SJW Group
NYSE:SJW
Earnings Call Analysis
Q4-2023 Analysis
SJW Group
In the landscape of financial uncertainties and regulatory complexities, SJW Group, led by CEO Eric Thornburg, has navigated 2023 with robust managerial finesse, delivering on public health and service commitments, and closing the year with earnings that surpassed expectations. As we unpacked their 2023 financial results and 2024 guidance during their conference call, the story woven was one of strategic execution, regulatory victories, and responsible growth, affirming their status as a stalwart in the water utility sector.
SJW Group witnessed a year of noteworthy operational advancements, with a 12% customer growth in Texas and a landmark investment of $272 million in capital improvements, highlighting their relentless effort to improve infrastructure. Meanwhile, their financial script portrayed earnings per diluted share of $0.59 for Q4 and $2.68 for the year, favorably besting their forecast. The narrative was slightly marred by the retroactive recognition of San Jose Water Company's general rate case revenue, which influenced quarter-over-quarter variances.
2023 has seen SJW Group lean into strategic investments aimed at bolstering infrastructure resilience and reducing costs, a narrative underpinned by the utilization of AI for predictive asset management in California. Their tech-forward approach has yielded operational cost savings, underscoring their commitment to marrying innovation with utility.
Money matters reveal a tale of borrowings and credit intricacies, with 2023's average borrowing rate surging to 6.29% from 3.41% in 2022. Yet, the company's forward-looking strategies, including a $540 million capital expenditure proposal in California, highlight thoughtful planning for impending operational needs like PFAS treatment and environmental initiatives.
Texas Water, a subsidiary of SJW Group, unveiled its resilience amidst ongoing drought conditions, achieving reduced usage in its service areas due to water conservation efforts. Despite environmental challenges, the company remains buoyant about the future contributions of Texas Water to its consolidated earnings, painting a hopeful picture for investors.
For 2024, SJW Group forecasts net income per diluted share to range between $2.68 to $2.78, aligning with their historical growth rate of 5%-7%. This guidance is steady and considers a blend of financial indicators including a return on equity increase in California and the completed rate case in Maine. Investors should, however, note the exclusion of a one-time release of income tax reserves from the previous year's figures.
Closing the conference, SJW Group reaffirmed their role as a force for good, emphasizing their expansions in recycled water for irrigation as part of their environmental stewardship. This element of the story reflects not just a company that is performing well financially but one that is deeply cognizant of its societal impact and ecological responsibilities.
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Good day, and thank you for standing by. Welcome to the SJW Group 2023 Financial Results Conference Call. [Operator Instructions] Please be advised today's conference is being recorded.I would now like to hand the conference over to one of your speakers today, Andrew Walters, Chief Financial Officer and Treasurer. Please go ahead.
Thank you, Operator. Welcome to the 2023 financial results conference call for the SJW group. I will be presenting today with Eric Thornburg, Chair of the Board, President and Chief Executive 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 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 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. As a reminder, this webcast is being recorded and an archive of the webcast will be available until April 22, 2024. You can access the press release and the webcast at our corporate website.I will now turn the call over to Eric Thornburg. Eric?
