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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION REGISTRANT AND STATE OF INCORPORATION IRS EMPLOYER
FILE NO. ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
- ------------------ ---------------------------------------------- ---------------------
333-47647 American States Water Company 95-4676679
(A California corporation)
630 East Foothill Boulevard
San Dimas, California 91773-9016
909-394-3600
000-01121 Southern California Water Company 95-1243678
(A California corporation)
630 East Foothill Boulevard
San Dimas, California 91773-9016
909-394-3600
Securities registered pursuant to Section 12(b) of the Act:
AMERICAN STATES WATER COMPANY
COMMON SHARES, $2.50 STATED VALUE NEW YORK STOCK EXCHANGE
- ----------------------------------------- -----------------------------------------
Title of Each Class Name of Each Exchange On Which Registered
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether Registrant 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 and has been subject to such filing requirements for the
past 90 days.
American States Water Company Yes [X] No [ ]
Southern California Water Company 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 [ ]
The aggregate market value of the total voting stock held by non-affiliates of
American States Water Company was approximately $301,654,000 on February 22,
2001. The closing price per Common Share on that date, as quoted in the Western
Edition of The Wall Street Journal, was $30.00. Voting Preferred Shares of
American States Water Company, for which there is no established market, were
valued on February 22, 2001 at $1,764,000 based on a yield of 4.76%. As of
February 22, 2001, the number of Common Shares of American States Water Company,
$2.50 Stated Value, outstanding was 10,079,629. As of that same date, American
States Water Company owned all 100 outstanding Common Shares of Southern
California Water Company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement will be subsequently filed with the Securities
and Exchange Commission as to Part III, Item Nos. 10, 11, 12 and 13, in each
case as specifically referenced herein.
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AMERICAN STATES WATER COMPANY
AND
SOUTHERN CALIFORNIA WATER COMPANY
FORM 10-K
INDEX
Page No.
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PART I
Item 1: Business 1
Item 2: Properties 2 - 3
Item 3: Legal Proceedings 3 - 5
Item 4: Submission of Matters to a Vote of Security Holders 5
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 6
Item 6: Selected Financial Data 7
Item 7: Management's Discussion and Analysis of Financial Conditions and
Results of Operation 7 - 23
Item 7A: Quantitative and Qualitative Disclosures About Market Risk 23
Item 8: Financial Statements and Supplementary Data 24 -48
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 49
PART III
Item 10: Directors and Executive Officers of Registrant 49
Item 11: Executive Compensation 49
Item 12: Security Ownership of Certain Beneficial Owners and Management 49
Item 13: Certain Relationships and Related Transactions 49
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 49 - 56
Signature(s) 57 - 58
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ITEM 1. BUSINESS
This annual report on Form 10-K is a combined report being filed by two
separate Registrants: American States Water Company (hereinafter "AWR") and
Southern California Water Company (hereinafter "SCW"). References in this report
to "Registrant" are to AWR and SCW, collectively, unless otherwise specified.
SCW makes no representations as to the information contained in this report
relating to AWR and its subsidiaries, other than SCW.
GENERAL
AWR, incorporated in 1998, is engaged in the business of holding, for
investment, the stock primarily of utility companies. AWR's primary investment
is the stock of SCW. SCW is a California public utility company engaged
principally in the purchase, production, distribution and sale of water (SIC No.
4941). SCW also distributes electricity in one customer service area (SIC No.
4911). SCW is regulated by the California Public Utilities Commission (CPUC) and
was incorporated on December 31, 1929 under the laws of the State of California.
SCW is organized into three water service regions and one electric customer
service area operating within 75 communities in 10 counties in the State of
California and provides water service in 21 customer service areas. Region I
incorporates 7 customer service areas in northern and central California; Region
II has 4 customer service areas located in Los Angeles; Region III incorporates
10 water customer service areas. SCW also provides electric service to the City
of Big Bear Lake and surrounding areas in San Bernardino County through its Bear
Valley electric service division.
AWR also owns two other subsidiaries. American States Utility Services,
Inc. (ASUS) contracts to lease, operate and maintain water and wastewater
systems owned by others and to provide related services, such as billing and
meter reading. Chaparral City Water Company (CCWC) is an Arizona public utility
company serving approximately 11,000 customers in the town of Fountain Hills,
Arizona and a portion of the City of Scottsdale, Arizona (SIC No. 4941). The
Arizona Corporation Commission (ACC) regulates CCWC. AWR completed the
acquisition of the common stock of CCWC on October 10, 2000 for an aggregate
value of $31.2 million, including assumption of approximately $12 million in
debt. Neither AWR nor ASUS is regulated by either the CPUC or the ACC.
SCW served 245,174 water customers and 21,484 electric customers at
December 31, 2000, or a total of 266,658 customers, compared with 265,267 total
customers at December 31, 1999. CCWC served 11,063 water customers as of
December 31, 2000. ASUS has approximately 90,000 accounts under contract.
ACQUISITION OF PEERLESS WATER CO.
In December 1999, Registrant agreed to acquire Peerless Water Co., a
privately owned water company in Bellflower, California, subject to satisfaction
of certain conditions, including CPUC approval. The number of Common Shares to
be issued will be determined at the closing, but will in no event be greater
than 131,036 shares nor less than 107,538 shares. The transaction, if approved
by the CPUC, is anticipated to close during the third quarter of 2001.
COMPETITION
The businesses of SCW and CCWC are substantially free from direct and
indirect competition with other public utilities, municipalities and other
public agencies. AWR's other subsidiary, ASUS, actively competes with other
investor-owned utilities, other third party providers of water and wastewater
services, and governmental entities on the basis of price and quality of
service.
EMPLOYEE RELATIONS
SCW had 489 employees as of December 31, 2000 as compared to 492 at
December 31, 1999. Seventeen positions in SCW's Bear Valley Electric customer
service area are covered by a collective bargaining union agreement, which
expires in 2002, with the International Brotherhood of Electrical Workers.
Fifty-six positions in SCW's Region II ratemaking district are covered by a
collective bargaining unit agreement, which expires in 2001, with the Utility
Workers of America. SCW has no other unionized employees.
CCWC had 10 employees as of December 31, 2000, all of whom are
non-unionized.
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ITEM 2 - PROPERTIES
FRANCHISES AND CONDEMNATION OF PROPERTIES
SCW holds franchises from incorporated communities and counties, which
it serves. SCW holds certificates of public convenience and necessity granted by
the CPUC in each of the ratemaking districts it serves. SCW's certificates,
franchises and similar rights are subject to alteration, suspension or repeal by
the respective governmental authorities having jurisdiction.
CCWC holds certificates of public convenience and necessity granted by
the ACC for the areas in which it serves. CCWC's certificates, franchises and
similar rights are subject to alteration, suspension or repeal by the respective
governmental authorities having jurisdiction.
The laws of the State of California and the State of Arizona provide for
the acquisition of public utility property by governmental agencies through
their power of eminent domain, also known as condemnation. Registrant has not
been, within the last three years, involved in activities related to the
condemnation of any of its water customer service areas or in its Bear Valley
Electric customer service area.
ELECTRIC PROPERTIES
SCW's electric properties are all located in the Big Bear area of San
Bernardino County in California. As of December 31, 2000, SCW operated 28.7
miles of overhead 34.5 kv transmission lines, 0.6 miles of underground 34.5 kv
transmission lines, 173.6 miles of 4.16 kv or 2.4 kv distribution lines, 42.3
miles of underground cable and 14 sub-stations. Neither AWR nor SCW own any
generating plants.
OFFICE BUILDINGS
Registrant's general offices are housed in a single-story office
building located in San Dimas, California. The land and the building are owned
by SCW. SCW also owns and occupies certain facilities housing regional, district
and customer service offices while other such facilities are housed in leased
premises. CCWC owns its primary office space.
WATER PROPERTIES
As of December 31, 2000, SCW's physical properties consisted of water
transmission and distribution systems which included 2,704 miles of pipeline
together with services, meters and fire hydrants and approximately 428 parcels
of land, generally less than 1 acre each, on which are located wells, pumping
plants, reservoirs and other water utility facilities, including five surface
water treatment plants.
As of December 31, 2000, SCW owned 276 wells. Certain wells have been
removed from service due to water quality problems. See the section entitled
"Environmental Matters" in Management's Discussion and Analysis. All wells are
equipped with pumps with an aggregate capacity of approximately 203 million
gallons per day. SCW has 65 connections to the water distribution facilities of
the Metropolitan Water District of Southern California (MWD) and other municipal
water agencies. SCW's storage reservoirs and tanks have an aggregate capacity of
approximately 103 million gallons. SCW owns no dams in its customer service
areas. The following table provides, in greater detail, selected water utility
plant of SCW for each of its water ratemaking districts:
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Pumps Distribution Reservoirs Facilities
------------------------ ------------------------------------------- ---------------------
District Well Booster Mains Services Hydrants Tanks Capacity
- ------------------------------------------------------------------------------------------------------------------------------
Arden Cordova 27 17 482,640 13,769 1,375 3 4,000
Barstow 22 37 873,310 8,458 1,012 14 8,025
Bay Point 3 12 161,504 4,900 343 7 4,046
Calipatria 0 8 139,180 1,149 84 8 13,241
Claremont 26 35 712,035 10,533 1,179 15 8,082
Clearlake 0 13 193,098 2,073 122 4 883
Desert 18 20 752,671 3,216 577 11 1,475
Los Osos 8 10 201,408 3,191 168 8 1,422
Metro 59 63 4,875,192 98,315 7,855 37 24,411
Ojai 5 11 234,329 2,781 348 5 1,494
Orange 36 38 2,220,903 41,082 4,591 14 11,755
San Dimas 11 38 1,198,261 15,758 865 15 10,149
San Gabriel 20 8 549,435 11,767 788 3 1,520
Santa Maria 31 25 961,851 12,742 777 9 3,076
Simi 2 23 503,642 12,890 874 8 8,250
Wrightwood 8 5 216,809 2,550 76 7 1,546
- ------------------------------------------------------------------------------------------------------------------------------
Total 276 363 14,276,268 245,174 21,034 168 103,375
Capacity is measured in thousands of gallons; Mains are in feet.
As of December 31, 2000, CCWC's physical properties consisted of water
transmission and distribution systems, which included 180 miles of pipeline,
together with services, meters, fire hydrants, wells, reservoirs with a combined
storage capacity of 7.2 million gallons and other water utility facilities
including a surface water treatment plant, which treats water from the Central
Arizona Project (CAP).
MORTGAGE AND OTHER LIENS
As of December 31, 2000, SCW had no mortgage debt outstanding, and their
properties were free of any encumbrances or liens securing indebtedness.
As of December 31, 2000, substantially all of the utility plant of CCWC
was pledged to secure its Industrial Development Authority Bonds. The Bond
Agreement, among other things, (i) requires CCWC to maintain certain financial
ratios, (ii) restricts CCWC's ability to incur debt and make liens, sell, lease
or dispose of assets, or merge with another corporation, and (iii) restricts the
payment of dividends.
As of December 31, 2000, neither AWR nor ASUS had any debt outstanding.
ITEM 3 - LEGAL PROCEEDINGS
WATER QUALITY-RELATED LITIGATION
SCW is a defendant in fourteen lawsuits involving claims pertaining to
water quality. Eleven of the lawsuits involve customer service areas located in
Los Angeles County in the southern portion of the State of California; three of
the lawsuits involve a customer service area located in Sacramento County in
northern California. See the section entitled "Risk Factor Summary" of
Management's Discussion and Analysis of Financial Conditions and Results of
Operation for more information.
On September 1, 1999, the First District Court of Appeal in San
Francisco, in a published opinion entitled Hartwell Corporation v. The Superior
Court of Ventura County (Hartwell), held that the CPUC had preemptive
jurisdiction over regulated public utilities and ordered dismissal of a series
of lawsuits pertaining to water quality filed against water utilities, including
SCW. Seven lawsuits against SCW have been ordered for dismissal by the state
Court of Appeals -- the Adler (Case No. 1), Santamaria (Case No. 2), Anderson
(Case No. 3), Dominguez (Case No. 4), Celi (Case No. 5), Boswell (Case No. 6),
and Demciuc (Case No. 7) Matters. On October 11, 1999, one group of plaintiffs
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appealed to the California Supreme Court, which has accepted the case.
Management is unable to predict the outcome of this proceeding but, in any
event, does not anticipate a decision prior to the fourth quarter of 2001.
On December 3, 1998, SCW was named as a defendant in a complaint in
multiple counts, styled Abarca, et al. v. City of Pomona, et al. (Case No. 8),
filed in Los Angeles Superior Court which seeks recovery for negligence,
wrongful death, strict liability, permanent trespass, continuing trespass,
continuing nuisance, permanent nuisance, negligence per se, absolute liability
for ultrahazardous activity, fraudulent concealment, conspiracy/fraudulent
concealment, battery and unfair business practices on behalf of 383 plaintiffs
(the Abarca Matter). Plaintiffs seek damages, including general and special
damages according to proof, punitive and exemplary damages, as well as
attorney's fees, costs of suit and other unspecified relief. SCW was served on
June 18, 1999.
SCW was named as a defendant, along with the City of Pomona, California
and Xerox Corporation in the matter styled Adejare, et al. v. Southern
California Water Company, et al. (Case No. 9), filed on July 22, 1999 in Los
Angeles Superior Court which seeks recovery for wrongful death, battery and
fraudulent concealment (the Adejare Matter). Plaintiffs seek damages, including
general and special damages according to proof, punitive and exemplary damages,
as well as attorney's fees, costs of suit and other unspecified relief.
In December 1997 SCW was named a defendant in the matter of Nathaniel
Allen, Jr., et al. v. Aerojet-General Corporation, et al. (Case No. 10), which
was filed in Sacramento Superior Court. The complaint makes claims based on
wrongful death, personal injury, property damage as a result of nuisance and
trespass, medical monitoring, and diminution of property values (the Allen
Matter). Plaintiffs allege that SCW and other defendants have delivered water to
plaintiffs which allegedly is, or has been in the past, contaminated with a
number of chemicals, including TCE, PCE, carbon tetrachloride, perchlorate,
Freon-113, hexavalent chromium and other, unnamed, chemicals. SCW filed
Demurrers and Motion to Strike in this matter on June 5, 1998. A stay of all
proceeding in the Allen matter is in effect pending the outcome of the
California Supreme Court's proceeding in the Hartwell case.
In March 1998, SCW was named a defendant in the matter of Daphne Adams,
et al. v. Aerojet General, et al. (Case No. 11) that was filed in Sacramento
Superior Court (the Adams Matter). The complaint makes claims based on
negligence, strict liability, trespass, public nuisance, private nuisance,
negligence per se, absolute liability for ultrahazardous activity, fraudulent
concealment, violation of California Business and Professions Code section 17200
et seq., intentional infliction of emotional distress, intentional spoilage of
evidence, negligent destruction of evidence needed for prospective civil
litigation, wrongful death and medical monitoring. Plaintiffs seek damages,
including general, punitive and exemplary damages, as well as attorney's fees,
costs of suit, injunctive and restitutionary relief, disgorged profits and civil
penalties, medical monitoring according to proof and other unspecified relief.
SCW filed its Demurrers and Motion to Strike in this matter on June 5, 1998. A
stay of all proceedings in the Adams Matter is in effect pending the outcome of
the California Supreme Court's proceeding in the Hartwell case.
In May 2000, SCW was named a defendant in the matter of Wallace Andrew
Pennington, et al. v. Aerojet General, et al. (Case No. 12) that was filed in
Sacramento Superior Court (the Pennington Matter). The complaint makes claims
based on negligence, intentional infliction of emotional distress, strict
liability, public liability for ultra hazardous activity and fraudulent
concealment. Plaintiffs allege that SCW and other defendants knowingly operated
and maintained wells, which provided contaminated drinking water to the
surrounding communities. Plaintiffs seek damages, including general, punitive
and exemplary damages, as well as attorney's fees, costs of suit, special
damages, according to proof of medical bills and lost wages and lost income as
occasioned by personal injury and plaintiff's inability to pursue employment,
and other unspecified relief. All counsels in the Pennington matter have agreed
to a stay in this matter, pending the outcome of the Hartwell case.
In April 2000, SCW was named a defendant in the matter of Almelia
Brooks, et al. v. Suburban Water Sys., et al. (Case No. 13) that was filed in
Los Angeles Superior Court which seeks recovery for negligence, wrongful death,
strict liability, permanent trespass, continuing trespass, continuing nuisance,
permanent nuisance, negligence per se, absolute liability for ultrahazardous
activity, fraudulent concealment, conspiracy/fraudulent concealment, battery and
unfair business practices on behalf of plaintiffs (the Brooks Matter).
Plaintiffs seek damages, including general and special damages according to
proof, punitive and exemplary damages, as well as attorney's fees, costs of suit
and other unspecified relief. SCW was served in October 2000. Management is
unable to predict the outcome of this proceeding.
In August 1999, SCW was named a defendant in the matter of Lori
Alexander, et al. v. Suburban Water Sys., et al. (Case No. 14) that was filed in
Los Angeles Superior Court which seeks recovery for negligence, wrongful death,
strict liability, permanent trespass, continuing trespass, continuing nuisance,
permanent nuisance, negligence per se, absolute
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liability for ultrahazardous activity, fraudulent concealment,
conspiracy/fraudulent concealment, battery and unfair business practices on
behalf of plaintiffs (the Alexander Matter). Plaintiffs seek damages, including
general and special damages according to proof, punitive and exemplary damages,
as well as attorney's fees, costs of suit and other unspecified relief. SCW was
served in October 2000. Management is unable to predict the outcome of this
proceeding.
In light of the breadth of plaintiffs' claims in these matters, the lack
of factual information regarding plaintiffs' claims and injuries, if any, and
the fact that no discovery has yet been completed, SCW is unable at this time to
determine what, if any, potential liability it may have with respect to these
claims. Registrant believes there are no merits to these claims and intends to
vigorously defend against them.
SCW is subject to self-insured retention provisions in its applicable
insurance policies and has either expensed the self-insured amounts or has
reserved against payment of these amounts as appropriate. SCW's various
insurance carriers have, to date, provided reimbursement for costs incurred for
defense against these lawsuits.
ORDER INSTITUTING INVESTIGATION (OII)
In March 1998, the CPUC issued an OII to regulated water utilities in
the state of California, including SCW. The purpose of the OII was to determine
whether existing standards and policies regarding drinking water quality
adequately protect the public health and whether those standards and policies
were being uniformly complied with by those water utilities. On November 2,
2000, a final decision from the CPUC concluded that the Commission has the
jurisdiction to regulate the service of water utilities with respect to the
health and safety of that service; that DOHS requirements governing drinking
water quality adequately protect the public health and safety; and that
regulated water utilities, including SCW, have satisfactorily complied with past
and present drinking water quality requirements.
On December 26, 2000, SCW filed an Advice Letter with the CPUC seeking
recovery of $879,000 in deferred expense incurred during the OII. The CPUC had
previously authorized establishment of memorandum accounts to capture such
expenses. Management believes that these expenses will be fully recovered but is
unable to predict when, or if, the CPUC will authorize recovery of all or any of
the costs.
OTHER LITIGATION
On October 25, 1999, SCW filed a lawsuit against the California Central
Valley Regional Water Quality Control Board (CRWQCB) alleging that the CRWQCB
has willfully allowed portions of the Sacramento County Groundwater Basin to be
injected with chemical pollution that is destroying the underground water supply
in SCW's Rancho Cordova customer service area. Management cannot predict the
likely outcome of this proceeding.
