 27,200 Dominguez (Carson and portions of Compton, Harbor City, Long Beach, Los Angeles and Torrance) 34,500 34,400 Los Angeles County Region (including Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills Estates, Rolling Hills, Fremont Valley, Lake Hughes, Lancaster and Leona Valley) 26,000 25,900 Westlake (a portion of Thousand Oaks) 7,100 7,100 Hawthorne and Commerce (leased municipal systems) 7,600 7,700 129,400 129,300 CALIFORNIA TOTAL 497,700 496,400 HAWAII 6,500 6,200 NEW MEXICO 11,400 10,700 WASHINGTON 38,000 37,500 TEXAS 2,800 2,200 COMPANY TOTAL 556,400 553,000 9 Table of Contents Rates and Regulation The Commissions have plenary powers setting both rates and operating standards.
Item 1. Business. Forward-Looking Statements This annual report, including all documents incorporated by reference, contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 (the PSLRA). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the PSLRA.
Item 1. Business. Forward-Looking Statements This annual report, including all documents incorporated by reference, contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 (the PSLRA). The forward-looking statements are intended to qualify under provisions of the federal securities laws for “safe harbor” treatment established by the PSLRA.
Our focus on retention is evident in the length of service of our management team. The average tenure of our management team is over 15 years. 19 Table of Contents Employee levels are managed to align with the pace of business and management believes it has sufficient human capital to operate its business successfully.
Our focus on retention is evident in the length of service of our management team. The average tenure of our management team is over 10 years. 20 Table of Contents Employee levels are managed to align with the pace of business and management believes it has sufficient human capital to operate its business successfully.
Shown below are wholesaler price rates and increases that became effective in 2022, and estimated wholesaler price rates and percent changes for 2023.
Shown below are wholesaler price rates and increases that became effective in 2023, and estimated wholesaler price rates and percent changes for 2024.
BVRT’s five wastewater utilities currently serve or are under contract to serve over 2,200 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 14 for more details).
BVRT's four wastewater utilities currently serve or are under contract to serve approximately 2,800 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 14 for more details).
Our annual groundwater 13 Table of Contents extraction from unmanaged groundwater basins approximates 15.4 billion gallons or 29.3% of our total annual water supply pumped from wells. Most of the managed groundwater basins we extract water from have groundwater recharge facilities. We are required to financially support these groundwater recharge facilities by paying well pump taxes.
Our annual groundwater extraction from unmanaged groundwater basins approximates 15.1 billion gallons or 29.3% of our total annual water supply pumped from wells. Most of the managed groundwater basins we extract water from have groundwater recharge facilities. We are required to financially support these groundwater recharge facilities by paying well pump taxes.
While a decision was pending on the Application for Rehearing, Cal Water along with four other Class A California water utilities filed Petitions for a Writ of Review with the California Supreme Court (Court) on or about October 27, 2021. In September 2021, the CPUC denied the Application for Rehearing.
In September 2021, the CPUC denied the Application for Rehearing. On or about October 27, 2021, Cal Water along with four other Class A California water utilities filed Petitions for a Writ of Review with the California Supreme Court (Court).
In November of 2022, the Administrative Law Judge (ALJ) assigned to evaluate the motion granted Cal Water’s request for the IRMA but did not authorize the inflation rate increase.
In November of 2022, the ALJ assigned to evaluate the motion granted Cal Water's request for the IRMA but did not authorize the inflation rate increase.
We maintain a fleet of vehicles to provide service to our customers, including a number of heavy-duty diesel vehicles that were retrofitted to meet California emission standards.
We maintain a fleet of vehicles to provide service to our customers, including a number of passenger vehicles, as well as heavy-duty diesel vehicles that were retrofitted to meet California emission standards.
Formerly, Chief Procurement and Lead Continuous Improvement Officer (2016-2021), Interim Procurement Director (2013-2016), Acting District Manager - Los Altos (2013), Interim Vice President of Information Technology (2012-2013), Director of Information Technology - Architecture and Security (2008-2012), Business Application Manager (2003-2007), Project Lead/Senior Developer (2001-2003), held various business consulting positions at KPMG Consulting/BearingPoint (1998-2001), and RR Donnelley (1996-1998). 54 Michael S.
Formerly, Chief Procurement and Lead Continuous Improvement Officer (2016-2021), Interim Procurement Director (2013-2016), Acting District Manager - Los Altos (2013), Interim Vice President of Information Technology (2012-2013), Director of Information Technology - Architecture and Security (2008-2012), Business Application Manager (2003-2007), Project Lead/Senior Developer (2001-2003), held various business consulting positions at KPMG Consulting/BearingPoint (1998-2001), and RR Donnelley (1996-1998). 55 Greg A.
In April of 2018, a renewal agreement was negotiated with the City of Commerce for us to continue to lease and to 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.
The City of Hawthorne capital lease is a 15-year lease and expires in 2026. In April of 2018, a renewal agreement was negotiated with the City of Commerce for us to continue to lease and to 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.
Our employees are expected to exhibit and promote honest, ethical, and respectful conduct in the workplace. All of our employees must adhere to a code of conduct that sets standards for appropriate behavior and includes required internal training on preventing, identifying, reporting and stopping any type of discrimination.
Our employees are expected to exhibit and promote honest, ethical, and respectful conduct. All of our employees must adhere to a business code of conduct that sets standards for appropriate behavior and ethics and includes required internal training on preventing, identifying, reporting, and stopping any type of discrimination.
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 December of 2021, Cal Water submitted an advice letter to request offsets for increases in purchased water costs and pump taxes in seven of its regulated districts totaling $5.2 million.
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 December of 2022, Cal Water submitted an advice letter to request offsets for increases in purchased water costs and pump taxes in five of its regulated districts totaling $5.1 million.
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. In addition, California water utilities are entitled to make offset requests via advice letter.
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. In addition, California water utilities are entitled to make offset requests via advice letter.
Formerly, Vice President of Human Resources (2014-2021), Managing Director, Human Resources Partner for United Airlines (2006-2014), served as Vice President of Human Resources for Black & Decker Corporation (1995-2005), Human Resource Manager for General Electric Company (1990-1994), and held various labor relations positions for National Steel and Shipbuilding Company (1982-1989). 66 Lynne P.
Formerly, Vice President of Human Resources (2014-2021), Managing Director, Human Resources Partner for United Airlines (2006-2014), served as Vice President of Human Resources for Black & Decker Corporation (1995-2005), Human Resource Manager for General Electric Company (1990-1994), and held various labor relations positions for National Steel and Shipbuilding Company (1982-1989). 67 Michelle R.
Regulatory Activity - California 2021 GRC Filing and Interim Rates Memorandum Account (IRMA) On July 2, 2021, Cal Water filed its 2021 GRC requesting water infrastructure improvements of $1.0 billion in accordance with the rate case plan for all of its regulated operating districts (except Grand Oaks) for the years 2022, 2023, and 2024.
Regulatory Activity - California 2021 GRC On July 2, 2021, Cal Water filed its 2021 GRC requesting water infrastructure improvements of $1.0 billion in accordance with the rate case plan for all of its regulated operating districts (except Grand Oaks) for the years 2022, 2023, and 2024.
We have complied with regulations issued by the U.S. Environmental Protection Agency (EPA) pursuant to federal legislation concerning vulnerability assessments and have made filings to the EPA as required. In addition, communication plans have been developed as a component of our procedures.
We have complied with regulations issued by the EPA pursuant to federal legislation concerning vulnerability assessments and have made filings to the EPA as required. In addition, communication plans have been developed as a component of our procedures.
Our annual groundwater extraction from adjudicated groundwater basins approximates 5.7 billion gallons or 10.8% of our total annual water supply pumped from wells. Historically, we have extracted less than 100% of our annual adjudicated groundwater rights and have the right to carry forward up to 20% of the unused amount to the next annual period.
Our annual groundwater extraction from adjudicated groundwater basins approximates 6.7 billion gallons or 13.1% of our total annual water supply pumped from wells. Historically, we have extracted less than 100% of our annual adjudicated groundwater rights and have the right to carry forward up to 20% of the unused amount to the next annual period.
Human Capital Resources We believe our employees are our most important resources and are critical to our continued success. We focus significant attention on attracting and retaining talented and experienced individuals to manage and support our operations.
Human Capital Resources We believe our employees are our most valuable asset and are critical to our continued success. We focus our attention on attracting and retaining talented and experienced individuals to manage and support our operations.
As of December 31, 2022, we had 659 employees represented by the UWUA and 85 employees represented by the IFPTE. In 2021, we reached a six-year agreement with both unions on a new contract that runs from May 14, 2021 (UWUA) and October 4, 2021 (IFPTE) through February 28, 2027.
As of December 31, 2023, we had 667 employees represented by the UWUA and 90 employees represented by the IFPTE. In 2021, we reached a six-year agreement with both unions on a new contract that runs from May 14, 2021 (UWUA) and October 4, 2021 (IFPTE) through February 28, 2027.
In December of 2022, Cal Water submitted an advice letter to request offsets for increases in purchased water costs and pump taxes in five of its regulated districts totaling $5.1 million. The new rates were implemented on January 1, 2023.
In November of 2023, Cal Water submitted an advice letter to request offsets for increases in purchased water costs and pump taxes in six of its regulated districts totaling $5.1 million. The new rates were implemented on January 1, 2024.
The central and southern portions of the Sierras have recorded 197% and 230%, respectively, of long-term averages. Management believes that supply pumped from underground aquifers and purchased from wholesale suppliers will be adequate to meet customer demand during 2023 and thereafter.
The central and southern portions of the Sierras have recorded 82% and 80%, respectively, of long-term averages. Management believes that supply pumped from underground aquifers and purchased from wholesale suppliers will be adequate to meet customer demand during 2024 and thereafter.
Any increase in fleet operating costs associated with meeting emission standards would be expected to be included in our cost of service paid by our customers as requested in our GRC filings. While recovery of these costs is not guaranteed, we would expect recovery in the regulatory process.
Any increase in fleet operating costs associated with meeting emission standards and/or requirements to phase-in the use of zero-emission vehicles would be expected to be included in our cost of service paid by our customers as requested in our GRC filings. While recovery of these costs is not guaranteed, we would expect recovery in the regulatory process.
As of February 10, 2023, the State of California snowpack water content during the 2022-2023 water year was 165% of long-term averages (per the California Department of Water Resources, Northern Sierra Precipitation Accumulation report). The northern Sierra region is the most important for the state’s urban water supplies.
As of February 22, 2024, the State of California snowpack water content during the 2023-2024 water year was 99% of long-term averages (per the California Department of Water Resources, Northern Sierra Precipitation Accumulation report). The northern Sierra region is the most important for the state's urban water supplies.
Texas Water accounts for approximately 0.4% of our total customer connections and 0.2% of our total consolidated operating revenue. 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.
Texas Water accounted for approximately 0.5% of our total customer connections and 0.3% of our total consolidated operating revenue in 2023. 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.
Our management team supports a culture of developing future leaders from our existing workforce, enabling us to promote from within for many leadership positions. We believe this provides long-term focus and continuity to our operations while also providing opportunities for the growth and advancement of our employees.
As evidenced by our internally created Future Leaders of Water Development Program, our management team supports a culture of developing future leaders from our existing workforce, enabling us to promote from within for many leadership positions. We believe this provides long-term focus and continuity to our operations while also providing opportunities for the growth and advancement of our employees.
Formerly, President and Chief Operating Officer (2012-2013), Chief Financial Officer and Treasurer (2006-2012), served as Chief Financial Officer of Power Light Corporation (2005-2006), Chief Financial Officer and Executive Vice President of Corporate Services of Hall Kinion and Associates (1997-2004), Deloitte & Touche Consulting (1996-1997), held various positions with Pacific Gas & Electric (1989-1996). 56 Thomas F.
Formerly, President and Chief Executive Officer (2013-2023), President and Chief Operating Officer (2012-2013), Chief Financial Officer and Treasurer (2006-2012), served as Chief Financial Officer of Power Light Corporation (2005-2006), Chief Financial Officer and Executive Vice President of Corporate Services of Hall Kinion and Associates (1997-2004), Deloitte & Touche Consulting (1996-1997), held various positions with Pacific Gas & Electric Company (1989-1996). 57 David B.
Our well pump taxes for 2022, 2021, and 2020 were $16.2 million, $15.3 million, and $12.6 million, respectively. In 2014, the State of California enacted the Sustainable Groundwater Management Act of 2014 (SGM Act).
Our well pump taxes for 2023, 2022, and 2021 were $19.0 million, $16.2 million, and $15.3 million, respectively. In 2014, the State of California enacted the Sustainable Groundwater Management Act of 2014 (SGM Act).
If future legislation further affects the cost to operate the fleet or the fleet acquisition cost in order to meet certain emission standards, it would increase our cost of service and our rate base.
If future legislation affects the cost to operate the fleet or the fleet acquisition cost in order to meet certain emission standards and/or requirements to phase-in the use of zero-emission vehicles, it would increase our cost of service and our rate base.
These are adjudicated groundwater basins, in which a court has settled the dispute between landowners, or other parties over how much annual groundwater can be extracted by each party. All of our adjudicated groundwater basins are located in the State of California.
Some of our wells extract ground water from water basins under state ordinances. These are adjudicated groundwater basins, in which a court has settled the dispute between landowners, or other parties over how much annual groundwater can be extracted by each party. All of our adjudicated groundwater basins are located in the State of California.
Regulated Business California water operations are conducted by Cal Water, which provides service to approximately 496,400 customer connections in approximately 100 California communities through 21 separate districts, which are subject to regulation by the CPUC. California water operations accounted for approximately 89.8% of our total customer connections and 91.6% of our total consolidated operating revenue.
Regulated Business California water operations are conducted by Cal Water, which provides service to approximately 497,700 customer connections in approximately 100 California communities through 21 separate districts, which are subject to regulation by the CPUC. California water operations accounted for approximately 89.5% of our total customer connections and 90.6% of our total consolidated operating revenue in 2023.
The remaining $14.7 million of capital costs not in base rates will be tracked in the memorandum account for possible future recovery.
The remaining $14.7 million of capital costs not in base rates will be applied for in a future rate proceeding or tracked in the memorandum account for possible future recovery.
Formerly, Vice President, California Operations (2019-2020), California Water Service Company District Manager, Bakersfield (2017-2018), Hawaii Water Service Company General Manager (2014-2016), Hawaii Water Service Company Local Manager, Big Island (2012-2014), California Water Service Company, held various Superintendent positions in the Chico district (2002-2012), California Water Service Company, held various union positions in the Chico district (1992-2002). 56 Greg A.