Welcome, everyone, and thank you for joining us. My name is Eric Thornburg, and it is my honor to serve as Chair, President and CEO of SJW Group. I'm pleased to share that we had another successful year as our team continues to meet drinking water and environmental standards, deliver on our public health and environmental stewardship commitments, and provide high quality water and exceptional service to customers. We also started and ended our 2023 financial performance on a strong note, delivering value for our shareholders through the continued execution of our proven growth strategy.In 2023, we secured constructive regulatory outcomes across our operations, including the cost of capital decision and the reimplementation of the Water Conservation Memorandum Account in California, Water Infrastructure And Conservation Adjustments in Connecticut, and the settlement of our Biddeford-Saco general rate case in Maine.We achieved 12% customer growth year-over-year in Texas. Since 2006, Texas Water has more than quadrupled in customers through organic growth and strategic acquisitions and today serves more than 28,000 water connections and 950 wastewater connections. We invested $272 million in capital improvements, surpassing our planned expenditures announced at this time last year by $17 million. Thanks to the efforts of our local teams, our investments in drinking water and wastewater infrastructure spanned the replacement of over 47 miles of water mains to water treatment improvements, including a $14 million groundwater treatment facility in East Windsor, Connecticut; upgrades at our Park Shores' surface water treatment facility in Comal County, Texas; construction of an 800,000 gallon storage lagoon in Camden, Maine; and 2 5 million gallon storage tanks in California.We advanced our commitment to reduce operating costs by investing in capital projects that sustainably reduce operating expenses, like our asset management program in California. This program reduces unplanned repairs and maintenance expenses by leveraging technology, including artificial intelligence to predict the failure of an asset and the resulting consequences. And we delivered earnings per diluted share of $0.59 in the fourth quarter and $2.68 for the year, well above our original forecast.In 2024, we will continue to execute on the key elements of our strategy to create meaningful value and drive future earnings growth. We will continue making strategic investments to maintain and improve our water supply and infrastructure and also focus on opportunities that reduce operating expenses. These include advanced leak detection, advanced metering infrastructure that promises to reduce field visits and fleet miles, additional solar generation, battery energy storage systems and expansion of our electric vehicle fleet.We will also see increased capital expenditures to remediate per-and polyfluoroalkyl substances or PFAS. Approximately $230 million is estimated for PFAS treatment. And we remain intensely focused on working with regulators and stakeholders for constructive regulatory outcomes across our operations, such as the recently filed general rate case in California, the ongoing general rate case in Connecticut and the system improvement charge in Texas, which we will discuss later in the call.For now, Andrew will review our financial results and regulatory updates in our state operations. Andrew?
Thank you, Eric. Last evening after the market closed, we released our fourth quarter and 2023 operating results. A couple of items to note. The quarter-over-quarter comparison between the 2023 and 2022 operating results are affected by and reflect the delay in San Jose Water Company's 2022 to 2024 general rate case decision. As a reminder, while the California Public Utilities Commission approved the settlement agreement and San Jose Water Company recorded the authorized revenue increase from the general rate case, in the fourth quarter of 2022, the revenue increase was retroactive to January 1, 2022. This delay in recognizing the revenues authorized in the general rate case affected quarter-over-quarter comparisons in 2023.Also in California, the CPUC authorized reimplementation of the Water Conservation Memorandum Account, or WCMA, and Water Conservation Expense Management Account or WCEMA, in October 2023. These revenue expense protection mechanisms were retroactive to April 20, 2023 and are reflected entirely in the fourth quarter results. We saw reduce water usage in Maine due to wet weather and lower industrial usage and in Texas due to water restrictions because of continuing drought conditions.Now to the results for the quarter. In the fourth quarter, we reported revenue of $171.3 million and net income of $18.9 million or diluted EPS of $0.59 per share. This compares to 2022 quarterly revenue of $171.4 million and net income of $33.5 million or diluted EPS of $1.09 per share. For full year of 2023, we reported revenue of $670.4 million and net income of $85 million or diluted EPS of $2.68 per share. This compares to 2022 revenue of $620.7 million, reflecting an 8% increase in net income of $73.8 million, reflecting a 15% increase or diluted EPS of $2.43 per share, reflecting a 10% increase, which was driven in part by a $0.14 increase due to the partial release of income tax reserves.As you can see, the year-to-date increase in diluted earnings per share for 2023 was primarily driven by rate filings of $1.30 per share in California and Maine as well as the Water Infrastructure and Conservation Adjustment increase in Connecticut that were effective in 2023. Other factors include approximately $0.42 combined split evenly between the partial release of income tax reserves that I mentioned a moment ago, lower maintenance and OII cost, and