California Water Service Group (CWT) risk factors, FY2024 10-K

Risks Related to Our Regulatory Environment

1. 01Our 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
2. 02Our evaluation of the probability of recovery of regulatory assets is subject to adjustment by regulatory agencies and any such adjustment could adversely affect our results of operations and financial condition
3. 03Regulatory agencies may disagree with our valuation and characterization of certain of our assets
4. 04Changes in laws, rules, and policies of our regulators or operating jurisdictions can significantly affect our business
5. 05We expect drinking water, wastewater and 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
6. 06New and/or more stringent water quality regulations could increase our operating costs
7. 07Legislation and regulation designed to mitigate or adapt to climate change may affect our operations
8. 08We have been and may be in the future, party to water contamination lawsuits, which may not be fully covered by insurance

Risks Related to Our Business Operations

1. 09We 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
2. 10The 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
3. 11The CPUC has historically allowed utilities to establish a catastrophic event memorandum account as another possible mechanism to recover costs. However, we can give no assurance that the CPUC or any other Commission would allow any such cost recovery mechanism in the future
4. 12Failure of critical elements of our infrastructure could result in interruption of service, damage to others, or injuries, and could adversely affect our business, operating results, and financial condition
5. 13We operate several water and wastewater treatment plants. 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
6. 14We 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
7. 15The 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
8. 16We have entered into long-term water supply agreements, which commit us to making certain minimum payments whether or not we purchase any water. Therefore, if demand were insufficient to use our required purchases we would have to pay for water we did not receive
9. 17Our water supplies and other aspects of our operations may be affected by climate change
10. 18Natural disasters, wildfires, climate change, economic conditions, and other factors may change the population in our service areas
11. 19Wastewater operations entail significant risks
12. 20Demand for our water is subject to various factors and is affected by seasonal fluctuations
13. 21Changes in water supply costs affect our operations
14. 22Dependency upon adequate supply of electricity, certain chemicals, and third-party suppliers of parts and skilled labor could adversely affect our results of operations
15. 23Our business requires significant capital expenditures to replace or improve aging infrastructure that are dependent on our ability to secure appropriate funding. If we are unable to obtain sufficient capital or if the rates at which we borrow increase, there would be a negative impact on our results of operations
16. 24at levels permitting us to earn a reasonable rate of return. In the event we are unable to obtain sufficient capital, our expansion efforts could be curtailed, which may affect our growth and may affect our future results of operations
17. 25We are a holding company that depends on cash flow from our subsidiaries to meet our obligations and to pay dividends on our common stock
18. 26to the prior claims of creditors of that subsidiary. If we are unable to obtain funds from our subsidiaries in a timely manner, we may be unable to meet our obligations or pay dividends
19. 27An 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
20. 28We may not be able to increase or sustain our recent growth rate, and we may not be able to manage our future growth effectively
21. 29We 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
22. 30Our operating cost and costs of providing services may rise faster than our revenues
23. 31Demand for our stock may fluctuate due to circumstances beyond our control
24. 32Adverse investment returns and other factors may increase our pension liability and pension funding requirements
25. 33At December 31, 2024, 771 of our 1,278 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
26. 34Although we own facilities in a number of states, 92.3% of our total consolidated operating revenue was generated by our operations located in California in 2024. As a result, we are largely subject to political, regulatory, economic, water supply, weather, labor, and energy cost risks affecting California
27. 35Our business and financial performance may be adversely affected by high inflation and other macroeconomic conditions
28. 36Municipalities, water districts, and other public agencies may condemn our property by eminent domain action
29. 37We 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
30. 38We retain certain risks not covered by our insurance policies
31. 39Our enterprise risk management processes may not be effective in identifying and mitigating the risks to which we are subject, or in reducing the potential for losses in connection with such risks
32. 40The accuracy of our judgments and estimates about financial and accounting matters will affect our operating results and financial condition
33. 41The quality and accuracy of those estimates and judgments may have an impact on our operating results and financial condition
34. 42Our commitments and stakeholder expectations relating to environmental, social, and governance (ESG) considerations may expose us to liabilities, increased costs, reputational harm, and other adverse effects on our business