Formerly, Vice President, Operations (2021-2023), Vice President, California Operations (2019-2020), California Water Service Company District Manager, Bakersfield (2017-2018), Hawaii Water Service Company General Manager (2014-2016), Hawaii Water Service Company Local Manager, Big Island (2012-2014), California Water Service Company, held various Superintendent positions in the Chico district (2002-2012), California Water Service Company, held various union positions in the Chico district (1992-2002). 57 Ronald D.
New Mexico's regulated operations are subject to the jurisdiction of the New Mexico Public Regulation Commission (NMPRC). New Mexico Water accounts for approximately 1.9% of our total customer connections and 0.7% of our total consolidated operating revenue.
New Mexico's regulated operations are subject to the jurisdiction of the New Mexico Public Regulation Commission (NMPRC). New Mexico Water accounted for approximately 2.0% of our total customer connections and 0.9% of our total consolidated operating revenue in 2023.
Formerly Vice President of Customer Service and Chief Information Officer (2017-2020), Vice President of Customer Service and Information Technology (2013-2016), Acting California Water Service Company District Manager, Los Altos (2012-2013), Director of Information Technology (2008-2012), CIS Development Manager (2005-2008), held various other positions with California Water Service Company since 1999. 43 Ronald D.
Formerly, Vice President, Information Technology and Chief Risk Officer (2021-2023), Vice President of Customer Service and Chief Information Officer (2017-2020), Vice President of Customer Service and Information Technology (2013-2016), Acting California Water Service Company District Manager, Los Altos (2012-2013), Director of Information Technology (2008-2012), CIS Development Manager (2005-2008), held various other positions with California Water Service Company since 1999. 44 Shawn C.
All of our remaining wells extract ground water from managed or unmanaged water basins. There are no set limits for the ground water extracted from these water basins. Our annual groundwater extraction from managed groundwater basins approximates 31.5 billion gallons or 59.9% of our total annual water supply pumped from wells.
All of our remaining wells extract ground water from managed or unmanaged water basins. There are no set limits for the ground water extracted from these water basins. Our annual groundwater extraction from managed groundwater basins approximates 29.7 billion gallons or 57.6% of our total annual water supply pumped from wells.
The amount of non-regulated revenues subject to revenue sharing is the total billed revenues less any authorized pass-through costs. Some examples of CPUC authorized pass-through costs are purchased water, purchased power, and pump taxes. All of our non-regulated services, except for leasing communication antenna sites on our properties, are "active activities" subject to a 10% revenue sharing.
Some examples of CPUC authorized pass-through costs are purchased water, purchased power, and pump taxes. All of our non-regulated services, except for leasing communication antenna sites on our properties, are "active activities" subject to a 10% revenue sharing. Leasing communication antenna sites on our properties are "passive activities" subject to a 30% revenue sharing.
Given these drought proclamations and current water usage levels in all of its service areas, Cal Water has activated Stage 2 of the “Water Use Restrictions of its Water Shortage Contingency Plan (WSCP)” of Schedule 14.1 in all of its service areas; as a result, Cal Water has seen increase in DRMA related costs in 2022.
Given these drought proclamations and then-existing water usage levels in all of its service areas, in 2022 Cal Water activated Stage 2 of the "Water Use Restrictions of its Water Shortage Contingency Plan" (WSCP) of Schedule 14.1 in all of its service areas; as a result, Cal Water saw an increase in DRMA related costs in 2022 and 2023.
(Texas Water), and CWS Utility Services and HWS Utility Services LLC (CWS Utility Services and HWS Utility Services LLC being referred to collectively in this annual report as Utility Services). Cal Water, New Mexico Water, Washington Water, and Hawaii Water are regulated public utilities. Texas Water holds regulated and contracted wastewater utilities.
(Hawaii Water), TWSC, Inc. (Texas Water), and CWS Utility Services and HWS Utility Services LLC (CWS Utility Services and HWS Utility Services LLC being referred to collectively in this annual report as Utility Services). Cal Water, New Mexico Water, Washington Water, and Hawaii Water are regulated public utilities. Texas Water is a holding company with regulated and contracted wastewater utilities.
WRAM/MCBA Filings In April of 2022, Cal Water submitted an advice letter to true up the revenue under-collections for the 2021 annual WRAMs/MCBAs of its regulated districts. A net under-collection of $54.1 million is being recovered/refunded from/to customers in the form of 12, 18, and greater-than-18-month surcharges and 12 month surcredits.
WRAM/MCBA Filings In April and July of 2023, Cal Water submitted advice letters to true up the revenue under-collections for the 2022 annual WRAMs/MCBAs of its regulated districts. A net under-collection of $76.6 million is being recovered from customers in the form of 12, 18, and greater-than-18-month surcharges.
Hawaii Water accounts for 1.1% of our total customer connections and approximately 4.9% of our total consolidated operating revenue. Washington Water provides domestic water service to approximately 37,500 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.
Hawaii Water accounted for 1.2% of our total customer connections and approximately 5.2% of our total consolidated operating revenue in 2023. Washington Water provides domestic water service to approximately 38,000 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).
Fees for non-regulated activities are based on contracts negotiated between the parties. Under our non-regulated contract arrangements, we operate municipally owned water systems and privately owned water and recycled water distribution systems, but are not responsible for all operating costs. Non-regulated revenue received from non-leased water system operations is generally determined on a fee-per-customer basis.
Under our non-regulated contract arrangements, we operate municipally owned water systems and privately owned water and recycled water distribution systems, but are not responsible for all operating costs. Non-regulated revenue received from non-leased water system operations is generally determined on a fee-per-customer basis. In California, nearly all non-regulated activities are considered NTPS.
Any increase in the cost of power would be expected to be passed along to our California customers through the ICBA or included in our cost of service paid by our customers as requested in our GRC filings.
If future legislation limits emissions from the power generation process, our cost of power may increase. Any increase in the cost of power would be expected to be passed along to our California customers through the ICBA or included in our cost of service paid by our customers as requested in our GRC filings.
Mares, Jr (2) Vice President, Operations since January 1, 2021.
Mares, Jr (2) Senior Vice President, Operations since January 1, 2024.
In 2022, several districts experienced purchased water rate increases, resulting in the filing of several purchased water offsets. 2022 2023 District Effective Month Unit Cost Percent Change Effective Month Unit Cost Percent Change Antelope January $699.00 /af 5.1% January $699.00 /af — Bakersfield (1) July $179.00 /af — July $179.00 /af — Bear Gulch July $4.75 /ccf 15.9% July $4.75 /ccf — Commerce (2) July $1,313.00 /af 0.8% January $1,379.00 /af 5.0% Dominguez (2) July $1,500.00 /af 3.5% January $1,587.00 /af 5.8% East Los Angeles (2) July $1,313.00 /af 0.8% January $1,379.00 /af 5.0% Hawthorne (2) July $1,500.00 /af 3.5% January $1,587.00 /af 5.8% Hermosa-Redondo (2) July $1,500.00 /af 3.5% January $1,587.00 /af 5.8% Livermore January $2.06 /ccf (1.9)% January $2.27 /ccf 10.2% Los Altos July $1,839.00 /af 13.9% July $1,839.00 /af — Oroville (2) April $200,052 /yr 6.2% April $203,769 /yr 1.9% Palos Verdes (2) July $1,500.00 /af 3.5% January $1,587.00 /af 5.8% Mid-Peninsula July $4.75 /ccf 15.9% July $4.75 /ccf — Redwood Valley April $69.24 /af — April $69.24 /af — South San Francisco July $4.75 /ccf 15.9% July $4.75 /ccf — Stockton April $918,145 /mo (36.8)% April $918,145 /mo — Westlake January $1,561.00 /af 3.6% January $1,632.00 /af 4.5% _______________________________________________________________________________ af = acre foot; ccf = hundred cubic feet; yr = fixed annual cost; mo = fixed monthly cost (1) untreated water (2) wholesaler price changes occur every six months We work with all local suppliers and agencies responsible for water supply to enable adequate, long-term supply for each system.
In 2023, several districts experienced purchased water rate increases, resulting in the filing of several purchased water offsets. 2023 2024 District Effective Month Unit Cost Percent Change Effective Month Unit Cost Percent Change Antelope July $752.00 /af 7.6% July $809.00 /af 7.6% Bakersfield (1) July $195.00 /af 8.9% January $195.00 /af — Bear Gulch July $5.21 /ccf 9.7% January $5.21 /ccf — Commerce (2) January $1,379.00 /af 5.0% January $1,426.00 /af 3.4% Dominguez (2) July $1,605.00 /af 7.0% January $1,677.00 /af 4.5% East Los Angeles (2) January $1,379.00 /af 5.0% January $1,426.00 /af 3.4% Hawthorne (2) July $1,605.00 /af 7.0% January $1,677.00 /af 4.5% Hermosa-Redondo (2) July $1,605.00 /af 7.0% January $1,677.00 /af 4.5% Livermore February $2.27 /ccf 10.2% January $2.34 /ccf 3.1% Los Altos July $2,089.00 /af 13.6% January $2,089.00 /af — Oroville (2) April $216,068 /yr 8.0% January $216,068 /yr —% Palos Verdes (2) July $1,605.00 /af 7.0% January $1,677.00 /af 4.5% Mid-Peninsula July $5.21 /ccf 9.7% January $5.21 /ccf — Redwood Valley January $69.24 /af — January $69.24 /af — South San Francisco July $5.21 /ccf 9.7% January $5.21 /ccf — Stockton October $931,190 /mo 1.4% January $931,190 /mo — Westlake January $1,632.00 /af 4.5% January $1,730.00 /af 6.0% _______________________________________________________________________________ af = acre foot; ccf = hundred cubic feet; yr = fixed annual cost; mo = fixed monthly cost (1) untreated water (2) wholesaler price changes occur every six months We work with all local suppliers and agencies responsible for water supply to enable adequate, long-term supply for each system.
Cal Water currently has an approved return on equity of 9.2%, a cost of debt of 5.51%, and a capital structure of 53.4% equity to 46.6% debt ratio. Cal Water requested a return on equity of 10.35%, a cost of debt of 4.23%, and a capital structure of 53.4% equity to 46.6% debt ratio.
At the time of filing, Cal Water had an approved return on equity of 9.2%, a cost of debt of 5.51%, and a capital structure of 53.4% equity and 46.6% debt. Cal Water requested a return on equity of 10.35%, a cost of debt of 4.23%, and a capital structure of 53.4% equity and 46.6% debt.
When used in our documents, statements that are not historical in nature, including words like "will," "would," “expects,” “intends,” “plans,” “believes,” “may,” "could," “estimates,” “assumes,” “anticipates,” “projects,” "progress," “predicts,” "hopes," "targets," “forecasts,” “should,” “seeks,” "indicates," or variations of these words or similar expressions are intended to identify forward-looking statements.
When used in our documents, statements that are not historical in nature, including words like “will,” “would,” “expects,” “intends,” “plans,” “believes,” “may,” “could,” “estimates,” “assumes,” “anticipates,” “projects,” “progress,” “predicts,” “hopes,” “targets,” “forecasts,” “should,” “seeks,” “indicates,” or variations of these words or similar expressions are intended to identify forward-looking statements.
Accordingly, on December 27, 2022, Cal Water requested that the IRMA, which was approved by the CPUC, track the difference between the current rates that continue to be billed starting January 1, 2023 (considered to be interim rates), and the rates that will eventually be approved pursuant to the CPUC's decision concerning Cal Water's 2021 GRC Filing plus any additional revenue changes approved since July 1, 2021 (final rates).
The IRMA tracks the difference between the current rates that continue to be billed starting January 1, 2023 (considered to be interim rates), and the rates that will eventually be approved pursuant to the CPUC's decision concerning Cal Water's 2021 GRC plus any additional revenue changes approved since July 1, 2021 (final rates).

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf we close any of our facilities due to a COVID-19 outbreak or if a critical number of our employees become too ill to work, our business operations could be materially adversely affected in a rapid manner. 32 Table of Contents General Risk Factors We depend significantly on the services of the members of our management team, and the departure of any of those persons could cause our operating results to suffer.
Biggest changeGeneral Risk Factors We depend significantly on the services of the members of our management team, and the departure of any of those persons could cause our operating results to suffer. Our success depends significantly on the continued individual and collective contributions of our management team.
Regulatory decisions may affect prospective revenues and earnings, affect the timing of the recognition of revenues and expenses and may overturn past decisions used in determining our revenues and expenses.
Regulatory decisions may affect prospective revenues and earnings and the timing of the recognition of revenues and expenses and may overturn past decisions used in determining our revenues and expenses.
They have tended to become more stringent over time. As new or stricter standards are introduced, they could increase our operating costs. Although we would likely seek permission to recover these costs through rate increases, we can give no assurance that the Commissions would approve rate increases to enable us to recover these additional compliance costs.
They have tended to become more stringent over time. As new or stricter standards are introduced, our operating costs could increase. Although we would likely seek permission to recover these costs through rate increases, we can give no assurance that the Commissions would approve rate increases to enable us to recover these additional compliance costs.
In addition, we can pay cash dividends only if after paying those dividends we would be able to pay our liabilities as they become due. Owners of our capital stock cannot force us to pay dividends and dividends will only be paid if and when declared by our board of directors.
In addition, we can pay cash dividends only if after paying those dividends we would be able to pay our liabilities as they become due. Owners of our capital stock cannot force us to pay dividends and dividends will only be paid if and when declared by our board of directors (Board).
The effects of natural disasters, attacks by third parties, pandemics, or poor water quality or contamination to our water supply may result in disruption in our services and litigation, which could adversely affect our business, operating results and financial condition. We operate in areas that are prone to earthquakes, fires, mudslides and other natural disasters.
The effects of natural disasters, attacks by third parties, or poor water quality or contamination to our water supply may result in disruption in our services and litigation, which could adversely affect our business, operating results and financial condition. We operate in areas that are prone to earthquakes, fires, mudslides, and other natural disasters.
While, our management continually evaluates the anticipated recovery of regulatory assets and revenues subject to refund and provides for allowances and/or reserves as deemed necessary, no assurance can be given that any such allowances and/or reserves will be adequate to cover any loss or adjustment due to the absence of our limited recovery of regulatory assets and revenues as a result of regulatory decisions.
While our management evaluates the anticipated recovery of regulatory assets and revenues subject to refund and provides for allowances and/or reserves as deemed necessary, no assurance can be given that any such allowances and/or reserves will be adequate to cover any loss or adjustment due to the absence of our limited recovery of regulatory assets and revenues as a result of regulatory decisions.
In those circumstances, the remaining customers might not be able to pay for the operating costs or capital costs of the water system. We may not be able to recover capital costs of property that is no longer used and useful in utility service. We may also encounter an increase in bad debt expense in times of economic difficulty.
In those circumstances, the remaining customers might not be able to pay for the operating costs or capital costs of the water system. We may not be able to recover capital costs of property that is no longer used or useful in utility service. We may also encounter an increase in bad debt expense in times of economic difficulty.
