Davis Sunderland

Davis Sunderland asked about the potential for General Rate Case (GRC) delays to become a new norm, seeking confidence in future cases staying on track. He also inquired about the regulatory environments and key mechanisms in Oregon and Nevada, including anticipated capital expenditure investments. Additionally, he requested an update on the EPA's PFAS pushout, the company's plans, and the status of class action suit recoveries.

Answer

Greg Milleman (VP of Rates and Regulatory Affairs Officer) and Marty Kropelnicki (Chairman, President and CEO) addressed the GRC delays, noting increased commission focus on timely decisions, active communication, and the immediate 3% interim rate increase. They highlighted Commissioner Matt Baker's commitment to timely outcomes due to affordability concerns. For Oregon and Nevada, Greg detailed hybrid rate-making, DSIC in Nevada, construction work in progress (CWIP) in Oregon, and efficient 6-month rate case processes. Marty estimated initial CapEx of $20M-$30M for the acquired systems, with future growth opportunities. Regarding PFAS, Marty affirmed the company's commitment to proceed with treatment plans, having spent $20M in 2025 and projecting $50M-$70M in 2026, irrespective of federal delays, emphasizing water quality. James Lynch (SVP, CFO and Treasurer) clarified that the $235M PFAS spend includes treatment (mostly by end of 2027) and new wells (longer permitting).

Davis Sunderland with Baird inquired about three key areas: the potential for ongoing delays in California General Rate Cases (GRCs) and management's confidence in future cases staying on track; the regulatory environments and key mechanisms in Oregon and Nevada, including initial capital investment expectations for the newly acquired systems; and the company's strategy for PFAS remediation, specifically if EPA deadline pushouts would alter plans and an update on class action lawsuit recoveries.

Answer

Chairman, President and CEO Marty Kropelnicki, VP of Rates and Regulatory Affairs Officer Greg Milleman, and SVP, CFO and Treasurer James Lynch provided comprehensive responses. They clarified that the current GRC process is more engaged than previous delays, with active commission focus on timely decisions and affordability, leading to confidence in a near-term resolution. For Oregon and Nevada, they detailed favorable hybrid rate-making frameworks, including DSIC in Nevada and CWIP in Oregon, estimating initial capital expenditures of $20M-$30M annually for the first few years, with growth opportunities. Regarding PFAS, management affirmed that remediation plans remain unchanged despite potential EPA delays, emphasizing water quality. They reported $20M spent on PFAS in 2025, with $50M-$70M projected for 2026, incremental to other capital, and outlined the phased $235M spend for treatment and new wells.

Davis Sunderland of Baird inquired about the expected timeline for the California General Rate Case (GRC) decision and the strategic implications of the EPA's potential delay of PFAS compliance deadlines.

Answer

Martin Kropelnicki, Chairman, President, & CEO, stated he is 'guardedly optimistic' for an on-time GRC decision by year-end, citing the assigned commissioner's commitment. Regarding PFAS, both Kropelnicki and SVP & CFO James Lynch explained that the company will largely adhere to its original investment timeline to ensure customer safety, noting that well replacements might adjust the schedule slightly. Lynch added that the company's strong balance sheet allows its M&A strategy to proceed independently of PFAS spending.

Davis Sunderland of Baird inquired about the expected timeline for the California General Rate Case (GRC) decision and the implications of the EPA's potential push-out of the PFAS compliance deadline.

Answer

Chairman, President, and CEO Martin Kropelnicki stated he is guardedly optimistic that the GRC decision will be on time by year-end, as the assigned commissioner has made it a top priority. Regarding PFAS, Mr. Kropelnicki and SVP, CFO & Treasurer James Lynch explained that the company will largely adhere to its original treatment timeline for customer safety, and that the balance sheet is strong enough that this will not negatively impact M&A initiatives.

Davis Sunderland of Baird inquired about the expected timeline for the California General Rate Case (GRC) decision and the financial implications of the EPA's potential delay of PFAS regulations, including the impact on capital spending and M&A strategy.

Answer

Chairman, President, & CEO Martin Kropelnicki expressed guarded optimism for an on-time GRC decision by year-end, noting the assigned commissioner has made it a top priority. SVP, CFO & Treasurer James Lynch stated that PFAS capital investments will largely proceed on the original schedule despite the EPA's timeline shift, as some well replacements were already planned. Kropelnicki added that customer safety is paramount. Lynch also clarified that M&A initiatives are independent of PFAS spending due to the company's strong balance sheet.

Davis Sunderland of Baird inquired about the expected timeline for the California General Rate Case (GRC) decision and the potential impact of the EPA's extended PFAS compliance deadline on capital investments and M&A strategy.

Answer

Chairman, President, & CEO Martin Kropelnicki expressed guarded optimism that the GRC decision would remain on schedule for year-end, noting the assigned commissioner's commitment. Regarding PFAS, Kropelnicki and SVP, CFO & Treasurer James Lynch explained that the company will largely adhere to its original investment timeline for customer safety, though some well replacement projects may cause minor shifts. Lynch affirmed that the M&A strategy is not impacted by the PFAS timeline due to the company's strong balance sheet.