the impacts of lower customer usage and the WCMA offset. Partially offsetting the increase was higher water supply cost of $0.93, interest expense of $0.23 on short-term and new long-term debt and a nonrecurring $0.17 gain on the sale of nonutility property.Now, a breakdown of the increase in revenue compared to 2022. The revenue increase was mostly driven by $46.5 million in cumulative rate filings and $5.7 million in regulatory mechanisms. The revenue increase was partially offset by a $6.6 million decrease due to lower usage.Turning to our water production expense. There was an increase in water production expense when compared to 2022. The increase was largely driven by $31.8 million in water supply cost primarily related to the rate increase from our water wholesaler, Valley Water in California. Partially offsetting the increase in expenses was a $9.7 million decrease due to lower usage.The 3% increase in total other operating expenses compared to the prior year was primarily driven by a $6.2 million gain on a prior year sale that did not occur in 2023, an increase in the allowance for customer credit losses and the depreciation and amortization. The increase was partially offset by reduced expenses, with a significant portion of this reduction due to San Jose Water Company's continued focus on maturity of the advanced asset management program, which includes infrastructure condition monitoring and assessments, proactive planned asset replacement versus a run-to-failure approach.Additionally, advances in San Jose Water Company's leak detection technology deployed in the field as well as other enhanced leak detection capabilities and our field crews had together enabled the company to detect and repair leaks sooner, avoiding significant costs associated with larger emergency main breaks in the distribution system.Turning to our 2023 financing activity. Approximately $83 million in gross proceeds was raised in 2023 through our at-the-market program, including $5.7 million in the fourth quarter. $50 million was for general corporate purposes and the additional amount was raised for acquisitions that closed in the third quarter. At the end of the year, we had $171.5 million drawn on our $350 million bank lines of credit, leaving $178.5 million available for short-term financing of utility plant additions and operating activities.The average borrowing rate for the line of credit advances during 2023 was approximately 6.29%. Average borrowing rate in 2022 was approximately 3.41%. The effective consolidated income tax rates for 2023 and 2022 were approximately 7% and 10%, respectively.Turning to the California update. On January 2, 2024, the San Jose Water Company filed a general rate case application with the California Public Utilities Commission that will set rates for 2025 through 2027. The application proposes a 3-year $540 million capital expenditure program that addresses several key needs, including treating PFAS, which Eric mentioned earlier; to meet drinking water standards being finalized by the U.S. EPA; reducing greenhouse gas emissions through solar generation; energy storage systems to replace diesel generators; fleet electrification and advanced acoustic leak detection; plus advancing the CPUC's environmental and social justice action plan to improve access to high-quality water service; climate resiliency; and economic and workforce development.As of January 1, 2024, San Jose Water Company has the benefit of a group insurance balancing account. The purpose of the account is to capture the difference between authorized and actual medical, dental and opt-out insurance cost. This is yet another regulatory mechanism that helps us to manage this escalating and unpredictable expense.The 2024 cost of capital mechanism adjustment was effective on January 1, 2024. It was triggered by a 140-basis point increase in Moody's Aa bond index between October 1, 2022 and September 30, 2023.The return on equity is now 10.01%, less a 20-basis point reduction due to the reimplementation of the Water Conservation Memorandum Account for the authorized -- for an authorized ROE of 9.81%. The cost of debt is 5.28% and the authorized rate of return is 7.75%.On February 2, 2024, San Jose Water Company along with 3 other Class A California water utilities received approval from the CPUC for a 1-year deferment in the 2024 cost of capital filing. With this decision, the CPUC extended the initial filing deadline from May 1, 2024 to May 1, 2025, to help alleviate administrative processing costs for both the water utilities and the CPUC staff. The approved deferral includes a provision that the water cost of capital mechanisms remain in place for 2025 and allows it to adjust up or down in accordance with the movement of 100 basis points or more in the Moody's Aa bond index between October 1, 2023 and September 30, 2024.You may recall our advanced metering infrastructure project was authorized by the CPUC in 2022. We're planning to invest approximately $29 million in the AMI project in 2024. This is approximately $100 million project that is separate from the general rate case capital budget, and the majority of the installation is expected between 2024 and 2026.Turning to Connecticut. In Connecticut, we recently concluded the evidentiary hearings in our general rate case that was filed with the Connecticut Public Utility Regulatory Authority in October 2023. Our request is for a $21.4 million or 18.1% increase in annual revenues, approximately 2/3 of the requested rate increases related to infrastructure investments.The application also includes a proposal for expanding our low-income water rate assistance program, also known as RAP, for income-eligible customers. We were in the -- we were the first water utility in the