In a separate case, also filed on October 25, 1999, SCW sued Aerojet
General Corp. for causing the contamination of the Sacramento County Groundwater
Basin. On March 22, 2000 Aerojet General Corp. filed a cross complaint against
SCW for negligence and constituting a public nuisance. Registrant is unable to
determine at this time what, if any, potential liability it may have with
respect to the cross complaint, but intends to vigorously defend itself against
these allegations. Management cannot predict the likely outcome of this
proceeding.
The CPUC has authorized memorandum accounts to allow for recovery of
costs incurred by SCW in prosecuting these cases from customers, less any
recovery from the defendants or others. As of December 31, 2000, approximately
$2,381,000 has been recorded in the memorandum accounts. SCW filed an Advice
Letter on December 26, 2000 for recovery of approximately $1,800,000, in
expenses that were incurred on or before August 31, 2000. Management believes
that these costs are recoverable although it can give no assurance that the CPUC
will ultimately allow recovery of all or any of the costs through rates.
Registrant is also subject to ordinary routine litigation incidental to
its business. Other than as disclosed above, no legal proceedings are pending,
except such incidental litigation, to which Registrant is a party or of which
any of its properties is the subject, which are believed to be material. See
Note 8 to the "Notes to Financial Statements".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation of
proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION RELATING TO COMMON SHARES -
Common Shares of American States Water Company are traded on
the New York Stock Exchange (NYSE) under the symbol AWR. The
high and low NYSE prices on the Common Shares for each quarter
during the past two years were:
STOCK PRICES
-----------------------
HIGH LOW
-------- --------
2000
First Quarter $36.2500 $26.0000
Second Quarter 32.2500 27.8100
Third Quarter 31.7500 25.0000
Fourth Quarter 37.9375 29.1875
1999
First Quarter $30.0000 $23.5625
Second Quarter 29.2500 22.1875
Third Quarter 37.1250 28.3750
Fourth Quarter 39.7500 31.7500
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON SHARES -
As of February 9, 2001, there were 3,495 holders of record
of Common Shares of American States Water Company. AWR owns all
of the Common Shares of SCW, CCWC and ASUS.
(c) FREQUENCY AND AMOUNT OF ANY DIVIDENDS DECLARED AND DIVIDEND
RESTRICTIONS
For the last three years, Registrant has paid dividends on
its Common Shares on March 1, June 1, September 1 and December
1. The following table lists the amount of dividends paid on
Common Shares of American States Water Company for the last two
years:
2000 1999
------ ------
First Quarter $0.320 $0.320
Second Quarter 0.320 0.320
Third Quarter 0.320 0.320
Fourth Quarter 0.325 0.320
------ ------
Total $1.285 $1.280
Neither AWR, ASUS nor SCW is subject to any contractual
restriction on its ability to pay dividends. CCWC is subject to
contractual restrictions on its ability to pay dividends.
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ITEM 6. SELECTED FINANCIAL DATA
(in thousand, except per share amounts) 2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
INCOME STATEMENT INFORMATION
Total Operating Revenues $ 183,960 $ 173,421 $ 148,060 $ 153,755 $ 151,529
Total Operating Expenses 151,653 144,907 122,999 130,297 128,100
Operating Income 32,307 28,514 25,061 23,458 23,429
Other Income (99) 532 769 758 531
Interest Charges 14,122 12,945 11,207 10,157 10,500
Net Income 18,086 16,101 14,623 14,059 13,460
Preferred Dividends 86 88 90 92 94
Earnings Available for Common Shareholders $ 18,000 $ 16,013 $ 14,533 $ 13,967 $ 13,366
Basic Earnings per Common Share $ 1.92 $ 1.79 $ 1.62 $ 1.56 $ 1.69
Dividends Declared per Common Share $ 1.29 $ 1.28 $ 1.26 $ 1.25 $ 1.23
Average Shares Outstanding 9,380 8,958 8,858 8,957 7,891
Average Number of Diluted Shares Outstanding 9,411 N/A N/A N/A N/A
Fully Diluted Earnings per Common Share $ 1.91 N/A N/A N/A N/A
BALANCE SHEET INFORMATION
Total Assets $ 616,646 $ 533,181 $ 484,671 $ 457,074 $ 430,922
Common Shareholders' Equity 192,723 158,846 154,299 151,053 146,766
Long-Term Debt 176,452 167,363 120,809 115,286 107,190
Preferred Shares - Not subject to Mandatory 1,600 1,600 1,600 1,600 1,600
Preferred Shares - Mandatory Redemption 320 360 400 440 480
Total Capitalization $ 371,095 $ 328,169 $ 277,108 $ 268,379 $ 256,036
Book Value per Common Share $ 19.12 $ 17.73 $ 17.23 $ 16.86 $ 16.52
OTHER INFORMATION
Ratio of Earnings to Fixed Charges 3.35% 3.27% 3.21% 3.35% 3.26%
Ratio of Earnings to Total Fixed Charges 3.31% 3.23% 3.17% 3.30% 3.21%
Return on Average Common Equity 10.5% 10.2% 9.6% 9.5% 10.7%
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Unless specifically noted, the following discussion and analysis
provides information on AWR's consolidated operations and assets. For the twelve
months ended December 31, 2000, there is no material difference between the
consolidated operations and assets of AWR and the operations and assets of SCW.
FORWARD-LOOKING INFORMATION
Certain matters discussed in this report (including the documents
incorporated herein by reference) are forward-looking statements intended to
qualify for the "safe harbor" from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements can
generally be identified as such because the context of the statement will
include words such as Registrant "believes," "anticipates," "expects" or words
of similar import. Similarly, statements that describe Registrant's future
plans, objectives, estimates or goals are also forward-looking statements. Such
statements address future events and conditions concerning capital expenditures,
earnings, litigation, rates, water quality and other regulatory matters,
adequacy of water supplies, the California energy crisis, liquidity and capital
resources, opportunities related to operations and maintenance of water systems
owned by governmental entities and other utilities and providing related
services, and accounting matters. Actual results in each case could differ
materially from those currently anticipated in such statements, by reason of
factors such as utility restructuring, including ongoing local, state and
federal activities; future economic conditions, including changes in customer
demand and changes in water and energy supply cost; future climatic conditions;
and legislative, regulatory and other circumstances affecting anticipated
revenues and costs.
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RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Basic earnings per common share in 2000 increased by 7.3% to $1.92 per
share as compared to $1.79 per share for the comparable period of 1999. The
increase in the recorded results primarily reflects higher revenues at SCW
during 2000, as is more fully discussed below. For the year ended December 31,
2000, fully diluted earnings were $1.91 per share. Registrant had no dilutive
shares outstanding in 1999.
Water operating revenues increased by 5.7% in 2000 to $168.8 million
from the $159.7 million reported in 1999. The increase was due to three factors
(i) a 3.0% increase in water sales to customers of SCW, (ii) increased water
rates authorized by the CPUC for certain of SCW's water customers, and (iii)
additional sales from CCWC. New rates in four customer service areas and
implementation of regional rates in the customer service areas that comprise
SCW's Region III were effective June 27, 2000. Additional increases in 2000
reflected the general rate case step and attrition increases for a number of
SCW's ratemaking areas effective 2000. See the section entitled "Regulatory
Matters" for more information.
Electric operating revenues of $14.4 million were 7.7% higher in 2000 as
compared to 1999 due to a 6.8% increase in kilowatt-hour sales, primarily by
residential and industrial customers.
Other revenues rose from $390,000 in 1999 to $799,000 in 2000 due to
higher management fees from increased non-regulated activities with existing
contracts of Registrant's ASUS unit.
Purchased water costs in 2000 increased by 15.2% to $41.6 million as
compared to $36.1 million in 1999 due to a 9.6% increase in volumes purchased.
The increase was also affected by a total of $1.6 million in refunds from the
Water Replenishment District of Southern California (WRD) received during 1999.
There were no similar refunds received in 2000.
Costs of power purchased for resale to customers in SCW's Bear Valley
Electric division in 2000 increased by 50.7% to $10.7 million from the $7.1
million recorded in 1999 due primarily to significant increases in wholesale
market prices for energy in the state of California. Most of this increase has
been included in the electric supply cost balancing account that, as described
below, partially insulates earnings from the effects of the significantly
increased power costs, unless recovery of these costs is disallowed. Due to the
nature of the regulatory process, there is a risk of disallowance of full
recovery of costs or additional delays in the recovery of costs during any
period in which there has been a substantial run-up in costs. See the sections
entitled "Regulatory Matters" and "Electric Energy Situation in California" for
more information.
Costs of power purchased for pumping increased slightly by 1.6% to $7.5
million in 2000 as compared to $7.4 million recorded in 1999, chiefly as a
result of an increase in energy costs, the effect of which was partially offset
by a decrease in pumped groundwater in SCW's water supply mix.
Groundwater production assessments increased by 4.2% to $7.5 million in
2000 from $7.2 million in 1999 due primarily to increased costs for excess
pumping in SCW's San Gabriel and San Dimas customer service areas to meet summer
demands.
A negative entry for the provision for supply cost balancing accounts
reflects an under-collection of previously incurred supply costs. Conversely, a
positive entry for the provision for supply cost balancing accounts reflects
recovery of previously under-collected supply costs. SCW has a higher net
under-collected position in 2000 than in 1999 reflecting the increased energy
costs in SCW's Bear Valley electric service area, the aggregate effect of which
was partially offset by new water rates effective during 2000, authorized to
collect previously incurred supply costs in SCW's various water customer service
areas, as well as the WRD refunds during 1999 as discussed previously. See the
section entitled "Regulatory Matters" for more information.
The balancing account mechanism insulates earnings from changes in the
unit cost of supply costs, which are outside of the immediate control of SCW.
However, the balancing account is not designed to insulate earnings against
changes in the actual water supply mix as compared to that mix authorized for
recovery in rates. In 2000, SCW's overall water supply mix improved slightly
over that mix authorized in rates due to additional well production capability
coming on-line during the year. There is no assurance that the favorable mix can
be sustained in future periods since actual
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results are affected by availability and quality of water, both purchased and
produced from SCW's wells. See the section entitled "Water Supply" for more
information.
Other operating expenses increased by 7.4% from the $15.6 million
recorded in 1999 reflecting increased costs for water treatment, and increased
labor and billing costs due to additional billing and customer service contracts
obtained by ASUS.
Administrative and general expenses decreased by 8.7% to $26.1 million
in 2000 from $28.6 million recorded in 1999. The decrease is due primarily to
booking reduced reserves for litigation in 2000 and a reduction in pension
expenses. See the section entitled "Legal Proceedings" in Part I for more
information.
Depreciation expense in 2000 increased by 11.7% to $15.3 million
reflecting the effects of recording approximately $50 million in net plant
additions during 1999, depreciation on which began in 2000.
Maintenance expense increased to $10.3 million in 2000 compared to the
recorded $9.8 million in 1999 due principally to increased maintenance on SCW's
water supply sources and maintenance of water mains.
Taxes on income increased by approximately 13.5% to $15.1 million in
2000 as compared to the $13.3 million in 1999 due primarily to a 15.2% increase
in pre-tax income, the effect of which was partially offset by slightly lower
effective tax rate.
Property and other tax expense increased by 7.6% in 2000 to $7.1 million
due to higher property valuation, increased franchise fees associated with
higher revenues, and increased payroll taxes due to increased labor costs.
The loss of $99,000 in other income recorded for 2000 is related to the
effect of recording amortization and interest expenses, starting January 2000,
on SCW's entitlement in the State Water Project. See Note 8 of the "Notes to
Financial Statements" for more information.
In 2000, interest expense increased by 9.3% to $14.1 million from the
$12.9 million recorded in 1999 due to additional short-term borrowing at higher
rates, incurred by SCW to temporarily fund its capital expenditures.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Basic earnings per Common Share in 1999 increased by 10.5% to $1.79 per
share as compared to $1.62 per share for the comparable period of 1998.
Registrant had no dilutive securities outstanding during 1998 and 1999,
therefore basic and fully diluted earnings per share are the same. The increase
in the recorded results primarily reflects higher revenues at SCW during 1999 as
is more fully discussed below.
Water operating revenues increased by 18.5% in 1999 to $159.7 million
from the $134.8 million reported in 1998. Water sales volumes in 1999 were 9.0%
higher than 1998 due primarily to the much drier and warmer weather conditions
throughout Southern California in 1999 than in 1998. Additional increases in
revenues were due to the general rate increases in six of SCW's customer service
areas effective January 1, 1999, which were applicable to 65% of SCW's water
customers.
Electric operating revenues of $13.3 million were 1.0% higher in 1999 as
compared to 1998 due to a 1.3% increase in kilowatt-hour sales, primarily by
industrial power users. The sales increase was partially offset by the lower
billing rates of industrial customers relative to residential customers.
Other revenues increased from $65,000 to $390,000 in 1999 due to
increased management fees resulting from new ASUS service contracts established
in the year and increased activities with existing contracts.
Purchased water costs in 1999 increased to $36.1 million as compared to
$30.8 million in 1998 due to a 12.1% increase in volumes purchased. The increase
also reflects reduced reimbursements in 1999 from potentially responsible
parties related to groundwater contamination in SCW's Culver City customer
service area of approximately $570,000, compared with reimbursements of $1.7
million in 1998.
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Costs of power purchased for resale in 1999 to customers in SCW's Bear
Valley Electric division increased by 42.0% to $7.1 million from the $5.0
million recorded in 1998 due primarily to additional energy demand charges from
the energy supplier serving SCW's Bear Valley Electric Service unit in 1999.
Most of this increase has been included in the electric supply cost balancing
account that, as described below, partially insulates earnings from the effects
of the significantly increased power costs, unless recovery of costs is
disallowed. Due to the nature of the regulatory process, there is a risk of
disallowance of full recovery of costs or additional delays in the recovery of
costs during any period in which there has been a substantial run-up in costs.
See the sections entitled "Regulatory Matters" and "Electric Energy Situation in
California" for more information.
Costs of power purchased for pumping increased by 5.5% to $7.4 million
in 1999 chiefly as a result of an increase in pumped groundwater in SCW's water
supply mix due to increased sales volumes.
Groundwater production assessments decreased by 5.3% to $7.2 million in
1999 from $7.6 million in 1998 due to reduced quantity rates in SCW's
Metropolitan and San Dimas customer service areas.
A positive entry for the provision for supply cost balancing accounts
reflects recovery of previously under-collected supply costs. Conversely, a
negative entry for the provision for supply cost balancing accounts reflects an
under-collection of previously incurred supply costs. In 1999, recovery of
previously under-collected supply costs was lower than 1998 due to the
previously discussed increase in energy demand charges, the effect of which was
partially offset by new rates effective January 1999 authorized to implement new
supply costs and to increase collection of previously under-collected costs.
The balancing account mechanism insulates earnings from changes in the
unit cost of supply costs that are outside of the immediate control of SCW.
However, the balancing account is not designed to insulate earnings against
changes in the actual water supply mix for water operation as compared to that
mix authorized for recovery in rates. In 1999, SCW's overall water supply mix
improved favorably over that mix authorized in rates resulting in additional
income. There is no assurance that the favorable mix can be sustained in future
periods since actual results are affected by availability and quality of water,
both purchased and produced from SCW's wells.
Other operating expenses increased by 7.8% from the $14.5 million
recorded in 1998 due to increased costs for water treatment, and higher
uncollectible provisions as a result of increased revenues.
Administrative and general expenses increased by 30.0% to $28.6 million
in 1999 from the $22.0 million recorded in 1998. The increase is due to costs
associated with various acquisition projects, increased employee benefit costs,
and additional amounts reserved for certain legal proceedings.
In 1999, maintenance expense increased to the $9.8 million level
compared to the recorded $7.3 million in 1998 due principally to increased
maintenance on Registrant's water supply sources, and costs incurred on main
replacements. The wet weather conditions during the first part of 1998 also
hampered planned maintenance activities, thereby reducing maintenance expense in
1998.
Depreciation expense in 1999 increased by 8.9% to $13.7 million
reflecting the effects of recording approximately $38.2 million in net plant
additions during 1998, depreciation on which began in 1999.
Taxes on income increased by approximately 31.7% to $13.3 million in
1999 as compared to the $10.1 million in 1998 due to a 24.5% increase in pre-tax
income and a higher effective tax rate in 1999 resulting from the turn-around of
depreciation related temporary differences, the benefits of which were
previously flowed-through for ratemaking purposes.
Property and other taxes increased by 7.2% in 1999 to $6.6 million due
primarily to increased franchise fees resulting from higher revenues, and
increased payroll taxes from higher wages and additional personnel.
Other income decreased by 30.8% in 1999 due primarily to the
flow-through of tax benefits related to refinancing of long-term debt in
December 1998 for which there were no similar benefits in 1999.
Interest expense increased by 15.5% to $12.9 million primarily due to
the issuance of $40 million in long-term debt in January 1999, partially offset
by the retirement of $10 million of 10.10% Notes in December 1998.
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LIQUIDITY AND CAPITAL RESOURCES
AWR funds its operating expenses and pays dividends on its outstanding
Common and Preferred Shares principally through dividends from SCW. AWR has a
Registration Statement on file with the Securities and Exchange Commission (SEC)
for issuance, from time to time, of up to $60 million in Common Shares,
Preferred Shares and/or debt securities. On August 16, 2000, AWR issued
1,107,000 Common Shares at $26.125 per share under this Registration Statement.
Net proceeds from the offering have been used to fund a portion of the purchase
price of CCWC and will be invested in SCW. As of December 31, 2000,
approximately $31,074,000 remained for issuance under this Registration
Statement. AWR completed the acquisition of the common stock of CCWC on October
10, 2000 for an aggregate value of $31.2 million, including assumption of
approximately $12 million in debt.
AWR maintains a revolving credit facility with a $25 million aggregate
borrowing capacity. At December 31, 2000, no amount was outstanding under this
facility.
SCW funds the majority of its operating expenses, payments on its debt,
and dividends on its outstanding Common Shares through internal sources.
Internal sources of cash flow are provided primarily by retention of a portion
of earnings, amortization of deferred charges, and depreciation expense.
Internal cash generation is influenced by factors such as weather patterns,
environmental regulation, litigation, changes in supply costs, and timing of
rate relief. See the sections entitled "Risk Factors" and "Electric Energy
Situation in California" for more information.
Because of the seasonal nature of its water and electric operations, SCW
utilizes its short-term borrowing capacity to finance current operating
expenses, including the expenses for its Bear Valley Electric customer service
area. See the section entitled "Electric Energy Situation in California" for
more information. The aggregate short-term borrowing capacity available to SCW
under its three bank lines of credit was $60 million as of December 31, 2000, of
which a total of $45 million was then outstanding. SCW routinely employs
short-term bank borrowing as an interim-financing source prior to funding
capital expenditures on a long-term basis as previously discussed.
SCW also relies on external sources, including equity investments from
AWR, long-term debt, contributions-in-aid-of-construction, advances for
construction and install-and-convey advances, to fund the majority of its
construction expenditures. At December 31, 2000, $20 million was available for
issuance by SCW as long-term debt under a Registration Statement filed in 1998.
In January 2001, SCW issued the remaining $20 million of long-term debt with the
proceeds used to reduce bank borrowing. During 2001, SCW anticipates filing a
Registration Statement with the SEC for issuance, from time to time, of
additional debt securities.
CCWC funds the majority of its operating expenses, payments on its debt
and dividends, if any, through internal sources. CCWC also relies on external
sources, including long-term debt, contributions-in-aid-of-construction,
advances for construction and install-and-convey advances, to fund the majority
of its construction expenditures.
ASUS funds its operating expenses primarily through contractual
management fees.
ELECTRIC ENERGY SITUATION IN CALIFORNIA
The electric energy environment in California has changed as a result of
the December 1995 CPUC decision on restructuring of California's electric
utility industry and state legislation passed in 1996. On September 23, 1996,
the State of California enacted legislation, California Assembly Bill 1890 as
amended by California Senate Bill 477, to provide a transition to a competitive
market structure, which was expected to provide competition and customer choice,
beginning January 1, 1998, with all consumers ultimately participating by 2002.
