CWT

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How CWT rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

Text kept

58%

of sentences unchanged

Added

125

new sentences

Dropped

101

sentences removed

Length

+710

words, now 12,557

New in FY2025

Table of Content s 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.
The rates that we charge our water and wastewater customers are subject to the jurisdiction of the regulatory Commissions in the states in which we operate.
Statutory advocates and certain customers have in the past opposed and may in the future oppose our rate increase applications with the objective of limiting rate increases or even reducing rates, which can impact our ability to obtain rate increases on a timely basis, including our 2024 CA GRC, and can adversely influence the outcome of rate increase applications ultimately approved by the Commissions.
We expect such opposition activities to continue in connection with current and future rate increase applications, particularly during periods of high inflation or other adverse macroeconomic conditions.
For example, the CPUC has not issued its final decision on our 2024 CA GRC, which has caused uncertainty around, and may cause volatility in, our financial and operating results for our Company.
Table of Content s Changes in laws, rules, and policies of our regulators or operating jurisdictions can significantly affect our business.
Regulatory agencies have in the past and may in the future change their rules and policies for various reasons, including changes in the local political environment.
As a result, we were precluded from requesting a full decoupling WRAM in the 2021 CA GRC.
In addition, the current U.S. federal administration has effected and is expected to continue to seek to effect, propose, or threaten changes in the leadership of various U.S. federal regulatory agencies and to U.S. federal government policy, which has led to, in some cases, legal challenges as well as uncertainty around the funding, functioning and policy priorities of U.S. federal regulatory agencies and the status of current and future regulations.
U.S. federal government policy changes have included efforts to modify or restrict federal funding, restructure federal agency operations or workforce and instructing federal agencies to adjust, delay, or suspend the implementation or enforcement of certain laws or regulations or to cease operating.
We are unable to predict the extent to which the current U.S. federal administration may continue to impose or seek to impose leadership or policy changes at the U.S. federal regulatory agencies responsible for regulating our business, including changes or proposed changes at the EPA or SEC, or changes or proposed changes to rules and policies impacting our operations.
Any such changes may impose additional cost or result in other changes to or limitations on our business.
Finally, state and local jurisdictions may impose new ordinances, laws, fees, and regulations that could increase costs or limit our operations, which affect future operating results.
For example, as a result of the recent wildfires that devastated communities in southern California, the Governor of California signed Assembly Bill 367 into law that went into effect on January 1, 2026.
The bill creates additional requirements for water utilities in Ventura County, or our Westlake district, related to fire protection.
Cal Water is required to have access to sufficient backup energy to operate wells and water pumps that are critical for supplying water for fire suppression in the high or very high fire hazard severity zone beginning July 1, 2030.
Cal Water is also required to prepare an emergency preparedness plan for responding to red flag warnings, extreme weather events, and major power outages.
More cities are imposing excavation moratoria or paving rules, which has resulted in delays and required more costly construction than anticipated.
Table of Content s Past events in the utility sector, including those relating to drinking water contamination in Flint, Michigan and those related to safety and wildfire-related compliance failures at Pacific Gas and Electric Company in California, show that failure to meet one or more water quality, environmental, or safety standards can have severe effects on customer trust, reputation, regulatory treatment, or civil and criminal liability.
We are subject to water quality standards set by federal and state authorities that have the power to issue new regulations.
In May of 2025, the EPA announced its intention to rescind the regulations for four of the PFAS compounds, and to extend the compliance date to 2031.
On January 20, 2026, a three-judge panel of the U.S.
Court of Appeals for the District of Columbia unanimously denied an EPA request to vacate and remove MCLs on four PFAS.
Multi-party litigation continues with regard to PFAS MCLs.
We estimate a capital investment of approximately $269.1 million will be required to comply with the currently effective regulation, but this amount could be higher or lower depending on factors out of our control such as unforeseen supply issues that may arise as public water systems across the country compete to procure necessary treatment supplies.
Some of the capital investment requirements are offset and will continue to be offset by settlement and grant proceeds we have received and expect to continue to receive (see “Water Supply” above for more details).
If future legislation or regulations limit emissions from the power generation process, our cost of power may increase.
For example, in October 2023, California enacted legislation addressing the disclosure of greenhouse gas emissions, climate-related risks, environmental claims, and the use or sale of voluntary carbon offsets, although certain of these law are being challenged in litigation.
Environmental and service-related lawsuits have frequently been filed against other water utilities.
If we are subject to additional environmental or service-related lawsuits, we could incur significant legal costs, and it is uncertain whether we would be able to recover the legal costs from customers or other third parties.
In addition, if current California law regarding CPUC’s preemptive jurisdiction over regulated public utilities for claims about compliance with Water Board and EPA water quality standards changes, our legal exposure could increase significantly.
Table of Content s 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.
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.
The effects of natural disasters, attacks by third parties, or poor water quality or contamination to our water supply or wastewater services may result in disruption in our services and litigation, which could adversely affect our business, operating results, financial condition, and reputation.
We operate in areas that are prone to earthquakes, urban fires, wildfires, landslides, and other natural disasters.
We may not have sufficient insurance coverage to avoid adverse impacts to our operating results or financial condition from damage to our facilities or an interruption in our business.
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 and PFAS, seawater intrusion, and possible terrorist and other third-party attacks, including physical attacks, and cyber-attacks.
If we are unable to substitute water supply from an uncontaminated water source, or if we are unable to adequately treat the contaminated water source in a cost-effective manner, there may be an adverse effect on our revenues, operating results, financial condition, and reputation.
Table of Content s We have taken steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply to protect against the third-party attacks described above.
Certain failures of underground pipelines could release disinfection chemicals into the environment, which have a negative impact on sensitive habitats.

and 85 more.

