California Water Service Group
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During 2005, administrative
and general expenses increased $1.6 million, or 3.4%, compared to 2004.
Payroll expense charged to administrative and general expense remained
constant due to a decrease in the number of employees offset by higher
wages. Employee/retiree health care costs increased $1.6 million, or
19%, due to increased medical claims. The Company is self-insured and
experienced several large-dollar medical claims (claims over $200,000),
which primarily caused the increase. Increases in other costs, including
legal and outside services, were substantially offset by a decrease in
workers’ compensation of $1.1 million, which was due to fewer claims and
a refund from the Company’s stop-loss insurance carrier. During 2004, administrative and general expenses increased $6.1 million, or 15%, compared to 2003. Payroll expense charged to administrative and general expense increased $1.0 million, or 13%, due to the addition of new employees and wage increases. Employee benefits increased $1.4 million, due primarily to increases in employee/retiree health care expenses. The Company also experienced higher costs for workers’ compensation, general liability claims, and insurance premiums, which increased $1.3 million, or 40%. Higher expenses were incurred to comply with Sarbanes-Oxley Section 404 on internal controls, which increased expenses by $0.9 million for consultants and auditors. Fees to the CPUC increased $0.5 million due to the increased revenue, as these fees are calculated as a percentage of revenue. Other expense elements contributed to the balance of the change, but none were individually significant. Other Operations Expenses The components of other operations expenses include payroll, material and supplies, and contract services costs of operating the regulated water systems, including the costs associated with water transmission and distribution, pumping, water quality, meter reading, billing, and operations of district offices. For 2005, other operating expenses increased $0.1 million, or 0.2%, from 2004. Payroll costs charged to other operating expenses increased $0.7 million, or 2.2%, due to general wage increases. Expenses were offset by a decrease of $0.5 million, or 64%, for changing the process for disposing of by-products for the Bakersfield Treatment Plant. Other expense elements contributed to the balance of the change, but none were individually significant. For 2004, other operating expenses increased $2.5 million, or 7%, from 2003. Payroll costs charged to other operating expenses increased $1.3 million, or 6%, due to general wage increases and increases in the number of employees. Other major cost increases were operations of the Bakersfield Treatment Plant of $0.6 million and additional lease cost of $0.4 million for the City of Commerce operation. Other expense elements contributed to the balance of the change, but none were individually significant. Maintenance Maintenance expenses increased $2.0 million, or 15%, in 2005 compared to 2004. For 2004, maintenance expenses increased $0.5 million, or 4%, compared to 2003. In 2005, maintenance expense increased due to repairs of water treatment equipment, water main, and wells. In 2004, expenses increased primarily for service line repairs, which are pipes from the main to the meter box. Depreciation and Amortization Depreciation and amortization increased due to the level of Company-funded capital expenditures and a higher depreciation rate authorized by the CPUC. Income Taxes For 2005, income taxes increased $2.9 million. The significant items include provision for taxes on gain on sale of non-utility properties of $0.9 million, provision for taxes on increased income from operations of $0.5 million, and $0.7 million for the reversal of federal tax depreciation on pre-1982 assets, which was previously flowed-through to ratepayers. The Company anticipates the reversal of federal tax depreciation on pre-1982 assets to continue in future years; however, its effect on the Company’s tax provision is uncertain due to the offsetting flow-through of state tax depreciation, which continues to increase with capital additions. Property and Other Taxes For 2005, expenses increased $1.1 million, or 10%, compared to 2004. For 2004, expenses increased $1.0 million, or 9%. Increased property taxes were the primary cause for the increase in both years. Non-Regulated Income, Net The major components of non-regulated income are revenue and operating expenses related to the following activities: operating and maintenance services (O&M), meter reading and billing services, antenna site leases, water rights brokering, and design and construction services. For 2005, non-regulated income increased $0.5 million, or 18%, compared to 2004, with increases primarily from O&M contracts, antenna site leases, and reduced expenses related to business development. For 2004, non-regulated income increased compared to 2003, with increases primarily from O&M and antenna site leases offset by decreases in water rights brokerage income. Water rights brokerage income is sporadic and is affected by market opportunities and price volatility. See Note 3 of the Notes to Consolidated Financial Statements for additional information. Gain on Sale of Non-Utility Property For 2005, pretax gains from non-utility property sales were $2.2 million compared to insignificant gains in 2004. The 2005 gains were primarily from three properties sold in the Los Altos and Chico districts. |
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