Our board of directors can elect at any time, and for an indefinite duration, not to declare dividends on our capital stock. An important element of our growth strategy is the acquisition of water and wastewater systems. Risks associated with potential acquisitions, divestitures or restructurings may adversely affect us.
Our Board can elect at any time, and for an indefinite duration, not to declare dividends on our capital stock. An important element of our growth strategy is the acquisition of water and wastewater systems. Risks associated with potential acquisitions, divestitures or restructurings may adversely affect us.
Additional climate-related risks may influence our approach as we support the transition to a low-carbon economy. Transition risks include changes in the market and consumer demands, such as differences in generational behaviors, shifts in population locations due to the pandemic and different weather patterns, and variations in water needs and customer groups.
Additional climate-related risks may influence our approach as we support the transition to a low-carbon economy. Transition risks include changes in the market and consumer demands, such as differences in generational behaviors, shifts in population locations due to different weather patterns, and variations in water needs and customer groups.
The Commissions authorize us to charge rates that they consider sufficient to recover normal operating expenses, to provide funds for adding new or replacing water infrastructure, and to allow us to earn what the Commissions consider to be a fair and reasonable return on invested capital.
The Commissions authorize us to charge rates that they consider sufficient to recover normal operating expenses, to provide funds for adding new or replacing water infrastructure, and to allow us the opportunity to earn what the Commissions consider to be a fair and reasonable return on invested capital.
As a result, this doctrine, which is known as inverse condemnation and is routinely invoked in California, imposes strict liability for damages, including legal fees, because of the design, construction, and maintenance of utility facilities.
As a result, this doctrine, which is known as inverse condemnation and is routinely invoked in California, imposes strict liability for damages, including legal fees, because of the design, construction, maintenance and operation of utility facilities.
If our assessment as to the probability of recovery through the ratemaking process is later determined to be incorrect, the associated regulatory asset would be adjusted to reflect the change in our assessment or any regulatory disallowances.
If our assessment as to the probability of recovery through the ratemaking process is later determined to be incorrect, the associated regulatory asset would be adjusted to reflect the change in our assessment of any regulatory disallowances.
If the Commissions disagree with our characterization, there is a risk that the Commissions could determine that realized appreciation in property value should be awarded to customers rather than our stockholders. 22 Table of Contents Changes in laws, rules, and policies of our regulators or operating jurisdictions can significantly affect our business.
If the Commissions disagree with our characterization, there is a risk that the Commissions could determine that realized appreciation in property value should be awarded to customers rather than our stockholders. 23 Table of Contents Changes in laws, rules, and policies of our regulators or operating jurisdictions can significantly affect our business.
We have and will continue to bear increased costs for security precautions to protect our facilities, operations, and supplies. These costs may be significant. Despite these tightened security measures, we may not be able to prevent or deter any third-party attacks or be in a position to control the outcome of third-party attacks should they occur.
We have and will continue to bear increased costs for security precautions to protect our facilities, operations, and supplies. These costs may be significant. Despite these improved security measures, we may not be able to prevent or deter any third-party attacks or be in a position to control the outcome of third-party attacks should they occur.
Whether we have an adequate supply varies depending upon a variety of factors, many of which are partially or completely beyond our control, including: • the amount of rainfall; • the amount of water stored in reservoirs; • underground water supply from which well water is pumped; • availability from water wholesalers; • changes in the amount of water used by our customers; • water quality and availability of appropriate treatment technology; • legal limitations on water use such as rationing restrictions during a drought; • changes in prevailing weather patterns and climate; and • population growth.
Whether we have an adequate supply varies depending upon a variety of factors, many of which are partially or completely beyond our control, including: • the amount of rainfall; • the amount of water stored in reservoirs; 27 Table of Contents • underground water supply from which well water is pumped; • availability from water wholesalers; • changes in the amount of water used by our customers; • water quality and availability of appropriate treatment technology; • legal limitations on water use such as rationing restrictions during a drought; • changes in prevailing weather patterns and climate; and • population growth.
In addition to claims that our water or wastewater systems damaged property, Cal Water could be sued under inverse condemnation if its facilities or operations damage private property, or if it is unable to timely deliver sufficient quantities of water for firefighting because of system capacity limitations or water supply disruptions, including as a result of action taken by an electric utility pursuant to a PSPS program or other loss of power.
In addition to claims that our water or wastewater systems damaged property, Cal Water could be sued under inverse 25 Table of Contents condemnation if its facilities or operations damage private property, or if it is unable to timely deliver sufficient quantities of water for firefighting because of system capacity limitations or water supply disruptions, including as a result of action taken by an electric utility pursuant to a PSPS program or other loss of power.
We have taken steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply, to protect against third-party attacks, including physical attacks, terrorist attacks, and cyber-attacks. We have also tightened our security measures regarding the delivery and handling of certain chemicals used in our business.
We have taken steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply, to protect against third-party attacks, including physical attacks, terrorist attacks, and cyber-attacks. We have also improved our security measures regarding the delivery and handling of certain chemicals used in our business.
Therefore, you should not consider the following risks to be a complete statement of all the potential risks or uncertainties that we face. 21 Table of Contents Risks Related to Our Regulatory Environment Our business is heavily regulated by state and federal regulatory agencies and our financial viability depends upon our ability to recover costs from our customers through rates that must be approved by state public utility commissions.
Therefore, you should not consider the following risks to be a complete statement of all the potential risks or uncertainties that we face. 22 Table of Contents Risks Related to Our Regulatory Environment Our business is heavily regulated by state and federal regulatory agencies and our financial viability depends upon our ability to recover costs and investments from our customers through rates that must be approved by state public utility commissions.
Our IT systems are an integral part of our business, and a serious disruption of our IT systems could significantly limit our ability to manage and operate our business efficiently, which, in turn, could cause our business and competitive position to suffer and adversely affect our results of operations.
Our IT and OT systems are an integral part of our business, and a serious disruption of these systems could significantly limit our ability to manage and operate our business efficiently, which, in turn, could cause our business and competitive position to suffer and adversely affect our results of operations.
We can give no assurance that any of our plans for water reliability and water shortages, including incorporating projected and potential climate change risks into our water supply planning activities, will be adequate or capable of effectively addressing any droughts or longer periods of drought conditions or other conditions affecting water quality and availability.
We can give no assurance that any of our plans for water reliability and water shortages, including incorporating projected and potential climate 28 Table of Contents change risks into our water supply planning activities, will be adequate or capable of effectively addressing any droughts or longer periods of drought conditions or other conditions affecting water quality and availability.
If we are unable to remediate the material weakness in a timely manner, or are otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, we could suffer harm to our reputation, incur incremental compliance costs, fail to meet our public reporting requirements on a timely basis, be unable to properly report on our business and our results of operations, or be required to restate our financial statements, which could result in loss of investor confidence in the accuracy and completeness of our financial reports, subject us to litigation or investigations requiring management resources and payment of legal and other expenses, and our results of operations and our stock price could be materially adversely affected.
If we are unable to maintain effective internal control over financial reporting or disclosure controls and procedures, we could suffer harm to our reputation, incur incremental compliance costs, fail to meet our public reporting requirements on a timely basis, be unable to properly report on our business and our results of operations, or be required to restate our financial statements, which could result in loss of investor confidence in the accuracy and completeness of our financial reports, subject us to litigation or investigations requiring management resources and payment of legal and other expenses, and our results of operations and our stock price could be materially adversely affected.
Therefore, transfer of funds from our subsidiaries to us for the payment of our obligations or dividends may have an adverse effect on ratemaking determinations. Furthermore, our right to receive cash or other assets upon the liquidation or reorganization of a subsidiary is generally subject to the prior claims of creditors of that subsidiary.
Therefore, transfer of funds from our subsidiaries to us for the payment of our obligations or dividends may have an adverse effect on ratemaking determinations. Furthermore, our right to receive cash or other assets upon the liquidation or 31 Table of Contents reorganization of a subsidiary is generally subject to the prior claims of creditors of that subsidiary.
Immediate physical risks could affect our operations and intensify over time as climate change worsens. More frequent flooding, wildfires, sea level rise, rising groundwater, and uneven ground level sinking could damage our assets, including pressurized mains and other pipelines, wells, treatment facilities, and other infrastructure.
Immediate physical risks could affect our operations and intensify over time as climate change worsens. More frequent flooding, wildfires, sea level rise, rising or falling groundwater levels, and uneven ground level sinking could damage our assets, including pressurized mains and other pipelines, wells, treatment facilities, and other infrastructure.
A decline in demand for our stock may have a negative impact on our ability to finance capital projects. 31 Table of Contents Adverse investment returns and other factors may increase our pension liability and pension funding requirements. A substantial number of our employees are covered by a defined benefit pension plan.
A decline in demand for our stock may have a negative impact on our ability to finance capital projects. Adverse investment returns and other factors may increase our pension liability and pension funding requirements. A substantial number of our employees are covered by a defined benefit pension plan.
If a major failure of these facilities were to occur, we would have an interruption in service, potential flooding, and could release potentially harmful material into the environment. We operate over 7,000 miles of underground pipeline. Some failures of underground pipelines could release chemicals into the environment, which have a negative impact on sensitive habitats.
If a major failure of these facilities were to occur, we would have an interruption in service, potential flooding, and could release potentially harmful material into the environment. 26 Table of Contents We operate over 7,000 miles of underground pipeline. Some failures of underground pipelines could release disinfection chemicals into the environment, which have a negative impact on sensitive habitats.
For example, we experienced an increase in bad debt expense in 2022, which we believe is due to economic impact of the COVID-19 pandemic.
For example, we experienced an increase in bad debt expense in 2022, which we believe was due to economic impact of the COVID-19 pandemic.
If rights are granted to others to serve our customers recycled water, there will likely be a decrease in demand for our water. Finally, changes in prevailing weather patterns due to climate change may affect customer demand. If increased ambient temperatures affect our service areas, water used for irrigation and cooling may increase.
If rights are granted to others to serve our customers recycled water, there will likely be a decrease in demand for our water. 29 Table of Contents Finally, changes in prevailing weather patterns due to climate change may affect customer demand. If increased ambient temperatures affect our service areas, water used for irrigation and cooling may increase.
Any of these transactions could involve numerous additional risks, including one or more of the following: • problems integrating the acquired operations, personnel, technologies, physical and cyber security processes, or products with our existing businesses and products; • liabilities inherited from the acquired companies' prior business operations; • diversion of management time and attention from our core business to the acquired business; • failure to retain key technical, management, and other personnel of the acquired business; • difficulty in retaining relationships with suppliers and customers of the acquired business; and 30 Table of Contents • difficulty in obtaining required regulatory approvals.
Any of these transactions could involve numerous additional risks, including one or more of the following: • problems integrating the acquired operations, personnel, technologies, physical and cybersecurity processes, or products with our existing businesses and products; • liabilities inherited from the acquired companies' prior business operations; • diversion of management time and attention from our core business to the acquired business; • failure to retain key technical, management, and other personnel of the acquired business; • difficulty in retaining relationships with suppliers and customers of the acquired business; and • difficulty in obtaining required regulatory approvals.
We can give no assurance that issues with our labor forces will be resolved favorably to us in the future or that we will not experience work stoppages. Our operations are geographically concentrated in California and this lack of diversification may negatively affect our operations.
We can give no assurance that issues with our labor forces will be resolved favorably to us in the future or that we will not experience work stoppages. 33 Table of Contents Our operations are geographically concentrated in California and this lack of diversification may negatively affect our operating results.
New and/or more stringent water quality regulations could increase our operating costs. We are subject to water quality standards set by federal, state, and local authorities that have the power to issue new regulations. Compliance with new regulations that are more stringent than current regulations could increase our operating costs.
New and/or more stringent water quality regulations could increase our operating costs. We are subject to water quality standards set by federal, state, and local authorities that have the power to issue new regulations.
The cost of purchased water for delivery to customers represented 31.2% and 33.9% of our total operating costs in 2022 and 2021, respectively. Water purchased from suppliers will require renewal of our contracts upon expiration and may result in significant price increases under any such renewed contracts.
The cost of purchased water for delivery to customers represented 31.2% of our total operating costs in 2023 and in 2022. Water purchased from suppliers will require renewal of our contracts upon expiration and may result in significant price increases under any such renewed contracts.
Even if approved, there is no guarantee that approval will be given in a timely manner or at a sufficient level to cover our expenses and provide a reasonable return on our investment. If the rate increase decisions are delayed, our earnings may be adversely affected.
Even if approved, there is no guarantee that approval will be given in a timely manner or at a sufficient level to cover our expenses and provide a reasonable return on our investment. If the rate increase decisions are delayed or approved at a level that is lower than what we have requested, our earnings may be adversely affected.
State statutes allow municipalities, water districts and other public agencies to own and operate water systems. These agencies are empowered to condemn water systems or real property owned by privately owned public utilities in certain circumstances and in compliance with California and federal law.
Municipalities, water districts, and other public agencies may condemn our property by eminent domain action. State statutes allow municipalities, water districts and other public agencies to own and operate water systems. These agencies are empowered to condemn water systems or real property owned by privately owned public utilities in certain circumstances and in compliance with California and federal law.
We may seek to acquire or invest in other companies, technologies, services, or products that complement our business. The execution of our growth strategy may expose us to different risks than those associated with our utility operations.
We seek to acquire or invest in other companies, technologies, services, or products that complement our business from time to time. The execution of our growth strategy exposes us to different risks than those associated with our utility operations.
We retain certain risks not covered by our insurance policies. We evaluate our risks and insurance coverage annually or more frequently if circumstances dictate. Our evaluation considers the costs, risks, and benefits of retaining versus insuring various risks as well as the availability of certain types of insurance coverage.
We evaluate our risks and insurance coverage annually or more frequently if circumstances dictate. Our evaluation considers the costs, risks, and benefits of retaining versus insuring various risks as well as the availability of certain types of insurance coverage.
Internal control over financial reporting has inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud. Because of these inherent limitations, internal control over financial reporting might not prevent or detect all misstatements or fraud.
This material weakness has since been remediated. Internal control over financial reporting has inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud. Because of these inherent limitations, internal control over financial reporting might not prevent or detect all misstatements or fraud.
We depend on our IT systems to bill customers, process orders, provide customer service, manage construction projects, manage our financial records, track assets, remotely monitor certain of our plants and facilities and manage human resources, inventory and accounts receivable collections.
We rely on our IT and OT networks and applications to bill customers, process orders, provide customer service, manage construction projects, manage our financial records, track assets, remotely monitor certain of our plants and facilities and manage human resources, inventory and accounts receivable collections.
Although we would likely seek permission to recover these costs through rate increases on remaining customers or in statewide rates, we can give no assurance that the Commissions would approve rate increases to enable us to recover these costs. 27 Table of Contents Wastewater operations entail significant risks.
