More annual reports from California Water Service Group:
2023 ReportPeers and competitors of California Water Service Group:
American States Water CompanyEVERYDAY HEROES California Water Service Group 2015 Summary Annual Report HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Table of Contents 1 Everyday Heroes 11 Highlights 15 Letter to Stockholders 23 Service Areas 25 Eight-Year Financial Review 27 Board of Directors 28 Corporate Officers 29 Corporate Information California Water Service Group (NYSE: CWT) is the third largest publicly traded water utility in the United States, providing high- quality utility ser vices to approximately two million people in more than 100 communities through six subsidiaries: California Water Service (Cal Water), Hawaii Water Service Company, Inc. (Hawaii Water), New Mexico Water Service Company (New Mexico Water), Washington Water Ser vice Company (Washington Water), CWS Utility Ser vices (CWSUS), and HWS Utility Ser vices (HWSUS). Cal Water, Hawaii Water, New Mexico Water, and Washington Water provide regulated water and wastewater utility ser vices, while CWSUS and HWSUS conduct the Company’s non-regulated business, which includes providing billing, water quality testing, and water and wastewater system operations and management services to cities and other companies. HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Not all heroes fly. 1 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS They don’t all leap tall buildings in a single bound, carry lassos of truth, or shoot webs from their wrists. Some of them make the world a better place without the benefit of superpowers. It’s these ever yday heroes who are helping us through one of the worst droughts in California history. 2 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS And they’ve joined forces with our customers to deliver spectacular results. 3 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Extraordinary Acts of Customer Service! Due to historic drought conditions, the Governor of California issued an emergency proclamation in April 2015 that gave us little more than a month to begin meeting ambitious water-use reduction targets. We already had an industry-leading conservation program in place, but new state mandates required us to step up our efforts even further. Taking a customer-first approach, we established an individualized water budget for each customer, set up a centralized drought call center to answer questions and process water-budget appeals, and trained a small army of Conservation Coordinators to provide personal, individual assistance to all who needed it. And before we launched, we hosted 25 public meetings throughout the state to discuss the plan personally with thousands of customers. During the first few months, call volumes in our drought call center and our districts skyrocketed, but our team did a heroic job of explaining the state requirements, walking customers through their water budgets, and offering a range of conservation programs. The upshot: Despite very challenging circumstances, customer satisfaction levels remained high. We conducted a poll in October, and on a scale of 1 to 5 with 5 being best, we scored 4 for overall satisfaction, 4.4 for service, and 4 for communications. These results wouldn’t have been possible without the extraordinary efforts of Sandra Millan, Camisha Townsend, and our other 153 customer service professionals. 4 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Extraordinary Acts of Customer Service! Due to historic drought conditions, the Governor of California issued an emergency proclamation in April 2015 that gave us little more than a month to begin meeting ambitious water-use reduction targets. We already had an industry-leading conservation program in place, but new state mandates required us to step up our efforts even further. Taking a customer-first approach, we established an individualized water budget for each customer, set up a centralized drought call center to answer questions and process water-budget appeals, and trained a small army of Conservation Coordinators to provide personal, individual assistance to all who needed it. And before we launched, we hosted 25 public meetings throughout the state to discuss the plan personally with thousands of customers. During the first few months, call volumes in our drought call center and our districts skyrocketed, but our team did a heroic job of explaining the state requirements, walking customers through their water budgets, and offering a range of conservation programs. The upshot: Despite very challenging circumstances, customer satisfaction levels remained high. We conducted a poll in October, and on a scale of 1 to 5 with 5 being best, we scored 4 for overall satisfaction, 4.4 for service, and 4 for communications. These results wouldn’t have been possible without the extraordinary efforts of Sandra Millan, Camisha Townsend, and our other 153 customer service professionals. 