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SJW Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: October 31, 2012 04:36PM
SJW Corp. (SJW) filed Quarterly Report for the period ended 2012-09-30.
Highlight of Business Operations:Revenues also include a surcharge collected from regulated customers that is paid to the CPUC. This surcharge is recorded both in operating revenues and administrative and general expenses. For the nine months ended September 30, 2012 and 2011, the surcharge was $2,919 and $2,373, respectively.
Water sales are seasonal in nature and influenced by weather conditions. The timing of precipitation and climatic conditions can cause seasonal water consumption by customers to vary significantly. Due to the seasonal nature of the water business, the operating results for interim periods are not indicative of the operating results for a 12-month period. Revenue is generally higher in the warm, dry summer months when water usage and sales are greater and lower in the winter months when cooler temperatures and increased rainfall curtail water usage and sales.
Operating expenses, excluding water production costs, increased $1,456 for the three months ended September 30, 2012 compared to the same period in 2011. The increase was primarily attributable to an increase of $891 in administrative and general expenses primarily due to an increase in payroll and benefit costs, regulatory fees and water conservation expenses related to the recycled water retrofit program. The increase in regulatory fees primarily related to the pass-through surcharge collected from customers that is paid to the CPUC. The surcharge is recorded both in operating revenues and administrative and general expenses. In addition, depreciation expense increased $485 due to increases in utility plant.
On May 2, 2011, San Jose Water Company filed Application No. 11-05-002 with the CPUC seeking authorization of an updated Cost of Capital (“COC”) for the period from January 1, 2012 through December 31, 2014. An all-party settlement agreement was announced by the CPUC on October 17, 2011 that provided San Jose Water Company a return on equity of 9.99%, a long-term cost of debt of 6.68% and a rate of return of 8.38%. This settlement was approved by the CPUC on July 12, 2012. Upon approval, the authorized rate of return of 8.38% became effective retroactively as of January 1, 2012. New rates for this updated authorized rate of return became effective September 1, 2012. The differential in revenue between when the authorized rate of return became retroactively effective (January 1, 2012) and when the rates were actually implemented (September 1, 2012) is tracked in a memorandum account. The final decision included a continuation of a Water Cost of Capital Mechanism (“WCCM”). This WCCM is a mechanism that allows an adjustment to authorized return on equity between COC filings. On October 15, 2012, San Jose Water Company filed an advice letter to adjust the authorized return on equity and rate of return due to the triggering of this WCCM. The WCCM was triggered when the differential between the 12 month average Moody's Aa utility bond index for the period October 2010 through September 2011 (5.04%) and October 2011 through September 2012 (3.92%) exceeded 100 basis points. With the WCCM triggered, the authorized return on equity must be adjusted by one-half of the difference. This produces an adjusted return on equity of 9.43%, which, in conjunction with the authorized capital structure and long-term cost of debt provides an authorized rate of return of 8.09%. This 8.09% rate of return will become effective January 1, 2013, pending CPUC authorization.
During the nine months ended September 30, 2012, SJW Corp. generated cash flows from operations of approximately $57,400, compared to $49,000 for the same period in 2011. Cash flow from operations is primarily generated by net income from its revenue producing activities, adjusted for non-cash expenses for depreciation and amortization, deferred income taxes and changes in working capital items. Cash flow from operations increased by approximately $8,400. This increase was caused by a combination of the following factors: (1) collections of previously billed and accrued receivables, including the regulatory asset recorded in other current asset, increased by $2,600, (2) net collection of taxes receivable was $2,000 more than the prior period, and (3) general working capital and postretirement changes caused a $3,800 increase.