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EX-99.2 - EX-99.2 - CALIFORNIA WATER SERVICE GROUPa17-7031_1ex99d2.htm
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Exhibit 99.1

 

NEWS RELEASE

 

CALIFORNIA WATER SERVICE GROUP

 

 

1720 North First Street

San Jose, CA 95112-4598

February 23, 2017

for immediate release

 

 

 

Contact:

Tom Smegal (408) 367-8200 (analysts)

Shannon Dean (408) 367-8243 (media)

 

 

CALIFORNIA WATER SERVICE GROUP ANNOUNCES

EARNINGS FOR YEAR-END AND FOURTH QUARTER 2016

 

SAN JOSE, CA - California Water Service Group (NYSE: CWT) today announced net income of $48.7 million and diluted earnings per share of $1.01 for 2016, compared to net income of $45.0 million and earnings per share of $0.94 in 2015.

 

The $3.7 million increase in net income was primarily a result of a $2.8 million net resolution of several regulatory memorandum and balancing accounts in the California Water Service Company (Cal Water) 2015 General Rate Case (GRC) settlement agreement, a $1.9 million increase from the recovery of prior years’ incremental drought program costs, a resolution of litigation proceeds in the GRC settlement agreement, and a $1.7 million increase in estimated unbilled revenue in 2016.  These increases were partially offset by

 



 

increases in other operations expense, which included a GRC settlement agreement to write-off $3.2 million associated with a cancelled water supply project in Bakersfield which was recognized in the third quarter, increases in depreciation and amortization, maintenance, property tax, employee wage, and net interest expenses.

 

“Although 2016 was one of the more challenging years in the Company’s recent history, we achieved many successes,” said President and Chief Executive Officer Martin A. Kropelnicki.

 

“The Company’s key accomplishments included partnering with customers to achieve significant water savings during the California drought; responding effectively to the Erskine fire in Kern River Valley; investing a record $228.9 million to improve and upgrade critical water system infrastructure; increasing the dividend by three percent, which was our 49th consecutive annual increase; and being ranked highest in overall satisfaction among water utilities in the western United States in J.D. Powers’ inaugural water utility residential customer satisfaction survey.

 

“We ended 2016 with the CPUC’s timely approval of our 2015 General Rate Case. The parties involved worked diligently in drafting

 



 

a fair and reasonable settlement. The authorizations in the GRC, including $658.8 million of capital investment over three years, ensure we can continue improving the quality of life for customers and communities we serve,” he said.

 

Additional Financial Results for 2016

 

Total revenue increased 3.6% to $609.4 million in 2016 compared to $588.4 million in 2015, primarily due to rate increases to offset increases in purchased water quantities and wholesale water rates.

 

Total operating expenses increased $16.0 million, or 3.1%, to $533.2 million in 2016 compared to the prior year.

 

Water production expenses increased $12.1 million, or 5.8 %, to $220.0 million in 2016, primarily due to increases in purchased water quantities and higher wholesale water rates.  As designed, the California revenue decoupling mechanisms record an increase to revenue equal to the increase in California water production costs.

 

Administrative & general and other operations expenses decreased slightly to $178.6 million in 2016, primarily due to decreases in employee benefit costs, incremental drought program expenses, and a decrease in uninsured loss costs. These cost

 



 

decreases were partially offset by an increase in costs associated with the realization of operating revenue that was deferred in prior years, a third-quarter write-off of $3.2 million of capital costs, increases in conservation program costs, and employee wages. Changes in employee pension benefits, employee and retiree medical costs, and water conservation program costs for regulated California operations generally do not affect earnings, as the Company is allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

 

Incremental California drought program operating expenses were approximately $4.3 million in 2016, the same as in 2015.  These expenses were included in administrative & general, other operations, and maintenance expenses. Further, all incremental drought costs are recorded in a CPUC authorized memorandum account that is recoverable after CPUC reasonableness review and approval.

 

Maintenance expenses increased $1.5 million, or 7.1%, to $23.0 million in 2016, due to increased costs for repairs of reservoirs, tanks, and services.

