California Water Service Group Reports Operating Results (10-K)

California Water Service Group (CWT) filed Annual Report for the period ended 2010-12-31.

California Water Service has a market cap of $734.9 million; its shares were traded at around $35.28 with a P/E ratio of 19.5 and P/S ratio of 1.6. The dividend yield of California Water Service stocks is 3.5%. California Water Service had an annual average earning growth of 3.2% over the past 10 years.

Mutual Fund and Other Gurus that owns CWT: Kenneth Fisher of Fisher Asset Management, LLC, Mario Gabelli of GAMCO Investors.

Highlight of Business Operations:

In February 1996, we entered into an agreement to operate the City of Hawthorne water system. The system, which is located near the Hermosa-Redondo district, serves about half of Hawthorne’s population. The agreement required us to make an up-front $6.5 million lease payment to the city that is being amortized over the lease term. Additionally, annual lease payments of $0.2 million are made to the city and indexed to changes in water rates. Under the lease we are responsible for all aspects of system operation and capital improvements, although title to the system and system improvements reside with the city. In exchange, we receive all revenue from the water system, which was $7.5 million, $6.1 million and $5.2 million in 2010, 2009, and 2008, respectively. At the end of the lease, the city is required to reimburse us for the unamortized value of capital improvements made during the term of the lease. The 15-year lease expired in February 2011 and was extended on a month-to-month basis. The City of Hawthorne is in the process of determining how they will handle their water system and we plan to submit a proposal to the City during 2011 to provide these services for an additional fifteen year period

In July 2003, an agreement was negotiated with the City of Commerce to lease and operate its water system. The lease requires us to pay $0.8 million per year in monthly installments and pay $200 per acre-foot for water usage exceeding 2,000 acre-feet per year plus a percentage of certain operational savings that may be realized.

Under the lease agreement, we are responsible for all aspects of the system’s operations. The city is responsible for capital expenditures, and title to the system and system improvements resides with the city. We bear the risks of operation and collection of amounts billed to customers. The agreement includes a procedure to request rate changes for costs changes outside of our control and other cost changes. In exchange, we receive all revenue from the system, which totaled $1.8 million in 2010, $1.7 million in 2009 and $2.0 million in 2008. The City of Commerce lease is a 15-year lease and expires in 2018.

We lease antenna sites to telecommunication companies, which place equipment at various Company-owned sites. Lease revenues totaled $2.2 million, $2.0 million, and $2.0 million in 2010, 2009 and 2008, respectively. The antennas are used in cellular phone and personal communication applications. We continue to negotiate new leases for similar uses.

In 2006, we started an Extended Service Protection program (ESP) in California covering certain repairs to residential customer’s water line between the meter and the home. The non-regulated program was operated by CWS Utility Services. Typically the utility is responsible for servicing and maintaining the water line up to and including the meter. The home owner is responsible for the water line from the meter to the house. In late 2007, we contracted with Home Service USA to replace the ESP program with an insurance product. Home Service USA now provides water line protection insurance, sewer line protection insurance, and internal plumbing protection insurance to Cal Water’s customers. Cal Water includes charges for these optional non-tariffed services on its bills and CWS Utility Services facilitates marketing these products to its customers. Revenues for these services were $2.0 million, $1.7 million, and $1.5 million in 2010, 2009, and 2008, respectively.