Q4 2024 SJW Group Earnings Call

Yahoo

28-02-2025

Andrew Walters; Chief Financial Officer and Treasurer; SJW Group
Eric Thornburg; Chairman of the Board, President, Chief Executive Officer; SJW Group
Bruce Hauk; Chief Operating Officer; SJW Group
Roger Liddell; Analyst; Clear Harbor Asset Management LLC
Jonathan Reeder; Analyst; Wells Fargo Securities, LLC
Richard Sunderland; Analyst; JPMorgan
Operator
Good day and thank you for standing by. Welcome to the SJW Group fourth-quarter 2024 financial results conference call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to Andrew Walters, Chief Financial Officer and Treasurer of SJW Group. Please go ahead.
Andrew Walters
Thank you, operator. Welcome to the 2024 Financial results conference call for SJW Group. I will be presenting today with Eric Thornburg, Chair of the Board, President, and Chief Executive Officer; and Bruce Hauk, Chief Operating Officer. For those who would like to follow along, slides accompanying our remarks are available on our website at sjwgroup.com. Before we begin today, I would like to remind you that this presentation and the 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 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 our most recent forms 10-K, 10, 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 SJW Group 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 April 28, 2025. You can access the press release and the webcast at SGW Group'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 Eric Thornburg.
Eric Thornburg
Thank you, Andrew. Welcome, everyone, and thank you for joining us. I'm Eric Thornburg and it is my honor to serve as Chair, President and CEO of SJW Group. Before we review SJW Group's strong performance in 2024, I want to take a moment to share with you that earlier today, I announced my retirement as President and Chief Executive Officer of SJW Group effective June 30. It has been my honor to lead the team of talented individuals across our entire organization and to be a part of this profession for 43 years. The Board of Directors has appointed Andrew Walters, our Chief Financial Officer and Treasurer, to be my successor as CEO. Andrew has been a true partner and a driving force behind our success. He's an outstanding choice to lead the company. Bruce Hauk, our Chief Operating Officer, will take on the added role of President Regulated Utilities, and Kristen Johnson, our Senior Vice President and Chief Administrative Officer, will take on the added role of President of our Shared Service organization. These promotions will drive our organization forward. More information on these leadership changes is available in the news release we issued prior to this call. Now, let's get back to our 2024 achievements. I'm pleased to share that we continue to meet drinking water and environmental regulations. Deliver on our public health and environmental stewardship commitments and provide high quality water and service to customers. We also delivered strong financial results, including a nearly 11% increase in net income from 2023 on a GAAP basis. Our performance reflects our continued execution of our proven growth strategy focused on investments in our infrastructure and water systems across our national footprint and constructive engagement and consensus building with key local stakeholders, all with an eye on affordability. Some highlights this year include the California Public Utilities Commission approved a constructive decision in San Jose Waters' 2025 through 2027 general rate case. Also earlier this year, the CPUC approved our request to defer our 2025 cost of capital filing to 2026, which maintains our current return on equity, cost of debt, and overall rate of return through 2026. We secured approval for increases in our infrastructure recovery mechanism in Maine and filed a petition with the Maine Public Utilities Commission to unify our 10 separate rate districts under a single tariff. In Connecticut, we had a record year of recovery through WICA, the Water Infrastructure and Conservation Adjustment. The Texas Public Utilities Commission approved our first system improvement charge last year, and we filed our second request in September. In 2024 we invested $353 million in water and wastewater utility infrastructure across all four states, and as we will discuss later in this call, we are increasing our five-year capital budget. Additionally, SJW Group was recognized by Newsweek as one of America's Most Responsible Companies 2025. Importantly, we continue to create long-term shareholder value with earnings per diluted share of $2.87 and adjusted non-gap earnings per diluted share of $2.95 in 2024. By any measure, 2024 was an outstanding year for SJW Group. We reinforced our strong foundation for sustained growth and long-term value creation, and I want to thank our talented team across the nation for making that happen. At the same time, our industry is at a pivotal moment. Aging infrastructure, evolving regulatory requirements and the increasing impacts of climate change ranging from severe droughts to devastating wildfires demand forward-thinking solutions. In 2024, we saw firsthand the toll of extreme drought in our Texas service area, reinforcing the need for greater system resiliency, redundancy, and efficiency. We are futureproofing our water systems through a disciplined, long-term investment strategy that includes replacing at least 1% of aging pipelines annually, enhancing water supply and storage, improving system efficiency and resiliency and building advanced treatment facilities to meet new water quality standards including PFAS compliance. These investments are critical to providing for long-term reliability and public health while strengthening our ability to adapt to changing climate conditions. At the core of our approach is financial discipline and a steadfast commitment to affordability. We are leveraging our scale, operating efficiencies, and technological advancements to manage costs while providing for our systems to remain robust, resilient, and reliable. We'll discuss this all in more detail later in the call, but for now, let me turn it over to Andrew to take you through our financial results. Andrew.
