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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 Fiscal Year Ended DECEMBER 31, 1994 Commission file number 0-1121
SOUTHERN CALIFORNIA WATER COMPANY
(Exact Name of Registrant as specified in its charter)
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<S> <C>
CALIFORNIA 95-1243678
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
630 EAST FOOTHILL BOULEVARD, SAN DIMAS, CALIFORNIA 91773
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (909) 394-3600
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, $2.50 PAR VALUE
Title of Each Class
Indicate by check mark whether the Registrant (1) 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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. 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 [x]
The aggregate market value of the total voting stock held by non-affiliates of
the Registrant was approximately $136,674,000 on February 28, 1995. The
closing price per Common Share on that date, as quoted in the Western Edition
of The Wall Street Journal, was $17.375. Voting Preferred Shares, for which
there is no established market, were valued on February 28, 1995 at $1,257,000
based on a yield of 7.60%. As of February 28, 1995, the number of the
Registrant's Common Shares, $2.50 Par Value, outstanding was 7,845,092.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Shareholders for the year
ended December 31, 1994 as to Part I, Items 1 and 2, and Part
II, Items 5, 6, 7 and 8, in each case, as specifically
referenced herein.
(2) Portions of the Proxy Statement filed with the Securities and
Exchange Commission on or about March 17, 1995 as to Part III,
Items 10, 11, 12 and 13, in each case as specifically
referenced herein.
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SOUTHERN CALIFORNIA WATER COMPANY
INDEX
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Page No.
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PART I
Item 1: Business 1 - 5
Item 2: Properties 5 - 7
Item 3: Legal Proceedings 7
Item 4: Submission of Matters to a Vote of Security Holders 7
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 8
Item 6: Selected Financial Data 8
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operation 8
Item 8: Financial Statements and Supplementary Data 8 - 9
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 9
PART III
Item 10: Directors and Executive Officers of the Registrant 9
Item 11: Executive Compensation 9
Item 12: Security Ownership of Certain Beneficial Owners and Management 9
Item 13: Certain Relationships and Related Transactions 9
PART IV
Item 14: Exhibits, Financial Schedules and Reports on Form 8-K 10 - 14
Signatures 15
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PART I
ITEM 1. BUSINESS
GENERAL
Southern California Water Company (the "Registrant") is a public
utility company engaged principally in the purchase, production, distribution
and sale of water. The Registrant also distributes electricity in one
community. The Registrant, regulated by the California Public Utilities
Commission ("CPUC"), was incorporated in 1929 under the laws of the State of
California as American States Water Services Company of California as the
result of the consolidation of 20 water utility companies. From time to time,
additional water companies and municipal water districts have been acquired and
properties in limited service areas have been sold. The Registrant's present
name was adopted in 1936.
At December 31, 1994, the Registrant, organized into three regions
operating within 75 communities and 10 counties in the State of California,
provided water service in 17 separate customer service areas and one electric
service area. Total population of the service areas on December 31, 1994 was
approximately 1,000,000. As of that date, about 67% of the Registrant's water
customers were located in the greater metropolitan areas of Los Angeles and
Orange Counties. The Registrant provides electric service to the City of Big
Bear Lake and surrounding areas in San Bernardino County. All electric energy
sold is purchased from Southern California Edison Company.
The Registrant served 237,905 water customers and 20,331 electric
customers at December 31, 1994, or a total of 258,236 customers compared with
257,116 total customers at December 31, 1993 and 255,966 total customers at
December 31, 1992. For the year ended December 31, 1994, approximately 91% of
the Registrant's operating revenues were derived from water sales and
approximately 9% from the sale of electricity, ratios which are generally
consistent with prior years. Operating income before taxes on income of the
electric district was 7% of the Registrant's total operating income before
taxes. The material contained in Note 11 - Business Segments - of the Notes to
Financial Statements included in the 1994 Annual Report to Shareholders
provides additional information on business segments while Note 12 - Selected
Quarterly Financial Data (Unaudited) - of the Notes to Financial Statements
included in the 1994 Annual Report to Shareholders provides information
regarding the seasonal nature of the Registrant's business. The Notes to
Financial Statements are included herein by reference.
During 1994, the Registrant supplied, from all sources, a total of
185,490 acre-feet of water compared to 178,196 acre feet supplied in 1993 and
172,500 acre feet for 1992. Of the total water supplied in 1994, approximately
43% was purchased from others, principally from member agencies of the
Metropolitan Water District of Southern California ("MWD"), and 1.5% was
furnished by the Bureau of Reclamation under contract, at no cost, for the
Registrant's Arden-Cordova customer service area and to the Registrant's
Clearlake customer service area by prescriptive right to water extracted from
Clear Lake. The remainder of water supplied was produced from the Registrant's
owned wells.
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
jurisdictions which include most of coastal Southern California from the County
of Ventura south to and including San Diego County. The Registrant has 52
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 the significant precipitation thus far through the 1994
- 1995 water year bode well for adequate water supplies at least through 1995.
The price of water purchased from MWD, however, is expected to continue to
increase. MWD announced a 7% rate adjustment on March 8, 1994, effective for
the 1994-1995 fiscal year. In those districts of the Registrant which pump
groundwater, overall
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groundwater conditions remain at adequate levels allowing the Registrant to use
groundwater in its resource mix and decrease its dependence on increasingly
expensive purchased water.
RATES AND REGULATION
The Registrant is subject to regulation by the CPUC as to its water
and electric business and properties. The CPUC has broad powers of regulation
over public utilities with respect to service and facilities, rates,
classifications of accounts, valuation of properties and the purchase,
disposition and mortgaging of properties necessary or useful in rendering
public utility service. It also has authority over the issuance of securities,
the granting of certificates of convenience and necessity as to the extension
of services and facilities and various other matters.
Water rates of the Registrant vary among its ratemaking districts due
to differences in operating conditions and costs. Each ratemaking district is
considered a separate entity for rate-making purposes, although the Registrant
is considering consolidation of many of its present ratemaking districts in an
effort to reduce administrative costs and, consequently, expenses for the
ratepayers. The Registrant continuously monitors operations in all of its
districts so that applications for rate changes may be filed, when warranted,
on a district-by-district basis in accordance with CPUC procedure. Under the
CPUC's practices, rates may be increased by three methods - general rate
increases, offsets for certain expense increases and advice letter filings
related to certain plant additions.
General rate increases typically are for three-year periods and include "step"
and "attrition" increases in rates for the second and third years,
respectively. General rate increases are established by formal proceedings in
which the overall rate structure, expenses and rate base of the district are
examined. Rates are based on estimated expenses and capital costs for a
forward two-year period. A major feature of the proceedings is the use of an
attrition mechanism for setting rates for the third of the three-year test
cycle assuming that the costs and expenses will increase in the same proportion
over the second year as the increase projected for the second year over the
first year. The step rate increases for the second and third years are allowed
to compensate for the projected cost increases, but are subject to tests
including a demonstration that earnings levels in the district did not exceed
the latest rate of return authorized for the Registrant. General rate
proceedings typically take about twelve months from the filing of an
application to the authorization of new rates.
Rate increases to offset increases in certain expenses such as costs
of purchased water, energy costs to pump water, costs of power purchased for
resale and groundwater production assessments are accomplished through an
abbreviated "offset" procedure that typically takes about two months. CPUC
regulations require utilities to maintain balancing accounts which reflect
differences between specific offset cost increases and the rate increases
authorized to offset those costs. The balancing accounts are subject to
amortization through the offset procedure or through general rate decisions.
An advice letter, or rate base offset, proceeding is generally
undertaken on an order of the CPUC in a general rate proceeding wherein the
inclusion of certain projected plant facilities in future rates is delayed
pending notification that such facilities have actually been placed in service.
The advice letter provides such notification and, after CPUC approval, permits
the Registrant to include the costs associated with the facilities in rates.
During 1994, 1993 and 1992, the Registrant's rates for all water
ratemaking districts were increased, among other reasons, to directly offset
increases in certain expenses, principally purchased water, as well as
increased levels of capital improvements. Rates in the Registrant's Bear
Valley Electric customer service area have not been changed during the last
three years. The table on the following page lists information on rate
increases, by major type, granted by CPUC decisions for the Registrant for the
last three years:
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<TABLE>
<CAPTION>
Supply Balancing General & Rate Base
Cost Account Step Rate Offset
Year Offset Amortization Increases And Others Total
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<S> <C> <C> <C> <C> <C>
1992 $2,212,900 $ 327,300 $7,767,700 $ 692,300 $11,000,200
1993 $ 105,500 $ (67,900) $2,270,700 $ 50,000 $ 2,358,300
1994 $9,439,800 $2,847,700 $3,084,600 $(2,070,800) $13,301,300
</TABLE>
The Registrant filed an application for general rate increases in six
of its water operating districts in May, 1992. In June, 1993, the CPUC issued
its decision and the Registrant requested rehearing on two matters in that
decision - the return on rate base and an authorized rate increase for the
Registrant's Bay Point water district. The CPUC granted the Registrant's
request for rehearing on the two issues and established an interim rate of
return on rate base of 9.50% applicable to certain attrition, step rate filings
and other earnings test filings with respect to the Registrant's other
operating districts.
Prior to commencement of hearings on these two matters, the Registrant
and the Division of Ratepayer Advocates ("DRA") of the CPUC stipulated to a
rate of return on common equity of 10.10%. In addition, DRA agreed that an
increase in rates applicable to the Registrant's Bay Point water district was
appropriate, with certain modifications as to the level of rate base. A final
decision on these two matters was issued in June, 1994 which upheld the
stipulated rate of return on common equity and granted a small increase in
water rates applicable to the Registrant's Bay Point water district.
The reduced return on common equity contributed to reduced earnings
and cash flow for 1994 and may further impact 1995. Consequently, the
Registrant has deferred certain capital projects that have not been authorized
by the CPUC. The Registrant intends, however, to continue with capital
projects previously authorized by the CPUC in prior rate cases.
In March, 1994, the CPUC authorized an annualized increase in the
Registrant's revenues of approximately $12 million to recover previously
under-recovered supply costs, including purchased water, electric energy and
groundwater production assessments. While these increased revenues did not
produce additional earnings, they significantly increased the Registrant's cash
flow. However, due to existing CPUC-required earnings tests, the Registrant
was required to reduce base rates in two water operating districts to reflect
the 9.50% rate of return discussed previously. Step and attrition year rate
increases authorized in previous general rate cases resulted in additional
annualized revenues of approximately $1.6 million.
The Registrant filed applications with the CPUC in June, 1994 to
increase rates, on a total-Company basis, by approximately $2.3 million to
recover costs associated with implementation of certain recommendations made in
a recently completed management audit authorized by the CPUC. In September,
1994, the DRA issued its report on the Registrant's application and recommended
a $1.1 million increase in rates which, after further review, was increased to
approximately $1.3 million. The DRA also provided the opportunity for future
recovery of the majority of requested amounts not currently authorized in
rates. In February, 1995, the CPUC issued its decision upholding the prior
decision of its Administrative Law Judge that the Registrant's application be
dismissed without prejudice and that the Registrant is required to seek the
same or similar relief in general rate case applications.
On July 29, 1994, the Registrant filed for a general rate increase in
one of its water operating districts. A final decision with respect to this
filing is expected during the first half of 1995. The Registrant filed for
general rate relief, including step and attrition increases, in six of its
water operating districts in March, 1995. These filings also included
approximately $2.2 million for recovery of costs associated with implementation
of recommendations included in the management audit. The Registrant anticipates
filing for general rate relief in its electric district in April, 1995.
However, the Registrant does not anticipate significant rate relief from such
filings until early 1996. As a result,
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earnings are expected to remain at or possibly below levels experienced in
recent years. Moreover, no assurance can be given that the CPUC will
authorize any or all of the rates for which the Registrant applies.
In June, 1994, the CPUC concluded its own investigation into the
financial and operational risks of CPUC-regulated water utilities. As a result
of the decision in that proceeding, the Registrant was authorized to add
interest, at the 90-day commercial paper rate, on amounts in its cost supply
balancing accounts. In addition, by application or as part of a general rate
case filing, the Registrant may seek authorization to add to its water quality
memorandum accounts prospective water quality costs that are beyond the
immediate control of the Registrant.
INDUSTRIAL RELATIONS
The Registrant had 467 employees as of December 31, 1994. Sixteen
employees in the Registrant's Bear Valley Electric customer service area were
members of the International Brotherhood of Electrical Workers ("IBEW"). The
present labor agreement with the IBEW is effective to June 1, 1996. Fifty-nine
of the Registrant's water utility employees in its Metropolitan customer
service area are unionized under the Utility Workers of America ("UWA"). The
collective bargaining agreement with the UWA expires March 31, 1996. The
Registrant has no other unionized employees.
ENVIRONMENTAL MATTERS
The United States Environmental Protection Agency ("USEPA"), under
provisions of the Safe Drinking Water Act as amended (the "SDWA"), is required
to establish maximum contaminant levels ("MCL's") for the 83 potential drinking
water contaminants initially listed in the SDWA in 1992, and for an additional
25 contaminants every three years thereafter. The California Department of
Health Services, acting on behalf of the USEPA, administers the USEPA's
program. The Registrant currently tests its wells and water systems for more
than 90 contaminants. Water from wells found to contain levels of contaminants
above the established MCL's has either been treated or blended before it is
delivered to customers.
The Registrant continues to implement the lead and copper rules as
promulgated by the USEPA. The second round of sampling for small water systems
was completed with second annual reduced monitoring in effect for medium-sized
and large water systems. All 41 of the Registrant's water systems are in
compliance with the lead and copper rules.
Another set of standards for contaminants will be proposed in 1995 and
will be referred to as "Phase VI". The Registrant believes that the new MCLs
will include a primary standard for manganese of approximately 200 parts per
billion which will affect some of the Registrant's systems.
The Registrant will also be subject to new rules regarding MCLs for
radon and arsenic pending implementation by the USEPA. With respect to the
radon rule, the USEPA did not meet its October 1, 1993 deadline for
implementation of the rule. As a result, the radon rule was to be considered
as part of the re-authorization of the SDWA presently before the United States
Congress. Congress adjourned prior to taking any action with respect to the
radon rule. The Registrant believes the USEPA will consequently establish a
MCL of 200 pico-curies per liter, which would affect nearly 75% of the
Registrant's wells. The Registrant is currently conducting studies to
determine the best treatment for the affected systems which could range from
simple aeration to filtration through granulated activated carbon.
Implementation of the MCL, however, is postponed for at least a year pending
budget appropriation of funds for the USEPA to monitor compliance with the
rule. The Registrant is currently unable to predict what ultimate effects, if
any, this rule will have on its financial condition or results of operation
until the MCL are established.
The USEPA is continuing its review of data before implementing the
arsenic rule. In January, 1995, the USEPA filed in U.S. District Court for a
six-year delay of the arsenic rule. While the Registrant is unable to predict
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the outcome of this action, it is believed that, if required to do so without
further research, the USEPA will establish a MCL near 2 to 5 micrograms per
liter. At this level, nearly all of the Registrant's wells and water systems
will be affected. Depending on the circumstances associated with each
individual well and water system, compliance with such a standard could cause
the Registrant to implement costly wellhead remedies such as ion exchange or,
alternatively, to purchase additional water supplies already in compliance for
blending with well sources. The Registrant is currently unable to predict what
ultimate effects, if any, this rule will have on its financial condition or
results of operation until the MCL is established.
The Registrant will also be subject to the new USEPA rules concerning
Disinfection/Disinfection By-Products and the Enhanced Surface Water Treatment
Rule. Stage 1 of the Disinfection/Disinfection By-Products Rule has been
published with an effective date of June, 1998. This rule reduces
tri-halomethane contaminants from 100 micrograms per liter to 80 micrograms per
liter and affects only two of the Registrant's systems. As part of its January,
1995 filing in U.S. District Court, the USEPA requested an extension of time to
complete this rule.
The proposed Information Collection Rule, originally expected in
October, 1994 and which will affect only two of the Registrant's water systems
with minor paperwork costs, has been temporarily postponed.
Since promulgation of the SDWA, the Registrant has experienced
increased operating costs for testing to determine the levels, if any, of the
contaminants in the Registrant's sources of supply and additional expense to
lower the level of any contaminants found to a level that meets the MCL
standards. Such costs and the control of any other pollutants may cause the
Registrant to experience additional capital costs as well as increased
operating costs. The rate-making process provides the Registrant with the
opportunity to recover capital and operating costs associated with water
quality, and management believes that such costs are properly recoverable,
although no assurance can be given that the CPUC will authorize all or any of
such costs in rates.
There have been no material environmental matters which affect the
Registrant's Bear Valley Electric Service area.
ITEM 2 - PROPERTIES
FRANCHISES, COMPETITION, ACQUISITIONS AND CONDEMNATION OF PROPERTIES
The Registrant holds the required franchises from the incorporated
communities and the counties which it serves. The Registrant holds
certificates of public convenience and necessity granted by the CPUC in each of
the customer service areas it serves.
The business of the Registrant is substantially free from direct
competition with other public utilities, municipalities and other public
agencies. The Registrant'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 provide for the acquisition of
public utility property by governmental agencies through their power of eminent
domain, also known as condemnation. The Registrant has been, within the last
three years, involved in activities related to the condemnation of its Bay
Point water district by the Contra Costa Water District. The Registrant and
the Contra Costa Water District have settled all matters related to this
action. Note 8 - Condemnations and Sales of Operating Properties - of the
Notes to Financial Statements contained in the 1994 Annual Report to
Shareholders, incorporated herein by reference, describes in greater detail the
terms of the settlement agreement.
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WATER PROPERTIES
As of December 31, 1994, the Registrant's physical properties
consisted of water transmission and distribution systems which included
approximately 2,550 miles of pipeline together with services, meters and fire
hydrants and approximately 437 parcels of land, generally less than 1 acre
each, on which are located wells, pumping plants, reservoirs and other water
utility facilities. The Registrant's 41 water systems and operating properties
have been maintained and improved in the ordinary course of business. As of
December 31, 1994, the Registrant owned and operated 271 active wells equipped
with pumps with an aggregate capacity of approximately 180 million gallons per
day. Other production facilities include sixteen water treatment plants - five
that treat surface water and eleven that treat groundwater. The Registrant has
52 connections to the water distribution facilities of the MWD and other
municipal water agencies. The Registrant's storage reservoirs and tanks have
an aggregate capacity of approximately 92 million gallons. There are no dams
in the Registrant's system. The following table provides, in greater detail, a
breakdown of selected water utility plant by customer service area:
<TABLE>
<CAPTION>
Pumps Distribution Facilities Reservoirs
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District Well Booster Mains Meters Hydrants Tanks Capacity
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<S> <C> <C> <C> <C> <C> <C> <C>
(ft.) (1000 gal.)
Arden-Cordova 27 15 440,928 2,150 1,092 3 2,000
Barstow 27 34 852,730 12,016 956 13 5,025
Bay Point 1 14 122,157 4,299 278 7 4,046
Calipatria-Niland - 9 133,651 666 59 4 300
Claremont 27 36 705,197 12,304 1,139 18 17,367
Clearlake - 12 185,774 2,465 632 4 867
Desert 19 24 742,148 6,514 552 12 1,500
Los Osos 10 10 195,809 3,272 149 8 1,423
Metropolitan 70 83 4,487,638 122,888 6,792 44 24,263
Ojai 4 13 233,595 2,615 340 6 1,536
Orange County 30 37 2,084,328 45,387 4,207 16 11,713
San Dimas 12 38 1,173,531 16,759 805 14 10,143
San Gabriel Valley 22 10 543,613 10,569 765 3 1,520
Santa Maria 29 25 934,389 14,696 165 8 3,238
Simi Valley 1 19 457,928 13,004 788 6 6,210
Wrightwood 8 6 211,760 3,525 65 7 1,546
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Total 287 385 13,505,176 273,129 18,784 173 92,697
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</TABLE>
ELECTRIC PROPERTIES
The Registrant's electric properties are all located in the Big Bear
area of San Bernardino County. As of December 31, 1994, the Registrant
operated 28.7 miles of overhead 34.5 KV transmission lines, 0.6 miles of
underground 34.5 KV transmission lines, 172.4 miles of 4.16 KV or 2.4 KV
distribution lines, 39.5 miles of underground cable and 14 sub-stations. There
are no generating plants in the Registrant's system.
OFFICE BUILDINGS
The Registrant's general offices are housed in a single-story office
building located in San Dimas, California. The land and the building, which
was completed and occupied in early 1990, are owned by the Registrant. The
Registrant also owns and occupies certain offices located in its customer
service areas while other such offices are housed in leased premises.
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MORTGAGE AND OTHER LIENS
During 1993, the Registrant redeemed all outstanding First Mortgage
Bonds and the lien of an indenture securing the Registrant's properties was
released. As of December 31, 1994, the Registrant had no mortgage debt
outstanding and its properties were free and clear of any encumbrances or
liens.
FINANCING OF CONSTRUCTION EXPENDITURES
The Registrant's construction program is designed to ensure its
customers high quality service. The Registrant has 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, the Registrant upgrades its
electric and water supply facilities and is aggressively scheduling meter
replacements in line with CPUC requirements.