SCW's Bear Valley electric customer service area was exempted by the CPUC from
compliance with most of the provisions of the CPUC order and the state
legislation.
On January 17, 2001, the Governor of the State of California proclaimed
a state of emergency in California due to shortages of electricity available to
certain of California's utilities resulting in blackouts, the unanticipated and
dramatic increases in electricity prices and the insufficiency of electricity
available from certain of California's utilities to prevent disruption of
electric service in California. The reasons for the high cost of energy are
under investigation but are reported to include, among other things, limited
supply caused by a lack of investment in new power plants to meet growth in
demand, planned and unplanned outages of power plants, lower than usual
availability of hydroelectric power from the Pacific Northwest due to lower than
usual precipitation and higher demand for electricity in the region,
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transmission line constraints and increased prices for natural gas, the fuel
used in many of the power plants serving the region.
Legislation has been enacted and executive orders issued designed to
encourage and accelerate the construction of additional power plants and the
repowering and updating of existing power plants to increase the supply of
electricity in the State. A number of investigations have also been instituted
as to the causes of the California energy situation and numerous pieces of
legislation have been introduced at the California Legislature to deal with
different aspects of the situation. The long-term impact of these legislative
initiatives on SCW's Bear Valley Electric division is difficult to predict. For
the short-term, however, management expects energy costs to remain high and to
continue to be volatile.
All electric energy sold by SCW to customers in its Bear Valley Electric
customer service area is purchased from others. Historically, SCW purchased
electric energy from the Southern California Edison (SCE) unit of Edison
International. However, in order to keep electric power costs as low as
possible, SCW entered into an energy brokerage contract with Sempra Energy
Corporation (Sempra). SCW purchased electric energy for its Bear Valley electric
service division from Sempra during the period beginning March 26, 1996 through
April 30, 1999. SCW changed energy brokers to Illinova Energy Partners
(Illinova) beginning May 1, 1999 through April 30, 2000, and with Dynegy Power
Marketing, Inc. (Dynegy) since May 1, 2000. The change to Dynegy is a result of
the merger between Dynegy and Illinova.
In response to the potential for rising electricity costs, in May 2000,
SCW entered into a one-year, block forward purchase contract with Dynegy for 12
megawatts (MW's) of electric energy for its Bear Valley electric service
division at a price of $35.50 per MW. This contract expires April 30, 2001.
Dynegy also procured electric energy requirements above the 12 MW forward
purchase contract. The average minimum load at SCW's Bear Valley electric
service division has been approximately 12 MW. The average winter load has been
18 MW with a winter peak of 30 MW when the snowmaking machines at the ski
resorts are operating.
Electric energy prices in California have risen rather steadily since
the passage of the CPUC's electric restructuring decision, although the rate of
increase in cost has accelerated in recent months. During 1999, SCW incurred
approximately $2.5 million more in electric energy costs than were included in
current rates for electric service. During 2000, an additional $5.7 million was
incurred. As of December 31, 2000, SCW had approximately $8.6 million of
under-collected electric energy costs included in the electric balancing
account.
In May 2000, SCW filed an Advice Letter with the CPUC for recovery of
approximately $2.4 million in then under-collected power costs over a five-year
period. The CPUC has not yet issued a decision in that filing. SCW will file
another Advice Letter for recovery of the additional under-collected amount as
well as adjustment in base rates to recover over two years estimated electric
power costs on a current basis. Management believes that the recovery of these
amounts is probable but is unable to predict when, or if, the CPUC will
authorize recovery of all or any of these expenses. See the section entitled
"Regulatory Matters" for more information.
In January 2001, SCW filed Advice Letters to increase the costs of
purchased power included in base water rates for each of its ratemaking
districts. These filings resulted from the 10% increase in electric rates that
Southern California Edison and Pacific Gas & Electric Company were authorized to
implement by the CPUC. Management believes that these filings will be approved
but is unable to predict when, or if, the CPUC will authorize recovery of all or
any of these expenses. See the section entitled "Regulatory Matters" for more
information.
In a continuing effort to control the escalation of electric energy
costs for SCW's Bear Valley Electric division, SCW is considering a number of
options including (i) renegotiation of the block forward purchase of electric
energy, (ii) purchase of electric energy from on-site generation facilities
installed by a third party and (iii) use of portable generation to avoid peak
energy prices. Each of these options is expected to result in increased electric
energy prices for customers of SCW's Bear Valley Electric division. Management
believes that these solutions in whole or in part represent significant savings
for customers relative to reliance on spot purchases in the open market.
Management further believes that costs incurred are recoverable from customers
although it can give no assurance that the CPUC will ultimately allow recovery
of all or any of the costs through rates.
CONSTRUCTION PROGRAM
SCW maintains an ongoing distribution main replacement program
throughout its customer service areas, based on the priority of leaks detected,
fire protection enhancement and a reflection of the underlying replacement
schedule. In addition, SCW upgrades its electric and water supply facilities in
accordance with industry standards, local requirements and
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CPUC requirements. SCW's Board of Directors has approved anticipated net capital
expenditures of approximately $50.4 million for 2001. Of this amount,
approximately $13 million is subject to CPUC approval of an advice letter
filing. Absent such approval, this amount would be included in the next general
rate case filing for SCW's Region II.
AWR, CCWC and ASUS have no material capital commitments. However, ASUS
actively seeks opportunities to own, lease or operate water and wastewater
systems for governmental entities, which may involve significant capital
commitments.
REGULATORY MATTERS
SCW is subject to regulation by the CPUC, which has broad powers with
respect to service and facilities, rates, classifications of accounts, valuation
of properties, the purchase, disposition and mortgaging of properties necessary
or useful in rendering public utility service, the issuance of securities, the
granting of certificates of convenience and necessity as to the extension of
services and facilities and various other matters. CCWC is subject to regulation
by the ACC.
Rates that SCW and CCWC are authorized to charge are determined by the
CPUC and the ACC, respectively, in general rate cases and are derived using rate
base, cost of service and cost of capital, as projected for a future test year
in California and using an historical test year, as adjusted in Arizona. Rates
charged to customers vary according to customer class and rate jurisdiction and
are generally set at levels allowing for all prudently incurred costs, including
a return on rate base sufficient to pay principal and interest on debt
securities, preferred stock distributions and a reasonable rate of return on
equity. Rate base generally consists of the original cost of utility plant in
service, plus certain other assets, such as working capital and inventory, less
accumulated depreciation on utility plant in service, deferred income tax
liabilities and certain other deductions. Balancing account adjustments for
purchased water and power are permitted in California, but generally not
Arizona.
Neither AWR nor ASUS are regulated by the CPUC. The CPUC does, however,
regulate certain transactions between SCW and its affiliates. The ACC also
regulates certain transactions between CCWC and its affiliates.
The 22 customer service areas (CSAs) of SCW are grouped into 9 water
districts and 1 electric district for ratemaking purposes. Water rates vary
among the 9 ratemaking districts due to differences in operating conditions and
costs. SCW monitors operations on a regional basis in each of these districts so
that applications for rate changes may be filed, when warranted. Under the
CPUC's practices, rates may be increased by three methods: general rate case
increases (GRC's), offsets for certain expense increases and advice letter
filings related to certain plant additions and other operating cost increases
GRC's are typically for three-year periods, which include step increases for the
second and third year. Rates are based on a forecast of expenses and capital
costs. GRC's have a typical regulatory lag of one year. Offset rate increases
typically have a two to four month regulatory lag. The following table lists
information on estimated annual rate changes during 2000, 1999, and 1998.
($ in 000's) Supply Balancing General
Cost Account and Step Advice
Year Offset Amortization Increases Letters Total
- ---------------------------------------------------------------------------
2000 $ 0 $(1,474) $ 6,973 $ 1,040 $ 6,539
1999 $ 23 $ 1,349 $15,175 $ 657 $17,204
1998 $ 786 $(2,852) $ 3,590 $ 713 $ 2,237
GRC step increase for SCW's Region II and General Office Allocation step
increases for the Arden-Cordova, Bay Point, Simi Valley and Santa Maria CSAs
were effective beginning January, 2000. Step increase for Ojai became effective
April 23, 2000. Attrition increases for Arden-Cordova and Bay Point CSAs were
also in effect beginning January 2000.
Effective June 27, 2000, SCW was authorized by the CPUC to implement new
increased rates for four water ratemaking districts in SCW's Region III and to
combine tariff schedules into regional rates for the customer service areas that
make up SCW's Region III. Despite the delay in obtaining CPUC approval of these
rates, which resulted in a loss of approximately $1.4 million in revenues for
the six months ended June 30, 2000, the new rates generated approximately $2.5
million in additional revenues during the third and fourth quarters of 2000.
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New water rates with an annual increase of approximately $2.5 million
for seven ratemaking districts in SCW's Region I were implemented in January
2001. SCW's application to combine the seven ratemaking CSAs into one regional
rate was, however, denied by the CPUC. Step increases of approximately $1.7
million for CSAs in SCW's Region III were also effective in January 2001. An
attrition increase of approximately $2.8 million for Region II was in effect
from February 2001.
A CPUC Order authorizing SCW to increase rates by $830,000 per year went
in effect on October 24, 2000 for recovery of capital expenditures associated
with Y2K readiness, not already included in Registrant's water rates. See the
section entitled "Year 2000 Issue" for more information.
In October 2000, the CPUC approved SCW's application to provide water
and wastewater services to a new housing development located in Orange County,
California.
An advice letter seeking recovery of approximately $2.4 million in
under-collected supply costs for SCW's Bear Valley Electric service area has
been filed with the CPUC. SCW has also filed for recovery of increased costs of
electric power incurred to pump water for its water customers. See the section
entitled "Electric Energy Situation in California" for more information.
On July 6, 2000, the CPUC concluded its Order Instituting Rulemaking on
its own motion to set rules and to provide guidelines for privatization and
excess capacity as it relates to investor owned water companies, including
Registrant. The CPUC's order establishes a mechanism for sharing gross revenues,
after pass-through of certain expenses, between customers of SCW and
shareholders of Registrant. The order also requires water utilities, including
Registrant, to file an advice letter with the CPUC for approval of services that
utilize, in whole or in part, assets or employees reflected in the utility's
revenue requirements.
Hearings before the CPUC have concluded on SCW's application to include
an additional $1.6 million in rate base for a water treatment facility in SCW's
Clearlake service area. In 1993, the CPUC disallowed the entire $1.6 million and
Registrant wrote off the entire amount. SCW's application demonstrated that the
previously disallowed portion of the treatment plant is now fully "used and
useful" and is providing service to customers. A decision on the Company's
application is anticipated during the second quarter of 2001, which could result
in $1.6 million write-up. Recovery of the costs associated with the plant was
included in the general rate increase application for SCW's Clearlake service
area.
On April 22, 1999, the CPUC issued an order denying SCW's application
seeking approval of its recovery through rates of costs associated with its
participation in the Coastal Aqueduct Extension of the State Water Project
(SWP). SCW's participation in the SWP commits it to a 40-year entitlement. SCW's
investment of approximately $9.5 million in SWP is currently included in Other
Property and Investments. The remaining balance of the related liability of
approximately $7 million is recorded as other long-term debt. SCW intends to
recover its investment in SWP either through contributions from developers on a
per-lot or other basis, or from the sale of its 500 acre-foot entitlement in
SWP.
On November 2, 2000, a final decision from the CPUC concluded that the
CPUC has the authority to regulate the service of water utilities with respect
to the health and safety of that service; that the Department of Health Services
of the State of California (DOHS) requirements governing drinking water quality
adequately protect the public health and safety; and that regulated water
utilities, including SCW, have satisfactorily complied with past and present
drinking water quality requirements. SCW has filed for recovery of $879,000 in
expenses associated with this matter. Management believes that these costs are
recoverable although it can give no assurance that the CPUC will ultimately
allow recovery of all or any of the costs through rates. See the section
entitled "Legal Proceedings" in Part I for more information.
On December 26, 2000, SCW filed an Advice Letter with the CPUC, in
accordance with a prior CPUC resolution authorizing such a filing, seeking
recovery of approximately $1,800,000 in expenses associated with its lawsuits
against Aerojet General Corporation and the Department of Water Resources of the
State of California. SCW believes that the recovery of these costs are probable
although it can give no assurance that the CPUC will ultimately allow recovery
of all or any of the costs through rates. See the section entitled "Legal
Proceedings" in Part I for more information.
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On January 26, 2001, the CPUC Staff, SCW and Peerless Water Co., a
privately owned water company in Bellflower, California, signed a Settlement
Agreement, which recommends approval of the proposed acquisition by SCW of
Peerless. A final decision from the CPUC is anticipated by the second quarter of
2001.
There are no active regulatory proceedings affecting CCWC or its
operations.
ENVIRONMENTAL MATTERS
1996 Amendments to Federal Safe Drinking Water Act
On August 6, 1996, amendments (the 1996 SDWA amendments) to the Safe
Drinking Water Act (the SDWA) were signed into law. The 1996 SDWA revised the
1986 amendments to the SDWA with a new process for selecting and regulating
contaminants. The U. S. Environmental Protection Agency (EPA) can only regulate
contaminants that may have adverse health effects, are known or likely to occur
at levels of public health concern, and the regulation of which will provide "a
meaningful opportunity for health risk reduction." The EPA has published a list
of contaminants for possible regulation and must update that list every five
years. In addition, every five years, the EPA must select at least five
contaminants on that list and determine whether to regulate them. The new law
allows the EPA to bypass the selection process and adopt interim regulations for
contaminants in order to address urgent health threats. Current regulations,
however, remain in place and are not subject to the new standard-setting
provisions. The DOHS, acting on behalf of the EPA, administers the EPA's program
in California.
The 1996 SDWA amendments allow the EPA for the first time to base
primary drinking water regulations on risk assessment and cost/benefit
considerations and on minimizing overall risk. The EPA must base regulations on
best available, peer-reviewed science and data from best available methods. For
proposed regulations that involve the setting of maximum contaminant levels
(MCL's), the EPA must use, and seek public comment on, an analysis of
quantifiable and non-quantifiable risk-reduction benefits and cost for each such
MCL.
SCW and CCWC currently test their wells and water systems according to
requirements listed in the SDWA. Water from wells found to contain levels of
contaminants above the established MCL's is treated to reduce contaminants to
acceptable levels before it is delivered to customers.
Since the SDWA became effective, SCW has experienced increased operating
costs for testing to determine the levels, if any, of the constituents in SCW's
sources of supply and additional expense to lower the level of any contaminants
in order to meet the MCL standards. Such costs and the costs of controlling any
other contaminants may cause SCW to experience additional capital costs as well
as increased operating costs.
AWR is currently unable to predict the ultimate impact that the 1996
SDWA amendments might have on the financial position or results of operation of
its regulated utility subsidiaries. The CPUC and ACC ratemaking processes
provide SCW and CCWC with the opportunity to recover prudently incurred capital
and operating costs associated with water quality. Management believes that such
incurred costs will be authorized for recovery by the CPUC and ACC, as
appropriate.
Proposed Enhanced Surface Water Treatment Rule
On July 29, 1994, the EPA proposed an Enhanced Surface Water Treatment
Rule (ESWTR), which would require increased surface-water treatment to decrease
the risk of microbial contamination. The EPA has proposed several versions of
the ESWTR for promulgation. The version selected for promulgation will be
determined based on data collected by certain water suppliers and forwarded to
the EPA pursuant to EPA's Information Collection Rule, which requires such water
suppliers to monitor microbial and other contaminants in their water supplies
and to conduct certain tests in respect of such contaminants. The EPA has
adopted an Interim ESWTR applicable only to systems serving greater than 10,000
persons. On April 10, 2000, EPA published the proposed Long Term 1 Enhanced
Surface Water Treatment Rule and Filter Backwash Rule (LT1FBR) in the Federal
Register. This proposed rule will apply to each of SCW's five surface water
treatment plants and the CCWC's surface water treatment plant. It basically
extends the requirements of the ESWTR to systems serving less than 10,000
persons and will require some systems to institute changes to the return of
recycle filter backwash flows within the treatment process to reduce the effects
of recycle on compromising microbial control. Registrant is presently unable to
predict the ultimate impact of the LT1FBR, but it is anticipated that all five
SCW's plants and the CCWC's plant will achieve compliance within the three year
to five-year time frames identified by EPA.
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Regulation of Disinfection/Disinfection By-Products
SCW and CCWC are also subject to the new regulations concerning
disinfection/disinfection by-products (DBP's), Stage I of which regulations were
effective in November 1998 with full compliance required by 2001. Stage I
requires reduction of trihalomethane contaminants from 100 micrograms per liter
to 80 micrograms per liter. Two of SCW's systems are immediately impacted by
this rule. SCW implemented modifications to the treatment process in its Bay
Point and Cordova systems. It is anticipated that both systems will be in full
compliance by 2001. A third SCW plant will require treatment modifications in
order to comply with this rule. SCW is preparing to conduct studies in
Calipatria to determine the best treatment methods to comply with this rule.
The EPA will adopt Stage II rules pertaining to DBP's by summer of 2001.
The EPA is not allowed to use the new cost/benefit analysis provided for in the
1996 SDWA amendments for establishing the Stage II rules applicable to DBP's but
may utilize the regulatory negotiating process provided for in the 1996 SDWA
amendments to develop the Stage II rule. The final rule is expected by 2002.
Ground Water Rule
On May 10, 2000, the EPA published the proposed Ground Water Rule (GWR),
which establishes multiple barriers to protect against bacteria and viruses in
drinking water systems that use ground water. The proposed rule will apply to
all U.S. public water systems that use ground water as a source. The proposed
GWR includes system sanitary surveys conducted by the state to identify
significant deficiencies; hydrogeologic sensitivity assessments for
undisinfected systems, source water microbial monitoring by systems that do not
disinfect and draw from hydrogeologically sensitive aquifer or have detected
fecal indicators within the system's distribution system; corrective action; and
compliance monitoring for systems which disinfect to ensure that they reliably
achieve 4-log (99.99%) inactivation or removal of viruses. The GWR is scheduled
to be issued as a final regulation in 2001. While no assurance can be given as
to the nature and cost of any additional compliance measures, if any, SCW and
CCWC do not believe that such regulations will impose significant compliance
costs, since they already currently engages in disinfection of their groundwater
systems.
Regulation of Radon and Arsenic
The final regulation on arsenic was published in January 2001 with a new
federal standard of 10 parts per billion (ppb). Compliance with an MCL of 10 ppb
will require implementation of wellhead treatment remedies for eight affected
wells in SCW's system and three wells in CCWC's system. However, the new
administration has put a temporary hold on the ruling and AWR is unable to
predict if or when the rule will be officially released.
The EPA has proposed new radon regulations following a National Academy
of Sciences risk assessment and study of risk-reduction benefits associated with
various mitigation measures. The National Academy of Sciences study is in
agreement with much of EPA's original findings but has slightly reduced the
ingestion risk initially assumed by EPA. EPA established an MCL of 300 Pico
Curies per liter based on the findings and has also established an alternative
MCL of 4000 Pico Curies per liter, based upon potential mitigation measures for
overall radon reduction. It is our understanding that the United States Office
of Management and Budget has sent the radon rule back to EPA for
reconsideration. The final rule was expected to be effective in August 2000, but
has been delayed. SCW and CCWC currently monitor their wells for radon in order
to determine the best treatment appropriate for affected wells.
Voluntary Efforts to Exceed Minimum Surface Water Treatment Requirements
SCW is a voluntary member of the EPA's "Partnership for Safe Water", a
national program designed to further protect the public from diseases caused by
cryptosporidium and other microscopic organisms. As a volunteer in the program,
SCW commits to exceed minimum operating requirements governing surface water
treatment, optimize surface water treatment plant operations and ensure that its
surface water treatment facilities are performing as efficiently as possible.