Andrew Walters
Thank you, Eric. Yesterday after the market closed, we released our 2024 and fourth-quarter operating results. We reported $2.87 diluted earnings per share and $2.95 adjusted diluted earnings per share for 2024, which was ahead of guidance. I'll provide further details on our 2024 results in a couple of minutes. We're also announcing our 2025 guidance range of $2.90 to $3 per share. SJW Group's five-year capital plan is increasing 25% to approximately $2 billion from our prior plan. We are extending our 5% to 7% earnings growth rate through 2029 and we expect to be on the top half of that range. In 2024, we reported revenue of $748.4 million a 12% increase over the $670.4 million reported in 2023. GAAP net income of $94 million increased 11% over 2023, and adjusted net income was $96.8 million a 15% increase over the prior year. Diluted earnings per share came in at $2.87 compared to $2.68 in 2023, and we saw an 11% increase in our adjusted earnings per share of $2.95. The factors impacting 2024 earnings per share are detailed on this bridge. Rates and usage drove a revenue increase of $1.79 over 2023. As announced last quarter, we had tax method change related to the repairs deduction that added $0.11. We do not expect favorable tax activity of this magnitude in the future, which will be addressed in our guidance discussion. The revenue increase was partially offset by higher water production expense of $0.82, an increase in other operating expense of $0.42, higher interest expense of $0.12, and an increase in the number of shares outstanding of $0.11. I would like to add the $0.11 in tax method change was offset by $0.10 in the prior year favorable income tax reserve. Our revenues increased 12% in 2024. Rate increases primarily in California and Connecticut contribute $36.1 million, $26.1 million is attributable to pass-through water costs for wholesalers and higher customer usage added another $14.9 million. Partially offsetting the increase was a decrease of 6.6 million in regulatory mechanisms primarily in California. Water production expense increased 14% in 2024 and was largely driven by rate increases from our water wholesalers and 10.1 million in expense associated with higher customer usage. Other operating expenses increased 8% and were mainly the result of higher administrative and general cost of $9.9 million, a $7 million dollar increase in depreciation and amortization and higher maintenance cost. We also incurred $3.4 million in costs related to a potential acquisition. These costs have been added back to adjusted net income and adjusted earnings per share and reflected separately on this waterfall. These increases were partially offset by a $6.1 million decrease in the allowance for customer credit losses. Approximately $87 million in gross equity proceeds was generated in 2024 through our at-the-market equity program or ATM, including $65 million for infrastructure investment and $22.1 million for the city of Cupertino concession fee. On October 25, 2024, we entered into an agreement for a new $200 million at the market program to replace one that was set to expire on November 17, 2024. At the end of the year we had $119 million drawn on our $350 million dollar bank lines of credit, which left $231 million available for short term financing of utility plant additions and operating activities. In the fourth quarter, we raised a total of $35 million through long-term debt offerings in Maine and Texas that was primarily used to pay down our bank lines of credit. The average borrowing rate for our credit advances in 2024 was approximately 6.44% compared to 6.29% last year. The effective consolidated income tax rates for 2024 and 2023 were approximately 9% and 7% respectively. The increase in the effective income tax rate was primarily due to the year over year effect of higher uncertain tax position reserve release in 2023, which was partially offset by the benefit of a tax accounting method change in 2024. Had we not had this accounting method changed, it would have added 3.5% to our 2024 effective tax rate. In addition to the EPS guidance I mentioned earlier, we are announcing our 2025 equity issuance CapEx guidance and updating our long-term growth guidance. Equity issuance of $120 million to $140 million through our ATM is expected, excluding acquisition growth. We intend to invest $473 million in CapEx during 2025. We are extending our long-term growth rate of 5% to 7% through 2029 in guiding to the top half of the range. The growth rate is anchored off our 2022 diluted earnings per share of $2.43 and is nonlinear because of rate case cycles. This growth is driven by an increase in our long-term capital plan, which I will discuss in a minute, and continued constructive regulatory