Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company Conference Call discussing the company's 4th Quarter and Full Year 2015 Results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 5 o'clock p. M.
Eastern Time and run through Thursday, March 3, 2016, on the company's website, www dot aswater.com. After today's presentation, there will be an opportunity to This call will be limited to an hour. As a reminder, certain matters discussed during this conference call may be forward looking statements intended to qualify for the Safe Harbor from liability
established by
the Private Securities Litigation Reform Act of 1995. Securities Litigation Reform Act of 1995. Please review a description of the company's risks and uncertainties in our most recent Form 10 ks on file with the Securities and Exchange Commission. At this time, I would like to turn the call over to Eva Tang, Chief Financial Officer of American States Water Company.
Thank you, Carrie. Good afternoon, and welcome, everyone. Thank you for joining us today. On the call with me today is our President and CEO, Bob Sprowls. I'll start by reviewing our financial results.
Diluted earnings for the year ended 2015 were $1.60 per share, which is $0.03 per share increase as compared to $1.57 in 2014. For the Q4 of 2015, diluted earnings were $0.31 per share compared to $0.35 per share for the same period in 2014. I'll first discuss the key items that affected our 4th quarter results. For the quarter, revenue at our water segment decreased $830,000 due mainly to a delay in recognizing $1,400,000 of water revenue adjustment mechanism or the RAN revenue, partially offset by rate increases approved by the public by the California Public Utilities Commission. As we discussed in our Q3 earnings call, under the accounting guidance for alternative revenue programs, we can only recognize RAN revenue for months collectible within 24 months, following the year in which they are recorded.
Please note that the accounting guidance affects the timing of when we can recognize the RAM revenue, but not the collectability of the RAM. We have just filed with the CPUC for recovery of the 2015 ramp balances, including the $1,400,000 Under the current CPUC amortization guidelines, we expect to collect the balances between 12 to 36 months. The $1,400,000 will be recognized as revenue when it becomes collectible within 24 months. At this time, we estimate the majority of the $1,400,000 will be recognized as revenue in 2016. As part of our pending water generate case, the forecasted consumption used to set rates for 2016 through 2018 reflects state mandated consumption levels.
Therefore, we do not expect the RIN balances during the next rate case cycle to continue growing at the same rate as in 2015. 4th quarter revenue for electric operations was $9,200,000 as compared to $7,000,000 for the same period in 2014. The increase in revenue resulted from CPUC approved rate increases effective January 1, 2015 and additional revenue increases generated from our advice letter filings. In addition, we recorded a cumulative reduction in revenue in the Q4 of 2014 along with a cumulative reduction in depreciation expense and other expenses, as a result of the delayed decision issued by the CPUC in November of 2014, which was retroactive to January 2013. You may recall that the impact of the retroactive effect from the new rates to the electric segment's 2014 net earnings was not significant.
Revenue from contracted services was $28,700,000 for Q4 2015 compared to $29,900,000 for the same period in 2014. Higher revenue in the prior year was due in large part to the recording of construction revenues as a result of the closeout of a large pipeline replacement capital project, which did not recurred in 2015. Our water and electric supply costs were $23,100,000 or about 26 percent of consolidated operating expenses for the quarter. Any changes in supply costs for both the water and electric segments as compared to the adopted level are tracked in balancing accounts, which will be recovered from or refunded to our customers in the future. Other operating expenses increased by $553,000 for the quarter compared to Q4 2014.
The increase was due to increases in drought related expenses at our water segment and higher operation related labor costs in our contract to service segment. The CPUC has authorized Golden State Water to track incremental drought related costs in a memorandum to account for possible future recovery. We incurred about $343,000 of drought related cost for Q4 2015, dollars 937,000 for the year. Administrative and general expenses for the Q4 of 2015 were $20,600,000 as compared to $18,500,000 for the same period in 2014. The increase was due to higher legal costs incurred to defend condensation related activities in our water segment and higher costs associated with energy efficiency and solar initiative programs approved by the CPUC in our electric segment.
In addition, there was a shift in labor and other indirect costs to construction related activities in support of various functions at ASUS. Maintenance expense increased by $924,000 for the quarter due to an increase in both planned and unplanned level of maintenance activities in 2015. Although the expense increased significantly during the quarter, it was $793,000 higher for the full year 2015 as compared to 2014. Depreciation and amortization expense increased by $968,000 to $10,400,000 for the Q4 of 2015, resulting from additions to utility plant at the water segment during 2014. Total other expenses net of interest income increased by $454,000 to $4,400,000 for the Q4 of 2015, primarily due to additional interest income collected on certain outstanding balances owed to Golden State Water during 2014.