Davis Sunderland from Baird inquired about the expected timeline for the California General Rate Case (GRC) decision and the implications of the EPA's potential delay of PFAS compliance deadlines on the company's investment schedule and M&A strategy.

Answer

Chairman, President, and CEO Martin Kropelnicki expressed guarded optimism for an on-time GRC decision by year-end, noting the case is now with the judge. Regarding PFAS, SVP, CFO & Treasurer James Lynch stated that while some well replacement projects may shift timelines, the core treatment investment schedule remains intact. Kropelnicki emphasized that customer safety is paramount, precluding significant delays. Lynch also affirmed that the company's strong balance sheet allows M&A initiatives to proceed independently of PFAS capital spending.

Davis Sunderland from Baird asked for a comparison of the current GRC's progress against the delayed 2021 GRC, seeking to understand if similar warning signs are present. He also questioned how potential tariffs and supply chain issues are being factored into the company's outlook and cost management strategy.

Answer

Chairman and CEO Martin Kropelnicki contrasted the current GRC with the 2021 case, highlighting that communication is much better and all parties are publicly committed to an on-time decision, unlike the prior cycle which was immediately contentious and complicated by COVID. Regarding tariffs, he stated it's too early to predict specific impacts but expressed confidence in the team's proven ability to manage supply constraints and inflation. Executive James Lynch added that the company is monitoring financial market volatility for future financings but currently has a strong liquidity position.

Davis Sunderland from Robert W. Baird & Co. asked about California Water Service Group's M&A strategy for 2025 and inquired why capital expenditures for PFAS remediation are excluded from the primary investment plan and what the spending cadence might be.

Answer

CEO Martin Kropelnicki and executive James Lynch stated that the company's primary focus is its strong organic rate base growth of nearly 12% CAGR. They explained that while they have the capacity for M&A, any deals will be highly strategic and targeted, noting the Texas greenfield development already provides M&A-like growth. Regarding PFAS, Kropelnicki and VP Greg Milleman clarified that these costs are excluded from the main CapEx plan due to uncertainty in timing and scope at the time of the GRC filing, for which the CPUC has granted a memo account.

Davis Sunderland from Robert W. Baird & Co. inquired about utility ordering patterns, specifically whether current trends represent structural disruption or near-term challenges. He asked for insights into Book and Ship business trends, assumptions for the current year, and the bookings required to support 2027 targets. Additionally, he sought color on the penetration and attach rates of distributed intelligence (DI) and new offerings, including the adoption rate and potential endpoint conversions.

Answer

President and CEO, Tom Deitrich, noted that ordering patterns have normalized, with previous exogenous delays having played through without cancellations, though some project timelines stretched. He confirmed continued good Book and Ship business, particularly in electricity, as customers manage uncertainty. Regarding Distributed Intelligence (DI), Deitrich reported strong adoption, with endpoints up 25% year-over-year and apps up 70% year-over-year, with 10 million DI-enabled endpoints in backlog. He highlighted growth in distributed energy resource management (over 3 million devices connected) and analytics, emphasizing ARR as a key financial metric for these solutions.

Davis Sunderland asked about utility ordering patterns, specifically if current trends indicate structural disruption or near-term challenges. He sought insights into Book and Ship business trends, the assumptions for this year, and the bookings required to meet 2027 targets. He also inquired about the penetration and adoption rates of distributed intelligence (DI) and new offerings among core customers.

Answer

Tom Deitrich, President and CEO, indicated that ordering patterns have normalized, with previous delays having played through without cancellations. He noted that Book and Ship business remains strong, particularly in electricity, serving as a tool for customers to manage uncertainty and technology transitions. For DI adoption, he reported endpoints up 25% and apps up 70% year-over-year, with 10 million in backlog, emphasizing its inevitability and growth in areas like distributed energy resource management and analytics. He highlighted ARR as the key financial metric for this growth.

Davis Sunderland inquired about the rationale behind HASI's shift to a nominal EPS guidance range for 2028, asking if it reflects increased confidence or visibility. He also asked about the normalized run rate for full-year investments, considering large deals like SunZia, and if there's a structural change in the business.

Answer

Jeff Lipson, President and CEO, explained that the switch to nominal EPS guidance allows for more precise adjustments in subsequent quarters. Regarding investment run rates, he stated there's no structural change in the business, though larger opportunities materialize. Marc Pangburn, Chief Revenue and Strategy Officer, added that the pipeline is consistent with recent closings in terms of risk and yield, with no current SunZia-type projects, but project sizes are increasing due to larger grid-connected complexes and higher storage attachment rates.

Davis Sunderland from Baird asked about the rationale behind HASI's shift to nominal EPS guidance for 2028, questioning if it reflects increased confidence, visibility, or larger deal sizes. He also sought clarification on the normalized run rate for full-year investments, asking if there's a structural change in the business towards a higher baseline, beyond the Q4 2025 performance.

