Calif Water Svc has a market cap of $788.7 million; its shares were traded at around $19.21 with a P/E ratio of 20.3 and P/S ratio of 1.7. The dividend yield of Calif Water Svc stocks is 3.3%. Calif Water Svc had an annual average earning growth of 5% over the past 10 years.
Highlight of Business Operations:Purchased power is a significant operating expense. During 2011 and 2010, purchased power expense represented 6.9% and 7.4% of our total operating costs, respectively. These costs are beyond our control and can change unpredictably and substantially as occurred in California during 2001 when rates paid for electricity increased 48%. As with purchased water, purchased power costs are included in the MCBA. Cash flows between rate filings may be adversely affected until the commission authorizes a rate change but earnings will be minimally impacted. Cost of chemicals used in the delivery of water is not an element of the MCBA and therefore variances in quantity or cost could impact the results of operations.
In 2011 and 2010, net income was $37.7 million. In 2011, the rate increases from the 2009 General Rate Case (GRC) and corresponding approved rates which were effective January 1, 2011, were offset by increases in water production costs, employee wage and benefit costs, depreciation expense increases from the 2009 GRC, a $1.5 million reduction to net income for the deferral of WRAM and MCBA revenues and associated operating expenses, interest expense to finance capital projects and operations, and a decrease in net other income. Net operating income increased $5.4 million to $67.2 million, or an 8.7% increase over 2010 levels. In 2011, net other income reflected a net decrease from the prior year of $2.0 million due primarily to an unrealized loss of $1.9 million on the cash surrender value of life insurance investments held for certain benefit plans compared to an unrealized gain of $2.6 million in 2010 which was partially offset by a $0.5 million reduction of costs associated with evaluating new business opportunities in 2011 compared to 2010. Diluted earnings per share was $0.90 in 2011 and 2010.
The balances in the WRAM and MCBA assets and liabilities accounts will fluctuate on a monthly basis depending upon the variance between adopted and actual results. The recovery or refund of the WRAM is netted against the MCBA over- or under-recovery for the corresponding district and is interest bearing at the current 90 day commercial paper rate. When the net amount for any district achieves a pre-determined level at the end of any calendar year (i.e., at least 2.5 percent over- or under-recovery of the authorized revenue requirement), Cal Water files with the CPUC to refund or collect the balance in the accounts. Account balances less than those levels may be refunded or collected in Cal Water's general rate case proceedings or aggregated with future calendar year balances for comparison with the recovery level. Cal Water excluded net WRAM and MCBA operating revenue of $12.9 million, associated costs of $10.5 million, and the related $2.4 million of net operating income before income taxes as of December 31, 2011 due to the net receivable balance estimated to be collected more than 24 months. The net WRAM and MCBA revenue and associated costs were determined using forecasts of rate payer consumption trends in future reporting periods and the timing of when the CPUC will authorize Cal Water's filings to recover unbilled balances. The deferred revenue and associated cost amounts will be recorded in future periods as the collection becomes within twenty-four months of the respective reporting period.
(1)2011 deferred WRAM revenue was ($12.9 million) of the ($14.7 million) amount shown above. Net WRAM and MCBA deferred revenues are balances expected to be collected from ratepayers beyond 24 months following the end of the accounting period in which these revenues were recorded.
There are three capital leases, the most significant was the City of Hawthorne water system. In October 2011, we entered into a new 15-year capital lease 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 new lease agreement required us to make an up-front $8.1 million lease payment to the city that is being amortized over the lease term. Additionally, annual lease payments of $0.9 million are made to the city and shall be increased or decreased each year on July 1, by the same percentage that the rates charged to customers served by the water system increased or decreased, exclusive of pass-through increases or decreases in the cost of water, power, and city-imposed fees, compared to the rates in effect on July 1 of the prior year, provided, that in no event will the annual lease payment be less than $0.9 million. 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, $7.5 million, and $6.1 million in 2011, 2010, and 2009, 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.
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