There was no similar items in 2015. Let me briefly discuss our 2015 full year results. First of all, as part of the 2014 and 2015 stock repurchase programs authorized by our Board of Directors, we have repurchased approximately 2,450,000 shares of AWR common stock, driving reduction in weighted average shares outstanding on a diluted basis, which positively benefited earnings per share in 2015 and in 2014. Both stock repurchase program were completed in 2015. Diluted earnings per share for $0.15 were $1.60 compared to $1.57 for 2014.
This increase was largely attributable to a $0.03 per share increase in our water segment resulting from 3rd year rate increases and advice letter filings for completion of certain capital projects not previously included in rates. The increase was partially offset by $1,400,000 of 20.15 RAN revenue not recorded as previously discussed and higher operating expenses due primarily to increases in maintenance and depreciation expenses. Our contracted services segment also contributed to the increase in earnings by $0.01 per share, resulting from successful resolution of various price redeterminations received during the Q3 of 2015. This increase was partially offset by higher operating expenses due to an increase in labor, insurance and other outside services costs and a decrease in construction activity due to significant work on several large projects being substantially completed during 2014. Diluted earnings from AWR parent decreased by $0.01 per share for 2015 as compared to 2014 due primarily to higher state income taxes.
Net cash provided by operating activities decreased by $68,100,000 to $95,100,000 for 2015. The decrease in operating cash flow during 2015 was due in large part to a decrease in customer water usage resulting from conservation efforts, which lowered the customer billings at Golden State Water and increased the WRAM regulatory assets. There was also a decrease in cash generated by ASUS. During 2014 cash payments at ASUS were received for completion of several large capital upgrade projects that did not recurred in 2015. These decreases were partially offset by lower income tax payments made during 2015, mainly due to the implementation of new tax repair regulation during the 4th quarter of 2014.
For additional details on our Q4 year to date performance, please refer to our earnings release and Form 10 ks issued yesterday. With that, I'll turn the call over to Bob.
Thank you, Eva. Hello, everyone. I appreciate everyone joining us today. American States Water produced another year of solid financial performance in 2015 as we earned 1 point a consolidated return on equity for the year of 12.4%, increased our dividend yet again and achieved above market returns on our common stock. Our consolidated performance reflects excellent financial results by our 2 1st year subsidiaries, Golden State Water Company, which is our regulated water and electric utility and American States Utility Services, our contracted services business.
Let me discuss some of the highlights for 2015 by business segment. Our water and electric utilities continue to invest to maintain and improve the reliability of our systems. During 2015, Golden State Water invested $91,000,000 in infrastructure, well above the $61,000,000 we spent in 2014, a year where we experienced project delays. Of the $91,000,000 in company funded capital expenditures, Bear Valley Electric Service accounted for approximately $8,000,000 reflecting our electric division's work on 2 large projects. We anticipate capital investments in 20 16 to be approximately $85,000,000 to $95,000,000 which may change once a decision is issued by the California Public Utility Commission on our pending water rate case.
While we continue to make prudent investments to maintain and improve the reliability of our 2015. Excluding depreciation expenses and supply costs, operating expenses for 2015 were relatively unchanged compared to 2014. In fact, the overall staffing level at Golden State Water has declined by approximately 8% since 2011. Lastly, in October 2015, we completed an asset purchase agreement and acquired all of the operating water assets of Rural Water Company and began serving 960 new customers. Our contracted services business, American States Utility Services, continue to make significant contribution to the company's earnings.
ASUS accounted for 20.5% of the company's consolidated revenues in 2015. During 2015, successfully completed several filings with the U. S. Government for price redeterminations and asset transfers, which positively affected its earnings. ASUS' contribution helped the consolidated company earn its 12.4 percent return on equity for 2015.
It's been a solid year for American States Water and its subsidiaries, and we're looking forward to continued strength and progress in 2016. With that, I'd like to discuss a few regulatory matters pertaining to Golden State Water and the California drought. As we discussed in previous quarters, Golden State Water filed a general rate case in 2014 for all of its water regions in the general office. The application will determine rates charged to customers for the years 2016, 2017 2018. Our requested capital budgets in the application average approximately $90,000,000 a year for the 3 year period.
The 2016 water gross margin is expected to decrease as compared to the currently adopted levels, due in part to a decrease in annual depreciation expense resulting from an updated depreciation study. As Eva mentioned earlier, the consumption levels used to calculate rates for 2016 through 2018 and incorporated into the settlement with the PUC's Office of Ratepayer Advocates reflect the state mandated conservation targets for each rate making area. A decision on this rate case is expected by the end of the Q2 of 2016, with new rates retroactive to January 1, 2016. We are scheduled to file our next cost of capital application in March we were scheduled to file our next cost of capital application in March 2016 based on an extension previously granted. In December 2015, Golden State Water along with 3 other Class A California water utilities filed a request with the PUC for a further extension.