4 Sandra Millan & Camisha Townsend HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Stupendous Exploits in Community Outreach! There’s only one way to be “customer first,” and that is to be with the customer. That’s why we spent a lot of time in our communities in 2015. Whether we were sitting cross-legged on the floor talking to schoolkids, knocking on individual customers’ doors, engaging with fans on our Facebook page, mingling with neighbors during National Safety Night Out, or providing drought-tolerant landscaping advice to avid gardeners, we were impacting our communities. President and Chief Executive Officer Martin A. Kropelnicki personally visited Shasta Elementary School in Chico to congratulate the fifth graders in Room 17, who won the Company’s inaugural H2O Challenge for their rain harvesting and drought-tolerant garden project. District Managers Lee Seidel, Dan Trejo, and Dan Armendariz joined community leaders and elected officials at ribbon-cutting ceremonies for three new conservation demonstration gardens. District Manager Pete Bonacich made an inspiring presentation at Chico State Water Week 2015. And Susan Cordone and our team of Conservation Coordinators made it their mission to personally interact with as many of our neighbors as (super) humanly possible. 5 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Stupendous Exploits in Community Outreach! There’s only one way to be “customer first,” and that is to be with the customer. That’s why we spent a lot of time in our communities in 2015. Whether we were sitting cross-legged on the floor talking to schoolkids, knocking on individual customers’ doors, engaging with fans on our Facebook page, mingling with neighbors during National Safety Night Out, or providing drought-tolerant landscaping advice to avid gardeners, we were impacting our communities. President and Chief Executive Officer Martin A. Kropelnicki personally visited Shasta Elementary School in Chico to congratulate the fifth graders in Room 17, who won the Company’s inaugural H2O Challenge for their rain harvesting and drought-tolerant garden project. District Managers Lee Seidel, Dan Trejo, and Dan Armendariz joined community leaders and elected officials at ribbon-cutting ceremonies for three new conservation demonstration gardens. District Manager Pete Bonacich made an inspiring presentation at Chico State Water Week 2015. And Susan Cordone and our team of Conservation Coordinators made it their mission to personally interact with as many of our neighbors as (super) humanly possible. 5 Susan Cordone HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Spectacular Efforts in Water Supply! It took serious heroism to provide a reliable water supply in the midst of one of the most serious droughts in California history. In Bakersfield, water supplies were extremely constrained, and we needed to secure more water to keep two critical treatment plants in operation. That’s where District Manager Rudy Valles stepped in and saved the day, leading the effort to partner with the City of Bakersfield on a critical water exchange agreement with the Kern Delta Water District and the Kern County Water Agency. All four entities expeditiously collaborated and executed a new agreement to supply the two treatment plants in less than 90 days. Despite significant challenges in many of our communities, none of our customers went without water, thanks to the phenomenal efforts of our engineering and operations professionals. In fact, in July, we installed 3,000 feet of water main to supply water to 26 Visalia families who weren’t our customers, but whose private wells had gone dry. This wasn’t our only act of “supply heroism”; we also supplied emergency water to drought-stricken neighbors outside of our service areas in Tulare, Kern, and San Mateo counties. 6 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Spectacular Efforts in Water Supply! It took serious heroism to provide a reliable water supply in the midst of one of the most serious droughts in California history. In Bakersfield, water supplies were extremely constrained, and we needed to secure more water to keep two critical treatment plants in operation. That’s where District Manager Rudy Valles stepped in and saved the day, leading the effort to partner with the City of Bakersfield on a critical water exchange agreement with the Kern Delta Water District and the Kern County Water Agency. All four entities expeditiously collaborated and executed a new agreement to supply the two treatment plants in less than 90 days. Despite significant challenges in many of our communities, none of our customers went without water, thanks to the phenomenal efforts of our engineering and operations professionals. In fact, in July, we installed 3,000 feet of water main to supply water to 26 Visalia families who weren’t our customers, but whose private wells had gone dry. This wasn’t our only act of “supply heroism”; we also supplied emergency water to drought-stricken neighbors outside of our service areas in Tulare, Kern, and San Mateo counties. Rudy Valles 6 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Incredible Deeds in Technology! The old saying “knowledge is power” certainly makes sense in the middle of a drought. That’s where technology comes in. Landscape Program Specialist Ari Wilfley has been utilizing aerial imagery to gather information about individual customers’ landscape types and sizes in order to develop water budgets. She is also using our Geospatial Information System (GIS) and a “hot spot algorithm” to map neighborhoods with higher- than-average water usage to help the drought response team conduct more focused, informed outreach. And for her latest project, golfers carry Global Positioning Systems (GPS) and data loggers to collect data to help golf courses identify landscaping that can be removed. This may sound like fun and games, but it’s actually serious business, considering the water savings that can be achieved by helping golf courses reduce non-essential water use. Technology is also helping customers manage their own use. We are piloting water meter “endpoints” that provide customers with real-time water use information, which enables them to identify and repair leaks quickly. Because of the resources these endpoints require, we will conduct careful cost-benefit analyses before expanding their use, reflecting our commitment to providing the highest levels of service while maintaining affordability for customers. 