H2O 아메리카(HTO) 2026년 3분기 실적 발표회: 가이던스 범위 축소, 쿼드베스트 성장에 주목

핵심 요약

• H2O 아메리카는 2026년 3분기 GAAP 희석 EPS 0.99달러, 조정 희석 EPS 1.04달러를 기록했다고 발표했으며, 이는 2025년 3분기 조정 EPS 1.27달러와 비교된다.
• 연초 대비 조정 순이익은 8% 증가했으나, 가중평균 희석주식수가 약 20% 증가하면서 조정 희석 EPS는 2.53달러에서 2.30달러로 하락했다.
• 경영진은 독자 기준 2026년 조정 희석 EPS 가이던스 범위를 3.10~3.16달러로 좁혔으며, 이전 중간값인 3.13달러는 유지했다.
• 텍사스 자산 인수 및 관련 자금 조달을 포함한 연간 조정 희석 EPS 가이던스는 2.91~2.97달러다. 중간값은 독자 기준 중간값 대비 약 6%의 희석을 나타낸다.
• 회사는 10월 1일 쿼드베스트 인수를 완료했다. 쿼드베스트의 9월 30일 기준 활성 연결 수는 2026년에 14% 증가한 약 62,200개이며, 계약 체결 후 개발 대기 중인 연결 수는 98,300개다.
• H2O 아메리카는 27억 달러 규모의 2026~2030년 자본 투자 계획과 장기 자체 EPS 연평균 성장률(CAGR) 목표치인 6%~8%를 유지했다.

핵심 재무 데이터

3분기 매출 관련 항목은 주로 요금 조정 반영 및 원가 연동 용수 공급 매출에 힘입어 주당 0.25달러의 플러스 요인으로 작용했다. 반면 정수/취수 생산 비용 증가로 EPS가 0.13달러 감소했고, 감가상각비 0.09달러를 포함한 기타 영업비용이 0.16달러를 차감했다. 늘어난 주식수로 인해 0.22달러의 희석 효과가 추가로 발생했다.

첫 9개월 동안 매출 증가가 주당 0.95달러 기여했다. 요금 조정 반영이 0.64달러, 원가 연동 용수 공급 매출이 0.44달러, 고객 증가가 0.03달러를 더했다. 이러한 혜택은 규제 메커니즘 정산금 감소 및 고객 사용량 감소, 생산 비용 증가, 감가상각비 및 관리비 증가, 0.44달러의 주식 희석 효과로 인해 일부 상쇄되었다.

사업 및 영업 실적

10월 1일 인수 완료 후 쿼드베스트는 H2O 아메리카의 텍사스 워터 자회사로 편입되었다. 쿼드베스트의 활성 연결 수는 2025년 16% 증가한 데 이어 2026년 들어 14% 늘어난 약 62,200개를 기록했다. 계약 체결 후 개발 대기 중인 연결 수는 첫 9개월 동안 약 7,700개가 활성 고객으로 전환되었음에도 불구하고 2025년 말 87,000개에서 13% 증가한 98,300개에 달했다.

경영진은 쿼드베스트, 시볼로 밸리, 그리고 기존 힐 카운티 사업을 통해 H2O 아메리카의 연결 기준 고객 기반 중 텍사스 비중이 2029년까지 8%에서 26%로 확대될 것으로 예상된다고 밝혔다. 시볼로 밸리 인수는 규제 당국 승인을 거쳐 11월 2일 완료될 예정이었다.

H2O 아메리카는 첫 9개월 동안 자체 자금으로 3억 2,500만 달러의 인프라 투자를 집행했다. 2026년 계획은 당초 4억 8,300만 달러에서 약 4억 6,500만 달러로 축소되었는데, 이는 텍사스 지역 투자금이 자체 자금보다는 개발업자 부담금으로 더 많이 충당되었기 때문이다. 경영진은 이월된 지출이 2027~2030년으로 이동하여, 계획된 텍사스 자본 지출 7억 6,600만 달러와 연결 5개년 예산 27억 달러는 변동이 없다고 설명했다.

경영진 가이던스

경영진은 2026~2030년 동안의 EPS 성장이 비선형적일 것이며 장기 자체 목표치인 6%~8%의 상단 수준 또는 그 이상일 것으로 예상한다. 쿼드베스트는 2028년부터 이익 증가(accretive) 효과를 낼 것으로 전망된다.

회사는 쿼드베스트와 시볼로 밸리를 반영하여 2월에 2027년 가이던스를 발표하고 5개년 자본 예산을 이월 연장할 예정이다. 두 건 이외의 추가 인수는 계획에서 제외되어 있다.

규제 및 지역별 최신 동향

커네티컷에서 H2O 아메리카는 약 1억 4,500만 달러의 인프라 투자금을 회수하기 위해 연간 2,880만 달러의 매출 인상을 추진하고 있다. 12월 중순에 권고안(proposed decision)이 발표될 예정이며, 1월 말 최종 결정이 내려져 2027년 2월에 요금이 적용될 것으로 예상된다.

메인 워터는 약 3,600만 달러의 인프라 투자를 반영하여 연간 950만 달러의 매출 인상을 요청했다. 1월 초 증거 청문회가 예정되어 있으며, 경영진은 2027년 5월까지 신규 요금이 승인될 것으로 예상하고 있다.

