Cal Water Announces Results for the 2nd Quarter of 2008

California Water Service Group (NYSE: CWT) today announced net income of $10.1 million, up 31% from $7.7 million in the second quarter of 2007, and earnings per common share of $0.48, an increase of 30% over $0.37 in the same period last year. Revenues increased by $9.8 million, or 10%, to $105.6 million, with rate increases adding $6.0 million, sales to existing customers adding $3.6 million, and water usage by new customers adding $0.2 million. Total operating expenses for the second quarter of 2008 increased by $6.7 million to $91.1 million. Water production costs increased by $3.1 million due to water usage being higher compared to the same period last year. Administrative and general and other operations costs increased $1.3 million, due primarily to increases in outside water quality laboratory fees, purchases of chemicals and filters, conservation program costs, and uncollectable accounts. Fewer water system repairs resulted in a $0.3 million decrease in maintenance expense, which was $4.9 million for the quarter. Depreciation expense increased $0.9 million to $9.3 million as a result of increases in 2007 capital expenditures. Taxes other than income remained the same as last year. Other income decreased by $0.5 million to $0.4 million, declining as a result of mark-to-market adjustments associated with the market value of assets in the company’s non-qualified retirement plans and a decrease in interest income. For the twelve months ended June 30, 2008, net income was $32.2 million and dilutive earnings per share were $1.55, compared to net income of $28.3 million and dilutive earnings per share of $1.41 for the same period in the prior year. Revenues for the trailing twelve months were $378.2 million, compared to $355.8 million for the same period last year. "In the second quarter, we continued to work diligently with the California Public Utilities Commission (CPUC) on implementation of its Water Action Plan. As the quarter ended, several key regulatory decisions became effective, including one establishing a water revenue adjustment mechanism (WRAM) and modified cost balancing account (MCBA), and another authorizing rate increases throughout California to recover prudently-incurred costs,” said President and Chief Executive Officer Peter C. Nelson. "Overall it was a busy quarter, but the changes approved by the CPUC allow us to ramp up our water efficiency and conservation efforts, which we believe is critical given the current water issues in California,” Nelson said. Rate-Related Matters As a result of a decision issued by the CPUC in February 2008 (D.08-02-036), three significant changes occurred on July 1, 2008: a WRAM became effective, decoupling water sales from revenues; conservation rates (also known as tiered or increasing block rates) were established in most California districts to reward residential customers for conservation efforts; and an MCBA was instituted to track cost changes, including supply mix variations, for future recovery or refund in rates. Also effective on July 1, the CPUC approved incremental or step increases totaling $1.1 million for four California districts. Most recently, on July 10, 2008, the CPUC approved a settlement between the CPUC’s Division of Ratepayer Advocates and Cal Water, authorizing rate increases totaling $33.4 million for districts in Chico, East Los Angeles, Livermore, Los Altos, Mid-Peninsula (San Carlos and San Mateo), Salinas, Stockton, and Visalia. The decision also authorized Cal Water to request recovery in the remaining 16 districts for company-wide cost increases, including those related to water quality, engineering, and accounting, as well as increases in administrative expenses such as health care. $13.7 million in annual cost recovery has been requested and is now reflected in rates. Acquisitions and New Business In the second quarter of 2008, Hawaii Water Service Company (Hawaii Water) received approval from the Hawaii Public Utilities Commission (HPUC) to acquire a wastewater system serving approximately 800 customers in the community of Pukalani on Maui. Hawaii Water also signed an agreement to purchase a water and wastewater system serving approximately 250 customers in Kukio on the Big Island of Hawaii, which is pending HPUC approval. Additionally, in California, the company entered into an agreement to acquire Skyline County Water District, a 465-connection system adjacent to Cal Water’s Bear Gulch District, which is now pending CPUC approval. Other Information All stockholders and interested investors are invited to listen to the 2008 second quarter conference call on July 31, 2008, at 11:00 a.m. (EST), by dialing 1-866-837-9789 and keying in ID# 1253334. A replay of the call will be available from 2:00 p.m. (EST) July 31, 2008, through September 29, 2008, at 888-266-2081, ID# 1253334. The call, which will be hosted by President and CEO, Peter Nelson and Vice President and Chief Financial Officer, Martin A. Kropelnicki, will also be webcast under the investor relations tab at www.calwatergroup.com. California Water Service Group is the parent company of California Water Service Company, Washington Water Service Company, New Mexico Water Service Company, Hawaii Water Service Company, Inc., 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 communities. Group’s common stock trades on the New York Stock Exchange under the symbol "CWT”. 