Ladies and
gentlemen, thank you for standing by. Welcome to the American States Water Company Conference Call discussing the Q1 of 2012 Results. If you have not received a copy of this morning's earnings release, please call 909-394-3600, extension 651, and one will be faxed or emailed to you. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 2 p. M.
Pacific Time and run through Monday, May 14, 2012. After logging on to the website, click the Investors button at the top of the page. The archive is located just above the Stock Quote section. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session.
As a reminder, this call will be recorded and will be limited to no more than 1 hour. At this time, I would like to turn the call over to Eva Tang, Chief Financial Officer of American States Water Company.
Thank you, Emily. Welcome, everyone, and thank you for joining us today. On the call with me is Doug Preston and CEO, Bob South. I would like to first remind you that matters discussed during the 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 19 95. Please review a description of the company's risks and uncertainties in our most recent Form 10 ks and Form 10 Q on file with the Securities and Exchange Commission.
With that, 1st quarter results with a quarter over quarter increase in earnings from continuing operations of 43% to $0.50 per share compared to $0.37 per share for the Q1 of 2011. Net income for the Q1 of 2012 increased by 2 $500,000 to $10,100,000 compared to the same period last year. Net income from continuing operation also increased by $3,200,000 or 45.4 percent compared to the 3 months ended March 31, 2011. Our strong financial performance is further demonstrated by increases in our revenues. For the Q1 of 2012, operating revenues increased by $12,300,000 or 13.1 percent to 1 $106,600,000 This increase is mainly driven by an increase in revenues services operating under American States Utility Services or SUS.
For the Q1 ended March 31, 2012, SUS's revenue increased by $10,600,000 to $29,900,000 compared to the same period last year. It was primarily due to increased construction activity at the Fort Bragg military base, including a major water replacement project due to better than expected weather during the Q1 as U. S. Accelerated surge and construction work originally scheduled for later in 2012 at Fort Bragg. Water revenues at Golden State Water also increased by $1,600,000 or 2.5%, primarily due to the 3rd year rate increases approved by the California Public Utilities Commission or CPUC for regions 23 effective January 1, 2012.
Our supply costs were $21,100,000 for the Q1 of 2012, which was similar to the adopted level approved by the CPUC. As you know, any changes in purchased water, power purchased for pumping and pump taxes for the water segment were covered by the modified cost balancing account or the NCDA. The electric segment also has a full cost balancing account to track the changes in purchased watt, purchased the power and transmission related cost. Other operation expenses increased slightly to $7,400,000 for the Q1 of 2012 from 6,900,000 conservation related costs and bag bag expenses. The increases were partially offset by a decrease in pre contract cost at ASUS, incurred for preparation and the middle of proposals for potential construction work.
Administrative and general expenses for the quarter decreased by $1,800,000 as compared to the Q1 of 2011. Included in this decrease is the recognition of CPUC's approval in of 2012 of a Golden State Water's application allowing Bear Valley Electric to recover 1.2 $1,000,000 of previous incurred outside service costs in connection with our efforts to secure renewable energy. As a result, we recorded a reduction in our services cost with a corresponding regulatory effect. There was also an overall decrease in legal and other to $10,500,000 due to capital additions from 20 11. Expense decreased by $395,000 to $3,300,000 for the Q1 of 2012 due to a decrease in the need for maintenance at our facilities at the military bases under ASUS.
Property and other taxes for the quarter increased by $553,000 due to increases in franchise fee and property taxes in our water utility segment. Our construction expenses for contracted services increased by $8,100,000 comparing the Q1 of 2012 to the same period in 2011. This increase, which is consistent with our increased construction revenue, is primarily due to continued progress made on the water and wastewater pipeline replacement project at Fort Bragg. As I discussed earlier, better than expected weather conditions allowed SUS to expedite works on this capital project that was originally anticipated to be performed during the spring summer months of 2012. This pipeline replacement project is expected to be completed in 2014.
Moving on to non operating income and expenses. Interest expense net of interest income for the Q1 of 2012 increased by 2 $148,000 as compared to the same period in 2011. The increase was mainly due to the issuance of $62,000,000 notes in April of 2011. This increase was partially offset by the the effect of a reduction in short term borrowings as compared to the same period in 2011. For the quarter of 2012, income tax expense increased to $7,600,000 as compared to 5,500,000 dollars for the same period of 2011.
This increase is consistent with the increase in pre tax income as a result of our strong performance this quarter. Turning our attention to cash flow. Net cash provided by operating as compared to $20,800,000 for the same period in 2011. The 5 point 8 and the collection of $3,400,000 in surcharges to recover the water revenue adjustment mechanism or RAN balances. We continue to file for recovery of our RAN balances in a timely manner.