산호세 워터는 윌리엄스 스테이션의 1억 7,600만 달러 규모 PFAS(과불화화합물) 정화 프로젝트 승인을 추진 중이다. 1월 말 증거 청문회가 예정되어 있으며, 2027년 2분기 권고안이 예상된다. 회사는 또한 2027년 1월에 캘리포니아 2028~2030년 종합 요금 개정 신청을 접수할 예정이다.

텍사스 워터는 2027년 상반기 중 통합 종합 요금 개정 신청을 접수할 것으로 예상된다. 이번 신청은 최근의 용수 공급 및 신뢰성 투자에 대한 비용 회수를 추진하고 쿼드베스트와 시볼로 밸리의 요금 기반을 반영할 예정이다.

리스크 및 점검 항목

• 경영진은 쿼드베스트 영업의 연간 영향, 인수 관련 주식 희석 및 감가상각비 상향 조정으로 인해 2027년 희석 비율이 10%~20% 범위의 상단으로 이동할 수 있다고 밝혔다.
• 요금에 아직 반영되지 않은 감가상각비 및 영업비용 증가가 연초 대비 EPS에 부담을 주면서 규제 지연(regulatory lag) 리스크가 부각되었다.
• 텍사스 종합 요금 개정 신청은 최근 심사가 엄격해짐에 따라 광범위한 서류 준비가 필요하다. 신청 일정이 조정된 것은 당초 예상보다 인수 절차가 늦게 완료된 영향도 일부 있다.
• 경영진은 금리와 주택 시장 상황을 텍사스 지역 연결 수 증가의 리스크 요인으로 꼽았으나, 휴스턴 시장은 현재까지 견조한 상태라고 설명했다.
• 쿼드베스트의 향후 연결 수 증가는 개발 및 시장 상황에 따라 달라질 수 있으며, 경영진은 현재의 파이프라인이 향후 성장 속도를 보장하는 것은 아니라고 언급했다.
• H2O 아메리카는 국가 주도 사이버 활동, IT 및 운영 기술(OT), 필수 서비스 지속성에 영향을 미치는 리스크 등 용수 인프라에 대한 지속적인 사이버 보안 위협을 강조했다.

애널리스트 Q&A 주요 내용

경영진은 텍사스 요금 개정 신청 시기 변경의 원인으로 쿼드베스트 및 시볼로 밸리 인수가 지연된 점과 보다 철저한 증빙 서류 준비의 필요성을 꼽았다. 회사는 10년 이상 텍사스 지역 요금 개정 신청을 하지 않은 상태였다.

쿼드베스트 감가상각과 관련해 경영진은 규제 회계 기준에 따라 요금산정용 요금 기반(rate base)이 인증될 때까지 4분기 영향이 이연될 것이라고 설명했다. 이에 따라 감가상각 효과는 2027년부터 시작되어 회사의 일반적인 감가상각 범위 수준을 유지할 것으로 예상된다.

요금 부담 가능성과 관련해 경영진은 모든 관할 지역의 고객 요금이 중간 가구 소득의 1% 미만을 유지하고 있다고 밝혔다. H2O 아메리카는 용수 공급, 복원력 및 인수 관련 투자 비용 회수를 추진하면서 텍사스에서 요금 감면제(affordability tariff) 도입을 검토할 계획이다.

회사는 3월 주식 발행 및 선도 주식 계약 정산을 통해 2026년 약 7억 달러의 자본을 조달했다. 경영진은 이 추가 자본 조달 덕분에 쿼드베스트 인수를 위한 채권 발행 시기를 유연하게 조절할 수 있게 되었다고 밝혔다.

캘리포니아 용수 공급 프로젝트는 중장기 과제로 추진 중이다. 경영진은 파일럿 단계가 2027년에 시작될 것으로 보고 있으며, 해당 프로젝트들이 현재의 5개년 성장 전망에는 반영되어 있지 않음을 강조했다.

실적 발표 전화회의 전사록 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good day, and thank you for standing by. Welcome to the H2O America 2026 Q3 Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Jonathan Reeder.

Jonathan Reeder

Thank you. Welcome to the third quarter of 2026 financial results conference call for H2O America. My name is Jonathan Reeder, and I am the Senior Director of Treasury and Investor Relations for H2O America.

Presenting today will be Andrew Walters, Chair of the Board and Chief Executive Officer; Ann Kelly, Chief Financial Officer and Treasurer; and Bruce Hauk, President and Chief Operating Officer.

For those who would like to follow along, slides accompanying our remarks are available on our website at h2o-america.com.

Before we begin today, I would like to remind you that this presentation and related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of its experience, historical trends, current conditions and expected future results as well as other factors that the company believes are appropriate under the circumstances. Many factors could cause the company's actual results and performance to differ materially from those expressed or implied by the forward-looking statements.

For a description of some of the factors that could cause actual results to be different from statements in this presentation, we refer you to the financial results press release and to our most recent Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission, copies of which may be obtained on our website.

All forward-looking statements are made as of today, and H2O America disclaims any duty to update or revise such statements.

You will have an opportunity to ask questions at the end of the presentation.

This webcast is being recorded, and an archive of the webcast will be available until January 26, 2027. You can access the press release and the webcast at H2O America's website.

In addition, some of the information discussed today includes the non-GAAP financial measures of adjusted net income and adjusted diluted earnings per share that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP. These non-GAAP financial measures should be considered as a supplement to the financial information prepared on a GAAP basis rather than an alternative to the respective GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the table in the appendix of our presentation.