outcomes. The factors underlying our 2025 guidance include strategic investments in the business and timing of infrastructure riders, as well as our general rate case recoveries. Potential for continued drought in Texas and 2025 guidance is independent of real estate sales or M&A activities. Bridging our actual 2024 adjusted diluted earnings per share to the midpoint of the 2025 guidance range, we expect to see an increase in revenues of $1.36 driven by full year Connecticut Waters 2024 general rate case. New rates from San Jose Waters general rate case that was effective on January 1st in infrastructure recovery mechanisms. Also contributing is revenue from water wholesaler pass through charges. Among the items partially offsetting the increase are higher production cost of $0.61, primarily due to wholesaler price increases, dilution from our equity issuance of $0.21, and interest expense of $0.18. As we have mentioned, our updated five-year capital plan forecast is now at $2 billion a 25% increase from our prior plan. The substantial increases necessary to meet the needs outlined by Eric earlier and will be discussed in greater detail by Bruce. As a result of the increased CapEx deployment, we are also forecasting net utility plant growth of 6.6% over the five-year horizon. Further, approximately two-thirds of our investments are recovered through forward-looking rates and infrastructure recovery mechanisms. Now, I will hand off to Bruce Hauk, Chief Operating Officer and my partner for updates on state operations and significant increase in our five-year CapEx forecast.
Bruce Hauk
Thank you, Andrew. As Eric mentioned earlier, the CPUC issued a final decision on San Jose Waters 2025 through 2027 general rate case on December 19, 2024, and new rates went into effect as planned on January 1, 2025. The final decision was based on a settlement agreement negotiated with the Public Advocate's Office that we view as constructive. It includes $450 million in capital expenditures for the three years covered by this general rate case. Our ongoing advanced metering infrastructure project is separate from the GRC capital plan. It also allows for greater revenue recovery through the service charge, now at 48%, and further aligns authorized to actual usage through a lower sales forecast. The decision provides a $53.1 million, or 9.4% total revenue increase at the 2025 through 2027 authorized sales and customer forecasts. The annual step increases range between approximately 2.6% to 3.9%. We view this decision as a testament to our ability to work with stakeholders and regulators to achieve constructive outcomes that are beneficial to our customers and local communities while also delivering shareholder value. On January 14, 2025, the CPUC granted a one-year deferment for the cost of capital proceeding for San Jose Water and three other Class A California water utilities. The filings that were due in May 2025 are now due to be filed in May 2026 for rates effective on January 1, 2027. That the deferment maintains San Jose Waters ROE of 9.81%, which includes a 20 basis point reduction related to the Water Conservation Memorandum account, 5.28% cost of debt, and authorized rate of return of 7.75% for 2026, subject to any adjustments resulting from the water cost of capital mechanism. The deferment alleviates administrative processing costs for both the water utilities and CPUC staff. PURA maintains the WCCM through 2026, which would adjust the ROE and cost of debt up or down if there is movement of 1% or more in the Moody's AA utility bond index between October 1, 2024, and September 30, 2025. Our agreement with the city of Cupertino, California to manage the city's water system became effective on October 1, 2024. The initial term of the agreement is 12 years with a provision to extend it for an additional 8 years. Under the new agreement, we will continue to operate and maintain the city's water system. As Andrew stated earlier, we paid the upfront $22.1 million concession fee with equity through our ATM program in 2024, and we will make annual payments of approximately $1.8 million subject to adjustments each year based on a specified construction cost index. We have been partnering with the city of Cupertino since 1,997. The arrangement has proven beneficial to the customers of San Jose Water and customers of Cupertino. As a large neighboring water system, we bring scale and efficiency to the city's water system operation and increase scale for San Jose water that allows us to better serve our customers. In Connecticut, our Connecticut water team invested $41.9 million in water infrastructure and conservation adjustment projects in 2024, our largest annual spin since the inception of WIA more than 15 years ago. We began recovering a portion