Although we would likely seek permission to recover any such future costs through rate increases on remaining customers or in statewide rates, we can give no assurance that the Commissions would approve rate increases to enable us to recover these costs. Wastewater operations entail significant risks.
The steps we have taken to protect our IT systems may be insufficient to protect them from damage or interruption from: • power loss, computer systems failures, including hardware equipment and software applications, and internet, telecommunications or data network failures; • operator negligence or improper operation by, or supervision of, employees; 25 Table of Contents • physical and electronic loss of customer data due to security breaches, cyber-attacks, misappropriation and similar events; • computer viruses; • intentional security breaches, hacking, denial of services actions, misappropriation of data, and similar events, including intentional cyber security breaches aimed at disrupting and interfering with water treatment processes; and • earthquakes, floods, fires, mudslides and other natural disasters or physical attacks.
Some of our mission and business critical systems are older and the steps we have taken to protect our systems may be insufficient to protect them from damage or interruption from: • power loss, computer systems failures, including hardware equipment and software applications, and internet, telecommunications or data network failures; • operator negligence or improper operation by, or supervision of, employees; • physical and electronic loss of customer data due to security breaches, cyber-attacks, misappropriation, acts of violence, war or terrorism, and similar events; • computer viruses; • intentional security breaches, hacking, denial of services actions, misappropriation of data, and similar events, including intentional cybersecurity breaches aimed at disrupting and interfering with water treatment processes; and • earthquakes, floods, fires, mudslides, and other natural disasters or physical attacks.
As disclosed in Part II, Item 9A, management concluded that our internal control over financial reporting was not effective as of December 31, 2022 due to a material weakness in our internal control over the completeness of our accounting for regulatory assets and liabilities, specifically controls over the identification of regulatory filings by the Company during the period that are then reviewed to determine their potential accounting impact.
As disclosed in our 2022 Annual Report on Form 10-K, management concluded that our internal control over financial reporting was not effective as of December 31, 2022 due to a material weakness in our internal control over the completeness of our accounting for regulatory assets and liabilities, specifically controls over the identification of regulatory filings by the Company during the period that are then reviewed to determine their potential accounting impact.
Risks Related to Our Business Operations We may be at risk for litigation under the principle of inverse condemnation for activities in the normal course of business, which have a damaging effect on private property.
Risks Related to Our Business Operations We are at risk for litigation under the principle of inverse condemnation for activities in the normal course of business that are deemed to have a damaging effect on private property.
We rely on our information technology ("IT") and a number of complex business systems to assist with the management of our business and customer and supplier relationships, and a disruption of these systems could adversely affect our business.
We rely on our information technology (IT), operational technology (OT), and a number of complex business systems to assist with the management of our business and customer and supplier relationships, and a disruption of these systems, including from cyber-attacks, could adversely affect our business.
We purchase our water supply from various governmental agencies and others. Water supply availability may be affected by weather conditions, funding and other political and environmental considerations. In addition, our ability to use surface water is subject to regulations regarding water quality and volume limitations.
We purchase our water supply from various governmental agencies and others, and, in many areas, purchased water is the only available source of water. Water supply availability may be affected by weather conditions, funding and other political and environmental considerations. In addition, our ability to use surface water is subject to regulations regarding water quality and volume limitations.
Wholesale water suppliers may increase their prices for water delivered to us based on factors that affect their operating costs. Purchased water rate increases are beyond our control. In California, our ability to recover increases in the cost of purchased water is expected to change with the adoption of the ICBA, which is effective as of January 1, 2023.
Wholesale water suppliers may increase their prices for water delivered to us based on factors that affect their operating costs. Purchased water rate increases are beyond our control. In California, our ability to recover increases in the cost of purchased water is expected to change with the adoption of the ICBA, which is pending approval of the 2021 GRC.
California Water Service Company, New Mexico Water Service Company, Washington Water Service Company, and Hawaii Water Service Company, Inc. are regulated public utilities, which provide water and water-related service to our customers. Additionally, Hawaii Water Service Company, Inc. and TWSC, Inc. own in whole or in part other companies which are regulated public utilities.
Cal Water, New Mexico Water, Washington Water, and Hawaii Water are regulated public utilities, which provide water and water-related service to our customers. Additionally, Hawaii Water and Texas Water own in whole or in part other companies which are regulated public utilities.
Although we own facilities in a number of states, over 91.6% of our operations are located in California. As a result, we are largely subject to weather, political, water supply, labor, energy cost, regulatory, and economic risks affecting California. We are also affected by the real property market in California.
Although we own facilities in a number of states, 90.6% of our total consolidated operating revenue was generated by our operations located in California in 2023. As a result, we are largely subject to political, regulatory, economic, water supply, weather, labor, and energy cost risks affecting California. We are also affected by the real property market in California.
Our billed revenues and cash flows from operations will decrease if a significant business or industrial customer terminates or materially reduces its use of our water. Approximately $180.2 million, or 23.3%, of our 2022 water utility revenues was derived from business and industrial customers.
Our billed revenues and cash flows from operations will decrease if a significant business or industrial customer terminates or materially reduces its use of our water. Approximately $187.1 million, or 23.7%, of our 2023 water utility revenues was derived from business and industrial customers.
We also rely on outside contractors to complete large construction projects and provide emergency maintenance services. In the event these contractors are unavailable or cannot meet the demands imposed on them, we may face significantly lengthy interruptions of service or delays in constructing capital projects. We may face additional costs to acquire more resources to complete these activities.
In the event these contractors are unavailable or cannot meet the demands imposed on them, we may face significantly lengthy interruptions of service or delays in constructing capital projects. We may face additional costs to acquire more resources to complete these activities.
There are multiple sources for these chemicals but an extended interruption of supply could adversely affect our ability to adequately treat our water. 28 Table of Contents Purchased power is a significant operating expense. During 2022 and 2021, purchased power expense represented 6.2% and 5.6%, respectively, of our total operating costs.
There are multiple sources for these chemicals but an extended interruption of supply could adversely affect our ability to adequately treat our water. Purchased power is a significant operating expense. During 2023 and 2022, purchased power expense represented 6.4% and 6.2%, respectively, of our total operating costs. These costs are beyond our control and can change unpredictably and substantially.
We also may occasionally use letters of credit issued under our revolving credit facilities. Disruptions in the capital and credit markets could adversely affect our ability to draw on our credit facilities.
We also may occasionally use letters of credit issued under our revolving credit facilities. Disruptions in the capital and credit markets could adversely affect our ability to draw on our credit facilities. Our access to funds under our credit facilities is dependent on the ability of our banks to meet their funding commitments.
As a result, we are dependent on cash flow from our subsidiaries, and California Water Service Company in particular, to meet our obligations and to pay dividends on our common stock.
In 2023, 90.6% of our total consolidated operating revenue was derived from the operations of California Water Service Company. As a result, we are dependent on cash flow from our subsidiaries, and California Water Service Company in particular, to meet our obligations and to pay dividends on our common stock.
We rely on outside contractors to supply us with materials and parts critical to the operation of our systems. Should parts and material become unavailable, or should the cost of necessary supplies rise substantially, it could adversely affect our ability to operate or have financial affects that are not recoverable through a regulatory process.
Should parts and material become unavailable, or should the cost of necessary supplies rise substantially, it could adversely affect our ability to operate or have financial effects that are not recoverable through a regulatory process. We also rely on outside contractors to complete large construction projects and provide emergency maintenance services.
These accounts result in expenses and revenues being recognized in periods other than in which they occurred. 33 Table of Contents We identified a material weakness in our internal control over financial reporting, and, if not remediated effectively, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired, which could result in loss of investor confidence in the accuracy and completeness of our financial reports and materially adversely affect our results of operations and stock price.
Our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired by a material weakness in our internal control over financial reporting, which could result in loss of investor confidence in the accuracy and completeness of our financial reports and materially adversely affect our results of operations and stock price.
Legislation and regulation designed to mitigate or adapt to climate change may affect our operations. Future legislation or regulation regarding climate change may restrict our operations or impose new costs on our business. Our operations depend on power provided by other public utilities and, in emergencies, power generated by our portable and fixed generators.
Future legislation or regulation regarding climate change may restrict our operations or impose new costs on our business. Our operations depend on power provided by other public utilities and, in emergencies, power generated by our portable and fixed generators. If future legislation or regulation limits emissions from the power generation process, our cost of power may increase.
Accounting rules permit us to use expense balancing accounts and memorandum accounts that include cost changes to us that are different from amounts incorporated into the rates approved by the Commissions.
Accounting rules permit us to use expense balancing accounts and memorandum accounts that include cost changes to us that are different from amounts incorporated into the rates approved by the Commissions. These accounts result in expenses and revenues being recognized in periods other than in which they occurred.
We operate in geographic areas that may be particularly susceptible to declines in the price of real property, which could result in significant declines in demand for our products and services.
Many of our customers and suppliers also have exposure to risks that could affect their ability to meet payment and supply commitments. We operate in geographic areas that may be particularly susceptible to declines in the price of real property, which could result in significant declines in demand for our products and services.
Rationing may have an adverse effect on cash flow from operations. We can make no guarantee that we will always have access to an adequate supply of water that will meet all required quality standards. Water shortages may affect us in a variety of ways.
If we are unable to access adequate water supplies, we may be unable to satisfy all customer demand, which could result in rationing. Rationing may have an adverse effect on cash flow from operations. We can make no guarantee that we will always have access to an adequate supply of water that will meet all required quality standards.
We depend upon our skilled and trained workforce to ensure water delivery. We can give no assurance that we will be able to maintain sufficient human resources to ensure uninterrupted service in all of the districts that we serve.
We can give no assurance that we will be able to maintain sufficient human resources to provide service in all of the districts that we serve.
We are a holding company that depends on cash flow from our subsidiaries to meet our obligations and to pay dividends on our common stock.
We are a holding company that depends on cash flow from our subsidiaries to meet our obligations and to pay dividends on our common stock. As a holding company, we conduct substantially all of our operations through our subsidiaries and our only significant assets are investments in those subsidiaries.
Our IT systems also enable us to purchase products from our suppliers and bill customers on a timely basis, maintain cost-effective operations, and provide service to our customers. Some of our mission and business critical IT systems are older, such as our Supervisory Control and Data Acquisition system.
Our systems also enable us to purchase products from our suppliers and bill customers on a timely basis, maintain cost-effective operations, and provide service to our customers.
At December 31, 2022, 744 of our 1,225 total employees were union employees. Most of our unionized employees are represented by the Utility Workers Union of America, AFL-CIO, except certain engineering and laboratory employees who are represented by the International Federation of Professional and Technical Engineers, AFL-CIO.
At December 31, 2023, 757 of our 1,266 total employees were union employees. Most of our unionized employees are represented by the UWUA, AFL-CIO, except certain engineering and laboratory employees who are represented by the IFPTE, AFL-CIO.
If these facilities are not adequately maintained or if these parties otherwise default on their obligations to supply water to us, we may not have adequate water supplies to meet our customers' needs. 26 Table of Contents If we are unable to access adequate water supplies, we may be unable to satisfy all customer demand, which could result in rationing.
Maintenance of these facilities is beyond our control. If these facilities are not adequately maintained or if these parties otherwise default on their obligations to supply water to us, we may not have adequate water supplies to meet our customers' needs.
In addition, legislatures may repeal, relax or tighten existing laws, or enact new laws that affect the regulatory agencies with jurisdiction over our business or affect our business directly. If changes in existing laws or the implementation of new laws limit our ability to accomplish some of our business objectives, our future operating results may be adversely affected.
In addition, legislatures may repeal, relax or tighten existing laws, or enact new laws that affect the regulatory agencies with jurisdiction over our business or affect our business directly.
Our success depends significantly on the continued individual and collective contributions of our management team. The loss of the services of any member of our management team could have an adverse effect on our business as our management team has knowledge of our industry and customers and would be difficult to replace.
The loss of the services of any member of our management team could have an adverse effect on our business as our management team has knowledge of our industry and customers and would be difficult to replace. 34 Table of Contents We retain certain risks not covered by our insurance policies.
We fund our short-term capital requirements from cash received from operations and funds received from developers. We seek to meet our long-term capital needs by raising equity through common or preferred stock issues or issuing debt obligations.
We fund our capital requirements from cash received from operations, from funds received from developers, by raising equity through common stock issuances or by issuing debt 30 Table of Contents obligations.
However, we can give no assurance that the CPUC or any other commission would allow any such cost recovery mechanism in the future. 24 Table of Contents Our water supplies are subject to contamination, including contamination from the development of naturally-occurring compounds, chemicals in groundwater systems, pollution resulting from fabricated sources, such as TCP, seawater incursion and possible third-party attacks, including physical attacks, terrorist attacks, and cyber-attacks.
Our water supplies are subject to contamination, including contamination from the development of naturally-occurring compounds, chemicals in groundwater systems, pollution resulting from fabricated sources, such as 1,2,3-Trichloropropane (TCP) and PFAS, seawater incursion, and possible third-party attacks, including physical attacks, terrorist attacks, and cyber-attacks.
Furthermore, changes in applicable law or regulations could have an adverse effect on management's negotiating position with respect to our currently unionized employees and/or employees that decide to unionize in the future.
We believe our labor relations are good, but in light of rising costs for health care, pensions, and general inflation, our future contract negotiations may be difficult. Furthermore, changes in applicable law or regulations could have an adverse effect on management's negotiating position with respect to our currently unionized employees and/or employees that decide to unionize in the future.
The value of our assets in California may decline if there is a decline in the California real estate market that results in a significant decrease in real property values. Municipalities, water districts and other public agencies may condemn our property by eminent domain action.
The value of our assets in California may decline if there is a decline in the California real estate market that results in a significant decrease in real property values. Our business and financial performance may be adversely affected by high inflation and other macroeconomic conditions.
Our water and wastewater services are governed by various federal and state environmental protection, health and safety laws, and regulations. Although we have a water quality assurance program in place, we cannot guarantee that we will continue to comply with all standards.
Although we have a water quality assurance program in place, we cannot guarantee that we will continue to comply with all standards.
The adequacy of our water supplies depends upon a variety of factors beyond our control. Interruption in the water supply may adversely affect our reputation and earnings. We depend on an adequate water supply to meet the present and future needs of our customers.
The market for cybersecurity insurance continues to evolve and may affect the future availability of cyber insurance at reasonable rates. The adequacy of our water supplies depends upon a variety of factors beyond our control. Interruption in the water supply may adversely affect our reputation and earnings.
Wildfires and changes in rainfall may also affect water quality, and both higher temperatures and wildfires can pose risks to employee safety. Farther into the mid-century and late-century horizon, temperature increases may cause declines in snowpack storage, and droughts could decrease surface water supply availability and groundwater recharge while causing increased outdoor demands.