I will now turn the call over to Andrew.

Andrew Walters

Welcome, everyone, and thank you for joining us today. We are pleased to provide you with an update on our third quarter 2026 results as well as the exciting progress our team has made with regards to executing our long-term value creation strategy.

During the third quarter, we earned $0.99 per share on a GAAP diluted basis and $1.04 per share on an adjusted diluted basis. This brings our year-to-date 2026 earnings per share to $2.13 on a GAAP diluted basis and $2.30 per share on an adjusted diluted basis. Our third quarter and year-to-date results are consistent with our internal expectations and supportive of both our 2026 guidance as well as our long-term financial growth targets.

Ann will discuss, we are narrowing our stand-alone 2026 adjusted diluted EPS guidance to $3.10 to $3.16 per share, which preserves the prior $3.13 per share midpoint. And we remain confident in our ability to deliver on our 2026 to 2030 5-year plan as well as our long-term EPS CAGR target of 6% to 8%.

Before I ask Ann to discuss our financial results in more detail, and for those people on this call that do not yet know, I am very excited to announce that we closed on the purchase of Houston, Texas-based Quadvest at the beginning of this month. This is a significant milestone in our strategy to build a stronger utility portfolio, and I want to express my sincere thanks to all of my internal partners across H2O America that have helped us get to this point. It is a tremendous accomplishment, but we all know our work is far from complete as we continue to integrate Quadvest and bring to bear the numerous benefits of this transformative acquisition, including delivering on the anticipated accretion beginning in 2028. I also want to take a minute to thank all of the hard-working Quadvest team members for their support in bringing our 2 companies together and welcome them to H2O America team.

Quadvest brings an experienced team dedicated to providing dependable service to their customers, a strong development pipeline and long-standing community relationships to our Texas Water Company subsidiary. I truly look forward to the great things that I know we will achieve together.

One final point on Quadvest, and Bruce will elaborate on this later in the call, is that realized customer growth remains robust with active connections up 14% in 2026, and we have a good line of sight on above-average growth continuing in the years ahead.

In addition to Quadvest, I'm pleased to report we have been advancing the ball in our pending Connecticut and Maine general rate cases. In order to continue making the much-needed water infrastructure investments across our national footprint of systems necessary to provide high-quality, reliable service to our customers, we have to constructively engage our key local stakeholders in a consensus building process as we pursue the timely rate recognition of those investments while being mindful of affordability. Our regulatory folks have been working tirelessly to keep both rate cases progressing according to their procedural schedules, and we anticipate constructive outcomes as a result of these efforts.

In addition, our teams in California and Texas are placing a great deal of thought into preparing their own general rate case filings, which will be made in the months ahead. Bruce will provide additional updates on each of our states in a few minutes. But now I will turn the call over to Ann to provide details on our third quarter 2026 financial results and key elements of our 5-year financial plan. Ann?

Ann Kelly

Thanks, Andrew.

Yesterday, after the markets closed, we released our third quarter and year-to-date 2026 operating results. As Andrew mentioned, we reported third quarter 2026 diluted EPS of $0.99 and year-to-date diluted EPS of $2.13 per share. On an adjusted basis, for the third quarter of 2026, we earned adjusted diluted EPS of $1.04, which compares to $1.27 during the third quarter of 2025. On a year-to-date basis, our 2026 adjusted diluted EPS was $2.30 compared to $2.53 during the same period of 2025. These results were consistent with our internal expectations and supportive of the stand-alone 2026 adjusted diluted EPS guidance of $3.08 to $3.18 that we established back in February.

While our adjusted net income is 8% higher through September 30, 2026, compared to the same period in 2025, this was more than offset by the higher share count as weighted average diluted shares outstanding were roughly 20% higher in the 2026 period as a result of leveraging our ATM program throughout 2025 and our equity issuance in March of this year. The year-to-date impact of opportunistically raising the equity in early March, partially offset by the reduction in interest expense and interest income generated from the funds reduced our EPS by a net $0.17.

So for those of you keeping track on our progress against our stand-alone 2026 adjusted diluted EPS guidance, adding that $0.17 to the aforementioned $2.30 of adjusted diluted EPS puts us at $2.47 of stand-alone adjusted diluted EPS through the first 9 months of the year. This is slightly behind the $2.53 during the same period last year due primarily to higher depreciation and operating expenses not currently reflected in our rates as well as the prior year's equity issuances.

Based on these results and with only one quarter left in the year, we are trimming $0.02 off the high end and low end of our stand-alone range. Our narrowed stand-alone 2026 adjusted diluted EPS guidance range of $3.10 to $3.16 preserves the $3.13 midpoint.

Further, in an effort to be as transparent as possible and level set everyone's expectations now that the Quadvest acquisition has closed, we are providing a 2026 adjusted diluted EPS guidance range that includes the impacts of our Texas acquisitions and the financing thereof throughout the entire year. That range is $2.91 to $2.97. At the midpoint, this equates to roughly 6% dilution from the midpoint of our 2026 stand-alone guidance. This is less than our previously communicated 10% to 20% range of expectation, which is primarily due to the timing of the Quadvest closing on October 1 as opposed to our initially assumed mid-2026 date.

