Total Number of Pages - 160
UNITED STATES SECURITIES AND EXCHANGE
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, 1999
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)
Delaware 77-0448994
-------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of Incorporation)
1720 North First Street San Jose, California 95112
--------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(408) 367 8200
--------------
(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, $0.01 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 - $375,133,000 on February 18, 2000.
Common stock outstanding at February 18, 2000 -12,935,612 shares.
1
EXHIBIT INDEX
The exhibit index to this Form 10-K is on page 27
DOCUMENTS INCORPORATED BY REFERENCE
Designated portions of Registrant's Annual Report to Stockholders for the
calendar year ended December 31, 1999 (1999 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 17, 2000, relating to the 2000
annual meeting of stockholders 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 Commission (SEC). The Proxy Statement was filed with the SEC via
EDGAR on March 14, 2000.
2
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....................................... 7
c. Narrative Description of Business........................... 7
Geographical Service Areas and
Number of Customers at Year-end......................... 9
Water Supply................................................ 10
Nonregulated Operations..................................... 13
Utility Plant Construction Program
and Acquisitions........................................ 14
Quality of Water Supplies................................... 14
Competition and Condemnation................................ 15
Environmental Matters....................................... 15
Human Resources............................................. 16
d. Financial Information about Foreign and
Domestic Operations and Export Sales.................... 16
Item 2. Properties.................................................. 16
Item 3. Legal Proceedings........................................... 17
Item 4. Submission of Matters to a Vote of
Security Holders........................................ 17
Executive Officers of the Registrant.................................... 18
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters......................... 20
Item 6. Selected Financial Data..................................... 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................. 20
Item 8. Financial Statements and Supplementary Data................. 20
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.................................... 20
3
PART III
Item 10. Directors and Executive Officers
of the Registrant....................................... 20
Item 11. Executive Compensation...................................... 20
Item 12. Security Ownership of Certain
Beneficial Owners and Management........................ 21
Item 13. Certain Relationships and Related
Transactions............................................ 21
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K..................................... 22
Signatures................................................................... 23
Independent Auditors' Report................................................. 25
Schedules.................................................................... 26
Exhibit Index................................................................ 27
4
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 (Company), 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 state
regulatory commissions' 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, natural
disasters such as earthquakes, and the impact of weather on
operating results. The Company assumes no obligation to provide
public updates of forward-looking statements.
a. General Development of Business
California Water Service Company (Cal Water) was formed in 1926.
On December 31, 1997, California Water Service Group was formed as
the parent company of Cal Water and a second subsidiary, CWS
Utility Services (Utility Services). In 1999, the Company acquired
Harbor Water Company and South Sound Utility. These two companies
were merged to form a third Company subsidiary, Washington Water
Service Company (Washington Water).
Cal Water continues to operate as a regulated utility subject to
the jurisdiction of the California Public Utilities Commission
(CPUC). Washington Water is a regulated utility, subject to the
jurisdiction of the Washington Utilities and Transportation
Commission (WUTC). It also provides nonregulated water service
under various operation and maintenance agreements. Jointly the
CPUC and WUTC are referred to as the Commissions.
Utility Services provides nonregulated water operations and
related utility services. Existing nonregulated contracts
currently performed by the Company are transferred to Utility
Services as the contracts are renewed or at such time as agreed
upon between the contracting parties. New nonregulated contracts
within California are executed by Utility Services.
In conjunction with formation of the holding company structure on
December 31, 1997, each share of Cal Water common stock was
exchanged on a two-for-one basis for the Company's common stock.
Per share data was restated where necessary to reflect the
effective two-for-one stock split. Each share of Cal Water
preferred stock was converted into one share of the Company's
preferred stock. To maintain relative voting strength, the number
of votes to which each preferred share is entitled was doubled
from eight to sixteen.
The Company's mailing address and principal executive offices are
located at 1720 North First Street, San Jose, California;
telephone number: 408-367-8200. The Company maintains a web site
that can be accessed via the Internet at http://www.calwater.com.
During the year ended December 31, 1999, there were no significant
changes in the kind of products produced or services rendered by
the Company or its operating subsidiaries, or in its markets or
methods of distribution.
5
Cal Water is the largest investor-owned water company in
California and the fourth largest in the United States. It is a
public water utility providing water service to approximately
387,600 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
381,500 customers, rates and operations are subject to the
jurisdiction of the CPUC. An additional 6,100 customers receive
service through a long-term lease of the City of Hawthorne water
system, which is not subject to CPUC regulation. Nonregulated
operations are described in section Item 1.c., "Narrative
Description of Business - Nonregulated Operations."
Washington Water is the largest investor owned water utility in
the state. It was formed in December 1999 and is incorporated
under the laws of the state of Washington. Its two operating
districts provide water service to 12,000 customers subject to the
regulation of the WUTC. An additional 2,800 customers are served
under operating agreements with private system owners that are not
subject to WUTC regulation.
Rates and Regulation
Water utility rates and service for the regulated business are
subject to jurisdiction of the state regulatory Commissions. The
Commissions' decisions and the timing of those decisions can have
a significant impact on operations and earnings.
Since the Company's 23 operating districts are not physically
integrated, rates are set independent for each district. General
office expenses and plant investments are considered separately
and allocated ratably to the operating districts. The cost of debt
and equity capital for ratemaking purposes is determined on a
company-wide basis.
