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California Water Service Group$55.63($.21)(.38%)

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 California Water Service Group Announces Earnings for Year-End and Fourth Quarter 2016
   Thursday, February 23, 2017 9:01:04 AM ET

SAN JOSE, CA--(Marketwired - Feb 23, 2017) - California Water Service Group (CWT ) today announced net income of $48.7 million and diluted earnings per share of $1.01 for 2016, compared to net income of $45.0 million and earnings per share of $0.94 in 2015. 

The $3.7 million increase in net income was primarily a result of a $2.8 million net resolution of several regulatory memorandum and balancing accounts in the California Water Service Company (Cal Water) 2015 General Rate Case (GRC) settlement agreement, a $1.9 million increase from the recovery of prior years’ incremental drought program costs, a resolution of litigation proceeds in the GRC settlement agreement, and a $1.7 million increase in estimated unbilled revenue in 2016. These increases were partially offset by increases in other operations expense, which included a GRC settlement agreement to write-off $3.2 million associated with a cancelled water supply project in Bakersfield which was recognized in the third quarter, increases in depreciation and amortization, maintenance, property tax, employee wage, and net interest expenses. 

"Although 2016 was one of the more challenging years in the Company’s recent history, we achieved many successes," said President and Chief Executive Officer Martin A. Kropelnicki.

"The Company’s key accomplishments included partnering with customers to achieve significant water savings during the California drought; responding effectively to the Erskine fire in Kern River Valley; investing a record $228.9 million to improve and upgrade critical water system infrastructure; increasing the dividend by three percent, which was our 49th consecutive annual increase; and being ranked highest in overall satisfaction among water utilities in the western United States in J.D. Powers’ inaugural water utility residential customer satisfaction survey.

"We ended 2016 with the CPUC’s timely approval of our 2015 General Rate Case. The parties involved worked diligently in drafting a fair and reasonable settlement. The authorizations in the GRC, including $658.8 million of capital investment over three years, ensure we can continue improving the quality of life for customers and communities we serve," he said.

Additional Financial Results for 2016 Total revenue increased 3.6% to $609.4 million in 2016 compared to $588.4 million in 2015, primarily due to rate increases to offset increases in purchased water quantities and wholesale water rates.

Total operating expenses increased $16.0 million, or 3.1%, to $533.2 million in 2016 compared to the prior year.

Water production expenses increased $12.1 million, or 5.8 %, to $220.0 million in 2016, primarily due to increases in purchased water quantities and higher wholesale water rates. As designed, the California revenue decoupling mechanisms record an increase to revenue equal to the increase in California water production costs.

Administrative & general and other operations expenses decreased slightly to $178.6 million in 2016, primarily due to decreases in employee benefit costs, incremental drought program expenses, and a decrease in uninsured loss costs. These cost decreases were partially offset by an increase in costs associated with the realization of operating revenue that was deferred in prior years, a third-quarter write-off of $3.2 million of capital costs, increases in conservation program costs, and employee wages. Changes in employee pension benefits, employee and retiree medical costs, and water conservation program costs for regulated California operations generally do not affect earnings, as the Company is allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

Incremental California drought program operating expenses were approximately $4.3 million in 2016, the same as in 2015. These expenses were included in administrative & general, other operations, and maintenance expenses. Further, all incremental drought costs are recorded in a CPUC authorized memorandum account that is recoverable after CPUC reasonableness review and approval.

Maintenance expenses increased $1.5 million, or 7.1%, to $23.0 million in 2016, due to increased costs for repairs of reservoirs, tanks, and services.

Income taxes increased $0.3 million, or 1.1%, to $24.8 million in 2016, due primarily to an increase in net operating income, which was partially offset by an increase in the tax benefit from the flow through method of accounting for "repairs" deductions on the Company’s state income tax filings. The estimated effective tax rate for 2016 is 35.5%.

Other income, net of income taxes, increased $1.9 million in 2016, due primarily to the recognition of $1.5 million of litigation proceeds approved in the Cal Water 2015 GRC settlement agreement and an unrealized gain on our benefit plan insurance investments.