In terms of executing on our capital budget, our teams remain productively deploying capital across our service territories. However, due primarily to increased levels of developer-funded capital at our Texas subsidiary, partially offset by the inclusion of planned Quadvest CapEx following the October 1 close of the acquisition, we are adjusting our full year 2026 company-funded capital investment plan to approximately $465 million from $483 million.

That said, the lower amount of expected 2026 company-funded capital investments in Texas simply shifts into the '27 to 2030 period such that there is no change in our $766 million of total planned Texas CapEx over the '26 to 2030 period, and our consolidated 5-year capital budget remains at $2.7 billion. This shift is depicted in the appendix of our presentation on Slide 23.

Through the first 9 months of the year, we have invested $325 million into company-funded infrastructure improvements.

Moving to Slide 8. I'd like to briefly discuss the key Q3 drivers resulting in the lower year-over-year adjusted EPS. Since the drivers are similar, I will keep the Q3 discussion higher level, but then provide more details when discussing the year-to-date results.

During Q3, we realized a $0.25 per share increase due to higher revenues with the bulk of this driven by rate relief as well as higher revenues from pass-through water supply costs. The revenue increase was partially offset by higher water production expenses of $0.13, primarily reflecting higher water supply costs.

We also had an increase in other operating expenses of $0.16 with the biggest component being $0.09 of higher depreciation and amortization expense associated with utility plant additions placed in service. The remaining drivers relate to $0.22 of dilution due to the increase in the number of shares outstanding, partially offset by $0.03 of net other benefits.

As for taxes during the third quarter, our effective income tax rate in both the 2026 and 2025 periods was 11%.

Moving on to the year-to-date results on Slide 9. We illustrate the key drivers resulting in the year-over-year EPS variance. We realized a $0.95 per share increase due to higher revenues. Roughly 2/3 of this or $0.64 was driven by rate relief primarily received from the prior general rate case in California and infrastructure surcharges in Connecticut, Maine and Texas. There was also a $0.44 of higher revenues for pass-through water supply costs that are largely offset in our water production expenses, such that they do not impact our net income. Customer growth contributed an additional $0.03.

Offsetting a portion of these positives were $0.11 of lower revenues as a result of decreased regulatory mechanism adjustments as well as $0.05 from lower customer consumption.

The revenue increase was partially offset by higher water production expenses of $0.42. The increase was attributable to $0.41 of higher water supply costs due to the increases in the average per unit cost for purchased water and groundwater extraction fees as well as $0.12 from increases in water production balancing and memorandum accounts, primarily related to the full cost balancing account in California. These increases were partially offset by a $0.09 decrease in water production expenses as a result of increased availability from surface water as well as a $0.02 decrease from lower customer consumption.

In addition, other operating expense increased $0.46. The biggest driver here was a $0.28 increase in depreciation and amortization attributable to new utility plant placed in service, while higher administrative and general expenses were a $0.13 headwind.

The remaining drivers relate to $0.44 of dilution, which I mentioned earlier, stemmed from the ATM share issuances in 2025 and our March 2026 equity raise. This was partially offset by $0.14 of net other benefits, including $0.05 of higher investment income and $0.05 of lower tax expense.

Our effective income tax rate for the 9 months ended September 30, 2026, was 14% versus 16% during the same period of 2025. The lower effective tax rate was primarily due to higher flow-through tax benefits.

Shifting from the year-to-date results to our full year 2026 and beyond expectations, the majority of the details and the figure on Slide 10 should look familiar to everyone as we are reiterating all aspects of our financial guidance, including our expectations to deliver a nonlinear EPS CAGR over the '26 to 2030 period at or above the top end of our 6% to 8% long-term organic EPS growth target.

As previously mentioned, with the close of the Quadvest acquisition, we are able to provide more specifics on the 2026 dilutive impacts while continuing to believe 2027 dilution could be in the 10% to 20% range compared to our stand-alone plan, which is consistent with our previous comments. We plan to initiate 2027 guidance for the company, including the impacts from the Quadvest and Cibolo Valley acquisitions in February in conjunction with our fourth quarter update. We also plan to roll forward our 5-year CapEx budget at that time.

Our 2026 to 2030 financial plan remains rooted in our $2.7 billion capital investment budget, combined with the addition of Quadvest. The 2 are expected to drive a 13% rate base CAGR off our year-end 2025 estimated rate base of $2.8 billion. Our team remains committed to not just delivering the rate base growth, but converting it into attractive earnings growth. And we believe we can execute on this plan by continuing to work constructively with our regulators and other key constituents to achieve fair and timely outcomes that minimize regulatory lag while finding ways to operate more efficiently to not only provide our customers with best-in-class service, but at affordable rates.

As a reminder, our plan does not include any M&A opportunities beyond Quadvest and Cibolo Valley. We remain excited about our 5-year plan and long-term prospects.

Turning to the financing and credit side of things on Slide 11. Recall, we previously indicated that our upsized equity offering in early March has afforded us flexibility with respect to our planned $100 million to $200 million of debt to fund our Quadvest acquisition. As such, at the end of September, we leaned more into equity as we settled nearly 6.5 million shares under the $400 million 2-year forward equity agreement. This netted us $330 million in proceeds, which in conjunction with the $290 million of net equity proceeds received in March have been used to fund the close of the Quadvest acquisition, along with our base CapEx throughout the year.

