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UNITED STATES SECURITIES AND EXCHANGE CPUC
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from
.............to....................
Commission file No. 1-13883
CALIFORNIA WATER SERVICE GROUP
(Exact name of registrant as specified in its charter)
California 77-0448994
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(State or other jurisdiction (IRS Employer
of Incorporation) Identification No.)
1720 North First Street San Jose, California 95112
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(Address of Principal Executive Offices) (Zip Code)
1-408-367-8200
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, No Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Cumulative Preferred Stock, Par Value, $25
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant - $300,493,000 on February 19 1999.
Common stock outstanding at February 19, 1999 - 12,619,140 shares.
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EXHIBIT INDEX
The exhibit index to this Form 10-K is on page 29
DOCUMENTS INCORPORATED BY REFERENCE
Designated portions of Registrant's Annual Report to Shareholders for the
calendar year ended December 31, 1998 ("1998 Annual Report") are incorporated by
reference in Part I (Item 1), Part II (Items 5, 6, 7 and 8) and in Part IV (Item
14(a)(1)).
Designated portions of the Registrant's Proxy Statement of California Water
Service Group ("Proxy Statement"), dated March 18 1999, relating to the 1999
annual meeting of shareholders are incorporated by reference in Part III (Items
10, 11 and 12) as of the date the Proxy Statement was filed with the Securities
and Exchange CPUC. The Proxy Statement was filed under EDGAR on March 1, 1999.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business ........................... 5
Forward Looking Statements ......... 5
a. General Development of Business .... 5
Rates and Regulation ............... 6
b. Financial Information about
Industry Segments .................. 8
c. Narrative Description of Business .. 8
Geographical Service Areas and
Number of Customers at year-end .... 10
Water Supply ....................... 11
Nonregulated Operations ............ 14
Utility Plant Construction Program
and Acquisitions ................... 15
Quality of Water Supplies .......... 16
Competition and Condemnation ....... 16
Environmental Matters .............. 18
Human Resources .................... 18
d. Financial Information about Foreign
and Domestic Operations and Export
Sales .............................. 18
Item 2. Properties .......................... 18
Item 3. Legal Proceedings ................... 19
Item 4. Submission of Matters to a Vote of
Security Holders .................... 20
Executive Officers of the Registrant ........ 21
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters ..... 22
Item 6. Selected Financial Data ............. 22
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations ........... 23
Item 8. Financial Statements and
Supplementary Data .................. 23
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure ................ 23
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PART III
Item 10. Directors and Executive Officers
of the Registrant .................. 23
Item 11. Executive Compensation ............. 23
Item 12. Security Ownership of Certain
Beneficial Owners and Management ... 24
Item 13. Certain Relationships and Related
Transactions ....................... 24
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K ........................... 24
Signatures ....................................... 25
Independent Auditors' Report ..................... 27
Schedules ........................................ 28
Exhibit Index .................................... 29
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PART I
ITEM 1 BUSINESS.
FORWARD LOOKING STATEMENTS
This report, including the sections incorporated by reference, contains
forward looking statements within the meaning of the Federal securities
laws. Such statements are based on currently available information,
expectations, estimates, assumptions and projections, and management's
judgment about California Water Service Group ("Group"), the utility
industry and general economic conditions. Such words as expects, intends,
plans, believes, estimates, anticipates 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.
Actual results may vary materially from what is contained in a forward
looking statement. Factors which may cause a result different than expected
or anticipated include regulatory CPUC decisions, new legislation,
increases in suppliers' prices, particularly purchased water and purchased
power prices, changes in environmental compliance requirements,
acquisitions, changes in customer water use patterns and the impact of
weather on operating results. Group assumes no obligation to provide public
updates of forward looking statements.
a. GENERAL DEVELOPMENT OF BUSINESS.
California Water Service Company ("Company") was formed in 1926. In April
1997, shareholders of California Water Service Company voted to approve a
holding company structure. After receiving final regulatory approval, Group
was formed on December 31, 1997. As a result of the holding company
structure, the Company became one of Group's two wholly-owned, operating
subsidiaries. The Company will continue to operate as a regulated utility
subject to the jurisdiction of the California Public Utilities CPUC
("CPUC"). Its assets and operating revenues comprise virtually all of
Group's assets and operating revenues.
The second subsidiary, CWS Utility Services ("Utility Services"), provides
nonregulated water operations and related services. Existing nonregulated
contracts, currently performed by the Company, will be transferred to
Utility Services as the contracts are renewed or at such time as agreed
upon between the contracting parties. Utility Services will execute new
nonregulated contracts.
In conjunction with the formation of the holding company structure, on
December 31, 1997 each share of Company common stock was exchanged on a
two-for-one basis for Group common stock. Per share data has been restated
where necessary to reflect the effective two-for-one stock split. Each
share of Company preferred stock was converted into one share of Group
preferred stock. To maintain its relative voting strength,
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the number of votes to which each preferred share is entitled was doubled
from eight to sixteen.
Group's mailing address and principal executive offices are located at 1720
North First Street, San Jose, California; telephone number: 1-408-367-8200.
The Company maintains a web site which can be accessed via the Internet at
http://www.calwater.com.
During the year ended December 31, 1998, there were no significant changes
in the kind of products produced or services rendered by Group or its
operating subsidiaries, or in its markets or methods of distribution.
The Company is the largest investor-owned water company in California and
the fourth largest in the United States. It was incorporated under the laws
of the State of California on December 21, 1926. It is a public water
utility providing water service to approximately 383,000 residential,
commercial and industrial customers in 58 California cities and communities
through 21 separate water systems or districts. In the 20 regulated
systems, which serve 377,000 customers, rates and operations are subject to
the jurisdiction of the CPUC. An additional 6,000 customers receive service
through the long-term lease of the City of Hawthorne water system, which is
not subject to CPUC regulation. The Company also has contracts with various
municipalities and private entities to operate water systems and provide
billing services to 30,700 other customers. These operations are described
in more detail in section Item 1.c., "Narrative Description of Business -
Nonregulated Operations."
RATES AND REGULATION
Rates, service and other matters for the Company's regulated business of
the Company are subject to the jurisdiction of the CPUC. The CPUC's
decisions and the timing of those decisions can have an important impact on
operations and results of operations.
The Company operates a total of 21 districts, each of which is within the
State of California. The systems are not integrated with one another.
Except for allocation of general office plant investment and expenses, and
the determination of cost of capital, the rates of individual districts are
not affected by operations in other districts. Cost of capital (i.e. return
on debt and equity) is determined on a company-wide basis. Otherwise, the
CPUC considers each regulated district as separate and distinct entities
for ratemaking purposes. General Office plant and operations are also
considered separately, then spread ratably over the operating districts.
There are generally three types of CPUC rate case proceedings: general,
step and offset. General rate applications consider all of a district's
operating costs and capital requirements for a succeeding three-year
period. The CPUC's decision in
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general rate applications usually authorizes an immediate rate increase and
step rate increases for the following two years intended to maintain the
authorized return on common equity ("ROE"). Subsequent general applications
can be filed in the third year after a district receives a general rate
decision. Each year those districts that are eligible for general rate case
filings are reviewed and where appropriate applications are submitted to
the CPUC for processing. The applications are submitted in July with a CPUC
decision expected in about 10 months. Offset rate adjustments are allowed
to recover the costs of purchased water, purchased power and pump taxes
that vary from those authorized in a general rate decision.