 



 

Income taxes increased $0.3 million, or 1.1%, to $24.8 million in 2016, due primarily to an increase in net operating income which was partially offset by an increase in the tax benefit from the flow through method of accounting for “repairs” deductions on the Company’s state income tax filings. The estimated effective tax rate for 2016 is 35.5%.

 

Other income, net of income taxes, increased $1.9 million in 2016, due primarily to the recognition of $1.5 million of litigation proceeds approved in the Cal Water 2015 GRC settlement agreement and an unrealized gain on our benefit plan insurance investments.

 

Fourth Quarter 2016 Results

 

For the fourth quarter of 2016, net income increased $6.6 million, or 78.0%, to $15.1 million, and diluted earnings per share increased $0.13, or 72.2%, to $0.31 per diluted share compared to the fourth quarter of 2015.  The increase in net income was due primarily to increases from the resolution of several regulatory memorandum and balancing accounts in the Cal Water 2015 GRC settlement agreement, CPUC authorization to recover prior year incremental drought program costs, and an increase in other income

 



 

in 2016.  These increases were partially offset by increases in other operations, depreciation and amortization, property tax, and net interest expenses.

 

Revenue for the fourth quarter increased $12.5 million, or 9.0%, to $150.9 million mostly due to rate increases and changes to various balancing accounts which were authorized in the California GRC decision.  Total operating expenses for the quarter increased $6.1 million, or 5.0%, to $129.6 million.  Water production expenses increased $1.9 million mostly due to increases in purchased water quantities and wholesale water rates.  Administrative & general and other operations expenses increased $1.7 million, or 3.8%, to $45.8 million due to an increase in costs associated with the realization of operating revenue that was deferred in prior years, and increases in conservation program costs, which were partially offset by decreases in employee benefit costs and incremental drought program expenses.  Maintenance expense decreased $0.3 million, or 4.8%, to $5.5 million.  Other income, net of income taxes, increased $0.7 million, or 74.2%, to $1.6 million mostly due to the recognition of $1.5 million of litigation proceeds.  Net interest expense increased $0.4 million, or 6.0%, to $7.9 million.

 



 

The under-collected net receivable balance in the WRAM and MCBA mechanism was $36.6 million as of December 31, 2016, a decrease of 8.5%, or $3.4 million, from the balance of $40.0 million as of December 31, 2015.

 

Regulatory Update

 

On December 15, 2016, the CPUC voted to approve Cal Water’s 2015 GRC settlement agreement.  The approved decision, which was proposed by the presiding Administrative Law Judge in November 2016, authorizes Cal Water to increase gross revenue by approximately $45.0 million in 2017, $17.2 million in 2018, and $16.3 million in 2019, and up to $30.0 million upon completion and approval of the Company’s advice letter projects. The 2018 and 2019 revenue increases are subject to the CPUC’s earning test protocol.

 

The CPUC’s decision also authorizes Cal Water to invest $658.8 million in water system improvements throughout California over the three-year period of 2016-2018 in order to continue to provide safe and reliable water to its customers.  This figure includes $197.3 million of water system infrastructure

 



 

improvements that will be subject to the CPUC’s advice letter procedure.

 

Other Information

 

All stockholders and interested investors are invited to listen to the 2016 year-end and fourth quarter conference call on February 23, 2017 at 8:00 a.m. PST (11:00 a.m. EST) by dialing 1-888-806-6208 or 1-913-312-1516 and keying in ID #7406571.  A replay of the call will be available from 11:00 a.m. PST (2:00 p.m. EST) on February 23, 2017 through April 23, 2017, at 1-888-203-1112 or 1-719-457-0820, ID #7406571.  The replay will also be available under the investor relations tab at www.calwatergroup.com.  Prior to the call, Cal Water will post a slide presentation on its website.  The presentation can be found at www.calwatergroup.com/docs/2016q4slides.pdf after 6:00 a.m. PDT. The call will be hosted by President and Chief Executive Officer Martin A. Kropelnicki, Vice President and Chief Financial Officer Thomas F. Smegal III, and Vice President of Regulatory Matters Paul G. Townsley.