General rate applications in California consider all of a
district's operating costs and capital requirements for a
succeeding three-year period. The Commission's decision in these
applications typically authorize an immediate rate increase and
step rate increases for the following two years. Step rate
increases are intended to maintain the authorized return on equity
(ROE) in succeeding years. Subsequent general rate applications
can be filed in the third year after a district receives a general
rate case decision. Annually districts that are eligible for
general rate case filings are reviewed by the Company and where
appropriate applications are submitted. Applications are filed in
July with a decision expected about 10 months later. Offset rate
adjustments are allowed to recover the costs of purchased water,
purchased power and pump taxes.
In Washington, general rate applications are submitted as
necessary. Decisions are generally issued about four months after
filing.
Key factors considered in determining the need to file a rate
application include:
o current earnings of the district
o expected future rates of return
o cost of debt and equity capital
o capital structure
o future operating expectations
o additional capital expenditures
With districts on varying rate case cycles, general rate case
applications are normally filed annually for a portion of the
districts. The number of customers affected by each filing varies
from year to year. For example, the 1996 filings included 11
percent of regulated customers, the 1997 filings included 7
percent and the 1998 filings included 25 percent. There were no
general rate applications filed in 1999.
6
2000 Rate Application Filings
During 2000, 16 districts, including the two Washington
state districts, are eligible for general rate application
filings. These districts represent over 70% of all regulated
customers. The Company will review each district and determine the
need and appropriateness of a general rate application filing.
Applications for the California districts will be filed in July in
accordance with the CPUC's rate processing schedule. Decisions in
these applications are anticipated late in the second quarter of
2001. Additionally, the Company expects to file general rate
applications for the two Washington districts during 2000. The
most recent general rate application filing with the WUTC was in
1998.
1999 Rate Application Filings
During 1999, no general rate applications were filed for
regulated customers. The Company's regulatory staff reviewed each
of the eligible districts and determined that no general rate
applications were warranted.
A rate increase was submitted for the City of Hawthorne
water system. The Hawthorne city council exercises rate authority
over the proceeding. A decision for this application which is
estimated to provide about $350,000 of new revenue in the first
twelve months after it becomes effective, is expected during the
second quarter of 2000.
1998 Rate Application Filings
In 1998, 14 Cal Water 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 with the CPUC in July
1998 for four districts and the Company's General Office. The
applications involved 25% of the regulated customers.
In January 1999, the Company reached agreement with the CPUC
staff regarding the applications. The commission's decision
approving the settlement was effective in May 1999 and is expected
to generate $4,095,000 in total additional revenue during the
first twelve months following its effective date. A 9.55% ROE
providing $1,916,000 in additional revenue was adopted in the
decision. In addition, the decision provides another $2,179,000 in
revenue for environmental compliance, specific capital
expenditures, and recovery of General Office expenses. This
additional revenue is not reflected in the 9.55% ROE calculation.
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. The contract
pertains to the sale and delivery of water to Cal Water's Stockton
District by the Stockton-East Water District. Parties to the
contract are Cal Water, Stockton-East Water District, the City of
Stockton and San Joaquin County. The consultant's 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. While no action is now in process or
pending, the issue may be revisited in the Company's next Stockton
district general rate application. Also refer to a discussion of
this issue under "Item 3. Legal Proceedings".
b. Financial Information about Industry Segments
The Company operates primarily in one business segment, the supply
and distribution of water, and the provision of related services.
c. Narrative Description of Business
The Company is the sole shareholder of its three operating
subsidiaries: California Water Service Company, Washington Water
Service Company and CWS Utility Services.
7
The Company'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 services, including contract
operation of water systems and utility related services to
municipalities and other private companies.
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 in the
Company's service territories.
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 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, eight privately owned water
systems and two reclaimed water distribution systems are operated.
Billing services are also provided to a number of municipalities.
These operations are discussed in more detail in a following
section titled "Nonregulated Operations."
The Company intends to continue to explore opportunities to expand
its regulated and nonregulated businesses. The opportunities could
include system acquisitions, lease arrangements similar to the
City of Hawthorne contract, full service system operation and
maintenance agreements, billing contracts and other utility
related services. The Company believes that a holding company
structure, as discussed above, makes it more competitive in
providing nonregulated utility services, which would not be
subject to CPUC jurisdiction. The Company is investigating new
business opportunities in the western United States as evidenced
by its expansion into the state of Washington.
8
Geographical Service Areas and Number of Customers at Year-end
The principal markets for the Company's products and services are users
of water within the Company's service areas. The Company's geographical
service areas or districts for both the regulated and nonregulated
operations and the approximate number of customers served in each area
at December 31, 1999, are listed below.
SAN FRANCISCO BAY AREA
Mid-Peninsula (serving San Mateo and
San Carlos) 35,700
South San Francisco (including Colma
and Broadmoor) 16,200
Bear Gulch (serving Menlo Park, Atherton,
Woodside and Portola Valley) 21,500
Los Altos (including portions of Cupertino,
Los Altos Hills, Mountain View
and Sunnyvale) 18,300
Livermore 16,900 108,600
------
SACRAMENTO VALLEY
Chico (including Hamilton City) 22,800
Oroville 3,500
Marysville 3,700
Dixon 2,800
Willows 2,300 35,100
------
SALINAS VALLEY
Salinas 25,900
King City 2,200 28,100
------
SAN JOAQUIN VALLEY
Bakersfield 81,600
Stockton 41,600
Visalia 29,700
Selma 5,100 158,000
------
LOS ANGELES AREA
East Los Angeles (including portions of
the cities of Commerce and Montebello) 29,100
Hermosa Redondo (serving Hermosa Beach,
Redondo Beach and a portion of Torrance) 25,400
Palos Verdes (including Palos Verdes
Estates, Rancho Palos Verdes, Rolling
Hills Estates and Rolling Hills) 23,700
Westlake (a portion of Thousand Oaks) 6,900
Hawthorne (leased municipal system) 6,100 91,200
------
WASHINGTON
Harbor 11,000
South Sound 3,800 14,800
------- -------
TOTAL 435,800
9
Water Supply
The Company's water supply for the 23 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 experienced mandatory 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.