Because the CPUC requires rates for each operating district to be
determined independently, the decision to file a general rate case
application for a particular district depends on various factors including:
- the time since the last general rate case was filed
- the rate of return being earned in the district
- expected future returns
- estimated future expenses
- the need for capital expenditures
With districts on varying rate case cycles, general rate case applications
are filed annually for a portion of the districts. The number of customers
affected by each filing varies from year to year. For example, the 1995
rate filings covered 47 percent of the customer base, while the 1996 filing
was for 11 percent, the 1997 filing for 7 percent and the 1998 filing for
25 percent.
1999 Rate Application Filings
During 1999, 10 districts representing 55% of all customers are
eligible for rate filings. The Company will review each district's revenue
requirements and determine what filings to make. The filings will occur in
July with decisions anticipated during the second quarter of 2000.
Additionally, a rate increase will be submitted for the City of Hawthorne
water system. The Hawthorne City council exercises rate authority over this
request.
1998 Rate Application Filings
In 1998, 14 districts plus General Office operations, were eligible
for general rate filings. Earnings levels in those districts were reviewed
and applications for additional rate consideration were filed in July 1998
for four districts and General Office. The applications involved 25% of the
regulated customers.
In January 1999, the Company reached agreement the CPUC staff
regarding the 1998 rate applications. The agreement must still be presented
to and approved by the Administrative Law Judge assigned to the proceedings
and by the CPUC commissioners .
1997 Rate Application Filings
In July 1997, general rate increase applications were filed for four
districts representing 27,900 customers or 7
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percent of regulated customers. The CPUC decision was effective in July
1998. It authorized continuation of the then effective ROE at 10.35%. Rate
increases of $299,000 for 1998, $267,000 for 1999, $121,000 for 2000 and
$121,000 for 2001 were authorized. Rate increases in two districts will be
tied to future changes in a price index during each of the next four years.
1996 Rate Application Filings
In July 1996, general rate cases were filed for two districts
representing 11 percent of the regulated customers. An ROE of 12.05 percent
was requested, while the CPUC staff recommended 10.1 percent. In January
1997, the Company and CPUC staff stipulated to an ROE of 10.35 percent. In
February 1997, hearings before the CPUC regarding the 1996 general rate
applications were completed. The CPUC's decision was issued in April. The
decision, which authorized a 10.35% return on common equity, was estimated
to increase 1997 revenue by about $1.2 million. Additionally, step rate
increases became effective in each of the following three years.
Second Amended Contract - Stockton East Water District
In January 1995, a consultant retained by the CPUC's Organization of
Ratepayer Advocates completed a report on the reasonableness of the Second
Amended Contract. Parties to the contract are the Company, Stockton-East
Water District, the City of Stockton and San Joaquin County. The contract
pertains to the sale and delivery of water to the Company's Stockton
District by the Stockton-East Water District. The report alleged that the
Company was required to receive CPUC approval prior to entering into the
Second Amended Contract and furthermore challenges the reasonableness of
the Second Amended Contract for ratemaking purposes. However, the report
did not include specific ratemaking recommendations. The issue has been
suspended. No action is now in process or pending, although the issue may
be revisited in the Company's next Stockton district general rate
application.
b. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Group primarily operates one business segment.
c. NARRATIVE DESCRIPTION OF BUSINESS.
Group is the sole shareholder of its two operating subsidiaries, California
Water Service Company and CWS Utility Services.
Group's business, which is carried on through its operating subsidiaries,
consists of the production, purchase, storage, purification, distribution
and sale of water for domestic, industrial, public and irrigation uses, and
for fire protection. It also provides water related service, including
operation of water systems, to other entities.
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The water business fluctuates according to the demand for water, which is
partially dictated by seasonal conditions, such as summer temperatures or
the amount and timing of precipitation during the year.
The Company distributes water in accordance with accepted water utility
methods. Franchises and permits are held in the cities and communities
where the Company operates. The franchises and permits allow the Company to
operate and maintain facilities in the public streets as necessary.
The City of Hawthorne water system is operated under a 15-year lease that
commenced in February 1996. Under other contracts, three municipally owned
water systems, four privately owned water systems and two reclaimed water
distribution systems are operated. Billing services are also provided to
other municipalities. These operations are discussed in more detail in a
following section titled "Nonregulated Operations."
Group intends to continue to explore opportunities to expand operating and
other revenue sources. The opportunities could include system acquisitions,
contracts similar to the City of Hawthorne arrangement, operating
contracts, billing contracts and other utility related services. Group
believes that a holding company structure, as discussed above, makes Group
more competitive in providing nonregulated utility services, which would
not be subject to CPUC jurisdiction. Group is investigating new business
opportunities in western states. During 1998, Group assessed the potential
risk and return from business opportunities in Central and South America.
The assessment concluded that the risks and potential returns do not
warrant Group pursuing business opportunities in Central or South America.
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GEOGRAPHICAL SERVICE AREAS AND NUMBER OF CUSTOMERS AT YEAR-END The
principal markets for Group's products are users of water within the
Company's service areas. Group's geographical service areas or districts
for both the regulated and nonregulated operations and the approximate
number of customers served in each district at December 31, 1998, are
listed below.
SAN FRANCISCO BAY AREA
Mid-Peninsula (serving San Mateo and
San Carlos) ............................ 35,600
South San Francisco (including Colma
and Broadmoor) ......................... 15,900
Bear Gulch (serving Menlo Park, Atherton,
Woodside and Portola Valley) ........... 17,400
Los Altos (including portions of Cupertino,
Los Altos Hills, Mountain View
and Sunnyvale) ......................... 18,300
Livermore ................................. 16,300 103,500
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SACRAMENTO VALLEY
Chico (including Hamilton City) ........... 22,200
Oroville .................................. 3,500
Marysville ................................ 3,700
Dixon ..................................... 2,800
Willows ................................... 2,300 34,500
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SALINAS VALLEY
Salinas ................................... 25,000
King City ................................. 2,200 27,200
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SAN JOAQUIN VALLEY
Bakersfield ............................... 55,700
Stockton .................................. 41,300
Visalia ................................... 27,900
Selma ..................................... 5,000 129,900
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LOS ANGELES AREA
East Los Angeles (including portions of
the cities of Commerce and Montebello) .. 26,300
Hermosa Redondo (serving Hermosa Beach,
Redondo Beach and a portion of Torrance) 25,100
Palos Verdes (including Palos Verdes
Estates, Rancho Palos Verdes, Rolling
Hills Estates and Rolling Hills) ........ 23,600
Westlake (a portion of Thousand Oaks) ..... 6,900
Hawthorne (leased municipal system) ....... 6,000 87,900
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TOTAL ....................................... 383,000
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WATER SUPPLY
The Company's water supply for the 21 operating districts is obtained from
wells, surface runoff or diversion, and by purchase from public agencies
and other wholesale suppliers. The Company's supply has been adequate to
meet consumption demands, however, during periods of drought some districts
have mandated water rationing.
California's rainy season usually begins in November and continues through
March with December, January and February historically recording the most
rainfall. During winter months reservoirs and underground aquifers are
replenished by rainfall. Snow accumulated in the mountains provides an
additional water source when spring and summer temperatures melt the
snowpack producing runoff into streams and reservoirs, and also
replenishing underground aquifers.