of that investment in the fourth quarter when the Connecticut Public Utilities Regulatory Authority authorized a $4.3 million increase in annualized revenue through WICA that was effective on October 1, 2024. We filed a new WICA application in our annual reconciliation with Pura on January 28, 2025. We are requesting a $1.6 million increase in revenues for $15.7 million in eligible completed projects. If the application is approved as requested, our cumulative WICA surcharge would be 4.9%. A decision on our application is expected in the first quarter. We are continuing to work with state lawmakers and regulators on a WICA-like mechanism called the Water Quality and Treatment Adjustment that would allow cost recovery for water treatment and remediation infrastructure between general rate cases. If enacted, it would help smooth rate impacts for PFAS compliance by distributing costs more predictably over time. In Maine, we filed a petition with the Maine Public Utilities Commission on December 30, first requesting that the company's 10 separate rate district tariffs be unified into a single tariff. If approved, it would streamline general rate case and water infrastructure charge applications which are currently filed on a district-by-district basis. This will improve administrative efficiency, minimize regulatory lag, and ease the burden on the regulatory agencies and their staffs. Further, in an environment of ever-increasing water quality regulation. And the need to replace aging infrastructure, a unified rate plan across Maine will allow us to address system needs across the company's footprint while maintaining customer affordability. We filed a general rate case application for the Camden Rockland division in October requesting a revenue increase of $1.1 million or 15.9% above current authorized revenue. A decision is expected in the second quarter of 2025. In our Texas service area, we have been experiencing significant drought and have had water conservation measures in place for much of 2024, which resulted in lower water usage. We are doing several things to make our water systems in Texas more resilient to weather extremes so that we can enhance system reliability and the availability of water supply for our current customers. First, in 2023, we acquired KT Water Resources, which has projected 6,000-acre feet of untapped water supply in the heart of Comal County. Bringing this supply online to serve customers is a priority for us. In addition to addressing water supply, we are pleased to share that resiliency has been improved through the installation of standby generators at nearly all our water systems in Texas, ongoing replacement of aging infrastructure and focus on additional technologies to continue strengthening our systems. Integrating KT Water into our water systems is a significant investment, but KT Water alone won't futureproof us against ongoing droughts. That's why we are also investing in targeted distribution system upgrades and interconnections to better move water through our systems to where it's needed. At the same time, we are driving efficiency improvements through advanced leak detection and pressure management to reduce water loss and strengthening system reliability, making the most of our current water supply sources to serve customers. KT Water is a multi-phase project that is scheduled to be completed by the end of 2026. All in all, we are planning to invest a total of $133 million in Texas this year on infrastructure improvements. Similar critical needs exist across our other service areas. In Connecticut, our estimated cost for PFAS treatment has risen from $120 million to $190 million. In California, we estimate$ 110 million is needed, bringing our total PFAS related capital commitment to $300 million. Another significant cost driver is pipeline replacement. In 2024, we invested over $110 million and we expect that spending to increase further as we maintain our goal of replacing 1% of our pipeline infrastructure annually. Additionally, we invested approximately $27 million in San Jose Waters' advanced metering infrastructure project in 2024. The cost of this project is estimated at $100 million with the bulk of the remaining investment planned for 2025 and 2026. The chart on this slide provides a state-by-state breakdown. Of the $473 million in capital expenditures planned for 2025 and our five-year CapEx plan. As a reminder, San Jose Water has forward-looking general rate cases, and Connecticut Water, Maine Water, and Texas Water all have infrastructure recovery mechanisms. As Andrew mentioned earlier, given the scale and urgency of these investments, we have updated our five-year capital forecasts from $1.6 billion to $2 billion. With that, I will turn the call over to Eric.