The Registrant anticipates net capital expenditures of approximately
$21,800,000, $30,200,000 and $30,600,000 in 1995, 1996 and 1997, respectively.
During 1994, the Registrant issued no common equity through either a
public offering or a private placement or through its Dividend Reinvestment and
Common Share Purchase Plan or 401-k Plan. In January, 1994, the Registrant
issued 39,597 Common Shares pursuant to the Merger Agreement between the
Registrant and Lemon Heights Mutual Water Company.
During 1993, the Registrant issued 1,107,000 Common Shares in two
separate public offerings for aggregate net proceeds of $23,935,000. The net
proceeds were applied against then outstanding short-term bank borrowing
incurred to temporarily finance construction expenditures.
The Registrant issued 47,828 and 28,416 Common Shares through its
Dividend Reinvestment and Common Share Purchase Plan for the years ended
December 31, 1993 and 1992, respectively. In addition, the Registrant issued
7,741 and 7,102 Common Shares in the two years ended December 31, 1993 and
1992, respectively, through its 401-k Plan..
In May, 1994, the Registrant sold the $13,000,000 in long-term debt
remaining under its Medium Term Note Program. During 1993, the Registrant
issued $37,000,000 in long-term debt under its Medium Term Note Program, the
proceeds of which were used solely to refinance existing higher coupon debt.
In 1992, the Registrant entered into a $2,247,000 fixed rate obligation due
2013 for financing construction of a new reservoir serving one of the
Registrant's water operating districts.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Registrant or any
of its subsidiaries is a party or of which any of their properties is the
subject.
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 -
Information responding to Item 5(a) is included in the 1994
Annual Report to Shareholders, under the caption "Trading of
Stock" and located on page 30, filed by the Registrant with
the Commission pursuant to Regulation 14A, and is incorporated
herein by reference pursuant to General Instruction G(2).
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON SHARES -
As of February 28, 1995, there were 5,670 holders of record of
Common Shares.
(c) FREQUENCY AND AMOUNT OF ANY DIVIDENDS DECLARED AND DIVIDEND
RESTRICTIONS
Information responding to Item 5(c) is included in the 1994
Annual Report to Shareholders, under the caption "Trading of
Stock" and located on page 30, filed by the Registrant with the
Commission pursuant to Regulation 14A, and is incorporated
herein by reference pursuant to General Instruction G(2).
For the last three years, the Registrant has paid dividends
on its Common Shares on March 1, June 1, September 1 and
December 1.
Additional information responding to Item 5(c) is included in
the 1994 Annual Report to Shareholders, under Note 3 captioned
"Common Share Dividend Restriction" located on Page 25 of the
Notes to Financial Statements, filed by the Registrant with the
Commission pursuant to Regulation 14A, and is incorporated
herein by reference pursuant to General Instruction G(2).
ITEM 6. SELECTED FINANCIAL DATA
Information responding to Item 6 is included in the 1994 Annual Report
to Shareholders, in the section entitled "Financial Information" under the
caption "Statistical Review from 1990 to 1994" located on Page 29, filed by the
Registrant with the Commission pursuant to Regulation 14A, and is incorporated
herein by reference pursuant to General Instruction G(2).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Information responding to Item 7 is included in the 1994 Annual Report
to Shareholders, under the caption "Management's Discussion and Analysis"
located on Pages 13 through 16, filed by the Registrant with the Commission
pursuant to Regulation 14A, and is incorporated herein by reference pursuant to
General Instruction G(2).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information responding to Item 8 is included in the 1994 Annual Report
to Shareholders, under the following captions located on Pages 18 through 28,
filed by the Registrant with the Commission pursuant to Regulation 14A, and is
incorporated herein by reference pursuant to General Instruction G(2).
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Balance Sheets - December 31, 1994 and 1993
Statements of Capitalization - December 31, 1994 and 1993
Statements of Income - for the years ended December 31, 1994, 1993 and
1992
Statements of Changes in Common Shareholders' Equity - for the years
ended December 31, 1994, 1993 and 1992
Statements of Cash Flows - for the years ended December 31, 1994, 1993
and 1992
Notes to Financial Statements
Report of Independent Public Accountants
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 responding to Item 10 is included in the Proxy Statement,
under the captions "Election of Directors" and "Executive Officers Experience
and Compensation", filed by the Registrant with the Commission on or about
March 17, 1995 pursuant to Regulation 14A, and is incorporated herein by
reference pursuant to General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information responding to Item 11 is included in the Proxy Statement,
under the captions "Executive Officers Experience and Compensation" and "Board
Report on Executive Compensation", filed by the Registrant with the Commission
on or about March 17, 1995 pursuant to Regulation 14A, and is incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information responding to Item 12 is included in the Proxy Statement,
under the captions "Election of Directors" and "Executive Officers Experience
and Compensation", filed by the Registrant with the Commission on or about
March 17, 1995 pursuant to Regulation 14A, and is incorporated herein by
reference pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information responding to Item 13 is included in the Proxy Statement,
under the caption "Election of Directors", filed by the Registrant with the
Commission on or about March 17, 1995 pursuant to Regulation 14A, and is
incorporated herein by reference pursuant to General Instruction G(3).
9
<PAGE> 12
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 in Item 8.
2. Schedule II, not included in the 1994 Annual Report
to Shareholders, and the related report of
independent public accountants are included after
Item 14 in Part IV. Schedules I, III, IV, and V are
omitted as they are not applicable.
3. See (c) below.
(b) No events have been reported on Form 8-K during the last
quarter of the period covered by this report.
(c) Exhibits -
3.1 By-Laws as Amended to April 30, 1991 incorporated
herein by reference to Registrant's Form 10-Q with
respect to the quarter ended March 31, 1991.
Commission File No. 0-1121
3.2 Restated Articles of Incorporation as Amended to
December 4, 1990 incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended
December 31, 1990. Commission File No. 0-1121
3.3 Certificate of Ownership dated August 10, 1978
incorporated herein by reference to Registrant's Form
10-K with respect to the year ended December 31,
1990. Commission File No. 0-1121
3.4 Certificate of Amendment of Articles of Incorporation
dated December 3, 1992 incorporated herein by
reference to Registrant's Form 10-K with respect to
the year ended December 31, 1992. Commission File
No. 0-1121.
3.5 Certificate of Amendment of Articles of Incorporation
dated February 17, 1994 incorporated herein by
reference to Registrant's Form 10-K with respect to
the year ended December 31, 1993. Commission File
No. 0-1121.
4.1 Indenture, dated September 1, 1993 between the
Registrant and Chemical Trust Company of California,
as trustee, relating to the Registrant's Medium Term
Notes, Series A, incorporated herein by reference to
Registrant's Form 8-K. Commission File No. 33-62832.
10.1 Deferred Compensation Plan for Directors and
Executives incorporated herein by reference to
Registrant's Registration Statement on Form S-2
(Registration No. 33-5151).
10.2 Reimbursement Agreement dated November 1, 1984
between the Registrant and Barclays Bank
International Limited incorporated herein by
reference to Registrant's Registration Statement on
Form S-2 (Registration No. 33-5151).
10
<PAGE> 13
10.3 First Amendment to Reimbursement Agreement dated
January 1, 1986 between the Registrant and Barclays
Bank PLC (formerly Barclays Bank International
Limited) incorporated herein by reference to
Registrant's Registration Statement on Form S-2
(Registration No. 33-5151).
10.4 Second Amendment to Reimbursement Agreement dated
April 9, 1987 between the Registrant and Barclays
Bank PLC incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended
December 31, 1990. Commission File No. 0-1121.
10.5 Third Amendment to Reimbursement Agreement dated
September 14, 1987 between the Registrant and
Barclays Bank PLC incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended
December 31, 1990. Commission File No. 0-1121.
10.6 Fourth Amendment to Reimbursement Agreement dated
September 22, 1988 between the Registrant and
Barclays Bank PLC incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended
December 31, 1990. Commission File No. 0-1121.
10.7 Fifth Amendment to Reimbursement Agreement dated
March 9, 1990 between the Registrant and Barclays
Bank PLC incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended
December 31, 1990. Commission File No. 0-1121.
10.8 Sixth Amendment to Reimbursement Agreement dated
November 29, 1990 between the Registrant and Barclays
Bank PLC incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended
December 31, 1990. Commission File No. 0-1121.
10.9 Second Sublease dated October 5, 1984 between the
Registrant and Three Valleys Municipal Water District
incorporated herein by reference to Registrant's
Registration Statement on Form S-2 (Registration No.
33-5151).
10.10 Note Agreement dated as of February 1, 1989 between
the Registrant and First Colony Life Insurance
incorporated herein by reference to Registrant's Form
10-K with respect to the year ended December 31,
1990. Commission File No. 0-1121.
10.11 Schedule of omitted Note Agreement incorporated
herein by reference to Registrant's Form 10-K with
respect to the year ended December 31, 1990.
Commission File No. 0-1121.
10.12 Note Agreement dated as of May 15, 1991 between the
Registrant 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. 0-1121.
10.13 Schedule of omitted Note Agreements incorporated
herein by reference to Registrant's Form 10-Q with
respect to the quarter ended June 30, 1991.
Commission File No. 0-1121.
10.14 Agreement for Financing Capital Improvement dated as
of June 2, 1992 between the Registrant 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. 0-1121.
11
<PAGE> 14
* 10.15 Water Supply Agreement dated as of June 1, 1994
between the Registrant and Central Coast Water
Authority.
* 10.16 Retirement Plan for Non-Employee Directors of
Southern California Water Company, as amended,
January 25, 1995
* 13. Portions of the Annual Report to Shareholders for the
year ended December 31, 1994 which are expressly
incorporated herein by reference.
21. Subsidiaries of Registrant - Exhibit not included as
subsidiaries in the aggregate are not significant.
* 23. Consent of Independent Public Accountants.
* 27. Schedule UT
28. Dividend Reinvestment and Common Share Purchase Plan
incorporated herein by reference to Registrant's
Post-Effective Amendment No. 1 to Form S-3
(Registration No. 33-42218)
(d) None.
___________
* Filed herewith
12
<PAGE> 15
SOUTHERN CALIFORNIA WATER COMPANY
SCHEDULE II - RESERVES FOR UNCOLLECTIBLE ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
---------------------------------------------------------------------
DESCRIPTION 1994 1993 1992
---------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 370 $ 333 $ 261
Provision charged to expense 765 706 489
Accounts written off,
net of recoveries (716) (699) (417)
---------------------------------------------------------------------
Balance at end of year $ 419 $ 370 $ 333
=====================================================================
</TABLE>
13
<PAGE> 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON THE SUPPLEMENTAL SCHEDULE
To the Shareholders and the Board of Directors
Of Southern California Water Company:
We have audited, in accordance with generally accepted auditing standards, the
financial statements included in Southern California Water Company's Annual
Report to Shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated February 16, 1995. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed in Part IV of this Form 10-K is the responsibility of
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audit of the basic 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 financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 16, 1995
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SOUTHERN CALIFORNIA WATER COMPANY
By: s/ JAMES B. GALLAGHER .
--------------------------
James B. Gallagher
Vice President - Finance,
Chief Financial Officer and
Secretary
Date: March 24, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
s/ W. V. CAVENEY . Date: March 24, 1995
-------------------------------------------
W. V. Caveney
Chairman of the Board
and Director
s/ FLOYD E. WICKS . March 24, 1995
------------------------------------------
Floyd E. Wicks
Principal Executive Officer;
President and Chief Executive
Officer and Director
s/ JAMES B. GALLAGHER . March 24, 1995
---------------------------------------
James B. Gallagher
Principal Financial Officer
and Principal Accounting Officer;
Vice President - Finance,
Chief Financial Officer and Secretary
s/ DONALD E. BROWN . March 24, 1995
----------------------------------------
Donald E. Brown, Director
s/ R. BRADBURY CLARK . March 24, 1995
---------------------------------------
R. Bradbury Clark, Director
s/ N. P. DODGE, JR. . March 24, 1995
---------------------------------------------
N. P. Dodge, Jr., Director
</TABLE>
15
<PAGE> 1
EXHIBIT 13
1994 Highlights
<TABLE>
<CAPTION>
Change 1994 vs. 1993
------------------------
Increase
1994 1993 (Decrease) Percent
--------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Total Operating Revenues $122,675 $108,506 $14,169 13.06%
Total Operating Expenses 103,745 88,456 15,289 17.28%
Operating Income 18,930 20,050 (1,120) (5.59)%
Other Income 236 354 (118) (33.33)%
Interest Charges 7,828 8,378 (550) (6.56)%
Net Income 11,338 12,026 (688) (5.72)%
Earnings Available for Common
Shareholders 11,240 11,926 (686) (5.75)%
Earnings per Share from Operations Only 1.40 1.61 (0.21) (13.04)%
Earnings per Common Share 1.43 1.66 (0.23) (13.86)%
Dividends Paid per Common Share 1.20 1.19 0.01 0.84%
Book Value per Common Share 15.16 14.92 0.24 1.61%
Total Assets 383,627 358,533 25,094 7.00%
Total Capitalization $214,013 $202,949 $11,064 5.45%
Average Shares Outstanding 7,842 7,186 656 9.13%
</TABLE>
[TOTAL OPERATING REVENUES (IN THOUSANDS) CHART]
[EARNINGS PER SHARE FROM OPERATIONS ONLY CHART]
[DIVIDENDS PAID PER COMMON SHARE CHART]
ANNUAL REPORT 1994 1
<PAGE> 2
Management's Discussion and Analysis
The company is an investor-owned public utility subject to the jurisdiction of
the California Public Utilities Commission (CPUC) as to its water and electric
business and properties. The CPUC has broad powers of regulation over the
company with respect to rates, service, facilities and various other matters.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1993
Earnings per common share of $1.43 in 1994 are 13.9% lower than the $1.66 per
common share recorded for 1993. Earnings from operations only of $1.40 per
share in 1994 are 13.0% lower than the $1.61 recorded in 1993. Non-operating
income contributed $0.03 per share in 1994 as compared to $0.05 per share in
1993.
Water operating revenues for 1994 increased by 14.2% over 1993 to $112.1
million principally due to the full effects of approximately $2.3 million in
general rate increases effective during 1993 and the partial effects of $12
million in supply cost offset rate increases effective in March, 1994. Water
sales volumes in 1994 increased by 7.5%.
Electric operating revenues were 2.3% greater than 1993 as a result of a
3.8% increase in kilowatt-hour sales.
Purchased water expense increased $1.4 million, 4.7%, from 1993 to 1994.
This increase is a result of both a higher volume of water purchased as well as
increased prices from the company's wholesale suppliers, the latest series of
which were effective in July, 1994.
Expense for power purchased for resale increased by approximately 44.0% to
$4.7 million in 1994 and reflected the effects of approximately $1.6 million in
additional refunds in 1993 received from the company's wholesale electric
supplier which was partially offset by the 3.8% increase in electric sales
volumes.
As compared to 1993, the recorded expense for power purchased for pumping
declined by 6.8% to $7.6 million in 1994 due chiefly to the effects of an
increase in the amount of total water supplied which is derived from purchased
sources.
A positive entry for the provision for supply cost balancing accounts
reflects recovery of previously under-collected supply costs resulting from
approval by the CPUC in March, 1994 of rate increases to collect these
under-recovered amounts.
Other operating expenses in 1994 were $12.1 million or 11.2% higher than
the $10.9 million recorded in 1993 due to a net increase in personnel involved
in various operating and customer service functions.
In 1993, the company established a reserve of approximately $1.9 million
against previously incurred costs related to its participation in the Coastal
Aqueduct extension of the State Water Project (the Project). The company
established additional reserves of $263,000 in 1994 against retention rights
associated with the Project. However, during 1994, the company reversed
approximately $456,000 of its reserves in recognition of its participation in
the Project at a level of 500 acre-feet. The company intends to pursue the sale
of the remaining 2,500 acre-feet of its entitlement in the Project, which could
result in a further reversal of the reserve. See Note 9 of the Notes to
Financial Statements.
Administrative and general expenses increased by approximately 5.4%,
$728,000, in 1994. This increase reflects costs associated with increased
levels of personnel performing regulatory, administrative and operational
requirements as well as personnel-related expenses such as health insurance and
pension expenses. In 1994, the company wrote off $435,000 of legal expenses
associated with the settled condemnation action in the company's Bay Point
district.
Maintenance expense increased by 7.2% in 1994 to $6.9 million as a result
of continuing work performed on the company's water pumping equipment,
increased emphasis on hydrant maintenance and extensive main flushing and valve
exercise programs.
Depreciation expense increased $651,000 in 1994, which was 8.8% higher
than 1993, primarily reflecting the effects of recording approximately $28
million in net plant additions during 1993, depreciation on which is fully
reflected during 1994.
Taxes on income of $8.9 million in 1994 increased by 61.4% over the $5.5
million recorded in 1993 as a result of higher pre-tax book income.
Additionally, in 1994 the company booked adjustments for prior tax years of
approximately $671,000. Tax expense in 1993 reflected the effects of a reversal
of approximately $1.3 million in previously established tax reserves.
Total interest expense decreased by 6.6% to $7.8 million in 1994 from $8.4
million in 1993
ANNUAL REPORT 1994 13
<PAGE> 3
chiefly as a result of the company's refinancing, during the last quarter of
1993, of a substantial portion of its outstanding long-term debt at lower
interest rates.
YEARS ENDED DECEMBER 31, 1993 AND 1992
Earnings per common share of $1.66 in 1993 were 8.8% lower than the $1.82
recorded during 1992. Earnings from operations of $1.61 per share in 1993,
however, were only 4.2% lower than 1992 operating earnings of $1.68 per share.
Non-operating income contributed $0.05 per share in 1993 compared to $0.14 per
share in 1992.
Water operating revenues of $98.2 million increased 8.3% from $90.6
million in 1992, attributable to a 1.2% increase in the volume of water sold,
an increase in the average number of customers and increased water rates
associated with general rate case decisions and other supply and rate base
offset decisions. In addition, the company recorded approximately $1.4 million
in revenue related to the recoverability of net revenue losses, due to drought
conditions, and extraordinary conservation expenses.
Electric operating revenues increased by 3.2% as a result of a 0.8%
increase in kilowatt-hour sales between the two periods and a change in the mix
of those sales during 1993 from industrial, which has a lower rate per
kilowatt-hour, to commercial, which has a higher rate.
Purchased water expense increased by 30.0% or $6.8 million in 1993,
largely as a result of increases in purchased water rates. Continued water
conservation, coupled with increased costs to supply, caused wholesale water
rates in the State of California to increase significantly. In addition, the
company purchased approximately 3.2% more imported water during 1993 as
compared to 1992.
Expenses for power purchased for resale increased by 35.5% to $3.3 million
in 1993. This increase is primarily attributable to a 36.0% rate increase from
Southern California Edison company, effective January 1, 1993. The costs of
power purchased for pumping increased $600,000, 9.2%, primarily as a result of
a 5.5% increase in the amount of water produced from pumped sources.
Groundwater production assessments of $5.3 million, 23.6% higher in 1993
as compared to 1992, reflect general increases in pumping assessment rates as
well as the increased amount of water produced from pumped sources.
A credit for the provision for supply cost balancing accounts reflects an
undercollection of water and electric energy supply costs. The credit in this
category results from the higher supply costs as evidenced by increases in
purchased water costs, power purchased for pumping and resale and groundwater
production assessments.
In 1993, the company established a reserve of approximately $1.9 million
against previously incurred costs related to the Coastal Aqueduct extension of
the State Water Project. See Note 9 of the Notes to Financial Statements.
Administrative and general expenses increased by 12.6% primarily
reflecting an increase in payroll and personnel-related costs due to the
addition of 41 persons charging all or some of their time to this category as
well as an average 4.0% increase in wages granted to employees during 1993. In
1992, the company recorded an additional reserve of $1.1 million for liability
claims; no such additional reserve was necessary during 1993.
Depreciation expense increased by 13.4% reflecting the effects of
recording approximately $28 million in plant additions in 1992, depreciation on
which is fully reflected during 1993.
Maintenance expense of $6.5 million in 1993 increased by 26.7% caused by
increased work performed on the company's water pumping equipment, main
flushing programs and maintenance on the company's Bear Valley electric system
during early 1993 resulting from abnormal weather.
Taxes on income, down by 29.5%, $2.3 million, reflect both the reversal of
approximately $1.3 million in previously established tax reserves and reduced
pre-tax book income, which were partially offset by an increase in the
corporate tax rate to 35% from 34% effective January 1, 1993.
Total interest expense increased by 6.2% to $8.4 million in 1993 primarily
as a result of increased short-term borrowing.
14 SOUTHERN CALIFORNIA WATER COMPANY
<PAGE> 4
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The company funds the majority of its operating expenses, interest on its debt,
sinking fund requirements and dividends through internal sources. However, the
seasonal nature of the company's water and electric business occasionally
necessitates that the company utilize its short-term borrowing capacity to
finance current operations. The company relies on external sources, including
advances and contributions from developers, to fund the majority of its capital
expenditures program.