7 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Incredible Deeds in Technology! The old saying “knowledge is power” certainly makes sense in the middle of a drought. That’s where technology comes in. Landscape Program Specialist Ari Wilfley has been utilizing aerial imagery to gather information about individual customers’ landscape types and sizes in order to develop water budgets. She is also using our Geospatial Information System (GIS) and a “hot spot algorithm” to map neighborhoods with higher- than-average water usage to help the drought response team conduct more focused, informed outreach. And for her latest project, golfers carry Global Positioning Systems (GPS) and data loggers to collect data to help golf courses identify landscaping that can be removed. This may sound like fun and games, but it’s actually serious business, considering the water savings that can be achieved by helping golf courses reduce non-essential water use. Technology is also helping customers manage their own use. We are piloting water meter “endpoints” that provide customers with real-time water use information, which enables them to identify and repair leaks quickly. Because of the resources these endpoints require, we will conduct careful cost-benefit analyses before expanding their use, reflecting our commitment to providing the highest levels of service while maintaining affordability for customers. Ari Wilfley 7 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Amazing Feats in Water Conservation! We went into the drought with a robust portfolio of water conservation programs. In 2015, we added even more, including a bathroom retrofits, high-efficiency toilet deliveries, tur f replacement programs, and commercial customer water-use efficiency evaluations, to help our customers meet ambitious water-use reduction targets. Customer Jason Nunez came through like a champion. It helps that his mom Maggie is a longtime Cal Water employee, so he grew up recognizing the importance of treating water like the precious resource that it is. But even Mom doesn’t submit to the Navy showers that Jason requires of his wife and two little ones. We bet the next generation will be even more water-wise. The Nunez family wasn’t alone. Overall, our customers achieved a cumulative 28.6% reduction in water use between June and December 2015 compared to 2013. That’s pretty darn heroic, don’t you think? 8 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Amazing Feats in Water Conservation! We went into the drought with a robust portfolio of water conservation programs. In 2015, we added even more, including a bathroom retrofits, high-efficiency toilet deliveries, tur f replacement programs, and commercial customer water-use efficiency evaluations, to help our customers meet ambitious water-use reduction targets. Customer Jason Nunez came through like a champion. It helps that his mom Maggie is a longtime Cal Water employee, so he grew up recognizing the importance of treating water like the precious resource that it is. But even Mom doesn’t submit to the Navy showers that Jason requires of his wife and two little ones. We bet the next generation will be even more water-wise. The Nunez family wasn’t alone. Overall, our customers achieved a cumulative 28.6% reduction in water use between June and December 2015 compared to 2013. That’s pretty darn heroic, don’t you think? Jason Nunez 8 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS In 2015, it took everyday heroes to fulfill our purpose of improving the quality of life 9 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS for those we serve and deliver on our promise... Quality. Service. Value. 10 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Financial Highlights Year ended December 31 2015 2014 2013 2012 2011 Market price at year-end $ 23.27 $ 24.61 $ 23.07 $ 18.35 $ 18.26 Book value per share 13.41 13.11 12.54 11.30 10.76 Earnings per share (diluted) 0 .94 1.19 1.02 1.17 Dividend per share 0.670 0.650 0.640 0.630 0.90 0.615 Revenue* Net income* *Dollars in thousands 588,368 597,499 584,103 559,966 501,814 45,017 56,738 47,254 48,828 37,712 11 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS 2015 Review Q1 Cal Water reaches agreement to invest $1.5 million in the recycled water system it will use to serve the new Apple 2 Campus in Cupertino, in partnership with the City of Sunnyvale and the Santa Clara Valley Water District. Company renews its lines of credit, increasing capacity to $450 million. Company donates $10,000 to the Food Bank in Monterey County following an arson fire, and challenges others in the community to match the contribution. Q2 President & CEO announces to school assembly at Shasta Elementary in Chico that the fifth graders in Room 17 have won the Cal Water’s first H2O Challenge, the prize for which is an educational field trip to the Channel Islands. Cal Water enacts its Drought Response Plan, dedicating a team of more than 30 professionals to help customers meet ambitious water-use reduction targets. Cal Water named a “Top 100 Workplace” in the San Francisco Bay Area by Bay Area News Group for the fourth consecutive year. 12 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS 2015 Review Q3 Cal Water files its triennial General Rate Case, requesting additional revenues of $94.8 million in 2017, $23 