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 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; changes in regulatory commissions' policies and procedures; the timeliness of regulatory commissions' actions concerning rate relief; new legislation; electric power interruptions; increases in suppliers' prices and the availability of supplies including water and power; fluctuations in interest rates; changes in environmental compliance and water quality requirements; acquisitions and our ability to successfully integrate acquired companies; the ability to successfully implement business plans; changes in customer water use patterns; the impact of weather on water sales and operating results; access to sufficient capital on satisfactory terms; civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type; the involvement of the United States in war or other hostilities; 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. Additional information is available at our Web site at www.calwatergroup.com. CALIFORNIA WATER SERVICE GROUP CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited     (In thousands, except per share data) June 30 December 31   2008     2007   ASSETS Utility plant: Utility plant $ 1,503,926 $ 1,447,047 Less accumulated depreciation and amortization   (455,862 )   (436,851 ) Net utility plant   1,048,064     1,010,196     Current assets: Cash and cash equivalents 6,129 6,734 Receivables Customers 24,195 18,600 Other 4,771 8,617 Unbilled revenue 16,948 12,911 Materials and supplies at average cost 4,671 4,744 Taxes, prepaid expense, and other assets   12,367     8,369   Total current assets   69,081     59,975     Other assets: Regulatory assets 90,894 90,908 Other assets   23,789     23,420   Total other assets   114,683     114,328   $ 1,231,828   $ 1,184,499     CAPITALIZATION AND LIABILITIES Capitalization: Common stock, $.01 par value $ 207 $ 207 Additional paid-in capital 213,462 211,885 Retained earnings   171,728     173,617   Total common stockholders' equity 385,397 385,709 Preferred stock 3,475 3,475 Long-term debt, less current maturities   288,281     289,220   Total capitalization   677,153     678,404     Current liabilities: Current maturities of long-term debt 2,701 2,701 Short-term borrowings 23,000 - Accounts payable 46,925 36,694 Accrued expenses and other liabilities   40,251     30,258   Total current liabilities 112,877 69,653   Unamortized investment tax credits 2,467 2,467 Deferred income taxes, net 67,536 69,712 Pension and postretirement benefits other than pensions 39,747 39,444 Regulatory and other liabilities 40,235 38,783 Advances for construction 173,221 168,024 Contributions in aid of construction 118,592 118,012 Commitments and contingencies   -     -   $ 1,231,828   $ 1,184,499   CALIFORNIA WATER SERVICE GROUP CONDENSED CONSOLIDATED STATEMENTS OF INCOME Unaudited (In thousands, except per share data)   For the Three-Months ended:   June 30,   June 30,   2008     2007     Operating revenue $ 105,581   $ 95,782   Operating expenses: Water production costs 40,349 37,271 Administrative and General 13,835 14,264 Other operations 12,766 11,010 Maintenance 4,947 5,241 Depreciation and amortization 9,276 8,380 Income taxes 6,442 4,792 Property and other taxes   3,484     3,435   Total operating expenses   91,099     84,393     Net operating income   14,482     11,389     Other income and expenses: Non-regulated revenue 1,696 3,423 Non-regulated expenses (1,132 ) (1,966 ) Gain on sale of non-utility property 7 (83 ) Less: income taxes on other income and expenses   (219 )   (560 )   352     814     Interest expense: Interest Expense 5,157 4,926 Less: capitalized interest   (439 )   (450 ) Net interest expense   4,718     4,476     Net income $ 10,116   $ 7,727     Earnings per share Basic $ 0.48   $ 0.37   Diluted $ 0.48   $ 0.37   Weighted average shares outstanding Basic   20,717     20,666   Diluted   20,741     20,690   Dividends per share of common stock $ 0.2925   $ 0.2900   CALIFORNIA WATER SERVICE GROUP CONDENSED CONSOLIDATED STATEMENTS OF INCOME Unaudited (In thousands, except per share data)   For the Six-Months ended:   June 30,   June 30,   2008     2007     Operating revenue $ 178,502   $ 167,352   Operating expenses: Water production costs 65,707 63,084 Administrative and General 27,253 26,835 Other operations 24,831 22,095 Maintenance 9,060 9,750 Depreciation and amortization 18,498 16,781 Income taxes 6,616 5,336 Property and other taxes   7,223     6,840   Total operating expenses   159,188     150,721     Net operating income   19,314     16,631     Other income and expenses: Non-regulated revenue 4,601 6,465 Non-regulated expenses (4,168 ) (3,717 ) Gain on sale of non-utility property 7 (83 ) Less: income taxes on other income and expenses   (170 )   (1,086 )   270     1,579     Interest expense: Interest Expense 10,171 9,852 Less: capitalized interest   (889 )   (950 ) Net interest expense   9,282     8,902     Net income $ 10,302   $ 9,308     Earnings per share Basic $ 0.49   $ 0.45   Diluted $ 0.49   $ 0.45   Weighted average shares outstanding Basic   20,702     20,663   Diluted   20,726     20,687   Dividends per share of common stock $ 0.5850   $ 0.5800