| Dear Fellow Stockholder: | |
| Isn’t it great to be part of a company that provides a product that is essential to life? Our bodies are 50-70% water, and we couldn’t live without it. But it not only sustains us; it is also used to make many things that give us comfort and pleasure in life, from hot chicken noodle soup to ice-cold sun tea. We hope you will enjoy the family recipes provided here by our employees, all of which feature water, life’s key ingredient. | |
| Our Recipe for Success | |
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While our employees have been
cooking up good things at home, they have also been following the Company’s
recipe for success at work. It is a basic recipe, like most family
favorites, calling for just the right combination of prudent fiscal
management, excellent customer service, persistent regulatory affairs
management, and strategic growth. By following this time-tested recipe, we posted improved results for 2005. Our net income increased to $27.2 million, up from the $26.0 million posted in 2004, and our earnings per share rose to $1.47, up from $1.46 in the prior year. Revenue was up 2% to $320.7 million, with rate increases adding $12.2 million and sales to new customers adding $3.8 million. And, in January 2006, our Board declared the Company’s 61st consecutive annual dividend, increasing it for the 39th consecutive year to $1.15 per share. |
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| Too Much Rain Can Water Down the Recipe, So Adjust Accordingly | |
| While rate increases and sales to new customers added to 2005 revenues, revenues from sales to existing customers decreased by $10.9 million, due largely to record-setting rains in California in the first half of the year. Success in the water industry boils down to a few things, and customer water usage is one of them. In our 2005 General Rate Case filings, we proposed an innovative rate adjustment mechanism that would allow us to promote conservation more aggressively. Based upon the Water Action Plan recently issued by the California Public Utilities Commission (CPUC), we have reason to believe that our proposal will be given serious consideration. If adopted, it will lessen the impact that water usage variations have on our financial results. Until then, however, we will strive to offset earnings fluctuations from conservation and weather by achieving positive results in the other areas that drive financial performance: fiscal management, regulatory treatment, and growth. | |
| Know When to Invest in Your Appliances, and When to Tighten Your Apron Strings | |
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At California Water Service
Group, we cannot manage the weather, but we can manage our resources. For
us, that means operating efficiently and investing wisely in our water
systems. In 2005, total operating expense increased just 3%, despite the fact that maintenance demands and resulting costs for repairing wells, water mains, and water treatment equipment were up 15%. We believe that we must be diligent in our maintenance programs in order to provide the reliable water service that our customers deserve and expect. While we cannot and do not cut corners on programs that are necessary for maintaining high levels of service and water quality, we are ever-mindful of the need to operate efficiently and spend cautiously. We spent $78 million on capital improvements in 2005, part of which was needed to meet the United States Environmental Protection Agency’s new standard for arsenic that became effective in January of this year. We have budgeted $85 million for capital improvements in 2006. |
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