Fluoridation of Water Supplies
SCW is subject to State of California Assembly Bill 733, which requires
fluoridation of water supplies for public water systems serving more than 10,000
service connections. Although the bill requires affected systems to install
treatment facilities only when public funds have been made available to cover
capital and operating costs, the bill requires the CPUC to
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authorize cost recovery through rates should public funds for operation of the
facilities, once installed, become unavailable in future years.
Matters Relating to SCW's Arden-Cordova System
In January 1997, SCW was notified that ammonium perchlorate in amounts
above the state-determined action level had been detected in three of its 27
wells serving its Arden-Cordova system. Aerojet-General Corp. has, in the past,
used ammonium perchlorate in their processing as an oxidizer of rocket fuels.
SCW took the three wells detected with ammonium perchlorate out of service at
that time. Although neither the EPA nor the DOHS has established a drinking
water standard for ammonium perchlorate, DOHS has established an action level of
18 parts per billion (ppb) which required SCW to notify customers in its
Arden-Cordova customer service area of detection of ammonium perchlorate in
amounts in excess of this action level. In April 1997, SCW found ammonium
perchlorate in three additional wells and, at that time, removed those wells
from service until it was determined that the levels were below the
state-determined action level. Those wells were returned to service. SCW
periodically monitors these wells to determine that levels of perchlorate are
below the action level currently in effect.
In February 1998, SCW was informed that nitrosodimethylamine (NDMA) had
been detected in amounts in excess of the EPA reference dosage for health risks
in four of its wells in its Arden-Cordova system. The wells have been removed
from service. Another well was also removed from service in September 1999 due
to the contamination. NDMA is an additional by-product from the production of
rocket fuel and it is believed that such contamination is related to the
activities of Aerojet-General Corp. Aerojet-General Corp. has reimbursed SCW for
constructing a pipeline to interconnect with the City of Folsom water system to
provide an alternative source(s) of water supply in SCW's Arden-Cordova customer
service area and has reimbursed SCW for costs associated with the drilling and
equipping of two new wells. As of December 31, 2000, Aerojet-General Corp. has
previously reimbursed SCW $4.5 million. The remainder of the costs is subject to
further reimbursement, including interest. The reimbursement from
Aerojet-General Corp. reduces SCW's utility plant and costs of purchased water.
On October 25, 1999, SCW filed a lawsuit against the California Regional
Water Quality Control Board (CRWQCB) alleging that the CRWQCB has willfully
allowed portions of the Sacramento County Groundwater Basin to be injected with
chemical pollution that is contaminating the underground water supply in SCW's
Rancho Cordova customer service area. In a separate case, also filed on October
25, 1999, SCW sued Aerojet General Corp. for causing the contamination. On March
22, 2000 Aerojet General Corp. filed a cross complaint against SCW for
negligence and constituting a public nuisance. SCW is unable to determine at
this time what, if any, potential liability it may have with respect to the
cross complaint, but intends to vigorously defend itself against these
allegations. Management cannot predict the outcome of these proceedings. See the
section entitled "Legal Proceedings" for more information.
Matters Relating to SCW's Culver City System
The compound, methyl tertiary butyl ether (MTBE), an oxygenate used in
reformulated fuels, has been detected in the Charnock Basin, located in the city
of Santa Monica and within SCW's Culver City customer service area. At the
request of the Regional Water Quality Control Board, the City of Santa Monica
and the California Environmental Protection Agency, SCW removed two of its wells
in the Culver City system from service in October 1996 to help in efforts to
avoid further spread of the MTBE contamination plume. Neither of these wells has
been found to be contaminated with MTBE. SCW is purchasing water from the
Metropolitan Water District of Southern California (MWD) at an increased cost to
replace the water supply formerly pumped from the two wells removed from
service.
Pursuant to an agreement with SCW in December 1998, two of the
potentially responsible parties (the Participants) have reimbursed SCW's legal
and consulting costs related to this matter and for increased costs incurred by
SCW in purchasing replacement water. However, a notice of termination from the
Participants to the settlement agreement was received in October 1999 claiming
overpayments for replacement water in excess of SCW's water rights. No
assurances can be given that future negotiations will result in complete
restoration of SCW's water rights or that continued reimbursement of SCW's costs
will be forthcoming.
On September 22, 1999, the U.S. EPA and the Los Angeles Regional Water
Quality Control Board ordered Shell Oil Company, Shell Oil Products Company and
Equilon Enterprises LLC to provide replacement drinking water to both SCW and
the City of Santa Monica due to MTBE contamination of the Charnock Sub-Basin
drinking water. The EPA has ordered Shell Oil to reimburse SCW for water
replacement costs. The agencies are continuing to investigate the causes of
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MTBE pollution and intend to ensure that all responsible parties contribute to
its clean up although SCW is unable to predict the outcome of the EPA's
enforcement efforts.
Matters Relating to SCW's Yorba Linda System
The compound, MTBE, has been detected in three wells serving SCW's Yorba
Linda system. Two of the wells are standby wells and the third well has not
shown MTBE above the DOHS secondary standard of 5.0 ppb at this time. SCW has
constructed an interconnection with the MWD to provide for additional supply in
the event the third well experienced levels of detection in excess of the DOHS
standard.
SCW has met with the Regional Water Quality Control Board, the Orange
County Water District, the City of Anaheim, the DOHS and three potentially
responsible parties (PRP's) to define the extent of the MTBE contamination plume
and assess the contribution from the PRP's. The PRP's have voluntarily initiated
a work plan for regional investigation. While there have not been significant
disruptions to the water supply in Yorba Linda at this point in time, no
assurances can be given that MTBE contamination will not increase in the future.
Bear Valley Electric
SCW has been, in conjunction with the Southern California Edison unit of
Edison International, planning to upgrade transmission facilities to 115kv (the
115kv Project) in order to meet increased energy and demand requirements. The
115kv Project is subject to an environmental impact report (EIR) and delays in
approval of the EIR may impact service in SCW's Bear Valley Electric Service
customer service area. SCW has, however, taken other measures, that will be
enacted on an emergency basis, to meet load growth and mitigate delays in
approval of the EIR. In addition, third parties willing to construct gas-fired
generating facilities, sufficient to meet the peaking and future capacity needs
of Bear Valley Electric, in exchange for a long-term purchase contract have
approached SCW. Management is unable at this time to predict if such an
arrangement will be economically beneficial to customers or if the generating
facility can meet all environmental requirements. See the section entitled
"Electric Energy Situation in California" for more information.
WATER SUPPLY
During 2000, SCW supplied a total of 88,055,900 CCF of water. Of this
amount, approximately 55.3% came from pumped sources and 42.7% was purchased
from others, principally the MWD. The remaining amount was supplied by the
Bureau of Reclamation (the Bureau) under a no-cost contract. During 1999, SCW
supplied 85,327,800 CCF of water, 58.2% of which came from pumped sources, 40.2%
was purchased, and the remainder was supplied by the Bureau.
The MWD is a water district organized under the laws of the State of
California for the purpose of delivering imported water to areas within its
jurisdiction. Registrant has 65 connections to the water distribution facilities
of MWD and other municipal water agencies. MWD imports water from two principal
sources: the Colorado River and the State Water Project (SWP). Available water
supplies from the Colorado River and the SWP have historically been sufficient
to meet most of MWD's requirements and MWD's supplies from these sources are
anticipated to remain adequate through 2001. MWD's import of water from the
Colorado River is expected to decrease in future years due to the requirements
of the Central Arizona Project (CAP). In response, MWD has taken a number of
steps to secure additional storage capacity and to increase available water
supplies, by effecting transfers of water rights from other sources.
SCW's water supply and revenues are significantly affected by changes in
meteorological conditions. After being buffeted by the weather extremes of the
El Nino/La Nina Southern Oscillation phenomena, weather in SCW's service areas
has returned to normal weather patterns. The October 1999 to September 2000
precipitation season was near normal. However due to lower than normal
precipitation in the last three months of 2000, the California Department of
Water Resources (DWR) has issued an early indication in January 2001 that if the
trend continues, allocation of water to state water project contractors,
including MWD, could be lowered. The allocation process in California depends on
the Sierra snow pack and other sources of water and can vary significantly as
the winter season progresses. January and February 2001 brought significant
precipitation. For the water year to end of January 2001, precipitation was
19.9" or 61% of normal, which was higher than the historical average of 40% of
normal. Reservoir storage statewide as of the end of January 2001 is 107% of
historical storage level.
The MWD, in response to DWR's early indication, has publicly assured
consumers that it is well prepared to help the region through one or more dry
years. In order to meet anticipated needs, MWD has in the ten years since the
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state's last drought invested billions of dollars in water conservation
programs, and water recycling, storage and infrastructure programs. Foremost
among the safeguards is Diamond Valley Reservoir, a 4,500 acre reservoir in
southwest Riverside County. Capable of holding 800,000 acre-feet or 269 billion
gallons, the reservoir is currently more than half full.
Although overall groundwater conditions remain at adequate levels,
certain of SCW's groundwater supplies have been affected to varying degrees by
various forms of contamination which, in some cases, have caused increased
reliance on purchased water in its supply mix.
CCWC obtains its water supply from three operating wells and from
Colorado River water delivered by the CAP. The majority of CCWC's water supply
is obtained from its CAP allocation and well water is used for peaking capacity
in excess of treatment plant capability, during treatment plant shutdown, and to
keep the well system in optimal operating condition. CCWC has an Assured Water
Supply designation, by decision and order of the Arizona Department of Water
Resources, providing in part that, subject to its requirements, CCWC currently
has a sufficient supply of ground water and CAP water which is physically,
continuously and legally available to satisfy current and committed demands of
its customers, plus at least two years of predicted demands, for 100 years.
Notwithstanding such a designation, CCWC's water supply may be subject
to interruption or reduction, in particular owing to interruption or reduction
of CAP water. In the event of interruption or reduction of CAP water, CCWC can
currently rely on its well water supplies for short-term periods. However, in
any event, the quantity of water CCWC supplies to some or all of its customers
may be interrupted or curtailed, pursuant to the provisions of its tariffs.
BUSINESS SEGMENTS
AWR currently has three principal business units: water service and
electric distribution utility operations conducted through its SCW subsidiary,
water service utility operation conducted through its CCWC subsidiary, and
non-regulated activities through its ASUS subsidiary. All activities of SCW
currently are geographically located within the State of California. All
activities of CCWC are located in the state of Arizona. Both SCW and CCWC are
regulated utilities. On a stand-alone basis, AWR has no material assets other
than its investments in its subsidiaries. See Note 11 to the "Notes to Financial
Statements".
YEAR 2000 ISSUE
Registrant has had no Y2K incidents, business disruptions, failures or
legal proceedings. There have been no actual or anticipated effects or changes
to Registrant's operating trends or revenue patterns as a result of the
transition. Not all Y2K problems were necessarily expected to surface in 2000.
Registrant does not have, and may never fully have, sufficient information about
the Y2K exposure of third parties to adequately predict the risks posed by them
to Registrant. If the third parties later discover any Y2K problems that are not
remedied, resulting problems could include temporary loss of utility services
and disruption of water supplies. Costs related to Y2K incurred by SCW are
recovered through water rates. The CPUC has authorized an increase in rates of
$830,000 per year, effective October 24, 2000. See Note 13 to the "Notes to
Financial Statements".
RISK FACTOR SUMMARY
This section (written in plain English to comply with certain SEC
Standards) summarizes certain risks of our business that may affect our future
financial results. We also periodically file with the Securities and Exchange
Commission documents that include more information on these risks. It is
important for investors to read these documents.
Litigation
SCW has been sued in fourteen water-quality related lawsuits:
- a suit filed on April 24, 1997 alleging personal injury and
property damage as a result of the delivery of contaminated
water from wells located in an area of the San Gabriel Valley
that has been designated a federal superfund site
- a suit filed on July 29, 1997 alleging personal injury and
property damage as a result of the delivery contaminated of
water; few of our systems are located in the geographical area
covered by this suit
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- a suit filed on December 8, 1997 alleging personal injury and
property damage as a result of the delivery of contaminated
water in SCW's Arden-Cordova service area
- a suit filed on February 2, 1998 alleging personal injury and
property damage as a result of the delivery of contaminated
water from wells located in an area of the San Gabriel Valley
that has been designated a superfund site
- a suit filed on February 4, 1998 alleging personal injury and
property damage as a result of the delivery of contaminated
water from wells located in an area of the San Gabriel Valley
that has been designated a superfund site
- a suit filed in March 2, 1998 alleging personal injury and
property damage as a result of the delivery of contaminated
water in SCW's Arden-Cordova service area
- a suit filed on June 29, 1998 alleging personal injury and
property damage as a result of the delivery of contaminated
water from wells located in an area of the San Gabriel Valley
that has been designated a superfund site
- two suits filed on July 30, 1998 alleging personal injury and
property damage as a result of the delivery of contaminated
water from wells located in an area of the San Gabriel Valley
that has been designated a superfund site
- a suit filed on December 3, 1998 alleging personal injury and
property damage as a result of the delivery of contaminated
water from wells located in an area of the San Gabriel Valley
that has been designated a superfund site
- a suit filed on July 22, 1999 alleging personal injury and
property damage as a result of the delivery of contaminated
water from wells located in an area of the San Gabriel Valley
that has been designated a superfund site
- a suit filed on May 16, 2000 alleging personal injury and
property damage as a result of the delivery of contaminated
water in SCW's Arden-Cordova service area
- a suit filed on April 13, 2000 alleging personal injury and
property damage as a result of the delivery of contaminated
water from wells located in an area of the San Gabriel Valley
that has been designated a superfund site
- a suit filed on August 5, 1999 alleging personal injury and
property damage as a result of the delivery of contaminated
water from wells located in an area of the San Gabriel Valley
that has been designated a superfund site
On September 1, 1999, the First District Court of Appeal in San
Francisco, held that the CPUC had preemptive jurisdiction over regulated public
utilities and ordered dismissal of a series of lawsuits against water utilities,
including seven of the lawsuits against SCW. On October 11, 1999 one group of
plaintiffs appealed the decision to the California Supreme Court, which has
accepted the petition. Management cannot predict the outcome of the proceeding.
In March 1998, the CPUC issued an Order Instituting Investigation (the
OII) as a result of these types of suits being filed against water utilities in
California. On November 2, 2000, CPUC issued a final order concluding that the
CPUC has the jurisdiction to regulate the service of water utilities with
respect to the health and safety of that service; that DOHS requirements
governing drinking water quality adequately protect the public health and
safety; and that regulated water utilities, including SCW, have satisfactorily
complied with past and present drinking water quality requirements.
The CPUC has authorized a memorandum account for legal expenses incurred
by water utilities, including SCW, in the water quality lawsuits. Under the
memorandum account procedure, SCW may recover litigation costs from ratepayers
to the extent authorized by the CPUC. The CPUC has not yet authorized SCW to
recover any of its litigation costs. As of December 31, 2000, Registrant had
incurred $887,500 in the OII-related memorandum account.
Environmental Regulation
SCW and CCWC are subject to increasingly stringent environmental
regulations that will result in increasing capital and operating costs. These
regulations include:
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- the 1996 amendments to the Safe Drinking Water Act that require
increased testing and treatment of water to reduce specified
contaminants to minimum containment levels
- approved regulations requiring increased surface-water treatment
to decrease the risk of microbial contamination; these
regulations will affect SCW's five surface water treatment
plants and one CCWC's plant
- additional regulation of disinfection/disinfection byproducts
expected to be adopted before the end of 2002; these regulations
will potentially affect two of SCW's systems
- additional regulations expected to be adopted in 2001 requiring
disinfection of certain groundwater systems
- regulation of arsenic issued in January 2001 and potential
regulation of radon
- new California requirements to fluoridate public water systems
serving over 10,000 customers
SCW and CCWC may be able to recover costs incurred to comply with these
regulations through the ratemaking process for our regulated systems. We may
also be able to recover certain of these costs under our contractual
arrangements with municipalities. In certain circumstances, we may recover costs
from parties responsible or potentially responsible for contamination.
Rates and Regulation
SCW is subject to regulation by the CPUC. CCWC is subject to regulation
by the ACC. AWR and ASUS are not directly subject to CPUC regulation. The CPUC
may, however, regulate transactions between SCW and AWR, including the manner in
which overhead costs are allocated between SCW and AWR and the pricing of
services rendered by SCW to AWR. The ACC also regulates certain transactions
between CCWC and its affiliates.
SCW's revenues depend substantially on the rates that it is permitted to
charge its customers. SCW may increase rates in three ways:
- by filing for a general rate increase
- by filing for recovery of certain expenses
- by filing an "advice letter" for certain plant additions or
other operating cost increases, thereby increasing rate base
In addition, SCW recovers certain water supply costs through a balancing
account mechanism. Supply costs include the cost of purchased water and power
and groundwater production assessments. The balancing account mechanism is
intended to insulate SCW's earnings from changes in water supply costs that are
beyond SCW's control. The balancing account is not, however, designed to
insulate SCW's earnings against changes in supply mix. As a result, SCW may not
recover increased costs due to increased use of purchased water through the
balancing account mechanism. In addition, balancing account adjustments, if
authorized by the CPUC, may result in either increases or decreases in revenues
attributable to supply costs incurred in prior periods, depending upon whether
there has been an under-collection or over-collection of supply costs. CCWC is
not permitted to recover these types of costs through a balancing account
mechanism.
There has been a substantial increase in the costs of purchased power in
recent months. Due to the nature of the regulatory process, there is a risk of
disallowance of full recovery of costs or additional delays in the recovery of
costs during any period in which there has been a substantial run-up in costs.
There are also a number of matters pending before the CPUC that may
affect our future financial results. These matters include:
- an advice letter filed by SCW seeking recovery of cost
associated with various water quality litigations
- an advice letter filed to recover the previous disallowed
portion of a water treatment facility in SCW's Clearlake service
area
- an advice letter filed to recover the under-collection of supply
costs for SCW's Bear Valley Electric service division
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Adequacy of Water Supplies
The adequacy of water supplies varies from year to year depending upon a
variety of factors, including
- rainfall
- the amount of water stored in reservoirs
- the amount used by our customers and others
- water quality, and
- legal limitations on use.
Reservoir storage statewide as of the end of January 2001 is 107% of
historical storage level.
and the outlook for water supply in the near term is generally favorable.
Population growth and increases in the amount of water used have, however,
increased limitations on use to prevent over drafting of groundwater basins. The
import of water from the Colorado River, one of SCW's important sources of
supply, is expected to decrease in future years due to the requirements of the
Central Arizona Project. We also have in recent years taken wells out of service
due to water quality problems.
CCWC obtains its water supply from three operating wells and from the
Colorado River through the CAP. CCWC's water supply may be subject to
interruption or reduction if there is an interruption or reduction in CAP water.
Water shortages could be caused by the above factors and may affect us
in several ways:
- they adversely affect supply mix by causing Registrant to rely
on more expensive purchased water
- they adversely affect operating costs
- they may result in an increase in capital expenditures for
building pipelines to connect to alternative sources of supplies
and reservoirs and other facilities to conserve or reclaim water
We may be able to recover increased operating and construction costs for
our regulated systems through the ratemaking process. We may also be able to
recover certain of these costs under the terms of our contractual agreements
with municipalities.