Washington receives rain in all seasons with the majority falling
during winter months.
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 and were accompanied by 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. Demand
increases in the spring when warmer weather gradually returns 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 into the fall and winter. When
rainfall is below average for consecutive years, drought conditions can
result and certain customers may be required to reduce consumption to
preserve or match available supply. 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 that 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. Well water is
generally less expensive and the Company strives to maximize use of its
well sources. A small portion of the supply is received from surface
runoff in the Company's Bear Gulch district. During 1999, 110 billion
gallons were delivered to customers. Approximately 53 percent of the
supply was obtained from wells and 47 percent was purchased from
wholesale suppliers. The following table shows the quantity of water
purchased in each operating district during 1999.
Supply
District Purchased Source of Purchased Supply
-------- --------- --------------------------
SAN FRANCISCO BAY AREA
Mid-Peninsula 100% San Francisco Water Department
South San Francisco 85% San Francisco Water Department
Bear Gulch 89% San Francisco Water Department
10
Los Altos 83% Santa Clara Valley Water District
Livermore 69% Alameda County Flood Control
and Water Conservation District
SACRAMENTO VALLEY
Oroville 94% Pacific Gas and Electric Co.
3% County of Butte
SAN JOAQUIN VALLEY
Bakersfield 17% Kern County Water Agency
Stockton 70% Stockton-East Water District
LOS ANGELES AREA
East Los Angeles 69% Central Basin Municipal
Water District
Hawthorne 87% West Basin Municipal
Water District
Hermosa Redondo 95% 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 surface water purchased from a wholesaler is processed
before delivery to the system.
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. A
second well was returned to service in 1999 and the third well is
expected online in early 2000.
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. Harbor and South Sound districts in
Washington also obtain their entire supplies 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 and Westlake districts, and the City of Hawthorne system are
provided by public agencies pursuant to an obligation of continued
nonpreferential service to purveyors 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 on 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 Company's control. Shown below
11
are wholesaler price rates and increases that became effective in 1999,
and estimated wholesaler price rates and estimated changes for 2000.
1999 2000
---- ----
Effective Percent Effective Percent
District Month Change Unit Cost Month Change Unit Cost
-------- ----- ------ --------- ----- ------ ---------
Bakersfield 0.0% $125/af 0.0% $125/af
Bear Gulch July 36.7% 0.82/ccf July 3.7% 0.85/ccf
East Los Angeles July 2.1% 478/af July 1.5% 485/af
Hermosa Redondo 0.0% 528/af 0.0% 528/af
Livermore Jan. 4.0% 1.212/ccf Jan. 2.1% 1.237/ccf
Los Altos July 7.6% 355/af July 7.0% 380/af
Oroville Jan. 3.4% 61,350/year Jan. 14.8% 70,400/year
Palos Verdes 0.0% 528/af 0.0% 528/af
Mid Peninsula July 36.7% 0.82/ccf July 3.7% 0.85/ccf
So. San Francisco July 36.7% 0.82/ccf July 3.7% 0.85/ccf
Stockton April (9.1)% 250,820/year April 7.0% 268,400/year
Westlake Jan. 1.1% 560/af Jan. 1.2% 570/af
af = acre foot; ccf = hundred cubic feet; year = fixed annual cost
During 1997, two wholesale water suppliers refunded moneys which had
been overcollected from wholesale water customers. The Company received
a one-time refund of $2.5 million in May 1997 that was credited as a
reduction of purchased water expense.
Rainfall in the Company's service areas for the 1999-2000 season is
above normal as of February 29, 2000. The mountain snowpack is about
normal. Water levels in underground aquifers that provide supply to
districts served by well water improved in recent years due to above
average rainfall. Most regions have recorded positive changes in
groundwater levels the past two years. Regional groundwater management
planning continues as required. Existing laws provide a mechanism for
local agencies to maintain control of their groundwater supply. The
Company 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 2000 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 Commissions.
Progress has been made by Consolidated Irrigation District (Selma) and
Kaweah Delta Water Conservation District (Visalia) towards the
implementation of a water management plan. The Company continues to
participates in the formulation of these plans.
For a number of years, the Company has worked 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, The Company 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, the
Company 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 (SFWD) is the wholesale water supplier.
The South San Francisco, Mid-Peninsula and Bear Gulch districts are
included in SFWD service area.
12
Nonregulated Operations
Nonregulated operations include full service operation and maintenance
of water systems for cities and private owners, operation of recycled
water systems, utility billing services, laboratory services and leases
of antenna sites
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 the Company 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 eight private
water company systems in the Bakersfield, Livermore, Salinas and
Visalia districts. Additionally, the Company's Washington districts
operate numerous systems under contract arrangements. The Company also
operates under contract wastewater collection systems in Bakersfield
and Livermore. Excluding Hawthorne, the total number of services
operated under the contracts is about 36,200. 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 existing 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.