Eric Thornburg
Thank you, Bruce. One of the ways we measure our success as a company is by asking how are we being a force for good. Our commitment to sustainability, safety, and sound governance isn't just about doing the right thing, it also contributes to operational savings, increased efficiency, and long-term value creation. A great example of this is our investment in sustainable power and safety initiatives, both of which drive measurable benefits across our operations. We're proud to share that between 2019 and 2023 we reduced our scope one and scope 2 emissions by nearly a third and are well on track to achieve our target of 50% reduction by 2030. Improving efficiency and reducing our impact on the environment is the right thing for our stakeholders. I'm also extremely pleased to announce that in 2024, Connecticut Water was recognized by the Connecticut Construction Industries Association with a platinum level award for construction safety. This marks an incredible 21st consecutive year of safety recognition, an achievement that speaks to the unwavering commitment of our teams. After two decades, it would be easy for complacency to set in, but for us, safety isn't just a policy, it's a mindset. Whether in the trenches or in the office, our teams work tirelessly every day to ensure safe choices are made to protect themselves and their coworkers. Safety remains our highest priority. These initiatives are just a few of the reasons SJW Group has been named one of America's most responsible companies, 2025 by Newsweek. This recognition is based on extensive research and analysis across three pillars of environmental, social, and governance, including more than 30 key performance indicators, energy efficiency, and a reputation survey. At SJW Group, we're not just committed to building a resilient water system. We are dedicated to doing so in a way that is sustainable, responsible, and built for the future. Looking ahead, our priorities are clear. We will continue executing our long-term investment strategy with financial discipline, operational excellence, and an unwavering commitment to affordability. I'm also pleased to share that we have established the Force for Good Foundation. It is a not-for-profit corporation funded by SJW Group that plans to make contributions to selected charitable organizations with a focus on the community served. We look forward to sharing more in the future about the foundation and how it is furthering our community outreach and engagement efforts. The Force for Good foundation is just one example of how we are not just preparing for the future, we are shaping it. In 2024, we continued to build a world-class team. In the fourth quarter, we welcome two highly accomplished leaders who are already bringing valuable expertise to our organization. Ann Kelly, our new Chief Accounting Officer, joins us from American Electric Power where she served as CFO. Douwe Busschops, our new Chief Information Officer, comes from Veolia, North America, where he was Vice President and CIO for their Municipal Water Division. Both Ann and Douwe bring deep expertise in their fields and have already made a positive impact. They're helping us execute on our modernization and efficiency goals, helping us to deliver strong results for both customers and shareholders. With that, I will turn the call back over to the operator.
Operator
(Operator Instructions) Richard Sunderland, JPMorgan.
Eric Thornburg
Hey, Richard.
Andrew Walters
Rich, that looks like we're not hearing you.
Operator
Richard, you may be on mute. We can move on to the next question. Roger Liddell, Clear Harbor Asset Management.
Roger Liddell
Yes, good afternoon.
Eric Thornburg
Hi Roger, great to hear from you.
Roger Liddell
Well, great to hear from you and I've had the privilege of observing your management skills, for 20 years now. That has been a privilege, and I regret that you are electing to move on. In fact, Eric, I have a complaint. Didn't you and I have an agreement that you wouldn't retire until I retired?
Eric Thornburg
You just got more longevity than me, Roger, so thank you for that very kind words there, brother. I appreciate you.
Roger Liddell
And I hope the industry will be able to benefit from your perspective, including cyber vulnerability, cyber issues, because I think you bring something to the party there sorely needed. In any event to the business at hand, in the unaccounted-for water area which you didn't happen to touch on but which has interested me. If I recall correctly, the unaccounted-for water rate in California in San Jose water is in the 7% range breathtaking figure, and some 15% in other jurisdictions, is that 7% figure. A peculiarity of California given its history of water issues. . That would prevent what you've done there to be done elsewhere.
Eric Thornburg
Thank you, Roger, and I know you're always a proponent of sustainability, and I really appreciate your question. And as evidence of the good hands that our organization will be in, I want to allow Bruce Hawk to address that question, and we're very proud of our achievements in terms of our unaccounted-for non-revenue water. So Bruce.
Bruce Hauk
Thank you, Eric, and Roger. Thank you for your commentary and your question. Indeed, our non-revenue water in our California operation is world class in all regards, and we actually saw an improvement year over year from 23 to 24 where we landed actually just above 6%, and that came about by some utilization of technology that we deployed the ability to use acoustic leak detection, our asset management program. And one of the things that we're really excited about is some of our meter replacement program as it related to compound meters actually created some favorable benefit to us as well. To answer your question, our overall non-revenue water as an entire portfolio is just around 9%. You are correct that we have elevated percentage of non-revenue water in pockets of the organization, but it's that learning and experience that we are deploying across our entire portfolio that will allow us to improve that non-revenue water in our other jurisdictions. And as you may be aware, the American Water Works Association for many years has compelled that 20% non-revenue water is considered good performance, but As any great utility, we are not acceptive of that and we will continue to drive that number down for the benefit of our customers and our shareholders.