During years in which precipitation is especially heavy or extends beyond
the spring into the early summer, customer demand can decrease from
historic normal levels, generally due to reduced outdoor water usage. This
was the case during 1995 and 1998, when winter rains continued well into
the spring along with cooler than normal temperatures. Likewise, an early
start to the rainy season during the fall can cause a decline in customer
usage and have a negative impact on revenue.
The Company's water business is seasonal in nature and weather conditions
can have a pronounced effect on customer usage and thus operating revenues
and net income. Customer demand for water generally is less during the
normally cooler and rainy winter months. It increases in the spring when
warmer weather gradually returns to California and the rains end.
Temperatures are warm during the generally dry summer months, resulting in
increased demand. Water usage declines during the fall as temperatures
decrease and the rainy season approaches.
During years of less than normal rainfall, customer demand can increase as
outdoor water usage continues. When rainfall is below average for
consecutive years, drought conditions can result and certain customers may
be required to reduce consumption to preserve existing water reserves. As
an example, California experienced a six-year period when rainfall was
annually below historic average. The drought period ended with the winter
of 1992-93. During that six-year period some districts had water rationing
requirements imposed on customers. In certain districts, penalties were
collected from customers who exceeded allotments. During past drought
periods, the CPUC has allowed modifications to consumer billings which
provided the Company a means to recover a portion of revenue that was
deemed lost due to conservation measures.
Historically, about half of the water supply is purchased from wholesale
suppliers with the balance pumped from wells. A small portion of the supply
is received from surface runoff in the Bear Gulch district. During 1998, 99
billion gallons were delivered to customers. Approximately 50 percent of
the supply was
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obtained from wells and 50 percent was purchased from wholesale suppliers.
The following table shows amount of water purchased in each operating
district during 1998.
Supply
District Purchased Source of Purchased Supply
-------- --------- --------------------------
SAN FRANCISCO BAY AREA
Mid-Peninsula 100% San Francisco Water Department
South San Francisco 83% San Francisco Water Department
Bear Gulch 86% San Francisco Water Department
Los Altos 78% Santa Clara Valley Water District
Livermore 62% Alameda County Flood Control
and Water Conservation District
SACRAMENTO VALLEY
Oroville 89% Pacific Gas and Electric Co.
3% County of Butte
SAN JOAQUIN VALLEY
Bakersfield 20% Kern County Water Agency
Stockton 72% Stockton-East Water District
LOS ANGELES AREA
East Los Angeles 69% Central Basin Municipal
Water District
Hawthorne 99% West Basin Municipal
Water District
Hermosa Redondo 98% West Basin Municipal
Water District
Palos Verdes 100% West Basin Municipal
Water District
Westlake 100% Russell Valley Municipal
Water District
The balance of the required supply for the above districts was obtained
from wells, except for Bear Gulch where the balance is obtained from
surface runoff from the local watershed and processed through the Company's
treatment plant before being delivered to the distribution system. The
Company also operates a treatment plant in the Oroville district where a
portion of the water is received from a surface supply.
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Historically, groundwater has yielded 10 to 15 percent of the
Hermosa-Redondo district supply. During 1996, wells were taken out of
service while treatment facilities were being installed. One treatment
facility was completed during 1998 and the well returned to service.
The Chico, Marysville, Dixon and Willows districts in the Sacramento
Valley, the Salinas and King City districts in the Salinas Valley, and the
Selma and Visalia districts in the San Joaquin Valley obtain their entire
supply from wells.
Purchases for the Los Altos, Livermore, Oroville, Stockton and Bakersfield
districts are pursuant to long-term contracts expiring on various dates
after 2011.
The purchased supplies for the East Los Angeles, Hermosa-Redondo, Palos
Verdes, Westlake districts and the City of Hawthorne system are provided by
public agencies pursuant to an obligation of continued nonpreferential
service to persons within the agencies' boundaries.
Purchases for the South San Francisco, Mid-Peninsula and Bear Gulch
districts are in accordance with long-term contracts with the San Francisco
Water Department expiring June 30, 2009.
The price of wholesale water purchases is subject to pricing changes
imposed by the various wholesale suppliers. Price changes are generally
beyond the control of the Company. During 1997, two wholesale water
suppliers refunded moneys which had been overcollected from wholesale water
purchasers. The Company received a one time refund of $2.5 million in May
1997 which was credited as a reduction to purchased water expense.
California experienced above average rainfall in the 1997-98 measurement
year. The state's weather was influenced by what was termed "El Nino".
Rainfall in the Company's service areas for the 1998-99 season is about
normal as of February 26, 1998. However, the mountain snowpack is well
above normal. Groundwater levels in underground aquifers that provide
supply to districts served by well water improved in 1998 due to the above
average rainfall. Most regions have recorded positive changes in
groundwater levels the past two years. Regional groundwater management
planning continues throughout the state as required. Existing laws provide
a mechanism for local agencies to maintain control of their groundwater
supply. Group continually updates long range projections and works with
local wholesale suppliers to ensure an adequate future supply to meet
customer needs.
The water supply outlook for 1999 is good, however, California faces
long-term water supply challenges. The Company is actively working to meet
the challenges by continuing to educate customers on responsible water use
practices, particularly in the districts with conservation programs
approved by the CPUC.
Progress has been made by Consolidated Irrigation District (Selma) and
Kaweah Delta Water Conservation District (Visalia)
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towards the implementation of a water management plan. Group participates
in the formulation of these plans.
The Company is working with the Salinas Valley water users and the Monterey
County Water Resources Agency (MCWRA) to address seawater intrusion into
the water supply for the Salinas district. MCWRA completed construction of
the Castroville Seawater Intrusion Project in 1998. This project is
designed to deliver up to 20,000 acre feet of recycled water annually to
agricultural users in the nearby Castroville area. It is intended to help
mitigate seawater intrusion into the region by reducing the need to pump
groundwater.
With the City and County of San Francisco, and the cities of San Bruno and
Daly City,Group is working to prepare a groundwater management plan for the
Westside Basin from which the South San Francisco district pumps a portion
of its supply. Additionally, Group is working with the City of San
Francisco in its development of a long-range water supply master plan for
the entire area to which the San Francisco Water Department is the
wholesale water supplier. In addition to the South San Francisco district,
the Mid-Peninsula and Bear Gulch districts are included in this service
area.
NONREGULATED OPERATIONS
Nonregulated operations include operation of water systems for cities,
operation of privately owned water systems, operation of recycled water
systems, lease of antenna sites, utility billing services and laboratory
services.
Nonregulated revenue from water system operations is generally determined
on a fee per customer basis. With the exception of the City of Hawthorne
water system, revenue and expenses from nonregulated operations are
accounted for in other income on a pretax basis. Revenue and expenses for
the City of Hawthorne lease are included in operating revenue and operating
expenses because Group is entitled to retain all customer billings and is
generally responsible for all operating expenses.
Municipally owned water systems are operated under contract for the cities
of Bakersfield, Commerce and Montebello and for four private water company
systems in the Bakersfield, Livermore and Salinas districts. The Company
also operates under contract a wastewater collection system in Livermore.
The total number of services operated under the contracts is about 30,700.
With the exception of the 15-year Hawthorne lease discussed below, the
terms of the operating agreements range from one-year to three- year
periods with provisions for renewals. The first operating agreement was
signed with the City of Bakersfield in 1977. Upon expiration, each
agreement has been renewed.