In certain circumstances, we may recover these costs from third parties
that may be responsible, or potentially responsible, for groundwater
contamination. As of December 31, 2000, Aerojet General Corp. has previously
reimbursed us approximately $4.5 million for costs associated with the cleanup
of the groundwater supply for our Arden-Cordova System and for the increased
costs of purchasing water and developing new sources of groundwater supply. On
October 25, 1999, we sued the California Regional Water Quality Control Board
(CRWQCB) alleging that it has willfully allowed portions of the Sacramento
County Groundwater Basin to be injected with chemical pollution that is
contaminating the underground water supply in our Rancho Cordova customer
service area. In a separate lawsuit, also filed on October 25, 1999, we sued
Aerojet General Corp. for causing the contamination. On March 22, 2000 Aerojet
General Corp. filed a cross complaint against us for negligence and constituting
a public nuisance. We cannot predict the outcome of these lawsuits but we will
defend ourselves against these allegations.
Two potentially responsible parties on matters relating to the clean-up
and purchase of replacement water in the Charnock Basin, located in the cities
of Santa Monica and Culver City, have previously reimbursed us for replacement
water and certain legal and consulting expenses. The Charnock Basin is in our
Culver City customer service area.
California Energy Situation
The Governor of the State of California has proclaimed a state of
emergency in California due to shortages of electricity available to certain of
California's utilities and the dramatic increases in electricity prices. A
number of investigations have been instituted as to the causes of the California
energy situation and numerous pieces of legislation have been introduced at the
California Legislature to deal with different aspects of the situation. We are
unable to predict the long-term impact of these legislative initiatives. In the
short-term, we expect energy costs to remain high and to continue to be
volatile. We have been able to partially reduce the effect of these higher
energy costs by entering into a long-term contract with Dynegy for 12 MW of
electric energy for its Bear Valley Electric division. This contract expires on
April 30, 2001 and we expect renewal of this agreement will cost significantly
more.
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In a continuing effort to control the escalation of electric energy
costs for SCW's Bear Valley Electric division, we are considering a number of
options including (i) renegotiation of the block forward purchase of electric
energy, (ii) purchase of electric energy from on-site generation facilities
installed by a third party and (iii) use of portable generation to avoid peak
energy prices. Each of these options is expected to result in increased electric
energy prices for customers of SCW's Bear Valley Electric division. We believe
that these solutions in whole or in part represent significant savings for
customers as compared to reliance on spot purchases in the open market. We
further believe that costs incurred are recoverable from customers. We cannot
give assurance that the CPUC will ultimately allow recovery of all or any of the
costs through rates.
ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138, which
establishes a new model for accounting for derivative and hedging activities,
and supersedes and amends a number of existing standards. This statement as
amended was adopted effective January 1, 2000 and has not had material impact on
financial position or results of operation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Registrant has no derivative financial instruments, financial
instruments with significant off-balance sheet risks or financial instruments
with concentrations of credit risk. The disclosure required is, therefore, not
applicable.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
American States Water Company
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statements of Capitalization - December 31, 2000
and 1999
Consolidated Statements of Income - for the years ended December
31, 2000, 1999, and 1998
Consolidated Statements of Changes in Common Shareholders'
Equity - for the years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows - for the years ended
December 31, 2000, 1999 and 1998
Southern California Water Company
Balance Sheets - December 31, 2000 and 1999
Statements of Capitalization - December 31, 2000 and 1999
Statements of Income - for the years ended December 31, 2000,
1999 and 1998
Statements of Changes in Common Shareholders' Equity - for the
years ended December 31, 2000, 1999 and 1998
Statements of Cash Flows - for the years ended December 31,
2000, 1999 and 1998
Notes to Financial Statements
Report of Independent Public Accountants
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AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
December 31,
(in thousands) 2000 1999
- -------------------------------------------------------------------------------------------------
ASSETS
UTILITY PLANT, AT COST
Water $ 608,032 $ 532,007
Electric 37,630 36,349
-------------------------
645,662 568,356
Less - Accumulated depreciation (173,367) (151,733)
-------------------------
472,295 416,623
Construction work in progress 36,801 32,972
-------------------------
Net utility plant 509,096 449,595
-------------------------
OTHER PROPERTY AND INVESTMENTS 25,222 10,583
CURRENT ASSETS
Cash and cash equivalents 5,808 2,189
Accounts receivable-Customers, less reserves of $510 in 2000; 10,481 10,135
$487 in 1999
Other account receivable 5,233 4,347
Unbilled revenue 11,363 11,345
Materials and supplies, at average cost 1,116 1,153
Supply cost balancing accounts 11,145 4,774
Prepayments 4,085 4,851
Accumulated deferred income taxes - net 3,249 5,546
-------------------------
Total current assets 52,480 44,340
-------------------------
DEFERRED CHARGES
Unamortized debt expense and redemption premium 7,190 6,811
Regulatory tax-related assets 17,705 19,941
Other 4,953 1,911
-------------------------
Total deferred charges 29,848 28,663
-------------------------
TOTAL ASSETS $ 616,646 $ 533,181
=========================
The accompanying notes are an integral part of these financial statements
25
28
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
December 31,
(in thousands) 2000 1999
- -----------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity $192,723 $158,846
Preferred Shares 1,600 1,600
Preferred Shares - mandatory redemption 320 360
Long-term debt 176,452 167,363
----------------------
Total capitalization 371,095 328,169
----------------------
CURRENT LIABILITIES
Notes payable to banks 45,000 21,000
Long-term debt and Preferred Shares - current 735 340
Accounts payable 11,857 13,777
Taxes payable 5,585 5,432
Accrued interest 1,783 1,584
Other 15,257 12,832
----------------------
Total current liabilities 80,217 54,965
----------------------
OTHER CREDITS
Advances for construction 69,230 57,485
Contributions in aid of construction 39,670 38,895
Accumulated deferred income taxes - net 51,131 48,302
Unamortized investment tax credits 3,156 3,064
Regulatory tax-related liability 1,817 1,861
Other 330 440
----------------------
Total other credits 165,334 150,047
----------------------
TOTAL CAPITALIZATION AND LIABILITIES $616,646 $533,181
======================
The accompanying notes are an integral part of these financial statements
26
29
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
(in thousands) 2000 1999
- --------------------------------------------------------------------------------------------
COMMON SHAREHOLDERS' EQUITY:
Common Shares, no par value, $2.50 stated value
Authorized 30,000,000 shares
Outstanding 10,079,629 in 2000 and 8,957,671 in 1999 $ 25,199 $ 22,394
Additional paid-in capital 100,239 74,937
Earnings reinvested in the business 67,285 61,515
-------------------------
192,723 158,846
-------------------------
PREFERRED SHARES: $25 PAR VALUE
Authorized 64,000 shares
Outstanding 32,000 shares, 4% Series 800 800
Outstanding 32,000 shares, 4 1/4% Series 800 800
-------------------------
1,600 1,600
-------------------------
PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION
Requirements: $25 par value
Authorized and outstanding 14,400 shares in 2000 and
16,000 shares in 1999, 5% Series 360 400
Less: Preferred Shares to be redeemed within one year (40) (40)
-------------------------
320 360
LONG-TERM DEBT
5.82% notes due 2003 12,500 12,500
6.64% notes due 2013 1,100 1,100
6.80% notes due 2013 2,000 2,000
8.50% fixed rate obligation due 2013 1,714 1,798
Variable rate obligation due 2014 6,000 6,000
Variable rate obligation due 2018 622 650
6.87% notes due 2023 5,000 5,000
7.00% notes due 2023 10,000 10,000
7.55% notes due 2025 8,000 8,000
7.65% notes due 2025 22,000 22,000
5.50% notes due 2026 7,950 8,000
6.81% notes due 2028 15,000 15,000
6.59% notes due 2029 40,000 40,000
9.56% notes due 2031 28,000 28,000
4% to 4.85% serial bonds due 2007 1,480 -
5.20% term bonds due 2011 1,000 -
5.40% term bonds due 2022 4,610 -
4.65% term bonds due 2006 215 -
5.30% term bonds due 2022 1,015 -
3.34% repayment contract due 2006 1,530 -
State Water Project due 2035 6,949 7,028
Other 462 587
-------------------------
177,147 167,663
-------------------------
Less: Current maturities (695) (300)
=========================
176,452 167,363
=========================
TOTAL CAPITALIZATION $ 371,095 $ 328,169
=========================
The accompanying notes are an integral part of these financial statements
27
30
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts) For the years ended December 31,
2000 1999 1998
- ---------------------------------------------------------------------------------------------------
OPERATING REVENUES
Water $ 168,795 $ 159,693 $ 134,794
Electric 14,366 13,338 13,201
Other 799 390 65
-----------------------------------------
Total operating revenues 183,960 173,421 148,060
-----------------------------------------
OPERATING EXPENSES
Water purchased 41,592 36,143 30,833
Power purchased for resale 10,664 7,119 5,013
Power purchased for pumping 7,509 7,394 7,009
Groundwater production assessment 7,489 7,170 7,567
Supply cost balancing accounts (6,371) (473) 28
Other operating expenses 16,748 15,594 14,459
Administrative and general expenses 26,135 28,600 21,987
Depreciation 15,339 13,650 12,538
Maintenance 10,280 9,799 7,311
Taxes on income 15,127 13,345 10,130
Property and other taxes 7,141 6,566 6,124
-----------------------------------------
Total operating expenses 151,653 144,907 122,999
-----------------------------------------
OPERATING INCOME 32,307 28,514 25,061
-----------------------------------------
OTHER INCOME
Total other income - net (99) 532 769
-----------------------------------------
Income before interest charges 32,208 29,046 25,830
-----------------------------------------
INTEREST CHARGES
Interest on long-term debt 11,623 11,294 9,612
Other interest and amortization of debt expense 2,499 1,651 1,595
-----------------------------------------
Total interest charges 14,122 12,945 11,207
-----------------------------------------
NET INCOME 18,086 16,101 14,623
Dividends on Preferred Shares (86) (88) (90)
-----------------------------------------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS $ 18,000 $ 16,013 $ 14,533
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 9,380 8,958 8,958
BASIC EARNINGS PER COMMON SHARE $ 1.92 $ 1.79 $ 1.62
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES
OUTSTANDING 9,411 N/A N/A
FULLY DILUTED EARNINGS PER COMMON SHARE $ 1.91 N/A N/A
The accompanying notes are an integral part of these financial statements
28
31
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
Common Shares Earnings
-------------------- Additional Reinvested
Number Paid-in in the
(in thousands) of Shares Amount Capital Business
- ----------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 8,958 $ 22,394 $ 74,937 $ 53,722
Add:
Net Income 14,623
Deduct:
Dividends on Preferred Shares 90
Dividends on Common Shares - $1.26 per share 11,287
--------------------------------------------------
BALANCES AT DECEMBER 31, 1998 8,958 $ 22,394 $ 74,937 $ 56,968
Add:
Net Income 16,101
Deduct:
Dividends on Preferred Shares 88
Dividends on Common Shares - $1.28 per share 11,466
--------------------------------------------------
BALANCES AT DECEMBER 31, 1999 8,958 $ 22,394 $ 74,937 $ 61,515
Add:
Net Income 18,086
Issuance of Common Shares for public 1,107 2,768 24,924
offering
Issuance of Common Shares, others 15 37 378
Deduct:
Dividends on Preferred Shares 86
Dividends on Common Shares - $1.28 per share 8,954
Dividends on Common Shares - $1.285 per share 3,276
--------------------------------------------------
BALANCES AT DECEMBER 31, 2000 10,080 $ 25,199 $100,239 $ 67,285
==================================================
The accompanying notes are an integral part of these financial statements.
29
32
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) For the years ended December 31,
- -----------------------------------------------------------------------------------------------------
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,086 $ 16,101 $ 14,623
Adjustments for non-cash items:
Depreciation and amortization 15,339 14,364 15,368
Deferred income taxes and investment tax credits 5,848 2,440 5,241
Other - net (1,043) 1,066 1,394
Changes in assets and liabilities:
Customer receivables (616) (1,555) (769)
Prepayments 915 1,037 1,688
Supply cost balancing accounts (6,371) (474) (14)
Accounts payable (2,567) 3,559 (1,552)
Taxes payable 153 (468) (3,215)
Unbilled revenue (18) (2,042) (197)
Accrued Interest 199 179 (463)
Other - net 862 4,803 1,097
--------------------------------------
Net cash provided 30,787 39,010 33,201
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (45,758) (57,823) (43,623)
Acquisition of Chaparral City Water Company Stock (18,484) - -
Acquisition of Water Rights (1,653) - -
--------------------------------------
Net cash used (65,895) (57,823) (43,623)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Securities 28,107 47,028 15,000
Receipt of advances for and contributions 2,512 5,300 3,381
Refunds on advances for constructions (2,961) (2,957) (2,651)
Retirement or repayments of long-term debt and
redemption of Preferred Shares - net (616) (435) (9,488)
Net change in notes payable to banks 24,000 (17,000) 12,000
Common and preferred dividends paid (12,315) (11,554) (11,386)
--------------------------------------
Net cash provided 38,727 20,382 6,856
--------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,619 1,569 (3,566)
Cash and Cash Equivalents, Beginning of Year 2,189 620 4,186
--------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,808 $ 2,189 $ 620
--------------------------------------
TAXES AND INTEREST PAID:
Income taxes paid $ 9,430 $ 12,137 $ 5,430
Interest paid $ 14,379 $ 11,834 $ 11,391
--------------------------------------
NON-CASH TRANSACTIONS:
Property installed by developers and conveyed to Company $ 2,570 $ 4,096 $ 1,797
Assumption of Chaparral's long-term debt and
non-current portion of Customer Deposit $ 11,425 N/A N/A
======================================
The accompanying notes are an integral part of these financial statements.
30
33
SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
December 31,
(in thousands) 2000 1999
- -------------------------------------------------------------------------------------------------
ASSETS
UTILITY PLANT, AT COST
Water $ 570,836 $ 532,007
Electric 37,630 36,349
-------------------------
608,466 568,356
Less - Accumulated depreciation (165,002) (151,733)
-------------------------
443,464 416,623
Construction work in progress 36,605 32,972
-------------------------
Net utility plant 480,069 449,595
-------------------------
OTHER PROPERTY AND INVESTMENTS 9,711 10,233
-------------------------
CURRENT ASSETS
Cash and cash equivalents 1,545 2,020
Accounts receivable-Customers, less reserves of $498 in 2000; 10,071 10,135
$487 in 1999
Other 5,097 4,275
Intercompany receivable 376 -
Unbilled revenue 11,363 11,345
Materials and supplies, at average cost 1,039 1,153
Supply cost balancing accounts 11,145 4,774
Prepayments 3,756 4,851
Accumulated deferred income taxes - net 3,256 5,573
-------------------------
Total current assets 47,648 44,126
-------------------------
DEFERRED CHARGES
Regulatory tax-related assets 17,705 19,941
Other 11,396 8,599
-------------------------
Total deferred charges 29,101 28,540
-------------------------
TOTAL ASSETS $ 566,529 $ 532,494
=========================
The accompanying notes are an integral part of these financial statements
31
34
SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
December 31,
(in thousands) 2000 1999
- ---------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity $164,808 $160,023
Long-term debt 167,062 167,363
----------------------
Total capitalization 331,870 327,386
----------------------
CURRENT LIABILITIES
Notes payable to banks 45,000 21,000
Long-term debt and preferred shares - current 275 340
Accounts payable 11,203 13,615
Intercompany payable 4,746 4
Taxes payable 5,675 5,700
Accrued interest 1,722 1,584
Other 13,512 12,818
----------------------
Total current liabilities 82,133 55,061
----------------------
OTHER CREDITS
Advances for construction 58,195 57,485
Contributions in aid of construction 39,642 38,895
Accumulated deferred income taxes - net 49,569 48,302
Unamortized investment tax credits 2,973 3,064
Regulatory tax-related liability 1,817 1,861
Other 330 440
----------------------
Total other credits 152,526 150,047
======================
TOTAL CAPITALIZATION AND LIABILITIES $566,529 $532,494
======================
The accompanying notes are an integral part of these financial statements
32
35
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF CAPITALIZATION
December 31,
(in thousands) 2000 1999
- ------------------------------------------------------------------------
COMMON SHAREHOLDERS' EQUITY:
Common shares, no par value
Outstanding 100 in 1998 and 1999 $ 98,391 $ 98,391
Additional paid-in capital - -
Earnings reinvested in the business 66,417 61,632
-------------------------
164,808 160,023
-------------------------
LONG-TERM DEBT
5.82% notes due 2003 12,500 12,500
6.64% notes due 2013 1,100 1,100
6.80% notes due 2013 2,000 2,000
8.50% fixed rate obligation due 2013 1,714 1,798
Variable rate obligation due 2014 6,000 6,000
Variable rate obligation due 2018 622 649
6.87% notes due 2023 5,000 5,000
7.00% notes due 2023 10,000 10,000
7.55% notes due 2025 8,000 8,000
7.65% notes due 2025 22,000 22,000
5.50% notes due 2026 7,950 8,000
6.81% notes due 2028 15,000 15,000
6.59% notes due 2029 40,000 40,000
9.56% notes due 2031 28,000 28,000
State Water Project due 2035 6,949 7,028
Other 462 588
-------------------------
167,297 167,663
Less: Current maturities (235) (300)
-------------------------
167,062 167,363
-------------------------
TOTAL CAPITALIZATION $ 331,870 $ 327,386
=========================
The accompanying notes are an integral part of these financial statements
33
36
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
($ in thousand, except per share amounts) For the years ended December 31,
2000 1999 1998
- ---------------------------------------------------------------------------------------------------
OPERATING REVENUES
Water $ 167,529 $ 159,693 $ 134,794
Electric 14,366 13,338 13,201
-----------------------------------------
Total operating revenues 181,895 173,031 147,995
-----------------------------------------
OPERATING EXPENSES
Water purchased 41,450 36,145 30,833
Power purchased for resale 10,664 7,119 5,013
Power purchased for pumping 7,442 7,394 7,009
Groundwater production assessment 7,489 7,170 7,567
Supply cost balancing accounts (6,371) (473) 28
Other operating expenses 16,306 15,475 14,434
Administrative and general expenses 25,545 28,077 21,884
Depreciation 15,086 13,516 12,270
Maintenance 10,191 9,794 7,311
Taxes on income 14,881 13,473 10,360
Property and other taxes 7,037 6,563 6,124
-----------------------------------------
Total operating expenses 149,720 144,253 122,833
-----------------------------------------
OPERATING INCOME 32,175 28,778 25,162
-----------------------------------------
OTHER INCOME
Total other income - net (140) 509 1,231
-----------------------------------------
Income before interest charges 32,035 29,287 26,393
-----------------------------------------
INTEREST CHARGES
Interest on long-term debt 11,512 11,294 9,612
Other interest and amortization of debt expense 2,838 1,651 1,595
-----------------------------------------
Total interest charges 14,350 12,945 11,207
-----------------------------------------
NET INCOME 17,685 16,342 15,186
Dividends on Preferred Shares - - (46)
EARNINGS AVAILABLE FOR COMMON SHAREHOLDER $ 17,685 $ 16,342 $ 15,140
BASIC EARNINGS PER COMMON SHARE $ 176,850 $ 163,420 $ 151,400
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 100 100 100
The accompanying notes are an integral part of these financial statements. All
information has been adjusted to reflect formation of holding company in 1998.