state to offer this type of program. And in 2023, we provided more than $70,000 in customer assistance through RAP. We are hopeful that PURA will authorize our request of expansion of this important program.We expect a decision on the Connecticut general rate case at the end of June, with any approved revenue increase to be effective on or about July 1, 2024. The decision is not expected to be a significant driver of our 2024 financial results. PURA approved a 1.19% increase in Water Infrastructure and Conservation Adjustment that was effective on October 1, 2023. The increase is generating approximately $1.3 million in annualized revenues.Last March, we filed our general rate case in Maine Water Company's Biddeford-Sacco Division, requesting a $2.9 million increase in annualized revenues to cover the operating expenses and increased borrowing costs from constructing the new Saco River Water Resource Center. The Maine Public Utilities Commission authorized a temporary rate increase in August of 2023 while the general rate case was being processed.On January 5, 2024, the Maine Public Utility Commission approved a stipulation agreement between Maine Water and the Office of Public Advocate on our general rate case. Provisions of the approved stipulation agreement include Maine Water's annualized revenue increase of $2.6 million effective January 1, 2024. The return on equity for Biddeford-Saco Division and for future filings of water infrastructure charges or WISC filings statewide is now 9.5% with an assumed 51% equity and 49% debt capital structure.There's a general rate case stay-out provision with the Biddeford-Saco Division through January 1, 2027. The stay-out does not include WISC filings.Maine Water expects a decision in the first quarter of 2024 on its WISC filing to recover $1.7 million in completed infrastructure investments in Camden and Rockland divisions. If approved, as requested, it would generate $158,000 in annualized revenues.As Eric mentioned at the top of the call, we have seen accelerated growth in Texas and the momentum continues. In just the past year, we have seen increasing developer interest in our Texas service area as outstanding development units with the potential for new connections increased 47% to 22,000 units today. That's not surprising as Texas Water currently serves 3 of the 5 fastest-growing counties in the United States according to the U.S. Census Bureau.With more than 28,000 water connections, 950 wastewater connections in the area between Austin and San Antonio, the company has quadrupled its service connection since 2006, and we intend to continue this momentum through prudent acquisitions, organic growth and securing strategic water resources such as the supply we acquired in the third quarter.In January, we filed an application with the Public Utility Commission of Texas to acquire the 3009 Water Company in Comal County that serves approximately 270 water connections. On February 13, we received a proposed order from the Public Utility Commission of Texas on our application for a system improvement charge in Texas. The proposed order authorized Texas Water to add certain utility plant additions made since 2020 to its rate base, thereby increase revenue and avoiding a general rate case in 2024. Our system improvement charge filing in December 2022 projected an annualized revenue increase of $1.6 million with 1 year of the PUC -- within 1 year of the PUCT's approval. Our final order is expected as early as March 7, 2024.We have seen some recent improvement in the drought conditions in Texas, though the U.S. Drought Monitor continues to classify our service areas as being in a state of moderate to extreme drought. Most of our service area is classified as Stage 2 or Stage 3 drought conditions, while a smaller portion is in the most severe Stage 4 drought condition. We are targeting voluntary water use reductions that vary based on drought stage. Overall, we've seen reduced usage in this service area compared to 2022 due to the drought.With a diverse portfolio of water supplies, a growing wastewater business and continued acquisitions to the customer base through organic growth and acquisitions, we are very pleased with Texas Water's increased contributions to our consolidated earnings and remain optimistic about its prospects.We're announcing our 2024 guidance of $2.68 to $2.78 of net income per diluted share, which is consistent with our nonlinear long-term growth rate of 5% to 7%. Equity issuance of $55 million to $65 million, excluding acquisition growth to support a strong capital investment program. We maintain our 5-year capital investment outlook of $1.6 billion, which includes approximately $230 million in estimated PFAS remediation based on the EPA's proposed maximum contaminant levels.The factors underlying our 2024 guidance include a return on equity increase in California from 9.31% to 9.81% net of the 20 basis points and reimplementation of WCMA, which is effective already as of January 1, 2024; the impact of the already completed Biddeford-Saco rate case with a 9.5% ROE and 51% equity, 49% debt capital structure effective January 1, 2024; as well as constructive regulatory decisions on current and prospective regulatory filings. This includes strategic reinvestments in the business in 2024. And the guidance range is consistent with our long-term growth rate.Further, we reaffirm our stated long-term growth rate of 5% to 7% that is anchored off our 2022 diluted earnings per share of $2.43, which is a nonlinear because of rate case cycles. As investors consider our 2024 guidance, it's important to note that, as we mentioned earlier, there was a onetime release of $0.14 related to income tax reserves in 2023.With that, I will turn the call over to Eric.