 



 

California Water Service Group is the parent company of California Water Service, Washington Water Service, New Mexico Water Service, Hawaii Water Service, CWS Utility Services, and HWS Utility Services. Together, these companies provide regulated and non-regulated water service to nearly 2 million people in California, Washington, New Mexico, and Hawaii. California Water Service was ranked “Highest in Customer Satisfaction Among Water Utilities in the West” in 2016 by J.D. Power in its inaugural Water Utility Residential Customer Satisfaction Study. California Water Service Group’s common stock trades on the New York Stock Exchange under the symbol “CWT.” Additional information is available online at www.calwatergroup.com.

 

This news release contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 (“Act”). The forward-looking statements are intended to qualify under provisions of the federal securities laws for “safe harbor” treatment established by the Act. Forward-looking statements are based on currently available information, expectations, estimates, assumptions and projections, and management’s judgment about the Company, the water utility industry and general economic conditions. Such words as would, expects, intends, plans, believes, estimates, assumes, anticipates, projects, predicts, forecasts or variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are subject to uncertainty and changes in circumstances. Actual results may vary materially from what is

 



 

contained in a forward-looking statement. Factors that may cause a result different than expected or anticipated include, but are not limited to: governmental and regulatory commissions’ decisions; consequences of eminent domain actions relating to our water systems; changes in regulatory commissions’ policies and procedures; the timeliness of regulatory commissions’ actions concerning rate relief; inability to renew leases to operate city water systems on beneficial terms; changes in California State Water Resources Control Board water quality standards; changes in environmental compliance and water quality requirements; electric power interruptions; changes in customer water use patterns and the effects of conservation; the impact of weather and climate on water availability, water sales and operating results; the unknown impact of contagious diseases, such as Zika, avian flu, H1N1 flu and severe acute respiratory syndrome, on the Company’s operations; civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type; labor relations matters as we negotiate with the unions; restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; and, other risks and unforeseen events. When considering forward-looking statements, you should keep in mind the cautionary statements included in this paragraph, as well as the annual 10-K, Quarterly 10-Q, and other reports filed from time-to-time with the Securities and Exchange Commission (SEC). The Company assumes no obligation to provide public updates of forward-looking statements.

 

##

 



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

 

 

 

December 31,

 

December 31,

 

(In thousands, except per share data)

 

2016

 

2015

 

ASSETS

 

 

 

 

 

Utility plant:

 

 

 

 

 

Utility plant

 

$

2,717,339

 

$

2,506,946

 

Less accumulated depreciation and amortization

 

(858,062

)

(805,178

)

Net utility plant

 

1,859,277

 

1,701,768

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

25,492

 

8,837

 

 

 

 

 

 

 

Receivables: net of allowance for doubtful accounts of $830 for 2016 and $730 for 2015, respectively

 

 

 

 

 

Customers

 

30,305

 

31,512

 

Regulatory balancing accounts

 

30,332

 

35,052

 

Other

 

17,158

 

14,760

 

Unbilled revenue

 

25,228

 

23,181

 

Materials and supplies at weighted average cost

 

6,292

 

6,339

 

Taxes, prepaid expenses, and other assets

 

7,262

 

7,897

 

Total current assets

 

142,069

 

127,578

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Regulatory assets

 

355,930

 

361,893

 

Goodwill

 

2,615

 

2,615

 

Other

 

51,854

 

47,399

 

Total other assets

 

410,399

 

411,907

 

TOTAL ASSETS

 

$

2,411,745

 

$

2,241,253

 

 

 

 

 

 

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

Capitalization:

 

 

 

 

 

Common stock, $.01 par value

 

$

480

 

$

479

 

Additional paid-in capital

 

334,856

 

333,135

 

Retained earnings

 

324,135

 

308,541

 

Total common stockholders’ equity

 

659,471

 

642,155

 

