The Prudent Investor

How Do California Water Service Group And SJW Corporation Make Their Money?
February 20, 2007, 8:54 am
Filed under: Water Utilities

Before we get to the comparison, we should examine exactly how each company makes their money. First, the description of California Water Service Group, as found on Yahoo Finance.

California Water Service Group (CWT), through its subsidiaries, operates in the water utility industry in the United States. The company engages in the production, purchase, storage, treatment, testing, distribution, and sale of water for domestic, industrial, public, and irrigation uses, as well as for fire protection. It also provides non regulated water-related services, including water system operation, billing, meter reading, lab services, water rights brokerage services, and communication antenna sites leasing under agreements with municipalities and other private companies.

As coincidence would have it, approximately 6% of CWT is owned by SJW Corp., the other company in this comparison. Perhaps that tells me that I am in the right ball park. <g>

California Water Service Group (the Company) is a holding company with five wholly owned subsidiaries.
1. California Water Service Company (Cal Water),
2. Washington Water Service Company (Washington Water),
3. New Mexico Water Service Company (New Mexico Water), and
4. Hawaii Water Service Company, Inc. (Hawaii Water)

provide regulated utility services and

5. CWS Utility Services (Utility Services)

provides non-regulated water utility and utility-related services.

CWT is a pure water play without any extraneous divisions. The revenue from each segment consists of monthly cycle billings for regulated water and wastewater services at rates authorized by the Commissions and billings to certain non-regulated customers.

An understanding of SJW Corp.’s income involves more than just water. First, the description of SJW Corp. from Yahoo Finance.

SJW Corporation (SJW), through its subsidiaries, engages in the production, purchase, storage, purification, distribution, and retail sale of water in the United States. It provides water service to customers in the cities of Cupertino, San Jose, Campbell, Monte Sereno, Saratoga, Los Gatos, and Santa Clara. The company also provides non regulated water-related services, including water system operations, billings and cash remittances, and maintenance contract services. In addition, it owns and operates an eight acre surface lot parking facility, commercial properties, undeveloped real estate properties, and warehouse properties in the states of Florida and Connecticut; a retail property in the state of Texas; and holds a 70% limited partnership interest in 444 West Santa Clara Street, L.P. Further, the company engages in the sale and rental of water conditioning equipment in the metropolitan San Jose area.

SJW is a holding company with four subsidiaries:
1. San Jose Water Company, a water utility operation with both regulated and nonregulated businesses,
2. SJW Land Company, which operates parking facilities and commercial building rentals,
3. Crystal Choice Water Service LLC, a business providing the sale and rental of water conditioning and purification equipment (of which SJW Corp. owns 75%), and
4. SJWTX Water, Inc. doing business as Canyon Lake Water Service Company.

SJW is not a pure water play, but how much is it not? What is the significance of its land enterprise?

It is important here to understand how important each segment is to the organization as a whole. From the September 30, 2006 10-Q report, the operating revenue of each company breaks out as $61,803,000, $1,070,000, $246,000, and $63,119,000. On a percentage basis we see this as 49%, .8%, .2%, and 50%. Looking at the percentage of total assets each commands, this comes to 43%, 3.6%, 3.3%, and 50% (small rounding error). Clearly, the non-water portion of the whole has little significance.

Or does it?

When I compare the increase in total assets for each segment for the three months year over year, I see 11%, 21%, -10%, and 10%. Clearly, the land portion is being seen as gaining in significance. In April SJW sold land to Adobe Systems for $25,000,000 – not an insignificant amount. The company still holds half a dozen other properties, from three commercial buildings in San Jose Metropolitan to two warehouses on 25 acres of land in Florida and Connecticut. They have received approval from the City of San Jose City Council to develop eight acres of property into 325 high-rise residential units and about one million square feet of commercial real estate.

So while the percentages mentioned a couple of paragraphs above are small when compared to the whole, they could result in a significant amount in the future.

Now that we know how each company makes their money, we look at a head-to-head comparison in the next article.


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