On February 1 this year, the PUC approved a 1 year extension until March 31, 2017, by which date each of the 4 Class A utilities must file their next cost of capital triggered by the water cost of capital adjustment mechanism for 1 year. Golden State Water's current authorized return on equity of 9 point 4 3 percent will continue in effect through December 31, 2017. Based on the current economic environment, we don't believe interest rates will increase enough by September 30 to trigger the water cost of capital adjustment mechanism if it were in place. Our electric segment was originally scheduled to file its next general rate case application by January 31, 2016. In November of last year, we filed a petition with the PUC requesting to defer the rate case filing by 1 year to January 31, 2017 due to our effective cost control measures.
The administrative law judge issued a proposed decision granting Golden State Water's request to defer the general rate case to January 31, 2017. The PUC is expected to vote on the proposed decision in the Q1. I will now turn to water conservation and the drought situation in California. In February earlier this month, the State Water Resources Control Board extended the Governor of California's executive order imposing mandatory restrictions through October 31, 2016. Gold State Water intends to implement stage 2 or higher of our staged mandatory conservation and rationing plan in those areas which have not met their cumulative targets.
Once the final allocations are determined based on the amended regulations. Stage 2 and higher include penalties for customers that use water in excess of their allotments. In connection with conservation, the commission has authorized us to track incremental costs incurred in promoting conservation and implementing restriction measures in drought memorandum accounts for possible future recovery. Through the end of 2015, we have incurred approximately $1,100,000 of drought related costs. I would now like to discuss our contracted services business at American States Utility Services or ASUS.
During 2015, ASUS made significant progress on the resolution of outstanding price redeterminations with the U. S. Government. Specifically, ASUS resolved its price redeterminations at Fort Jackson, Joint Base Andrews and the military bases we serve in Virginia and an asset transfer at 2 of the Virginia bases during the 3rd quarter, resulting in contract modifications, which included retroactive operation and maintenance management fees. As a result, ASUS recorded approximately $3,500,000 of retroactive revenues and pre tax operating income during the Q3, of which $3,000,000 was for periods prior to 2015.
We expect the 4th price redetermination for Fort Bliss to be finalized in the Q1 of 2016. Filings for these price redeterminations, requests for equitable adjustment and contract modifications awarded for new projects provide ASUS with additional revenues and margin and the opportunity to consistently generate positive earnings. We also continue to work closely with the U. S. Government for contract modifications relating to potential capital upgrade work as deemed necessary for improvement of the water and wastewater infrastructure at the military bases.
In addition, we continue to actively engage in new proposals and expect the U. S. Government to release additional basis for bidding over the next several years. We remain very optimistic about the future of our contracted services business. Lastly, I'd like to turn our attention to dividends.
2015 marked the 61st consecutive year of increases in our annual dividend, placing us in an exclusive group of companies on the New York Stock Exchange who have achieved that result. In 2015, we increased quarterly dividend by 5.2%. Given American States' current low payout ratio compared to the companies we compete with for capital, our high shareholders' equity ratio as a percent of total capitalization and our earnings growth prospects, there is room to grow the dividend in the future. Before I close with my prepared remarks, I'd like to thank you for your interest in American States Water. And we'll now turn the call over to the operator for questions.
We will now begin the question and answer Our first question comes from Richard Verdi of Ladenburg. Please go ahead.
Hi, Bob and Eva. Good quarter and thank you for taking I just have one very quick question. Bob, on the past few calls and specifically I know on the last call, you had provided some framework surrounding the ASUS Group. And I should say it this way, last year on the 4Q call, you had stated that ASUS would look similar to the prior year and maybe down a little bit. Here we are and ASUS came out flat year over year.
And on the last call, you had indicated that maybe it could be down a little bit this year versus last year. So given that it ended up being flat this year, year over year, I mean, could that be the case again in 2016? Or could we see a modest drop in earnings from the ASUS unit this year?
Well, Richard, let's start with sort of with the earnings for 2015. We achieved $0.32 per share. We had included in that $0.32 $0.05 of retroactive O and M fees for prior years. So that would lead sort of one to believe that we may go down a little bit from 2015 to 2016. However, as you know, and I think many of the folks on the call know, in September, we received $50,000,000 in government funding new capital work at the bases we serve, which will largely be performed in 2016.