million in 2018, and $22.6 million in 2019, 80% of which is proposed for water system improvements. Cal Water receives $1.3 million in grants for water - and energy -saving projects from California Department of Water Resources, to be used to augment bathroom fixture replacement programs in East Los Angeles, Dominguez, and Bakersfield systems. The State Legislature recognizes students from Chico and Westlake for winning $10,000 college scholarships from Cal Water as part of the Company’s annual $60,000 scholarship program. Q4 Company contributes $198,000 to charities providing holiday meals to the needy, marking the 27th consecutive year of Operation Gobble. Company agrees to sell $150 million in first mortgage bonds. Company cuts ribbon at a chromium - 6 treatment plant in Dixon, commemorating the completion of the ninth plant constructed to comply with the new standard. Company hosts a celebration for 800 East Los Angeles customers to recognize their conservation achievements. 13 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS CWT 20-Year Total Return on Investment (On $100 stock purchase on December 31, 1995, with dividends reinvested) $600 $500 $400 $300 $200 $100 $0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 14 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Letter to Stockholders Dear Stockholder: What a year. Mother Nature continued to test us with one of the worst droughts in California histor y, but we provided an uninterrupted supply of clean water and continued to deliver on our promise to provide quality, ser vice, and value. As expected, the drought put pressure on our financial results by reducing revenue and increasing costs. Net income for the year was $45.0 million, a decrease of $11.7 million compared to 2014, and diluted earnings per share was $ 0.94, down from $1.19 in 2014. Total revenues were also down slightly to $588.4 million, compared to $597.5 million in 2014. Despite the less-than-superhuman financial results, there were many bright spots in 2015, including: • The capital improvements. In 2015, the Company completed $177.3 million in important capital improvements, a 34% increase over 2014. This is significant, because our stockholders earn a return on capital investment, and our capital program lays the foundation for future earnings growth. • The dividend. On January 27, 2016, our Board declared our 284th consecutive quarterly dividend and increased the annual dividend for the 49th consecutive year. 15 Peter C. Nelson Chairman of the Board Martin A. Kropelnicki President and Chief Executive Officer HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS • The rate cases. We filed a General Rate Case for California requesting additional revenues of $94.8 million in 2017, $23.0 million in 2018, and $22.6 million in 2019. Although we cannot predict what the California Public Utilities Commission will ultimately approve, a decision is expected by the end of 2016. And, in Hawaii, we received two approvals that together will add $2.8 million to annual revenues. • The recycled water partnership with Apple. As announced in February 2015, we partnered with Apple, Inc., the City of Sunnyvale, and the Santa Clara Valley Water District on a recycled water project that will produce 157,000 gallons of water per day. Cal Water will invest $1.5 million in the project and provide water utility services to the new Apple 2 campus in Cupertino. Although we expect to eventually recover drought-related expenses, 2016 promises to be a lean year as it is the third year of a three-year rate case cycle for Cal Water, our largest subsidiary. We will work diligently to manage controllable expenses while focusing on achieving a favorable outcome in ongoing rate case proceedings. We will also maintain our focus on providing affordable, excellent service to our customers, something we succeeded at again in 2015. Magnificent Achievements in Providing Reliable, Affordable, Excellent Service to Customers! In order to tell our 2015 customer service story in a way that reads more like a comic book than a 400-page novel, we will organize our efforts into three categories: reliability, affordability, and service. First, let’s take a break from the California drought and begin in New Mexico with an achievement in all three. In April, we acquired the assets of the Indian Hills Water Company, whose 235 customers routinely experienced interruptions in water service that lasted several days at a time – often in the hot summer months. In a very short period of time, we identified problems with the system’s water storage and well productivity and made relatively low-cost repairs. Now, customers get uninterrupted, high-quality water service, and they couldn’t be happier. Our new customers now get uninterrupted, high-quality water service 16 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS In California... Drought conditions required heroic effort from our engineering and operations professionals. Throughout 2015, we monitored water supplies closely and modified our operations when necessitated by changing conditions. One challenge we didn’t anticipate was the damage done to the California Aqueduct, a key part of the state’s infrastructure, by mid-October storms. When we learned that water deliveries for customers in our Leona Valley water system would be interrupted during lengthy repairs, BAM! we flew into action. We asked our customers to curtail non-essential water use; calculated how much water we could pump from local groundwater wells; secured water trucks to supplement local water production; and monitored water levels