Roger Liddell
Thank you, very hopeful, and I hope whatever magic here you have in California will show up elsewhere in the SJW group. A second question, in the recent Los Angeles area fires, there was, let's call it regrettable focus on hydrants, the wharf style of hydrants versus the more capable ones, startling. I certainly had no idea that there was such a phenomenon. Is there anything like that in your system or systems if fire issues are. Anywhere near as important elsewhere and can that be rectified so we don't have whatever the hydrant issues were that contributed to the Los Angeles situation, it won't happen again.
Eric Thornburg
Yes, thank you, Roger. That really was heartbreaking and difficult to watch and really stunning. I'm pleased to report we don't have any hydrants of that nature in any of our systems, but I do want to say that, water systems and fire hydrants, really aren't designed to fight, firestorms, and I don't think there's a water system in the nation that could keep up with a wildfire. They're really designed to address, structure fires and so while there was some regrettable deficiencies, I think, an empty reservoir and old hydrants, I think the cold hard reality of that firestorm was such that despite the heroics of the fire department. There was not much to be done there, but to answer your question directly, we've got state of the art fire hydrants and fire systems in place, so I feel very confident.
Roger Liddell
Great, and if I may, a final question. The context is Aquarion and its recent resolution in Connecticut. Are there any aspects of Aquarion and of issues that may have arisen during the whole process of the sale by Eversource, anything that could inform our understanding of water issues in Connecticut, or any other parts of the SJW group.
Eric Thornburg
Yeah, thank you for that question, Roger. As part of being in the process, frankly, we signed nondisclosure agreements. They're really not comment on the specifics of the process, but if I step back, I don't see any real broader lessons learned. That was a very unusual situation with the regional water authority and a legislative session, and we're going to very keenly watch the regulatory filings that they'll make and watch that carefully because we have interconnections with both of those utilities and so we want to see what the regional water authority is bringing to the table there and we'll keep a very close eye on that.
Roger Liddell
Thank you all.
Eric Thornburg
Thank you, Roger. Appreciate your questions and appreciate your kind words earlier as well.
Operator
Jonathan Reeder, Wells Fargo.
Jonathan Reeder
Good morning, yeah, good morning team depending on where you're located afternoon to Andrew for sure. First off, congrats to both you, Eric, and Andrew on the news today. Both are well deserved.
Eric Thornburg
Thank you very much, Jonathan, very kind.
Andrew Walters
Thank you very much, Jonathan.
Jonathan Reeder
Yeah, so. A little bit along those lines, can you describe the process and timeline for announcing the next CFO, including, whether they're strong internal candidates?
Andrew Walters
Sure, I'll take that if that's okay and I think from my perspective we do have a very strong bench in our internal team and as we go through the process we will define a process in order to name the next individual that will be our next CFO as. Eric mentioned, Ann Kelly's our most recent addition to the team, and she's our Chief Accounting Officer. She was formerly the CFO at American Electric Power, so super excited to be working with Ann, but there will be some process that we will be working through with our board in order to identify our ex-CFO candidate.
Jonathan Reeder
Okay, yeah, I mean that's you kind of alluded to it. I didn't know if that hire was kind of a precursor of what was to come in terms of bringing Ms. Kelly on board.
Andrew Walters
It was not, but we were super excited to have her join us, and she brings a great skill set.
Jonathan Reeder
Got you. So when reading your release, last night I was thinking it might take some time to ramp up the CapEx budget, to the new five-year $2 billion dollar level, but that doesn't seem to be the case, and thanks in advance for the additional disclosures on slide 23 that eliminate a lot of my questions, but the one thing I did miss during the prepared remarks a bit where the specifics around, I think you talked about a KT Water project. Do you mind just reiterating the high points on that project such as the cost and expected completion date which I think might have been like 2026?