The company relies on short-term bank borrowing to temporarily finance its
construction expenditures. Bank borrowing is periodically repaid as internal
sources of cash allow and is ultimately financed with equity or long-term debt.
At December 31, 1994, the company had utilized $19,500,000 of its aggregate
short-term borrowing capacity of $37,063,000. Of its total short-term borrowing
capacity, $5,063,000 is also available to support letters of credit. It is
anticipated that borrowing under the three bank lines of credit will increase
during 1995.
During 1994, the company issued the remaining $13 million available under
its Medium Term Note Program. The net proceeds paid down a portion of the
then-existing bank borrowings. The company anticipates selling additional
long-term debt in 1995 to finance its construction requirements.
The company anticipates that over the next five years it will be necessary
to issue new debt and equity securities to repay bank borrowing and pay for
capital expenditures. The timing, type and amount of future financing will
reflect both the company's internal financial policies and external market
conditions, all of which will be consistent with maintenance of the company's
A/A2 debt ratings.
The company settled all matters, with minimal financial impact, related to
the condemnation of its Bay Point water system by the Contra Costa Water
District. See Note 8 of the Notes to Financial Statements.
CONSTRUCTION PROGRAM
Net construction expenditures for 1995 are estimated at approximately $21.8
million. Capital expenditures for years after 1995 are expected to increase
significantly. The company's capital expenditure program is not only affected
by various Federal, state and local regulations but also by a number of
operational factors including, among others, age of the system and customer
growth.
In the past, the CPUC has, through the regulatory process, approved the
recovery of and return on prudently incurred construction expenditures. No
assurance can be given, however, that the CPUC will grant all or any portion of
the rate increases necessary to fully recover the company's capital
investments.
REGULATORY MATTERS
Water and electric rates of the company vary among its operating districts due
to differences in operating conditions, capital investment and costs. Each
operating district is considered as a separate entity for rate-making purposes.
The company continuously monitors its operations in each district so that
applications for rate changes, when warranted and as permitted, may be filed on
a district-by-district basis with the CPUC. Under the CPUC's practices, rates
may be increased by three methods: general rate increases, offsets for certain
supply cost increases and advice letter filings related to certain plant
additions. General rate increases typically are for three year periods and
include "step" increases in rates for the second and third years.
A final decision on two matters related to the company's 1992 general rate
increase was issued in June, 1994. A stipulated rate of return on common equity
of 10.10% and a small increase in water rates applicable to the company's Bay
Point water district were approved. The reduced return on common equity
adversely affected both earnings and cash flow during 1994.
In March, 1994, the CPUC authorized an annualized increase in the
company's revenues of approximately $12 million to recover previously
under-recovered supply costs, including purchased water, electric energy and
groundwater production assessments. While these increased revenues do not
affect earnings, they significantly increase the company's cash flow. In order
to obtain this cash flow, however, the company was required to reduce base
rates in two districts to reflect the lower authorized rate of return noted
above. This resulted in an estimated decrease in 1994 earnings of 12 cents per
share. Step and attrition year rate increases
ANNUAL REPORT 1994 15
<PAGE> 5
authorized in previous general rate cases resulted in additional annualized
revenues of approximately $1.6 million.
The company filed applications with the CPUC in June, 1994 to increase
rates by approximately $2.3 million to recover costs associated with
implementation of certain recommendations made in a recently completed
management audit. In September, 1994, the Commission staff issued its report on
the company's application and recommended a $1.1 million increase in rates
which was later amended to approximately $1.3 million. The staff also provided
the opportunity for future recovery of the majority of requested amounts not
currently authorized in rates. In December, 1994, the Administrative Law Judge
issued a proposed decision recommending that the application be dismissed,
without prejudice, and a further recommendation that the company seek the same
or similar rate relief in general rate case applications. The company has filed
additional comments on the proposed decision. A final decision on this
application is anticipated by the first quarter of 1995. Should the CPUC adopt
the proposed decision, it will not materially affect current results of
operations.
The company filed for general rate relief, including step and attrition
year increases, in six of its water operating districts in January, 1995.
However, the company does not anticipate significant rate relief from such
filings until early 1996 and, consequently, earnings are expected to remain
below those levels experienced in recent years. No assurance can be given that
the CPUC will authorize any or all of the rate increases for which the company
applied.
ENVIRONMENTAL MATTERS
The company is subject to regulations established by the United States
Environmental Protection Agency (the "EPA") and administered by the California
Department of Health Services regarding water quality issues. The Safe Drinking
Water Act (the "SDWA") requires the EPA to set standards for contaminants and
water treatment processes. To date, the company has not been significantly
affected, from an operational standpoint, from contamination of its pumped
water supplies and water purchased from its wholesale suppliers is generally
delivered already treated. Anticipated amendments to the SDWA and/or interim
regulations set by EPA may result in increased costs for testing and, where
necessary, treatment of the company's groundwater supplies.
The rate-making process has provided the company with recovery of these
costs in the past and it is anticipated that costs associated with any new
standards will also be recoverable although no assurance can be given that the
CPUC will authorize such future recovery.
There have been no material environmental matters affecting the company's
Bear Valley Electric Service district.
WATER SUPPLY
The water supply outlook for the 1995 water year, which began on October 1,
1994, changed rapidly during January, 1995 as a series of storms swept across
California. In the Northern Sierra, about 40 percent of an entire year's
precipitation fell during the period of January 4-15, 1995 pushing the Northern
Sierra index total from slightly below average to 164 percent of average. By
January 24, additional storms had raised the seasonal index to over 180 percent
of the average water year. The water content of the snows in the Northern and
Central Sierra presently exceeds the average for April 1, the date of the
normal season maximum. Storage in the state's major reservoirs increased from
about 75 percent of average on December 31, 1994 to over 90 percent following
the January storms.
Overall groundwater conditions, in those water districts of the company
which pump ground water, continue to maintain at adequate levels. In light of
all of these conditions, it is not anticipated that the company will experience
any water supply problems during 1995.
ACCOUNTING STANDARDS
Effective January 1, 1995, the company is subject to the reporting requirements
contained in SFAS No. 119, "Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments." The company has no derivative
financial instruments, financial instruments with off- balance sheet risk or
financial instruments with concentrations of credit risk, therefore, this
standard should have no impact on the company.
16 SOUTHERN CALIFORNIA WATER COMPANY
<PAGE> 6
Report of Management
The financial statements contained in this annual report were prepared by the
management of Southern California Water Company, which is responsible for their
integrity and objectivity. The 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 financial
statements and is also the responsibility of management.
The company maintains systems of internal control which are designed to
help safeguard the assets of the company 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 financial statements in accordance with generally accepted auditing
standards. Their audit gave consideration to the company'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.
[SIGNATURE] [SIGNATURE]
Floyd E. Wicks James B. Gallagher
President and Chief Executive Officer Vice President-Finance,
Chief Financial Officer and Secretary
Report of Independent Public Accountants
To the Shareholders and the Board of Directors of Southern California Water
Company:
We have audited the balance sheets and statements of capitalization of Southern
California Water Company (a California corporation) as of December 31, 1994 and
1993 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, 1994. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Southern California Water
Company as of December 31, 1994 and 1993 and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 7 to the financial statements, and as required
by generally accepted accounting principles, the company changed its methods of
accounting for income taxes and post-retirement benefits other than pensions in
1993.
[SIGNATURE:
ARTHUR ANDERSEN LLP]
Los Angeles, California
February 16, 1995
ANNUAL REPORT 1994 17
<PAGE> 7
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
At December 31, (in thousands) 1994 1993
====================================================================
<S> <C> <C>
UTILITY PLANT, AT COST
Water $356,666 $341,438
Electric 26,642 24,820
--------------------------------------------------------------------
383,308 366,258
Less: Accumulated depreciation (92,679) (84,808)
--------------------------------------------------------------------
290,629 281,450
Construction work in progress 24,250 13,540
--------------------------------------------------------------------
Net utility plant 314,879 294,990
--------------------------------------------------------------------
OTHER PROPERTY AND INVESTMENTS 921 921
--------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents 2,344 1,726
Accounts receivable-
Customers, less reserves of
$419 in 1994 and $370 in 1993 8,889 6,815
Other 2,015 1,520
Unbilled revenue 9,560 8,106
Materials and supplies, at average cost 1,232 1,275
Supply cost balancing accounts 7,008 7,022
Prepayments 6,578 6,787
Accumulated deferred income taxes-net 2,461 1,279
--------------------------------------------------------------------
Total current assets 40,087 34,530
--------------------------------------------------------------------
DEFERRED CHARGES
Regulatory tax-related asset 23,105 23,198
Other 4,635 4,894
--------------------------------------------------------------------
Total deferred charges 27,740 28,092
--------------------------------------------------------------------
TOTAL ASSETS $383,627 $358,533
====================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
18 SOUTHERN CALIFORNIA WATER COMPANY
<PAGE> 8
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
At December 31, (in thousands) 1994 1993
====================================================================
<S> <C> <C>
CAPITALIZATION
Common shareholders' equity $118,962 $116,463
Preferred Shares 1,600 1,600
Preferred Shares subject to mandatory
redemption requirements 560 600
Long-term debt 92,891 84,286
--------------------------------------------------------------------
Total capitalization 214,013 202,949
--------------------------------------------------------------------
CURRENT LIABILITIES
Notes payable to banks 19,500 12,000
Long-term debt and Preferred Shares
due within one year 4,624 417
Accounts payable 8,448 9,277
Taxes payable 5,635 2,950
Accrued interest 1,885 1,178
Other 6,504 6,846
--------------------------------------------------------------------
Total current liabilities 46,596 32,668
--------------------------------------------------------------------
OTHER CREDITS
Advances for construction 54,503 55,295
Contributions in aid of construction 25,567 25,011
Accumulated deferred income taxes-net 36,252 34,969
Regulatory tax-related liability 2,352 2,389
Unamortized investment tax credits 3,582 3,664
Other 762 1,588
--------------------------------------------------------------------
Total other credits 123,018 122,916
--------------------------------------------------------------------
TOTAL CAPITALIZATION AND
LIABILITIES $383,627 $358,533
====================================================================
</TABLE>
ANNUAL REPORT 1994 19
<PAGE> 9
Statements of Capitalization
<TABLE>
<CAPTION>
At December 31, (in thousands) 1994 1993
====================================================================
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY:
Common Shares, $2.50 par value--
Authorized 10,000,000 shares
Outstanding 7,845,092 shares in 1994
and 7,805,495 in 1993 $ 19,613 $ 19,514
Additional paid-in capital 54,753 54,179
Earnings reinvested in the business 44,596 42,770
--------------------------------------------------------------------
118,962 116,463
--------------------------------------------------------------------
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 24,000
shares in 1994 and 25,600 shares
in 1993, 5% Series 600 640
Less: Preferred Shares to be redeemed
within one year (40) (40)
--------------------------------------------------------------------
560 600
--------------------------------------------------------------------
LONG TERM DEBT:
3.90% Notes due 1995 2,100 2,100
4.16% Notes due 1995 2,100 2,100
4.30% Notes due 1996 2,200 2,200
6.40% Notes due 1996 13,000 --
5.82% Notes due 2003 12,500 12,500
10.10% Notes due 2009 10,000 10,000
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 2,130 2,179
Variable Rate Obligation due 2014 6,000 6,000
6.87% Notes due 2023 5,000 5,000
7.00% Notes due 2023 10,000 10,000
9.56% Notes due 2031 28,000 28,000
Other 1,345 1,484
--------------------------------------------------------------------
97,475 84,663
Less: Current maturities (4,584) (377)
--------------------------------------------------------------------
92,891 84,286
--------------------------------------------------------------------
TOTAL CAPITALIZATION $214,013 $202,949
====================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
20 SOUTHERN CALIFORNIA WATER COMPANY
<PAGE> 10
Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands, except per share amounts) 1994 1993 1992
=============================================================================================
<S> <C> <C> <C>
OPERATING REVENUES
Water $ 112,087 $ 98,155 $ 90,625
Electric 10,588 10,351 10,035
---------------------------------------------------------------------------------------------
Total operating revenues 122,675 108,506 100,660
---------------------------------------------------------------------------------------------
OPERATING EXPENSES
Water purchased 30,768 29,375 22,591
Power purchased for resale 4,726 3,282 2,422
Power purchased for pumping 7,584 8,139 7,452
Groundwater production assessment 5,457 5,284 4,274
Supply cost balancing accounts 500 (7,960) (1,430)
Other operating expense 12,148 10,923 10,537
Provision for State Water Project (193) 1,854 --
Administrative and general expense 14,237 13,509 11,995
Depreciation 8,049 7,398 6,526
Maintenance 6,916 6,450 5,091
Taxes on income 8,865 5,491 7,791
Property and other taxes 4,688 4,711 4,313
---------------------------------------------------------------------------------------------
Total operating expenses 103,745 88,456 81,562
---------------------------------------------------------------------------------------------
Operating income 18,930 20,050 19,098
---------------------------------------------------------------------------------------------
OTHER INCOME
Net gain from sale of operating properties 313 -- 849
Provision for non-operating assets -- (943) --
Other-net (77) 1,297 85
---------------------------------------------------------------------------------------------
Total other income 236 354 934
---------------------------------------------------------------------------------------------
Income before interest charges 19,166 20,404 20,032
---------------------------------------------------------------------------------------------
INTEREST CHARGES
Interest on long-term debt 6,694 7,607 7,256
Other interest and amortization of debt expense 1,134 771 634
---------------------------------------------------------------------------------------------
Total interest charges 7,828 8,378 7,890
---------------------------------------------------------------------------------------------
NET INCOME 11,338 12,026 12,142
Dividends on Preferred Shares 98 100 102
---------------------------------------------------------------------------------------------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS $ 11,240 $ 11,926 $ 12,040
---------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $ 1.43 $ 1.66 $ 1.82
---------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,842 7,186 6,628
=============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
ANNUAL REPORT 1994 21
<PAGE> 11
Statements of Changes in Common Shareholders' Equity
<TABLE>
<CAPTION> Common Shares
--------------------- Additional Earnings
Number Paid-in Reinvested in
of Shares Amount Capital the Business
===================================================================================================
<S> <C> <C> <C> <C>
Balances at December 31, 1991 (in thousands) 6,608 $16,519 $31,677 $34,966
Add:
Issuances of Common Shares under
Dividend Reinvestment & 401-k Plans 34 88 557
Net Income 12,142
Deduct:
Dividends on Preferred Shares (102)
Dividends on Common Shares-$1.15 per share (7,618)
---------------------------------------------------------------------------------------------------
Balances at December 31, 1992 6,642 $16,607 $32,234 $39,388
Add:
Issuances of Common Shares
for Public Offering in July 1,000 2,500 19,025
for Public Offering in September 107 268 2,142
under Dividend Reinvestment & 401-k Plans 56 139 778
Net Income 12,026
Deduct:
Dividends on Preferred Shares (100)
Dividends on Common Shares-$1.1875 per share (8,544)
---------------------------------------------------------------------------------------------------
Balances at December 31, 1993 7,805 $19,514 $54,179 $42,770
Add:
Issuance of Common Shares for acquisition
of water system 40 99 574
Net Income 11,338
Deduct:
Dividends on Preferred Shares (98)
Dividends on Common Shares-$1.20 per share (9,414)
---------------------------------------------------------------------------------------------------
Balances at December 31, 1994 7,845 $19,613 $54,753 $44,596
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
22 SOUTHERN CALIFORNIA WATER COMPANY
<PAGE> 12
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, (in thousands) 1994 1993 1992
================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 11,338 $ 12,026 $ 12,142
Adjustments for non-cash items:
Depreciation and amortization 8,476 7,682 6,823
Deferred income taxes and investment tax credits 75 5,693 1,977
Gain on sale of properties (532) -- (1,418)
Other-net (185) (830) (876)
Changes in Assets and Liabilities
Customer receivables (2,074) 1,215 1,884
Supply cost balancing accounts 14 (3,798) (1,721)
Rationing penalty reserve -- (5,015) 615
Accounts payable (829) 2,538 1,112
Taxes payable 2,685 (3,040) (2,611)
Other-net (1,393) (309) (1,998)
------------------------------------------------------------------------------------------------
Net cash provided 17,575 16,162 15,929
------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Shares -- 24,852 646
Issuance of long-term debt and lease obligations 13,000 38,143 358
Debt issuance costs -- (427) --
Receipt of advances for and contributions in aid
of construction 2,335 2,157 2,414
Repayment of long-term debt and
redemption of Preferred Shares (228) (233) (3,247)
Early retirement of long-term debt -- (41,103) --
Refunds on advances for construction (2,694) (2,903) (2,985)
Net change in notes payable to banks 7,500 (2,668) 14,668
Common and Preferred dividends paid (9,496) (8,651) (7,754)
------------------------------------------------------------------------------------------------
Net cash provided 10,417 9,167 4,100
------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (28,620) (22,248) (23,048)
Acquisition of water systems (100) (1,797) --
Proceeds from sale of properties 1,346 -- 2,298
------------------------------------------------------------------------------------------------
Net cash used (27,374) (24,045) (20,750)
------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 618 1,284 (721)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,726 442 1,163
------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,344 $ 1,726 $ 442
------------------------------------------------------------------------------------------------
TAXES AND INTEREST PAID:
Income taxes paid $ 6,261 $ 1,484 $ 10,799
Interest paid 6,846 8,354 7,458
------------------------------------------------------------------------------------------------
NON-CASH TRANSACTIONS:
Property installed by developers and conveyed to company $ 564 $ 818 $ 3,119
Capital leases 53 1,142 2,606
Acquisition of water system for common shares 673 -- --
================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
ANNUAL REPORT 1994 23
<PAGE> 13
Notes to Financial Statements
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting records are maintained in accordance with the Uniform System of
Accounts prescribed by the California Public Utilities Commission.
Property and Depreciation--The company capitalizes 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 1994, 1993 and 1992, the aggregate provisions for depreciation
approximated 2.50%, 2.47% and 2.39% of beginning of the year depreciable plant,
respectively.
Interest is generally not capitalized for financial reporting purposes as
such procedure is generally not followed for rate-making purposes.
Revenues--Revenues include amounts billed to customers and an amount of
unbilled revenue representing amounts to be billed for usage from the last
meter reading date to the end of the accounting period.
Earnings Per Common Share--Earnings per Common Share are based upon the
weighted average number of Common Shares outstanding and net income after
deducting preferred dividend requirements.
Supply Cost Balancing Accounts--As permitted by the CPUC, the company
maintains water and electric supply cost balancing accounts to account for
under-collections and over-collections of revenues designed to recover such
costs. Recoverability of such costs are recorded in income and charged to
balancing accounts when such costs are incurred. The balancing accounts are
credited when such costs are recovered through rate adjustments. The company
accrues interest on its supply cost balancing accounts at the rate prevailing
for 90-day commercial paper.
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 either a rate of 22% of the
revenue received from the installations for which funds were advanced or in
equal annual installments over a forty year period.
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--The company does not carry any financial
instruments with off-balance sheet risk nor do its operations result in
concentrations of credit risk.
Fair Value of Financial Instruments--The following methods and assumptions
were used to estimate the fair value, as shown in the table below, of each
class of financial instrument for which it is practicable to estimate that
value:
Cash and Cash Equivalents, Accounts Receivable and Short-term Debt: The
carrying amount.
Long-term Debt: Rates available to the company at December 31, 1994 and
1993 for debt with similar terms and remaining maturities were used to
estimate fair value. Changes in the assumptions will produce differing
results.
<TABLE>
<CAPTION>
===================================================================================
1994 1993
----------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE amount value
-----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash $ 2,344 $ 2,344 $ 1,726 $ 1,726
Accounts receivable 20,464 20,464 16,441 16,441
Financial liabilities:
Short-term debt 19,500 19,500 12,000 12,000
Long-term debt 97,475 100,146 84,663 58,916
-----------------------------------------------------------------------------------
</TABLE>
24 SOUTHERN CALIFORNIA WATER COMPANY
<PAGE> 14
NOTE 2: CAPITAL STOCK
All of the series of Preferred Shares outstanding at December 31, 1994 are
redeemable at the option of the company. At December 31, 1994, 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
requirements for this Series for the five years subsequent to December 31, 1994
is $40,000 each year.
During the years ended December 31, 1993 and 1992, respectively, the
company issued 47,828 and 28,416 Common Shares under the Dividend Reinvestment
Plan (DRP). The company issued 7,741 and 7,102 Common Shares under the 401-k
Plan in 1993 and 1992, respectively. The company purchased on the open market
all shares under the DRP and the 401-k programs during the year ended December
31, 1994.
There are 109,454 and 92,259 Common Shares reserved for issuance under the
DRP and the 401-k Plan, respectively, at December 31, 1994. Shares reserved for
the 401-k are in relation to company matching contributions and for investment
purposes by participants.
NOTE 3: COMMON SHARE DIVIDEND RESTRICTION
As of December 31, 1994, retained earnings of $28,712,000 were restricted as to
the payment of cash dividends on Common Shares.