in our storage tanks round-the-clock to prevent any interruptions in service during the weeks the aqueduct repairs were underway. In other supply news, we reached an agreement with the City of San Bruno, Daly City, and the San Francisco Public Utilities Commission on a groundwater storage and recover y project that will enhance supplies in our South San Francisco ser vice area by coordinating water deliver y operations in a way that allows the groundwater basin to recover in wet years and sur face water supplies to recover in dry years. Another partnership on the horizon is a study with the Bay Area Water Supply and Conservation Agency to determine whether it is possible to augment existing water supplies by pumping and treating brackish water from beneath the San Francisco Bay. On the demand management side, our efforts were nothing short of amazing. We added several conservation programs to an already impressive portfolio, including turf replacement, commercial water -use evaluations, and toilet delivery and bathroom retrofit programs. And POW! These new programs are expected to save 99 million gallons of water per year, and more than 1.7 billion gallons over their lifetime. Even better, our customers achieved an overall reduction in water use of 28.6% from June through December 2015 compared to 2013, surpassing the State-mandated reduction of 25%. There is no question that declining water use is requiring water providers throughout the state of California to increase rates in order to cover fixed costs. That’s because most of the costs of providing clean, reliable water supplies don’t decrease when customers use less water. Although we can’t change that, we can continue to focus on increasing our efficiency and offering programs to help those who need it. 17 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS In addition to our Continuous Improvement program, through which every employee works to improve our service and efficiency, we began work on several projects with our partners, Professor Juneseok Lee and the San Jose State University School of Engineering. Over a five-year period, we will pursue seven projects to address knowledge gaps in the drinking water industry. One of these projects will enable us to better prioritize our water main replace- ment projects; another will develop key performance indicators for our water distribution systems; and yet another will identify optimal strategies for water well rehabilitation. We expect this collaboration between our team and the university to yield improvements in our efficiency that will enhance affordability. Another avenue for improving affordability is securing government grants to offset costs. In Januar y, we announced that we had received a $136,000 grant to make improvements to pumping facilities in our Lucerne, California system. One month later, we received grants for more than $5 million to offset costs of meeting the new state standard for chromium -6 in our Willows District. And in July, we received $1.3 million in grants from the Department of Water Resources Water-Energy Grant Program to enhance our Bathroom Fixture Replacement Program in our Bakersfield, East Los Angeles, and Dominguez systems. It takes effort to apply for government grants, but it is well worth it when we can secure funds that will minimize rate impacts of necessar y projects. Consolidation is another approach to affordability that the California Public Utilities Commission is currently considering as part of our 2015 General Rate Case. In the case, we proposed consolidating rate-making for some of our small districts with larger districts to take advantage of economies of scale and minimize rate increases. We also proposed enhancements to our Rate Support Fund, which provides discounts to customers in lower-income communities where the costs of providing clean, reliable water supplies are relatively high, and our Low-Income Rate Assistance Program. As important as it is for us to provide a reliable and affordable water supply, the reality is that customers expect us to do just that. You don’t build loyalty by providing what’s expected; you build loyalty by going beyond what’s expected. And that’s where excellent ser vice comes in. 18 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS In 2015, we tasked a team with streamlining our top 10 customer center business processes to improve customer satisfaction as well as operational efficiency and employee safety. And, as we have reported in years past, we continued to track various customer satisfaction indicators to ensure that we are providing excellent service, with the goal always being to surpass industry standards. We are very happy with our team’s per formance in 2015, when, despite a significant increase in drought-related call volume, we answered 87% of customer calls within 30 seconds. We also implemented a new automated program that sends surveys to customers after they receive service from us. The surveys enable us to get real-time feedback, identify trends, and resolve issues. The results for 2015 were good, with 78% of the respondents rating our service a 4 or 5 on a scale of 5 (with 5 being best); 84.4% rating our employees a 4 or 5; and 67% indicating that their issue was resolved on the first call. These results mirror the results of a poll we conducted in the fall of 2015 to determine whether our drought response, and in particular, our system of water budgets and surcharges, was impacting customer satisfaction levels. In that poll of randomly selected customers from throughout our California service areas, we got a score