Recycled water distribution systems located in the Los Angeles Basin are
operated for the West Basin and Central Basin municipal water districts.
Some engineering department services are also provided for these two
recycled water systems.
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Meter reading, billing and customer service are provided for the City of
Menlo Park's 4,000 water customers. Additionally, sewer and/or refuse
billing services are provided to six municipalities.
Since February 1996, the City of Hawthorne's 6,000 account water system has
been operated under terms of a 15-year agreement. The system which is near
the Hermosa-Redondo district serves about half of Hawthorne's population.
The lease requires an up-front $6.5 million lease payment to the City which
is being amortized over the lease term. Additionally, annual lease payments
to the City of $100,000 indexed to changes in water rates are required.
Group is responsible for all aspects of system operation and capital
improvements, although title to the system and system improvements resides
with the City. At the end of the lease, Group will be reimbursed for the
unamortized value of capital improvements. In exchange, Group receives all
system revenues which are about $4 million annually.
During 1997, an agreement was signed with the Rural North Vacaville Water
District in Solano County to design and build a water distribution system.
The new system will initially provide water to about 400 services. Group
also expects to enter an agreement for future operation and maintenance of
the system.
Group leases 35 antenna sites to telecommunication companies. Individual
lease payments range from $750 to $2,200 per month. The antennas are used
in cellular phone and personal communication applications. Other leases are
being negotiated for similar uses.
Laboratory services are also provided to San Jose Water Company and Great
Oaks Water Company.
UTILITY PLANT CONSTRUCTION PROGRAM AND ACQUISITIONS
Group is continually extending, enlarging and replacing its facilities as
required to meet increasing demands and to maintain its systems. Capital
expenditures, including developer financed projects, for additional
facilities and for the replacement of existing facilities amounted to
approximately $34.6 million in 1998. Financing was provided by funds from
operations and short-term bank borrowings, advances for construction and
contributions in aid of construction as set forth in the "Statement of Cash
Flows" on pages 20 Group's 1998 Annual Report which is incorporated herein
by reference. Group funded expenditures were $30.1 million. Developer
payments accounted for $4.5 million. Advances for construction of main
extensions are payments or facilities received from subdivision developers
under the CPUC's rules. These advances are refundable without interest over
a period of 40 years. Contributions in aid of construction consist of
nonrefundable cash deposits or facilities received from developers,
primarily for fire protection. The amount received from developers varies
from year to year as the level of development activity varies. It is
impacted by the demand for housing and commercial development and general
business conditions, including interest rates.
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During 1998, Group funded expenditures were in the following areas: wells,
pumping and storage facilities, $6.7 million; water treatment and
purification equipment, $3.1 million; distribution systems $9.1 million;
services and meters, $5.3; other equipment, $5.9 million. The increased
expenditure for treatment and purification equipment related to the
Hawthorne treatment plant. The other equipment expenditures included
computer equipment for installation of a new Local Area Network (LAN)
system.
The 1999 construction budget for additions and improvements to facilities
is approximately $30.7 million, exclusive of additions and improvements
financed through advances for construction and contributions in aid of
construction. Financing is expected to be from internally generated funds,
short-term borrowings and long-term debt in the form of senior notes. The
approved budget was for the following areas: wells, pumping and storage
facilities, $8.8 million; water treatment and purification equipment, $1.1
million; distribution systems $9.8 million; services and meters, $5.2;
other equipment, $5.8 million.
During 1996, Congress enacted legislation which exempted from taxable
income the majority of proceeds received from developers to fund advances
for construction and contributions in aid of construction. Because of the
legislation, future water utility plant additions will generally be
depreciated for federal tax purposes on a straight-line 25 year life basis.
The federal tax exemption of developer funds will reduce cash flow
requirements for income taxes. In 1997, California adopted similar
legislation regarding the taxability of payments received from developers.
The Department of Treasury is planning to issue regulations regarding the
taxability of developer financed services. Treasury has given indications
that it will continue to treat the cost of services as taxable income. The
Company has been active along with other private water companies in
presenting evidence to Treasury that would result in services being
classified as nontaxable contributions in aid of construction. The services
represent about 20 percent of developer funded construction.
QUALITY OF WATER SUPPLIES
Procedures are maintained to produce potable water in accordance with
accepted water utility practices. Water entering the distribution systems
from surface sources is treated in compliance with Safe Drinking Water Act
standards. Samples of water from each water system are analyzed regularly
by our state certified water quality laboratory.
In recent years, federal and state water quality regulations have continued
to increase. Changes in the federal Safe Drinking Water Act, which we
believes will bring treatment costs more in line with the actual health
threat posed by contaminants, were enacted by Congress during 1996. Work
continues to monitor water quality and upgrade treatment capabilities to
maintain compliance with the various regulations. These activities include:
16
17
- installation of dedicated sample sites to assure water samples are
drawn at a secure source
- maintaining a state approved compliance monitoring program required by
the Safe Drinking Water Act
- upgrading laboratory equipment and enhancing analytical testing
capabilities
- ongoing training of laboratory and operating personnel
- installation of disinfection treatment at all well sources
- installation and operation of several granular activated carbon (GAC)
filtration systems for removal of hydrogen sulfide or volatile organic
chemicals
- treatment systems at two Los Angeles Basin wells and wells at the
South San Francisco well field which have elevated levels of iron and
manganese; the treatment allowed the wells to be returned to
production during 1997 and 1998; thus, less costly well water, rather
than purchased water supplies became available
- construction of a new iron and manganese treatment plant in the leased
Hawthorne system; completion of this project is scheduled for early
1999
- monitoring of all sources for MTBE, the gasoline additive widely used
throughout the state
- completion of mandatory Information Collection Rule monitoring for
specified water systems
COMPETITION AND CONDEMNATION
The Company is a public utility regulated by the CPUC. The Company provides
service within filed service areas approved by the CPUC. Under the laws of
the State of California, no privately owned public utility may compete with
the Company in any territory already served by the Company without first
obtaining a certificate of public convenience and necessity from the CPUC.
Under CPUC practices, such certificate will be issued only if the CPUC
finds that the Company's service is deficient.
California law also provides that whenever a public agency constructs
facilities to extend a utility system into the service area of a privately
owned public utility, such an act constitutes the taking of property. For
such taking the public utility is to be paid just compensation. Under the
constitution and statutes of the State of California, municipalities, water
districts and other public agencies have been authorized to engage in the
ownership and operation of water systems. Such agencies are empowered to
condemn properties already operated by privately owned public utilities
upon payment of just compensation and are further authorized to issue
bonds, including revenue bonds, for the purpose of acquiring or
constructing water systems. To Group's knowledge, no municipality, water
district or other public agency has any pending action to acquire or
condemn any of Group's systems.
The water industry is experiencing competitive changes and the potential
exists for new growth. Group has in the past participated in public/private
partnerships, such as the lease of a water system, system operation
agreements, or billing service contracts, and anticipates future
opportunities for further
17
18
participation and development. The formation of the holding company
structure is expected to enhance financing, accounting and operation of the
nonregulated business activities.
ENVIRONMENTAL MATTERS
Group is subject to environmental regulation by various governmental
authorities. Compliance with federal, state and local provisions which have
been enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment,
has not had, as of the date of filing of this Form 10-K, any material
effect on Group's capital expenditures, earnings or competitive position.
Group is unaware of any pending environmental matters which will have a
material effect on its operations. Refer to Item 3, Legal Proceedings, for
additional information.