Thank you, Andrew. Our 2024 planned capital expenditures are $332 million across all 4 of our state operations, which includes the $29 million budgeted for advanced metering infrastructure in California. Approximately 65% of our annual capital budget will be recovered through preapproved projects and infrastructure recovery mechanisms. Approximately 1/3 of our 2024 budgeted capital expenditures or nearly $114 million is targeted to water main replacement. This investment is vital to our principled approach of replacing 1% of transmission and distribution mains each year.Other projects commencing or scheduled for completion in 2024 reflect our commitment to invest in new or replacement treatment and storage systems that are designed and constructed to be more energy efficient and to meet changing operational challenges, including climate change. These projects include a multiyear pipeline project to bring new water supply from the recently acquired KT Water Resources to our customers in Texas, a water storage project at our Cambrian Station in California. Two 8.3 million gallon tanks will be constructed to replace aging storage reservoirs that date back as far as 1890. This multiyear project will enhance water quality, conserve water and have lower maintenance costs.In Connecticut, work has started on a new groundwater treatment facility in Southbury. This is a new facility to remove iron and manganese that has caused episodes of discolored water for decades. Since Connecticut Water acquired the system in 2017, we have been aggressively addressing the issue by optimizing water treatment and replacing water mains, but the treatment facility is necessary to achieve an efficient long-term solution.In Maine, we're preparing this year for the construction of a solar array at our award-winning Saco River Drinking Water Resource Center in Biddeford. Solar generation has always been a part of the design plan, but the local electric utility infrastructure first needed updating. Our on-site solar generation will produce enough power to meet 100% of the Resource Center's energy needs as early as 2025. Additional solar generation in 2024 is also planned in California and Connecticut.San Jose Water Company is also expanding the availability of recycled water for irrigation use. Approximately, 2 miles of pipe will bring up to 440-acre feet of recycled water per year to a nearby golf course, schools and parks. The potable water saved through the use of recycled water for irrigation is enough to meet the needs of more than 8,000 people daily.One of the ways we measure our impact and success as a company is how have we been a force for good. We use our core values to help us deliver benefits to our customers, local communities, employees and the environment. For example, employee safety is paramount. Our teams work diligently to ensure our people are trained and equipped to safely do their jobs.In Connecticut, we were awarded the Connecticut Construction Industries Association Safety Award for the 20th straight year. While this is a great achievement, we're continually assessing how can we improve our best-in-class safety standards across our operations.Also, as I've mentioned before, we're a better utility because of our employees' talent and hard work. So being recognized as an employer of choice is a top priority.Across SJW Group, our Good Place to Work Index as measured by an independent third-party survey of our employees is at world-class levels. As a company, we recognize the breadth and richness of perspective that we gain by having diverse teams and partners. SJW Group has a gender-balanced board, something only 12% of Russell 3000 companies can claim. And in 2023, we spent $63 million or approximately 21% of our addressable spend with diverse suppliers.I'm also proud to share that we've received recognition for our efforts. We were recognized for our watershed stewardship in California by the National Association of Clean Water Agencies. We received an A rating from MSCI for our work on ESG matters. And our company was the highest ranked utility in the prestigious Newsweek Excellence 1000 Index for 2024. Inclusion in the index is for exemplars of corporate excellence with a firm commitment to best practices in business and financial growth while also serving customers, stakeholders and communities with a dedication to social responsibility and ethical standards. It's a testament to the values of our company and our work to be a meaningful force for good.I can't say it enough, but our people make the difference at SJW Group. They make us a better utility. Every year, every quarter, every day, I continue to be inspired by the contributions of our talented teams across our national footprint as they consistently provide an essential service with integrity, reliability and peace of mind for our customers. I'm confident our team's commitment to serving customers, our local communities and the environment while creating value for shareholders will continue to reinforce our strong position for a successful future.And with that, I will turn the call back over to the operator.