NOTE 4: LONG-TERM DEBT
During 1994, the company issued a total of $13 million of unsecured Notes, the
proceeds of which were used to pay down short-term bank borrowings. The company
has no mortgage debt, and leases and other similar financial arrangements are
not material.
The company has posted an Irrevocable Letter of Credit, which expires July
31, 1995, in the amount of $605,300 as security for its self-insured workers'
compensation plan. The company has also provided an Irrevocable Letter of
Credit in the amount of $6,296,000 to a trustee with respect to the variable
rate obligation due 2014 issued by the Three Valleys Municipal Water District.
Annual maturities of all long-term debt, including capitalized leases,
amount to $4,572,700, $15,579,900, $338,600, $344,100 and $225,800 for each of
the years ended December 31, 1995 through 1999, respectively.
NOTE 5: COMPENSATING BALANCES AND BANK DEBT
At December 31, 1994, the company maintained lines of credit for short-term
borrowings with three commercial banks with no compensating balances required.
Loans can be obtained at the option of the company and bear interest at rates
based on floating prime borrowing rates or at money market rates. Of the
aggregate borrowing capacity of $37,063,000, $19,500,000 was outstanding at
December 31, 1994.
Short-term bank borrowing activities for the last three years are as
follows:
<TABLE>
<CAPTION>
===============================================================================
1994 1993 1992
-------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Balance Outstanding at December 31, $19,500 $12,000 $14,668
Interest Rate at December 31, 7.53% 3.76% 4.37%
Average Amount Outstanding $16,527 $9,862 $3,916
Weighted Average Annual Interest Rate 4.65% 3.76% 4.23%
Maximum Amount Outstanding $24,750 $21,500 $14,668
-------------------------------------------------------------------------------
</TABLE>
NOTE 6: TAXES ON INCOME
The company provides deferred income taxes 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. Deferred investment
tax credits are being amortized to other income ratably over the lives of the
property giving rise to the credits.
ANNUAL REPORT 1994 25
<PAGE> 15
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standards No. 109-"Accounting for Income Taxes." The significant
components of net deferred income tax liabilities were:
<TABLE>
<CAPTION>
===============================================================================
DECEMBER 31, 1994 1993
-------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Balancing accounts $ 1,234 $ 1,240
State tax effect 1,227 39
-------------------------------------------------------------------------------
2,461 1,279
-------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation (33,618) (30,748)
Advances and contributions 13,761 14,014
Property-related other (10,344) (11,458)
Other (6,051) (6,777)
-------------------------------------------------------------------------------
(36,252) (34,969)
-------------------------------------------------------------------------------
Accumulated deferred income taxes--net $(33,791) $(33,690)
-------------------------------------------------------------------------------
</TABLE>
Because the CPUC has consistently permitted the recovery of previously
flowed-through tax benefits, the company believes that adoption of SFAS No. 109
will not have a significant impact on its results of operations.
The current and deferred components of income tax expense are as follows:
<TABLE>
<CAPTION>
===============================================================================
DECEMBER 31, 1994 1993 1992
-------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ 6,650 $ (1,854) $ 5,691
State 2,435 80 1,836
-------------------------------------------------------------------------------
Total current tax expense 9,085 (1,774) 7,527
-------------------------------------------------------------------------------
Deferred--Federal and State:
Accelerated depreciation 3,087 2,819 2,473
Balancing accounts (6) 505 571
State Water Project (116) 3,660 126
Advances and contributions (1,204) (1,465) (1,557)
Gain on sales of operating properties (41) (43) 526
Gain on installment sale -- -- (695)
Privilege year franchise tax (1,085) 142 (317)
Other (435) (160) (232)
-------------------------------------------------------------------------------
Total deferred tax expense 200 5,458 895
-------------------------------------------------------------------------------
Total income tax expense $ 9,285 $ 3,684 $ 8,422
-------------------------------------------------------------------------------
Income taxes included in operating expenses $ 8,865 $ 5,491 $ 7,791
Income taxes included in other
income and expense--net 420 (1,807) 631
-------------------------------------------------------------------------------
Total income tax expense $ 9,285 $ 3,684 $ 8,422
-------------------------------------------------------------------------------
</TABLE>
Additional information regarding taxes on income is set forth in the
following table:
<TABLE>
<CAPTION>
===============================================================================
DECEMBER 31, 1994 1993 1992
-------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Federal taxes on pre-tax income
at statutory rates $ 7,217 $ 5,496 $ 6,992
Increase (decrease) in taxes resulting from:
State income tax expense 2,022 559 1,534
Federal benefit of state taxes (708) (196) (521)
Adjustments for prior years' items 342 (1,067) 650
Payment of premium on redemption -- (984) (3)
Other-net 412 (124) (230)
-------------------------------------------------------------------------------
Total income tax expense $ 9,285 $ 3,684 $ 8,422
-------------------------------------------------------------------------------
Pre-tax income $20,620 $15,703 $20,565
-------------------------------------------------------------------------------
Effective tax rate 45.0% 23.5% 41.0%
-------------------------------------------------------------------------------
</TABLE>
NOTE 7: EMPLOYEE BENEFIT PLANS
The company maintains a pension plan (the Plan) which provides eligible
employees (those age 21 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.
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
projected benefit obligations for 1994 and 1993 were 7.5% and 4% and 7% and 4%,
respectively. The expected long-term rate of return on assets, which consist
primarily of fixed income securities, was 8% for 1994 and 1993.
The following table sets forth the Plan's funded status and amounts
recognized in the company's balance sheets at December 31, 1994 and 1993 and
the components of net pension cost for 1994 and 1993.
26 SOUTHERN CALIFORNIA WATER COMPANY
<PAGE> 16
<TABLE>
<CAPTION>
DECEMBER 31, 1994 1993
===============================================================================
(in thousands)
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 18,225 $ 16,744
Nonvested 1,523 1,307
-------------------------------------------------------------------------------
Total $19,748 $ 18,051
-------------------------------------------------------------------------------
Projected benefit obligation for
service rendered to date $(24,419) $(22,162)
Plan assets at fair value 22,157 22,796
Unrecognized net loss/(gain) due to past
experience different from assumptions made 3,763 723
Unrecognized net obligation at January 1,
1986 being recognized over 15 years 342 409
Unrecognized prior service cost
due to Plan amendments 577 706
-------------------------------------------------------------------------------
Accrued pension asset $ 2,420 $ 2,472
-------------------------------------------------------------------------------
Service cost benefits earned during the period $ 1,019 $ 795
Interest cost on projected benefit obligation 1,623 1,447
Return on Plan assets 785 (1,912)
Net amortization and deferral (2,506) 345
-------------------------------------------------------------------------------
Net pension cost $ 921 $ 675
===============================================================================
</TABLE>
The company 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. Upon reaching age 65, and for those
employees retiring at or after age 65, and/or their spouses, continued coverage
was provided through a medicare supplement insurance policy paid for by the
company.
Effective January 1, 1993, the company adopted the provisions of SFAS No.
106, "Employer's Accounting for Postretirement Benefits Other Than Pensions."
As a result, the company has amended the retiree medical plan substantially
reducing benefits for those current employees retiring after September 30,
1995. No such benefits will be available to employees hired on or after
February 1, 1995.
The CPUC has issued a decision which provides for the recovery in rates of
tax-deductible contributions to a separately trusteed fund. The company is
presently evaluating available funding vehicles. SFAS No. 106 cost deferrals as
of December 31, 1994 amounted to $1,000,000. SFAS No. 106 costs for 1993 and
1994 were estimated at $500,000 per year, based upon the actuarially determined
cost level under the amended plan for 1995 of approximately $600,000. This
amount was determined using a 7.5% discount rate and a sliding scale for
assumed health care cost increases starting at 12%, declining 1% per year for
six years and then remaining at 6% per year thereafter. The transition
obligation is being amortized over 20 years. The accumulated benefit obligation
as of December, 31, 1994, giving effect to the amendment to the plan, was
$5,078,000.
A 1% increase in the health care cost trend would result in increases in
the postretirement cost and the accumulated benefit obligation of $49,000 and
$656,000, respectively.
Due to the amendments to the company's plan as described above, it is
estimated that substantially all of the SFAS No. 106 costs will be currently
recoverable in rates.
The company has a 401-k Investment Incentive Program (the 401-k) 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 1994, 1993 and 1992, totalled
$222,000, $197,000 and $167,000, respectively.
NOTE 8: CONDEMNATIONS AND SALES OF OPERATING PROPERTIES
The company and Contra Costa Water District (CCWD) have entered into a
settlement agreement concerning CCWD's condemnation, initiated in July, 1992,
of the company's Bay Point water district. Under the terms of the settlement,
the company will continue to own and operate the Bay Point system. The company
is responsible for reimbursing CCWD for additional facilities to provide for a
long-term supplemental source of treated water supply for the company's system.
The estimated cost of the company's portion of these facilities, based upon the
company's current capacity needs, is approximately $2.6 million. One-half, or
$1.3 million, was paid in September, 1994 with the balance payable in 84
monthly installments following completion of the facilities, estimated to be in
1996. The terms of the agreement are subject to approval by the CPUC, which
approval is not expected before mid-1995.
ANNUAL REPORT 1994 27
<PAGE> 17
On March 8, 1994, the company and Contra Costa County reached a settlement
of issues related to their acquisition of the company's Madison Treatment
Plant. The company has received the settlement of $2.3 million, which includes
remuneration for the value of the real property taken and reimbursement for
treated water purchased from the City of Pittsburg. In addition, the County
agreed to pay nearly $1 million for relocation of certain pipelines owned by
the company.
NOTE 9: CONTINGENCIES
During 1993, the company, on two separate occasions, requested that the CPUC
authorize recovery of costs associated with participation in the construction
of the Coastal Aqueduct extension of the State Water Project (the Project). The
CPUC denied both requests for recovery of costs on the terms contained in the
company's applications.
The company has now signed a Water Supply Agreement to participate in the
Project at a level of the 500 acre-feet. The company's investment to date for
this level of participation is $935,000 and is included in net utility plant.
The company anticipates filing a request with the CPUC to include these and
future costs associated with this level of participation in rates pursuant to
normal regulatory procedures. The company still maintains reserves of $1.8
million related to its remaining 2,500 acre-feet of entitlement, which it
anticipates selling during 1995.
NOTE 10: CONSTRUCTION PROGRAM
The company's 1995 construction budget provides for expenditures of
approximately $24,251,000. Management anticipates that $2,467,000 of the 1995
budgeted amount will be obtained from developers and others.
NOTE 11: BUSINESS SEGMENTS
The table below sets forth information relating to the company's operating
segments; however, the company is a regulated public utility and such
information does not reflect the ratemaking treatment allowed by the regulatory
agency. In addition to amounts set forth, certain assets have not been
allocated. The identifiable assets are net of respective accumulated provisions
for depreciation.
NOTE 12: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly financial information presented below is unaudited. The business
of the company is of a seasonal nature and it is management's opinion that
comparisons of earnings for the quarterly periods do not reflect overall trends
and changes in the company's operations.
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
========================================================================================================
YEARS ENDED DECEMBER 31, 1994 1993 1992
--------------------------------------------------------------------------------------------------------
(in thousands)
WATER ELECTRIC Water Electric Water Electric
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $112,087 $10,588 $98,155 $10,351 $90,625 $10,035
Operating income before income taxes 25,858 1,936 23,192 2,349 24,193 2,696
Identifiable assets 294,343 20,536 276,710 18,280 260,712 16,813
Depreciation expense 7,308 741 6,715 683 5,894 632
Capital additions 27,878 3,057 26,443 2,057 25,382 2,780
--------------------------------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA
========================================================================================================
March 31, June 30, Sept. 30, Dec. 31,
QUARTERS ENDED 1994 1994 1994 1994
--------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues $24,181 $30,494 $38,686 $29,314
Operating income 2,895 4,263 6,877 4,895
Net income 1,166 2,327 5,208 2,637
Primary EPS 0.15 0.29 0.66 0.33
--------------------------------------------------------------------------------------------------------
========================================================================================================
March 31, June 30, Sept. 30, Dec. 31,
QUARTERS ENDED 1993 1993 1993 1993
--------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues $22,177 $28,614 $31,729 $25,986
Operating income 3,667 5,078 6,243 5,062
Net income 1,542 2,988 4,339 3,157
Primary EPS 0.23 0.44 0.57 0.42
--------------------------------------------------------------------------------------------------------
</TABLE>
28 SOUTHERN CALIFORNIA WATER COMPANY
<PAGE> 18
STATISTICAL REVIEW FROM 1990 TO 1994
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
=======================================================================================================
<S> <C> <C> <C> <C> <C>
FINANCIAL INFORMATION
(in thousands, except per share amounts)
Revenues By Classification
Residential and Commercial $100,796 $ 86,918 $ 82,112 $ 68,063 $ 69,161
Industrial 1,459 1,134 1,110 1,019 1,021
Fire Service 1,181 1,149 1,067 927 954
Other 8,651 8,954 6,336 8,273 5,150
Total Water 112,087 98,155 90,625 78,282 76,286
Electric 10,588 10,351 10,035 12,378 11,054
Total operating revenues 122,675 108,506 100,660 90,660 87,340
Net income 11,338 12,026 12,142 15,363 8,907
Earnings available for common shareholders 11,240 11,925 12,040 15,259 8,801
Earnings per Common Share 1.43 1.66 1.82 2.34 1.41
Dividends declared per Common Share 1.20 1.19 1.15 1.10 1.08
Total assets 383,627 358,533 312,491 293,444 268,028
Net utility plant 314,879 294,990 277,525 258,558 235,713
Capital additions 30,935 28,500 28,162 32,472 27,077
Long-term debt 92,891 84,621 84,195 82,634 67,246
Preferred Shares -- mandatory redemption 560 600 640 680 720
Investment per customer $ 1,578 $ 1,480 $ 1,388 $ 1,297 $ 1,213
OPERATIONAL INFORMATION
Water Sold By Classification (MG)
Residential and Commercial 51,084 48,033 47,541 44,528 51,696
Industrial 818 679 699 737 937
Fire Service 308 33 23 11 50
Other 4,537 4,019 3,890 3,807 4,511
Total Water 56,747 52,764 52,153 49,083 57,194
Total Electric Sales (MWH) 110,234 106,234 105,346 101,923 103,376
Customers By Classification
Residential and Commercial 232,879 231,966 230,956 230,175 221,888
Industrial 323 322 330 347 376
Fire Service 2,896 2,877 2,846 2,779 2,610
Other 1,807 1,820 1,795 1,812 1,819
Total Water 237,905 236,985 235,927 235,113 226,693
Electric 20,331 20,131 20,039 19,780 19,559
Total Company 258,236 257,116 255,966 254,893 246,252
Water Production By Source (MG)
Purchased 25,940 25,156 24,377 23,221 31,021
Pumped-Electric 33,337 32,056 30,406 28,640 28,923
Pumped-Gas 198 195 177 245 270
Gravity and Surface 967 658 1,249 1,046 1,255
Total Supply 60,442 58,065 56,209 53,152 61,469
Miles of Main In Service 2,567 2,560 2,549 2,535 2,517
Number of Employees 467 486 445 422 410
=======================================================================================================
</TABLE>
MG = Millions of Gallons MWH = Mega-Watt Hours
ANNUAL REPORT 1994 29
<PAGE> 19
ANNUAL MEETING
The 1995 Annual Meeting of Shareholders will be held Tuesday, April 25, 1995 at
11:00 a.m. at Industry Hills Sheraton, One Industry Hills Parkway, City of
Industry, California. Notice of meeting and proxy material will be mailed.
TRADING OF STOCK
Common Shares of Southern California Water Company are traded on the New York
Stock Exchange under the symbol SCW. Common Share prices and dividends for the
last two years were:
<TABLE>
<CAPTION>
===============================================================================
DIVIDENDS
PERIOD HIGH LOW PAID
-------------------------------------------------------------------------------
<S> <C> <C> <C>
1994
First Quarter 22 17 1/4 $0.3000
Second Quarter 20 3/4 18 1/8 0.3000
Third Quarter 18 7/8 16 0.3000
Fourth Quarter 17 5/8 15 1/4 0.3000
-------------------------------------------------------------------------------
$1.2000
===============================================================================
DIVIDENDS
PERIOD HIGH LOW PAID
-------------------------------------------------------------------------------
<S> <C> <C> <C>
1993
First Quarter 2 13/4 19 5/8 $0.2875
Second Quarter 24 21 1/4 0.3000
Third Quarter 23 11/16 21 1/4 0.3000
Fourth Quarter 24 3/8 21 3/4 0.3000
-------------------------------------------------------------------------------
$1.1875
-------------------------------------------------------------------------------
</TABLE>
All information adjusted to reflect 2-for-1 stock split.
COUNSEL
O'Melveny & Myers
400 South Hope Street
Los Angeles, CA 90071-2899
AUDITORS
Arthur Andersen LLP
633 West Fifth Street
Los Angeles, CA 90071
SHAREHOLDER ASSISTANCE AND CORPORATE REPORTS
If you have any questions concerning your investment with Southern California
Water Company or wish to obtain a copy of the company's reports to the
Securities and Exchange Commission, we will be pleased to assist you. Please
submit your request to:
James B. Gallagher
Vice President-Finance, CFO and Secretary
Southern California Water Company
630 East Foothill Boulevard
San Dimas, CA 91773
(909) 394-3633
TRANSFER AGENT AND DIVIDEND PAYING AGENT
For questions regarding dividend payments, change of address or other
shareholder account matters, please contact:
First Interstate Bank of California
Stock Transfer Department
P.O. Box 30609 o Los Angeles, CA 90030
(800) 522-6645
DIVIDEND REINVESTMENT
The company has a Dividend Reinvestment Plan which is open to all holders of
company Common Shares. Dividends of participants are reinvested in Common
Shares of the company. The Plan also provides for receipt of optional cash
payments for the purchase of additional Common Shares.
For a copy of the Plan prospectus and an enrollment card, contact First
Interstate Bank at the address shown above.
1995 DIVIDENDS
Dividends on common and preferred shares are expected to be paid on:
March 1 June 1 September 1 December 1
30 SOUTHERN CALIFORNIA WATER COMPANY
<PAGE> 1
EXECUTION COPY
Exhibit 10.15
WATER SUPPLY AGREEMENT
Dated as of June 1, 1994
By and Between
CENTRAL COAST WATER AUTHORITY
and
SOUTHERN CALIFORNIA WATER COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
<S> <C> <C>
Section 1. Definitions...................................... 1
Section 2. Purpose.......................................... 6
Section 3. Construction and Operation....................... 7
Section 4. Delivery of Water From the State
Water Project.................................. 7
Section 5. Rates and Charges................................ 9
Section 6. Measurement of Water Delivered................... 10
Section 7. No Authority Responsibility for
Delivery and Distribution of Water
by Contractor.................................. 10
Section 8. Curtailment of Delivery for
Maintenance Purposes........................... 11
Section 9. Sale or Other Disposition of Project
Allotment by Contractor........................ 11
Section 10. Construction of the Project...................... 11
Section 11. Shortage In Water Supply......................... 14
Section 12. Annual Budget and Billing Statement.............. 15
Section 13. Allocation of Costs and Expenses................. 15
Section 14. Determination of Costs and Expenses.............. 18
Section 15. Time and Method of Payment....................... 18
Section 16. Obligation in the Event of Default............... 20
Section 17. Unutilized Project Allotment..................... 23
Section 18. Transfers, Sales and Assignments
of Project Allotment........................... 24
Section 19. Additional Project Participants.................. 25
Section 20. Covenants of the Contractor...................... 25
Section 21. Covenants of the Authority....................... 26
Section 22. Assignment of Contractor Rights
Under Water Supply Retention Agreement......... 27
Section 23. Term............................................. 27
Section 24. Assignment....................................... 27
Section 25. Termination and Amendments....................... 28
Section 26. Effectiveness of this Agreement.................. 29
Section 27. Miscellaneous.................................... 29
Section 28. Indemnification.................................. 29
EXHIBITS
Exhibit A. Schedule of Project Allotments................... A-1
Exhibit B. Water Supply Costs............................... B-1
Exhibit C. Form of Opinion of Contractor Counsel............ C-1
Exhibit D. Form of Opinion of Authority Special
Counsel........................................ D-1
Exhibit E. Map of Project Reaches........................... E-1
Exhibit F. List of notes, bonds or other obligations
of the Contractor as of the date of
execution to which Revenues of the
Contractor are pledged......................... F-1
Exhibit G. Schedule of Fixed O&M Costs by Treatment
Plant and Project Reach......................... G-1
</TABLE>
i
<PAGE> 3
WATER SUPPLY AGREEMENT
This Agreement, dated as of June 1, 1994, by and between the Central Coast
Water Authority (the "Authority"), a joint exercise of powers agency duly
organized and existing pursuant to the Joint Exercise of Powers Act (the "Joint
Exercise of Powers Act"), commencing with California Government Code Section
6500 and Southern California Water Company (the "Contractor"), a corporation
duly organized and validly existing under the laws of the State of California.