34
37
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
Common Shares Earnings
--------------------- Additional Reinvested
Number Paid-in in the
(in thousands) of Shares Amount Capital Business
- -------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 8,958 $ 22,394 $ 74,937 $ 53,722
Add:
Transfer Preferred Shares & Investments 1,060
Transfer Preferred Shares & Investments 75,997 (75,997)
Net Income 15,186
Deduct:
Dividends on Preferred Shares 46
Dividends on Common Shares - $.63 per share for
8,957,671 shares 5,643
Dividends on Common Shares - $58,890 per share
for 100 shares 5,889
--------------------------------------------------
BALANCES AT DECEMBER 31, 1998 100 $ 98,391 - $ 57,330
Add:
Net Income 16,342
Deduct:
Dividends on Common Shares - $30,900 per share 3,090
Dividends on Common Shares - $30,500 per share 3,050
Dividends on Common Shares - $29,000 per share 2,900
Dividends on Common Shares - $30,000 per share 3,000
--------------------------------------------------
BALANCES AT DECEMBER 31, 1999 100 $ 98,391 - $ 61,632
Add:
Net Income 17,685
Deduct:
Dividends on Common Shares - $32,000 per share 3,200
Dividends on Common Shares - $31,000 per share 3,100
Dividends on Common Shares - $33,000 per share 3,300
Dividends on Common Shares - $33,000 per share 3,300
==================================================
BALANCES AT DECEMBER 31, 2000 100 $ 98,391 - $ 66,417
==================================================
The accompanying notes are an integral part of these financial statements
35
38
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF CASH FLOWS
For the years ended December 31,
(in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,685 $ 16,342 $ 15,185
Adjustments for non-cash items:
Depreciation and amortization 15,086 14,229 15,100
Deferred income taxes and investment tax credits 5,685 2,430 5,224
Other - net (479) 1,308 1,077
Changes in assets and liabilities:
Customer receivables 64 (1,640) 1,046
Prepayments 1,095 (1,137) 660
Supply cost balancing accounts (6,371) (474) (14)
Accounts payable (2,412) 3,561 (1,716)
Taxes payable (25) (447) (2,968)
Unbilled revenue (18) (2,042) (197)
Accrued Interest 138 179 (463)
Other - net 4,352 7,074 362
--------------------------------------
Net cash provided 34,800 39,383 33,296
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (45,560) (57,823) (43,623)
--------------------------------------
Net cash used (45,560) (57,823) (43,623)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Debt Securities - 47,028 15,000
Receipt of advances for and contributions in aid of
construction 2,512 3,883 3,381
Refunds on advances for construction (2,961) (1,540) (2,651)
Repayments of long-term debt and redemption of
Preferred Shares - net (366) (395) (9,488)
Net change in notes payable to banks 24,000 (17,000) 12,000
Common and preferred dividends paid (12,900) (12,040) (11,577)
--------------------------------------
Net cash provided 10,285 19,936 6,665
--------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (475) 1,496 (3,662)
Cash and Cash Equivalents, Beginning of Year 2,020 524 4,186
--------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,545 $ 2,020 $ 524
--------------------------------------
TAXES AND INTEREST PAID:
Income taxes paid $ 9,152 $ 12,241 $ 5,430
Interest paid $ 14,120 $ 11,834 $ 11,391
--------------------------------------
NON-CASH TRANSACTIONS:
Property installed by developers and conveyed to
Company $ 2,570 $ 4,096 $ 1,797
======================================
The accompanying notes are an integral part of these financial statements.
36
39
NOTES TO FINANCIAL STATEMENTS
American States Water Company (AWR) is the parent company of Southern
California Water Company (SCW), American States Utility Services, Inc. (ASUS)
and Chaparral City Water Company (CCWC). SCW is a public utility engaged
principally in the purchase, production, distribution and sale of water as well
as in the distribution of electricity in several California mountain
communities. The California Public Utilities Commission (CPUC) regulates SCW's
water and electric business including properties, rates, services, facilities
and other matters. CCWC is an Arizona public utility company regulated by The
Arizona Corporation Commission (ACC) serving approximately 11,000 customers in
the town of Fountain Hills, Arizona and a portion of the City of Scottsdale,
Arizona. AWR completed the acquisition of the common stock of CCWC on October
10, 2000 for an aggregate value of $31.2 million, including assumption of
approximately $12 million in debt. ASUS performs non-regulated, water related
services and operations on a contract basis. There is no regulatory oversight of
ASUS or AWR. The consolidated financial statements include the accounts of AWR,
SCW, ASUS and CCWC. AWR's assets and revenues are primarily those of SCW.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of AWR and
its wholly owned subsidiaries SCW, ASUS and CCWC and are collectively referred
to as Registrant. Inter-company transactions and balances have been eliminated.
The preparation of these financial statements required the use of certain
estimates by management in determining Registrant's assets, liabilities,
revenues and expenses.
The utility subsidiaries, SCW and CCWC, have incurred various costs and
received various credits reflected as regulatory assets and liabilities.
Accounting for such costs and credits as regulatory assets and liabilities is in
accordance with Statement of Financial Accounting Standards No. 71 "Accounting
for the Effects of Certain Types of Regulation" (SFAS 71). This statement sets
forth the application of generally accepted accounting principles for those
companies whose rates are established by or are subject to approval by an
independent third-party regulator. Under SFAS 71, utility companies defer costs
and credits on the balance sheet as regulatory assets and liabilities when it is
probable that those costs and credits will be recognized in the rate making
process in a period different from the period in which they would have been
reflected in income by an unregulated company. These deferred regulatory assets
and liabilities are then reflected in the income statement in the period in
which the same amounts are reflected in the rates charged for service.
Property and Depreciation: SCW and CCWC capitalize, as utility plant,
the cost of additions and replacements of retirement units. Such cost includes
labor, material and certain indirect charges. Depreciation is computed on the
straight-line, remaining-life basis. For the years 2000, 1999, and 1998 the
aggregate provisions for depreciation for SCW approximated 2.6%, 2.5% and 2.5%
of the beginning of the year depreciable plant, respectively. The aggregate
provision for depreciation for CCWC is 2.5% for each of the same three years.
At December 31, 2000, Registrant has $13,179,000 in goodwill included in
Other Property and Investments. This amount represents the difference between
the purchase price of the common equity of CCWC and CCWC's book equity at the
time of closing and is being amortized over a period of 40 years.
Interest: Interest is generally not capitalized for financial reporting
purposes, as such procedure is not followed for ratemaking purposes.
Revenues: Revenues include amounts billed to customers and unbilled
revenues representing amounts to be billed for usage from the last meter reading
date to the end of the accounting period.
Basic Earnings Per Common Share: Basic Earnings per Common Share are
based upon the weighted average number of Common Shares outstanding and net
income after deducting preferred dividend requirements.
Fully Diluted Earnings Per Common Share: Diluted Earnings Per Common
Share are based upon the weighted average number of Common Shares including both
outstanding and potential shares issuable in connection with stock options
granted under Registrant's 2000 Stock Incentive Plan, and net income after
deducting preferred dividend requirements.
Supply Cost Balancing Accounts: As permitted by the CPUC, Registrant
maintains water and electric supply cost balancing accounts for SCW to account
for under-collections and over-collections of revenues designed to recover such
costs. Recoverability of such costs is recorded in income and charged to
balancing accounts when such costs are
37
40
incurred. The balancing accounts are reversed when such costs are recovered
through rate adjustments. Registrant accrues interest on its supply cost
balancing accounts at the rate prevailing for 90-day commercial paper.
Registrant does not maintain a Supply Cost Balancing Account for CCWC.
Debt Issue Expense and Redemption Premiums: Original debt issue expenses
are amortized over the lives of the respective issues. Premiums paid on the
early redemption of debt, which is reacquired through refunding, are deferred
and amortized over the life of the debt issued to finance the refunding. The
redemption premium on debt reacquired without refunding is amortized over the
remaining period the debt would have been outstanding.
Other Credits: Advances for construction represent amounts advanced by
developers, which are generally refundable at rates ranging from 10% to 22% of
the revenue received from the installations for which funds were advanced or in
equal annual installments over periods of time ranging from 10 to 40-year
periods. Contributions-in-aid of construction are similar to advances, but
require no refunding and are amortized over the useful lives of the related
property.
Cash and Cash Equivalents: For purposes of the Statements of Cash Flows,
cash and cash equivalents include short-term cash investments with an original
maturity of three months or less.
Financial Instrument Risk: Registrant does not carry any financial
instruments with off-balance sheet risk nor does its operations result in
concentrations of credit risk.
Fair Value of Financial Instruments: The table below estimates the fair
value of each represented class of financial instrument held by Registrant. For
cash and cash equivalents, accounts receivable and short-term debt, the carrying
amount is used. Otherwise, rates available to Registrant at December 31, 2000
and 1999 for debt with similar terms and remaining maturities were used to
estimate fair value for long-term debt. Changes in the assumptions will produce
differing results.
2000 1999
-------------------------------------------------------------------------------
(dollars in thousands) Carrying amount Fair value Carrying amount Fair value
- ---------------------------------------------------------------------------------------------------------------
Financial assets:
Cash $ 5,808 $ 5,808 $ 2,189 $ 2,189
Accounts receivable 27,077 27,077 25,827 25,827
Financial liabilities:
Short-term debt 45,000 45,000 21,000 21,000
Long-term debt $ 177,147 $ 186,475 $ 167,663 $ 161,843
-------------------------------------------------------------------------------
NOTE 2 - CAPITAL STOCK
All of the series of Preferred Shares outstanding at December 31, 2000
are redeemable at the option of AWR. At December 31, 2000, the redemption price
per share for each series of $25 Preferred Shares was $27.00, $26.50 and $25.25
for the 4%, 4 1/4% and 5% Series, respectively. To each of the redemption prices
must be added accrued and unpaid dividends to the redemption date.
The $25 Preferred Shares, 5% Series, are subject to mandatory redemption
provisions of 1,600 shares per year. The annual aggregate mandatory redemption
requirement for this Series for the five years subsequent to December 31, 2000
is $40,000 each year.
AWR has a Registration Statement on file with the SEC for issuance,
from time to time, of up to $60 million in Common Shares, Preferred Shares
and/or debt securities. On August 16, 2000, AWR issued 1,107,000 shares under
this Registration Statement. Net proceeds from this sale were used to fund a
portion of the purchase price of CCWC and will be invested in SCW. As of
December 31, 2000, approximately $31,080,000 remained for issuance under this
registration statement.
For the year ended December 31, 2000, Registrant also issued 6,961 and
7,997 Common Shares under Registrant's Common Share Purchase and Dividend
Reinvestment Plan (DRP) and the 401(k) Plan. There are 493,039 and 63,411 Common
Shares authorized but unissued under the DRP and the 401(k) Plan, respectively,
at December 31, 2000. For the years ended December 31, 1999 and December 31,
1998, all shares issued under Registrant's Common Share Purchase and Dividend
Reinvestment Plan (DRP) and the 401(k) Plan were purchased on the open market.
Shares
38
41
reserved for the 401(k) Plan are in relation to company matching contributions
and for investment purposes by participants.
There are 250,000 Common Shares reserved for issuance under Registrant's
2000 Stock Incentive Plan. Under the Plan, stock options representing a total of
45,657 Common Shares upon exercise were granted to certain eligible employees on
May 1, 2000.
As of December 31, 2000 there were no retained earnings restricted,
under any of SCW's debt instruments, as to the payment of cash dividends on
Common Shares. CCWC is subject to contractual restrictions on its ability to pay
dividends. There were no dividends distributed from CCWC to AWR in 2000.
In 1998, the Board of Directors adopted a Shareholder Rights Plan
(Rights Plan) and authorized a dividend distribution of one right (a Right) to
purchase 1/1000th of Junior Participating Preferred Share for each outstanding
Common Share. The Rights Plan became effective in September 1998 and will expire
in September 2008. The Rights Plan is designed to provide shareholders'
protection and to maximize shareholder value by encouraging a prospective
acquirer to negotiate with the board.
Each Right represents a right to purchase 1/1000th of Junior
Participating Preferred Share at the price of $120, subject to adjustment (the
Purchase Price). Each Junior Participating Preferred Share is entitled to
receive a dividend equal to 1000 times any dividend paid on each Common Share
and 100 votes per share in any shareholder election. The Rights become
exercisable upon occurrence of a Distribution Date. A Distribution Date event
occurs if (i) any person accumulates 15% of the then outstanding Common Shares,
(ii) any person presents a tender offer which caused the person's ownership
level to exceed 15% and the board determines the tender offer not to be fair to
AWR's shareholders, or (iii) the board determines that a shareholder maintaining
a 15% interest in the Common shares could have an adverse impact on AWR or could
attempt to pressure AWR to repurchase the holder's shares at a premium.
Until the occurrence of a Distribution Date, each Right trades with the
Common Share and is not separately transferable. When a Distribution Date
occurs, AWR would distribute separately Rights Certificates to Common
Shareholders and the Rights would subsequently trade separate from the Common
Shares and each holder of a Right, other than the acquiring person whose Rights
will thereafter be void, will have the right to receive upon exercise at its
then current Purchase Price that number of Common Shares having a market value
of two times the Purchase Price of the Right. If AWR merges into the acquiring
person or enters into any transaction that unfairly favors the acquiring person
or disfavors AWR's other shareholders, the Right becomes a right to purchase
Common Shares of the acquiring person having market value of two times the
Purchase Price.
The board of directors may determine that, in certain circumstances, a
proposal, which would cause a Distribution Date, is in the best interest of
AWR's shareholders. Therefore, the board of directors may, at its option, redeem
the Rights at a redemption price of $0.01 per Right.
NOTE 3 - COMPENSATING BALANCES AND BANK DEBT
AWR maintains a revolving credit facility with a $25 million aggregate
borrowing capacity. At December 31, 2000, no amount was outstanding under this
facility. The aggregate short-term borrowing capacity available to SCW under its
three bank lines of credit was $60 million as of December 31, 2000, of which a
total of $45 million was outstanding. There were no compensating balances
required. Loans can be obtained at the option of Registrant and bear interest at
rates based on floating prime borrowing rates or at money market rates.
SCW's short-term borrowing activities for the last three years were as
follows:
December 31,
-----------------------------------
(in thousands, except percent) 2000 1999 1998
- ------------------------------------------------------------------------------
Balance Outstanding at December 31, $45,000 $21,000 $38,000
Interest Rate at December 31, 7.19% 7.35% 5.86%
Average Amount Outstanding $38,531 $ 8,775 $19,309
Weighted Average Annual Interest Rate 7.11% 5.11% 6.78%
Maximum Amount Outstanding $50,000 $21,000 $39,000
-----------------------------------
39
42
There were no short-term borrowing activities at AWR parent or any of
its other subsidiaries.
NOTE 4 - LONG TERM DEBT
In March 1998, SCW sold the remaining $15 million under its Series B
Medium Term Note Program and in December 1998, SCW redeemed all of its
outstanding 10.10% Notes. In January 1999, $40 million of Series C Medium Term
Notes were sold. In January 2001, the remaining $20 million of Series C Medium
Term Notes were sold. The funds resulting from the issuances were used initially
to repay short-term bank borrowings and, after that, to fund construction
expenditures. SCW has no mortgage debt, and leases and other similar financial
arrangements are not material.
CCWC has long-term Industrial Development Authority Bonds (IDA Bonds)
and a repayment contract due 2006. Substantially all of the utility plant of
CCWC is pledged to secure its IDA Bonds. The Bond Agreement, among other things,
(i) requires CCWC to maintain certain financial ratios, (ii) restricts CCWC's
ability to incur debt and make liens, sell, lease or dispose of assets, merge
with another corporation, and (iii) restricts the payment of dividends.
SCW has posted an Irrevocable Letter of Credit, which expires April 30,
2001 in the amount of $750,000 with an annual fee of 0.6% as security for its
self-insured workers' compensation plan. SCW has also provided an Irrevocable
Letter of Credit with a fee of 0.9%, which expires July 31, 2002, in the amount
of $6,296,000 to a trustee with respect to the variable rate obligation issued
by the Three Valleys Municipal Water District. Additionally, in November 2000,
SCW posted an Irrevocable Letter of Credit with an annual fee of 2.0%, which
expires in October 1, 2001, in the amount of $250,000 as security for the
deductible in the company's new Business Auto insurance policy.
Annual maturities of all long-term debt, including capitalized leases,
amount to $698,799, $749,787, $13,290,644, $839,486 and $893,362 for the five
years ending December 31, 2001 through 2005, respectively.
NOTE 5 - TAXES ON INCOME
Registrant provides deferred income taxes for temporary differences
under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109), for certain transactions which are recognized for
income tax purposes in a period different from that in which they are reported
in the financial statements. The most significant items are the tax effects of
accelerated depreciation, the supply cost balancing accounts and advances for
and contributions-in-aid-of-construction. SFAS No. 109 also requires that
rate-regulated enterprises record deferred income taxes for temporary
differences accorded flow-through treatment at the direction of a regulatory
commission. The resulting deferred tax assets and liabilities are recorded at
the expected cash flow to be reflected in future rates. Since the CPUC has
consistently permitted the recovery of previously flowed-through tax effects,
SCW has established regulatory liabilities and assets offsetting such deferred
tax assets and liabilities.
Deferred investment tax credits are being amortized to other income
ratably over the lives of the property, giving rise to the credits.
The significant components of deferred tax assets and deferred tax
liabilities, as reflected in the balance sheets, and the accumulated net
deferred income tax liabilities at December 31, 2000 and 1999 were:
December 31,
-----------------------
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------
Deferred tax assets:
Balancing accounts $ 3,103 $ (175)
State tax effect 146 5,721
-----------------------
3,249 5,546
-----------------------
Deferred tax liabilities
Depreciation (46,540) (44,939)
Advances and contributions 14,969 15,862
Other property related (8,728) (10,007)
Other non-property related (9,270) (9,218)
-----------------------
(49,569) (48,302)
-----------------------
Accumulated deferred income taxes - net $(46,320) $(42,756)
-----------------------
40
43
The current and deferred components of income tax expense are as
follows:
December 31,
--------------------------------------
(dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------
Current
Federal $ 7,991 $ 9,360 $ 5,219
State 2,242 2,799 1,727
--------------------------------------
Total current tax expense 10,233 12,159 6,946
--------------------------------------
Deferred - Federal and State:
Accelerated depreciation 3,556 3,405 3,319
Balancing accounts 2,863 (207) 6
Advances and contributions - - -
California privilege year franchise tax (1,216) (970) (544)
Other (392) (664) (398)
--------------------------------------
Total deferred tax expense 4,811 1,564 2,383
--------------------------------------
Total income tax expense 15,044 13,723 9,329
--------------------------------------
Income taxes included in operating expenses 15,127 13,345 10,130
Income taxes included in other income and expenses - net (83) 378 (801)
--------------------------------------
Total income tax expense $ 15,044 $ 13,723 $ 9,329
--------------------------------------
Additional information regarding taxes on income is set forth in the
following table:
December 31,
----------------------------------------
(dollars in thousands, except percent) 2000 1999 1998
- ------------------------------------------------------------------------------------------------
Federal taxes on pre-tax income at statutory rates $ 11,595 $ 10,438 $ 8,470
Increase (decrease) in taxes resulting from:
State income tax expense 2,722 2,605 1,654
Depreciation 1,424 1,184 944
Federal benefit of state taxes (953) (912) (579)
Adjustments to prior years' provisions 101 433 (97)
Payment of premium on redemption 66 66 (813)
Other - net 89 (91) (250)
----------------------------------------
Total income tax expense $ 15,044 $ 13,723 $ 9,329
----------------------------------------
Pre-tax income $ 33,130 $ 29,824 $ 23,952
----------------------------------------
Effective income tax rate 45.4% 46.0% 38.9%
----------------------------------------
NOTE 6 - EMPLOYEE BENEFIT PLANS
Registrant maintains a pension plan (the Plan) that provides eligible
employees (those age 21 and older, with one year of service) monthly benefits
upon retirement based on average salaries and length of service. The normal
retirement benefit is equal to 2% of the five highest consecutive years average
earnings multiplied by the number of years of credited service, up to a maximum
of 40 years, reduced by a percentage of primary social security benefits. There
is also an early retirement option. Annual contributions are made to the Plan,
which comply with the funding requirements of the Employee Retirement Income
Security Act (ERISA).