Eric Thornburg
Yeah, Jonathan, let me start with that. We purchased the KT Water System just a few years ago and one of the attractive features to us in addition to a pretty nice customer base, I think if I recall just around 20-300 customers there, but in a very nice community and was in a strategic location for our existing service area. But the thing that really attracted us was this untapped. Underground reservoir basically of groundwater supply and we vetted that proved it out, and we believe that, we can comfortably get 6,000-acre feet of water from that resource. So as you might guess, the follow on from that is well you've got to develop the wells and you've got to lay the transmission main and you got to go through easements and you got to interconnect with your tanks and reservoirs and get all the right systems in place to bring that online and that's going on under Bruce and Aundrea Williams' leadership in Texas and we're building consensus with the community talking about it, and it will greatly improve our resiliency and reliability. Boy, we'd love to get it online a little sooner because of the drought in Texas. It would be really helpful, but we don't want to rush that kind of a project. We would anticipate wrapping that up at the end of 2026, so we're ready for 2027 summer there, but we're going to invest a lot of money in Texas over the years just because of the growth to serve new customers, do new developments. It's such a unique area we're not. We're not building for developers, we're building for our existing customers to reinforce and build resiliency and reliability for them, but it is part of the story of Texas. So I hope that helps. And if not, maybe we can in our next call provide a little more granularity on the KT water operation.
Jonathan Reeder
So what is the total investment, forecast to bring that resource online and, how would the recovery of that investment work?
Eric Thornburg
Yeah, so we anticipate that's right around $130 million all in, and so that would precipitate our next general rate case in Texas, which we've already been planning. So the timing of that would coincide with that with that filing so we could recover that major investment. And of course we have taken advantage of the SEC filing process and we've got a current filing in which really helps, but this kind of a project wouldn't be eligible for that.
Andrew Walters
And Eric, the only thing I would add to that is the $133 million is for 2025 and there will be additional investment in 2026 that that will be further added to bring that project online.
Jonathan Reeder
Okay, so there's more than $130 million, there's a kind of different portion in '26.
Andrew Walters
Okay, there is, and I'll follow up with you after the call on this, on the amounts that that we kind of expect to get to.
Jonathan Reeder
Got you. Okay. And then, lastly for me, and I appreciate the detail in Texas there, but, shifting to Connecticut a little bit given the accelerated WICA spend. And you know the need to get recovery of that when do you anticipate filing the next Connecticut rate case, presumably to reset the wicked is 0% given the 10% cap and you know I think you said you're going to be at 4% and change after this last WICA filing that's approved.
Andrew Walters
Yeah, so I appreciate that. A couple things I'll say is, our rate case cycle is every three years, so we will continue to follow that three-year cycle broadly. Now for the smaller systems like Texas and Maine, we have to be a little bit more nimble depending on the types of projects they're working on and what they're doing. So we just finalized our rate case in last mid last year we filed it at the prior year in 2023. So you would look at 2026 is the next time frame that we would actually file the next rate case in in sometime in that kind of second quarter time frame.
Jonathan Reeder
Q2 2026. So okay, I didn't know if it was going to accelerate the Connecticut rate case cycle to something more like two years, but great. Alright, well that does it for me. Thank you for the time and look forward to catching up in the future.
Eric Thornburg
Great, thank you, Jonathan, thanks for joining us today.
Operator
Richard Sunderland, JP Morgan.
Richard Sunderland
Hi, good morning.
Eric Thornburg
Yeah, we got you now, brother. Thank you. Good to hear from you.
Richard Sunderland
Great. Glad I was able to hop back on. Well, maybe first and foremost, Eric and Andrew, congrats to you both. Great update in the transition. Best of luck, Eric, in retirement, although I know with June it's not the end yet, but congrats to you both.
Eric Thornburg
Thank you I appreciate it very much. Great team here excited about Andrew's leadership and Bruce's and Kristen's and I leave it in very good hands, so thank you.
Richard Sunderland
That's great. You may, starting at the high level with the 5% to 7% growth rate in that directional update to the top half. Is this as simple as reading the higher CapEx versus the outlook on your prior plan? I guess I'm curious how you're thinking about earned returns over the period and if there are any other factors and expectations changing in the update.