In April 2012, the CPG approved surcharges to recover 20.6 $1,000,000 of regulatory assets recorded in the 20.11 ramp net of the modified cost balancing account. The approved surcharges allow for recovery period of 24 months for most of our water customer service areas. Surcharges are currently in place to recover the WAM and modified cost balancing account balances from 2,009, 2010 and 2011, totaling approximately $60,000,000 of which 24,000,000 dollars has been collected through March 12. During the 3 months ended March 31 this year, our RAN balances grew at a slower rate as compared to prior year's Q1 due to an increase in customer consumption. Fieldwater consumption increased by 7% due to lower precipitation compared to prior year's Q1.
We experienced a much drier Q1 this year and as a result saw an increase in customer consumption for the first time in a while. Bob will discuss a decision related to the RAN recovery period later in the call. Moving on to our capital expenditures. Golden State Water invested 14 $500,000 in capital projects in the Q1 of 2012, which is on track with its 2012 capital improvement plan of $70,000,000 to $80,000,000 Cash used in financing activities increased by $1,900,000 compared to the same quarter of prior year due to the pay down of our short term borrowings facilitated by our increase in cash flow from operations. For additional details with regards to our earnings and financial information, please refer to our earnings release and Form 10 Q issued earlier today.
And with that, I'd now like to turn the call over to Bob.
Thank you, Eva. Good afternoon, ladies and gentlemen. I'm pleased to report another quarter with growing revenue, earnings and cash. I'm also pleased to announce that on May 2, 2012, the Board of Directors of American States Water approved a quarterly cash dividend of $0.28 per share on the common shares of the company. This marks the 300 and 4th consecutive dividend payment by the company.
Our ability to invest in Golden State Waters infrastructure to serve our customers is driven by our ability to earn an adequate return for our shareholders. We continue to focus on growing our dividend to achieve a 5 year compound annual growth rate of at least 5% over the long term. Given American States low payout ratio compared to its peers, there is room to grow the dividend. In terms of California's regulatory environment, all 3 PUC commissioners appointed in 2011 have now been confirmed by the State Senate. We believe the forward looking test years and mechanisms to decouple revenue from sales offered by California utility regulation allow Golden State Water to provide consistent returns.
We are very focused on getting through the regulatory process for the general rate case filed in July 2011 for all of our water regions and the general office. The evidentiary hearings for this case began last Friday and are scheduled to be completed this week. New rates as approved by the California PUC will be effective January 1, 2013. In February of this year, we filed our general rate case application for Bear Valley Once approved, we expect new electric rates to become effective in the Q1 of 2013. To recap Golden State Water's cost of capital proceeding on file with the CPUC, we along with 3 other water utilities entered into a settlement agreement with the PUC's division of ratepayer advocates in November of 2011.
If approved by the PUC, the settlement will authorize a return on equity of 9.99% and a rate making capital structure for Golden State Water of 55 percent equity and 45% debt. The resulting weighted cost of capital or rate of return on rate base is 8.64%. A decision on this filing is expected by the end of the Q2 of 2012. When finalized, the rate of return authorized by the PUC will be implemented into water rates retroactive to January 1, 2012. With that, I will discuss a decision related to the water revenue adjustment mechanism or RAM for short, recently approved by the California PUC.
In responding to a joint application filed by Golden State Water and other California water utilities, the PUC issued a decision in April, which sets the recovery period for RAM balances net of the modified cost balancing account or MCBA that are up to 15% of adopted annual revenues at 18 months or less. Most of our annual revenues. If our future RAM under collections continue this trend, we would not be required to defer any revenue as the collection period would be within the 24 month window as required by accounting standards. The final decision also sets the cap on total net RAM and MCBA the cap on total net RAM and MCBA surcharges of 10% of the last authorized revenue requirement in any given calendar year. For Golden State Water, this cap will first be applied to its 2013 RAM balances, which will be filed in early 2014.
The cap requirement does not impact Golden State Water's 2012 prior year RAM balances. The decision also requests us to provide testimony in our current general rate case to address the reasonableness of the RAM mechanism. I'd like to point out that the consumption levels used in our pending water rate case were based on more recent annual consumption trends, which are lower than those approved in the current rate cycle. As a result, beginning with 20 13, we don't anticipate as significant of a variance between actual and forecasted sales levels as we have seen thus far in the RAM and don't expect that the 10% cap for years 2013 and beyond would limit our ability to recover RAM shortfalls within the 18 months requirement. Let's turn our discussion to the company's contracted service segment, American States Utility Services or ASUS.
