California Water Service Group
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The business can also be
impacted by weather. Weather risk is partially mitigated by having
operations in both northern and southern California, as well as in three
other states. Another risk in the water industry is obtaining adequate
financing, as the capital expenditures needed for infrastructure
replacements and improvements may significantly exceed the cash flow
generated by operations. Management believes that the Company has a
strong balance sheet and is capable of supporting the financing needs of
the business through use of debt and equity. Finally, the water industry
is highly regulated and must comply with a multitude of standards
related to water quality and service. To address the compliance issues,
the Company has a highly trained, focused team that uses
state-of-the-art technology and works closely with government agencies
to monitor supplies and operations. For 2005, net income was $27.2 million compared to $26.0 million in 2004, an increase of 4.6%. Diluted earnings per share for 2005 were $1.47 compared to $1.46 in 2004, an increase of 0.7%. The increase in earnings per share was primarily due to higher rates approved by the Commissions, sales to new customers, and increased gains from property sales. Partially offsetting increasedearnings were decreased sales to existing customers due to wetter than normal weather conditions, higher maintenance costs, higher depreciation, higher income taxes, and the dilutive effect of having more weighted average shares outstanding than the prior year. The Company plans to continue to seek additional rate increases to recover its operating cost increases and receive reasonable returns on invested capital. For each of the five years subsequent to 2005, capital expenditures are expected to continue to increase generally at the same rate as inflation and remain at much higher levels than depreciation expense. Cash from operations is not expected to be sufficient to fund the cash needs of the Company (capital expenditures, dividends, and other cash requirements); therefore, the Company expects to fund anticipated cash shortfalls through a combination of debt and common stock offerings in the next five years. In 2005 and 2004, the Company received many different types of rate increases, some of which were temporary in nature. As such, the growth in earnings due solely to rate relief in 2005 and 2004 is not expected to recur in 2006. A significant factor in 2006 affecting earnings will be the timing and the amount of the General Rate Case (GRC) filings that are expected to be approved in the second quarter of 2006. See the “Rates and Regulation” section of this report for more information on regulatory activity occurring in 2004, 2005, and through February 21, 2006. |
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California Water Service
Group is a holding company incorporated in Delaware with five operating
subsidiaries: California Water Service Company (Cal Water), CWS Utility
Services (Utility Services), New Mexico Water Service Company (New
Mexico Water), Washington Water Service Company (Washington Water), and
Hawaii Water Service Company, Inc. (Hawaii Water). Cal Water, New Mexico
Water, Washington Water, and Hawaii Water are regulated public
utilities. The regulated utility entities also provide some nonregulated
services. Utility Services provides non-regulated water operations and
related services to private companies and municipalities. California water operations are conducted by Cal Water and Utility Services, which serve 456,674 customers in 75 California communities through 26 separate districts. Of these 26 districts, 24 districts are regulated water systems, subject to regulation by the California Public Utilities Commission (CPUC). The other two districts, the City of Hawthorne and the City of Commerce, are governed through their respective city councils and are considered non-regulated because they are outside of the CPUC’s jurisdiction. Their activities are reflected in operating revenue and operating costs, as the risks and rewards of these operations are similar to those of the regulated activities. California water operations account for 95% of the total customers and 96% of the total operating revenue. Washington Water provides domestic water service to 15,311 customers in the Tacoma and Olympia areas. Washington Water’s utility operations are regulated by the Washington Utilities and Transportation Commission. Washington Water accounts for 3% of the total customers and 2% of the total operating revenue. New Mexico Water provides service to 6,480 water and wastewater customers in the Belen, Los Lunas, and Elephant Butte areas in New Mexico. Its regulated operations are subject to the jurisdiction of the New Mexico Public Regulation Commission. New Mexico Water accounts for 1% of the total customers and 1% of the total operating revenue. Hawaii Water provides water service to 537 customers on the island of Maui, including several large resorts and condominium complexes. Its regulated operations are subject to the jurisdiction of the Hawaii Public Utilities Commission. Hawaii Water accounts for less than 1% of the total customers and 1% of the total operating revenue. Other non-regulated activities consist primarily of operating water systems owned by other entities; providing meter reading and billing services; leasing communication antenna sites on the Company’s properties; operating recycled water systems; providing brokerage services for water rights; providing lab services; selling non-utility property; and ESP. |
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