Gone since FY2024

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.
The rates that we charge our water customers are subject to the jurisdiction of the regulatory Commissions in the states in which we operate.
For example, the CPUC did not issue its decision on our 2021 GRC until March 2024, over a year later than expected, which caused uncertainty around and volatility in our financial and operating results until that time.
Changes in laws, rules, and policies of our regulators or operating jurisdictions can significantly affect our business.
Regulatory agencies may change their rules and policies for various reasons, including changes in the local political environment.
As a result, we were precluded from requesting a full decoupling WRAM from the time of the 2021 GRC application until the California Supreme Court’s decision on July 8, 2024 voiding the WRAM provisions in the August 27, 2020 CPUC decision.
In addition, the recent change in U.S. federal administration has led and is expected to continue to lead to changes in the leadership of various U.S. federal regulatory agencies and changes or proposed or threatened changes to U.S. federal government policy that have led to, in some cases, legal challenges as well as uncertainty around the funding, functioning and policy priorities of U.S. federal regulatory agencies and the status of current and future regulations.
U.S. federal government policy changes have included seeking to temporarily broadly halt federal funding, seeking to aggressively downsize the U.S. federal government’s workforce and instructing federal agencies to reprioritize or to cease operating or enforcing certain laws or regulations.
We are unable to predict the extent to which the current U.S. federal administration may impose or seek to impose leadership or policy changes at the U.S. federal regulatory agencies responsible for regulating our business, including changes or proposed changes at the EPA or SEC, or changes or proposed changes to rules and policies impacting our operations.
Any such changes could impose additional costs, require the attention of senior management or result in other changes to or limitations on our business.
Finally, local jurisdictions may impose new ordinances, laws, fees, and regulations that could increase costs or limit our operations, which affect future operating results.
In the last decade, more cities have imposed excavation moratoria or paving rules, which has resulted in delays and required more costly construction than anticipated.
Past events in the utility sector, including those in Flint, Michigan and those related to Pacific Gas and Electric Company in California, show that failure to meet one or more water quality, environmental, or safety standards can have severe effects on customer trust, reputation, regulatory treatment, or civil and criminal liability.
We are subject to water quality standards set by federal, state, and local authorities that have the power to issue new regulations.
We estimate a capital investment of approximately $226.0 million will be required to comply with the regulation, but this amount could be higher or lower depending on factors out of our control such as unforeseen supply issues that may arise as public water systems across the country compete to procure necessary treatment supplies.
If future legislation or regulation limits emissions from the power generation process, our cost of power may increase.
For example, in October 2023, California enacted legislation addressing the disclosure of greenhouse gas emissions, climate-related risks, environmental claims, and the use or sale of voluntary carbon offsets.
The number of environmental and service-related lawsuits against other water utilities has increased in frequency in recent years.
If we are subject to additional environmental or service-related lawsuits, we might incur significant legal costs and it is uncertain whether we would be able to recover the legal costs from customers or other third parties.
In addition, if current California law regarding CPUC’s preemptive jurisdiction over regulated public utilities for claims about compliance with California State Water Resources Control Board and United States EPA water quality standards changes, our legal exposure may be significantly increased.
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.
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.
The effects of natural disasters, attacks by third parties, or poor water quality or contamination to our water supply or wastewater services 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, urban fires, wildfires, landslides, mudslides, and other natural disasters.
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 intrusion, and possible third-party attacks, including physical attacks, terrorist attacks, and cyber-attacks.
If we are unable to substitute water supply from an uncontaminated water source, or if we are unable to adequately treat the contaminated water source in a cost-effective manner, there may be an adverse effect on our revenues, operating results, and financial condition.
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.
Some failures of underground pipelines could release disinfection chemicals into the environment, which have a negative impact on sensitive habitats.
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 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.
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.
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.
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, all of which could have a negative impact on our business, results of operations, and cash flows.
Therefore, if demand were insufficient to use our required purchases we would have to pay for water we did not receive.
From time to time, we enter into water supply agreements with third parties and our business is dependent upon such agreements in order to meet regional demand.
There is strong scientific consensus that human activity including carbon and methane emissions is impacting many planetary systems such as the heat-trapping capacity of the atmosphere; ocean temperature, circulation, acidity, and volume; weather patterns including the severity and frequency of severe weather events; ambient temperatures; and planetary ice cover.
Because scientific investigations have been focused globally, there is tremendous uncertainty over the timing, extent, and types of impacts global climate change may have on our service areas and in our water supplies.
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.
Wildfires and changes in rainfall may also affect water quality, and both higher temperatures and wildfires can pose risks to employee safety.

and 61 more.

Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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