The environmental affairs program is designed to provide compliance with
underground storage tank regulations, hazardous materials management plans,
air quality permitting requirements, local and toxic discharge limitations,
and employee safety issues related to hazardous materials. The Company has
been actively involved in the formulation of air quality standards related
to water utilities. Also, the Company is proactive in looking to
alternative technologies in meeting environmental regulations and
continuing the traditional practices of water quality.
HUMAN RESOURCES
At December 31, 1998, Group had 658 employees, of whom 185 were executive,
administrative and supervisory employees, and 473 were members of unions.
In December 1997, two-year collective bargaining agreements, expiring
December 31, 1999, were successfully negotiated with the Utility Workers
Union of America, AFL-CIO, representing the majority of field and clerical
union employees. In January 1998, a new two-year collective bargaining
agreement was negotiated with the International Federation of Professional
and Technical Engineers, AFL-CIO, representing certain engineering
department and water quality laboratory employees. Both agreements were
ratified by the union members in January 1998. As in the past, both
agreements were successfully negotiated and ratified without a work
interruption.
d. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Group makes no export sales.
ITEM 2. PROPERTIES.
Group's physical properties consist of offices and water systems to
accomplish the production, storage, purification and distribution of water.
These properties are located in or near the Geographic Service Areas listed
above under section Item 1.c. entitled "Narrative Description of the
Business." Group's general office, which houses accounting, engineering,
information systems, human resources, purchasing, rate making, water
quality
18
19
and executive staffs are located in San Jose, California. All properties
are maintained in good operating condition.
All principal properties are held in fee simple title, subject to the lien
of the indenture securing the Company's first mortgage bonds of which
$118,585,000 remained outstanding at December 31, 1998.
Group owns 522 wells and operates six leased wells. There were 291 storage
tanks with a capacity of 216 million gallons and one reservoir located in
the Bear Gulch district with a 210 million gallon capacity. There are about
4,650 miles of supply and distribution mains in the various systems. There
are two treatment plants, one in the Bear Gulch district, the other in
Oroville. Both treatment plants are designed to process six million gallons
per day. During 1998, the average daily water production was 271 million
gallons, while the maximum production on a single day was 507 million
gallons. By comparison, during 1997 the average daily water production was
301 million gallons, while the maximum production on one day was 513
million gallons. In 1996, the average daily water production was 283
million gallons and the maximum production on one day was 497 million
gallons.
In the leased systems or in systems which are operated under contract for
municipalities or private companies, title to the various properties is
held exclusively by the municipality or private company.
ITEM 3. LEGAL PROCEEDINGS.
The State of California's Department of Toxic Substances Control ("DTSC")
alleges that the Company is a potential responsible party for cleanup of a
toxic contamination in the Chico groundwater. The DTSC has prepared a draft
report titled "Preliminary Nonbinding Allocation of Financial
Responsibility" for the cleanup which asserts that the Company's share
should be 10 percent. The DTSC estimates the total cleanup cost to be $8.69
million. The toxic spill occurred when cleaning solvents, which were
discharged into the city's sewer system by local dry cleaners, leaked into
the underground water supply due to breaks in the sewer pipes. The DTSC
contends that the Company's responsibility stems from its operation of
wells in the surrounding vicinity that caused the contamination plume to
spread. The Company denies any responsibility for the contamination or the
resulting cleanup and intends to vigorously resist any action that may be
brought against it. The Company believes that it has insurance coverage for
this claim and that if it were ultimately held responsible for a portion of
the cleanup costs, there would not be a material adverse effect on Group's
financial position or results of operations. Legal costs to date have been
borne by the insurance carrier.
In December 1997, Group along with the City of Stockton and San Joaquin
County ("the Contractors") filed a lawsuit against the Stockton East Water
District ("SEWD"). The Contractors are
19
20
SEWD's sole customers for wholesale potable water. SEWD also serves raw
water to agricultural customers. To enable SEWD to meet its financial
obligations, the Contractors agreed to specific Base Monthly Payments which
as of June 30, 1997 had generated $5.4 million in surplus funds. The
Contractors contend that a portion of the funds paid by the Contractors
have been or will be used for purposes other than to meet SEWD's agreed
financial obligations. Presently, all parties to the lawsuit have entered
into a Stipulated Preliminary Injunction. A favorable settlement is
anticipated.
Group is not a party to any other legal matters, other than those which are
incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders in the fourth
quarter of year 1998.
20
21
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Positions and Offices with Group Age
- ---- -------------------------------- ---
Robert W. Foy Chairman of the Board since January 1, 1996. 62
(1) A Director since 1977. Formerly President
and Chief Executive Officer of Pacific Storage Company,
Stockton, Modesto, Sacramento and San Jose, California, a
diversified transportation and warehousing company, where
he had been employed for 32 years.
Peter C. Nelson President and Chief Executive Officer since 51
(1) February 1, 1996. Formerly Vice President,
Division Operations (1994-1995) and Region Vice President
(1989-1994), Pacific Gas & Electric Company, a gas and
electric public utility.
Gerald F. Feeney Vice President, Chief Financial Officer and 54
(1) Treasurer since November 1994; Controller,
Assistant Secretary and Assistant Treasurer
from 1976 to 1994. From 1970 to 1976, an audit manager
with Peat Marwick Mitchell & Co.
Calvin L. Breed Controller, Assistant Secretary and Assistant 43
(2) Treasurer since November 1994. Previously
Treasurer of TCI International, Inc.; from 1980
to 1983, a certified public accountant with
Arthur Andersen & Co.
Paul G. Ekstrom Corporate Secretary since August 1996; 46
(1) Operations Coordinator, 1993 to 1996;
District Manager, Livermore, 1988 to 1993;
previously served in various field management positions
since 1979; an employee since 1972.
(1) holds the same position with California Water Service
Company and CWS Utility Services
(2) holds the same position with California Water Service
Company
Name Positions and Offices with the Company Age
- ---- -------------------------------------- ---
Francis S. Vice President, Regulatory Matters since August 49
Ferraro 1989. Employed by the California Public
Utilities CPUC for 15 years, from 1985 through 1989, as
an administrative law judge.
James L. Good Vice President, Corporate Communications 35
(1) and Marketing since January 1995. Previously Director of
Congressional Relations for the National Association of
Water Companies from 1991 to 1994.
21
22
Robert R. Vice President, Engineering and Water Quality 45
Guzzetta since August 1996; Chief Engineer, 1990 to 1996;
Assistant Chief Engineer, 1988 to 1990; various
engineering department positions since 1977.
Christine L. Vice President, Human Resources since August 52
McFarlane 1996; Director of Human Resources, 1991 to 1996;
Assistant Director of Personnel, 1989 to 1991; an
employee since 1969.
Raymond H. Taylor Vice President, Operations since April 1995; 53
Vice President and Director of Water Quality, 1990 to
1995; Director of Water Quality, 1986
to 1990; prior to 1982 an employee of the United States
Environmental Protection Agency.
Raymond L. Vice President, Chief Information Officer since 59
Worrell August 1996; Director of Information Systems,
1991 to 1996; Assistant Manager of Data Processing, 1970
to 1991; Data Processing Supervisor, 1967 to 1970.
John S. Simpson Assistant Secretary, Manager of New Business since 1991; 54
Manager of New Business development for the past thirteen
years; served in various management positions since 1967.