Answer

Jeff Lipson, President and CEO of HASI, explained that the switch to nominal EPS guidance allows for greater precision in future adjustments. Regarding investment run rates, Mr. Lipson stated there's no structural change, but larger opportunities do arise. Marc Pangburn, Chief Revenue and Strategy Officer, added that the pipeline is consistent in risk and yield, with project sizes increasing due to larger grid-connected complexes and higher storage attachment rates, driving more capital deployment.

Davis Sunderland inquired about the impact of recent tax credit changes on the types of investments Hannon Armstrong Sustainable Infrastructure Capital is seeing and potential opportunities in the capital stack.

Answer

Susan Nickey, Chief Client Officer, stated that with the extension of tax credits, traditional tax equity structures and transfer structures continue to dominate the market. She anticipates a longer transition period before significant changes in the capital stack are observed.

David Sunderland from Baird inquired about the impact of tax credit changes from the Inflation Reduction Act on the types of investments HASI is seeing by asset class, specifically asking if HASI has identified opportunities to fill potential gaps in the capital stack.

Answer

Susan Nickey, Chief Client Officer, responded that traditional tax equity structures and transfer structures largely continue to dominate the market. She noted that a longer transition period is expected before significant changes in the capital stack, such as the exclusion of tax credits, are observed.

Davis Sunderland from Baird questioned the opportunity from hyperscalers in Pennsylvania, asking about the timeline and financial structure (regulated vs. unregulated). He also asked how a potential EPA delay on the PFAS rule might affect the company's strategy and the municipal acquisition pipeline.

Answer

Chairman & CEO Christopher Franklin indicated that hyperscaler opportunities involve a quick turnaround and could include both regulated rate base and unregulated projects, but could not provide specifics due to NDAs. On PFAS, President of Aqua Colleen Arnold stated there is no change to their own remediation program. She believes municipalities will still face compliance deadlines, creating acquisition opportunities, and Franklin added that Essential's proprietary PFASGuard solution could even accelerate conversations with potential sellers.

Davis Sunderland asked about how the Pennsylvania Public Utility Commission (PUC) is handling the separated estimated costs for PFAS remediation and what the expected mechanism for cost recovery would be.

Answer

CEO Christopher Franklin and CFO Daniel Schuller addressed the question. Franklin affirmed they are assured of recovery for PFAS investments, with the main uncertainty being how proceeds from lawsuits against polluters will be applied (e.g., as an offset to rate base or O&M). Schuller added that the company's typical approach is to seek deferred accounting treatment, placing the investments on the balance sheet as a regulatory asset for future recovery through rates.

Davis Sunderland of Baird asked if the PUC's C-motion had spurred an increase in M&A activity and inquired about current trends in seller valuation expectations for water systems, particularly in light of rising PFAS compliance costs.

Answer

Chairman and CEO Christopher Franklin responded that while it is too soon to see a direct impact on the M&A pipeline from the C-motion, it has prompted more discussions with municipalities. He also noted that conversations about the significant costs of PFAS mitigation are increasing, which he expects will lead more systems to explore a sale.

David Sunderland from Baird sought more details on the KAUST partnership, including financial commitments and R&D focus. He also asked if global tariff uncertainty could paradoxically increase interest in Lucid's technology licensing or component manufacturing, given its U.S. base and excess capacity.

Answer

Interim CEO Marc Winterhoff emphasized the significant, asset-light benefits of the KAUST partnership, highlighting access to supercomputing power for AI and ADAS development with minimal financial commitment from Lucid. He confirmed that Lucid is already a component manufacturer for one partner and is open to more, noting that the recent acquisition of Nikola assets provides more optionality and has already led to inbound inquiries for joint manufacturing. CFO Taoufiq Boussaid reiterated the partnership is an asset-light way to accelerate their go-to-market strategy.

David Sunderland asked if the contracting process for Sustainable Aviation Fuel (SAF) is accelerating now that Diamond Green Diesel has proven its ability to reliably produce and deliver the product.

Answer

Matt Jansen, COO of North America, confirmed that they are seeing a pickup in customer interest for SAF contracts spanning one to three years. He stated that proving DGD's production reliability has significantly increased customer confidence, boosting demand on top of an already healthy sales book.

David Sunderland of Baird asked about the company's appetite for discussions with Chinese OEMs and whether any competitors were challenging QuantumScape's intellectual property or technological lead.

Answer

CEO Siva Sivaram declined to comment on specific customer geographies beyond the existing partnership with Volkswagen/PowerCo, citing confidentiality. On competition, he asserted QuantumScape's leadership, highlighting its transparent data reporting on its 'no-compromise' battery, which he claims no competitor consistently matches.

Davis Sunderland from Baird asked for an update on the traction of the new sales process targeting C-suite executives for large deals and whether sales cycles might accelerate.

Answer

CEO K.R. Sridhar acknowledged that the first deals in a new market are the hardest and longest to close. He clarified that current delays are not about technology qualification but about the commercial complexity of coordinating multiple parties on large, first-of-their-kind deals, stating "it does take a minute."