Meter reading, billing and customer service are provided for the City
of Menlo Park's 4,000 water customers. Meter reading is also performed
under contract for the City of Manhattan Beach's 13,000 account system.
Additionally, sewer and/or refuse billing services are provided to six
municipalities.
Since February 1996, the City of Hawthorne's 6,100 account water system
has been operated under terms of a 15-year agreement. The system which
is located near the Hermosa-Redondo district serves about half of
Hawthorne's population. The lease required 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. The Company 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, the Company will be reimbursed for the unamortized value of
capital improvements. In exchange, the Company receives all system
revenues which amounted to $4.2 million in 1999.
During 1997, an agreement was signed with the Rural North Vacaville
Water District near the Dixon district to design and build a water
distribution system. The new system will initially provide water to
about 400 services. The Company has also negotiated an agreement to
operate the system once construction is complete.
The Company 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 Great Oaks Water Company.
13
Utility Plant Construction Program and Acquisitions
The Company is continually extending, enlarging and replacing its
facilities as required to meet increasing demands and to maintain its
systems. Construction 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 page 26 of the Company's 1999 Annual Report which is
incorporated herein by reference. Advances for construction are cash
deposits or facilities deeded from subdivision developers. The advances
are generally refundable without interest over a period of 40 years by
equal annual payments. Contributions in aid of construction consist of
nonrefundable cash deposits or facilities transferred from developers,
primarily for fire protection and relocation projects. The amount
received from developers varies from year to year as the level of
construction activity varies. It is impacted by the demand for housing,
commercial development and general business conditions, including
interest rates.
During 1998, the Company 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 $9.6 million; services and meters, $5.4; other equipment, $6.0
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.
During 1999, the Company funded expenditures were in the following
areas: land, water rights and structures, $2.9 million; wells, pumping
and storage facilities, $4.9 million; water treatment and purification
equipment, $2.9 million; distribution systems, $9.0 million; services
and meters, $6.1; other equipment, $5.7 million. Included in the
expenditures is acquisition of the Olcese Water District assets and
continued expenditures for computer technology system upgrades.
The 2000 construction budget is approximately $35.7 million, exclusive
of additions and improvements financed through advances for
construction and contributions in aid of construction. The approved
budget was for the following areas: land and structures, $3.9 million;
wells, pumping and storage facilities, $8.4 million; water treatment
and purification equipment, $1.9 million; distribution systems $11.1
million; services and meters, $5.1 million; other equipment, $5.3
million.
During 1996, Congress enacted legislation which exempted from taxable
income proceeds received from developers to fund advances for
construction and contributions in aid of construction, except payments
for installation of services. Services represent about 20% of deposits
received from developers. 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 payments 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 intends to issue regulations regarding the
taxability of developer financed services. The Company participated
actively 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. However, the new
regulations are expected to continue to treat the cost of services as
taxable income.
Quality of Water Supplies
Established operating practices are maintained to produce potable water
in accordance with normal water utility practices. Water entering the
distribution systems from surface sources is treated in compliance with
federal Safe Drinking Water Act (SWDA) standards. Most well supplies
are chlorinated. Water samples from each water system are analyzed on a
regular, scheduled basis in compliance with regulatory requirements.
The Company operates a state certified water quality laboratory at its
San Jose General Office that provides testing for most California
operations. Certain tests are contracted with independent labs. Local
independent labs provide water sample testing for the Washington
districts.
14
In recent years, federal and state water quality regulations have
continued to increase. Recent changes in the SDWA, which are expected
to bring treatment costs more in line with the actual health threat
posed by contaminants, were enacted by Congress during 1996. Water
quality monitoring and upgrading treatment capabilities to maintain
compliance with the various regulations continues. These activities
include:
o monitoring of all sources for MTBE, a gasoline additive that is
widely used in California
o upgrading laboratory equipment and enhancing analytical testing
capabilities
o installation of dedicated sample sites to assure water samples
are drawn at a secure source
o maintaining a state approved compliance monitoring program
required by the Safe Drinking Water Act
o completion of mandatory Information Collection Rule monitoring
for specified water systems
o ongoing training of laboratory and operating personnel
o installation of disinfection treatment at all well sources
o 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
o construction of a new iron and manganese treatment plant in the
leased Hawthorne system
o installation and operation of several granular activated carbon
(GAC) filtration systems for removal of hydrogen sulfide or
volatile organic chemicals
Competition and Condemnation
Cal Water and Washington Water are regulated public utilities,
providing water service within filed service areas approved by the
Commissions. Under California laws, 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. Such certificates will be issued only upon
finding that the Company's service is deficient.
California law 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 and requires reimbursement to the utility for its loss.
Further, the state's constitution and statutes allows municipalities,
water districts and other public agencies to own and operate water
systems. These agencies are empowered to condemn properties already
operated by privately owned public utilities. The agencies are also
authorized to issue bonds, including revenue bonds, for the purpose of
acquiring or constructing water systems. However, if a public agency
were to acquire utility property by eminent domain action, the utility
would be entitled to just compensation for its loss. To the Company's
knowledge, no municipality, water district or other public agency is
contemplating or has any action pending to acquire or condemn any of
the Company's systems.