Farther into the mid-century and late-century horizon, temperature increases may cause declines in snowpack storage, and droughts could decrease surface water supply availability and groundwater recharge while causing increased outdoor demands, which, in each case, could adversely impact our ability to source adequate water supply to meet the needs of our customers.
We have a number of large-volume commercial and industrial customers and a significant decrease in consumption by one or more of these customers could have an adverse effect on our operating results and cash flows.
If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, satisfy customer requirements, execute our business plan, or respond to competitive pressures. 32 Table of Contents We have a number of large-volume commercial and industrial customers and a significant decrease in consumption by one or more of these customers could have an adverse effect on our operating results and cash flows.
These events may result in physical and/or electronic loss of customer or financial data, security breaches, misappropriation and other adverse consequences, including liability or regulatory penalties under data privacy laws and regulations. In addition, the lack of redundancy for certain of our IT systems, including billing systems, could exacerbate the impact of any of these events on us.
These events may result in physical and/or electronic loss of customer or financial data; security breaches; misappropriation; disruption of service to our customers; loss of revenues, response costs, and other financial loss; loss of management time, attention, and resources from our regular business operations; damage to our reputation; and other adverse consequences, including liability or regulatory penalties under data privacy laws and regulations.
Cash flows between rate filings may be adversely affected until the Commission authorizes a rate change, but earnings will be minimally impacted. Cost of chemicals used in the delivery of water is not an element of the ICBA, and therefore, variances in quantity or cost could affect the results of operations.
As with purchased water, purchased power costs are expected to be included in the ICBA. Cash flows between rate filings may be adversely affected until the Commission authorizes a rate change, but earnings will be minimally impacted.
Finally, local jurisdictions may impose new ordinances, laws, fees, and regulations that could increase costs or limit our operations in ways, which affect future operating results. Cities may impose or amend franchise requirements, impose conditions on underground construction or land use, impose various taxes and fees, or restrict our hours for construction, among other things.
Cities may impose or amend franchise requirements, impose conditions on underground construction or land use, impose various taxes and fees, or restrict our hours for construction, among other things. In the last decade, more cities have imposed excavation moratoria or paving rules, which has required more costly construction than anticipated.
In the last decade, more cities have imposed excavation moratoria or paving rules, which has required more costly construction than anticipated. We expect environmental health and safety regulation to increase, resulting in higher operating costs in the future and the potential that the company fails to meet these regulatory standards.
We expect environmental health and safety regulation to increase, resulting in higher operating costs in the future and the potential that the company fails to meet these regulatory standards. Our water and wastewater services are governed by various federal and state environmental protection, health and safety laws, and regulations.
Since 2008, the CPUC allowed full decoupling WRAMs. However, in 2020, the CPUC precluded companies from proposing full decoupling WRAMs in their next GRC filings. The decision by the CPUC to change its policy began to affect our business in 2023.
Since 2008, the CPUC allowed full decoupling WRAMs. However, in 2020, the CPUC precluded companies from proposing full decoupling WRAMs in their next GRC filings. As a result, we have been precluded from recording WRAM revenue since the conclusion of the WRAM as of December 31, 2022.
For example, the CPUC did not issue its decision on our 2018 GRC until December 2020, approximately one year later than expected, which caused some financial and operating uncertainty for the Company until that time.
For example, the CPUC has not issued its final decision on our 2021 GRC, which has resulted in lower revenues in 2023 and is leading to financial and operating uncertainty for the Company.
Removed
In August of 2009, the Office of Environmental Health Hazard Assessment within the California Environmental Protection Agency changed the water quality standard for TCP in our water supply. The standard implemented requires us to have 0.0007 parts per billion or less of TCP in our California water supply.
Added
Our ability to execute on our business strategy is expected to be adversely impacted if the CPUC issues a final decision on our 2021 GRC that results in approving lower rate increases than what we have requested.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. Our physical properties consist of offices and water facilities to accomplish the production, storage, treatment, and distribution of water.
Biggest changeItem 2. Properties. Our physical properties consist of offices and water and wastewater facilities to accomplish the production, storage, treatment, and distribution of water and the collection, treatment, and discharge of wastewater.
These properties are located in or near the geographic service areas listed above in Item 1, "Business—Geographical Service Areas and Number of Customer Connections at Year-end." Our headquarters, which houses accounting, engineering, information systems, human resources, purchasing, regulatory, water quality, and executive staff, is located in San Jose, California. The real properties owned are held in fee simple title.
These properties are located in or near the geographic service areas listed above in Item 1, "Business—Geographical Service Areas and Number of Customer Connections at Year-end." Our headquarters, which houses accounting, engineering, information systems, human resources, legal, purchasing, regulatory, water quality, and executive staff, is located in San Jose, California. The real properties owned are held in fee simple title.
In the leased City of Hawthorne and City of Commerce systems or in systems that are operated under contract for municipalities or private companies, title to the various properties is held exclusively by the municipality or private company. Hawaii Water owns 28 wells, manages two potable wells, and manages five irrigation wells.
In the leased City of Hawthorne and City of Commerce systems or in systems that are operated under contract for municipalities or private companies, title to the various properties is held exclusively by the municipality or private company. Hawaii Water owns 29 wells, manages two potable wells, and manages five irrigation wells.
Washington Water has long-term bank loans that are secured primarily by utility plant owned by Washington Water. Texas Water, through its majority ownership of BVRT, owns and operates four wastewater treatment plants. The plants have a capacity of 638,000 gallons-per-day.
Washington Water has long-term bank loans that are secured primarily by utility plant owned by Washington Water. Texas Water, through its majority ownership of BVRT, owns and operates four wastewater treatment plants. The plants have a treatment capacity of 795,000 gallons per day.
Cal Water owns and operates six surface water treatment plants with a combined capacity of 46 million gallons per day. There are 6,709 miles of supply and distribution mains in the various owned and managed systems.
Cal Water owns and operates six surface water treatment plants with a combined capacity of 46 million gallons per day. There are 6,743 miles of supply and distribution mains in the various owned and managed systems.
Properties owned by Cal Water are subject to the lien of an Indenture of Mortgage and Deed of Trust dated May 11, 2021, June 11, 2019, November 22, 2010, and April 17, 2009 (the California Indenture), securing Cal Water's First Mortgage Bonds, of which $1,050.9 million was outstanding at December 31, 2022.
Properties owned by Cal Water are subject to the lien of an Indenture of Mortgage and Deed of Trust dated May 11, 2021, June 11, 2019, November 22, 2010, and April 17, 2009 (the California Indenture), securing Cal Water's First Mortgage Bonds, of which $1,050.0 million was outstanding at December 31, 2023.
There are 38 storage tanks with a storage capacity of 35.8 million gallons. There are 246 miles of supply and distribution lines. Hawaii Water operates six wastewater treatment facilities with a combined capacity to process approximately 3.8 million gallons per day. There are 70.1 miles of sewer collection mains including force mains.
There are 38 storage tanks with a storage capacity of 35.8 million gallons. There are 246 miles of supply and distribution lines. Hawaii Water operates seven wastewater treatment facilities with a combined capacity to process approximately 4.8 million gallons per day. There are 77.1 miles of sewer collection mains including force mains.
There are 25 storage tanks with a storage capacity of 10.9 million gallons. There are 204 miles of supply and distribution lines. New Mexico operates two wastewater treatment facilities with a combined capacity to process 0.62 million gallons per day. There are eight lift stations and 35 miles of sewer collection mains.
There are 29 storage tanks with a storage capacity of 11.0 million gallons. There are 210 miles of supply and distribution lines. New Mexico operates two wastewater treatment facilities with a combined capacity to process 0.62 million gallons per day. There are eight lift stations and 35 miles of sewer collection mains.
The California Indenture contains certain restrictions common to such types of instruments regarding the disposition of property and includes various covenants and restrictions. At December 31, 2022, our California utility was in compliance with the covenants of the California Indenture. Cal Water owns 599 wells and operates ten leased wells.
The California Indenture contains certain restrictions common to such types of instruments regarding the disposition of property and includes various covenants and restrictions. At December 31, 2023, our California utility was in compliance with the covenants of the California Indenture. 38 Table of Contents Cal Water owns 600 wells and operates ten leased wells.
Washington Water owns 456 wells and manages 15 wells. There are 196 owned storage tanks with a storage capacity of 21.7 million gallons. There are 706 miles of supply and distribution lines. Washington Water operates one wastewater treatment plant with 1.3 miles of sewer collection mains. 34 Table of Contents New Mexico Water owns 25 wells.
Washington Water owns 469 wells and manages 5 wells. There are 194 owned storage tanks with a storage capacity of 23.8 million gallons. There are 734 miles of supply and distribution lines. Washington Water operates one wastewater treatment plant with 1.3 miles of sewer collection mains. New Mexico Water owns 29 wells.
There are 416 owned storage tanks with a capacity of 293 million gallons, two leased storage tanks with a capacity of 0.4 million gallons, 16 managed storage tanks with a capacity of 29 million gallons, and three surface water reservoirs with a capacity of 241 million gallons.
There are 408 owned storage tanks with a capacity of 290 million gallons, one leased storage tanks with a capacity of 0.25 million gallons, 28 managed storage tanks with a capacity of 32 million gallons, and three surface water reservoirs with a capacity of 241 million gallons.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe comparison assumes $100 was invested on December 31, 2017, in California Water Service Group's common stock and in each of the forgoing indices and assumes reinvestment of dividends. 35 Table of Contents Performance Graph Data The following descriptive data is supplied in accordance with Rule 304(d) of Regulations S-T: 2017 2018 2019 2020 2021 2022 California Water Service Group 100 105 114 119 158 134 S&P 500 100 96 126 149 192 157 RW Baird Water Utility Index 100 98 131 151 187 153 An initial $100 investment in the common stock of California Water Service Group on December 31, 2017 including reinvestment of dividends would be worth $134 at the end of the 5-year period ending December 31, 2022.
Biggest changeThe comparison assumes $100 was invested on December 31, 2018, in California Water Service Group's common stock and in each of the forgoing indices and assumes reinvestment of dividends. 39 Table of Contents Performance Graph Data The following descriptive data is supplied in accordance with Rule 304(d) of Regulations S-T: 2018 2019 2020 2021 2022 2023 California Water Service Group 100 108 113 151 127 109 S&P 500 100 131 156 200 164 207 RW Baird Water Utility Index 100 134 155 189 156 133 An initial $100 investment in the common stock of California Water Service Group on December 31, 2018 including reinvestment of dividends would be worth $109 at the end of the 5-year period ending December 31, 2023.
We presently intend to pay quarterly cash dividends in the future consistent with past practices, subject to our earnings and financial condition, restrictions set forth in our debt instruments, regulatory requirements and such other factors as our Board of Directors may deem relevant.
We presently intend to pay quarterly cash dividends in the future consistent with past practices, subject to our earnings and financial condition, restrictions set forth in our debt instruments, regulatory requirements and such other factors as our Board may deem relevant.
Baird Water Utility Index (which is comprised of Artisan Resources Corporation, American Water Works, American States Water Company, Essential Utilities, SJW Group, and York Water) and the Standard & Poor's 500 Index during the last five years ended December 31, 2022.
Baird Water Utility Index (which is comprised of Artisan Resources Corporation, American Water Works Company, Inc, American States Water Company, Essential Utilities, SJW Group, and York Water) and the Standard & Poor's 500 Index during the last five years ended December 31, 2023.
Item 5. Market for Registrant's Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock is traded on the New York Stock Exchange under the symbol "CWT." At December 31, 2022, there were 55,597,855 common shares outstanding. There were 1,863 common stockholders of record as of February 6, 2023.
Item 5. Market for Registrant's Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock is traded on the New York Stock Exchange under the symbol "CWT." At December 31, 2023, there were 57,723,738 common shares outstanding. There were 1,767 common stockholders of record as of February 12, 2024.
On January 25, 2023, our Board of Directors declared a quarterly cash dividend of $0.2600 per common share payable on February 17, 2023, to stockholders of record on February 6, 2023. This represents an indicated annual cash dividend of $1.0400, and would be our 56th consecutive year of increasing the annual dividend and marks the 312th consecutive quarterly dividend.
On January 25, 2024, our Board declared a quarterly cash dividend of $0.28 per common share payable on February 23, 2024, to stockholders of record on February 12, 2024. This represents an indicated annual cash dividend of $1.12, and would be our 57th consecutive year of increasing the annual dividend and marks the 316th consecutive quarterly dividend.
During 2022, we paid a cash dividend of $1.0000 per common share, or $0.2500 per quarter. During 2021, we paid a cash dividend of $0.9200 per common share, or $0.2300 per quarter.
During 2023, we paid a cash dividend of $1.04 per common share, or $0.26 per quarter. During 2022, we paid a cash dividend of $1.00 per common share, or $0.25 per quarter.
Removed
Item 6. [Removed and reserved.] 36 Table of Contents
Added
Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. [Reserved] Not applicable. 40 Table of Contents

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. Removed and reserved 36 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 37 Overview 37 Critical Accounting Policies and Estimates 38 Results of Operations 41 Rates and Regulation 43 Water Supply 44 Liquidity and Capital Resources 44 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 49 Item 8.
Biggest changeItem 6. R eserved 40 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 41 Overview 41 Critical Accounting Policies and Estimates 42 Results of Operations 45 Rates and Regulation 47 Water Supply 48 Liquidity and Capital Resources 48 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 53 Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeType of Filing Decision/Resolution Effective Date Increase (Decrease) Annual Revenue CA District/ Subsidiary GRC and Offset Filings 2022 Expense Offset AL 2435 Jan 2022 $5.2 million 7 Districts Cal Water 2022 Escalation Filing AL 2433 Jan 2022 $21.7 million 19 Districts 2022 Ratebase offset AL 2443 April 2022 $0.1 million 1 District 2022 Expense Offset AL 2454 Aug 2022 $12.7 million 4 Districts 43 Table of Contents The estimated impact of current and prior year rate changes on operating revenues compared to prior years is listed in the following table: 2022 2021 Dollars in millions General Rate Case (GRC) $ — $ 0.1 Escalation rate increases 21.6 8.2 Expense offset (purchased water/pump taxes) 12.6 6.1 Rate base offsets 0.3 5.9 Total rate increases $ 34.5 $ 20.3 Water Supply Our source of supply varies among our operating districts.
Biggest changeType of Filing Decision/Resolution Effective Date Increase (Decrease) Annual Revenue CA District/ Subsidiary GRC and Offset Filings 2023 Expense Offset AL 2465-A Jan 2023 $5.1 million 5 Districts 2021 GRC Interim Rates AL 2475 May 2023 4% or 1.5% 18 Districts 2023 Expense Offset AL 2488 July 2023 $24.6 million 11 Districts Cost of Capital AL 2491 July 2023 ($7 million) 21 Districts 47 Table of Contents Water Supply Our source of supply varies among our operating districts.