of 4 for overall satisfaction (with 5 being best) and 4.4 for service. We firmly believe that our track record of providing quality, service, and value came into play at the end of 2015 when the City of Visalia notified us of its intention to conduct an appraisal of our assets, the first step in an eminent domain action to acquire our water system. We responded swiftly and decisively with an aggressive public education campaign. Within weeks, more than 1,000 customers were offering to support us, and another 3,000 were following our issue- specific Facebook page. We are pleased to report that two months later, the City announced its decision not to move forward. This outcome was particularly important because it demonstrated our unwavering commitment to protecting our business to all of the communities we ser ve. 19 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Astounding Performance in Providing High-Quality Water and Water Reuse Services! As this report goes to press, the people of Flint, Michigan are experiencing ver y serious water quality issues that appear from our vantage point to be a culmination of poor water system maintenance, a lack of adequate testing and preparation for use of a new water source, and an absence of critical regulator y oversight. Our hearts go out to them. Their ver y sad situation highlights the seriousness of the responsibility we have to protect our customers’ health and safety and underscores the importance of our water quality assurance program. Protecting customer health and safety has always been our top priority. In fact, the superheroes on our water quality team worked diligently to conduct more than 400,000 water quality tests in 2015 to check for the presence of 269 constituents. Their efforts, as well as our proactive approach to water system maintenance and infrastructure investment, are critical to ensuring that we don’t experience a water quality crisis like the one unfolding in Flint. ...customer health and safety has always been our top priority Our water quality and engineering teams also reached a significant milestone in 2015 by achieving full compliance with the new California regulation for chromium-6. After conducting groundbreaking research to identify the most cost- effective treatment methodology, we became one of the first water providers in the United States to use full-scale strong base anion-exchange technology to meet the chromium-6 standard. In 2015, we constructed nine treatment plants that will operate at a cost that is considerably less expensive than other treatment methodologies, which is critical to maintaining affordability for our customers. At a December ribbon-cutting ceremony, Dixon Mayor Jack Batchelor, Jr. recognized Cal Water for being a great partner and commended us for being proactive and “laying the groundwork” for other water providers. We thank the Mayor for his kind com-ments, and commend our water quality and engineering teams for their work, which has once again earned us recognition as leaders in the industry. 20 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Marvelous Adventures in Building a Strong Brand and Reputation! We had a lot of fun in 2015 spending time with students from our ser vice areas. At Shasta Elementar y School in Chico, California, we took part in an all-school assembly outside on the soccer field, where, SHAZAM! – we surprised the fifth graders from Room 17 with the announcement that they had won our H2O Challenge. Seeing the excitement on their faces then, and the pride later as they toured us through their rain harvesting and drought garden project, was truly a pleasure. Then, it was our turn to be proud as we watched two accomplished young customers, one from Chico and one from Westlake, be recognized by state legislators for winning our grand-prize scholarships of $10,000 each. Spending the day with them at the Capitol and learning about their interests and aspirations was inspiring, and made us proud to be part of a company that really does improve the quality of life for those it ser ves. Throughout the year, we contributed $600,000 to organizations in California, Washington, Hawaii, and New Mexico, including the Lucerne Alpine Senior Center in California, the Maui Food Bank in Hawaii, the Adelante Development Center in New Mexico, and the Peninsula Community Foundation in Washington. In March, when an arsonist set fire to the Monterey County Food Bank, we contributed $10,000, and in October, when wildfires ravaged northern California, we joined our employees in making a donation of $11,000. So much goes into building our brand and our reputation. It’s the service we provide to customers. It’s the support we provide to our communities. And, as much as anything, it’s our people. Or, as we like to think of them, our everyday heroes. We think the world of our employees, and we think they think the world of us. After all, thanks to their survey responses, we were ranked as a Top Work-place in the San Francisco Bay Area for the fourth year in a row by the Bay Area News Group. We contributed $600,000 to charitable organizations 21 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS In 2015, two of our officers announced their plans to retire: Francis S. (Stan) Ferraro, Vice President of Corporate Development, effective Januar y 31, 2016, and Michael J. Rossi, Vice President of Continuous Improvement, effective March 31, 2016. We will miss them both and wish them a ver y healthy, happy retirement. We also welcomed a new officer, Robert J. Kuta, who joined our team in April 2015 as Vice President of Engineering, and