WITNESSETH:
WHEREAS, the Contractor and certain other water purveyors in Santa Barbara
County have contractual rights to receive water from the State Water Project
pursuant to the terms of the State Water Supply Contract and Water Supply
Retention Agreements (capitalized terms used herein and not otherwise defined
shall have the meanings set forth below);
WHEREAS, in order for the Contractor to utilize such water rights, certain
facilities, including the Project, must be constructed;
WHEREAS, on June 4, 1991, the voters within the Contractor's service area
approved the Contractor participating in the State Water Project in an amount
not exceeding 9,000 acre feet per annum; and
WHEREAS, the Authority and the Contractor now wish to enter into this
Agreement to provide for the assignment by the Contractor to the Authority of
its contractual rights to receive water from the State Water Project, and, upon
compliance with all necessary state and federal law, including but not limited
to the California Environmental Quality Act, to provide for the construction,
operation and financing of the Project, for the sale by the Authority to the
Contractor of the Contractor's Project Allotment and certain other matters;
NOW THEREFORE, the parties hereto do agree as follows:
Section 1. Definitions.
The following terms shall, for all purposes of this Agreement have the
following meanings:
"Accountant's Report" means a report signed by an Independent Certified
Public Accountant.
"Additional Project Participant" means any public district, agency or
entity or private water company, other than those entities listed in Part I of
Appendix A hereto, which executes a
<PAGE> 4
Water Supply Agreement in accordance with Section 19 hereof, together
with their respective successors or assigns.
"Authority Bonds" means bonds, notes or other evidences of indebtedness
of the Authority issued to finance or refinance the Project and includes
additional Authority Bonds to complete the Project.
"Authorized Representative" when used with respect to the Authority means
the Manager or any other officer or employee of the Authority authorized to
perform the specific acts or duties to be performed by resolution duly adopted
by the Authority, and when used with respect to the Contractor means the
Chairman of the Board of Directors or any other officer or employee of the
Contractor authorized by resolution of the Contractor to perform the specific
acts or duties to be performed by the Contractor.
"Bond Resolution" means the resolution or resolutions providing for the
issuance of Authority Bonds and the terms thereof.
"CEQA" means the California Environmental Quality Act, Public Resources
Code Section 21000 et seq. and the guidelines promulgated thereunder.
"Consulting Engineer" means any firm of consulting engineers appointed by
the Authority and expert in the construction of water supply projects similar
to the Project.
"Contract Payments" means the Fixed Project Costs, Fixed O&M Costs and the
Variable O&M Costs payable by the Contractor hereunder.
"Contractor" shall have the meaning assigned thereto in the preamble
hereto.
"Debt Service" means, as of the date of calculation and with respect to
Authority Bonds, an amount equal to the sum of (i) interest accruing during
such period on Authority Bonds of such series, except to the extent that such
interest is to be paid from deposits made from Authority Bond proceeds or the
investment earnings thereon and (ii) that portion of principal of Authority
Bonds which would accrue during such period if such principal installment were
deemed to accrue daily in equal amounts from the next preceding principal
installment due date for such series (or, if there shall be no such preceding
principal installment due date, from a date one Year preceding the date of such
principal installment or from the date of issuance of the Authority Bonds of
such series, whichever date is later). Such interest and principal
installments for such series shall be calculated on the assumption that no
Authority Bonds outstanding at the date of calculation will cease to be
outstanding except by reason of the payment of principal on the due date
thereof;
2
<PAGE> 5
provided further that, as to any such Authority Bonds bearing or
comprising interest at other than a fixed rate, the rate of interest used to
calculate Debt Service shall be one hundred ten percent (110%) of the greater
of (a) the daily average interest rate on such Authority Bonds during the
twelve (12) calendar months preceding the date of calculation (or the portion
of the then current Fiscal Year that such Authority Bonds have borne interest)
or (b) the most recent effective interest rate on such Authority Bonds prior to
the date of calculation; and
provided further that, as to any such Authority Bonds or portions thereof
bearing no interest but which are sold at a discount and which discount
accretes with respect to such Authority Bonds or portions thereof, such
accreted discount shall be treated as interest in the calculation of Debt
Service; and
provided further that the amount on deposit in a debt service reserve fund
on any date of calculation of Debt Service shall be deducted from the amount of
principal due at the final maturity of the Authority Bonds for which such debt
service reserve fund was established and in each preceding Year until such
amount is exhausted.
"Fiscal Year" means the twelve month period commencing on July 1 of each
Year and ending on the following June 30 or such other twelve month period
which may be designated by the Authority as its Fiscal Year.
"Fixed O&M Costs" means operation, maintenance, power, replacement and
other costs, including Project Operation and Maintenance Expenses and a
reasonable reserve for contingencies and costs for reservation of the
Contractor's Project Allotment of water under the State Water Contract, in each
case incurred by the Authority with respect to the Project, irrespective of the
amount of water delivered to the Project Participants.
"Fixed Project Costs" means capital costs, but not including Debt Service,
reserves for the payment of Debt Service and other payments under the Bond
Resolution, other than payments constituting Fixed O&M Costs and Variable O&M
Costs, of the Project in each case incurred by the Authority, irrespective of
the amount of water delivered to the Project Participants.
"Independent Certified Public Accountant" means any firm of certified
public accountants appointed by the Contractor, or the Authority, as the case
may be, and each of whom is independent pursuant to the Statement on Auditing
Standards No. 1 of the American Institute of Certified Public Accountants.
" Initial Operation Date" means the first date when the Project is
available to provide water service to the Contractor,
3
<PAGE> 6
as shall be determined by the Board of Directors of the Authority in accordance
with prudent utility practices.
"Joint Powers Agreement" means the Joint Exercise of Powers Agreement --
Central Coast Water Authority, dated as of August 1, 1991, by and among the
parties thereto.
"Project" means the Mission Hills and Santa Ynez Extensions to the Coastal
Aqueduct of the State Water Project, including the following: (i) a pipeline
from the terminus of the Coastal Aqueduct of the State Water Project to the
Mission Hills area of Santa Barbara County; (ii) a pumping plant in the Santa
Maria/Casmalia area of Santa Barbara County; (iii) a pipeline from the Santa
Maria/Casmalia pumping plant to the vicinity of Lake Cachuma in the upper
Santa Ynez Valley area of Santa Barbara County, including any facilities in the
vicinity to Lake Cachuma necessary to deliver water to or through Lake Cachuma
and the Tecolote Tunnel; (iv) a pumping plant in the Solvang/Santa Ynez area of
Santa Barbara County, (v) turnout and metering facilities; (vi) the Treatment
Plant; and (vii) all other associated facilities, rights, properties,
electrical facilities and improvements appurtenant thereto as provided and
necessary therefor. The definition of the Project shall be revised as provided
in Section 3 hereof without amendment to this Agreement and may be otherwise
amended in accordance with Section 25 hereof.
"Project Allotment" means 500 acre-feet of water per year, unless such
Project Allotment is reduced in accordance with the Water Supply Agreement.
"Project Operation and Maintenance Expenses" means the costs spent or
incurred by the Authority for maintaining and operating the Project, calculated
in accordance with generally accepted accounting principles, including (among
other things) the expenses of management and repair and other expenses
necessary to maintain and preserve the Project, in good repair and working
order, and including administrative costs of the Authority, salaries and wages
of employees, payments to the Public Employees Retirement System, overhead,
insurance, taxes (if any), fees of auditors, accountants, attorneys or
engineers and insurance premiums, and including all other reasonable and
necessary costs of the Authority, or charges required to be paid by it to
comply with the terms of the Authority Bonds or of this Agreement, but
excluding in all cases (i) depreciation, replacement and obsolescence charges
or reserves therefor, (ii) amortization of intangibles or other bookkeeping
entries of a similar nature, (iii) costs of capital additions, replacements,
betterments, extensions or improvements to the Project, which under generally
accepted accounting principles are chargeable to a capital account or to a
reserve for depreciation, (iv) charges for the payment or principal and
interest on the Authority Bonds, and (v)
4
<PAGE> 7
amounts due and payable pursuant to the State Water Supply Contract.
"Project Participant" means the Contractor and each entity listed-in Part
I of Appendix A hereto executing Water Supply Agreements with the Authority,
and each Additional Contractor.
"Reaches" means the segments of the Project from or through which Project
Participants receive water which will be determined in accordance with Section
10(a) hereof.
"Report" means a written report signed by an Authorized Representative of
the Contractor setting forth the amount of water desired by the Contractor
during each month of the succeeding six Years.
"Request" means with respect to the Contractor, a written certificate of
an Authorized Representative of the Contractor specifying the portion of the
Contractor's Project Allotment which the Contractor requests be delivered by
the Authority to the Contractor in each month of a Year in accordance with
Section 4 hereof.
"State" means the State of California, including applicable departments
and agencies thereof.
"State Water Project" means those portions of the State Water Resources
Development System (as defined in Section 12931 of the California Water Code)
which provide water to the Authority pursuant to the State Water Supply
Contract.
"State Water Resources Control Board" means the Water Resources Control
Board of the State of California, and any successor thereto.
"State Water Supply Contract" means the Water Supply Contract between the
State of California Department of Water Resources and the Santa Barbara County
Flood Control and Water Conservation District, dated February 26, 1963, as
amended to the date hereof and as such may be amended and supplemented from
time to time, the rights and obligations under which have been assigned by the
Santa Barbara County Flood Control and Water Conservation District to certain
water purveyors in Santa Barbara County, including the Contractor, pursuant to
the terms of Water Supply Retention Agreements, and which rights and
obligations have been assigned by the Contractor to the Authority pursuant to
the terms of the Water Supply Agreement, and as the same has been amended and
supplemented in accordance with its terms to the date hereof.
"Treatment Plant" means water treatment facilities which are located in
San Luis Obispo or Santa Barbara County and with capacity sufficient so as to
treat the project allotments of all
5
<PAGE> 8
Project Participants, unless otherwise agreed by the Authority and the
Contractor in accordance with Section 4(a) hereof, including all associated
facilities, rights, properties, electrical facilities and improvements
appurtenant thereto as provided and necessary therefor and including
facilities, if any, at or associated with transporting treated water through
Lake Cachuma or the Tecolote Tunnel.
"Trustee" means the entity or entities designated by the Authority
pursuant to any Bond Resolution to administer any funds or accounts required by
such Bond Resolution or otherwise.
"Variable 0 & M Costs" means the operation, maintenance, power,
replacement and other costs, including Project Operation and Maintenance
Expenses and costs and expenses to the Authority under the State Water Supply
Contract and water supply costs at a cost per acre-foot established in
accordance with Exhibit B hereto, incurred by the Authority in connection with
the Project in an amount which is dependent upon and varies with the amount of
water delivered to the Project Participants.
"Water Supply Agreement" means this Agreement and each Water Supply
Agreement by and between the Authority and a Project Participant, as the same
may be amended or supplemented from time to time.
"Water Supply Retention Agreement" means each of the Water Supply
Retention Agreements between the Santa Barbara County Flood Control and Water
Conservation District and certain water purveyors in Santa Barbara County,
including the Contractor and each Project Participant.
"Year" means the twelve-month period from January 1, through December 31,
both dates inclusive.
"Year of Initial Water Delivery" means the Year when Project water will
first be available for delivery pursuant to a Water Supply Agreement.
Section 2. Purpose.
The purpose of this Agreement is to assign certain contractual rights to
water of the Contractor set forth in its Water Supply Retention Agreement to
the Authority, and, upon compliance with necessary federal and state laws,
including but not limited to CEQA, to sell Project Allotment available from the
Project to the Contractor, to provide the terms and conditions of such delivery
and sale. The Contractor acknowledges that the rights to water available to
the Authority pursuant to the State Water Supply Contract, the Water Supply
Retention Agreements and the Water Supply Agreements are subject to the terms
of the State Water Supply Contract, the Water Supply Retention Agreements and
the Water Supply Agreements which includes the limitation that
6
<PAGE> 9
such supply of water is interruptible in accordance with the State Water Supply
Contract.
Section 3. Construction and Operation.
The Authority will use its best efforts to cause or accomplish the
construction, operation and financing of the Project, the obtaining of all
necessary authority and rights, and the performance of all things necessary and
convenient therefor. Subject to Section 10 hereof, the Authority may contract
with any public agency or private company for the design, construction,
operation and maintenance of the Project or any portion thereof; provided that
execution of such contract shall not affect the exclusion of interest on
Authority Bonds from gross income for federal income tax purposes.
Section 4. Delivery of Water From the State Water Project.
(a) Request by Contractor. Pursuant to the terms of this
Agreement, the Authority shall provide to the Contractor, and the Contractor
shall take, or cause to be taken, in each Year an amount of water equal to the
amount set forth in a Request of the Contractor, but in no event shall the
Contractor request nor shall the Authority be obligated to deliver an amount of
water in excess of the Contractor's Project Allotment.
(b) Maximum Project Allotment. Under the State Water Supply
Contract and Section 22 hereof, the Authority is entitled to an amount of water
from the State Water Project equal to the Contractor's Project Allotment and,
pursuant to the terms of this Agreement, the Authority shall make available to
the Contractor its Project Allotment, subject to the availability of water and
the interruption of water supply by the State in accordance with the State
Water Supply Contract.
(c) Points of Delivery. The Authority will do all things
necessary and possible to deliver or cause to be delivered to or for the
account of the Contractor, from water received by the Authority from the State
Water Project, the amount of water specified in each Request at a point along
the Project to be agreed upon by the Authority and the Contractor. The
Authority will remain available to make or cause to be made all necessary and
possible arrangements for transmission and delivery of such water in accordance
with this Agreement.
(d) Procedure for Determining Water Delivery Schedule. The
amounts, times and rates of delivery of water to the Contractor during any Year
shall be in accordance with a water delivery schedule for that Year, such
schedule to be determined in the following manner:
(1) On or before the date which is six weeks prior to the date the
Authority must submit water delivery schedules to the
7
<PAGE> 10
State under the State Water Supply Contract, the Contractor shall submit in
writing to the Authority a preliminary water delivery schedule (subject to the
provisions of the State Water Supply Contract) indicating the amounts of water
desired by the Contractor during each month of the succeeding six (6) Years or
such lesser or greater period as the Authority shall be required under the
State Water Supply Contract to submit the Authority's preliminary water
delivery schedule.
(2) Upon receipt of a preliminary schedule the Authority shall
review it and, after consultation with the Contractor, shall make such
modifications in it as are necessary to insure that the amounts, times, and
rates of delivery to the Contractor will be consistent with the Authority's
overall delivery ability pursuant to the State Water Supply Contract,
considering the then current delivery schedules of all Project Participants.
Each Year, within 15 business days following receipt by the Authority from the
State of the water delivery schedule, which is expected to be received by
December 1 of each Year, the Authority shall determine and furnish to the
Contractor the water delivery schedule for the next succeeding Year which shall
show the amounts of water to be delivered to the Contractor during each month
of that Year.
(3) To the extent the Authority may amend its water delivery
schedule with the State, a water delivery schedule may be amended by the
Authority upon the Contractor's written request. Proposed amendments shall be
submitted by the Contractor within a reasonable time before the desired change
is to become effective, and shall be subject to review and modification by the
Authority in like manner as the schedule itself.
(e) Limit on Peak Deliveries of Water. In no event shall the
Authority contract to deliver to the Contractor from the Project in any one
month of any Year a total amount of water greater than such Contractor's
Project Allotment multiplied by the percentage of water which the Authority is
authorized to receive in any one month of any Year under the State Water Supply
Contract; provided that to the extent that in any one month other Project
Participants shall request less than the applicable percentage of their annual
entitlement for any Year and consistent with the Authority's overall delivery
ability, the Authority shall deliver on a pro rata basis a greater percentage
of the annual entitlement to those Project Participants who shall Request such
delivery in their water delivery schedule for such month; and -provided further
that the percentage provided for above may be revised for a particular Project
Participant after submission to the Authority of that Project Participant's
requests with respect to maximum monthly deliveries, such revisions being
subject to approval by the Authority.
8
<PAGE> 11
(f) Limit on Rate of Delivery to Contractor. In no event shall
the Authority be obligated to deliver water to the Contractor through any
delivery structure at a total combined instantaneous rate of flow exceeding the
cubic feet per second which is determined upon the date of the Initial
Operation Date, except as this rate of flow may be revised by amendment of this
section by mutual agreement of the Authority and the Contractor.
(g) Delivery of water Not Delivered in Accordance with Schedule.
If in any Year the Authority, as a result of causes beyond its control, is
unable to deliver any portion of the Contractor's Project Allotment for such
Year as provided for in the delivery schedule established for that Year, the
Contractor may elect to receive the amount of water which otherwise would have
been delivered to it during such period at other times during the Year or
succeeding Years, to the extent that such water is then available under the
State Water Supply Contract and the Contractor's Water Supply Retention
Agreement and such election is consistent with the Authority's overall delivery
ability, considering the then current delivery schedules of all Project
Participants.
Section 5. Rates and Charges.
(a) Establishment of Rates and Charges. The Authority shall fix
charges to the Contractor under this Agreement to produce revenues to the
Authority from the Project equal to the amounts anticipated to be needed by the
Authority to meet the costs of the Authority to deliver the Contractor's
Project Allotment through the Project, including but not limited to (i) Fixed
Project Costs, (ii) Fixed O&M Costs, and (iii) Variable O&M Costs. The
Authority shall fix charges to the Contractor to produce revenues to the
Authority from the Project to meet the costs described in (i) and (ii) above as
set forth in Section 13 hereof and to meet the cost described in (iii) above
based on Requests of the Contractor for water and the amount of water received
by the Authority from the State water-Project as set forth in Section 13
hereof.
(b) Insufficiency of Funds. Because the funds provided under
Section 5(a) of this Agreement are based on estimates if such funds are not
sufficient for such purposes, the Contractor shall pay to the Authority an
amount equal to such Contractor's share of the total cost to pay Fixed Project
Costs in the proportions established in accordance with Section 13 hereof. The
obligation of this Section is incurred by the Contractor for the benefit of
future owners of Authority Bonds, and shall commence and continue to exist and
be honored by Contractor whether or not water is furnished to it from the
Project at all times or at all (which provision may be characterized as an
obligation to pay all costs on a take-or-pay basis whether or not water is
delivered or provided and whether,or not the Project is completed or is
operable.)
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(c) Source of Payments. The obligation of the Contractor to make
payments under this Agreement is a general obligation of the Contractor.
(d) Obligation Is Not Subject To Reduction. The Contractor shall
make payments under this Agreement whether or not the Project is completed,
operable, operated or retired and notwithstanding the suspension, interruption,
interference, reduction or curtailment of operation of the Project or of water
contracted for in whole or in part for any reason whatsoever. Such payments
are not subject to any reduction, whether offset or otherwise, and are not
conditioned upon performance by the Authority or any other Project Participant
under this Agreement or any other agreement.
(e) Several Obligation. Except as expressly set forth in Section
16(d) hereof, the Contractor shall not be liable under this Agreement for the
obligations of any other Project Participant. The Contractor shall be solely
responsible and liable for performance of its obligations under this Agreement,
including the obligation pursuant to Section 16(d). The obligation of the
Contractor to make payments under this Agreement is a several obligation and
not a joint obligation with those of the other Project Participants.
Section 6. Measurement of Water Delivered.
The Authority shall measure, or cause to be measured, all water delivered
to the Contractor and shall keep and maintain accurate and complete records
thereof. For this purpose, the Authority shall install, operate, and maintain,
or cause to be installed, operated and maintained, at all delivery structures
for delivery of water to the Contractor such measuring devices and equipment as
are satisfactory and acceptable to both parties. Said devices and equipment
shall be examined, tested, and serviced by the Authority regularly to insure
their accuracy. At any time or times, the Contractor may inspect such
measuring devices and equipment, and the measurements and records taken
therefrom.
Section 7. No Authority Responsibility for Delivery and Distribution of
Water by Contractor.
To the extent permitted by law, neither the Authority nor any of its
officers, agents, or employees shall be liable for the control, carriage,
handling, use, disposal, or distribution of water supplied to the Contractor
after such water has passed the delivery structures established in accordance
with Section 4(c) hereof; nor for claim of damage of any nature whatsoever,
including but not limited to property damage, personal injury or death, arising
out of or connected with the control, carriage, handling, use, disposal or
distribution of such water beyond said delivery structures and including
attorneys fees and other costs
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of defense in connection therewith; the Contractor shall indemnify and hold
harmless the Authority and its officers, agents, and employees from any such
damages or claims of damages.
Section 8. Curtailment of Delivery for Maintenance Purposes.
(a) Authority May Curtail Deliveries. The Authority may
temporarily discontinue or reduce the delivery of water to the Contractor
hereunder for the purposes of necessary investigation, inspection, maintenance,
repair, or replacement of any of the Project facilities necessary for the
delivery of water to the Contractor. The Authority shall notify the Contractor
as far in advance as possible of any such discontinuance or reduction, except
in cases of emergency, in which case notice need not be given.
(b) Contractor May Receive Later Delivery of Water Not Delivered.
In the event of any discontinuance or reduction of delivery of water pursuant
to subsection (a) of this Section, the Contractor may elect to receive the
amount of water which otherwise would have been delivered to it during such
period under the water delivery schedule for that Year at other times during
the Year or succeeding Years to the extent that such water is then available
under the State Water Supply Contract and such election is consistent with the
Authority's overall delivery ability, considering the then current delivery
schedules of all Project Participants.