In recent years, consolidation within the water industry has
accelerated. A number of publicly traded water companies have been
acquired or merged into larger domestic companies. Several acquisitions
of publicly traded companies have also been completed by much larger
foreign companies. The Company has participated in the industry
consolidation by its pending acquisition of Dominguez Services
Corporation and by its expansion into Washington state, other smaller
acquisitions and pursuit of expanding nonregulated operations. The
Company intends to continue pursuing opportunities to expand its
business in the western United States.
Environmental Matters
The Company is subject to environmental regulation by various
governmental authorities. Issues related to water quality are discussed
separately within this report.
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 the
15
Company's capital expenditures, earnings or competitive position. The
Company is unaware of any pending environmental matters that will have
a material effect on its operations. Refer to Item 3, Legal
Proceedings, for additional information.
The Company's 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, 1999, there were 708 employees, of whom 192 were
executive, administrative and supervisory employees, and 516 were
members of unions. In December 1999, a three-year collective bargaining
agreement, expiring December 31, 2002, was successfully negotiated with
the Utility Workers Union of America, AFL-CIO, representing the
majority of field and clerical union employees. Also in December 1999,
a new three-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 unions'
membership. As in the past, the agreements were successfully negotiated
and ratified without a work interruption.
d. Financial Information about Foreign and Domestic Operations and Export Sales.
The Company makes no export sales.
Item 2. Properties.
The Company'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." The Company's general office, which
houses accounting, engineering, information systems, human resources,
purchasing, regulatory, water quality and executive staffs is located
in San Jose, California. All properties are maintained in good
operating condition.
All principal properties are held in fee simple title. Properties owned
by Cal Water are subject to the indenture securing the Company's first
mortgage bonds of which $116,345,000 remained outstanding at December
31, 1999. Washington Water has long-term bank loans totaling about $2.8
million that is secured primarily by utility plant.
The Company owns 783 wells and operates six leased wells. There were
390 storage tanks with a capacity of about 220 million gallons and one
reservoir located in the Bear Gulch district with a 210 million gallon
capacity. There are about 4,700 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 1999, the average daily water production was 271 million
gallons, while the maximum production on a single day was 528 million
gallons. By comparison, during 1998 the average daily water production
was 271 million gallons, while the maximum production on one day was
507 million gallons.
In the leased system or in systems that are operated under contract for
municipalities or private companies, title to the various properties is
held exclusively by the municipality or private company.
16
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 plume 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 the Company's financial position or results of operations.
In December 1997, the Company along with the City of Stockton (the
Contractors) filed a lawsuit against the Stockton East Water District
(SEWD). The Contractors take 98% of SEWD's wholesale potable water
production. SEWD also serves treated water to agricultural customers.
Under a contract to enable SEWD to meet its financial obligations, the
Contractors are required to pay specific Base Monthly Payments that as
of June 30, 1997 had generated $5.4 million in surplus funds. The
Contractors contend that a portion of these funds 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.
On March 15, 2000, the Company was served with a lawsuit naming it as
one of several defendants for damages alleged to have occurred in the
Marysville district due to MTBE contamination in the Company's water.
The suit did not specify a dollar amount. The Company believes it is
covered by insurance in such a matter and has tendered the claim to its
carrier.
The Company 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 1999.
17
Executive Officers of the Registrant
Name Positions and Offices with California Water Service Group Age
- ---- --------------------------------------------------------- ---
Robert W. Foy Chairman of the Board since January 1, 1996. A director since 63
(1) 1977. Formerly President and Chief Executive Officer of Pacific
Storage Company, Stockton, Modesto, Sacramento, San
Jose, Vallejo Marysville, and Merced California, a
diversified transportation and warehousing company,
where he had been employed for 32 years.
Peter C. Nelson President and Chief Executive Officer since February 1, 1996. 52
(1,2) 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 Treasurer since 55
(1) November 1994; Controller, Assistant Secretary and Assistant
Treasurer from 1976 to 1994. From 1970 to 1976, an audit
manager with Peat Marwick Mitchell & Co., certified public
accountants.
Calvin L. Breed Controller, Assistant Secretary and Assistant Treasurer since 44
(3) November 1994; previously Treasurer of TCI International, Inc.;
from 1980 to 1983, a certified public accountant with Arthur
Andersen & Co., certified public accountants.
Paul G. Ekstrom Corporate Secretary since August 1996; Operations Coordinator, 47
(1) 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, CWS Utility Services;
and Washington Water Service Company
(2) Chief Executive Officer of Washington Water Service Company
(3) holds the same position with California Water Service Company
Name Positions and Offices with the California Water Service Company Age
- ---- --------------------------------------------------------------- ---
Francis S. Ferraro Vice President, Regulatory Matters since August 1989. Employed 50
by the California Public Utilities Commission for 15 years, from
1985 through 1989 as an administrative law judge.
James L. Good Vice President, Corporate Communications and Marketing since 36
(1) January 1995. Previously Director of Congressional Relations for
the National Association of Water Companies from 1991 to 1994.
Robert R. Guzzetta Vice President, Engineering and Water Quality since August 1996; 46
Chief Engineer, 1990 to 1996; Assistant Chief Engineer, 1988 to
1990; various engineering department positions since 1977.
Christine L. McFarlane Vice President, Human Resources since August 1996; Director 53
of Human Resources, 1991 to 1996; Assistant Director of
Personnel, 1989 to 1991; an employee since 1969.
18
Raymond H. Taylor Vice President, Operations since April 1995; Vice President and 54
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. Worrell Vice President, Chief Information Officer since August 1996; 60
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; Manager 55
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.