Fourth Quarter 2016 Results For the fourth quarter of 2016, net income increased $6.6 million, or 78.0%, to $15.1 million, and diluted earnings per share increased $0.13, or 72.2%, to $0.31 per diluted share compared to the fourth quarter of 2015. The increase in net income was due primarily to increases from the resolution of several regulatory memorandum and balancing accounts in the Cal Water 2015 GRC settlement agreement, CPUC authorization to recover prior year incremental drought program costs, and an increase in other income in 2016. These increases were partially offset by increases in other operations, depreciation and amortization, property tax, and net interest expenses. 

Revenue for the fourth quarter increased $12.5 million, or 9.0%, to $150.9 million mostly due to rate increases and changes to various balancing accounts, which were authorized in the California GRC decision. Total operating expenses for the quarter increased $6.1 million, or 5.0%, to $129.6 million. Water production expenses increased $1.9 million mostly due to increases in purchased water quantities and wholesale water rates. Administrative & general and other operations expenses increased $1.7 million, or 3.8%, to $45.8 million due to an increase in costs associated with the realization of operating revenue that was deferred in prior years, and increases in conservation program costs, which were partially offset by decreases in employee benefit costs and incremental drought program expenses. Maintenance expense decreased $0.3 million, or 4.8%, to $5.5 million. Other income, net of income taxes, increased $0.7 million, or 74.2%, to $1.6 million mostly due to the recognition of $1.5 million of litigation proceeds. Net interest expense increased $0.4 million, or 6.0%, to $7.9 million.

 The under-collected net receivable balance in the WRAM and MCBA mechanism was $36.6 million as of December 31, 2016, a decrease of 8.5%, or $3.4 million, from the balance of $40.0 million as of December 31, 2015.

Regulatory Update On December 15, 2016, the CPUC voted to approve Cal Water’s 2015 GRC settlement agreement. The approved decision, which was proposed by the presiding Administrative Law Judge in November 2016, authorizes Cal Water to increase gross revenue by approximately $45.0 million in 2017, $17.2 million in 2018, and $16.3 million in 2019, and up to $30.0 million upon completion and approval of the Company’s advice letter projects. The 2018 and 2019 revenue increases are subject to the CPUC’s earning test protocol.

The CPUC’s decision also authorizes Cal Water to invest $658.8 million in water system improvements throughout California over the three-year period of 2016-2018 in order to continue to provide safe and reliable water to its customers. This figure includes $197.3 million of water system infrastructure improvements that will be subject to the CPUC’s advice letter procedure.

Other Information All stockholders and interested investors are invited to listen to the 2016 year-end and fourth quarter conference call on February 23, 2017 at 8:00 a.m. PST (11:00 a.m. EST) by dialing 1-888-806-6208 or 1-913-312-1516 and keying in ID #7406571. A replay of the call will be available from 11:00 a.m. PST (2:00 p.m. EST) on February 23, 2017 through April 23, 2017, at 1-888-203-1112 or 1-719-457-0820, ID #7406571. The replay will also be available under the investor relations tab at www.calwatergroup.com. Prior to the call, Cal Water will post a slide presentation on its website. The presentation can be found at www.calwatergroup.com/docs/2016q4slides.pdf after 6:00 a.m. PDT. The call will be hosted by President and Chief Executive Officer Martin A. Kropelnicki, Vice President and Chief Financial Officer Thomas F. Smegal III, and Vice President of Regulatory Matters Paul G. Townsley.

California Water Service Group is the parent company of California Water Service, Washington Water Service, New Mexico Water Service, Hawaii Water Service, CWS Utility Services, and HWS Utility Services. Together, these companies provide regulated and non-regulated water service to nearly 2 million people in California, Washington, New Mexico, and Hawaii. California Water Service was ranked "Highest in Customer Satisfaction Among Water Utilities in the West" in 2016 by J.D. Power in its inaugural Water Utility Residential Customer Satisfaction Study. California Water Service Group’s common stock trades on the New York Stock Exchange under the symbol "CWT." Additional information is available online at www.calwatergroup.com.

