H2O America (NASDAQ:HTO) executives used the company’s fourth-quarter call to highlight 2025 earnings near the top end of guidance, an expanded five-year capital plan, and progress on pending Texas acquisitions led by the proposed purchase of Quadvest.
2025 results and key drivers
The company reported full-year 2025 diluted earnings per share (EPS) of $2.92 and adjusted diluted EPS of $2.99, compared with diluted EPS of $2.87 and adjusted diluted EPS of $2.95 in 2024. Management said the 2025 adjusted result landed near the top end of its upwardly narrowed $2.95 to $3.00 guidance range.
Kelly said the revenue increase was offset by higher water production expense of $0.51 per share, reflecting $0.66 in higher water supply costs and an increase stemming from less surface water availability in California. Other operating expenses increased $0.73 per share, driven mainly by higher administrative and general expenses tied to reinvestment in strategic priorities during the second half of 2025 and higher insurance costs, as well as increased customer credit losses related to the non-recurrence of funds received under California’s Water and Wastewater Arrearages Payment Program in the second quarter of 2024.
The company’s effective tax rate was 11% in 2025 versus 9% in 2024. Kelly attributed the change primarily to a lower uncertain tax position reserve release and lower reversals of excess deferred income taxes, along with the impact of an accounting method change, partly offset by higher flow-through tax benefits.
Capital spending and a larger five-year plan
Chief Executive Officer Andrew Walters said H2O America invested $501 million of capital expenditures (CapEx) in 2025, exceeding the company’s upwardly revised budget of $486 million and representing a 41% increase from 2024. Management said the higher spend supports infrastructure investments across the company’s four-state footprint.
Kelly said the updated five-year CapEx plan for 2026 through 2030 totals $2.7 billion, an increase of 31% from the prior 2025-2029 budget. She cited three primary drivers of the increase:
- More pipeline replacement work toward a goal of replacing 1% of distribution pipe annually, which management said would equate to nearly $175 million of annual CapEx across the four states.
- A refined estimate of roughly $400 million for PFAS treatment installations, up from $300 million in the prior five-year plan, based on bids received.
- Higher planned investment in Texas tied to anticipated closing of pending acquisitions.
Management provided additional context around expected rate base growth. Kelly said estimated consolidated rate base was nearly $2.8 billion at year-end 2025 and is expected to rise to $5.1 billion by year-end 2030, representing a 13% compound annual growth rate (CAGR). She noted the rate base CAGR exceeds the EPS growth target due to expected equity issuance to fund the capital plan, balance sheet deleveraging, and regulatory lag.
Kelly also said the company expects timely rate recognition of roughly 80% of the five-year capital budget, pointing to California’s three-year forward test year construct and infrastructure surcharge mechanisms in Connecticut, Maine, and Texas, as well as Connecticut’s new PFAS-related recovery tool.
2026 guidance and updated long-term EPS target
For 2026, the company issued standalone EPS guidance of $3.08 to $3.18, reflecting $483 million of planned capital investment and the issuance of $100 million to $125 million of equity to fund the standalone CapEx budget. Kelly said the standalone outlook excludes potential impacts from the pending Quadvest and Cibolo Valley acquisitions due to uncertainty in closing timelines and planned external capital raises.
H2O America also raised its nonlinear long-term EPS growth rate target to 6% to 8%, anchored off 2025 adjusted diluted EPS of $2.99. Kelly said the new target reflects what the company views as a sustainable long-term growth rate extending beyond the five-year plan and is based on an organic growth plan plus the addition of Quadvest. She emphasized that the target does not include any M&A beyond Quadvest and Cibolo Valley.
However, Kelly cautioned that Quadvest is expected to be initially dilutive prior to new rates being implemented, given the rate-making treatment of acquired assets and financing costs. Management said it expects to file a consolidated Texas general rate case in early 2027, with new rates expected to become effective in early 2028. Until then, H2O America expects 2026 and 2027 consolidated EPS including Quadvest to fall below the ranges implied by the 6% to 8% growth target, with dilution relative to the standalone plan potentially in the 10% to 20% range before becoming accretive in 2028 and beyond, depending on timing and financing structure.