Name Positions and Offices with the Washington Water Service Company Age
- ---- --------------------------------------------------------------- ---
Michael P. Ireland President since December 1999; previously President of Harbor Water 46
Company, Gig Harbor, Washington
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 the Company acting solely in their
authorized capacities.
19
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 34
of the Company's 1999 Annual Report and is incorporated herein by
reference. The number of stockholders listed in such section includes
the Company's record stockholders and an estimate of stockholders
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 page 15 of the Company's 1999
Annual Report and is incorporated herein by reference.
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 16 through 22 of the Company's
1999 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 Stockholders' Equity",
"Consolidated Statement of Cash Flows", "Notes to Consolidated
Financial Statements" and "Independent Auditors' Report" on pages 23
through 35 of the Company's 1999 Annual Report and is incorporated
herein by reference. The 1999 Annual Report to stockholders is included
with this report as Exhibit 13.1.
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 Company is
contained in the section captioned "Board Committees" and is included
on page 8 of the 2000 Proxy Statement, and in the section captioned
"Proposal No. 1 - Election of Directors" on pages 10 and 11 of the 2000
Proxy Statement and is incorporated herein by reference. Information
regarding executive officers of the Company 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 the Company is
included under the caption "Directors Compensation Arrangements" on
page 9 of the 2000 Proxy Statement and is incorporated herein by
reference. The information required by this item as to compensation of
20
executive officers, including officers who are directors, is included
under the captions " Executive Compensation" and "Report of the
Compensation Committee of the Board of Directors on Executive
Compensation" on page 20 through 23 of the 2000 Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is contained in the section
captioned "Stock Ownership of Management and Certain Beneficial Owners"
on page 18, respectively, of the 2000 Proxy Statement and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
None.
21
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, 1999 and 1998.
Consolidated Statement of Income for the years ended December 31,
1999, 1998 and 1997.
Consolidated Statement of Common Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.
Consolidated Statement of Cash Flows for the years ended December
31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements, December 31, 1999,
1998 and 1997.
Independent Auditors' Report dated January 21, 2000.
The above financial statements are contained in sections bearing
the same captions on pages 23 through 35 of the Company's 1999
Annual Report to stockholders which is filed with this Form 10K
and incorporated by reference. Refer to Exhibit 13.1 of this Form
10-K.
(2) Financial Statement Schedule:
Schedule
Number
- --------
Independent Auditors' Report dated January 21, 2000.
II Valuation and Qualifying Accounts and Reserves for the years
ending December 31, 1999, 1998, and 1997.
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes to the financial statements.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
The Exhibit Index on page 27 of this Form 10-K is incorporated
herein by reference.
The exhibits filed as part of this Form 10-K are attached, unless
otherwise indicated. The exhibits listed in the Exhibit Index that
are not filed with this Form 10-K were previously filed with the
Securities and Exchange Commission as indicated; unless stated
otherwise, those exhibits are hereby incorporated by reference.
(b) Reports on Form 8-K.
(1) A Form 8-K was filed November 23, 1999 to report that on November
23, 1999 Registrant had completed all actions necessary to
reincorporate itself as a Delaware corporation. From November 23,
1999 forward, California Water Service Group will operate as a
Delaware corporation. The reincorporation had been approved by
shareholders at their annual meeting in April 1999.
22
(2) February 3, 2000, a Form 8-K was filed to report an amendment
adopted by the Board of Directors of California Water Service
Group to add director conflict of interest qualification rules.
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: March 15, 2000 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: March 15, 2000 /s/ Robert W. Foy
ROBERT W. FOY, Chairman,
Board of Directors
Date: March 15, 2000 /s/ Edward D. Harris, Jr.
EDWARD D. HARRIS, JR., M.D., Member,
Board of Directors
ROBERT K. JAEDICKE, Member,
Board of Directors
Date: March 15, 2000 /s/ Richard P. Magnuson
RICHARD P. MAGNUSON, Member,
Board of Directors
Date: March 15, 2000 /s/ Linda R. Meier
LINDA R. MEIER, Member,
Board of Directors
Date: March 15, 2000 /s/ Peter C. Nelson
PETER C. NELSON
President and Chief Executive Officer,
Member, Board of Directors
Date: March 15, 2000 /s/ C. H. Stump
C. H. STUMP, Member,
Board of Directors
Date: March 15, 2000 /s/ George A. Vera
GEORGE A. VERA, Member
Board of Directors
23
Date: March 15, 2000 /s/ J. W. Weinhardt
J. W. WEINHARDT, Member,
Board of Directors
Date: March 15, 2000 /s/ Gerald F. Feeney
GERALD F. FEENEY,
Vice President, Chief Financial
Officer and Treasurer;
Principal Financial Officer
Date: March 15, 2000 /s/ Calvin L. Breed
CALVIN L. BREED, Controller,
Assistant Secretary and Assistant
Treasurer;