Section 9. Sale or Other Disposition of Project Allotment By Contractor.
The Contractor may sell or otherwise dispose of all or any portion of its
Project Allotment within the Santa Barbara County portion of its Santa Maria
service area or to another Project Participant without approval by the
Authority. The Contractor may otherwise sell or dispose of all or any portion
of its Project Allotment, with the approval of the Authority which approval
shall not be unreasonably withheld, provided that the Authority shall require
that such a sale or other disposition outside of Santa Barbara County shall be
subject to a right of first refusal of all Project Participants on a pro rata
basis to take delivery of such Project Allotment on the same terms and
conditions.
Section 10. Construction of the Project.
(a) Determination of Capacities of Reaches and Treatment Plant.
Unless otherwise determined by the Authority, the Reaches of the Project will
consist of the Mission Hills I Reach, Mission Hills II Reach, Santa Ynez I
Reach and Santa Ynez II Reach, each as identified in the map attached hereto
as Exhibit E, with a turnout for the Contractor as determined by the
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Authority, upon consultation with the Contractor. Unless otherwise agreed by
the Authority and the Contractor, the Treatment Plant will have sufficient
capacity to serve the Contractor.
Subject to the rights of the Contractor under subdivision (b) of this
Section and the other provisions of this Agreement, the Authority shall provide
in each Reach of the Project such maximum monthly delivery capacity for the
transport and delivery of water to the Contractor and shall provide in the
Treatment Plant such maximum monthly treatment plant capacity as, in the
judgment of the Authority, will best serve the interests of the Contractor and
all other Project Participants entitled to delivery of water from or through
the Project.
(b) Criteria for Determining Capacity of Project. Subject to the
State Water Supply Contract, the Authority shall design and construct the
Project with the Reaches and Treatment Plant capacity determined as set forth
in subsection (a) of this Section and necessary to enable delivery of water in
each Year to the Contractor and to other Project Participants in the maximum
monthly amounts and at the locations, times, and maximum rates specified or
provided for in the respective Water Supply Agreements for such Year, and shall
include in each such Reach such capacity determined as is set forth in
subsection (a) of this Section which capacity is estimated to compensate for
scheduled outages for purposes of necessary investigation, inspection,
maintenance, repair or replacement of Project facilities, and for losses of
water due to evaporation, leakage, seepage, or other causes; provided, that
regulatory storage reservoirs included in the Project transportation facilities
may be utilized in conjunction with conveyance capacity provided in the Project
for delivery to the Contractor of the foregoing monthly amounts.
(c) Inspection of Project Plans and Specifications; Preparation of
Bid Materials; Award of Contracts. The Contractor shall have a reasonable
opportunity to inspect and study the Authority's plans and specifications for
all Project facilities and may make comments and recommendations thereon to the
Authority. Unless otherwise determined by the Authority, the Authority shall
prepare and put out to public bid a single set of bid materials (which may
include multiple schedules) relating to construction and acquisition of each
Reach and of the Treatment Plant. Prior to the award of any such contract or
contracts, the Authority shall determine whether the total amount of such
contract or contracts, together with contracts previously awarded with respect
to the Project, together with the estimated costs for those portions of the
Project for which contracts have not been awarded as determined by a Consulting
Engineer, can be funded from the proceeds derived from Authority Bonds,
estimated proceeds to be derived from any authorized but unissued Authority
Bonds and other amounts then on deposit with the Authority and
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legally available therefor, including estimated investment earnings thereon.
The Authority shall not award any contracts which would cause the Authority to
be obligated for an amount which is in excess of the proceeds to be derived
from Authority Bonds and other amounts on deposit with the Authority and
legally available for the Project.
(d) Failure to Complete the Project. Subject to the Water Supply
Retention Agreements and notwithstanding the limitation contained in the second
paragraph of subsection (b) of Section 13 hereof, in the event that the Project
cannot be completed from the proceeds of Authority Bonds and other amounts on
deposit with the Authority and legally available therefor, unless the Authority
otherwise determines by a 2/3rd vote (computed in accordance with the Joint
Powers Agreement), the Contractor shall be obligated to advance, upon
reasonable notice, its pro rata share of the costs to complete the Project as a
Fixed Project Cost notwithstanding the fact that the Contractor is receiving or
may receive delivery of its Project Allotment through the portion of the
Project already completed. Notwithstanding the foregoing, in the event that
the Authority fails or is unable to complete construction of any portion or
portions of the Project necessary to deliver water to the Contractor, and gives
the Contractor written notice thereof, or by reason of such failure or
inability to construct said facilities construction has ceased for a period of
one (1) Year, the Contractor, if it is not then in default and without
exclusion of such other rights as it may have under this Agreement, shall
exercise one of following options:
(1) The Contractor may, together with other Project
Participants, contribute funds to the Authority in such amounts and at
such times as may be necessary to enable the Authority to complete
construction of such uncompleted portion or portions of the Project to
the extent necessary for the transport and delivery of water to the
Contractor and such other Project Participants; provided that the
Authority shall be and remain the owner of such Project facilities or
portions thereof constructed in whole or in part with funds provided
by the Contractor, and shall be and remain obligated to operate,
maintain, repair and replace such Project facilities to the full
extent contemplated in this Agreement; provided further, that the
Contractor shall be and remain obligated to pay its share of any Fixed
Project Costs of the above-described Project facilities not paid for
with such contributed funds, together with its share of the costs and
expenses relating to the Project, including Variable O&M Costs and
Fixed O&M Costs.
(2) The Contractor may at its own expense, and on a
joint venture basis if such an arrangement is made with other Project
Participants having similar options, connect to the Project for the
purpose of receiving water to which
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it is entitled under this Agreement. In such event and
notwithstanding any other provisions of this Agreement, the structures
for delivery of water to the Contractor pursuant hereto shall
thereafter be deemed to be located at such point of connection.
Specific arrangements for acquiring, constructing, operating,
maintaining and replacing the Contractor's facilities at the point of
connection thereof with the Authority's Project facilities shall be in
accordance with terms and conditions mutually agreed upon by the
parties; provided, that the Authority shall be and remain the owner of
all facilities constructed by it to said point of connection, and the
Contractor shall be and remain obligated to pay its share of the costs
and expenses relating to the Project, including Fixed Project Costs,
Variable O&M Costs and Fixed O&M Costs.
Section 11. Shortage in Water Supply.
(a) Temporary Shortages; Delivery Priorities. In any Year in
which there may occur a shortage or interruption due to drought or other
temporary cause in the supply of water available for delivery to the
Contractor, with the result that such supply is less than the total of the
annual Project Allotments of all Project Participants for that Year, the
Authority shall reduce the delivery of water to the Contractor based upon water
use in accordance with the State Water Supply Contract.
(b) Permanent Shortage Entitlements. In the event that the State
is unable to construct sufficient additional conservation facilities to prevent
a reduction in the minimum State Water Project yield, or if for any other
reason there is a reduction in the minimum State Water Project yield, which,
notwithstanding preventive or remedial measures taken or to be taken by the
State, threatens a permanent shortage in the supply of State Water Project
water to be made available to the Authority under the State Water Supply
Contract, the Project Allotment of the Contractor shall be reduced in
accordance with-the State Water Supply Contract.
(c) No Liability for Shortages. Neither the Authority nor any of
its officers, agents, or employees shall be liable for any damage, direct or
indirect, arising from the shortages in the amount of water to be made
available for delivery to the Contractor under this Agreement caused by
non-availability of water to the Authority under the State Water Supply
Contract or caused by drought, operation of area of origin statutes, or any
other cause beyond its control.
(d) Wheeling During Shortages. In the event that the Contractor's
Project Allotment has been temporarily or permanently reduced, the Contractor
may direct the Authority to deliver water acquired by the Contractor outside of
Santa Barbara County and delivered through the Coastal Aqueduct, up to an
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amount equal to such reduction, subject to the Authority's overall delivery
ability considering the then current delivery schedule of all Project
Participants and subject to water quality requirements reasonably approved by
the Authority. For purpose of Section 13 hereof, such water shall be treated
as Project Allotment and the Authority shall not charge any fee in connection
with the delivery of such water except Fixed O&M Costs and Variable O&M Costs
which would be allocable to such Contractor's Project Allotment.
Section 12. Annual Budget and Billing Statement.
Following receipt by the Authority from the State of a written statement
of the credits and charges to the Authority under the State Water Supply
Contract, the Board of Directors of the Authority will adopt an annual budget
for the applicable Year for credits, costs and expenses relating to the
Project, including Fixed Project Costs, Variable O&M Costs and Fixed O&M Costs
and shall promptly give notice to each Project Participant of its projected
share of such credits, costs and expenses; provided that in the event that the
Authority shall not receive the written statement of credits and charges from
the State by May 15 of any Year, the Board of Directors of the Authority shall
adopt an annual budget by June 15 of such Year based upon its best estimates of
credits, costs and expenses relating to the Project so that the Contractor may
incorporate the applicable portion of such estimated credits, costs and
expenses in its budget.
Section 13. Allocation of Costs and Expenses.
For the purpose of allocations of costs and expenses pursuant to this
Agreement, the Project shall be allocated (i) to such Reaches as are determined
by the Authority to be necessary for such allocations of costs and (ii) to the
Treatment Plant. Subject to such modifications as are determined by the
Authority to be required by reason of any Request furnished by the Contractor
to the Authority pursuant to Section 4 of this Agreement, or by reason of Water
Supply Agreements entered into by the Authority with other Project
Participants, the Reaches of the Project are to be established as set forth in
Section 10 of this Agreement. Except as permitted herein, the Authority shall
not allocate costs and expenses in any way which discriminates among Project
Participants which take delivery through the same Reaches.
(a) Method of Computation of Fixed Project Costs. The Fixed
Project Costs shall be sufficient to return to the Authority those capital
costs of the Project necessary to treat and deliver water to the Contractor
which are allocated to the Contractor pursuant to subdivision (b) oil this
Section.
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(b) Allocation of Fixed Project Costs Among Contractors. The total
amount of Fixed Project Costs of each Reach of the Project utilized by the
Contractor shall be allocated to the Contractor based upon the ratio of the
Project Allotments of the Contractor to the Project Allotments of all Project
Participants (other than the City of Santa Maria, the Contractor and Vandenberg
Air Force Base) utilizing such Reach are determined. The total amount of Fixed
Project Costs of the Treatment Plant shall be allocated to the Contractor as
provided in subsection (h) of this Section.
Under no circumstances shall the Contractor be allocated Debt Service,
reserves for payment of debt service or other payments under the Bond
Resolution. If the Project costs less than the total amount of Authority Bond
proceeds and other amounts deposited with the Authority and legally available
therefor, the Authority shall return to the Contractor its pro rata share of
excess moneys.
(c) Method of Computation of Fixed O&M Costs. The Fixed O&M Costs
shall return to the Authority those costs of the Project necessary to deliver
water to the Project Participants which constitute Fixed O&M Costs incurred
irrespective of the amount of water delivered to the Project Participants and
which are allocated to the Project Participants pursuant to subsection (d)
below; provided that to the extent permitted by law, the Authority may
establish reasonable reserve funds to meet anticipated minimum replacement
costs; and provided further deposits in such reserve funds by the Authority
shall be made in such amounts so that such reserve funds will be adequate to
meet such anticipated costs as they are incurred and shall be deemed to be a
part of the Fixed O&M Costs for the Year in which such deposits are made.
(d) Allocation of Fixed O&M Costs. The total amount of Fixed O&M
Costs of the Treatment Plant for the respective Year shall be allocated to the
Contractor as provided in subsection (h) of this Section. The total amount of
Fixed O&M Costs of each Reach of the Project for the respective Year shall be
allocated among all Project Participants entitled to delivery of water from or
through each Reach based upon the ratio of the Project Allotment of each
Project Participant to which water is delivered through the Reach to the total
Project Allotment of all Project Participants to which water is delivered
through the Reach.
Fixed O&M Costs as are incurred generally for the Project first shall be
allocated to the Treatment Plant and to each Reach in an amount which bears the
same proportion to the total amount of such general costs that the amount of
the costs incurred directly for the Treatment Plant and for the Reach bears to
the total of all direct costs for the Treatment Plan and all Reaches.
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The projected amounts of Fixed O&M Costs to be allocated annually to the
Contractor shall be determined by the Authority in accordance with the cost
allocation principles and procedures set forth in this Section, which
principles and procedures shall be controlling as to allocations of Fixed O&M
Costs to the Contractor. The Contractor authorizes the Authority to set forth
the appropriate percentages in Exhibit G of this Agreement as soon as design
and cost estimates are prepared by it subsequent to receipt of requests from
the Project Participants as to the maximum monthly delivery capability to be
provided in each Reach for transport and delivery of water to the Project
Participants and to revise the percentages from time to time in accordance with
the cost allocation principles and procedures set forth in this Section.
(e) Method of Computation of Variable O&M Costs. The Variable
O&M Costs shall return to the Authority those costs of the Project which
constitute Variable O&M Costs incurred in an amount which is dependent upon and
varies with the amount of water delivered to the Contractor and which are
allocated to the Contractor pursuant to subsection (f) of this Section;
provided that to the extent permitted by law, the Authority may establish
reasonable reserve funds to meet anticipated Variable O&M Costs; and provided
further deposits in such reserve funds by the Authority shall be made in such
amounts so that such reserve funds will be adequate to meet such anticipated
costs as they are incurred and shall be deemed to be a part of the Variable O&M
Costs for the Year in which such deposits are made.
(f) Allocation of Variable O&M Costs. The total amount of
Variable O&M Costs of the Treatment Plant shall be allocated to the Contractor
as provided subsection (h) of this Section. There shall be computed for each
Reach of the Project a charge per acre-foot of water which will return to the
Authority the total projected Variable 0&M Costs of each Reach for the
respective Year. The amount of the Variable O&M Costs for each Reach of the
Project shall be the sum of the products obtained when the charges per
acre-foot of water determined above for each Reach necessary to deliver water
to the Contractor are multiplied by the number of acre-feet of water delivered
to the Contractor from or through that Reach during the Year; provided, that
when water has been requested by a Contractor and delivery thereof has been
commenced by the Authority, and, through no fault of the Authority, such water
is wasted as a result of failure or refusal by the Contractor to accept
delivery thereof, the amount of said Variable O&M Costs to be paid by such
Contractor during such period shall be the product of the above sum and the sum
of the number of acre-feet of water delivered to the Contractor and the number
of acre-feet wasted.
(g) Revenue From Power Recoverv Plants. There shall be credited
against the amount of the Variable O&M Costs to be paid by the Contractor, as
determined pursuant to subdivision (e) of
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this Section, a portion of the projected net value of any power recovered
during the respective Year at Project power recovery plants located upstream
from the delivery structures for delivery of water to the Contractor. Such
portion shall be in an amount which bears the same proportion to said projected
net value that the number of acre-feet of water delivered to the Contractor
through said plants during the Year bears to the number of acre-feet of water
delivered to all Project Participants through said plants during the Year.
(h) Treatment Plant. The allocation of Fixed Project Costs,
Fixed O&M Costs and Variable O&M Costs with respect to the Treatment Plant
shall be allocated among the Project Participants in accordance with provisions
determined by the Authority prior to the issuance of Authority Bonds; provided,
that the formula shall be agreed upon by (i) Project Participants with a
majority of Project Allotment taking delivery of Project Allotment north of the
terminus of Mission Hills II Reach, (ii) Project Participants with a majority
of Project Allotment taking delivery of Project Allotment south of the terminus
of Mission Hills II Reach and north of the terminus of Santa Ynez I Reach, and
(iii) Project Participants with a majority of Project Allotment taking delivery
of Project Allotment south of the terminus of Santa Ynez I Reach.
Section 14. Determination of Costs and Expenses.
The Authority shall determine the values and amounts of Fixed Project
Costs, Fixed O&M Costs and Variable O&M Costs in order that the costs and
expenses to the Contractor may accurately reflect increases or decreases from
Year to Year in projected costs, annual Project Allotments, estimated
deliveries, and all other factors which are determinative of such charges. In
addition, each such determination shall include an adjustment to be paid by the
Contractor for succeeding Years which shall account for the differences, if
any, between projections of costs used by the Authority in determining the
amounts of said costs and expenses for all preceding Years and actual costs
incurred by the Authority during such Years.
Section 15. Time and Method of Payment.
(a) Initial Payment - Fixed Project Costs. Payments by the
Contractor of the Fixed Project Costs shall commence on the date which is 30
days subsequent to the effectiveness of this Section in accordance with Section
26 hereof and shall occur on June 1 of each Year thereafter.
(b) Initial Payment - Fixed O&M Costs. Payments by the
Contractor of the Fixed O&M Costs shall commence for the Treatment Plant and
each Reach on the June 1 preceding the estimated Year of the Initial Operation
Date.
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(c) Initial Payment - Variable O&M Costs. Payments by the
Contractor of the Variable O&M Costs shall commence on the January 1, April 1,
July 1 or October 1 which is closest to, but is at least three months
immediately preceding, the date on which initial water delivery is estimated to
be made to the Contractor.
(d) Statement of Charges. The Authority shall within 30 days of
the receipt from the State of the written statement of the charges to be paid
by the Authority and credits to be received by the Authority under the State
Water Supply Contract (but in no event later than June 15 of each Year),
furnish the Contractor with a written statement of the estimated Fixed Project
Costs and Fixed O&M Costs of the Contractor for the next succeeding Fiscal
Year, taking into account applicable credits received by the Authority and
estimated investment earnings on moneys related to the Project held by the
Authority; provided, that amounts paid to the Authority for Fixed Project Costs
shall not be invested at a yield or in any manner, which would result in
interest on any Authority Bonds being includable in gross income for federal
income tax purposes. The Authority shall, on or before March 15, June 15,
September 15 and December 15 of each Year, commencing with the Fiscal Year in
which the Initial Operation Date is estimated to occur furnish the Contractor
with a statement of the charges to the Contractor for the Variable O&M Costs
for the three-month period commencing on the July 1, October 1, January 1 or
April 1, commencing three and one-half months subsequent to such date.
(e) Times of Payment - Fixed Project Costs. The Contractor shall
pay to the Authority, on or before June 1 of each Year, commencing as set forth
in subsection (a) of this Section, 100% of the charge to the Contractor for the
next succeeding Fiscal Year of the Fixed Project Costs.
(f) Times of Payment - Fixed O&M Costs. The Contractor shall pay
to the Authority, on or before June 1 of each Year commencing with the Year
preceding the Year of, anticipated initial water delivery to the Contractor, the
sum of the charges to the Contractor for the Year or partial Year for the Fixed
O&M Costs.
(g) Times of Payment - Variable O&M Costs. The Contractor shall
pay to the Authority the charges to the Contractor for the Variable O&M Costs
for the three-month period commencing on the next succeeding January 1, April
1, July 1 or October 1 so that the Authority receives quarterly payments of
Variable O&M Costs three months in advance of the time when such Variable O&M
Costs will begin to be incurred by the Authority.
(h) Contest of Accuracy of Charges. If a Contractor questions or
disputes the correctness of any billing statement by the Authority, it shall
pay the Authority the amount claimed when due and shall within thirty (30) days
of receipt of such billing
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statement request an explanation from the Authority. If the bill is determined
to be incorrect, the Authority will adjust the bill to such Contractor in the
next Fiscal Year. If the Authority and the Contractor fail to agree on the
correctness of a bill, within thirty (30) days after the Contractor has
requested an explanation, the parties shall promptly submit the dispute to
arbitration under Section 1280 et seq. of the Code of Civil Procedure.
Section 16. Obligation in the Event of Default.
(a) Written Demand Upon Failure to Make Payment. Upon failure of
the Contractor to make any payment in full when due under this Agreement or to
perform any other obligation hereunder, the Authority shall make written demand
upon the Contractor, and if said failure is not remedied within thirty (30)
days from the date of such demand or, if Authority Bonds are outstanding, for
such additional time as is reasonably required, in the sole discretion of the
Trustee, to correct the same, such failure shall constitute a default at the
expiration of such period. Notice of such demand shall be provided to each
other Project Participant by the Authority. Upon failure of the Authority to
perform any obligation of the Authority hereunder, the Contractor shall make
written demand upon the Authority, and if said failure is not remedied within
thirty (30) days from the date of such demand or, if Authority Bonds are
outstanding, for such additional time as is reasonably required, in the sole
discretion of the Trustee, to correct the same, such failure shall constitute a
default at the expiration of such period. Notice of such demand shall be
provided to each Project Participant by the Contractor making such written
demand.