We have $169 million available under our $370 million bank lines of credit, which, along with our A- credit rating results in a strong liquidity position to fund our daily operations as well as the capital needed to support our longer-term capital investments.

We continue to expect to delever our balance sheet and strengthen our credit metrics over the course of a 5-year plan, which includes an assumption that we will issue equity to repay our $310 million parent debt maturity in 2029.

And with that, I will turn the call over to Bruce to provide some regulatory and legislative updates as well as some brief Quadvest comments.

Bruce Hauk

Thank you, Ann. I'm pleased to update everyone on the progress our teams have made on the regulatory and legislative front since our second quarter update.

As usual, I will start with our biggest subsidiary, San Jose Water. We continue to work through the application we filed in April with the CPUC for our planned $176 million ion exchange PFAS remediation project at our Williams Station. We are seeking approval and recovery of this investment outside of the GRC process.

Earlier this month, the ALJ set the dates for evidential hearings in late January. As such, we expect the proposed decision to be issued during the second quarter of 2027. If approved, SJWC would adjust rates as the capital is invested via annual rate base filing offsets, similar to the recovery approach afforded to our current AMI project, which remains on track to be completed around the end of this year.

Although high-profile wildfire reform legislation failed to make it across the finish line during California's 2026 regular session, a significant piece of wildfire legislation pertaining to water utilities unanimously passed both chambers and was signed by Governor Newsom in late September. Senate Bill 1153 strengthens water utilities wildfire resilience by requiring all urban retail water suppliers serving 3,300 or more persons and serving a high or very high fire hazard severity zone to include incident-specific response procedures for wildfires as part of their disaster preparedness plans.

Importantly, SB 1153 also clarifies water utilities wildfire liability limitations. We view this as a positive step toward mitigating wildfire risk for water utilities and appreciate the legislature support. Finally, I would just note that the California team continues preparations for the 2028 to 2030 GRC filing that will be made in January 2027.

Shifting to Connecticut, our GRC continues to advance in accordance with the procedural schedule. After a thorough discovery process where our team responded to more than 1,300 questions, evidentiary hearings were completed earlier this month. A proposed decision is anticipated in mid-December and a final decision is slated for late January.

As a reminder, our application requests a $28.8 million increase in annual revenues as Connecticut Water seeks recovery for the approximately $145 million of infrastructure investments made between its last rate case and the end of '26 as that investment is not yet reflected in current rates.

Moving on to Maine on Slide 14. Maine Water is in a similar situation to Connecticut Water as the team continues to work through the GRC that was filed in mid-April, requesting a $9.5 million increase in annual revenues to recover approximately $36 million in infrastructure investments that have been made or are expected to be made in the state by the end of 2026 and are not currently in rates. Maine's adopted procedural schedule in accordance with the state's 12-month statutory time frame has evidential hearings scheduled to begin early January, and we expect new rates to be effective by May 2027.

The only other item to note with respect to Maine is that the MPUC Chair, Phil Bartlett, resigned effective earlier this month to pursue an opportunity in the private sector. We would like to take a moment to thank Chair Bartlett for his contributions and service while at the commissioning. Commissioner, Patrick Scully, is serving as the acting Chair until a permanent replacement is nominated by Maine's next governor and confirmed by the Senate.

As for Texas, the PUCT on 10/1 adopted the Administrative Law Judge's Proposal for Decision, or PFD, and our third SIC mechanism application and a $238,000 annual revenue decrease went into effect. As we discussed on our second quarter call, we were disappointed by the PFD as the evidence that we provided in our rebuttal testimony was not given the appropriate weight. But in the event the PFD was adopted, we were prepared by identifying financial offsets that we can make to address the gap during the remainder of the year and still deliver on our EPS guidance.

We strive for continuous improvement as part of that commitment, we can and will make improvements in future filings now that we have a better understanding regarding documentation expectations of certain intervenors. And these lessons learned will be incorporated in the combined company GRC that Texas Water plans to file during the first half of 2027 in order to recover the significant supply and reliability investments made in recent years, including those we have sought recovery of via our latest SIC filing and to recognize Quadvest and Cibolo Valley's rate base.

And speaking of our 2 Texas acquisitions, we received the PUCT's approval of the Cibolo Valley Sale-Transfer-Merger or STM, filing in mid-September and expect to close the acquisition next week. As for Quadvest, we closed the acquisition on October 1. As Andrew mentioned, we are thrilled to welcome Quadvest customers' employees to being a part of Texas Water and H2O America.

Finally, I do want to take a few minutes to update everyone on the robust connection growth that Quadvest water and wastewater system continues to realize in the Houston area. As shown in the figure on Slide 15, Quadvest was serving roughly 62,200 active connections at the end of September. This represents a 14% increase thus far in 2026 and keeps Quadvest on track for another year of impressive growth following the 16% growth realized during 2025.

And what is equally impressive is that even as Quadvest's pipeline converts into active connections, the number of connections under contract and pending development has been more than replenished, which extends the longevity of the growth profile. Specifically, Quadvest's 98,300 connections under contract and pending development at the end of September 2026 is 13% higher than the 87,000 at year-end 2025, despite converting roughly 7,700 connections into active customers during the first 9 months of 2026.

Of course, future connection growth will vary based on a number of conditions, so this is no guarantee of the future pace of growth. However, these results are in line with our range of expectations, and we believe solid growth will continue in the Greater Houston area.