This news release contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 ("Act"). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the Act. Forward-looking statements are based on currently available information, expectations, estimates, assumptions and projections, and management’s judgment about the Company, the water utility industry and general economic conditions. Such words as would, expects, intends, plans, believes, estimates, assumes, anticipates, projects, predicts, forecasts or variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are subject to uncertainty and changes in circumstances. Actual results may vary materially from what is contained in a forward-looking statement. Factors that may cause a result different than expected or anticipated include, but are not limited to: governmental and regulatory commissions’ decisions; consequences of eminent domain actions relating to our water systems; changes in regulatory commissions’ policies and procedures; the timeliness of regulatory commissions’ actions concerning rate relief; inability to renew leases to operate city water systems on beneficial terms; changes in California State Water Resources Control Board water quality standards; changes in environmental compliance and water quality requirements; electric power interruptions; changes in customer water use patterns and the effects of conservation; the impact of weather and climate on water availability, water sales and operating results; the unknown impact of contagious diseases, such as Zika, avian flu, H1N1 flu and severe acute respiratory syndrome, on the Company’s operations; civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type; labor relations matters as we negotiate with the unions; restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; and, other risks and unforeseen events. When considering forward-looking statements, you should keep in mind the cautionary statements included in this paragraph, as well as the annual 10-K, Quarterly 10-Q, and other reports filed from time-to-time with the Securities and Exchange Commission (SEC). The Company assumes no obligation to provide public updates of forward-looking statements.

CALIFORNIA WATER SERVICE GROUP                                                                                                                              
CONDENSED CONSOLIDATED BALANCE SHEETS                                                                                                                       
Unaudited                                                                                                                                                   
                                                                                                                                                       
(In thousands, except per share data)                                                                                        December 31,           December 31,      
                                                                                                                        2016                   2015              
ASSETS                                                                                                                                            
Utility plant:                                                                                                                                    
              Utility plant                                                                                             $      2,717,339       $      2,506,946  
              Less accumulated depreciation and amortization                                                              (858,062  )            (805,178  )
                                                            Net utility plant                                        1,859,277         1,701,768  
                                                                                                                                             
Current assets:                                                                                                                                   
              Cash and cash equivalents                                                                                   25,492            8,837      
              Receivables: net of allowance for doubtful accounts of $830 for 2016 and $730 for 2015, respectively                           
                                                            Customers                                                30,305            31,512     
                                                            Regulatory balancing accounts                            30,332            35,052     
                                                            Other                                                    17,158            14,760     
              Unbilled revenue                                                                                            25,228            23,181     
              Materials and supplies at weighted average cost                                                             6,292             6,339      
              Taxes, prepaid expenses, and other assets                                                                   7,262             7,897      
                                                            Total current assets                                     142,069           127,578    
                                                                                                                                             
Other assets:                                                                                                                                     
              Regulatory assets                                                                                           355,930           361,893    
              Goodwill                                                                                                    2,615             2,615      
              Other                                                                                                       51,854            47,399     
                                                            Total other assets                                       410,399           411,907    
TOTAL ASSETS                                                                                                                 $      2,411,745       $      2,241,253  
                                                                                                                                             
CAPITALIZATION AND LIABILITIES                                                                                                                    
Capitalization:                                                                                                                                   
              Common stock, $.01 par value                                                                              $      480             $      479        
              Additional paid-in capital                                                                                  334,856           333,135    
              Retained earnings                                                                                           324,135           308,541    
                                                            Total common stockholders’ equity                        659,471           642,155    
              Long-term debt, less current maturities                                                                     531,745           508,002    
                                                            Total capitalization                                     1,191,216         1,150,157  
                                                                                                                                             
Current liabilities:                                                                                                                              
              Current maturities of long-term debt                                                                        26,208            6,043      
              Short-term borrowings                                                                                       97,100            33,615     
              Accounts payable                                                                                            77,813            66,380     
              Regulatory balancing accounts                                                                               4,759             2,227      
              Accrued interest                                                                                            5,661             5,088      
              Accrued expenses and other liabilities                                                                      38,689            34,545     
                                                            Total current liabilities                                250,230           147,898    
                                                                                                                                             