(1) Also, Vice President, Marketing with CWS Utility Services.
No officer or director has any family relationship to any other executive
officer or director. No executive officer is appointed for any set term. There
are no agreements or understandings between any executive officer and any other
person pursuant to which he was selected as an executive officer, other than
those with directors or officers of Group acting solely in their capacities as
such.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this item is contained in the Section captioned
"Quarterly Financial and Common Stock Market Data" on page 28 of Group's
1998 Annual Report and is incorporated herein by reference. The number of
shareholders listed in such section includes Group's record shareholders
and an estimate of shareholders holding stock in street name.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is contained in the section captioned
"Ten Year Financial Review" on pages 8 and 9 of Group's 1998 Annual Report
and is incorporated herein by reference.
22
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this item is contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," on pages 10 through 16 of the Group's 1998 Annual Report and
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is contained in the sections
captioned "Consolidated Balance Sheet", "Consolidated Statement of Income",
"Consolidated Statement of Common Shareholders' Equity", "Consolidated
Statement of Cash Flows", "Notes to Consolidated Financial Statements" and
"Independent Auditors' Report" on pages 17 through 29 of Group's 1998
Annual Report and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item as to directors of the Group is
contained in the sections captioned "Election of Directors", "Nominees for
Directors" and "Board Committees" on pages 10 through 12 of the 1999 Proxy
Statement and is incorporated herein by reference. Information regarding
executive officers of Group is included in a separate item captioned
"Executive Officers of the Registrant" contained in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item as to directors of Group is included
under the caption "Compensation of Non-employee Directors" on page 13 of
the 1999 Proxy Statement and is incorporated herein by reference. The
information required by this item as to compensation of executive officers,
including officers who are directors, is included under the caption
"Compensation of Executive Officers" on page 16 through 19 of the 1999
Proxy Statement and is incorporated herein by reference.
23
24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is contained in the sections
captioned "Beneficial Ownership of Director-Nominees" and "Security
Ownership of Management" on pages 14 and 20, respectively, of the 1999
Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1)Financial Statements:
Consolidated Balance Sheet as of December 31, 1998 and 1997.
Consolidated Statement of Income for the years ended December 31, 1998,
1997, and 1996.
Consolidated Statement of Common Shareholders' Equity for the years ended
December 31, 1998, 1997, and 1996.
Consolidated Statement of Cash Flows for the years ended December 31, 1998,
1997, and 1996.
Notes to Consolidated Financial Statements, December 31, 1998, 1997, and
1996.
Independent Auditors' Report dated January 22, 1999.
The above financial statements are contained in sections bearing the same
captions on pages 17 through 29 of Group's 1998 Annual Report and are
incorporated herein by reference.
(2) Financial Statement Schedule:
Schedule
Number
Independent Auditors' Report dated January 22, 1999.
II Valuation and Qualifying Accounts and Reserves--years ending December 31,
1998, 1997, and 1996.
All other schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or related
notes.
24
25
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
See Exhibit Index on page 29 of this document which is incorporated herein
by reference.
The exhibits filed herewith are attached hereto (except as noted). Those
exhibits indicated on the Exhibit Index which are not filed herewith were
previously filed with the Securities and Exchange CPUC as indicated. Except
where stated otherwise, such exhibits are hereby incorporated by reference.
(B) Report on Form 8-K.
Form 8-K was filed November 19, 1998 to report that on November 13, 1998
Registrant and its wholly-owned subsidiary, California Water Service
Company, had entered into an agreement to merge with Dominguez Services
Corporation. The agreed terms and conditions provide that each common share
of Dominguez Services Corporation will be exchanged for 1.18 shares of
Registrant's common stock. The consummation of the merger is conditioned
upon the satisfaction of certain conditions, including the approval of the
CPUC and other regulatory approvals.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CALIFORNIA WATER SERVICE GROUP
Date: February 25, 1999 By /s/ Peter C Nelson
PETER C. NELSON,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Date: February 25, 1999 /s/ Robert W. Foy
ROBERT W. FOY, Chairman,
Board of Directors
25
26
Date: February 25, 1999 /s/ Edward D. Harris, Jr.
EDWARD D. HARRIS, JR., M.D., Member,
Board of Directors
Date: February 25, 1999 /s/ Robert K. Jaedicke
ROBERT K. JAEDICKE, Member,
Board of Directors
Date: February 25, 1999 /s/ Richard P. Magnuson
RICHARD P. MAGNUSON, Member,
Board of Directors
Date: February 25, 1999 /s/ Linda R. Meier
LINDA R. MEIER, Member,
Board of Directors
Date: February 25, 1999 /s/ Peter C. Nelson
PETER C. NELSON
President and Chief Executive Officer,
Member, Board of Directors
Date: February 25, 1999 /s/ C. H. Stump
C. H. STUMP, Member,
Board of Directors
Date: February 25, 1999 /s/ George A. Vera
GEORGE A. VERA, Member
Board of Directors
Date: February 25, 1999 /s/ J. W. Weinhardt
J. W. WEINHARDT, Member,
Board of Directors
Date: February 25, 1999 /s/ Gerald F. Feeney
GERALD F. FEENEY,
Vice President, Chief Financial
Officer and Treasurer;
Principal Financial Officer
Date: February 25, 1999 /s/ Calvin L. Breed
CALVIN L. BREED, Controller,
Assistant Secretary and Assistant
Treasurer;
Principal Accounting Officer
26
27
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
California Water Service Group:
Under date of January 22, 1999, we reported on the consolidated balance sheet of
California Water Service Group as of December 31, 1998 and 1997, and the related
consolidated statements of income, common shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1998, as
contained in the 1998 annual report to shareholders. These financial statements
and our report thereon are incorporated by reference in the annual report on
Form 10-K for the year 1998. In connection with our audits of the aforementioned
financial statements, we also audited the related consolidated financial
statement schedule as listed in the index appearing under Item 14(a)(2). This
financial statement schedule is the responsibility of Group's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
Mountain View, California /s/ KPMG LLP
January 22, 1999
27
28
Schedule II
CALIFORNIA WATER SERVICE GROUP
Valuation and Qualifying Accounts
Years Ended December 31, 1998, 1997 and 1996
Additions
------------------------
Balance at Charged to Charged to
beginning costs and other
Description of period expenses accounts
- ----------------------------------------------------------------------- ----------- ----------- -----------
1998 (A)Reserves deducted in the balance sheet from assets
to which they apply:
Allowance for doubtful accounts $ 100,096 $ 536,388 $ 52,796(3)
Allowance for obsolete materials and supplies $ 129,193 48,000
=========== =========== ===========
(B)Reserves classified as liabilities in the balance sheet:
Miscellaneous reserves:
General Liability $ 900,425 $ 600,000
Employees' group health plan $ 721,120 3,000,000 15,509
Retirees' group health plan $ 1,443,373 751,664 458,336
Workers compensation $ 661,829 878,423
Deferred revenue - contributions in aid of construction $ 1,584,342 229,162