Principal Accounting Officer
24
Independent Auditors' Report
Stockholders and Board of Directors
California Water Service Group:
Under date of January 21, 2000, we reported on the consolidated balance sheet of
California Water Service Group as of December 31, 1999 and 1998, and the related
consolidated statements of income, common stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1999, as
contained in the 1999 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1999. In connection with our audits of
the aforementioned consolidated 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 the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such basic consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
Mountain View, California /s/ KPMG LLP
January 21, 2000
25
CALIFORNIA WATER SERVICE GROUP Schedule II
Valuation and Qualifying Accounts
Years Ended December 31, 1999, 1998 and 1997
Additions
------------------------
Balance at Charged to Charged to Balance
beginning costs and other at end
Description of period expenses accounts Deductions of period
- ------------------------------------------------------------------------------------------------------------------------------------
1999 (A)Reserves deducted in the balance sheet
from assets to which they apply:
Allowance for doubtful accounts $ 206,155 $ 335,282 $ 41,517 $ 466,990 $ 115,964
Allowance for obsolete materials and supplies 137,460 48,000 85,163 100,297
=========== ========== ============== ============== ===========
(B)Reserves classified as liabilities
in the balance sheet:
Miscellaneous reserves:
General Liability 1,270,752 125,000 376,552 $ 1,019,200
Employees' group health plan 643,383 3,745,000 31,065 3,908,969 510,479
Retirees' group health plan 2,018,373 1,284,000 675,000 575,000 3,402,373
Workers compensation 1,003,798 (5,890) 496,162 501,746
Deferred revenue - contributions
in aid of construction 2,117,632 0 275,170 323,620 2,069,182
Disability insurance 26,219 82,306 108,066 459
----------- ---------- -------------- -------------- -----------
$ 7,080,157 $5,148,110 $1,063,541 $5,788,369 $ 7,503,439
========================================================================
Contributions in aid of construction $50,576,486 $3,684,884 $1,644,233 $52,617,137
========================================================================
1998 (A)Reserves deducted in the balance sheet
from assets to which they apply:
Allowance for doubtful accounts $ 103,596 $ 549,344 $ 52,796 (3) $ 499,581 (1) $ 206,155
Allowance for obsolete materials and supplies $ 129,193 $ 48,000 $ 39,733 (2) 137,460
=========== ========== ============== ============== ===========
(B)Reserves classified as liabilities
in the balance sheet:
Miscellaneous reserves:
General Liability $ 900,425 $ 600,000 $ 229,673 (2) $ 1,270,752
Employees' group health plan 721,120 3,000,000 15,509 3,093,246 (2) 643,383
Retirees' group health plan 1,443,373 751,664 458,336 635,000 (2) 2,018,373
Workers compensation 661,829 878,423 536,454 (2) 1,003,798
Deferred revenue - contributions
in aid of construction 2,221,381 302,137 405,886 (6) 2,117,632
Disability insurance 23,811 107,110 104,702 (2) 26,219
---------- ---------- ------------- ------------- -----------
$ 5,971,939 $5,230,087 $ 883,092 $5,004,961 $ 7,080,157
=======================================================================
Contributions in aid of construction $49,297,196 $3,121,146 (4) $1,841,856 (5) $50,576,486
=======================================================================
1997 (A)Reserves deducted in the balance sheet
from assets to which they apply:
Allowance for doubtful accounts $ 100,544 $ 620,778 $ 70,850 (3) $ 688,576 (1) $ 103,596
Allowance for obsolete materials and supplies 101,077 48,000 19,884 (2) 129,193
=========== =========== ============== ============== ===========
(B)Reserves classified as liabilities
in the balance sheet:
Miscellaneous reserves:
General Liability $ 997,834 $ 668,496 $ 765,905 (2) $ 900,425
Employees' group health plan 467,986 3,140,000 14,539 2,901,405 (2) 721,120
Retirees' group health plan 911,998 581,000 531,375 581,000 (2) 1,443,373
Workers compensation 499,651 830,313 668,135 (2) 661,829
Deferred revenue - contributions
in aid of construction 2,413,531 0 194,784 386,934 (6) 2,221,381
Disability insurance 50,371 103,167 129,727 (2) 23,811
---------- ---------- -------------- ------------ -----------
$ 5,341,371 $5,219,809 $ 843,865 $5,433,106 $ 5,971,939
=======================================================================
Contributions in aid of construction $48,033,820 $2,808,969 (4) $1,545,593 (5) $49,297,196
========================================================================
<FN>
(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.
</FN>
26
EXHIBIT INDEX
Sequential
Exhibit Page Numbers
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 Certificate of Incorporation of California Water Service Group 27
and (Filed as Exhibit A of the 1999 California Water Service
Group Proxy Statement)
3.2 Restated By-laws of California Water Service Group as amended on 27
January 26, 2000 (Exhibit E-2 to Form 8-K filed February 3, 2000)
3.3 Certificate of Determination of Preferences for Group's Series C 27
Preferred Stock (Exhibit 3.2 to Form 10-K for fiscal year 1987)
3.4 Certificate of Determination of Preferences for Group's Series D 27
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 filed 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 Holders of California
Water Service Company, including Indentures:
4.1 Mortgage of Chattels and Trust Indenture dated April 1, 1928; 27
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.)