So this should allow us to increase our construction revenues in 2016 from the level we achieved in 2015. We do have the $0.05 retroactive that's sort of going away, but I think we can make some of that back through the construction additional construction revenues. So we're projecting an EPS contribution from ASUS of $0.28 to $0.32 per share for 20
16. Okay. That's very helpful. Thank you for that. I guess that's it.
Thank you, guys. Good quarter. I appreciate it.
Thank you, Richard. Thank you.
Our next question comes from Jonathan Reeder of Wells Fargo. Please go ahead.
Hey, good afternoon or good morning, I guess for you guys, Bob and Eva. Thanks for the guidance. First off, Bob, on ASUS, that's always helpful. Did I miss in your remarks that you said you had a settlement in the water general rate case? Is that accurate?
Or did I hear wrong?
That's correct. We had settled a number of our operating expenses. The outstanding items that we have remaining in the case that we went to hearings on was the entire capital budget and management compensation. So it's largely a capital related item.
Did you settle though the capital budget and compensation issues? Or those are still kind of litigated?
Yes, we litigated that during the summer and we're that's now been turned over to the administrative law judge to decide the outcome for those two items.
Okay. Sorry, I was confused if you had said you had gotten a comprehensive settlement now at this point, but okay. So we're expecting an outcome you said in Q2 then, right?
We believe so, yes.
Okay. And so with the new rates effective at the water utility, do you expect like your full year 2016 EPS to be higher or lower or about the same as the $1.19 $0.15 given your operating efficiencies were, I think, allowing the sub to earn above the allowed ROE in 2015?
Yes, that's a difficult question to answer without completely knowing what the rate case is going to come out with. We, as you know, put in our forecasted operating expenses and really without knowing where the decision comes out, it's difficult to project whether it will be higher or slightly lower than 20 15.
Okay. But it might be kind of similar, it sounds like, more than likely?
Yes. It could be similar. It's we've done just a great job in controlling expenses. And the folks at this company, all you what I've learned in my tenure as CEO is all you have to do is ask these folks to do things and they go and do it. And I couldn't be more impressed with what our organization has done over the last 4 or 5 years.
You make it sound so easy, Bob. Sure, it's not that easy. But
It's easier for me than it is for them.
Right. Do you think there's opportunities then to realize additional efficiencies over this next GRC cycle?
I believe there are, yes. I mean, I as you know, it gets a little tougher each time, but we've got some very innovative people at this company and they really have done a great job.
Yes. And I think as Bob mentioned, our 15 for Golden State Water, our 15 operating expenses excluding the depreciation and supply costs, basically not changed much from last year. So we'll continue to try to do our best to control our costs. And I think that's where the efficiency comes from.
Ultimately, when we do a great job controlling costs, it does, in fact, ultimately go back to our customers in the form of lower rate increases. And that's real important to us too. So I mean that's we're very focused on making sure our water rates are affordable.
Right. Would you like expect the GRC filing, did it
kind of contemplate those flat costs
in 2015? Or is that how you're kind of saying that this depends on where the expense levels shake out given how you ended the year?
Well, it does depend on where these expense levels shake out in terms of whether we can do better than that. I mean, it's it will be a challenge. But again, we have a lot of capability at the company that to take on those challenges.
All right. And then my last question, Eva, do you have what your authorized weighted average rate base was for 2015? And then what the GRC requests for 2016 is?
We for the 2016 as what we currently have stipulated, it was $725,000,000 for 2016. Filed with the PUC as our position right now. But as Bob mentioned, we are contesting the ORA is contesting the capital expenditure. So the $725,000,000 rate base is our position at this point.
Is that just for water or does that include the electric portion too?
Just water.
Okay.
We filed a rate case that had virtually no increase in rate. All we want to do here is maintain the system. And hopefully that will play with the administrative law judge. We're not sure whether it will or it won't. ORA, we were a ways apart with ORA on the CapEx budget.
So it was a little odd to me that they weren't a little easier to deal with on that, but particularly given that we have basically a flat rate request.
Okay. And then what was your authorized 2015 water rate base? How does that compare to that 7.25
20 15 authorized rate base, it's about 700 range. I can get you that number from our decision, Jonathan.
Okay. All right, great. That'd be appreciated. And that's all I have today. Thanks so much for the time.
Thank you, Jonathan.
Seeing no further questions, this concludes our question and answer session. I would now like to turn the conference back over to Bob Sprowls for any closing remarks.
Thank you, Carrie. I just want to wrap up today by thanking all of you for your participation on the call today and your continued interest and investment in American States Water Company. So thank you very much.
This concludes today's American States Water Company conference call. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.