California Water Service Group
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The Company expects to use
all its contracted amount of water in its operations every year. In
addition, if the Company were to pay for and receive additional amounts
of water due to a default of another participating party, the Company
believes it could use this additional water in its operations without
incurring substantial incremental cost increases. If additional treated
water is available, all parties have an option to purchase this additional treated water, subject to the Agency’s right to allocate the water among the parties. The total obligation of all parties, excluding the Company, is approximately $108 million to the Agency. Based on the creditworthiness of the other participants, which are government entities, it is believed to be highly unlikely that the Company would be required to assume any other party’s obligations under the contract due to its default. In the event of default by a party, the Company would receive entitlement to the additional water for assuming the additional obligation. Once the project is complete, the Company is obligated to pay a Capital Facilities Charge and a Treated Water Charge that together total $4.7 million annually, which equates to $231 per acre-foot. Annual payments of $2.0 million for the Capital Facilities Charge will begin when the Agency issues bonds to fund the project. Some of the Treated Water Charge of $2.8 million is expected to begin July 1, 2007, when a portion of the planned capacity is expected to be available. The expanded water treatment plant is expected to be at full capacity by July 1, 2008, and at that time, the full annual payments of $4.7 million would be made and continue through the term of the agreement. Once treated water is being delivered, the Company will also be obligated for its portion of the operating costs; that portion is currently estimated to be $69 per acre-foot. The actual amount will vary due to variations from estimates, inflation, and other changes in the cost structure. The Company’s overall estimated cost of $300 per acre-foot is less than the estimated cost of procuring untreated water (assuming water rights could be obtained) and then providing treatment. Capital Requirements Capital requirements consist primarily of new construction expenditures for expanding and replacing utility plant facilities and the acquisition of water systems. They also include refunds of Advances for Construction. Company-funded utility plant expenditures were $77.6 million, $50.4 million, and $53.9 million in 2005, 2004, and 2003, respectively. A majority of capital expenditures was associated with mains and water treatment equipment. For 2006, Company-funded capital expenditures are budgeted at approximately $85 million. The 2006 capital budget is the same as the 2005 capital budget. For the years 2006 through 2010, capital expenditures are estimated at $75-$85 million per year, and will be primarily for mains, related water distribution equipment, water quality equipment, and pumping. Other capital expenditures are funded through developer Advances and Contributions in Aid of Construction (non-Company funded). The expenditure amounts were $16.9 million, $18.2 million, and $20.4 million in 2005, 2004, and 2003, respectively. The changes from year to year reflect expansion projects by developers in our service areas. Management expects the Company to incur non-Company funded expenditures in 2006. These expenditures will be financed by developers through refundable Advances for Construction and non-refundable Contributions in Aid of Construction. Developers are required to deposit the cost of a water construction project with the Company prior to our commencing construction work, or the developers may construct the facilities themselves and deed the completed facilities to the Company. Funds are generally received in advance of incurring costs for these projects. Advances are normally refunded over a 40-year period without interest. Future payments for Advances received are listed under contractual obligations above. Because non-Company-funded construction activity is solely at the discretion of developers, management cannot predict the level of future activity. The cash flow impact is expected to be minor due to the structure of the arrangements. Capital Structure In 2005, common stockholders’ equity increased by $6.3 million, due primarily to an increase in retained earnings. In 2004, common stockholders’ equity increased $43.1 million, or 18%, due primarily to earnings and the issuance of new shares of common stock. The long-term debt decreased by $0.7 million, due primarily to sinking fund payments. See the “Long-Term Financing” section above for additional information. Total capitalization at December 31, 2005 was $571.5 million and at December 31, 2004 was $565.9 million. The Company intends to issue common stock and long-term debt to maintain the Company’s current capitalization structure, taking into account reinvestment of earnings above dividends. At December 31, capitalization ratios were: |
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Download the 2005 Annual Report
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