In addition to any default resulting from breach by the Authority or the
Contractor of any agreement, condition, covenant or term hereof, if the
Authority or the Contractor shall file any petition or institute any
proceedings under any act or acts, state or federal, dealing with or relating
to the subject of bankruptcy or insolvency or under any amendment of such act
or acts, either as a bankrupt or as an insolvent or as a debtor or in any
similar capacity, wherein or whereby the Authority or the Contractor asks or
seeks or prays to be adjudicated a bankrupt, or is to be discharged from any or
all of its debts or obligations, or offers to its creditors to effect a
composition or extension of time to pay its debts, or asks, seeks or prays for
a reorganization or to effect a plan of reorganization or for a readjustment of
its debts or for any other similar relief, or if the Authority or the
Contractor shall make a general or any assignment for the benefit of its
creditors, then in each and every such case the Authority or the Contractor, as
the case may be, shall be deemed to be in default hereunder.
(b) Transfer for Defaulting Contractor's Account. Upon the
failure of the Contractor to make any payment which failure
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constitutes a default under this Agreement, the Authority shall use its best
efforts to transfer for the Contractor's account all or a portion of the
Contractor's Project Allotment for all or a portion of the remainder of the
term of this Agreement. Notwithstanding that all or any portion of the
Contractor's Project Allotment is so transferred, the Contractor shall remain
liable to the Authority to pay the full amount of its share of costs hereunder
as if such sale or transfer has not been made, except that such liability shall
be discharged to the extent that the Authority shall receive payment from the
transferee thereof.
(c) Termination of Entitlement to Project Allotment; Continuing
Obligations. Upon the failure of the Contractor to make any payment which
failure constitutes a default under this Agreement and causes the Authority to
be in default under the State Water Supply Contract or any Bond Resolution, the
Authority may (in addition to the remedy provided by subsection (b) of this
Section) terminate the provisions of this Agreement insofar as the same entitle
the Contractor to its Project Allotment. Irrespective of such termination, the
obligations of the Contractor shall remain liable to the Authority to pay the
full amount of costs hereunder this Agreement shall continue in full force and
effect.
(d) Increase in Nondefaulting Contractor Costs. Upon the failure
of any Project Participant taking delivery of its Project Allotment north of
the terminus of the Mission Hills II Reach to make any payment which failure
constitutes a default under its respective Water Supply Agreement, and except
as transfers are made pursuant to subsection (b) of this Section of the
applicable Water Supply Agreement, (i) the Fixed Project Costs, Fixed O&M Costs
and Variable O&M Costs of each nondefaulting Project Participant taking
delivery of its respective Project Allotment north of the terminus of the
Mission Hills II Reach shall be automatically increased for each Year of the
remaining term of the applicable water Supply Agreement pro rata with those of
the other nondefaulting Project Participant taking-delivery of its Project
Allotment north of the terminus of the Mission Hills II Reach and (ii) such
defaulting Project Participant's Project Allotment shall be reduced
correspondingly; provided, however, that the sum of such increases for any such
nondefaulting Project Participant in any Year shall not exceed, without written
consent of such nondefaulting Project Participant, an accumulated maximum of
25% of the nondefaulting Project Participant's Fixed Project Costs (computed
for this purpose as if each Project Participant had financed its share of
Project costs through the issuance of Authority Bonds), Fixed O&M Costs and
Variable O&M Costs in such Year determined as nearly as practicable under the
circumstances as if the defaulting Project Participant were not in default.
Upon payment of such increase, a nondefaulting Project Participant shall be
entitled to take delivery of its pro rata share of such defaulting Project
Participant's Project Allocation.
21
<PAGE> 24
Upon the failure of any Project Participant taking delivery of its Project
Allotment south of the terminus of the Mission Hills II Reach to make any
payment which failure constitutes a default under its respective Water Supply
Agreement, and except as transfers are made pursuant to subsection (b) of this
Section of the applicable Water Supply Agreement, (i) the Fixed Project Costs,
Fixed O&M Costs and Variable O&M Costs of each nondefaulting Project
Participant taking delivery of its respective Project Allotment south of the
terminus of the Mission Hills II Reach shall be automatically increased for
each Year of the remaining term of the applicable Water Supply Agreement pro
rata with those of the other nondefaulting Project Participant taking delivery
of its Project Allotment south of the terminus of the Mission Hills II Reach
and (ii) such defaulting Project Participant's Project Allotment shall be
reduced correspondingly; provided, however, that the sum of such increases for
any such nondefaulting Project Participant in any Year shall not exceed,
without written consent of such nondefaulting Project Participant, an
accumulated maximum of 25% of the nondefaulting Project Participant's Fixed
Project Costs (computed for this purpose as if each Project Participant had
financed its share of Project costs through the issuance of Authority Bonds),
Fixed O&M Costs and Variable O&M Costs in such Year determined as nearly as
practicable under the circumstances as if the defaulting Project Participant
were not in default. Upon payment of such increase, a nondefaulting Project
Participant shall be entitled to take delivery of its pro rata share of such
defaulting Project Participant's Project Allocation.
(e) Right of Recovery From Defaulting Project Participant. If a
Project Participant shall fail or refuse to pay any amounts due to the
Authority, the fact that the Project Participant has increased its obligation
to make such payments shall not relieve the defaulting Project Participant of
its liability for such payments, and the Project Participant shall have a right
of recovery from the defaulting Project Participant to the extent of such
respective increase in obligation caused by the defaulting Project Participant.
(f) Enforcement of Remedies. In addition to the remedies set
forth in this Section, upon the occurrence of an Event of Default as defined
herein, the Authority or the Contractor, as the case may be, shall be entitled
to proceed to protect and enforce the rights vested in such party by this
Agreement by such appropriate judicial proceeding as such party shall deem most
effectual, either by suit in equity or by action at law, whether for the
specific performance of any covenant or agreement contained herein or to
enforce any other legal or equitable right vested in such party by this
Agreement or by law. The provisions of this Agreement and the duties of each
party hereof, the respective boards, officers or employees shall be enforceable
by the other party hereto by mandamus or other appropriate suit, action or
proceeding in any court of competent jurisdiction, with
22
<PAGE> 25
the losing party paying all costs and attorney fees. Without limiting the
generality of the foregoing, the Authority or the Contractor, as the case may
be, shall have the right to bring the following actions:
(1) Accounting. By action or suit in equity to require
the board of the Authority or the Contractor, its officers and
employees and its assigns to account as the trustee of an express
trust.
(2) Injunction. By action or suit in equity to enjoin
any acts or things which may be unlawful or in violation of the rights
of the Authority or the Contractor, as the case may be.
In addition, in the event of a dispute between the Authority or the
Contractor with respect to the terms of the Agreement, the Authority and the
Contractor agree to submit such matter to arbitration under Section 1280 et
seq. of the Code of Civil Procedure with the losing party paying all costs and
attorney fees.
(g) Waiver. The waiver by the Authority or the Trustee of any
breach by the Contractor of any agreement, condition, covenant or term hereof
shall not operate as a waiver of any subsequent breach of the same or any other
agreement, condition, covenant or term hereof.
(h) Trustee is Third Party Beneficiary. Any Trustee for Authority
Bonds shall have the right, as a third party beneficiary, to initiate and
maintain suit to enforce this Agreement to the extent provided in any Bond
Resolution.
Section 17. Unutilized Project Allotment.
When the Contractor has a Project Allotment that exceeds that Contractor's
needs or demands in any one Year, the Authority shall, if requested by the
Contractor to do so, transfer unutilized Project Allotment in the following
manner:
(a) The Authority shall use its best efforts to transfer
such unutilized Project Allotment at a cost at least equal to the
Contractor's Fixed Project Costs, Fixed O&M Costs, Variable O&M Costs,
and any other reasonable identifiable costs therefor with respect to
such unutilized Project Allotment and credit such payments received
therefor to the Contractor; provided that if the Authority has
received requests from Project Participants to transfer more State
Water Project water than can be transferred, the Authority shall
transfer unutilized State Water Project water on a pro rata basis
based upon such requesting Project Participants' Project Allotments.
23
<PAGE> 26
(b) Other Project Participants shall have a
right of first refusal to take delivery of the Contractor
unutilized Project Allotment, at the costs set forth in
subsection (a) of this Section.
In the event the Authority is unable to transfer unutilized Project
Allotment, the provisions of Section 5 hereof shall apply. To the extent that
the Authority is unable to transfer the Contractor's unutilized Project
Allotment to other Project Participants, the Authority may make such unutilized
Project Allotment available to other water purveyors within Santa Barbara
County; provided that the Contractor shall not be relieved of any of its
obligations hereunder as a result of such water being made available to other
water purveyors.
Nothing in this Section shall affect the rights of the Contractor to sell
or otherwise dispose of its Project Allocation in accordance with Section 9
hereof.
Section 18. Transfers, Sales and Assignments of Project Allotment.
(a) Transfer of Project Allotment. The Contractor has rights to
make voluntary transfers, sales, assignments and exchanges (collectively
"transfers") of its rights under this Agreement only as expressly provided in
this Agreement.
(b) Transfer of Ownership. The Contractor shall not transfer
ownership of all or any substantial portion of rights under this Agreement to
another entity until it has first complied with the provisions of this
subsection.
(1) Such disposition or transfer shall be under terms
and conditions that provide assurance that the obligations of the
Contractor under this Agreement, and that the Authority's obligations
under this Agreement, and any Bond Resolution, and under other
agreements made or to be made by the Authority to carry out the
Project, will be promptly and adequately met. The Authority may
require that sufficient moneys of the Contractor to discharge such
obligations be irrevocably set aside and maintained in a trust
account, as a condition to the transfer all or a portion of its rights
under this Agreement, if no other adequate assurance is available.
(2) The Contractor shall give ninety (90) days advance
written notice to the Authority of any proposed transfer pursuant to
this subsection. Appendix A to this Agreement shall be amended as
appropriate to reflect any transaction pursuant to this subsection.
(c) Maintenance of Tax-Exempt Status of Authority Bonds.
Notwithstanding any other provision of this Agreement, the
24
<PAGE> 27
Contractor shall not transfer, assign, sell or exchange any portion of the
Project Allotment, directly or indirectly, in any manner, and shall not take or
permit to be taken any other action or actions, which would result in any of
the Authority Bonds being treated as an obligation not described in Section
103(a) of the Internal Revenue Code of 1986, as amended, by reason of
classification of such Authority Bond as a "private activity bond" within the
meaning of Section 141 of said Code or for any other reason.
Section 19. Additional Project Participants.
(a) Additional Project Participants. The Contractor acknowledges
that the Authority may enter into Water Supply Agreements with Additional
Project Participants subsequent to the execution of this Agreement to the
extent the Authority determines that sufficient capacity exists to supply such
Additional Project Participant's Project Allotment consistent with the
Authority's overall delivery abilities. Upon execution of a Water Supply
Agreement with an Additional Project Participant, the Authority shall promptly
provide to the Contractor a revised Exhibit A to this Agreement setting forth
the revised list of Project Allotments of the Project Participants. No Water
Supply Agreement with an Additional Project Participant shall affect the
Contractor's Project Allotment. The Water Supply Agreement with such
Additional Project Participant shall establish a price (which may be $O) to be
paid by the Additional Project Participant to the Contractor an amount which
reasonably compensates the Contractor for Fixed Project Costs and Fixed O&M
Costs previously paid by the Contractor which are fairly allocable to the
Additional Project Participant.
(b) Maintenance of Tax-Exempt Status of Authority Bonds.
Notwithstanding any other provision of this Agreement, the Authority shall not
execute a Water Supply Agreement with an Additional Project Participant if
execution of such Water Supply Agreement would result in any of the Authority
Bonds being treated as an obligation not described in Section 103(a) of the
Internal Revenue Code of 1986, as amended, by reason of classification of such
Authority Bond as a "private activity bond" within the meaning of Section 141
of said Code.
Section 20. Covenants of the Contractor.
(a) Accounting Records and Financial Statements.
(i) The Contractor will keep appropriate accounting
records in which complete and correct entries shall be made of all
transactions relating to the Contractor's Project Allotment, which
records shall be available for inspection by the Authority and the
Trustee at reasonable hours and under reasonable conditions.
25
<PAGE> 28
(ii) The Contractor will prepare and file with the
Authority annually within one hundred eighty (180) days after the
close of each Contractor fiscal year (commencing with the fiscal year
ending December 31, 1994) financial statements of the Contractor for
the preceding Fiscal Year prepared in accordance with generally
accepted accounting principles, together with an Accountant's Report
thereon. The Contractor will promptly furnish a copy of such
Accountants Report to the Authority and to the Trustee.
(b) Protection of Security and Rights of the Authority. The
Contractor will preserve and protect the rights of the Authority and the
Trustee to the obligations of the Contractor hereunder and will warrant and
defend such rights against all claims and demands of all persons.
(c) Further Assurances. The Contractor will adopt, deliver,
execute and make any and all further assurances, instruments and resolutions as
may be reasonably necessary or proper to carry out the intention or to
facilitate the performance hereof and for the better assuring and confirming
unto the Authority and the Trustee of the rights and benefits provided to them
herein.
Section 21. Covenants of the Authority.
(a) The Authority shall procure and maintain or cause to be
procured and maintained insurance on the Project with responsible insurers so
long as such insurance is available from reputable insurance companies, or,
alternatively, shall establish a program of self- insurance, or participate in
a joint powers agency providing insurance or other pooled insurance program,
covering such risks, in such amounts and with such deductibles as shall be
determined by the Authority. The Authority shall indemnify and hold harmless
the Contractor from any liability for personal injury or property damage
resulting from any accident or occurrence arising out of or in any way related
to the construction or operation of the Project; provided, however, that such
liability of the Authority shall be limited to the extent the proceeds of
insurance and other moneys available to the Authority hereunder are available
therefor.
(b) Accounting Records and Financial Statements.
(i) The Authority will keep appropriate accounting
records in which complete and correct entries shall be made of all
transactions relating to the Project, which records shall be available
for inspection by the Contractor at reasonable hours and under
reasonable conditions.
(ii) The Authority will prepare annually within one
hundred eighty (180) days after the close of each Fiscal Year
(commencing with the Fiscal Year ending June 30, 1992)
26
<PAGE> 29
financial statements of the Authority for the preceding Fiscal Year
prepared in accordance with generally accepted accounting principles,
together with an Accountant's Report thereof. The Authority will
promptly furnish a copy of such Accountant's Report to the Contractor
and to the Trustee.
(c) The Authority shall comply with all state and federal laws
applicable to the Authority and the Project, including but not limited to CEQA.
Section 22. Assignment of Contractor Rights under Water Supply Retention
Agreement.
The Contractor hereby irrevocably assigns to the Authority all of its
rights and obligations under the Water Supply Retention Agreement to 500 acre
feet per year of the contractor's entitlement thereunder provided however that
in the event that the Contractor's Project Allotment in less than its
entitlement under the Water Supply Retention Agreement, such assignment shall
not include the Contractor's entitlement thereunder in excess of its Project
Allotment.
Section 23. Term.
(a) No provision of this Agreement shall take affect until it has
been duly executed and delivered to the Authority together with an opinion of
0'Melveny & Myers in substantially the form attached hereto as Exhibit C, an
opinion for the Authority of Brown & Wood, Special Counsel to the Authority, in
substantially the form attached hereto as Exhibit D and receipt by the
Authority of $687,080.90 or a letter of credit in form and substance
satisfactory to the Authority as a deposit to be applied to payment of
Fixed Project Costs.
(b) The term of this Agreement shall continue until the later of
(i) the termination of the State Water Supply Contract or (ii) the date on
which no Authority Bonds remain outstanding.
Section 24. Assignment.
The Authority may pledge and assign to any Trust for Authority Bonds,
all or any portion of the payments received under this Agreement from the
Contractor and the Authority's other rights and interests under this
Agreement. Such pledge and assignment by the Authority shall be made effective
for such time as the Authority shall determine and provide that the Trustee
shall have the power to enforce this Agreement in the event of a default by the
Authority under a Bond Resolution. The Contractor may assign its rights under
this Agreement only in accordance with Section 18 hereof.
27
<PAGE> 30
Section 25. Termination and Amendments.
This Agreement shall not be subject to termination by any party under any
circumstances, whether based upon the default of any other party under this
Agreement, or any other instrument, or otherwise, except as specifically
provided herein.
Except as otherwise provided in this Agreement, on and after the date
Authority Bonds are issued and so long as any Authority Bonds are outstanding
in accordance with the applicable Bond Resolution, Section 5(a), (c) and (d),
13(a) and (b), 15(a) and (e), 16, 20, 22 and 23 of this Agreement shall not be
amended, modified or otherwise changed or rescinded by agreement of the parties
without the consent of each Trustee for Authority Bonds whose consent is
required under the applicable Bond Resolution. This Agreement may only be
otherwise amended, modified, changed or rescinded in writing by each of the
parties hereto.
Notwithstanding the foregoing, the sections of this Agreement set forth in
the prior paragraph of this Section may be amended without the consent of each
Trustee for Authority Bonds for any of the following purposes:
(a) to add to the agreements, conditions, covenants and terms
contained herein required to be observed or performed by the Authority or the
Contractor other agreements, conditions, covenants and terms hereafter to be
observed or performed by the Authority or the Contractor, or to surrender any
right reserved herein to or conferred herein on the Authority or the
Contractor, and which in either case shall not adversely affect the interests
of the owners of any Authority Bonds;
(b) to make such provisions for the purpose of curing any
ambiguity or of correcting, curing or supplementing any defective provision
contained herein or in regard to questions arising hereunder which the
Authority or the Contractor may deem desirable or necessary and not
inconsistent herewith, and which shall not materially adversely affect the
interests of the owners of any Authority Bonds;
(c) to make any modifications or changes necessary or appropriate
in the opinion of a firm of nationally recognized standing in the field of law
relating to municipal bonds to preserve or protect the exclusion from gross
income of interest on the Authority Bonds for federal income tax purposes;
(d) to make any modifications or changes to this Agreement in
order to enable the execution and delivery of Authority Bonds on a parity with
any Authority Bonds previously issued and to make any modifications or changes
necessary or appropriate in connection with the execution and delivery of
Authority Bonds;
28
<PAGE> 31
(e) to make any other modification or change to the provisions of
this Agreement which does not materially adversely affect the interests of the
owners of any Authority Bonds;
(f) to make changes to the definition of "Project", including but
not limited to changes resulting from the operation of Section 3 hereof;
provided that no such amendment shall cause the Project to vary from the
facilities approved by the voters within the contractor.
Section 26. Effectiveness of this Agreement.
Each party hereto acknowledges that the Authority could not determine to
undertake certain activities with respect to the Project prior to completion of
certain activities under CEQA. The Authority hereby confirms to the Contractor
that CEQA has been complied with such that this Agreement shall be effective.
Section 27. Miscellaneous.
The headings of the sections hereof are inserted for convenience only and
shall not be deemed a part of this Agreement.
If any one or more of the covenants or agreements provided in this
Agreement to be performed should be determined to be invalid or contrary to
law, such covenant or agreement shall be deemed and construed to be severable
from the remaining covenants and agreements herein contained and shall in no
way affect the validity of the remaining provisions of this Agreement.
This Agreement may be executed in several counterparts, all or any of
which shall be regarded for all purposes as one original and shall constitute
and be but one and the same instrument.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
Section 28. Indemnification.
The Contractor agrees to indemnify the Authority for any loss or expense
incurred in any action in connection with or resulting from the Authority's
execution of this Agreement; provided, however, that such indemnification shall
not extend to any loss or expense resulting from the Authority's breach or
violation of this Agreement.
The Contractor agrees to indemnify the Authority for any loss or expense
incurred by the Authority in any action in connection with or resulting from
the disposition of the Contractor's remaining 2,500 AFY allocation of State
Water Project water involving the Goleta Water District. The Authority
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<PAGE> 32
agrees that if the Authority or any Project Participant does not elect, through
the procedures contained in the Water Supply Retention Agreements, to acquire
such 2,500 AFY, the Authority will not hinder or interfere with the disposition
by the Contractor of such 2,500 AFY.
The Authority represents and warrants that the Authority currently
possesses no title incurred in connection with or direct or indirect interest
in or rights to acquire percolating groundwater within the Santa Maria Basin.
For so long as the Authority continues to possess no such title, interest or
rights, the Contractor agrees to indemnify the Authority for any legal fees and
expenses incurred in any action brought by the Contractor to adjudicate rights
to percolating groundwater in the Santa Maria Basin if the Contractor causes
the Authority to be named as a party in such action or, if such action is
brought by another party, if Contractor causes the Authority to be named in
such action. For so long as any Project Participant possesses no title to,
direct or indirect interest in or rights to percolating groundwater in the
Santa Maria Basin, the Contractor agrees to indemnify any Project Participant
for any legal fees and expenses incurred in any action brought by the
Contractor to adjudicate rights to percolating groundwater in the Santa Maria
Basin if the Contractor causes such Project Participant to be named as a party
in such action or, if such action is brought by another party, if Contractor
causes such Project Participant to be named in such action. Notwithstanding
the foregoing, in the event the Authority or any Project Participant
subsequently obtains any title or direct or indirect interest in or rights to
acquire, or engages in the extraction or management of, percolating groundwater
within the Santa Maria Basin or for any reason elects to contest or participate
in an adjudication of rights to percolating groundwater in the Santa Maria
Basin, the indemnification set forth in this paragraph shall terminate as to
the Authority or such Project Participant, as the case may be. The Contractor
and the Authority hereby agree that State Water Project Water and other
imported water stored in the Santa Maria Basin and groundwater stored in the
Santa Maria Basin through an in lieu or similar program involving State Water
Project Water or other imported water is not percolating groundwater for
purposes of this Section.