a new member of our Board of Directors, Gregory E. Aliff, who joined us in September 2015. Both of them bring impressive credentials and expertise to their roles at the Company. In the coming year, we will proudly work alongside our ever yday heroes to continue delivering results and fulfilling our purpose of enhancing the quality of life for our customers, communities, employees, and stockholders. As always, we wish you the best in 2016 and thank you for your continued investment in California Water Ser vice Group. Martin A. Kropelnicki President and Chief Executive Officer Peter C. Nelson Chairman of the Board 22 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Washington Operations/ Customer Centers Hawaii Operations/ Customer Centers California Districts Olympia (S.W. Regional Office) • Gig Harbor (N.W. Regional Office and Customer Center) • Sequim • Issaquah • Orcas Island (Field Offices) Ka`anapali (Maui) • Waikoloa (Hawaii) Antelope Valley • Bakersfield • Bayshore • Bear Gulch • Chico • Commerce • Dixon • Dominguez • East Los Angeles • Haw- thorne • Hermosa-Redondo • Kern River Valley • King City • Livermore • Los Altos • Marysville • Oroville • Palos Verdes • Redwood Valley • Salinas • Selma • Stockton • Visalia • Westlake • Willows New Mexico Operations / Customer Centers Elephant Butte • Rio Communities • Cedar Crest Serving more than 425 neighborhoods and small communities in the counties of Clallam, Jefferson, Kitsap, Mason, Pierce, King, San Juan, and Thurston. Serving the communities of Ka`anapali, Pukalani, Waikoloa, North Kona Coast, and Kohala Coast on the islands of Maui and Hawaii. Including Hawthorne and Commerce operation and maintenance agreements Serving the communities of Meadow Lake, Cypress Gardens, Rio Communities, Rio Del Oro, Elephant Butte, Sandia Knolls, and Cedar Crest in the counties of Sierra, Valencia, and Bernalillo. Regulated Customer Connections Regulated Customer Connections Customer Connections Regulated Customer Connections 2015 16,500 2014 16,300 2015 4,300 2014 4,300 2015 480,300 2014 477,900 2015 7,900 2014 7,600 23 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS California Districts & Communities Antelope Valley • Fremont Valley, Lake Hughes, Lancaster & Leona Valley Bakersfield Bayshore • South San Francisco, Colma, Broadmoor, San Mateo & San Carlos Bear Gulch • Atherton, Woodside, Portola Valley & a portion of Menlo Park Chico • Hamilton City Dixon Dominguez • Carson & portions of Compton, Harbor City, Long Beach, Los Angeles County & Torrance East Los Angeles • Portions of Montebello, Commerce, Monterey Park & Vernon Hawthorne & Commerce (lease agreements) Hermosa-Redondo • Hermosa Beach, Redondo Beach & a portion of Torrance Kern River Valley • Bodfish, Kernville, Lakeland, Mountain Shadows, Onyx, Squirrel Valley, South Lake & Wofford Heights King City Livermore 2015 2014 1,400 1,400 70,800 70,100 53,600 53,500 18,900 18,900 29,000 28,700 2,900 2,900 34,000 34,000 26,800 26,800 7,600 7,600 26,800 26,700 4,000 2,600 4,100 2,600 18,600 18,500 Los Altos • Portions of Cupertino, Los Altos Hills, Mountain View & Sunnyvale 18,900 18,900 Mar ysville Oroville Palos Verdes • Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills & Rolling Hills Estates Redwood Valley • Lucerne & portions of Duncans Mills, Guerneville, Dillon Beach, Noel Heights & Santa Rosa Salinas Selma Stockton Visalia Westlake • Westlake Village & a portion of Thousand Oaks Willows 24 3,800 3,600 3,700 3,600 24,100 24,100 1,900 1,900 28,500 28,400 6,300 6,300 43,600 43,300 43,100 42,400 7,100 2,400 7,100 2,400 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Eight-Year Financial Review (Dollars in thousands, except common share and other data) Summar y of Operations Operating revenue Operating expenses Interest expense, other income and expenses, net 2015 2014 2013 2012 2011 2010 2009 2008 $588,368 $597,499 $584,103 $559,966 $501,814 $460,399 $449,372 $410,312 $517,215 $515,652 $510,098 $486,123 $434,647 $398,586 $391,253 $352,843 $26,136 $25,109 $26,751 $25,015 $29,455 $24,157 $17,565 $17,664 Net income $45,017 $56,738 $47,254 $48,828 $37,712 $37,656 $40,554 $39,805 Common Share Data Earnings per share (diluted) Dividend declared Dividend payout ratio Book value $0.94 $0.670 $1.19 $1.02 $1.17 $0.90 $0.90 $0.98 $0.95 $ 0.650 $0.640 $0.630 $0.615 $0.595 $0.590 $0.585 71% 53% 63% 54% 68% 66% 61% 62% $13.41 $13.11 $12.54 $11.30 $10.76 $10.45 $10.13 $9.72 Market price at year-end $23.27 $24.61 $23.07 $18.35 $18.26 $18.64 $18.41 $ 23.22 47,875 47,806 47,741 41,908 41,817 41,667 41,531 41,446 Common shares outstanding at year-end (in thousands) Return on average common stockholders’ equity Long-term debt interest coverage 3.67 4.29 7.1% 9.3% 10.6% 8.5% 9.0% 9.8% 10.2% 3.45 3.11 3.59 4.04 4.72 8.8% 3.42 25 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Eight-Year Financial Review (Dollars in thousands, except common share and other data) Balance Sheet Data Net utility plant Total assets Long-term debt, including current portion Capitalization ratios: 2015 2014 2013 2012 2011 2010 2009 2008 $1,701,768 $1,590,431 $1,515,831 $1,381,119 $1,457,056 $1,294,297 $1,198,077 $1,112,367 $ 2,246,095 $2,187,351 $1,959,855 $1,995,924 $1,854,587 $1,692,066 $1,525,581 $1,418,107 $518,887 $425,840 $434,050 $481,250 $488,165 $481,561 $387,222 $290,316 Common stockholders’ equity 55.3% 59.5% 58.0% 49.6% 0.0% 0.0 % 0.0% 0.0% 44.7% 40.5% 42.0% 50.4% 48.0% 0.0% 52.0% 47.5% 52.1% 58.1% 0.0% 0.0% 0.0% 52.5% 47.9% 41.9% Preferred stock Long-term debt Other Data Water production (million gallons) Customers at year-end, including Hawthorne