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April 25, 2019 at 9:00 AM EDT

California Water Service Group Announces Results for the First Quarter 2019

SAN JOSE, Calif., April 25, 2019 (GLOBE NEWSWIRE) -- California Water Service Group (NYSE: CWT) today announced a net loss of $7.6 million or $0.16 net loss per diluted common share for the first quarter of 2019, compared to a net loss of $0.8 million or $0.02 loss per diluted common share for the first quarter of 2018. 

The $6.8 million increase in net loss was primarily due to increases in operating expenses which were not fully offset by rate increases and a reduction in accrued unbilled revenue driven by weather. These were partially offset by an increase in unrealized gain on certain benefit plan investments. 

The significant increases in operating expenses in the first quarter compared to the same period last year were:  $1.9 million in employee wages, $1.7 million in depreciation and amortization, $1.0 million in maintenance expense, $1.0 million in outside services, $0.6 million in property taxes, and $1.5 million in net interest expenses.  These operating expense increases were partially offset by $4.0 million in rate increases and a $0.6 million increase in allowance for equity funds used during construction. The divergence between operating expense increases and rate relief in the first quarter is partially related to the Company’s tiered rate structure in California, which focuses operating revenue increases into the high-usage summer months while operating expense increases are distributed more evenly throughout the year.

Additionally, certain factors outside the Company’s immediate control significantly increased the net loss, including a $7.1 million reduction in accrued unbilled revenue, which was partially offset by a $3.4 million increase in unrealized gain on certain benefit plan investments. 

According to President and Chief Executive Officer Martin A. Kropelnicki, wet weather affected results in the typically lower-revenue and lower-rate-relief quarter.

“The extended wintry conditions throughout California affected results for the first quarter,” he said.  “The near-record amount of rainfall in our service territories throughout the quarter resulted in much lower demand and slowed our infrastructure improvement program.” 

Additional Financial Results for the First Quarter of 2019
Total revenue decreased 6.3% to $126.1 million in the first quarter of 2019 compared to $134.6 million in the first quarter of 2018.  The decrease in revenue was mostly due to a $7.1 million decrease in accrued unbilled revenue, balancing account adjustments which reduced revenue $3.7 million, and deferred revenue adjustments which reduced revenue $2.3 million.  These reductions were partially offset by rate increases of $5.1 million, $1.1 million of which was related to increased wholesale water rates.

Total operating expenses increased $0.9 million, or 0.7%, to $125.6 million in the first quarter of 2019 compared to $124.7 million in the first quarter of 2018.

Water production expenses decreased $2.0 million, or 4.2%, to $45.6 million in the first quarter of 2019 compared to $47.6 million in the first quarter of 2018, primarily due to decreases in customer usage.  As designed, the California revenue decoupling mechanisms record a decrease to revenue equal to the decrease in California water production costs relative to adopted water production costs.

Administrative and general and other operations expenses increased $3.0 million to $46.9 million in the first quarter of 2019, primarily due to increases of $1.9 million in employee wages, $1.3 million in conservation program costs, $1.0 million of outside services, and $0.9 million of health care which were partially offset by a reduction of $1.9 million for deferral of costs associated with deferred revenue and $0.8 million decrease in employee pension benefit and retiree medical costs.  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.

Maintenance expenses increased $1.0 million, or 18.7%, to $6.5 million in the first quarter of 2018, due to increased costs for repairs of transmission and distribution mains and services.

Income tax benefit increased $3.3 million due to an increase in pre-tax loss from operations.  The Company’s estimated combined effective income tax rate for 2019 is 22 percent.

Depreciation and amortization expense increased $1.7 million, to $22.4 million, in the first quarter of 2019, as compared to $20.7 million in the first quarter of 2018, due to utility plant investments through 2018.

Net other income, net of income tax benefits, increased $4.0 million in 2019, mostly due to a $3.4 million increase in unrealized gain on certain benefit plan investments, a $1.3 million decrease in nonservice pension costs, and a $0.6 million increase in allowance for equity funds used during construction.

Company-funded and developer-funded capital expenditures for the first quarter of 2019 were $59.9 million, a decrease of $10.8 million, or 15.3%, compared to $70.7 million in the first quarter of 2018.  The decrease in utility plant investment was due to construction delays caused by wetter than normal weather.

The under-collected net receivable balance in the Water Revenue Adjustment Mechanism (WRAM) and Modified Cost Balancing Account (MCBA) was $60.8 million as of March 31, 2019, an increase of 8.4%, or $4.7 million, from the balance of $56.1 million as of December 31, 2018.   

Regulatory Update
In April of 2019, Cal Water submitted advice letters to the CPUC to true up the under-collections in the 2018 annual WRAMs and MCBAs of its regulated districts. A net under-collection of $29.2 million is being recovered from customers in the form of 12, 18, and greater-than-18-month surcharges. The new rates became effective April 15, 2019. This surcharge, in some cases, is in addition to surcharges and surcredits authorized in prior years which have not yet expired. Collections from customers reduce the WRAM receivable balance on the balance sheet.

Other Information
All stockholders and interested investors are invited to listen to the first quarter 2019 conference call on April 25, 2019 at 8:00 a.m. PT (11:00 a.m. ET) by dialing 1-833-832-5130 or 1-509-844-0151 and keying in ID # 7361176.  A replay of the call will be available from 11:00 a.m. PT (2:00 p.m. ET) on April 25, 2019 through June 25, 2019, at 1-855-859-2056 or 1-404-537-3406, ID# 7361176.  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/2019q1slides.pdf after 6:00 a.m. PT. 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 and Corporate Controller David B. Healey.