If we determine that a portion of our assets used in utility operations is not recoverable in customer rates, we would be required to recognize the loss of the assets disallowed. Income Taxes We account for income taxes using the asset and liability method.
If we determine that a portion of our assets used in utility operations is not recoverable in customer rates, we would be required to recognize the loss of the disallowed assets. Income Taxes We account for income taxes using the asset and liability method.
California Water and Wastewater Arrearages Payment Program The California Water and Wastewater Arrearages Payment Program was created by the California Legislature to be administered by the State Water Resources Control Board (Water Board) in order to provide relief to community water and wastewater systems for unpaid bills (arrearages) related to the COVID-19 pandemic.
California Extended Water and Wastewater Arrearages Payment Program The California Water and Wastewater Arrearages Payment Program was created by the California Legislature to be administered by the State Water Resources Control Board (Water Board) in order to provide relief to community water and wastewater systems for unpaid bills (arrearages) related to the COVID-19 pandemic.
The comparative results for fiscal 2021 with fiscal 2020 generally have not been included in this Form 10-K, but may be found in “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The comparative results for fiscal 2022 with fiscal 2021 generally have not been included in this Form 10-K, but may be found in “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
The Legislature allocated $985 million in American Rescue Plan Act of 2021 funds to pay down residential and commercial arrearages accrued between March 4, 2020 and June 14, 2021. In response to the Water Board’s survey, Cal Water reported $20.8 million in eligible customer arrearages and program administrative costs.
The Legislature allocated $985 million in American Rescue Plan Act of 2021 funds to pay down residential and commercial arrearages accrued between March 4, 2020 and June 15, 2021. In response to the Water Board’s survey, Cal Water reported $20.8 million in eligible customer arrearages and program administrative costs.
On December 22, 2017, the U.S. government enacted expansive tax legislation commonly referred to as the TCJA. Among other provisions, the TCJA reduces the federal income tax rate from 35 percent to 21 percent beginning on January 1, 2018 and eliminated bonus depreciation for utilities.
On December 22, 2017, the U.S. government enacted expansive tax legislation commonly referred to as the TCJA. Among other provisions, the TCJA reduced the federal income tax rate from 35 percent to 21 percent beginning on January 1, 2018 and eliminated bonus depreciation for utilities.
Management believes that supply pumped from underground aquifers and purchased from wholesale suppliers will be adequate to meet customer demand during 2023 and thereafter. However, water rationing may be required in future periods, if declared by the state or local jurisdictions.
Management believes that supply pumped from underground aquifers and purchased from wholesale suppliers will be adequate to meet customer demand during 2024 and thereafter. However, water rationing may be required in future periods, if declared by the state or local jurisdictions.
We continue working with other state regulators to finalize the refund to confirm compliance with federal normalization rules. 39 Table of Contents Pension and Postretirement Benefits Other Than Pensions (PBOP) We incur costs associated with our pension and PBOP plans.
We continue working with other state regulators to finalize the refund to confirm compliance with federal normalization rules. 43 Table of Contents Pension and Postretirement Benefits Other Than Pensions (PBOP) We incur costs associated with our pension and PBOP plans.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following sections include a discussion of results for fiscal 2022 compared to fiscal 2021 as well as certain 2020 results.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following sections include a discussion of results for fiscal 2023 compared to fiscal 2022 as well as certain 2021 results.
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 2022, purchased power expenses increased $7.5 million mainly due to an increase in rates from our power providers.
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 2023, purchased power expenses increased $1.1 million mainly due to an increase in rates from our power providers.
Short-Term Financing Short-term liquidity is provided by the bank lines of credit described above and by internally generated funds. As of December 31, 2022, there were borrowings of $70.0 million outstanding on our unsecured revolving lines of credit, compared to $35.0 million outstanding on our unsecured revolving lines of credit as of December 31, 2021.
Short-Term Financing Short-term liquidity is provided by the bank lines of credit described above and by internally generated funds. As of December 31, 2023, there were borrowings of $180.0 million outstanding on our unsecured revolving lines of credit, compared to $70.0 million outstanding on our unsecured revolving lines of credit as of December 31, 2022.
Interest on the under-collected net WRAM and MCBA receivable balances, the interest recoverable from customers, is limited to the current 90-day commercial paper rate, which is significantly lower than Cal Water's short and long-term financing rates. At the January 2023 meeting, the Board of Directors declared the quarterly dividend, increasing it for the 56th consecutive year.
Interest on the under-collected net WRAM and MCBA receivable balances, the interest recoverable from customers, is limited to the current 90-day commercial paper rate, which is significantly lower than Cal Water's short and long-term financing rates. At the January 2024 meeting, the Board declared the quarterly dividend, increasing it for the 57th consecutive year.
Cost-recovery rates, such as the Modified Cost Balancing Account (MCBA), Conservation Balancing Account (CEBA), Pension Cost Balancing Account (PCBA), and Health Cost Balancing Account (HCBA), provide for recovery of the adopted levels of expenses for purchased water, purchased power, pump taxes, water conservation program costs, pension, and health care.
These mechanisms, such as the Modified Cost Balancing Account (MCBA), Conservation Expense Balancing Account (CEBA), Pension Cost Balancing Account (PCBA), and Health Cost Balancing Account (HCBA), generally provide for recovery of the adopted levels of expenses for purchased water, purchased power, pump taxes, water conservation program costs, pension, and health care.
Water Production Expenses Water production expenses, which consist of purchased water, purchased power, and pump taxes, comprise the largest segment of total operating expenses. Water production costs accounted for 39.7% and 41.8%, of total operating costs in 2022 and 2021, respectively. The rates charged for wholesale water supplies, electricity, and pump taxes are established by various public agencies.
Water Production Expenses Water production expenses, which consist of purchased water, purchased power, and pump taxes, comprise the largest segment of total operating expenses. Water production costs accounted for 40.2% and 39.7%, of total operating costs in 2023 and 2022, respectively. The rates charged for wholesale water supplies, electricity, and pump taxes are established by various public agencies.
In addition, the CPUC's decision allowed for ICBAs, which are authorized by state statute, to replace the MCBA. The MWRAM tracks the difference between the revenue received for actual metered sales through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate would have been in effect.
In addition, the CPUC's decision allowed for ICBAs to replace the MCBA. The MWRAM tracks the difference between the revenue received for actual metered sales 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.
Long-term debt payments include annual sinking fund payments on First Mortgage Bonds, maturities of long-term debt, and annual payments on other long-term obligations, exclusive of unamortized debt issuance costs of $5.1 million. b. Pension and postretirement benefits include $2.6 million of short-term pension obligations. c.
Long-term debt payments include annual sinking fund payments on First Mortgage Bonds, maturities of long-term debt, and annual payments on other long-term obligations, exclusive of unamortized debt issuance costs of $4.9 million. b. Pension and postretirement benefits include $2.8 million of short-term pension obligations. c.
Earnings not paid as dividends are reinvested in the business for the benefit of stockholders. The dividend payout ratio was 56.5% in 2022, 46.9% in 2021, and 43.1% in 2020 for an average of 48.8% over the 3-year period. Our long-term targeted dividend payout ratio is 60%.
Earnings not paid as dividends are reinvested in the business for the benefit of stockholders. The dividend payout ratio was 113.8% in 2023, 56.5% in 2022, and 46.9% in 2021 for an average of 72.4% over the 3-year period. Our long-term targeted dividend payout ratio is 60%.
Changes in 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 expenses in California would be recovered from our customers through the MCBA mechanism.
Changes in 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 expenses in California would be recovered from our customers through the ICBA mechanism once the 2021 GRC is resolved.
The quarterly dividend was raised from $0.25 to $0.26 per common share. This represents an indicated annual rate of $1.04 per common share. Dividends have been paid for 77 consecutive years. The annual dividends paid per common share in 2022, 2021, and 2020 were $1.00, $0.92, and $0.85, respectively.
The quarterly dividend was raised from $0.26 to $0.28 per common share. This represents an indicated annual rate of $1.12 per common share. Dividends have been paid for 78 consecutive years. The annual dividends paid per common share in 2023, 2022, and 2021 were $1.04, $1.00 and $0.92, respectively.
The CPUC issued a decision effective August 27, 2020 requiring that Class A companies submitting GRC filings after the effective date be (i) precluded from proposing the use of a full decoupling WRAM in their next GRCs and (ii) allowed the use of MWRAM.
The MCBA concluded on December 31, 2022. 42 Table of Contents The CPUC issued a decision effective August 27, 2020 requiring that Class A companies submitting GRC filings after the effective date be (i) precluded from proposing the use of a full decoupling WRAM in their next GRCs and (ii) allowed the use of MWRAM.
Total capitalization, including the current portion of long-term debt, was $2,378.2 million at December 31, 2022 and $2,232.9 million at December 31, 2021. Cal Water repaid $5.4 million of other long-term debt obligations in both 2022 and 2021 for matured First Mortgage Bonds and other long-term debt obligations.
Total capitalization, including the current portion of long-term debt, was $2,483.8 million at December 31, 2023 and $2,378.2 million at December 31, 2022. Cal Water repaid $1.8 million of other long-term debt obligations in 2023 and $5.4 million 2022 for matured First Mortgage Bonds and other long-term debt obligations.
The Company and subsidiaries that it designates may borrow up to $150.0 million under the Company’s revolving credit facility. Cal Water may borrow up to $400.0 million under its revolving credit facility. All borrowings must be repaid within 24 months unless a different period is required or authorized by the CPUC.
The Company and subsidiaries that it designates may borrow up to $200.0 million under the Company facility. Cal Water may borrow up to $400.0 million under the Cal Water facility; however, all borrowings must be repaid within 12 months unless a different period is required or authorized by the CPUC.
The TCJA required the Company to re-measure all existing deferred income tax assets and liabilities to reflect the reduction in the federal tax rate. As of December 31, 2022, the TCJA refund liability was $108.4 million.
The TCJA required the Company to re-measure all existing deferred income tax assets and liabilities to reflect the federal tax rate reduction. As of December 31, 2023, the TCJA refund liability was $92.5 million.
The table below provides the amounts, percentage change, and source mix for the respective years: 2022 2021 MG % of Total % change from prior year MG % of Total % change from prior year Millions of gallons (MG) Source: Wells 52,534 49.1 % — 52,520 47.5 % 6.9 % Purchased 50,473 47.2 % (5.9) % 53,620 48.5 % (4.2) % Surface 3,938 3.7 % (10.1) % 4,379 4.0 % (22.9) % Total 106,945 100.0 % (3.2) % 110,519 100.0 % (0.2) % Purchased water expenses are affected by changes in quantities purchased, supplier prices, and cost differences between wholesale suppliers.
The table below provides the amounts, percentage change, and source mix for the respective years: 2023 2022 MG % of Total % change from prior year MG % of Total % change from prior year Millions of gallons (MG) Source: Wells 50,363 48.6 % (4.1) % 52,534 49.1 % — Purchased 47,865 46.3 % (5.2) % 50,473 47.2 % (5.9) % Surface 5,256 5.1 % 33.5 % 3,938 3.7 % (10.1) % Total 103,484 100.0 % (3.2) % 106,945 100.0 % (3.2) % Purchased water expenses are affected by changes in quantities purchased, supplier prices, and cost differences between wholesale suppliers.
On March 29, 2019, the Company and Cal Water entered into certain syndicated credit agreements, which provide for unsecured revolving credit facilities of up to an initial aggregate amount of $550.0 million for a term of five years.
On March 31, 2023, the Company and Cal Water entered into the Company and Cal Water credit facilities, which provide for unsecured revolving credit facilities of up to an initial aggregate amount of $600.0 million for a term of five years.
Capital Structure Total equity was $1,322.4 million at December 31, 2022, compared to $1,171.9 million at December 31, 2021. The Company sold 1,802,063 and 3,286,865 shares of its common stock in 2022 and 2021, respectively through its at-the-market equity program.
Capital Structure Total equity was $1,430.3 million at December 31, 2023, compared to $1,322.4 million at December 31, 2022. The Company sold 2,025,891 and 1,802,063 shares of its common stock in 2023 and 2022, respectively through its at-the-market equity program.
At December 31, capitalization ratios were: 2022 2021 Equity 55.6 % 52.5 % Long-term debt 44.4 % 47.5 % The return (from both regulated and non-regulated operations) on average equity was 7.7% in 2022 compared to 9.7% in 2021.
At December 31, capitalization ratios were: 2023 2022 Equity 57.6 % 55.6 % Long-term debt 42.4 % 44.4 % The return (from both regulated and non-regulated operations) on average equity was 3.8% in 2023 compared to 7.7% in 2022.
Administrative and General Expenses Administrative and general expenses include payroll related to administrative and general functions, all employee benefits charged to expense accounts, insurance expenses, legal fees, expenses associated with being a public company, and general corporate expenses. For 2022, administrative and general expense increased $6.0 million, or 4.8%, as compared to 2021.
Administrative and General Expenses Administrative and general expenses include payroll related to administrative and general functions, all employee benefits charged to expense accounts, insurance expenses, legal fees, expenses associated with being a public company, and general corporate expenses. For 2023, administrative and general expenses increased $9.5 million, or 7.2%, compared to 2022.
Overview Net Income Attributable to California Water Service Group In 2022 and 2021, net income attributable to California Water Service Group was $96.0 million and $101.1 million, respectively. Earnings per diluted common share decreased $0.19 from $1.96 to $1.77 or 9.7% in 2022.
Overview Net Income Attributable to California Water Service Group In 2023 and 2022, net income attributable to California Water Service Group was $51.9 million and $96.0 million, respectively. Earnings per diluted common share decreased $0.86 from $1.77 to $0.91 or 48.6% in 2023.
A majority of capital expenditures was associated with mains and water treatment equipment. For 2023, our capital program is dependent in part on the timing and nature of regulatory approvals in connection with Cal Water's 2021 GRC Filing. Capital expenditures in California for 2022, excluding developer-funded expenditures, were $277.2 million.
Company-funded and developer-funded utility plant expenditures were $383.7 million and $327.8 million in 2023 and 2022, respectively. A majority of capital expenditures was associated with mains and water treatment equipment. For 2024, our capital program is dependent in part on the timing and nature of regulatory approvals in connection with Cal Water's 2021 GRC.
The cost of living adjustment was assumed at 2.25% and has a floor of 2.0%. 40 Table of Contents Results of Operations Operating Revenue Operating revenue in 2022 was $846.4 million, an increase of $55.5 million, or 7.0%, over 2021. Operating revenue in 2021 was $790.9 million, a decrease of $3.4 million, or 0.4%, over 2020.