Unamortized investment tax credits                                                                                             1,798             1,872      
Deferred income taxes, net                                                                                                     298,924           264,897    
Pension and postretirement benefits other than pensions                                                                        222,691           236,266    
Regulatory and other liabilities                                                                                               83,648            82,414     
Advances for construction                                                                                                      182,448           180,172    
Contributions in aid of construction                                                                                           180,790           177,577    
Commitments and contingencies                                                                                                                     
TOTAL CAPITALIZATION AND LIABILITIES                                                                                         $      2,411,745       $      2,241,253  
                                                                                                                                             
                                                                                                                                             
                                                                                                                                             
CALIFORNIA WATER SERVICE GROUP                                                                 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME                                                    
Unaudited                                                                                      
(In thousands, except per share data)                                                          
                                                                                          
For the Three-Months ended:                                                                    
                                                               December 31,         December 31,    
                                                               2016                 2015            
                                                                                
Operating revenue                                                   $      150,930       $      138,426  
Operating expenses:                                                                  
          Operations:                                                           
                             Water production costs         51,160          49,265   
                             Administrative and General     23,437          28,041   
                             Other operations               22,316          16,021   
          Maintenance                                            5,451           5,728    
          Depreciation and amortization                          15,827          15,366   
          Income taxes                                           5,612           3,520    
          Property and other taxes                               5,792           5,523    
                             Total operating expenses       129,595         123,464  
                                                                                
                             Net operating income           21,335          14,962   
                                                                                
Other income and expenses:                                                           
          Non-regulated revenue                                  5,996           5,084    
          Non-regulated expenses                                 (3,285  )            (3,528  )
          Income tax expense on other income and expenses        (1,098  )            (630    )
                             Net other income               1,613           926      
                                                                                
Interest expense:                                                                    
          Interest expense                                       8,482           7,854    
          Less: capitalized interest                             (624    )            (443    )
                             Net interest expense           7,858           7,411    
                                                                                
Net income                                                          $      15,090        $      8,477    
                                                                                
Earnings per share                                                                   
          Basic                                                $      0.31          $      0.18     
          Diluted                                              $      0.31          $      0.18     
Weighted average shares outstanding                                                  
          Basic                                                  47,966          47,876   
          Diluted                                                47,969          47,886   
Dividends per share of common stock                                 $      0.1725        $      0.1675   
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
CALIFORNIA WATER SERVICE GROUP                                                                 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME                                                    
Unaudited                                                                                      
(In thousands, except per share data)                                                          
                                                                                          
For the Twelve-Months ended:                                                                   
                                                               December 31,         December 31,    
                                                               2016                 2015            
                                                                                
Operating revenue                                                   $      609,370       $      588,368  
Operating expenses:                                                                  
          Operations:                                                           
                             Water production costs         219,993         207,926  
                             Administrative and General     98,474          113,110  
                             Other operations               80,082          67,248   
          Maintenance                                            22,993          21,463   
          Depreciation and amortization                          63,599          61,381   
          Income taxes                                           24,804          24,528   
          Property and other taxes                               23,231          21,559   
                             Total operating expenses       533,176         517,215  
                                                                                
                             Net operating income           76,194          71,153   
                                                                                
Other income and expenses:                                                           
          Non-regulated revenue                                  16,585          15,624   
          Non-regulated expenses                                 (11,591 )            (13,729 )
          Income tax expense on other income and expenses        (2,012  )            (761    )
                             Net other income               2,982           1,134    
                                                                                
Interest expense:                                                                    
          Interest expense                                       33,466          29,185   
          Less: capitalized interest                             (2,965  )            (1,915  )
                             Net interest expense           30,501          27,270   
                                                                                
Net income                                                          $      48,675        $      45,017   
                                                                                
Earnings per share                                                                   
          Basic                                                $      1.02          $      0.94     
          Diluted                                              $      1.01          $      0.94     
Weighted average shares outstanding                                                  
          Basic                                                  47,953          47,865   
          Diluted                                                47,956          47,880   
Dividends per share of common stock                                 $      0.6900        $      0.6700   

Contact: Tom Smegal (408) 367-8200 (analysts) Shannon Dean (408) 367-8243 (media)



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