Disability insurance $ 23,811 107,110
----------- ----------- -------------
$ 5,334,900 $ 5,230,087 $ 810,117
=========== =========== ===========
Contributions in aid of construction $44,270,083 $ 2,524,406(4)
=========== =========== ===========
1997 (A)Reserves deducted in the balance sheet from assets to which
they apply:
Allowance for doubtful accounts $ 99,550 $ 610,951 $ 70,850(3)
Allowance for obsolete materials and supplies 101,077 48,000
=========== =========== ===========
(B)Reserves classified as liabilities in the balance sheet:
Miscellaneous reserves:
General Liability $ 997,834 $ 668,496
Employees' group health plan 467,986 3,140,000 14,539
Retirees' group health plan 911,998 581,000 531,375
Workers compensation 499,651 830,313
Deferred revenue - contributions in aid of construction 1,799,573 126,547
Disability insurance 50,371 103,167
----------- ----------- -----------
$ 4,727,413 $ 5,219,809 $ 775,628
=========== =========== ===========
Contributions in aid of construction $43,066,585 $ 2,447,231(4)
=========== =========== ===========
1996 (A)Reserves deducted in the balance sheet from assets to
which they apply:
Allowance for doubtful accounts $ 76,197 $ 530,691 $ 65,445(3)
Allowance for obsolete materials and supplies $ 74,675 48,000
=========== =========== ===========
(B)Reserves classified as liabilities in the balance sheet:
Miscellaneous reserves:
General Liability $ 826,965 $ 740,000
Employees' group health plan $ 400,004 2,880,000 14,348
Retirees' group health plan $ 670,998 523,000 241,000
Workers compensation $ 260,170 835,430
Deferred revenue - contributions in aid of construction $ 1,930,336 276,525
Disability insurance $ 47,453 199,097
----------- ----------- -----------
$ 4,135,926 $ 4,978,430 $ 730,970
=========== =========== ===========
Contributions in aid of construction $40,113,707 $ 4,062,087(4)
=========== =========== ===========
Balance
at end
Description Deductions of period
------------- -----------
1998 (A)Reserves deducted in the balance sheet from assets
to which they apply:
Allowance for doubtful accounts $ 489,025(1) $ 200,255
Allowance for obsolete materials and supplies 39,733(2) 137,460
=========== ===========
(B)Reserves classified as liabilities in the balance sheet:
Miscellaneous reserves:
General Liability $ 229,673(2) $ 1,270,752
Employees' group health plan 3,093,246(2) 643,383
Retirees' group health plan 635,000(2) 2,018,373
Workers compensation 536,454(2) 1,003,798
Deferred revenue - contributions in aid of construction 336,988(6) 1,476,516
Disability insurance 104,702(2) 26,219
----------- -----------
$ 4,936,063 $ 6,439,041
=========== ===========
Contributions in aid of construction $ 1,694,085(5) $45,100,404
=========== ===========
1997 (A)Reserves deducted in the balance sheet from assets to which
they apply:
Allowance for doubtful accounts $ 681,255(1) $ 100,096
Allowance for obsolete materials and supplies 19,884(2) 129,193
=========== ===========
(B)Reserves classified as liabilities in the balance sheet:
Miscellaneous reserves:
General Liability $ 765,905(2) $ 900,425
Employees' group health plan 2,901,405(2) 721,120
Retirees' group health plan 581,000(2) 1,443,373
Workers compensation 668,135(2) 661,829
Deferred revenue - contributions in aid of construction 341,778(6) 1,584,342
Disability insurance 129,727(2) 23,811
----------- -----------
$ 5,387,950 $ 5,334,900
=========== ===========
Contributions in aid of construction $ 1,243,733(5) $44,270,083
=========== ===========
1996 (A)Reserves deducted in the balance sheet from assets to
which they apply:
Allowance for doubtful accounts $ 572,783(1) $ 99,550
Allowance for obsolete materials and supplies 21,598(2) 101,077
=========== ===========
(B)Reserves classified as liabilities in the balance sheet:
Miscellaneous reserves:
General Liability $ 569,131(2) $ 997,834
Employees' group health plan 2,826,366(2) 467,986
Retirees' group health plan 523,000(2) 911,998
Workers compensation 595,949(2) 499,651
Deferred revenue - contributions in aid of construction 407,288(6) 1,799,573
Disability insurance 196,179(2) 50,371
----------- -----------
$ 5,117,913 $ 4,727,413
=========== ===========
Contributions in aid of construction $ 1,109,209(5) $43,066,585
=========== ===========
Notes:
(1) Accounts written off during the year.
(2) Expenditures and other charges made during the year.
(3) Recovery of amounts previously charged to reserve.
(4) Properties acquired at no cost, cash contributions and net transfer on
non-refundable balances from advances to contributions.
(5) Depreciation of utility plant acquired by contributions charged to a
balance sheet account.
(6) Amortized to revenue.
Page 1
29
EXHIBIT INDEX
Sequential
Page Numbers
Exhibit Number in this Report
Unless filed with this Form 10-K, the documents listed are
incorporated by reference.
3. Articles of Incorporation and by-laws:
3.1 Restated Articles of Incorporation of California 29
Water Service Group and By-laws of California Water
Service Group (Filed as Exhibits B and C, respectively,
of the 1997 California Water Service Company Proxy
Statement/Prospectus) (Form S-4 filed March 6, 1997)
3.2 Certificate of Determination of Preferences 29
for the Company's Series C Preferred Stock
(Exhibit 3.2 to Form 10-K for fiscal year 1987,
File No. 0-464)
3.3 Certificate of Determination of Preferences for 29
Group's Series D Preferred Stock (Exhibit A
to the Shareholder Rights Plan, an agreement between
California Water Service
Group and BankBoston, N.A.,
rights agent, dated January 28, 1998 file as Exhibit
1 to Form 8-A and Exhibit 1 to Form 8-K dated
February 13, 1998)
4. Instruments Defining the Rights of Security 29
Holders of California Water Service Company,
including Indentures:
Mortgage of Chattels and Trust Indenture 29
dated April 1, 1928; Eighth Supplemental Indenture
dated November 1, 1945, covering First Mortgage
3.25% Bonds, Series C; twenty-first
Supplemental Indenture dated October 1, 1972, covering First
Mortgage 7.875% Bonds, Series P; twenty-fourth Supplemental
Indenture dated November 1, 1973, covering First Mortgage 8.50%
Bonds, Series S (Exhibits 2(b), 2(c), 2(d), Registration Statement
No. 2-53678, of which certain exhibits are incorporated by reference
to Registration Statement Nos. 2-2187, 2-5923, 2-5923, 2-9681,
2-10517 and 2-11093.)
Thirty-third Supplemental Indenture dated as 29
of May 1, 1988, covering First Mortgage
9.48% Bonds, Series BB. (Exhibit 4 to Form 10-Q
dated September 30, 1988, File No. 0-464)
Thirty-fourth Supplemental Indenture dated as 29
of November 1, 1990, covering First Mortgage
9.86% Bonds, Series CC. (Exhibit 4 to Form 10-K
29
30
for fiscal year 1990, File No. 0-464)
Thirty-fifth Supplemental Indenture dated as of 30
November 1, 1992, covering First Mortgage 8.63%
Bonds, Series DD. (Exhibit 4 to Form 10-Q
dated September 30, 1992, File No. 0-464)
Thirty-sixth Supplemental Indenture dated as of 30
May 1, 1993, covering First Mortgage 7.90% Bonds
Series EE (Exhibit 4 to Form 10-Q dated
June 30, 1993, File No. 0-464)
Thirty-seventh Supplemental Indenture dated as 30
of September 1, 1993, covering First Mortgage
6.95% Bonds, Series FF (Exhibit 4 to Form 10-Q
dated September 30, 1993, File No. 0-464)
Thirty-eighth Supplemental Indenture dated as 30
of October 15, 1993, covering First Mortgage 6.98%
Bonds, Series GG (Exhibit 4 to Form 10-K for fiscal
year 1994, File No. 0-464)
Note Agreement dated August 15, 1995, pertaining 30
to issuance of $20,000,000, 7.28% Series A
Unsecured Senior Notes, due November 1, 2025
(Exhibit 4 to Form 10-Q dated September 30, 1995
File No. 0-464)
10. Material Contracts.
10.1 Water Supply Contract between the Company 30
and the County of Butte relating to the Company's Oroville
District; Water Supply Contract between the Company and the Kern
County Water Agency relating to the Company's Bakersfield
District; Water Supply Contract between the Company and Stockton
East Water District relating to the Company's Stockton District.