and Commerce New customers added Revenue per customer 98,899 118,282 126,363 125,892 120,353 121,942 131,558 137,757 509,000 506,100 502,900 500,700 499,500 497,900 494,700 490,493 2,900 3,200 2,200 1,200 1,600 3,200 4,207 $1,156 $1,181 $1,161 $1,118 $1,105 $925 $908 2,938 $837 3,228 Utility plant per customer 4,925 4,628 4,401 4,087 3,925 3,706 3,455 Employees at year-end 1,155 1,105 1,125 1,132 1,132 1,127 1,013 929 26 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Board of Directors George A. Vera Former Vice President and Chief Financial Officer, the David and Lucile Packard Foundation. Director since 1998. Member of the following Committees: Audit, Finance/Risk Management, and Nominating/Corporate Governance. Bonnie G. Hill President, B. Hill Enterprises, L.L.C. Director since 2003. Member of the following Committees: Organization/Compensation and Nominating/Corporate Governance. Edwin A. Guiles Former Executive Vice President of Corporate Development, Sempra Energy. Director since 2008. Member of the following Committees: Organization/Compensation, Finance/Risk Management, and Audit. Gregory E. Aliff Former Vice Chairman and Senior Partner of U.S. Energy & Resources, Deloitte LLP. Director since 2015. Member of the Audit Committee. Martin A. Kropelnicki President and Chief Executive Officer. Director since 2013. Peter C. Nelson Chairman of the Board. Director since 1996. Terry P. Bayer Chief Operating Officer, Molina Healthcare, Inc. Director since 2014. Member of the following Committees: Organization/Compensation and Nominating/Corporate Governance. Thomas M. Krummel, M.D. Professor and Chair, Surgery Department, Stanford University School of Medicine. Director since 2010. Member of the following Committees: Nominating/Corporate Governance and Organization/Compensation. Richard P. Magnuson Lead Director and Private Venture Capital Investor. Director since 1996. Member of the following Committees: Audit, Finance/Risk Management, and Nominating/Corporate Governance. Lester A. Snow Former Director of the California Department of Water Resources. Director since 2011. Member of the following Committees: Organization/Compensation and Finance/Risk Management. 27 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Corporate Officers Paul G. Townsley Vice President, Rates and Regulatory Matters Thomas F. Smegal, lll Vice President, Chief Financial Officer and Treasurer Lynne P. McGhee Vice President, General Counsel Ronald D. Webb Vice President, Human Resources Martin A. Kropelnicki President and Chief Executive Officer Timothy D. Treloar Vice President, Operations and Water Quality Michelle R. Mortensen Corporate Secretary David B. Healey Vice President, Controller 28 Francis (Stan) Ferraro Vice President, Corporate Development Robert J. Kuta Vice President, Engineering Shannon C. Dean Vice President, Corporate Communications and Community Affairs Michael B. Luu Vice President, Customer Service and Information Technology Michael J. Rossi Vice President, Continuous Improvement HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Corporate Information American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 (800) 937-5449 To Transfer Stock A change of ownership of shares (such as when stock is sold or gifted or when owners are deleted from or added to stock certificates) requires a transfer of stock.To transfer stock, the owner must complete the assignment on the back of the certificate and sign it exactly as his or her name appears on the front. This signature must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations, and credit unions with membership in approved signature medallion programs) pursuant to SEC Rule 17Ad -15. A notary’s acknowledgement is not acceptable. This certificate should then be sent to American Stock Transfer & Trust Company, by registered or certified mail with complete transfer instructions. Alternatively, the Direct Registration System can be utilized, which allows electronic share transactions between your broker or dealer and American Stock Transfer & Trust Company. Bond Registrar US Bank Trust, N.A. One California Street San Francisco, CA 94111-5402 (415) 273-4580 Annual Meeting The Annual Meeting of Stockholders will be held on Wednesday, May 25, 2016, at 9:30 a.m. at the Company’s Executive Office, located at 1720 North First Street in San Jose, California. Details of the business to be transacted during the meeting will be contained in the proxy material, which will be mailed to stockholders on or about April 13, 2016. Anticipated Dividend Dates For 2016 Quarter Declaration Record Date Payment Date First January 27 February 8 February 19 Second April 27 May 9 May 20 Third July 27 August 8 August 19 Fourth October 26 November 7 November 18 Annual Report For 2015 On Form 10-K A copy of the Company’s report for 2015 filed with the Securities and Exchange Commission (SEC) on Form 10-K is available and can be obtained by any stockholder at no charge upon written request to the address below. The Company’s filings with the SEC can be viewed via the link to the SEC’s EDGAR system on the Company’s web site. Executive Office and Stockholder Information California Water Service Group Attn: Stockholder Relations 1720 North First Street San Jose, CA 95112-4598 (408) 367-8200 or (800) 750-8200 http://www.calwatergroup.com 29 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS California Water Ser vice Group 1720 North First Street San Jose, California 95112-4598 (408) 367-8200 www.calwatergroup.com NYSE: CWT THE END
Continue reading text version or see original annual report in PDF format above