[Operator Instructions] And our first question is going to come from the line of Agnieszka Storozynski with Seaport.
I have to start with a question about Connecticut. I mean, it's been almost, what, 6 years when you guys were approached -- well, Connecticut Water was approached by Eversource. Now, Eversource is selling Aquarion. Just wonder how you guys see this asset. I remember back in 2018, Eversource was talking about the complementary nature of the service territories of both Aquarion and Connecticut Water. That should not have changed. The regulatory setup has changed, however. And I'm just wondering if you can comment at all about how you see Aquarion.
Candidly, I really out an abundance of respect for Eversource and Aquarion and particularly the employees of Aquarion who have been through a lot of sales over the years, I'll not comment specifically on this process. But as you know, we've got a real proven growth strategy focused on investing capital and making acquisitions that create shareholder value. And you have our commitment that we'll continue to evaluate and assess all potential growth opportunities that would create shareholder value.But we won't pursue growth just for growth's sake. I think it's very important to be disciplined in that. And that would be the case here as well. So we'll have more to say in the future. But for now, we'll have to leave it at that.
Okay. So maybe a little bit more about your pending rate case in Connecticut. I understand that the final decision is due in June. But we've seen some very weak regulatory decisions on the electric and gas side, also on the water side for Aquarion. So I'm just wondering if at this stage you can comment how you think the current rate case is going. And again, not a very big driver of earnings, at least not this year, but again, any comment about how it's been proceeding.
Yes, absolutely. I'll start and I'll allow Andrew to contribute as well, of course. I'm super proud of our team. I mean, I think -- looking back at some of the recent decisions with energy utilities and then Aquarion Water, of course, we really studied that and learned and completely reimagined our rate process filing. And if you tuned into any one of those hearings, I'm proud to say you would have seen a team that was really engaged and making every attempt to be transparent and honorable and to provide the commission the information that they need to make the decision.And so, I remain very optimistic that we will have a fair result that will be capital attractive and constructive. And certainly, we're going to find out more in May and July. But really proud of the team.And I'll go back. I mean, we've worked collaboratively with the public advocate's office and the commission and commission -- the authority staff to pass such things as the Water Infrastructure Conservation Adjustment. We have full decoupling there. We still have a 270-day statutory period to get rates. So there's a lot of really capital supportive regulatory tools. But it's clear we've had a bit of a rough patch as utilities in the past year or so, but we're committed to continue to work with all parties to make it as constructive as we possibly can for our shareholders and customers.So bottom line, I am optimistic and feel very good about my team and what we put forth in our rate filing. Andrew, did I fail to mention anything there?
Eric, I think you covered it very well, and I don't have anything to add to that.
But Andrew, can you add a little bit more maybe about -- when you mentioned your guidance for '24, there's like a reinvestment, right? I don't know how much this is exactly. And I'm assuming that, that's somewhat of a drag on the '24 guidance. Is it pulling forward some expenses from '25? I mean, what is it? And then if we could quantify the size of this.
Yes. I can't quantify the size off the top of my head for this call, nor will I in the future. But what I can do is talk about the types of items that you've asked the question on. So these are items that will help us strategically position ourselves for additional future growth. They can be things that help from a staff training position to things that will allow us to invest in other infrastructure and items that will help us reduce costs in the future. So they are meant to be investments that will help us produce better results in the future.
And our next question is going to come from the line of Jonathan Reeder with Wells Fargo Securities.