As a reminder, the addition of Quadvest's active customers plus the continued conversion of the connections under contract and pending development is the primary contributor that is expected to drive Texas from 8% of our consolidated customer base today to 26% by 2029. Between Quadvest and Cibolo Valley plus our existing Hill Country operations, we are very excited about our long-term growth potential in Texas.

That concludes my regulatory updates, and I will now turn the call back over to Andrew.

Andrew Walters

Thank you, Bruce.

Before opening up the call to Q&A, I wanted to emphasize 3 points. First, affordability has been for years and continues to be a top priority for our company. We will continue to work with our partners in our states to keep rates as affordable as possible for our customers. This includes continuously striving to run the business as efficiently as possible, knowing that every dollar of avoided operating expense enables the recovery of $7 of much needed capital investments with a neutral impact on customer bills. That is why we are exploring the water supply investment opportunities at our California subsidiary that we discussed on our last call as we truly believe it could be a win-win-win for our customers, regulators and our capital partners.

But make no mistake, we do have to balance affordability with the extensive infrastructure needs throughout our service territories, all while providing high-quality, reliable service. This means continuing to invest on a proactive basis to minimize system failures and water loss while ensuring the resiliency of our operations and water supply for the long term.

The second point, which is somewhat related, is the intense need to make the proper cybersecurity investments needed to protect both our IT and operational technology and with it more broadly, the public health. Just last week, there was the high-profile PHP vulnerabilities that were uncovered. And then earlier this year, as I'm sure many of you were aware, there were coordinated attacks on community water and wastewater systems in Minnesota and other states by potential Iranian hackers.

Nation-state activity has moved cybersecurity from a technology concern to an enterprise and operational resilience priority. And while frontier AI models present considerable opportunities for advancements, they also pose unprecedented digital and physical risk in the wrong hands. Water utilities have to safeguard their own assets while also planning to sustain their essential services if another sector such as energy or communications is disrupted. We, therefore, need to continue to invest in cybersecurity to address the ever-changing landscape and risk.

I am proud to highlight the recent announcement that H2O America is participating in the Alliance for Critical Infrastructure. ACI brings together roughly 50 companies across 6 lifeline sectors to strengthen the physical and cyber resilience of the critical infrastructure Americans depend on every day. We have to take and respond to these risks seriously. Public welfare truly depends on it, and we are encouraged by the understanding and support we have for these efforts from our key constituents, including our state regulators.

And then the final point I'd like to make is more of just a reflection on the considerable regulatory and legislative progress our teams have made in recent years. They are tremendous for a company of our size. Successfully navigating the fair market value determination and STM approval processes for the Quadvest and Cibolo acquisitions was no small feat, and we accomplished it while progressing the Connecticut, Maine general rate cases and preparing for the California and Texas ones.

Then there are the risk mitigating and return-enhancing regulatory and legislative improvements that we have helped get approved from California Senate Bill 1153 and Maine's consolidation of rate jurisdictions this year to the approval of the WQTA, the nation's first PFAS recovery mechanism in Connecticut as well as getting the ability to use a forward-looking rate case test year in Texas. What this progress means is that roughly 80% of our planned capital investments over 2026 to 2030 period qualify for timely regulatory recovery.

I could go on, but we'll stop there and just say I couldn't be more proud to lead this company and the great people that I get to call my partners on a daily basis. Our work is not done. We have a very busy regulatory agenda over the next 18 months, but I believe we are in a great position to execute both operationally and financially and continue to create meaningful value for all our stakeholders.

With that, I will turn the call back over to the operator for questions.

Operator

Thank you. [Operator Instructions] And our first question comes from Shahriar Pourreza with Wells Fargo.

질의응답

Unknown Analyst

Actually, this is [ Andrew ] on for Shahriar.

So with the Texas GRC filing shifting from early 2027 to the first half of 2027, first, what's driving that shift? And then second, does that shift come with a change in when we should expect new rates to be effective in Texas?

Bruce Hauk

Thanks, Andrew. And as I'll take that question. This is Bruce.

We originally said early 2027, and we were expecting a mid-2026 close for those Texas acquisitions. And as you know, we closed 10/1 on Quadvest, and we expect to close on Cibolo on 11/2. So that shift in itself caused the timing of our rate case potential filing to be shifted a bit. But we've also learned in some of the most recent documents and filings that there's been a real scrutiny and increased request for documentation.

So we want to take the time needed to file a robust case. And as you can imagine, we have not filed a rate case in Texas for over 10 years. So we want to take the time that is required to be able to put forth the best case we can possible with all the information that the commission and the intervening parties will be looking for.

Andrew Walters

Does that help, [ Andrew ]?

Unknown Analyst

Appreciate it. And then just on the lower CapEx for 2026, what is the driver there? And then which states are impacted most by that lower figure?

Ann Kelly

Yes, that's primarily in Texas, and it's just because we had more developer-funded CapEx than company-funded CapEx. And so as I mentioned earlier, that will just shift into the later period of the 5-year plan, but our 5-year plan for CapEx in Texas remains the same.

Operator

Our next question comes from Ross Fowler with Bank of America.

Ross Fowler

Just a couple of questions from me. And the first one is just as I think about the 2027 dilution of 10% to 20% versus the stand-alone plan, what kind of variables should I think about that I watch next year in 2027 that drives that towards one end of that range versus the other?