Registrant also provides all active employees medical, dental and vision
care benefits through a medical insurance plan. Eligible employees who retired
prior to age 65, and/or their spouses, were able to retain the benefits under
the active plan until reaching age 65. Eligible employees upon reaching age 65,
and those employees retiring at or after age 65, and/or their spouses, receive
coverage through a Medicare supplement insurance policy paid for by Registrant
subject to an annual cap limit.
The CPUC has issued a decision, which provides for the recovery in rates
of tax-deductible contributions made to a separate trust fund. In accordance
with that decision, Registrant established two separate trusts in 1995, one for
those retirees who were subject to a collective bargaining agreement and another
for all other retirees. Registrant's funding policy is to contribute annually an
amount at least equal to the revenues authorized to be collected through rates
for post-retirement benefit costs. Post-retirement benefit costs for 1993, 1994
and 1995 were estimated at a total of $1.6 million
41
44
and have been recorded as a regulatory asset for recovery over a 20-year period.
The unamortized balance at December 31, 2000 was approximately $539,500.
At December 30, 1999, Registrant had 728 participants in the Plan, 61 of
these are employees covered by collective bargaining agreements, the earliest of
which expires in 2001. The following table sets forth the Plan's funded status
and amounts recognized in Registrant's balance sheets and the components of net
pension cost and accrued post-retirement liability at December 31, 2000 and
1999:
Pension Benefits Other Benefits
--------------------------------------------------------
(dollars in thousands) 2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit Obligation at beginning of year $ 35,513 $ 38,572 $ 4,431 $ 4,363
Service Cost 1,530 1,963 103 125
Interest Cost 2,649 2,538 313 305
Actuarial Loss/(Gain) 2,164 (6,255) (32) (171)
Benefits Paid (1,335) (1,305) (230) (191)
--------------------------------------------------------
Benefit Obligation at end of year $ 40,521 $ 35,513 $ 4,585 $ 4,431
CHANGES IN PLAN ASSETS:
Fair Value of Plan Assets at beginning $ 47,776 $ 39,541 $ 1,760 $ 1,442
of year
Actual Return of Plan Assets (1,336) 8,277 70 25
Employer Contributions - 1,264 458 484
Benefits Paid (1,335) (1,305) (230) (191)
--------------------------------------------------------
Fair Value of Plan Assets at end of year $ 45,105 $ 47,777 $ 2,058 $ 1,760
RECONCILIATION OF FUNDED STATUS:
Funded Status $ 4,583 $ 12,263 $ (2,528) $ (2,671)
Unrecognized Transition Obligation - 57 5,868 6,288
Unrecognized Net Loss/(Gain) (2,969) (10,683) (1,704) (1,869)
Unrecognized Prior Service Cost 311 355 (3,028) (3,228)
--------------------------------------------------------
Prepaid/(Accrued) Pension Cost $ 1,925 $ 1,992 $ (1,392) $ (1,480)
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
DECEMBER 31:
Discount Rate 7.25% 7.75% 7.25% 7.75%
Long-term Rate of Return 8.00% 8.00% 8.00% 8.00%
Salary Assumption 4.00% 4.00% - -
A sliding scale for assumed health care cost increases was used for both
periods, starting at 7% in 1999 and then remaining at 6% thereafter.
The components of net periodic post-retirement benefits cost for 2000
and 1999 are as follows:
Pension Benefits Other Benefits
-------------------------------------------------
(dollars in thousands) 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFITS COST
Service Cost $ 1,530 $ 1,963 $ 103 $ 125
Interest Cost 2,649 2,538 313 305
Actual Return on Plan Assets 1,336 (8,277) (70) (25)
Net Amortization (5,448) 5,207 23 58
-------------------------------------------------
Net Periodic Pension Cost $ 67 $ 1,431 $ 369 $ 463
42
45
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
1-Percentage-Point 1-Percentage-Point
(dollars in thousands) Increase Decrease
- ---------------------------------------------------------------------------------------------------
Effect on Total of Service and Interest Cost Components $ 12 $ (11)
Effect on Postretirement Benefit Obligation $ 181 $ (160)
Registrant has a 401(k) Investment Incentive Program under which
employees may invest a percentage of their pay, up to a maximum investment
prescribed by law, in an investment program managed by an outside investment
manager. Company contributions to the 401(k) are based upon a percentage of
individual employee contributions and, for 2000, 1999 and 1998, totaled
$968,019, $920,340, and $874,113, respectively.
NOTE 7 - BUSINESS RISKS AND CONCENTRATION OF SALES
Registrant's utility operations are engaged in supplying water and
electric service to the public. Registrant is required to provide service and
grant credit to customers within its defined service areas. Although Registrant
has a diversified base of residential, industrial and other customers, revenues
derived from commercial and residential water customers accounted for
approximately 91% of total water revenues in 2000 and 90% in 1999. Registrant
faces additional risks associated with weather conditions, adequacy and quality
of water supplies, regulatory decisions, pronouncements and laws, water-related
litigation, general business conditions and condemnation.
Approximately 43% of the SCW's water supply is purchased from
wholesalers of imported water, with the remainder produced from company wells.
The long-term availability of imported water supplies is dependent upon, among
other things, drought conditions throughout the state, increases in population,
water quality standards and legislation that may potentially reduce water
supplies. Reservoir storage statewide is down at the end of 2000 from year ago
levels. The California Department of Water Resources has issued an early
indication in January 2001 that if the trend of lower than normal precipitation
continues, allocation of water to state water project contractors, including
Metropolitan Water District (MWD), could be curtailed. The MWD, however, has
publicly assured consumers that it is well prepared to help the region through
one or more dry years. January and February 2001 brought significant
precipitation that contributed to return the reservoir levels to normal.
CCWC has a long-term water supply contract with the Central Arizona
Water Conservation District through September 2043 and is entitled to take 6,978
acre feet of water per year from the Central Arizona Project (CAP). CCWC's water
supply may be subject to interruption or reduction, in particular owing to
interruption or reduction of CAP water. In the event of interruption or
reduction of CAP water, CCWC can rely on its well water supplies for short-term
periods. However, in any event, the quantity of water CCWC supplies to some or
all of its customers may be interrupted or curtailed, pursuant to the provisions
of its tariffs.
The electric energy environment in California has changed as a result of
the December 1995 CPUC decision on restructuring of California's electric
utility industry and state legislation passed in 1996. There has been a
substantial increase in the costs of purchased power in recent months. On
January 17, 2001, the Governor of the State of California proclaimed a state of
emergency in California due to shortages of electricity available to certain of
California's utilities resulting in blackouts, the unanticipated and dramatic
increases in electricity prices and the insufficiency of electricity available
from certain of California's utilities to prevent disruption of electric service
in California. The reasons for the high cost of energy are under investigation
but are reported to include, among other things, limited supply caused by a lack
of investment in new power plants to meet growth in demand, planned and
unplanned outages of power plants, lower than usual availability of
hydroelectric power from the Pacific Northwest due to lower than usual
precipitation and higher demand for electricity in the region, transmission line
constraints and increased prices for natural gas, the fuel used in many of the
power plants serving the region.
Legislation has been enacted and executive orders issued designed to
encourage and accelerate the construction of additional power plants and the
repowering and updating of existing power plants to increase the supply of
electricity in the State. A number of investigations have also been instituted
as to the causes of the California energy situation and numerous pieces of
legislation have been introduced at the California Legislature to deal with
different aspects of the situation. The long-term impact of these legislative
initiatives on SCW's Bear Valley Electric division is difficult to predict. For
the short-term, however, management expects energy costs to remain high and to
continue to be volatile.
43
46
In response to the potential for rising electricity costs, in May 2000,
SCW entered into a one-year, block forward purchase contract with Dynegy for 12
megawatts (MW's) of electric energy for its Bear Valley electric service
division at a price of $35.50 per MW. This contract expires April 30, 2001.
Dynegy also procured electric energy requirements above the 12 MW forward
purchase contract. The average minimum load at SCW's Bear Valley electric
service division has been approximately 12 MW. The average winter load has been
18 MW with a winter peak of 30 MW when the snowmaking machines at the ski
resorts are operating.
In a continuing effort to control the escalation of electric energy
costs for SCW's Bear Valley Electric division, SCW is considering a number of
options including (i) renegotiation of the block forward purchase of electric
energy, (ii) purchase of electric energy from on-site generation facilities
installed by a third party and (iii) use of portable generation to avoid peak
energy prices. Each of these options is expected to result in increased electric
energy prices for customers of SCW's Bear Valley Electric division. Management
believes that these solutions in whole or in part represent significant savings
for customers relative to reliance on spot purchases in the open market.
Management further believes that costs incurred are recoverable from customers,
although due to the nature of the regulatory process, there is a risk of
disallowance of full recovery of costs or additional delays in the recovery of
costs during any period in which there has been a substantial run-up in costs.
NOTE 8 - CONTINGENCIES
On April 22, 1999, the CPUC issued an order denying SCW's application
seeking approval of its recovery through rates of costs associated with its
participation in the Coastal Aqueduct Extension of the State Water Project
(SWP). SCW's participation in the SWP commits it to a 40-year entitlement with a
value of approximately $9.5 million. SCW's investment in SWP is currently
included in Other Property and Investments. The remaining balance of the related
liability of approximately $7 million is recorded as other long-term debt. SCW
intends to recover its investment in SWP through contributions from developers
on a per-lot or other basis, and, failing that, sale of its 500 acre-foot
entitlement in SWP. SCW believes that its full investment and on-going costs
associated with its ownership will be fully recovered.
SCW has been named as a defendant in fourteen lawsuits that allege that
SCW delivered contaminated water to its customers. Plaintiffs in these actions
seek damages, including general, special, and punitive damages, according to
proof of trial, as well as attorney's fees on certain causes of action, costs of
suit, and other unspecified relief. Eleven of the lawsuits involve customer
service areas located in Los Angeles County in the southern portion of
California; three of the lawsuits involve a customer service area located in
Sacramento County in northern California. On September 1, 1999, the Court of
Appeal in San Francisco held that the CPUC had preemptive jurisdiction over
regulated public utilities and ordered dismissal of a series of lawsuits
pertaining to water quality filed against water utilities, including SCW. Seven
out of fourteen lawsuits against SCW had been ordered for dismissal by the state
Court of Appeals. On October 11, 1999, one group of plaintiffs appealed the
decision to the California Supreme Court, which has accepted the case.
Management is unable to predict the outcome of this proceeding but, in any
event, does not anticipate a decision prior to the fourth quarter of 2001.
In light of the breadth of plaintiff's claims, the lack of factual
information regarding plaintiff's claims and injuries, if any, the fact that no
discovery has yet been completed, SCW is unable to determine at this time what,
if any, potential liability it may have with respect to these claims. SCW
intends to vigorously defend itself against these allegations. Management cannot
predict the outcome of these proceedings and if SCW were found liable, SCW would
pursue recovery through its insurance coverage providers.
In response to those lawsuits and similar actions, in March 1998 the
CPUC issued an Order Instituting Investigation (OII) directed to all Class A and
B water utilities in California, including SCW, into whether existing standards
and policies regarding drinking water quality adequately protect the public
health and whether those standards and policies are being uniformly complied
with by those water utilities. The OII notes the constitutional and statutory
jurisdiction of the CPUC and the California Department of Health Services (DOHS)
to establish and enforce adherence to water quality standards for water
delivered by utilities to their customers and, in the case of the CPUC, to
establish rates which permit water utilities to furnish water that meets the
established water quality standards at prices which are both affordable and that
allow the utility to earn a reasonable return on its investment.
On November 2, 2000, a final decision from the CPUC concludes that,
among other things, the Commission has the jurisdiction to regulate the service
of water utilities with respect to the health and safety of that service; that
DOHS requirements governing drinking water quality adequately protect the public
health and safety; and that regulated water utilities, including SCW, have
satisfactorily complied with past and present drinking water quality
requirements.
44
47
Management believes that proper insurance coverage and reserves are in
place to insure against anticipated property, general liability and workers'
compensation claims.
On October 25, 1999, SCW filed a lawsuit against the California Regional
Water Quality Control Board (CRWQCB) alleging that the CRWQCB has willfully
allowed portions of the Sacramento County Groundwater Basin to be injected with
chemical pollution that is destroying the underground water supply in SCW's
Rancho Cordova customer service area. Management cannot predict the likely
outcome of this proceeding.
In a separate case, also filed on October 25, 1999, SCW sued Aerojet
General Corp. (Aerojet) for causing the contamination of the Sacramento County
Groundwater Basin. On March 22, 2000, Aerojet filed a cross complaint against
SCW for negligence and constituting a public nuisance. Registrant is unable to
determine at this time what, if any, potential liability it may have with
respect to the cross complaint, but intends to vigorously defend itself against
these allegations. Management cannot predict the likely outcome of this
proceeding.
The CPUC has authorized memorandum accounts to allow for recovery of
costs incurred by SCW in prosecuting these cases from customers, less any
recovery from the defendants or others. As of December 31, 2000, approximately
$3,268,000 has been recorded in the memorandum accounts. SCW filed an Advice
Letter on December 26, 2000 for recovery of costs incurred on or before August
31, 2000 in accordance with CPUC approved procedures. The filing was to recover
approximately $1,800,000 for costs associated with lawsuits against Aerojet and
the CRWQCB, and $879,000 for OII. Management believes that these costs are
recoverable although it can give no assurance that the CPUC will ultimately
allow recovery of all or any of the costs through rates.
NOTE 9 - CONSTRUCTION PROGRAM
Registrant's 2001 construction budget provides for gross expenditures of
approximately $57 million, $5 million is to be obtained from developers and
others. Of this amount, approximately $13 million is subject to CPUC approval of
an advice letter filing. Absent such approval, this amount would be included in
the next general rate case filing for SCW's Region II. ASUS and CCWC do not have
material capital commitments; however, ASUS actively seeks opportunities to own,
lease or operate municipal water and wastewater systems, which may involve
significant capital commitments.
NOTE 10 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The table below presents Registrant's provision for doubtful accounts
charged to expense and accounts written off, net of recoveries. Provisions
included in 2000 represent both SCW and CCWC. Provisions in 1999 and 1998
represent SCW only.
December 31,
-----------------------------
(dollars in thousands) 2000 1999 1998
- --------------------------------------------------------------------------
Balance at beginning of year $ 487 $ 403 $ 466
Provision charged to expense 630 852 631
Accounts written off, net of recoveries (607) (768) (694)
-----------------------------
Balance at end of year $ 510 $ 487 $ 403
-----------------------------
Neither AWR parent nor ASUS have established any provision for doubtful
accounts.
NOTE 11 - BUSINESS SEGMENTS
AWR has three principal business units: water and electric distribution
units, through its SCW subsidiary, a water service utility operation conducted
through its CCWC unit, and a non-regulated activity unit through the ASUS
subsidiary. All activities of SCW currently are geographically located within
California. All activities of CCWC are located in the state of Arizona. Both SCW
and CCWC are regulated utilities. On a stand-alone basis, AWR has no material
assets other than its investments in its subsidiaries. The tables below set
forth information relating to SCW's operating segments, CCWC and non-regulated
businesses. Included in the amounts set forth, certain assets, revenues and
expenses have been allocated. The identifiable assets are net of respective
accumulated provisions for depreciation.
45
48
(dollars in thousands) Year Ended December 31, 2000
- ----------------------------------------------------------------------------------------------
SCW
------------------------ CCWC Non- Consolidated
Water Electric Water Regulated* AWR
-----------------------------------------------------------------
Operating revenues $167,529 $ 14,366 $ 1,266 $ 799 $183,960
Operating income before
income taxes 42,542 4,520 292 80 47,434
Identifiable assets 453,538 26,531 29,027 - 509,096
Depreciation expense 13,685 1,401 253 - 15,339
Capital additions $ 43,483 $ 2,107 $ 193 - $ 45,786
(dollars in thousands) Year Ended December 31, 1999
- -----------------------------------------------------------------------------------------------
SCW
---------------------- CCWC Non- Consolidated
Water Electric Water Regulated* AWR
------------------------------------------------------------------
Operating revenues $159,693 $ 13,338 N/A $ 390 $173,421
Operating income before
income taxes 38,430 3,821 N/A (392) 41,859
Identifiable assets 423,870 25,725 N/A - 449,595
Depreciation expense 12,172 1,344 N/A 134 13,650
Capital additions $ 49,405 $ 2,173 N/A - $ 51,578
(dollars in thousands) Year Ended December 31, 1998
- -----------------------------------------------------------------------------------------------
SCW
----------------------- CCWC Non- Consolidated
Water Electric Water Regulated* AWR
------------------------------------------------------------------
Operating revenues $134,794 $ 13,201 N/A $ 65 $148,060
Operating income before
income taxes 31,675 3,847 N/A (331) 35,191
Identifiable assets 389,772 24,981 N/A - 414,753
Depreciation expense 10,630 1,640 N/A 268 12,538
Capital additions $ 37,109 $ 2,116 N/A - $ 39,225
* Includes amounts from ASUS and AWR parent.
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly financial information presented below is unaudited. The
business of Registrant is of a seasonal nature and it is management's opinion
that comparisons of basic earnings for the quarter periods do not reflect
overall trends and changes in Registrant's operations.
Basic Earnings
(in thousands, Operating Revenues Operating Income Net Income per Share
except per share ---------------------- ---------------------- ---------------------- ----------------------
amounts) 2000 1999 2000 1999 2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
First Quarter $ 38,749 $ 36,132 $ 6,202 $ 5,854 $ 2,895 $ 2,977 $ 0.32 $ 0.33
Second Quarter 45,428 42,116 7,525 7,251 3,919 4,406 0.44 0.49
Third Quarter 55,248 51,597 11,791 10,266 8,218 6,690 0.86 0.74
Fourth Quarter 44,535 43,576 6,788 5,143 3,053 2,028 0.30 0.23
----------------------------------------------------------------------------------------------------------
Year $183,960 $173,421 $ 32,307 $ 28,514 $ 18,086 $ 16,101 $ 1.92 $ 1.79
----------------------------------------------------------------------------------------------------------
NOTE 13 - YEAR 2000 READINESS UPDATE
Registrant has no Y2K incidents, business disruptions, failures or legal
proceedings to report. There were no actual or anticipated effects or changes to
Registrant's operating trends or revenue patterns as a result of the millennium
turnover. Not all Y2K problems were necessarily expected to surface in early
2000. Registrant does not have, and may never fully have, sufficient information
about the Y2K exposure of third parties to adequately predict the risks posed by
them to Registrant. If the third parties later discover any Y2K problems that
are not remedied, resulting problems could include loss of utility services and
disruption of water supplies. Costs incurred to address Y2K issues are recovered
through water rates. The CPUC has authorized an increase in rates of $830,000
per year, effective October 24, 2000.
46
49
REPORT OF MANAGEMENT
The consolidated financial statements contained in the annual report
were prepared by the management of American States Water Company, which is
responsible for their integrity and objectivity. The consolidated financial
statements were prepared in accordance with generally accepted accounting
principles and include, where necessary, amounts based upon management's best
estimates and judgments. All other financial information in the annual report is
consistent with the consolidated financial statements and is also the
responsibility of management.
Registrant maintains systems of internal control, which are designed to
help safeguard, the assets of Registrant and provide reasonable assurance that
accounting and financial records can be relied upon to generate accurate
financial statements. These systems include the hiring and training of qualified
personnel, appropriate segregation of duties, delegation of authority and an
internal audit function, which has reporting responsibility to the Audit
Committee of the board of directors.
The Audit Committee, composed of three outside directors, exercises
oversight of management's discharge of its responsibilities regarding the
systems of internal control and financial reporting. The committee periodically
meets with management, the internal auditor and the independent accountants to
review the work and findings of each. The committee also reviews the
qualifications of, and recommends to the board of directors, a firm of
independent accountants.