The cost of living adjustment was assumed at 2.23% and has a floor of 2.0%. 44 Table of Contents Results of Operations Operating Revenue Operating revenue in 2023 was $794.6 million, a decrease of $51.8 million, or 6.1%, over 2022. Operating revenue in 2022 was $846.4 million, an increase of $55.5 million, or 7.0%, over 2021.
Contractual Obligations The contractual obligations presented in the table below represent our estimates of future payments under fixed contractual obligations and commitments. Changes in our business needs, cancellation provisions and changes in interest rates, as well as action by third parties and other factors, may cause these estimates to change.
Changes in our business needs, cancellation provisions and changes in interest rates, as well as action by third parties and other factors, may cause these estimates to change. Therefore, our actual payments in future periods may vary from those presented in the table below. The following table summarizes our contractual obligations as of December 31, 2023.
From time to time, certain parcels are deemed no longer used or useful for water utility operations. Most surplus properties have a low cost basis. We developed a program to realize the value of certain surplus properties through sale or lease of those properties. The program will be ongoing for a period of several years.
Acquisitions There were no significant acquisitions in 2023 or 2022. Real Estate Program We own real estate. From time to time, certain parcels are deemed no longer used or useful for water utility operations. Most surplus properties have a low-cost basis. We developed a program to realize the value of certain surplus properties through sale or lease of those properties.
The table below provides the change in water production expenses during the past 2 years: 2022 2021 Amount Change % Change Amount Change % Change Dollars in millions Purchased water $ 224.5 $ (0.5) (0.2) % $ 225.0 $ (5.1) (2.2) % Purchased power 44.6 7.5 20.2 % 37.1 3.1 9.1 % Pump taxes 16.2 0.9 5.9 % 15.3 2.7 21.4 % Total water production expenses $ 285.3 $ 7.9 2.8 % $ 277.4 $ 0.7 4.5 % 41 Table of Contents The principal factors affecting water production expenses are the quantity, price, and source of the water.
As such, these rates are beyond our control. 45 Table of Contents The table below provides the change in water production expenses during the past 2 years: 2023 2022 Amount Change % Change Amount Change % Change Dollars in millions Purchased water $ 223.8 $ (0.7) (0.3) % $ 224.5 $ (0.5) (0.2) % Purchased power 45.7 1.1 2.5 % 44.6 7.5 20.2 % Pump taxes 19.0 2.8 17.3 % 16.2 0.9 5.9 % Total water production expenses $ 288.5 $ 3.2 1.1 % $ 285.3 $ 7.9 2.8 % The principal factors affecting water production expenses are the quantity, price, and source of the water.
Property and Other Taxes For 2022, property and other taxes increased $2.6 million, or 8.0%, as compared to 2021. The increase was mostly due to an increase in our assessed property values for utility plant placed in service during the year.
The Company’s effective combined income tax rate for 2023 was (15.2%) as compared to 6.2% for 2022. Property and Other Taxes For 2023, property and other taxes increased $1.2 million, or 3.4%, compared to 2022. The increase was mostly due to an increase in our assessed property values for utility plant placed in service during the year.
If costs expected to be incurred in the future are currently being recovered through rates, we record those expected future costs as regulatory liabilities. In addition, we record regulatory liabilities when it is probable the Commissions will require a refund to be made to our customers over future periods.
In addition, we record regulatory liabilities when it is probable the Commissions will require a refund to be made to our customers over future periods.
(4) The deferral of revenue consists of amounts that are expected to be collected from customers beyond 24 months following the end of the accounting period in which these revenues were recorded. The deferral decreased in 2022 as compared to 2021 due to a decrease in the balancing account revenue expected to be collected beyond 24 months.
(5) The deferral of revenue consists of amounts that are expected to be collected from customers beyond 24 months following the end of the accounting period in which these revenues were recorded. Deferred revenue in 2023 remained flat, while the deferred revenue in 2022 decreased $7.7 million primarily due to the recognition of deferred balancing account revenue in 2022.
Customer water usage can be lower than normal in years when more than normal precipitation falls in our service areas or temperatures are lower than normal, especially in the summer months. The reduction in water usage reduces cash flow from operations and increases the need for short-term bank borrowings.
The increase in cash flow during the summer allows for a pay down of short-term borrowings. Customer water usage can be lower than normal in years when more than normal precipitation falls in our service areas or temperatures are lower than normal, especially in the summer months.
Both credit agreements contain affirmative and negative covenants and events of default customary for credit facilities of this type including, among other things, limitations, and prohibitions relating to additional indebtedness, liens, mergers, and asset sales.
The proceeds from the Company and Cal Water facilities may be used for working capital purposes. The Company and Cal Water facilities contain affirmative and negative covenants and events of default customary for credit facilities of this type including, among other things, limitations and prohibitions relating to additional indebtedness, liens, mergers, and asset sales.
Equity Issuance On April 29, 2022, we entered into an equity distribution agreement to sell shares of our common stock having an aggregate gross sales price of up to $350.0 million from time to time depending on market conditions through an at-the-market equity program over the next three years.
Additional information regarding the bank borrowings and long-term debt is presented in Notes 7 and 8 in the Notes to Consolidated Financial Statements. 49 Table of Contents Equity Issuance On April 29, 2022, we entered into an equity distribution agreement to sell shares of our common stock having an aggregate gross sales price of up to $350.0 million from time to time depending on market conditions through an at-the-market equity program over the next three years.
There were no significant sales in 2022 and 2021. As sales are dependent on real estate market conditions, future sales, if any, may or may not be at prior year levels.
The program will be ongoing for a period of several years. There were no significant sales in 2023 and 2022. As sales are dependent on real estate market conditions, future sales, if any, may or may not be at prior year levels. 52 Table of Contents
The contracts are non-interest bearing, and refunds are generally on a straight-line basis over a 40-year period. System and facility leases include obligations associated with leasing water systems and rents for office space. For finance and operating lease obligations, see Note 14 of the Notes to the Consolidated Financial Statements.
Advances for construction represent annual contract refunds to developers for the cost of water systems paid for by the developers. The contracts are non-interest bearing, and refunds are generally on a straight-line basis over a 40-year period. System and facility leases include obligations associated with leasing water systems and rents for office space.
The under-collected net WRAM and MCBA receivable balances were primarily financed by Cal Water with short-term and long-term financing arrangements to meet operational cash requirements.
The decrease of $40.5 million from December 31, 2022 to December 31, 2023 was primarily due to customer billings during 2023. The under-collected net WRAM and MCBA receivable balances were primarily financed by Cal Water with short-term and long-term financing arrangements to meet operational cash requirements.
Cal Water applied $17.2 million of these funds to identified past due customer balances during the first quarter of 2022 and returned the remaining balance. 37 Table of Contents Critical Accounting Policies and Estimates We maintain our accounting records in accordance with accounting principles generally accepted in the United States of America and as directed by the Commissions to which our operations are subject.
Cal Water expects approval of the request in the first quarter of 2024. 41 Table of Contents Critical Accounting Policies and Estimates We maintain our accounting records in accordance with accounting principles generally accepted in the United States of America and as directed by the Commissions to which our operations are subject.
The amount paid annually to the wholesale suppliers is charged to purchased water expense on our statements of operations. Most contracts do not require minimum annual payments and vary with the volume of water purchased. For more details related to water supply contracts, see Note 14 of the Notes to the Consolidated Financial Statements.
For each contract, the cost of water is established by the wholesale supplier and is generally beyond our control. The amount paid annually to the wholesale suppliers is charged to purchased water expense on our statements of operations. Most contracts do not require minimum annual payments and vary with the volume of water purchased.
As required by the MCBA mechanism, the decrease in actual water production costs relative to adopted water production costs in California also decreased operating revenue for the same amount. (3) The other balancing account revenue consists of the pension, conservation, and health care balancing account revenues.
As required by the MCBA mechanism, the difference in actual water production costs and adopted water production costs in California was recorded to operating revenue for 2022. (4) The other balancing account revenue consists of the pension, conservation and health care balancing account revenues. Pension and conservation balancing account revenues are the differences between actual expenses and adopted rate recovery.
Finance lease obligations represent total cash payments to be made in the future and includes interest expense of $0.4 million. d. Estimated annual contractual obligations are based on the same payment levels as 2022. Includes $22.2 million of commitments to GBRA in 2023.
Finance lease obligations represent total cash payments to be made in the future and includes interest expense of $0.3 million. d. Estimated annual contractual obligations are based on the same payment levels as 2023. For pension and postretirement benefits other than pensions obligations, see Note 11 of the Notes to the Consolidated Financial Statements.
Summarized Statement of Operations (in thousands) 2022 2021 Issuer Guarantor Issuer Guarantor Net sales $ 775,382 $ — $ 727,149 $ — Gross profit $ 506,890 $ — $ 462,301 $ — Income from operations $ 124,464 $ 363 $ 121,231 $ 181 Equity in earnings of guarantor $ — $ 94,339 $ — $ 99,912 Net income $ 92,769 $ 95,263 $ 94,313 $ 100,979 46 Table of Contents Summarized Balance Sheet Information (in thousands) As of December 31, 2022 As of December 31, 2021 Issuer Guarantor Issuer Guarantor Current assets $ 208,962 $ 31,913 $ 251,573 $ 20,077 Intercompany receivable from non-guarantor & non-issuer subsidiaries 3,339 34,100 3,810 31,449 Other assets 450,668 1,080,720 431,137 991,173 Long-term intercompany receivable from non-issuer subsidiaries — 37,869 — 34,216 Net utility plant 2,805,242 — 2,625,092 24 Total assets $ 3,468,211 $ 1,184,602 $ 3,311,612 $ 1,076,939 Current liabilities $ 242,538 $ 35,260 $ 227,276 $ 35,019 Intercompany payable to non-issuer subsidiaries 562 — 361 — Long-term debt 1,051,994 — 1,055,538 — Other liabilities 1,098,378 2,485 1,046,647 2,146 Total Liabilities $ 2,393,472 $ 37,745 $ 2,329,822 $ 37,165 Off-Balance Sheet Arrangements We do not have commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements, or capital resources even when the arrangement results in no obligation being reported in our consolidated balance sheets.
Summarized Statement of Operations (in thousands) 2023 2022 Issuer Guarantor Issuer Guarantor Net sales $ 720,577 $ — $ 775,382 $ — Gross profit $ 449,221 $ — $ 506,890 $ — Income from operations $ 82,157 $ 590 $ 124,464 $ 363 Equity in earnings of guarantor $ 49,998 $ — $ 94,339 Net income $ 57,168 $ 51,376 $ 92,769 $ 95,263 Summarized Balance Sheet Information (in thousands) As of December 31, 2023 As of December 31, 2022 Issuer Guarantor Issuer Guarantor Current assets $ 213,469 $ 10,126 $ 208,962 $ 31,913 Intercompany receivable from guarantor & non-issuer subsidiaries 3,664 44,882 3,339 34,100 Other assets 479,642 1,190,076 450,668 1,080,720 Long-term intercompany receivable from non-issuer subsidiaries — 82,610 — 37,869 Net utility plant 3,487,788 — 2,805,242 — Total assets $ 4,184,563 $ 1,327,694 $ 3,468,211 $ 1,184,602 Current liabilities $ 351,964 $ 53,069 $ 242,538 $ 35,260 Intercompany payable to non-issuer subsidiaries — — 562 — Long-term debt 1,052,350 — 1,051,994 — Other liabilities 1,595,852 3,068 1,098,378 2,485 Total Liabilities $ 3,000,166 $ 56,137 $ 2,393,472 $ 37,745 Off-Balance Sheet Arrangements We do not have commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements, or capital resources even when the arrangement results in no obligation being reported in our consolidated balance sheets. 50 Table of Contents Contractual Obligations The contractual obligations presented in the table below represent our estimates of future payments under fixed contractual obligations and commitments.
In addition, these unsecured credit agreements contain financial covenants governing the Company and its subsidiaries' "consolidated total capitalization ratio" not to exceed 66.7% and "interest coverage ratio" of three or more (each as defined in the respective credit agreements). As of December 31, 2022, our consolidated total capitalization ratio was 52.4% and the interest coverage ratio was greater than five.
Also, the Company and Cal Water facilities contain financial covenants that require the Company and its subsidiaries’ consolidated total capitalization ratio not to exceed 66.7% and an interest coverage ratio of three or more (each as defined in the respective credit agreements).
We capitalize and record regulatory assets for costs that would otherwise be charged to expense if it is probable that the incurred costs will be recovered in future rates. Regulatory assets are amortized over the future periods that the costs are expected to be recovered.
The Commissions in the states in which we operate establish rates that are designed to permit the recovery of the cost of service and a return on investment. We capitalize and record regulatory assets for costs that would otherwise be charged to expense if it is probable that the incurred costs will be recovered in future rates.
Cal Water does not include construction work in progress in its regulated rate base; instead, Cal Water was authorized to record AFUDC on construction work in progress, effective January 1, 2017.
Cal Water does not include construction work in progress in its regulated rate base; instead, Cal Water was authorized to record allowance for funds used during construction (or AFUDC) on construction work in progress, effective January 1, 2017. Construction work in progress for Cal Water was $253.9 million at December 31, 2023 and $219.2 million at December 31, 2022.
This seasonality results in the possible need for short-term borrowings under the bank lines of credit in the event cash is not sufficient to cover operating costs during the winter period. The increase in cash flow during the summer allows for a pay down of short-term borrowings.
Billed revenue is lower in the cool, wet winter months when less water is used compared to the warm, dry summer months when water use is the highest. This seasonality results in the possible need for short-term borrowings under the bank lines of credit in the event cash is not sufficient to cover operating costs during the winter period.
Cal Water was authorized to issue $700.0 million of debt and common stock to finance capital projects and operations by a CPUC decision dated November 5, 2020. In addition, the decision retained approximately $94.0 million of prior financing authority and determined that refinancing long-term debt did not count against the authorization.
Long-Term Financing Long-term financing is accomplished using both debt and equity. Cal Water was authorized to issue $700.0 million of debt and common stock to finance capital projects and operations by a CPUC decision dated November 5, 2020.
In September 2020, Cal Water filed an Application for Rehearing at the CPUC seeking to reverse the August 27, 2020 CPUC decision.
The Company did not record a regulatory asset or regulatory liability for the MWRAM or ICBAs for 2023. In September 2020, Cal Water filed an Application for Rehearing at the CPUC seeking to reverse the August 27, 2020 CPUC decision. In September 2021, the CPUC denied the Application for Rehearing.
The ICBA tracks differences between the authorized per-unit prices of water production costs and actual per-unit prices of 38 Table of Contents water production costs. Cal Water complied with this decision in its 2021 GRC Filing and expects these replacement mechanisms to be in effect for 2023.