The Contractor acknowledges that certain members of the Authority
currently possess title to, direct or indirect interests in or rights to
groundwater in the Santa Maria Basin. The Contractor agrees not to assert any
claims against such members in any action brought by the Contractor or by any
other party to adjudicate rights to groundwater in the Santa Maria Basin based
in whole or in part on any vote of such members on the Operating Committee,
Board of Directors or other committees of the Authority.
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<PAGE> 33
IN WITNESS WHEREOF the Contractor has executed this Agreement with the
approval of its governing body, and caused its official seal to be affixed and
the Authority has executed this Agreement in accordance with the authorization
of its Board of Directors, and caused its official seal to be affixed.
CENTRAL COAST WATER AUTHORITY
[SEAL]
Attest:
By [SIG]
-----------------------------
Chairman
By [SIG]
--------------------------
Secretary
SOUTHERN CALIFORNIA WATER COMPANY
[SEAL)
Attest: By
--------------------------------
President
By
---------------------------
Secretary
31
<PAGE> 34
EXHIBIT A
PART I: SCHEDULE OF PROJECT ALLOTMENTS
<TABLE>
<CAPTION>
Project
Contractor Allotments
---------- ----------
<S> <C> <C>
1. City of Santa Maria 16,200
2. City of Santa Barbara 3,000
3. City of Guadalupe 550
4. Goleta Water District 4,500
5. Montecito Water District 2,700
6. Carpinteria County Water District 2,000
7. Summerland Water District 300
8. La Cumbre Mutual Water Company 1,000
9. Santa Ynez River Water
Conservation District,
Improvement District No. 1 2,000
10. Morehart Land Company 200
11. Santa Barbara Research 50
12. Vandenberg Air Force Base 5,500
13. Southern California Water Company 500
14. City of Buellton 578
-------
39,078
=======
</TABLE>
A-1
<PAGE> 35
EXHIBIT B
WATER SUPPLY COSTS
The costs to the Contractor for supply of an amount of water equal to or
less than the Contractor's Project Allotment, shall be determined in accordance
with the Policy of the Authority regarding State water Delivery Costs (the
"Policy").
Under the Policy, the Authority's incurred costs shall be separated into
two categories:
(1) Fixed Costs, independent of water deliveries to the
Authority.
(2) Variable Costs, which are dependent upon actual
deliveries of water.
Fixed Costs (independent of water deliveries)
Contractor Water System Revenue Bond Surcharge (WSR)
Capital Cost Component (CCC)
-- Delta Water Charge
-- Transportation Charge
Minimum Operation, Maintenance, Power and Replacement (OMP&R)
Component (MOC)
Delta Water Charge
Variable Costs (dependent upon actual delivery of water)
Variable Transportation Component (VTC)
Off-Aqueduct Power Costs (OAP)
Replacement Account (RA)
In accordance with the Policy, Fixed Costs shall be offset by power
revenues, and Variable Costs shall be paid by the Contractor as follows:
B-1
<PAGE> 36
Variable Costs
--------------
Cost of Delivery = [VTC + OAP + RA] x 1.15*
Per Acre-Foot
*15% administration and overhead relating
to the State Water Supply Contract
NOTES
1. All Costs Components are variable and are adjusted annually by the
State of California Department of Water Resources (DWR).
2. The costs of delivery described above do not include any costs for the
Project. Any OMP&R costs associated with the Project shall be in
addition to the cost of delivery as defined in the Policy and as set
forth in this Exhibit B.
B-2
<PAGE> 37
EXHIBIT C
[This opinion shall be delivered upon execution of the Water Supply Agreement]
June _, 1994
Central Coast Water Authority
1933 Cliff Drive
Santa Barbara, California 93109
[Contractor)
Ladies and Gentlemen:
We are acting as general counsel to Southern California Water Company (the
"Contractor") under the water Supply Agreement, dated as of June 1, 1994 (the
"Agreement"), between the Central Coast Water Authority (the "Authority") and
the Contractor, and have acted as general counsel to the Contractor in
connection with the matters referred to herein. As such counsel we have
examined and are familiar with (i) documents relating to the existence,
organization and operation of the Contractor provided to us by the Contractor,
(ii) certifications by officers of the Contractor, (iii) all necessary
documentation of the Contractor relating to the authorization, execution and
delivery of the Agreement, and (iv) an executed counterpart of the Agreement.
Terms used herein and not otherwise defined have the respective meanings set
forth in the Agreement.
Based upon the foregoing and such examination of law and such other
information, papers and documents as we deem necessary or advisable to enable
us to render this opinion, including the Constitution and laws of the State of
California, together with the resolutions, ordinances and public proceedings of
the Contractor, we are of the opinion that:
1. The Contractor is a corporation, duly created, organized and existing
under the laws of the State of_____________ and duly qualified to furnish water
service within its service area.
2. The Contractor has legal right, power and authority to enter into the
Agreement and to carry out and consummate all transactions reasonably
contemplated thereby, and the Contractor has complied with the provisions of
applicable law relating to such transactions.
3. The Agreement has been duly authorized, executed and delivered by the
Contractor, is in full force and effect as to the Contractor in- accordance
with its terms and, subject to the qualifications set forth in the second to
the last paragraph
C-1
<PAGE> 38
hereof, and assuming that the Authority has all requisite power and authority,
and has taken all necessary action, to authorize, execute and deliver such
Agreement, the Agreement constitutes the valid and binding obligation of the
Contractor.
4. The obligations of the Contractor to make payments under the Agreement
is a valid, legal and binding general obligation of the Contractor enforceable
in accordance with its terms.
5. No approval, consent or authorization of any governmental or public
agency, authority or person is required for the execution and delivery by the
Contractor of the Agreement.
6. The authorization, execution and delivery of the Agreement and
compliance with the provisions thereof will not conflict with or constitute a
breach of, or default under, any instrument relating to the organization,
existence or operation of the Contractor, any commitment, agreement or other
instrument to which the Contractor is a party or by which it or its property is
bound or affected, or any ruling, regulation, ordinance, judgment, order or
decree to which the Contractor (or any of its officers in their respective
capacities as such) is subject or any provision of the laws of the State of
California relating to the Contractor and its affairs.
7. There is no action, suit, proceeding, inquiry or investigation at law
or in equity, or before any court, public board or body, pending or, to our
knowledge, threatened against or affecting the Contractor or any entity
affiliated with the Contractor or any of its officers in their respective
capacities as such, which questions the powers of the Contractor referred to in
paragraph 2 above or the validity of the proceedings taken by the Contractor in
connection with the authorization, execution or delivery of the Agreement, or
wherein any unfavorable decision, ruling or finding would materially adversely
affect the transactions contemplated by the Agreement, or-which would adversely
affect the validity or enforceability of the Agreement.
The opinion expressed in paragraph 3 above is qualified to the extent that
the enforceability of the Agreement may be limited by any applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium, or other laws
affecting creditors' rights, to the application of equitable principles and to
the exercise of judicial discretion in appropriate cases and to the limitations
on legal remedies against public agencies in the State of California and
provided that no opinion is expressed with respect to any indemnification or
contribution provisions contained therein.
C-2
<PAGE> 39
This opinion is rendered only with respect to the laws of the State of
California and the United States of America and is addressed only to the
Central Coast Water Authority and the Contractor. No other person is entitled
to rely on this opinion, nor may you rely on it in connection with any
transactions other than those described herein.
Very truly yours,
C-3
<PAGE> 40
EXHIBIT D
[This opinion shall be delivered upon execution of the Water Supply Agreement)
June 1, 1994
Central Coast Water Authority
1933 Cliff Drive
Santa Barbara, California 93109
Southern California Water Company
_________________________________
__________, California __________
Ladies and Gentlemen:
We are acting as special counsel to the Central Coast Water Authority (the
"Authority") under certain Water Supply Agreement, dated as of June 1, 1994
(each an "Agreement"), between the Authority (the "Authority") and each of the
water contractors identified on Exhibit A attached hereto (each a "Contractor")
in connection with the matters referred to herein. As such counsel we have
examined and are familiar with (i) documents relating to the existence,
organization and operation of the Authority provided to us by the Authority,
(ii) certifications by officers of the Authority, (iii) all necessary
documentation of the Authority relating to the authorization, execution and
delivery of the Agreement, and (iv) an executed counterpart of the Agreement.
Terms used herein and not otherwise defined have the respective meanings set
forth in the Agreement.
Based upon the foregoing and such examination of law and such other
information, papers and documents as we deem necessary or advisable to enable
us to render this opinion including the Constitution and laws of the State of
California: together with the resolutions, ordinances and public proceedings of
the Authority, we are of the opinion that:
1. The Authority is a joint exercise of powers agency, duly created,
organized and existing under the laws of the State of California.
2. The Authority has legal right, power and authority to enter into the
Agreement and to carry out and consummate all transactions reasonably
contemplated thereby, and the Authority has complied with the provisions of
applicable law relating to such transactions.
D-1
<PAGE> 41
3. The Agreement has been duly authorized, executed and delivered by the
Authority, is in full force and effect as to the Authority in accordance with
its terms and, subject to the qualifications set forth in the second to the
last paragraph hereof and assuming that each Contractor has all requisite power
and authority, and has taken all necessary action, to authorize, execute and
deliver such Agreement, the Agreement constitutes the valid and binding
obligation of the Authority.
4. No approval, consent or authorization of any governmental or public
agency, authority or person is required for the execution and delivery by the
Authority of the Agreement.
5. The authorization, execution and delivery of the Agreement and
compliance with the provisions thereof will not conflict with or constitute a
breach of, or default under, any instrument relating to the organization,
existence or operation of the Authority, any commitment, agreement or other
instrument to which the Authority is a party or by which it or its property is
bound or affected, or, to the best of our knowledge, any ruling, regulation,
ordinance, judgment, order or decree to which the Authority (or any of its
officers in their respective capacities as such) is subject or any provision of
the laws of the State of California relating to the Authority and its affairs.
6. There is no action, suit, proceeding, inquiry or investigation at law
or in equity, or before any court, public board or body, pending or, to our
knowledge, threatened against or affecting the Authority or any of its officers
in their respective capacities as such, which questions the powers of the
Authority referred to in paragraph 2 above or the validity of the proceedings
taken by the Authority in connection with the authorization, execution or
delivery of the Agreement, or wherein any unfavorable decision, ruling or
finding would materially adversely affect the transactions contemplated by the
Agreement, or which, in any way, would adversely affect the validity or
enforceability of the Agreement.
The opinion expressed in paragraph 3 above is qualified to the extent that
the enforceability of the Agreement may be limited by any applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium, or other laws
affecting creditors' rights, to the application of equitable principles and to
the exercise of judicial discretion in appropriate cases and to the limitations
on legal remedies against public agencies in the State of California and
provided that no opinion is expressed with respect to any indemnification or
contribution provisions contained therein.
D-2
<PAGE> 42
This opinion is rendered only with respect to the laws of the State of
California and the United States of America and is addressed only to the
Authority and the Contractors. No other person IS entitled to rely on this
opinion, nor may you rely on it in connection with any transactions other than
those described herein.
Very truly yours,
D-3
<PAGE> 43
EXHIBIT E
[Map of Reaches]
E-1
<PAGE> 44
EXHIBIT F
LIST OF NOTES, BONDS OR OTHER OBLIGATIONS OF THE CONTRACTOR AS OF DATE OF
EXECUTION TO WHICH CONTRACTOR WATER SYSTEM REVENUES ARE PLEDGED
<TABLE>
<CAPTION>
MAXIMUM ANNUAL
DESCRIPTION DEBT SERVICE
----------- ------------
<S> <C>
NONE
</TABLE>
F-1
<PAGE> 45
EXHIBIT G
SCHEDULE OF FIXED O&M COSTS BY TREATMENT PLANT
AND PROJECT REACH
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
Treatment Plant
1. City of Santa Maria %
2. City of Santa Barbara
3. City of Guadalupe
4. Goleta Water District
5. Montecito Water District
6. Carpinteria County Water District
7. Summerland Water District
8. La Cumbre Mutual Water Company
9. Santa Ynez River Water Conservation District,
Improvement District No. 1
10. Morehart Land Company
11. Santa Barbara Research
12. Vandenberg Air Force Base
13. Southern California Water Company
14. City of Buellton
Reach 1 - Mission Hills I
1. City of Santa Maria %
2. City of Santa Barbara
3. City of Guadalupe
4. Goleta Water District
5. Montecito Water District
6. Carpinteria County Water District
7. Summerland Water District
8. La Cumbre Mutual Water Company
9. Santa Ynez River Water Conservation District,
Improvement District No. 1
10. Morehart Land Company
11. Santa Barbara Research
12. Vandenberg Air Force Base
13. Southern California Water Company
14. City of Buellton
Reach 2 - Mission Hills II
1. City of Santa Maria %
2. City of Santa Barbara
3. City of Guadalupe
</TABLE>
G-1
<PAGE> 46
<TABLE>
<S> <C>
4. Goleta Water District
5. Montecito Water District
6. Carpinteria County Water District
7. Summerland Water District
8. La Cumbre Mutual Water Company
9. Santa Ynez River Water Conservation District,
Improvement District No. 1
10. Morehart Land Company
11. Santa Barbara Research
12. Vandenberg Air Force Base
13. Southern California Water Company
14. City of Buellton
Reach 3 - Santa Ynez I
1. City of Santa Maria %
2. City of Santa Barbara
3. City of Guadalupe
4. Goleta Water District
5. Montecito Water District
6. Carpinteria County Water District
7. Summerland Water District
8. La Cumbre Mutual Water Company
9. Santa Ynez River Water Conservation District,
Improvement District No. 1
10. Morehart Land Company
11. Santa Barbara Research
12. Vandenberg Air Force Base
13. Southern California Water Company
14. Buellton
Reach 4 - Santa Ynez II
1. City of Santa Maria %
2. City of Santa Barbara
3. City of Guadalupe
4. Goleta Water District
5. Montecito Water District
6. Carpinteria County Water District
7. Summerland Water District
8. La Cumbre Mutual Water Company
9. Santa Ynez River Water Conservation District,
Improvement District No. 1
10. Morehart Land Company
11. Santa Barbara Research
12. Vandenberg Air Force Base
13. Southern California Water Company
14. City of Buellton
</TABLE>
G-2
<PAGE> 1
EXHIBIT 10.16
AMENDED RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
SOUTHERN CALIFORNIA WATER COMPANY
Section 1. Definitions.
When the following terms are used in this Plan, with the first letter
capitalized, they mean:
"Compensation": the annual amount payable to a Director for serving as
a director (assuming all regular meetings are attended and no special meetings
are held) or, if an annual retainer is provided, the amount of the annual
retainer, in each case as in effect at the Retirement Date of the Director. If
such Compensation of any Director who is a Participant is at a rate higher than
the rate applicable to Participants generally (e.g., because of service in an
additional capacity such as Chairman of the Board, service on a committee of
the Board or otherwise) the Compensation of that Director shall, for purposes
of this Plan, be at the same rate as that of Participants generally.
"Corporation": Southern California Water Company, a California
corporation.
"Director": a member of the Board of Directors.
<PAGE> 2
"Participant": a Director who is not a full-time employee of the
Corporation and who enters into the agreements set forth in Sections 2 and 3
applicable to that Director.
"Plan": the Retirement Plan for Non-Employee Directors of Southern
California Water Company, amended and in effect from time to time.
"Retirement Benefit": the meaning set forth in Section 4.
"Retirement Date": the date when a Participant ceases to be a
Director, other than by removal for cause.
Section 2. Participation.
This Plan shall cover each Participant; provided, that each Director
who desires to become a Participant must agree to accept nomination as a
Director if requested by the Board of Directors and, if so nominated and
elected, to serve as a Director for at least ten years after his or her
original election as a Director.
2
<PAGE> 3
Section 3. Retirement of Directors.
Each Participant agrees to retire as a Director and not to seek
reelection or election to the Board of Directors at, or to remain as a Director
after, the annual meeting of shareholders of the Corporation occurring on or
next following the date when that Participant attains the age of 72.
Section 4. Retirement Benefit.
If the Retirement Date of a Participant occurs before he or she is 62
years old, he or she shall be entitled to receive a monthly Retirement Benefit
in an amount equal to one-twelfth of his or her Compensation, payable
commencing on the first day of the month after he or she attains or would have
attained age 62, unless the Participant ceases to be a Director because of
health reasons, evidence of which is accepted as satisfactory by the Board of
Directors, or death in either of which events Retirement Benefits in accordance
with this Plan shall be payable commencing immediately after the Retirement
Date or such later date as the Participant may have specified in writing to the
Corporation.
If the Retirement Date of a Participant occurs on or after he or she
becomes 62 years old, he or she shall be entitled to receive a monthly
Retirement Benefit in an amount equal to one-twelfth of his or her
Compensation, payable in monthly
3
<PAGE> 4
installments, with the first payment to be made the first day of the month
following the Participant's Retirement Date.
Payment of a Retirement Benefit shall continue for a period equal to
the shortest of (a) the life of the Participant following his or her Retirement
Date or, if the Participant is married at his or her Retirement Date, the
combined lives of the Participant and spouse, (b) the same number of months as
the Participant was a Director and not also a full-time employee of the
Company or (c) ten (10) years. If a Participant is married at his or her
Retirement Date and dies before the end of the period for which payments are
to be made and is survived by the spouse, the spouse shall be entitled to
receive payment of the Retirement Benefit for the balance of the payment period.
Section 5. Participants' Rights Unsecured.
The right of any Participant to receive a Retirement Benefit shall be
an unsecured claim against the general assets of the Corporation. There shall
be no funding of any Retirement Benefits which may become payable hereunder.
No trust shall be created in connection with or by the execution or adoption of
this Plan.
4
<PAGE> 5
Section 6. Termination of Plan.
The Board of Directors of the Corporation may terminate the Plan at any
time. A Participant receiving, or who has retired from the Board and is
entitled at the time of termination to receive, a Retirement Benefit under the
terms of the Plan, however, shall continue, after the Plan terminates, to
receive or be entitled to receive, that Retirement Benefit pursuant to the terms
of the Plan as in effect at the time of its termination.
Section 7. Amendment of Plan.
The Board of Directors of the Corporation may amend the Plan at any
time; provided, however, that no such amendment shall retroactively affect the
payments made under the Plan or reduce the payments receivable by any Director
who is then receiving or who has retired from the Board and is entitled to
receive, a Retirement Benefit under the Plan.
5
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated February 16, 1994, included in
the 1994 Annual Report to Shareholders of Southern California Water Company.
It should be noted that we have not audited any of the financial statements of
the Company subsequent to December 31, 1994 or performed any audit procedures
subsequent to the date of our report.
We further consent to the incorporation by reference of the above-mentioned
Report of Independent Public Accountants, incorporated by reference in this
Annual Report on Form 10-K, and to the incorporation by reference of our report
(the Report of Independent Public Accountants on Supplemental Schedule),
appearing on page 13 of this Annual Report on Form 10-K, in the Southern
California Water Company Registration Statements which follow:
Registration Form File No. Effective Date
----------------- -------- ----------------
Form S-3 33-42218 August 22, 1992
Form S-3 33-62832 June 2, 1993
Form S-8 33-71226 November 4, 1993
ARTHUR ANDERSEN LLP
Los Angeles, California
February 16, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from (a) balance
sheets and statements of income for the twelve months ended December 31, 1994
contained in this report and is qualified in its entirety by reference to such
(b) financial statements filed herewith as Exhibit No. 13.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 314,879
<OTHER-PROPERTY-AND-INVEST> 921
<TOTAL-CURRENT-ASSETS> 40,087
<TOTAL-DEFERRED-CHARGES> 27,740
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 383,627
<COMMON> 19,613
<CAPITAL-SURPLUS-PAID-IN> 54,753
<RETAINED-EARNINGS> 44,596
<TOTAL-COMMON-STOCKHOLDERS-EQ> 118,962
560
1,600
<LONG-TERM-DEBT-NET> 92,891
<SHORT-TERM-NOTES> 19,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 4,309
40
<CAPITAL-LEASE-OBLIGATIONS> 1,252
<LEASES-CURRENT> 275
<OTHER-ITEMS-CAPITAL-AND-LIAB> 144,238
<TOT-CAPITALIZATION-AND-LIAB> 383,627
<GROSS-OPERATING-REVENUE> 122,675
<INCOME-TAX-EXPENSE> 8,865
<OTHER-OPERATING-EXPENSES> 94,880
<TOTAL-OPERATING-EXPENSES> 103,745
<OPERATING-INCOME-LOSS> 18,930
<OTHER-INCOME-NET> 236
<INCOME-BEFORE-INTEREST-EXPEN> 19,166
<TOTAL-INTEREST-EXPENSE> 7,828
<NET-INCOME> 11,338
98
<EARNINGS-AVAILABLE-FOR-COMM> 11,240
<COMMON-STOCK-DIVIDENDS> 9,512
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 17,575
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
</TABLE>