Long-term debt, less current maturities

 

531,745

 

508,002

 

Total capitalization

 

1,191,216

 

1,150,157

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

26,208

 

6,043

 

Short-term borrowings

 

97,100

 

33,615

 

Accounts payable

 

77,813

 

66,380

 

Regulatory balancing accounts

 

4,759

 

2,227

 

Accrued interest

 

5,661

 

5,088

 

Accrued expenses and other liabilities

 

38,689

 

34,545

 

Total current liabilities

 

250,230

 

147,898

 

 

 

 

 

 

 

Unamortized investment tax credits

 

1,798

 

1,872

 

Deferred income taxes, net

 

298,924

 

264,897

 

Pension and postretirement benefits other than pensions

 

222,691

 

236,266

 

Regulatory and other liabilities

 

83,648

 

82,414

 

Advances for construction

 

182,448

 

180,172

 

Contributions in aid of construction

 

180,790

 

177,577

 

Commitments and contingencies

 

 

 

 

 

TOTAL CAPITALIZATION AND LIABILITIES

 

$

2,411,745

 

$

2,241,253

 

 



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(In thousands, except per share data)

 

For the Three-Months ended:

 

 

 

December 31,

 

December 31,

 

 

 

2016

 

2015

 

 

 

 

 

 

 

Operating revenue

 

$

150,930

 

$

138,426

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

51,160

 

49,265

 

Administrative and General

 

23,437

 

28,041

 

Other operations

 

22,316

 

16,021

 

Maintenance

 

5,451

 

5,728

 

Depreciation and amortization

 

15,827

 

15,366

 

Income taxes

 

5,612

 

3,520

 

Property and other taxes

 

5,792

 

5,523

 

Total operating expenses

 

129,595

 

123,464

 

 

 

 

 

 

 

Net operating income

 

21,335

 

14,962

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

5,996

 

5,084

 

Non-regulated expenses

 

(3,285

)

(3,528

)

Income tax expense on other income and expenses

 

(1,098

)

(630

)

Net other income

 

1,613

 

926

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Interest expense

 

8,482

 

7,854

 

Less: capitalized interest

 

(624

)

(443

)

Net interest expense

 

7,858

 

7,411

 

 

 

 

 

 

 

Net income

 

$

15,090

 

$

8,477

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.31

 

$

0.18

 

Diluted

 

$

0.31

 

$

0.18

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

47,966

 

47,876

 

Diluted

 

47,969

 

47,886

 

Dividends per share of common stock

 

$

0.1725

 

$

0.1675

 

 



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(In thousands, except per share data)

 

For the Twelve-Months ended:

 

 

 

December 31,

 

December 31,

 

 

 

2016

 

2015

 

 

 

 

 

 

 

Operating revenue

 

$

609,370

 

$

588,368

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

219,993

 

207,926

 

Administrative and General

 

98,474

 

113,110

 

Other operations

 

80,082

 

67,248

 

Maintenance

 

22,993

 

21,463

 

Depreciation and amortization

 

63,599

 

61,381

 

Income taxes

 

24,804

 

24,528

 

Property and other taxes

 

23,231

 

21,559

 

Total operating expenses

 

533,176

 

517,215

 

 

 

 

 

 

 

Net operating income

 

76,194

 

71,153

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

16,585

 

15,624

 

Non-regulated expenses

 

(11,591

)

(13,729

)

Income tax expense on other income and expenses

 

(2,012

)

(761

)

Net other income

 

2,982

 

1,134

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Interest expense

 

33,466

 

29,185

 

Less: capitalized interest

 

(2,965

)

(1,915

)

Net interest expense

 

30,501

 

27,270

 

 

 

 

 

 

 

Net income

 

$

48,675

 

$

45,017

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic

 

$

1.02

 

$

0.94

 

Diluted

 

$

1.01

 

$

0.94

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

47,953

 

47,865

 

Diluted

 

47,956

 

47,880

 

Dividends per share of common stock

 

$

0.6900

 

$

0.6700