But can you remind us how Connecticut Water's CapEx budget that was outlined in the pending GRC actually gets factored into PURA's final order? I know it's not like California where the CPUC actually approves a 3-year CapEx budget as part of the GRC process there. But will PURA indicate what level of spend over that period it believes is appropriate?
Jonathan, I think -- PURA in the past while they might give us some comments in general, it is definitely not the same as California where there's a specific approval process. But we do -- in the interaction with staff and with the commissioners can from time to time receive some guidance as to where they may see some challenges in the future. But typically, it's not focused on that. It's really focused on what we have invested and whether that is a prudent use of our customers' money that they invest with us or provide to us.
Okay. And then maybe asking the Aquarion question a little differently. But just given the challenges in the Connecticut regulatory environment right now, is that a state where SJW would want to increase exposure versus Texas where growth is high, or potentially entering a new state?
Yes. A fair question. And again, I'll not comment specifically on the opportunity and the process as it's yet not completely defined and -- but we do take a long-term view of constructive regulatory shaping and investment. And so, we'll evaluate it very carefully once we understand fully the process. And -- but that's all I have to say today, Jonathan.
[Operator Instructions] And our next question comes from the line of Roger Liddell with Clear Harbor Asset Management.
I'm delighted to get a report as good as this. You know, Eric, particularly how long I've been concerned about the PFAS issues and other contaminants. But PFAS is as good as it comes in terms of the signal of -- or the damage of ignoring these things.So my concern is that generally across the country we're seeing blowback -- I think more blowback on large rate requests than I can recall for a number of years. Maybe it's selective amnesia. And here are large numbers, the $110 million in California is one thing, $120 million in Connecticut. By the way, Maine has had dreadful PFAS contamination issues. Perhaps it's not in the Biddeford-Saco area or your other service territory. So that's why it isn't mentioned.But anyway, big bucks in play. And the blowback to me just seems in most cases remarkably uninformed by the benefits, the life cycle cost versus the first cost kinds of arguments. So is there anything that you feel the shareholder-owned companies in particular, but the industry can do more in terms of awakening the public to the return on investment in PFAS removal or control? There is going to be a big health payback, but it isn't right away. So what can be done?
Yes. And you're right. You and I have spoken about this for many years. I think the biggest sea change is finally EPA has stepped forward with a proposed regulatory standard. Candidly, up until that point while many people wanted it resolved from a regulatory risk standpoint, a lot of commissions were concerned about, "Well, why should we approve a rate increase, add cost to customers when there's, in fact, no standard for this contaminant? There's not even completed health studies by EPA."And so now that, that process is well underway, we have a proposed standard. We expect that to get promulgated in final form. Boy, then that really sets the stage. And in our conversations with regulators, there's real alignment around, "Hey, we need to get this done and get it done fast." And it is a very aggressive time table. Once that's promulgated, we have 3 years to complete treatment.We've taken many wells off-line that are above certain action levels. But we do have a lot of construction work to get accomplished over the next 3 years to completely resolve and remediate this thing.I will add that in Maine we've been very fortunate in all the testing. The detailed testing we've done among -- across all of our sources there, we're fortunate so far not to have any PFAS hits of any substance. We do operate a utility under contract part of our management services agreement that does have a bit of an issue. So we'll work with them to help resolve that. But we're committed to getting this done and behind us.And as you -- as well we've disclosed we also participate in the class action suit against the 3Ms and the DuPonts to help so that any cost we recover in that process, which, frankly, we don't expect it to be big -- fully -- anywhere close to fully recovering our costs. But whatever we do get, we'll flow that back for the benefit of our customers, of course, to try to mitigate the rate impacts of it. But I appreciate your question and your interest and support in this important topic.
And I'm showing no further questions at this time. And I would like to turn the conference back over to Eric Thornburg, Chief Executive Officer, for any further remarks.
Thank you, operator, and thank you all of you who are participating in today's call. We really appreciate your interest in and support of our organization and our people. And if we can be of service to you in the future, please reach out to Andrew Walters or Dan Meaney or myself and we look forward to our next engagement. Thank you so much. Take care.
This concludes today's conference call. Thank you for participating. You may now disconnect.