Quadvest and Cibolo Valley acquisition updates
President and Chief Operating Officer Bruce A. Hauk provided an update on the proposed $540 million acquisition of Houston-area water and wastewater utility Quadvest. He said Texas Water received appraised fair market values in late December 2025 from Public Utility Commission of Texas (PUCT)-appointed appraisers for Quadvest’s regulated assets. Under the Texas fair market value statute, the purchase price of $483.6 million will serve as the rate-making rate base, he said.
Hauk said the PUCT approval process began with the filing of the sale-transfer-merger application in January 2026. He added that Quadvest had more than 54,400 active connections as of December 31, 2025, representing 16% growth during 2025, while noting that future growth could vary based on conditions. Management reiterated expectations for a mid-2026 close and said Quadvest could increase Texas from 8% of H2O America’s consolidated customer base today to 26% by 2029.
On the Cibolo Valley Wastewater Treatment Plant acquisition, Hauk said the deal includes about 1,500 active connections and the opportunity for more than 250 additional connections under contract and pending construction. The company expects to file its sale-transfer-merger application around April 2026 and anticipates closing in the fourth quarter of 2026.
Regulatory and affordability focus
Management highlighted several regulatory and legislative developments across its states. In California, Hauk said San Jose Water secured a third one-year deferral of a cost of capital filing, keeping authorized return parameters (including a 10.01% return on equity and 54.55% equity ratio) in place through 2027 absent adjustments from the Water Cost of Capital Mechanism. He also discussed approvals of advice letters including a $6.8 million mid-2025 revenue increase tied to the AMI meter rollout and a $17.2 million revenue increase effective at the start of 2026 tied to the second-year step increase under the 2025-2027 general rate case. As of year-end 2025, Hauk said roughly 53% of meters had been retrofitted or replaced with AMI-enabled meters, and the utility issued more than 46,000 leak alert notifications in the latter half of 2025. He said the AMI rollout is expected to be completed by year-end.
In Connecticut, Hauk highlighted the passage of the Water Quality and Treatment Adjustment (WQTA), which he described as the nation’s first mechanism to recover capital investments needed to treat PFAS and other emerging contaminants. He said the company made its initial WQTA filing in late January seeking $0.6 million of incremental revenues. He also discussed the Water Infrastructure and Conservation Adjustment (WICA), including approval of a second-half 2025 application for a $3.1 million increase and a new late-January filing seeking a $2.7 million increase tied to $25.7 million of completed projects. Hauk said the company expects to file a general rate case in Connecticut in the first half of 2026.
In Texas, Hauk said legislation was passed authorizing future or hybrid test years in general rate cases and shortening processing time for infrastructure surcharge (SIC) applications from 120 days to 60 days. He also noted a third SIC filing made in early October requesting a $5.1 million increase and said a decision is expected in mid-2026.
In Maine, Hauk said regulators approved a stipulation consolidating 10 rate divisions into a single division on a revenue-neutral basis and establishing a needs-based financial assistance rate program. The company filed a notice of intent to submit a consolidated general rate case around the end of March.
Walters emphasized affordability as a priority, citing an Environmental Protection Agency study stating combined water and wastewater bills are affordable if they are less than 4.5% of median household income. He said average H2O America bills are 1% or less across the company’s four states as of year-end 2025, and management expects to continue expanding customer assistance programs, including exploring a low-income tariff in Texas as part of a future rate proceeding.
About H2O America (NASDAQ:HTO)
SJW Group, through its subsidiaries, provides water utility and other related services in the United States. It operates in Water Utility Services and Real Estate Services segments. The company engages in the production, purchase, storage, purification, distribution, wholesale, and retail sale of water and wastewater services; and supplies groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and imported water purchased from the Santa Clara Valley Water District.