Ann Kelly

Yes. I mean, so a couple of things. One is we had talked about 10% to 20% dilution for '26 and '27. You saw that in '26 that our dilution was actually under the 10% because of the late closing. So timing has a lot to do with it, and we'll have a full year of Quadvest operations as well as the dilution in our results for next year.

In addition is the step-up in depreciation. And so we'll have a full year of stepped-up depreciation in our results for next year.

So those are the 2 main areas that are driving that dilution.

Andrew Walters

And it will drive it to the higher end of that range is the idea behind the range that we gave in the first question.

Ross Fowler

Got it, Andrew. And then, Andrew, you mentioned at the very end of the call, one of your 3 points sort of thinking about California water supply and how that fits together around the affordability conversation. Any sort of detailed updates as to how those conversations are progressing? And I would imagine and correct me if I'm wrong, that you kind of want that sorted before you go in for the California rate case. So just some perspective there.

Andrew Walters

Yes. It's an excellent question, Ross. And it's good that you're bringing it up in this context because the water supply development is not just like a 2- to 3-year process, it's going to be kind of more like a 5- to 10-year process for us to get those types of projects put together and developed. We have to work with partners.

The thing I will say is we are making good progress. The team here in California is really, really doing a strong job of working on getting those projects outlined, getting those potential partners lined up that we need to do. And the most important piece to watch for the next step is really the pilot project that we highlighted before. So just doing the pilot is going to be until next year to start and then you have to go through the process.

I don't want people to start getting overly excited about this for the even near term or even maybe even the medium term, but medium to long, absolutely, things are definitely progressing exactly as they should.

And Ross, the one thing I'm just going to follow-up, I know that you finished your question, but I want everybody to know none of the water supply projects are anywhere near our growth forecast. Those growth forecasts are independent of anything to do with the water supply forecast, too. Just keep careful for the near term because we won't be doing it for the 5 years. So obviously, for the 10-year, you may be starting to think about it at that point.

Operator

And our next question comes from Angie Storozynski with Seaport.

Agnieszka Storozynski

So first, I wanted to ask about Connecticut. We were hoping to see a settlement there. You went through the hearings. I mean, why is there no settlement? Is there any particular point that you guys cannot agree on? And is it maybe just because this is a new commission?

Bruce Hauk

I appreciate your question. As it relates to settlement discussions, we're not able to discuss anything regarding that. The only thing that I can share is, again, a proposed decision is anticipated in mid-December and a final decision is slated for January for effective rates in February. And I think that's what we've said in terms of the timing of rates being effective regardless of whether a settlement would have taken place or not. So I think we're still on track for an order and rates effective in February of 2027.

Agnieszka Storozynski

Okay. And then moving on to the updated guidance for '26, inclusive of Quadvest. It is a little bit higher, but $0.10 higher than we all have thought even accounting for the later closing of the transaction.

And so my question is, is it just because you guys relied more on equity financing? Or is it that the depreciation expense coming with the asset is slightly lower than expected? And maybe that's the main question is what is that annualized depreciation expense from Quadvest?

Ann Kelly

That's a great question. There is a dynamic with respect to the depreciation. So while we have been approved by the commission to close, there has not been a final order and the certification of the ratemaking rate base. And at that point, that's when depreciation for ratemaking will start. So because we follow regulatory accounting, we will essentially have a reg asset for any depreciation that comes in the fourth quarter. So you really don't see the impact of the depreciation starting until next year.

Agnieszka Storozynski

Understood. So roughly $0.10 of a drag that is the depreciation impact or roughly the depreciation impact related to the fourth quarter? Again, it's kind of -- I'm trying to solve for the delta between what you guys are guiding to and where I'm expecting you to be. So that's roughly $0.10. Is it, again, trying to imply what the depreciation expense will be on an annualized basis next year for Quadvest?

Andrew Walters

Yes, to maybe ask the question differently in order to maybe to try to address your question. If we were to just look at Quadvest itself and nothing else Ann, what would be the kind of the time frame or something to allow investors to kind of understand what the amortization of depreciation might be specifically if you've got something that you've talked to investors about around that?

Ann Kelly

Yes. I mean I would say it is consistent with our depreciation range. I mean I wouldn't expect it to be any different and then starting again in next year.

Andrew Walters

So I think, Angie, it's mostly just timing. So it's not necessarily like a modeling issue with maybe the way you looked at it other than the fact that we're just starting to get though.

Operator

Our next question comes from Alexis Kania with U.S. Bancorp BTIG.

Alexis Kania

Just maybe a question going back to Texas. Just what's your kind of thoughts just as you're preparing for the upcoming rate case later on in '27 just about finding ways to, I guess, kind of strike a balance between the rate base that obviously you'll be filing with given the fair market value determination and just balancing that with thoughts on affordability and making sure that there's an appropriate consideration brought to that.

Bruce Hauk

This is Bruce. As regarding our approach for the rate case, affordability is a big theme and important across the entire country. So we have been looking at affordability for a long time, and we're proud of the fact that all of our rates across our entire jurisdiction are lower than 1% as a percent of median household income. We actually have affordability tariffs in 3 of our 4 jurisdictions, of which Texas is not one that we do have a tariff currently.

So as we file the case in Texas, we'll be mindful of that and try to approach the commission with a solution for an affordability tariff for rate payer assistance. So that's first on the list.