The ICBA tracks differences between the authorized per-unit prices of water production costs and actual per-unit prices of water production costs. Cal Water complied with this decision in its 2021 GRC and the MWRAM and ICBAs are expected to be effective retroactive to January 1, 2023 once approved.
The following table reflects the sensitivity of pension amounts reported for the year ended December 31, 2022, to changes in actuarial assumptions: Increase/(Decrease) in Pension Benefits Actuarial Assumption Increase/(Decrease) in 2022 Net Periodic Benefit Cost Increase/(Decrease) in Projected Benefit Obligation as of December 31, 2022 Dollars in thousands Discount rate (0.5) % $ 7,170 $ 58,827 Long-term rate of return on plan assets (0.5) % 3,580 — Rate of compensation increases (0.5) % (3,441) (15,131) Cost of living adjustment (1) (0.25) % (2,248) (14,943) Discount rate 0.5 % (6,500) (51,972) Long-term rate of return on plan assets 0.5 % (3,580) — Rate of compensation increases 0.5 % 3,617 15,843 Cost of living adjustment 0.5 % 6,947 39,720 ______________________________________________________________________________ 1.
The following table reflects the sensitivity of pension amounts reported for the year ended December 31, 2023, to changes in actuarial assumptions: Increase/(Decrease) in Pension Benefits Actuarial Assumption Increase/(Decrease) in 2023 Net Periodic Benefit Cost Increase/(Decrease) in Projected Benefit Obligation as of December 31, 2023 Dollars in thousands Discount rate (0.5) % $ 3,494 $ 59,334 Long-term rate of return on plan assets (0.5) % 3,502 — Rate of compensation increases (0.5) % (3,218) (15,000) Cost of living adjustment (1) (0.23) % (2,561) (15,387) Discount rate 0.5 % (6,084) (52,558) Long-term rate of return on plan assets 0.5 % (3,502) — Rate of compensation increases 0.5 % 3,017 15,884 Cost of living adjustment 0.5 % 4,658 40,412 ______________________________________________________________________________ 1.
Cal Water proposed to the CPUC spending $1.0 billion on water infrastructure investments in 2022-2024. Capital expenditures in California are evaluated in the context of the pending GRC and may change as the case moves forward. We expect our annual capital expenditure to continue to increase during the next five years due to increasing needs to replace and maintain infrastructure.
Capital expenditures in California for 2023, excluding developer-funded expenditures, were $326.5 million. Cal Water proposed to the CPUC spending $1.0 billion on water infrastructure investments in 2022-2024. Capital expenditures in California are evaluated in the context of the pending GRC and may change as the case moves forward.
While a decision was pending on the Application for Rehearing, Cal Water along with four other Class A California water utilities filed Petitions for a Writ of Review with the California Supreme Court (Court) on or about October 27, 2021. In September 2021, the CPUC denied the Application for Rehearing.
On or about October 27, 2021, Cal Water along with four other Class A California water utilities filed Petitions for a Writ of Review with the California Supreme Court (Court). On May 18, 2022, the Court issued writs granting review and ordered the CPUC and other filing parties to submit additional pleadings to the Court.
The CPUC requires that any loans from Cal Water to the Company be at arm’s length. This restriction did not materially affect the Company's ability to meet its cash obligations in 2022. Management does not expect this restriction to have a material impact on the Company's ability to meet its cash obligations in 2023 and beyond.
In addition, the decision retained approximately $94.0 million of prior financing authority and determined that refinancing long-term debt did not count against the authorization. The CPUC requires that any loans from Cal Water to the Company be at arm’s length. This restriction did not materially affect the Company's ability to meet its cash obligations in 2023.
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 2022, other operations expense increased $29.8 million, or 34.5%, compared to 2021.
The increase was mainly due to an increase of $9.0 million in employee wages primarily driven by annual increases in employee wage rates and an increase in the number of employees. 46 Table of Contents 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.
The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as regulatory balancing account revenue.
The WRAM decoupled revenue from the volume of the sales and allowed the Company to recognize the adopted level of volumetric revenues. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts was recorded as regulatory balancing account revenue. The WRAM concluded on December 31, 2022.
Long-term financing, which includes First Mortgage Bonds, senior notes, other debt securities, and common stock, has typically been used to replace short-term borrowings and fund capital expenditures. Internally generated funds, after making dividend payments, provide positive cash flow, but have not been at a level to meet the needs of our capital expenditure requirements.
Management does not expect this restriction to have a material impact on the Company's ability to meet its cash obligations in 2024 and beyond. Long-term financing, which includes First Mortgage Bonds, senior notes, other debt securities, and common stock, has typically been used to replace short-term borrowings and fund capital expenditures.
Management expects this trend to continue given our capital expenditures plan for the next five years. Some capital expenditures are funded by payments received from developers for contributions in aid of construction or advances for construction. Funds received for contributions in aid of construction are non-refundable, whereas funds classified as advances in construction are refundable.
Some capital expenditures are funded by payments received from developers for contributions in aid of construction or advances for construction. Funds received for contributions in aid of construction are non-refundable, whereas funds classified as advances in construction are refundable. Management believes long-term financing is available to meet our cash flow needs through issuances in both debt and equity instruments.
Cal Water has water supply contracts with wholesale suppliers in 13 of its operating districts and for the two leased systems in Hawthorne and Commerce. For each contract, the cost of water is established by the wholesale supplier and is generally beyond our control.
For finance and operating lease obligations, see Note 14 of the Notes to the Consolidated Financial Statements. Cal Water has water supply contracts with wholesale suppliers in 13 of its operating districts and for the two leased systems in Hawthorne and Commerce.
Cash used in investing activities fluctuates each year largely due to the availability of construction resources and our ability to obtain construction permits in a timely manner. 44 Table of Contents Financing Activities During 2022, we borrowed $150.0 million, and paid down $115.0 million on our unsecured revolving credit facilities for general corporate purposes.
Investing Activities During 2023 and 2022, we used $383.7 million and $327.8 million, respectively, of cash for capital expenditures, both Company-funded and developer-funded. Cash used in investing activities fluctuates each year largely due to the availability of construction resources and our ability to obtain construction permits in a timely manner.
Additionally, the credit facilities may be increased by up to an incremental $150.0 million under the Cal Water facility and $50.0 million under the Company facility, subject in each case to certain conditions. The proceeds from the revolving credit facilities may be used for working capital purposes.
Additionally, the credit facilities may be increased by up to an incremental $150.0 million under the Cal Water facility and $50.0 million under the Company facility, subject in each case to certain conditions. 48 Table of Contents The under-collected net WRAM and MCBA receivable balances were $64.2 million and $104.7 million as of December 31, 2023 and 2022, respectively.
Management expects there will be developer-funded expenditures in 2023 and expects that these expenditures will be financed by developers through refundable advances for construction and non-refundable contributions in aid of construction.
We expect our annual capital expenditure to continue to increase during the next five years due to increasing needs to replace and maintain infrastructure. 51 Table of Contents Management expects there will be developer-funded expenditures in 2024 and expects that these expenditures will be financed by developers through refundable advances for construction and non-refundable contributions in aid of construction.
The increase in revenue was mainly due to an increase in actual conservation and health care expenses relative to adopted in 2022 as compared to 2021, which was partially offset by a decrease in actual pension expenses relative to adopted in 2022 as compared to 2021.
In 2022, actual pension and health care costs were below the adopted costs and a decrease to revenue of $5.9 million was recognized for the difference. This was partially offset by an increase to revenue of $1.2 million recorded for the conservation balancing account as actual expenses were above adopted.
The MCBA mechanism is designed to recover all incurred purchased water expenses. For 2022, the $0.5 million decrease in purchased water expenses is due to a 5.9% decrease in purchased quantities offset by an overall blended water wholesaler rate increase of 6.0%.
For 2023, the $0.7 million decrease in purchased water expenses is mostly due to a 5.2% decrease in purchased quantities offset by a blended purchased water wholesaler rate increase of 5.1%. For 2023, the $2.8 million increase in pump taxes is primarily due to increases in pump tax rates.
(2) MCBA revenue is the variance between adopted water production costs and actual water production costs. In 2022, we recognized a reduction to MCBA revenue of $7.4 million as compared to an MCBA increase to revenue $3.8 million in 2021.
For 2022, we recognized $74.3 million of WRAM revenue as actual billed volumetric revenue was lower than adopted volumetric revenue. (3) MCBA revenue is the variance between adopted water production costs and actual water production costs.
The sources of changes in operating revenue were: 2022 2021 Dollars in millions Net change due to WRAM, service charges, usage, and other (1) $ 48.9 $ 29.7 MCBA revenue (2) (11.2) (7.9) Other balancing account revenue (3) 1.3 (13.5) Deferral of revenue (4) 16.5 (11.7) Net change $ 55.5 $ (3.4) _______________________________________________________________________________ (1) In 2022, the net change due to WRAM, service charges, usage, and other in the above table was mainly driven by rate increases (the components of which are set forth in the table in Rates and Regulation section below), a $5.8 million increase in Hawaii Water due to an increase in customer usage, a $1.7 million increase in accrued unbilled revenue, and a $1.3 million increase in New Mexico Water due to the acquisition of the Morningstar water system, which added approximately 2000 customer connections.
The sources of change in operating revenue were: 2023 2022 Dollars in millions Net change due to rate changes, usage, and other (1) $ 17.9 $ 6.2 WRAM revenue (2) (74.3) 42.7 MCBA revenue (3) 7.4 (11.2) Other balancing account revenue (4) 4.9 1.3 Deferral of revenue (5) (7.7) 16.5 Net change $ (51.8) $ 55.5 _______________________________________________________________________________ (1) In 2023, the net change due to rate changes, usage, and other in the above table was primarily driven by rate increases in California of $30.7 million, which was partially offset by a 3.4% decrease in customer usage, which we believe is primarily due to higher winter precipitation in our California service territories and water conservation compared to 2022.
On May 18, 2022, the Court issued writs granting review and ordered the CPUC and other filing parties to submit additional pleadings to the Court. The final pleadings were submitted on January 13, 2023. Cal Water anticipates that the Court will schedule an oral argument before it begins deliberations and issues its decision.
The final pleadings were submitted on January 13, 2023. Cal Water anticipates that the Court will schedule an oral argument before it begins deliberations and issues its decision. Regulated Utility Accounting Because we operate almost exclusively in a regulated business, we are subject to the accounting standards for regulated utilities.
Capital Requirements Capital requirements consist primarily of new construction expenditures for expanding and replacing utility plant facilities and the acquisition of water systems. They also include refunds of advances for construction. Company-funded and developer-funded utility plant expenditures were $327.8 million and $293.2 million in 2022 and 2021, respectively.
For more details related to water supply contracts, see Note 14 of the Notes to the Consolidated Financial Statements. Capital Requirements Capital requirements consist primarily of new construction expenditures for expanding and replacing utility plant facilities and the acquisition of water systems. They also include refunds of advances for construction.
Depreciation and Amortization During 2022, depreciation and amortization increased $5.9 million, or 5.4%, as compared to 2021 primarily due to utility plant placed in service in 2021. Income Taxes During 2022, income taxes increased $0.5 million, or 16.3%, to $3.3 million as compared to 2021.
Maintenance For 2023, maintenance expenses increased $0.3 million, or 0.8%, compared to 2022 due to increases in reservoir, tank, well, and pumping equipment repairs. Depreciation and Amortization For 2023, depreciation and amortization increased $6.6 million, or 5.8%, compared to 2022 primarily due to utility plant placed in service in 2022.
We also received $25.8 million of advances and contributions in aid of construction, which was reduced by refunds to developers of $9.5 million. We paid $5.4 million for matured First Mortgage Bonds and other long-term debt obligations. In addition, we issued $106.7 million of Company common stock through our at-the-market equity plan and our employee stock purchase plan.
Financing Activities During 2023, we borrowed $227.8 million, and paid down $120.0 million on our unsecured revolving credit facilities for general corporate purposes. We also received $21.2 million of advances and contributions in aid of construction, which was reduced by refunds to developers of $9.4 million. We paid $1.8 million for matured First Mortgage Bonds and other long-term debt obligations.
Net Interest Expense For 2022, net interest expense increased $1.1 million, or 2.6%, as compared to 2021. The increase was due primarily to the 2021 issuance of $280.0 million in First Mortgage Bonds to finance new infrastructure investment. Rates and Regulation The following is a summary of 2022 rate filings.
Net Interest Expense For 2023, net interest expense increased $5.5 million, or 12.4%, compared to 2022. The increase was primarily due to higher short-term borrowing rates and higher outstanding borrowings on our short-term credit facilities. Rates and Regulation The following is a summary of 2023 rate filings.
Regulatory balancing account revenue is revenue related to rate mechanisms authorized in California by the CPUC, which allow the Company to recover the authorized revenue and are not considered contracts with customers. These mechanisms include the following: The Water Revenue Adjustment Mechanism (WRAM) has allowed the Company to recognize the adopted level of volumetric revenues.
Regulatory balancing account revenue Regulatory balancing account revenue is revenue related to revenue mechanisms authorized in California by the CPUC, which the Company recognizes as revenue when it is objectively determinable, probable of recovery and expected to be collected within 24 months following the end of the accounting period. Regulatory balancing account revenues are not considered contracts with customers.
The deferred revenue balance or contract liability, which is included in "other accrued liabilities" on the consolidated balance sheets, is inconsequential. Regulatory balancing account revenue The Company’s ability to recover revenue requirements authorized by the CPUC in its triennial GRC has been decoupled from the volume of the sales through 2022.
The deferred revenue balance or contract liability, which is included in "other accrued liabilities" on the consolidated balance sheets, is inconsequential.
Cal Water received 100% of the requested amount from the program in January 2022.
Cal Water received 100% of the requested amount from the program in January 2022. Cal Water applied $17.2 million of these funds to identified past due customer balances during the first quarter of 2022 and returned the remaining balance.
Therefore, our actual payments in future periods may vary from those presented in the table below. The following table summarizes our contractual obligations as of December 31, 2022. We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities.
We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeOver the next 12 months, approximately $3.3 million of the $1,055.8 million of existing long-term debt instruments are expected to mature. Applying a hypothetical 10 percent increase in the rate of interest charged on those borrowings would not have a material effect on our earnings. 49 Table of Contents
Biggest changeApplying a hypothetical 10 percent increase in the rate of interest charged on those borrowings would not have a material effect on our earnings. 53 Table of Contents
Interest rate risk does exist on short-term borrowings within our credit facilities, as these interest rates are variable. We also have interest rate risk on new financing, as higher interest cost may occur on new debt if interest rates increase.
Interest rate risk does exist on short-term borrowings within our credit facilities, as these interest rates are variable. We also have interest rate risk on new financing, as higher interest cost may occur on new debt if interest rates increase. Over the next 12 months, none of the $1,052.8 million of existing long-term debt instruments are expected to mature.

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