(Exhibits 5(g), 5(h), 5(i), 5(j), Registration Statement No.
2-53678, which incorporates said exhibits by reference to Form
1O-K for fiscal year 1974, File No. 0-464).
10.2 Settlement Agreement and Master Water Sales 30
Contract between the City and County of San Francisco and Certain
Suburban Purchasers dated August 8, 1984; Supplement to
Settlement Agreement and Master Water Sales Contract, dated
August 8, 1984; Water Supply Contract between the Company and the
City and County
30
31
of San Francisco relating to the Company's Bear
Gulch District dated August 8, 1984; Water Supply Contract
between the Company and the City and County of San Francisco
relating to the Company's San Carlos District dated August 8,
1984; Water Supply Contract between the Company and the City and
County of San Francisco relating to the Company's San Mateo
District dated August 8, 1984; Water Supply Contract between the
Company and the City and County of San Francisco relating to the
Company's South San Francisco District dated August 8, 1984.
(Exhibit 10.2 to Form l0-K for fiscal year 1984, File No. 0-464).
10.3 Water Supply Contract dated January 27, 31
1981, between the Company and the Santa
Clara Valley Water District relating to
the Company's Los Altos District
(Exhibit 10.3 to Form 10-K for fiscal
year 1992, File No. 0-464)
10.4 Amendments No. 3, 6 and 7 and Amendment 31
dated June 17, 1980, to Water Supply
Contract between the Company and the
County of Butte relating to the Company's
Oroville District. (Exhibit 10.5 to Form
10-K for fiscal year 1992, File No. 0-464)
10.5 Amendment dated May 31, 1977, to Water 31
Supply Contract between the Company and
Stockton-East Water District relating to
the Company's Stockton District.
(Exhibit 10.6 to Form 10-K for fiscal
year 1992, File No. 0-464)
10.6 Second Amended Contract dated September 25, 31
1987 among the Stockton East Water District,
the California Water Service Company, the
City of Stockton, the Lincoln Village
Maintenance District, and the Colonial Heights
Maintenance District Providing for the Sale of
Treated Water. (Exhibit 10.7 to Form 10-K for
fiscal year 1987, File No. 0-464).
10.7 Water Supply Contract dated April 19, 1927, 31
and Supplemental Agreement dated June 5,
1953, between the Company and Pacific Gas
and Electric Company relating to the
Company's Oroville District. (Exhibit 10.9
to Form 10-K for fiscal year 1992, File No.
0-464)
10.8 California Water Service Company Pension Plan 31
(Exhibit 10.10 to Form 10-K for fiscal year
1992, File No. 0-464)
10.9 California Water Service Company Supplemental 31
Executive Retirement Plan. (Exhibit 10.11 to
Form 10-K for fiscal year 1992, File No. 0-464)
31
32
10.10 California Water Service Company Employees 32
Savings Plan. (Exhibit 10.12 to Form 10-K for
fiscal year 1992, File No. 0-464)
10.11 Agreement between the City of Hawthorne and 32
California Water Service Company for the 15-
year lease of the City's water system.
(Exhibit 10.17 to Form 10-Q dated March 31, 1996)
10.12 Water Supply Agreement dated September 25, 1996 32
between the City of Bakersfield and California
Water Service Company. (Exhibit 10.18 to Form 10-Q
dated September 30, 1996)
10.13 Agreement of Merger dated March 6, 1997 by and among California 32
Water Service Company, CWSG Merger Company and California
Water Service Group. (Filed as Exhibit A of the 1997
California Water Service Company Proxy Statement/Prospectus
which was incorporated by reference in the Form 10-K for
1997)
10.14 Shareholder Rights Plan; an agreement between 32
California Water Service Group and BankBoston, N.A.,
rights agent, dated January 28, 1998 (Exhibit 1
to Form 8-A and Exhibit 1 to Form 8-K dated
February 13, 1998)
10.15 Dividend Reinvestment and Stock Purchase Plan dated 32
February 17, 1998 (Filed on Form S-3 dated
February 17, 1998)
10.16 California Water Service Group Directors Deferred 32
Compensation Plan (Exhibit 10.17 to Form 10-K for
fiscal year 1997)
10.17 California Water Service Group Directors 32
Retirement Plan (Exhibit 10.18 to Form 10-K
for fiscal year 1997)
10.18 $50,000,000 Business Loan Agreements between 32
California Water Service Group, California Water
Service Company and CWS Utility Services and
Bank of America dated March 16, 1998, expiring
April 30, 1999 (Exhibit 10.20 to Form 10-K for
the year 1997)
10.19 Amendment to the bylaws regarding the timing for 32
submission of shareholder proposals for consideration
at annual shareholder meetings and shareholder
nomination of directors (Exhibit 10.18 to Form 10Q
for the quarter ending September 30, 1998)
32
33
10.20 Certificate of Determination filed with the state of 33
California regarding Series D Participating Preferred Shares.
These shares are relative to Shareholder Rights Plan and would be
issued if the rights plan was triggered. This is a revised filing
at the Secretary of State's request in a revised form (Exhibit
10.19 to Form 10Q for the quarter ending September 30, 1998)
10.21 Amendment to the Business Loan Agreement between 33
California Water Service Company and Bank of America
(refer to Exhibit 10.18) whereby the bank has
extended the period during which the Company is
required to have repaid any advances under the
Agreement for 30 consecutive days to April 30, 1999
10.22 Amendment to the California Water Service Company 33
Supplemental Executive Retirement Plan (refer to
Exhibit 10.18) to allow benefits to be received by
Plan participants at age 60 without a reduction in
the benefit level
10.23 Amendment to the California Water Service Group 33
Deferred Director Compensation Plan (refer to
Exhibit 10.16) regarding the timing for electing
Plan benefits
10.24 Executive Severance Plan (Exhibit 10.24 to Form 10K 33
For fiscal year 1998)
10.25 Water Supply Contract dated November 16, 1994, between the 33
Company and Alameda County Flood Control and Water Conservation
District relating to the Company's Livermore District Exhibit
10.15 to Form 10-K for fiscal year 1994
13. Annual Report to Security Holders, Form 10-Q or
Quarterly Report to Security Holders:
1998 Annual Report. Certain sections of the 1998 Annual Report
are incorporated by reference in this 10-K filing. This includes
those sections referred to in Part II, Item 5, Market for
Registrant's Common Equity and Related Shareholder Matters; Part
II, Item 6, Selected Financial Data; Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and
Results of Operations; and Part II, Item 8, Financial Statement
and Supplementary Data.
27. Financial Data Schedule as of December 31, 1998 33
33