The independent accountants, Arthur Andersen LLP, have performed an
audit of the consolidated financial statements in accordance with generally
accepted auditing standards. Their audit gave consideration to Registrant's
system of internal accounting control as a basis for establishing the nature,
timing and scope of their work. The result of their work is expressed in their
Report of Independent Public Accountants.
s/ Floyd E. Wicks s/ McClellan Harris III
- ------------------------------- ---------------------------------
President, Chief Executive Officer Chief Financial Officer,
Vice President - Finance,
Treasurer and Corporate Secretary
February 28, 2001
47
50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of American States Water Company:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of American States Water Company and the balance
sheets and statements of capitalization of Southern California Water Company
(California corporations), as of December 31, 2000 and 1999 and the related
consolidated statements of income, changes in common shareholders' equity and
cash flows for each of the three years in the period ended December 31, 2000 of
American States Water Company and the related statements of income, changes in
common shareholders' equity and cash flows for each of the three years in the
period ended December 31, 2000 of Southern California Water Company. These
financial statements are the responsibility of the Registrant's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
States Water Company and its subsidiary, Southern California Water Company, as
of December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
s/ Arthur Andersen LLP
- -------------------------------
Arthur Andersen LLP
Los Angeles, California
February 16, 2001
48
51
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
Information responsive to Part III, Item 10 is included in the Proxy
Statement, to be filed by Registrant with the Commission pursuant to Regulation
14A, under the captions therein entitled "Election of Directors" and "Executive
Officers - Experience, Security Ownership and Compensation" and is incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information responsive to Part III, Item 11 is included in the Proxy
Statement, to be filed by Registrant with the Commission pursuant to Regulation
14A, under the captions therein entitled "Election of Directors" and "Executive
Officers - Experience, Security Ownership and Compensation" and "Performance
Graph" and is incorporated herein by reference pursuant to General Instruction
G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information responsive to Part III, Item 12 is included in the Proxy
Statement, to be filed by Registrant with the Commission pursuant to Regulation
14A, under the captions therein entitled "Election of Directors" and "Executive
Officers - Experience, Security Ownership and Compensation" and is incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information responsive to Part III, Item 13 is included in the Proxy
Statement, to be filed by Registrant with the Commission pursuant to Regulation
14A, under the captions therein entitled "Election of Directors" and is
incorporated herein by reference pursuant to General Instruction G(3).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Reference is made to the Financial Statements
incorporated herein by reference to Part II, Item 8
hereof.
2. All required schedules may be found in the Financial
Statements and Notes to Financial Statements
incorporated herein by reference to Part II, Item 8
hereof or at the conclusion of this Item. Schedules II,
III, IV, and V are omitted as they are not applicable.
(b) Registrant filed a Form 8-K with the Securities and Exchange
Commission on August 11, 2000, which indicated that Registrant
had agreed to issue up to 1,000,000 of its Common Shares
pursuant the terms of an Underwriting Agreement dated August 10,
2000. Included as exhibits to the form 8-K were Underwriting
Agreement dated August 10, 2000 among the Registrant and the
underwriters, and Opinion of O'Melveny & Myers LLP as to the
validity of the Common Shares. There were no financial
statements filed with this Form 8-K.
49
52
(c) Exhibits -
3.1 By-Laws of American States Water Company incorporated
herein by reference to Registrant's Form 8-K, dated
November 2, 1998. Commission File No. 333-47647.
3.2 By-laws of Southern California Water Company
incorporated by reference to Registrant's Form 10-K for
the year ended December 31, 1998. Commission File No.
001-14431.
3.3 Amended and Restated Articles of Incorporation of
American States Water Company incorporated herein by
reference to Registrant's Form 8-K, dated November 2,
1998. Commission File No. 333-47647.
3.3.1 Certificate of Amendment of Amended and Restated
Articles of Incorporation, dated August 25, 1998, of
American States Water Company incorporated by reference
to Registrant's Form 10-K for the year ended December
31, 1998. Commission File No. 001-14431.
3.3.2 Certificate of Amendment of Amended and Restated
Articles of Incorporation of American States Water
Company, dated August 25, 1999 incorporated herein by
reference to Registrant's Form 10-K with respect to the
year ended December 31, 1999.
3.3 Restated Articles of Incorporation of Southern
California Water Company incorporated herein by
reference to Registrant's Form 8-K, dated January 20,
1999. Commission File No. 000-01121.
4.1 Amended and Restated Rights Agreement, dated January 25,
1999, by and between American States Water Company and
ChaseMellon Shareholder Services, L.L.C., as Rights
Agent incorporated by reference to Registrant's Form
10-K for the year ended December 31, 1998. Commission
File No. 001-14431.
4.2 Indenture, dated September 1, 1993 between Southern
California Water Company and Chemical Trust Company of
California incorporated herein by reference to
Registrant's Form 8-K. Registration No. 33-62832.
10.1 Agreement of Merger dated as of June 25, 1998 by and
among Southern California Water Company, SCW Acquisition
Corp. and American States Water Company incorporated
herein by reference to Registrant's Form 8-K, dated July
1, 1998. Commission File No. 333-47647.
10.2 Deferred Compensation Plan for Directors and Executives
incorporated herein by reference to Registrant's
Registration Statement on Form S-2. Registration No.
33-5151. (2)
10.3 Reimbursement Agreement, dated September 1, 2000,
between Southern California Water Company and Bank of
America, N.A. incorporated herein. (1)
10.4 Second Sublease dated October 5, 1984 between Southern
California Water Company and Three Valleys Municipal
Water District incorporated herein by reference to
Registrant's Registration Statement on Form S-2.
Registration No. 33-5151.
10.5 Note Agreement dated as of May 15, 1991 between Southern
California Water Company and Transamerica Occidental
Life Insurance Company incorporated herein by reference
to Registrant's Form 10-Q with respect to the quarter
ended June 30, 1991. Commission File No. 000-01121.
10.6 Schedule of omitted Note Agreements, dated May 15, 1991,
between Southern California Water Company and
Transamerica Annuity Life Insurance Company, and
Southern California Water Company and First Colony Life
Insurance Company incorporated herein by reference to
50
53
Registrant's Form 10-Q with respect to the quarter
ended June 30, 1991. Commission File No. 000-01121.
10.7 Loan Agreement between California Pollution Control
Financing Authority and Southern California Water
Company, dated as of December 1, 1996 incorporated by
reference to Registrant's Form 10-K for the year ended
December 31, 1998. Commission File No. 001-14431.
10.8 Agreement for Financing Capital Improvement dated as of
June 2, 1992 between Southern California Water Company
and Three Valleys Municipal Water District incorporated
herein by reference to Registrant's Form 10-K with
respect to the year ended December 31, 1992. Commission
File No. 000-01121.
10.9 Water Supply Agreement dated as of June 1, 1994 between
Southern California Water Company and Central Coast
Water Authority incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended
December 31, 1994. Commission File No. 000-01121.
10.10 Amended and Restated Retirement Plan for Non-Employee
Directors of American States Water Company, dated as of
October 25, 1999, incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended
December 31, 1999. (2)
10.11 Dividend Reinvestment and Common Share Purchase Plan
incorporated herein by reference to American States
Water Company Rule 424 (b) (3) filing dated October 27,
1999. Commission File No. 333-88979.
10.12 Key Executive Long-Term Incentive Plan incorporated
herein by reference to Registrant's 1995 Proxy
Statement, Commission File No.00 0-01121. (2)
10.13 Energy Management Services Agreement between Southern
California Water Company and Dynegy Power Marketing. (1)
10.14 Amended and Restated Change in Control Agreements, dated
as of October 25, 1999, between American States Water
Company, Southern California Water Company and certain
executives incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended
December 31, 1999. (2)
10.15 Amended and Restated Change in Control Agreements, dated
as of October 25, 1999, between Southern California
Water Company and certain executives incorporated herein
by reference to Registrant's Form 10-K with respect to
the year ended December 31, 1999. (2)
10.16 Southern California Water Company Pension Restoration
Plan incorporated herein by reference to Registrant's
Form 10-K with respect to the year ended December 31,
1999. (2)
10.17 American States Water Company Annual Incentive Plan
incorporated herein by reference to Registrant's Form
10-K with respect to the year ended December 31, 1999.
(2)
10.18 American States Water Company 2000 Stock Incentive Plan.
Commission File No. 333-39482. (2)
10.19 Loan and Trust Agreement between The Industrial
Development Authority of The County of Maricopa,
Chaparral City Water Company and Bank One, Arizona, NA,,
dated as of December 1, 1997. (1)
10.20 Delivery Agreement between Central Arizona Water
Conservation District and Chaparral City Water Company,
dated as of December 6, 1984. (1)
51
54
10.21 Repayment Contract between the United States Bureau of
Reclamation and Chaparral City Water Company, dated as
of December 6, 1984 for construction of a delivery and
storage system to transport CAP water. (1)
21. Subsidiaries of Registrant incorporated herein by
reference to Registrant's Form 10-K with respect to the
year ended December 31, 1998. Commission File No.
001-14431.
23. Consent of Independent Public Accountants. (1)
(d) None.
- ---------------------
(1) Filed concurrently herewith
(2) Management contract or compensatory arrangement
52
55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To American States Water Company:
We have audited in accordance with generally accepted auditing standards
in the United States, the consolidated financial statements included in this
Form 10-K, and have issued our report thereon dated February 16, 2001. Our
audits of the consolidated financial statements were made for the purpose of
forming an opinion on those basic consolidated financial statements taken as a
whole. The supplemental schedule listed in Part IV of this Form 10-K is the
responsibility of American States Water Company's management, is presented for
purposes of complying with the Securities and Exchange Commission's rules, and
is not part of the basic consolidated financial statements. This supplemental
schedule has been subjected to the auditing procedures applied in the audits of
the basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
s/ Arthur Andersen LLP
- -------------------------------
Arthur Andersen LLP
Los Angeles, California
February 16, 2001
53
56
AMERICAN STATES WATER COMPANY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT
CONDENSED BALANCE SHEETS
December 31,
(in thousands) 2000 1999
- ----------------------------------------------------------------------------
ASSETS
Cash and equivalents $ 294 $ 169
Other current assets 4,738 4,003
-------------------------
Total current assets 5,032 4,172
Investments in subsidiaries 189,383 160,370
Other deferred debits 121 123
-------------------------
Total assets $ 194,536 $ 164,665
=========================
LIABILITIES AND CAPITALIZATION
Accounts payable $ 5 $ 4,116
Other current liabilities (112) (257)
-------------------------
Total current liabilities (107) 3,859
Common shareholders' equity 192,723 158,846
Preferred shares 1,920 1,960
-------------------------
Total capitalization 194,643 160,806
Total liabilities and capitalization $ 194,536 $ 164,665
=========================
54
57
CONDENSED STATEMENTS OF INCOME
December 31,
(in thousands except per share amount) 2000 1999
-----------------------
Operating Revenue And Other Income - $ 23
Operating Expenses $ (206) 85
-----------------------
Income (Loss) Before Equity in Earnings of Subsidiaries 206 (62)
Equity in Earnings of Subsidiaries 17,880 16,163
-----------------------
Net Income 18,086 16,101
Dividends on Preferred Shares (86) (88)
-----------------------
Earnings Available For Common Shareholders $ 18,000 $ 16,013
-----------------------
Weighted Average Number of Common Shares Outstanding 9,380 8,958
-----------------------
Basic Earnings Per Common Share $ 1.92 $ 1.79
-----------------------
Weighted Average Number of Diluted Common Shares Outstanding 9,411 N/A
-----------------------
Fully Diluted Earnings per Common Share $ 1.91 N/A
-----------------------
55
58
CONDENSED STATEMENTS OF CASH FLOWS
December 31,
(in thousands) 2000 1999
- -------------------------------------------------------------------------------------------
Cash Flows From Operating Activities $ 13,075 $ 11,666
-----------------------
Cash Flows Used in Investing Activities (24,340) -
-----------------------
-----------------------
Cash Flows Used in Financing Activities 11,390 (11,593)
-----------------------
Increase (Decrease) in Cash and Equivalents 125 73
Cash and Equivalents at Beginning of Period 169 96
-----------------------
Cash and Equivalents at the End of Period $ 294 $ 169
-----------------------
Cash dividends received from Southern California Water Company $ 12,900 $ 12,040
-----------------------
56
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN STATES WATER COMPANY
and its subsidiary
SOUTHERN CALIFORNIA WATER COMPANY
By : s/ McCLELLAN HARRIS III
-------------------------------
McClellan Harris III
Vice President - Finance, Treasurer,
Chief Financial Officer and Secretary
Date: February 28, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
s/ LLOYD E. ROSS Date: February 28, 2001
- ----------------------------------------------
Lloyd E. Ross
Chairman of the Board and Director
s/ FLOYD E. WICKS February 28, 2001
- ----------------------------------------------
Floyd E. Wicks
Principal Executive Officer;
President, CEO and Director
s/ McCLELLAN HARRIS III February 28, 2001
- ----------------------------------------------
McClellan Harris III
Principal Financial and Accounting Officer;
CFO, VP - Finance, Treasurer and Secretary
s/ LINDA J. MATLICK February 28, 2001
- ----------------------------------------------
Linda J. Matlick
Controller - Southern California Water Company
s/ JAMES L. ANDERSON February 28, 2001
- ----------------------------------------------
James L. Anderson, Director
s/ JEAN E. AUER February 28, 2001
- ----------------------------------------------
Jean E. Auer, Director
57
60
s/ N. P. DODGE, JR February 28, 2001
- ----------------------------------------------
N. P. Dodge, Jr., Director
s/ ANNE M. HOLLOWAY February 28, 2001
- ----------------------------------------------
Anne M. Holloway, Director
s/ ROBERT F. KATHOL February 28, 2001
- ----------------------------------------------
Robert F. Kathol, Director
58
61
EXHIBIT INDEX
3.1 By-Laws of American States Water Company incorporated
herein by reference to Registrant's Form 8-K, dated
November 2, 1998. Commission File No. 333-47647.
3.2 By-laws of Southern California Water Company
incorporated by reference to Registrant's Form 10-K for
the year ended December 31, 1998. Commission File No.
001-14431.
3.3 Amended and Restated Articles of Incorporation of
American States Water Company incorporated herein by
reference to Registrant's Form 8-K, dated November 2,
1998. Commission File No. 333-47647.
3.3.1 Certificate of Amendment of Amended and Restated
Articles of Incorporation, dated August 25, 1998, of
American States Water Company incorporated by reference
to Registrant's Form 10-K for the year ended December
31, 1998. Commission File No. 001-14431.
3.3.2 Certificate of Amendment of Amended and Restated
Articles of Incorporation of American States Water
Company, dated August 25, 1999 incorporated herein by
reference to Registrant's Form 10-K with respect to the
year ended December 31, 1999.
3.3 Restated Articles of Incorporation of Southern
California Water Company incorporated herein by
reference to Registrant's Form 8-K, dated January 20,
1999. Commission File No. 000-01121.
4.1 Amended and Restated Rights Agreement, dated January 25,
1999, by and between American States Water Company and
ChaseMellon Shareholder Services, L.L.C., as Rights
Agent incorporated by reference to Registrant's Form
10-K for the year ended December 31, 1998. Commission
File No. 001-14431.
4.2 Indenture, dated September 1, 1993 between Southern
California Water Company and Chemical Trust Company of
California incorporated herein by reference to
Registrant's Form 8-K. Registration No. 33-62832.
10.1 Agreement of Merger dated as of June 25, 1998 by and
among Southern California Water Company, SCW Acquisition
Corp. and American States Water Company incorporated
herein by reference to Registrant's Form 8-K, dated July
1, 1998. Commission File No. 333-47647.
10.2 Deferred Compensation Plan for Directors and Executives
incorporated herein by reference to Registrant's
Registration Statement on Form S-2. Registration No.
33-5151. (2)
10.3 Reimbursement Agreement, dated September 1, 2000,
between Southern California Water Company and Bank of
America, N.A. incorporated herein. (1)
10.4 Second Sublease dated October 5, 1984 between Southern
California Water Company and Three Valleys Municipal
Water District incorporated herein by reference to
Registrant's Registration Statement on Form S-2.
Registration No. 33-5151.
10.5 Note Agreement dated as of May 15, 1991 between Southern
California Water Company and Transamerica Occidental
Life Insurance Company incorporated herein by reference
to Registrant's Form 10-Q with respect to the quarter
ended June 30, 1991. Commission File No. 000-01121.
10.6 Schedule of omitted Note Agreements, dated May 15, 1991,
between Southern California Water Company and
Transamerica Annuity Life Insurance Company, and
Southern California Water Company and First Colony Life
Insurance Company incorporated herein by reference
62
to Registrant's Form 10-Q with respect to the quarter
ended June 30, 1991. Commission File No. 000-01121.
10.7 Loan Agreement between California Pollution Control
Financing Authority and Southern California Water
Company, dated as of December 1, 1996 incorporated by
reference to Registrant's Form 10-K for the year ended
December 31, 1998. Commission File No. 001-14431.
10.8 Agreement for Financing Capital Improvement dated as of
June 2, 1992 between Southern California Water Company
and Three Valleys Municipal Water District incorporated
herein by reference to Registrant's Form 10-K with
respect to the year ended December 31, 1992. Commission
File No. 000-01121.
10.9 Water Supply Agreement dated as of June 1, 1994 between
Southern California Water Company and Central Coast
Water Authority incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended
December 31, 1994. Commission File No. 000-01121.
10.10 Amended and Restated Retirement Plan for Non-Employee
Directors of American States Water Company, dated as of
October 25, 1999, incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended
December 31, 1999. (2)
10.11 Dividend Reinvestment and Common Share Purchase Plan
incorporated herein by reference to American States
Water Company Rule 424 (b) (3) filing dated October 27,
1999. Commission File No. 333-88979.
10.12 Key Executive Long-Term Incentive Plan incorporated
herein by reference to Registrant's 1995 Proxy
Statement, Commission File No.00 0-01121. (2)
10.13 Energy Management Services Agreement between Southern
California Water Company and Dynegy Power Marketing. (1)
10.14 Amended and Restated Change in Control Agreements, dated
as of October 25, 1999, between American States Water
Company, Southern California Water Company and certain
executives incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended
December 31, 1999. (2)
10.15 Amended and Restated Change in Control Agreements, dated
as of October 25, 1999, between Southern California
Water Company and certain executives incorporated herein
by reference to Registrant's Form 10-K with respect to
the year ended December 31, 1999. (2)
10.16 Southern California Water Company Pension Restoration
Plan incorporated herein by reference to Registrant's
Form 10-K with respect to the year ended December 31,
1999. (2)
10.17 American States Water Company Annual Incentive Plan
incorporated herein by reference to Registrant's Form
10-K with respect to the year ended December 31, 1999.
(2)
10.18 American States Water Company 2000 Stock Incentive Plan.
Commission File No. 333-39482. (2)
10.19 Loan and Trust Agreement between The Industrial
Development Authority of The County of Maricopa,
Chaparral City Water Company and Bank One, Arizona, NA,,
dated as of December 1, 1997. (1)
10.20 Delivery Agreement between Central Arizona Water
Conservation District and Chaparral City Water Company,
dated as of December 6, 1984. (1)
63
10.21 Repayment Contract between the United States Bureau of
Reclamation and Chaparral City Water Company, dated as
of December 6, 1984 for construction of a delivery and
storage system to transport CAP water. (1)
21. Subsidiaries of Registrant incorporated herein by
reference to Registrant's Form 10-K with respect to the
year ended December 31, 1998. Commission File No.
001-14431.
23. Consent of Independent Public Accountants. (1)
(d) None.
- ---------------------
(1) Filed concurrently herewith
(2) Management contract or compensatory arrangement