4.2 Thirty-third Supplemental Indenture dated as of May 1, 1988, 27
covering First Mortgage 9.48% Bonds, Series BB. (Exhibit 4 to
Form 10-Q dated September 30, 1988)
27
4.3 Thirty-fourth Supplemental Indenture dated as of November 1, 28
1990, covering First Mortgage 9.86% Bonds, Series CC. (Exhibit 4
to Form 10-K for fiscal year 1990)
4.4 Thirty-fifth Supplemental Indenture dated as of November 1, 1992, 28
covering First Mortgage 8.63% Bonds, Series DD. (Exhibit 4 to
Form 10-Q dated September 30, 1992)
4.5 Thirty-sixth Supplemental Indenture dated as of May 1, 1993, 28
covering First Mortgage 7.90% Bonds Series EE (Exhibit 4 to Form
10-Q dated June 30, 1993)
4.6 Thirty-seventh Supplemental Indenture dated as of September 1, 28
1993, covering First Mortgage 6.95% Bonds, Series FF (Exhibit 4
to Form 10-Q dated September 30, 1993)
4.7 Thirty-eighth Supplemental Indenture dated as of October 15, 28
1993, covering First Mortgage 6.98% Bonds, Series GG (Exhibit 4
to Form 10-K for fiscal year 1994)
4.8 Note Agreement dated August 15, 1995, pertaining to issuance of 28
$20,000,000, 7.28% Series A Unsecured Senior Notes, due November
1, 2025 (Exhibit 4 to Form 10-Q dated September 30, 1995)
4.9 Note Agreement dated March 1, 1999, pertaining to issuance of 67
$20,000,000, 6.77% Series B Unsecured Senior Notes, due November
1, 2028 (Exhibit 4.1 to Form 10-K dated December 31, 1999)
10. Material Contracts.
10.1 Water Supply Contract between Cal Water and County of Butte 28
relating to Cal Water's Oroville District; Water Supply Contract
between Cal Water and the Kern County Water Agency relating to
Cal Water's Bakersfield District; Water Supply Contract between
Cal Water and Stockton East Water District relating to Cal
Water'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 10-K for fiscal year 1974).
10.2 Settlement Agreement and Master Water Sales Contract between the 28
City and County of San Francisco and Certain Suburban Purchasers
dated August 8, 1984; Supplement to Settlement Agreement and
Master Water Sales Contract, dated
28
August 8, 1984; Water Supply Contract between the Cal Water and
the City and County of San Francisco relating to Cal Water's Bear
Gulch District dated August 8, 1984; Water Supply Contract
between Cal Water and the City and County of San Francisco
relating to the Cal Water's San Carlos District dated August 8,
1984; Water Supply Contract between the Cal Water and the City
and County of San Francisco relating to the Cal Water's San Mateo
District dated August 8, 1984; Water Supply Contract between the
Cal Water and the City and County of San Francisco relating to
the Cal Water's South San Francisco District dated August 8,
1984. (Exhibit 10.2 to Form l0-K for fiscal year 1984).
10.3 Water Supply Contract dated January 27, 1981, between Cal Water 29
and the Santa Clara Valley Water District relating to the Cal
Water's Los Altos District (Exhibit 10.3 to Form 10-K for fiscal
year 1992)
10.4 Amendments No. 3, 6 and 7 and Amendment dated June 17, 1980, to 29
Water Supply Contract between Cal Water and the County of Butte
relating to the Cal Water's Oroville District. (Exhibit 10.5 to
Form 10-K for fiscal year 1992)
10.5 Amendment dated May 31, 1977 to Water Supply Contract between Cal 29
Water and Stockton-East Water District relating to Cal Water's
Stockton District. (Exhibit 10.6 to Form 10-K for fiscal year
1992)
10.6 Second Amended Contract dated September 25, 1987 among Stockton 29
East Water District, 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).
10.7 Water Supply Contract dated April 19, 1927, and Supplemental 29
Agreement dated June 5, 1953, between Cal Water and Pacific Gas
and Electric Company relating to Cal Water's Oroville District.
(Exhibit 10.9 to Form 10-K for fiscal year 1992)
10.8 California Water Service Company Pension Plan (Exhibit 10.10 to 29
Form 10-K for fiscal year 1992)
10.9 California Water Service Company Supplemental Executive 30
Retirement Plan. (Exhibit 10.11 to Form 10-K for fiscal year
1992)
10.10 California Water Service Company Employees Savings Plan. (Exhibit 30
10.12 to Form 10-K for fiscal year 1992)
29
10.11 Agreement between the City of Hawthorne and California Water 30
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 between the City 30
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 30
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 California Water 30
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 February 17, 30
1998 (Filed on Form S-3 dated February 17, 1998)
10.16 California Water Service Group Directors Deferred Compensation 30
Plan (Exhibit 10.17 to Form 10-K for fiscal year 1997)
10.17 California Water Service Group Directors Retirement Plan (Exhibit 30
10.18 to Form 10-K for fiscal year 1997)
10.18 $50,000,000 Business Loan Agreements between California 1
California Water Service Group, California Water Service Company 133
and CWS Utility Services and Bank of America Bank of America
dated May 3, 1999, expiring April 30, 2001 (Exhibit 10.18 to Form
10-K for the year 1999)
30
10.20 Certificate of Determination regarding Series D Participating 31
Preferred Shares. These shares are relative to the Shareholder
Rights Plan and would be issued if the rights plan were
triggered. This is a revised filing at the California 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 California Water Service Company Supplemental 31
Executive Retirement Plan (refer to Exhibit 10.9) to allow
benefits to be received by Plan participants at age 60 without a
reduction in the level of benefit
10.22 Amendment to the California Water Service Group Deferred Director 31
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 for the 31
fiscal year 1998)
10.25 Water Supply Contract dated November 16, 1994 between California 31
Water Service Company and Alameda County Flood Control and Water
Conservation District relating to Cal Water'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:
13.1 1999 Annual Report. Certain sections of the 1999 Annual Report to 32
stockholders are incorporated by reference in this 10-K filing
and filed with this Form 10-K as Exhibit 13. 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, 1999 66
31