Second, we've made significant investments in the Hill Country for water supply and resiliency. Many people remember the winter storm of years ago where the grid was taken down. So we made sizable investments in generators and other kind of things for resiliency and reliability. And again, like I said, the water supply.

Also, this case will allow us to bring in the rate-making rate base for the 2 acquisitions that we talked in the prepared remarks for Quadvest and Cibolo Valley. So as we've said before, the rate case will be significant, but we'll be thoughtful in the approach we take in terms of how to keep customers first and approach that with the commission and the intervening parties.

Andrew Walters

Alex, I think this goes to the point that I talked about earlier in my remarks that while affordability is definitely a huge focus for our company, so is resilience, reliability and the best water quality possible for our customers. And so those are the things that we will continue to strive for. And I think it's all about what I consider to be value for money. Are you getting value for your money on the investments. And I can say that we strive very hard to make sure that we're proving out that value for money on the investments for our customers.

Alexis Kania

Great. And then maybe just -- are there any thoughts just on the kind of overall sort of, again, the growth environment? Obviously, you were able to add some to the customer connection backlog there. But just any thoughts or just sensitivities to, obviously, the interest rate environment is something to be kind of higher in mind right now. Just kind of any characterization of that as you look forward would be great.

Andrew Walters

Look, I think from my perspective, certainly, the interest rate environment, the impact on the housing market, if you look over time, the rates that we're at today are rates that were pretty consistent with homebuyers for many, many years. And so from that perspective, we're okay. But it is a change, to be clear, from where it was before. And it takes time for that to kind of work its way through people's psyche and the way that they approach buying a house.

So as you think about it and as we think about it, interest rates are absolutely a risk. The housing market is absolutely a risk for us. But quite frankly, I've been very impressed with the resilience of the housing market in Texas to date. And in particular, the Houston market where we are based, is an area that offers an incredible value for people that are relocating from other parts of the country. And I think that's consistent with why you're seeing continued growth in spite of a more challenging overall market for new homebuilding.

Operator

[Operator Instructions] Our next question comes from Davis Sunderland with Baird.

Davis Sunderland

Congrats on getting Quad across the goal line.

I will start first. Andrew and Bruce, you guys have covered affordability very, very well. And so please forgive me as I risk beating a dead horse here. But I guess just to extend from Alex and Ross' questions from earlier, understand the puts and takes with some of the pushback and maybe appreciate, Bruce, the example of beefing up some of the robustness of documentation and what that means tangibly for you guys.

And I guess just looking into next year, you have 2 big rate cases and ultimately trying to parse through if this is like a temporary change to the way you guys are approaching the rate case process and regulatory interactions just given the inflationary environment and some of the heightened pushback and even rhetoric potentially against some of these utility rate increases or if you expect this to linger into the future? I guess just trying to understand how you guys are thinking about it strategically.

Andrew Walters

Look, I think, generally speaking, we try to have rate cases spread amongst our business units so that we don't have like a big group of our units going at the same time. I think the timing of the investments that we are making in the Hill Country necessitated us going in at the time we were going. We had filed the 6 that we had been filing and there's a requirement to come in for rates. And we've got a lot of significant infrastructure that we have invested in order to enhance the water supply.

And that water supply, just to take a step on that, that's where the value for the money comes for our customers. There has been a lot more variability in the way that water comes to us, whether by the rainstorms or the lack of rainstorms. And so having this incremental supply and transmission that we purchased with KT Water and the integration of our system, which is hundreds of millions of dollars, is a huge investment for those customers in the Hill Country, but it will pay off by providing a lot greater certainty and risk mitigation. So that's the first part of it.

And then that's why the timing, though, is consistent with our California rate case, which I generally speaking, would try to do Connecticut on one time, Texas on one time and California at one time so that they're spread across the 3 different times. But there are unique aspects to each of the regulatory jurisdictions that don't necessarily allow such simplicity all the time. Does that help?

Davis Sunderland

Yes, that does. That's perfect. And maybe just one other quick one for Ann. You talked about it a bit earlier, but just on financing outlook and how we contextualize the slightly later-than-expected quad desk closing with what you guys have said about equity and debt needs for the remainder of this year and then looking into '27 or just financing considerations more broadly?

Ann Kelly

Yes. Just to reiterate what I said earlier. So we did raise $700 million in equity earlier this year with a combination of the equity issuance in March and the forward. And what that did is it really provided us with the flexibility in terms of the timing of when to issue debt for the transaction. So we were able to draw down on the forward more than we had originally anticipated to help fund the acquisition this year, and that just gives us more flexibility in terms of the timing of our debt issuance.

Operator

Thank you. And I would now like to turn the call back over to Andrew Walters for any closing remarks.

Andrew Walters

Thank you. Thank you again for joining us today. H2O America proudly leverages our national platform to support our distinct local operations, all united by a shared mission, delivering reliable service and high-quality water to more than 1.7 million people across 4 states. Together, we protect what's precious.

At the same time, we continue executing our growth strategy and delivering shareholder value, including our unwavering commitment to the dividend, which we paid for more than 80 consecutive years and increased it in each of the past 58.

Our success is built on a culture of service and partnership. We value our customers, communities and the environment and capital partners. I couldn't be prouder of our team whose dedication makes it all possible.

I'm always available for follow-up along with my partners, Ann and Bruce. We appreciate your interest in H2O America.

Operator

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.