Andrew Walters
Yeah, I will tell you that it's definitely on the CapEx side earned returns, if I were smart enough to figure out where the earned returns were going to go, I may not be in this particular role. What I will say is that, as time goes on, you have to assume kind of things revert to an average level when you look at it, and that's how we forecast things.
Richard Sunderland
Great, very clear there. And then there's been a lot of outside attention on potential changes with per in Connecticut. Do you have any thoughts on what this means for SJW in any particular areas in the state that you're focused on right now with all that going on?
Eric Thornburg
Yeah, thank you, Richard. When I was in Connecticut back in the day, it was an independent agency. We had five commissioners and times were a bit different overall, but a lot of consistencies to where they're now going. So I guess I'm just glad to hear that the governor and the legislature have come to an agreement and we can move forward. But nothing has changed in regards to our commitment to building constructive regulatory relationships and really working to build trust and understanding there. So I'm encouraged. We've been working collaboratively with not just the commission but also the public advocate's office in Connecticut. With the water quality surcharge mechanism that we referenced and we still have a ways to go, but that that's a real landmark bit of legislation. I don't know of another of its kind in the in the US. So if we can get that over the goal line there, that would be a real win for customers and as well I think our shareholders. So let's keep an eye on that one. I think that will continue to Show us which direction we are headed. I think we're headed in the positive direction.
Richard Sunderland
Great well I appreciate the thoughts there and thank you for the time today.
Eric Thornburg
Hey, thank you. Thank you, Richard. Appreciate your kind words as well.
Operator
Roger Liddell, Clear Harbor Asset Management.
Eric Thornburg
Yes. Hi, Roger.
Roger Liddell
Thank you for allowing a follow on the question is the increase in PFAS in Connecticut from $120 million to $190 million. What are you at liberty to say in terms of the drivers behind that increase? And I certainly hope there will be, as part of your campaign, both in California and in Connecticut and the clean up the investment that the health impact, the adverse impact of PFAS, just to pick on one, the damage done to the body's immune system, and children, for example, receiving little benefit, some of them, little benefit from normal vaccinations because of that damage done to their immune systems.
Eric Thornburg
Roger, I'm going to ask Bruce to comment on the change in the overall price and, we've been very active as well to hold the polluters accountable through our class action, legal action, and, we are of course pleased that there was an overall settlement in that and so we will be able to offset some of this investment so customers and communities aren't shouldering the full burden of it and. But it will be a great day when all of the PFAS treatment is in place, just like we strive to provide pure water on an ongoing basis, it'd be great to get this resolved as well and meet the new standard. That EPS has promulgated that we supported very actively to help achieve. So Bruce, you want to provide a little daylight on that if you can.
Bruce Hauk
Sure, thanks, Eric, and thank you, Roger for the question. As it relates to the estimate that we have presented before, as you can imagine as you go through the process and you finalize the treatment process that's going to actually be used, those estimates become more refined, and that's what's happened here. Our total PFAS investment is expected to be at $300 million split between California and Connecticut. We have forward-looking test years in California, so the normal process for recovery would be used there, but the example of the water quality treatment adjustment, process that we're in with the bill that we've actually filed and had a really good. A group of support there that will help us bring those rates if successful online without rate shock and, clearly predictability in that rate impact and actually help with the previous question regarding regulatory lag. So this is all part of the focus and the strategy of our filings and the enhancements in our regulatory environment ultimately to provide. Clean, reliable water for our customers and PFAS is part of that process as well.
Eric Thornburg
Thank you.
Operator
That concludes today's question-and-answer session. I'd like to turn the call back to Eric Thornburg for closing remarks.
Eric Thornburg
Thank you again for joining us today. 2024 was a strong year for SJW Group, and we have even more to look forward to in 2025. Continued progress on our AMI initiative, expanding water supplies in Texas, and advancing our PFAS remediation strategy, we remain committed to investing in infrastructure and exploring solutions to maintain affordability as capital needs continue to grow in the water utility industry. Our success is built on a culture of service to our customers, communities, the environment, and shareholders, and I couldn't be prouder of our team whose dedication makes it all possible. We look forward to sharing our progress next quarter. In the meantime, Andrew, Bruce, and I are always available for follow up. We appreciate your interest and support in SJW Group. Thank you.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.