Like Golden State Water Company, ASUS is focused on maintaining a customer service culture and we continue to build our at the various military bases, especially at Fort Bragg, as we continue to make progress on the water and waste water pipeline replacement project along with other capital upgrades. We have also been awarded new contract modifications by the U. S. Government for the various military bases in which we serve, which will result in additional construction the majority of this new construction work during the remainder of 2012. We currently have no significant requests for equitable adjustments outstanding with the U.
S. Government. However, various price redeterminations for managing the assets at the military bases are currently in negotiation with the government. I'd like to provide a brief update on the status of these for each military privatization subsidiary. The U.
S. Government is currently reviewing the 1st price redetermination for Fort Bragg in North Carolina and Fort Jackson in South Carolina, which were filed in December 2011 and February 2012 respectively. Interim price increases are in place for both military bases. We continue to work with the U. S.
Government to resolve our first price redetermination request for Andrews Air Force Base in Maryland. We expect to complete this during the Q2 of 2012, an interim price increase is currently in place. We have completed our 1st price redetermination for Fort Lee, Fort Eustis and Fort Story in Virginia. The second price redetermination is expected to be submitted to the U. S.
Government in the Q2 of 2012. And as part of a 2010 settlement with the U. S. Government, we waived our first and second price redeterminations for managing Fort Bliss in Texas. The next price redetermination for Fort Bliss is scheduled to be filed by July 1, 2012.
ASUS is working closely with the U. S. Government to provide timely submittal and resolution to these price continued support and interest in the company.
We will now entertain any questions you may have about the information presented today. We will begin with Michael Bloomberg of Ladenburg Thalmann.
Hi, good morning.
Hi, Michael.
Good morning, Michael.
I just want to be clear on this Fort Bragg pull forward of construction. Are you I understand that you pull forward in the quarter from later in the year, but are you expecting that you'll pull forward projects from 2013 into 2012 as you go throughout the remainder of the year to replace the projects that you've already completed
there?
It's not clear at this point whether work will be pulled forward from 20 13. But clearly, we've had a lot of work done in the Q1 and work will continue on that project.
Michael, our commitment to the government is to complete this in 2014. So if we have other activity going on at the same basis, we may move around the crew to just do
that. Got it. Got it. Okay. And then just one follow-up on the regulated ops, if I could.
We were a bit surprised by the increased consumption from your customers that are not on tiered rates and the benefit that caused in the quarter. Can you just update us on the number of customers and the size or the portion of your revenue that is attributable to those customers?
I think in general, Michael, we I think about 95% of our entire water customers are on ramp. So about 4% to 5% is not on ramp. Also the service charge is fixed. It doesn't impact by the consumption. Ramp customers.
Okay. And any idea what percentage those customers' consumption was up versus last year?
I think in general the Q1 consumption increased by 7% versus the last year Q1.
Okay. All right. Great. That's all I had. Thank you very much.
You're welcome.
Our next question comes from Heiko Dorer of Robert W. Baird. Please go ahead.
Good morning. Thank you. Congrats on a solid quarter.
Thanks Heiko. Thank you.
I wanted to go back to this Fort Bragg contract. Is there any way you can share with us what percentage of the project is completed this contract that goes until 2014, so we might be able to quantify how much revenue is attached to that as we look ahead?
Difficult to do at this point. At this point, we believe that it's just a sort of a pull forward. So the work that was sort of projected for the entire year, we still think we're on target for that. Now as we move through the quarters, we may find out we'll obviously have a better appreciation for where this project is. But so far, it's a function of better weather conditions and we're just ahead of schedule.
Can you maybe share with us on a year over year basis what level of contribution you expect from ASUS, either percentage of whole or what kind of an earnings year over year improvement we would expect to see as a result of what's occurred in the Q1 already?
Well, as you know, ASUS had reported $0.38 per share contribution in 2011 with very few large one time adjustments. We believe ASUS has a good chance of posting another year of solid earnings, particularly with such a strong first quarter. It's difficult to say with much certainty at this time whether we're going to exceed last year, but we do expect very solid performance out of ASUS.
Okay. That's helpful. Thanks.
Okay. Thank you, Heiko.
At this
time, I'm not seeing any questions. I'd like to turn it back over to Mr. Sprouse for any closing remarks.
Hey, Thank you, Emily. Again, I just want to thank you all for your participation today and for your continued interest and investment in American States Water Company,
As a reminder, the call will be archived on our website and can be replayed beginning Monday, May 7, 2012 at 2 p. M. Eastern Pacific Time and will run through Monday, May 14, 2012. After logging on to the website, click the Investors button at the top of the page. The archive is located just above the stock quotes section.
Thank you for your participation.