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 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 and other actions; increased risk of inverse condemnation losses as a result of climate conditions; inability to renew leases to operate water systems owned by others on beneficial terms; changes in California State Water Resources Control Board water quality requirements; changes in environmental compliance and water quality requirements; electric power interruptions; housing and customer growth index; the impact of opposition to rate increases; our ability to recover costs; availability of water supplies; issues with the implementation, maintenance or security of our information technology systems; civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type; the adequacy of our efforts to mitigate physical and cyber security risks and threats; the ability of our enterprise risk management framework to identify or address risks adequately; labor relations matters as we negotiate with the unions; restrictive covenants in or changes to the credit ratings on current or future debt that could increase financing costs or affect the ability to borrow, make payments on debt, or pay dividends; changes in customer water use patterns and the effects of conservation; the impact weather, climate, natural disasters, and diseases on water quality, water availability, water sales and operating results, and the adequacy of our emergency preparedness; 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.

Contact: Tom Smegal (408) 367-8200 (analysts)
Shannon Dean (310) 257-1435 (media)
 


CALIFORNIA WATER SERVICE GROUP      
CONDENSED CONSOLIDATED BALANCE SHEETS      
Unaudited      
           
(In thousands, except per share data) March 31   December 31
        2019       2018  
ASSETS      
Utility plant:      
  Utility plant $   3,281,149     $   3,229,446  
  Less accumulated depreciation and amortization     (1,021,590 )       (996,723 )
    Net utility plant     2,259,559         2,232,723  
Current assets:      
  Cash and cash equivalents     60,234         47,176  
  Receivables:      
    Customers     27,552         30,037  
    Regulatory balancing accounts     37,130         42,394  
    Other     19,460         17,101  
  Unbilled revenue     24,675         33,427  
  Materials and supplies at weighted average cost     6,444         6,586  
  Taxes, prepaid expenses, and other assets     17,230         11,981  
    Total current assets     192,725         188,702  
Other assets:      
  Regulatory assets     366,921         353,569  
  Goodwill     2,615         2,615  
  Other assets      78,842         60,095  
    Total other assets     448,378         416,279  
TOTAL ASSETS $   2,900,662     $   2,837,704  
           
CAPITALIZATION AND LIABILITIES      
Capitalization:      
  Common stock, $.01 par value; 68,000 shares authorized, 48,134 and 48,065 outstanding in 2019 and 2018, respectively $   481     $   481  
  Additional paid-in capital     338,728         337,623  
  Retained earnings     374,920         392,053  
    Total common stockholders' equity     714,129         730,157  
  Long-term debt, net     710,602         710,027  
    Total capitalization     1,424,731         1,440,184  
Current liabilities:      
  Current maturities of long-term debt, net     105,010         104,911  
  Short-term borrowings     125,100         65,100  
  Accounts payable     83,280         95,580  
  Regulatory balancing accounts     19,984         12,213  
  Accrued interest     12,181         5,674  
  Accrued expenses and other liabilities     38,488         37,688  
    Total current liabilities     384,043         321,166  
Unamortized investment tax credits     1,649         1,649  
Deferred income taxes     211,382         213,033  
Pension and postretirement benefits other than pensions     200,953         193,538  
Regulatory liability and other     264,555         256,522  
Advances for construction     186,877         186,342  
Contributions in aid of construction     226,472         225,270  
Commitments and contingencies      
TOTAL CAPITALIZATION AND LIABILITIES $   2,900,662     $   2,837,704  
           

 

CALIFORNIA WATER SERVICE GROUP      
CONDENSED CONSOLIDATED STATEMENTS OF INCOME      
Unaudited      
(In thousands, except per share data)      
           
For the Three Months ended:      
      March 31,   March 31,
        2019       2018  
           
Operating revenue $   126,111     $   134,553  
Operating expenses:      
  Operations:      
  Water production costs     45,592         47,606  
  Administrative and general     29,097         26,319  
  Other operations     17,821         17,640  
  Maintenance     6,455         5,439  
  Depreciation and amortization     22,368         20,715  
  Income tax (benefit) expense     (2,991 )       294  
  Property and other taxes     7,293         6,704  
  Total operating expenses     125,635         124,717  
    Net operating income     476         9,836  
Other income and expenses:      
  Non-regulated revenue     4,901         4,419  
  Non-regulated expenses     (2,219 )       (5,437 )
  Other components of net periodic benefit cost     (1,259 )       (2,546 )
  Allowance for equity funds used during construction     1,533         911  
  Income tax (expense) benefit on other income and expenses     (828 )       758  
    Net other income (loss)     2,128         (1,895 )
Interest expense:      
  Interest expense     11,075         9,198  
  Allowance for borrowed funds used during construction     (831 )       (495 )
    Net interest expense     10,244         8,703  
Net loss $   (7,640 )   $   (762 )
Loss per share       
  Basic $   (0.16 )   $   (0.02 )
  Diluted  $   (0.16 )   $   (0.02 )
Weighted average shares outstanding      
  Basic     48,086         48,030  
  Diluted      48,086         48,030  
Dividends per share of common stock $   0.1975     $   0.1875  
           

 

 

 

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Source: California Water Service Group