For those who want to know how this company operates, look at the last filing with the SEC. I wonder if performance based cost cutting incentives will produce ratepayers savings....... probably not. Sooner or later, the California Public Utility Commission will investigate AWR.
B. Performance Targets and Payout Percentages for GSWC Operating Expense Controls
Aggregate GSWC Operating Expense
Payout as a Percentage of Target
$273.5 million and $279 million and $300 million and $305.5 million
C. Performance Targets and Payout Percentages for ASUS Cumulative Net Earnings
ASUS Cumulative Net Earnings
Payout as a Percentage of Target
$36.8 million and $28.1 million and $22.2 million and
On March 13, the company announced performance compensation. This incentive compensation in the form of restricted stock options given to the CEO and the officers of the company over a period of three years.
The better the stock performs, the more value added to the stock compensation incentives. You’re doing everything a financial institution would do to increase the value of the stock and cheers from the analysts and shareholders. This looks good in the short run. But has anyone looked at the outlook in the long term?
There are signs of decay.
1. Ratepayers anger in several Golden State Water Service area over the high water rates.
2. Ongoing legal issues.
3. Lack of leadership focused on the replacement of aging water infrastructure.
It’s very simple. You provide good clean water at a reasonable rate to keep your ratepayers happy. When you switch your focus to make your shareholders happy at the expense of your ratepayers, you are heading down the path of destruction.
In 2006, Black and Veatch surveyed 453 cities and water districts. Golden State Water Company was among the highest in the state. Over the years, Golden State Water Company has remained one of the highest. The ratepayers have every right to be upset.
Go ahead and buy this stock at $55.00. You'll regret it. You look at recent income statement, income from water is up because of the new rate case. Expenses are down because of the layoffs. To grow a company, you have to acquire new business. Have they acquire new business on the regulated side? Cutting cost is a way to boost your income statement. But, to really grow a company, you need to increase sales (customers). Since GSWC has not done over the years, how can you justified a stock price increase of 35%. Sooner rather than later, the stock price will tumble.
Sentiment: Strong Sell
Whoever gave the thumb down doesn't live in GSWC water district. In a survey, it showed GSWC had the highest water rates in the state. You wonder why they haven't acquired new businesses.
Yes, the shareholders are beginning to love AWR rocket jump in price. I would be leery from purchasing this stock. If you look this company from a year ago, the stock was at $36.00. Now, it $51.50. That’s a 30% increase in stock price. Did they acquire new business? No. Did they increase their bottom line? Not really. So why the jump stock price for a water company in a boring utilities sector? Answer: Acquisition. The executives with MBA as their educational background stand to gain. Especially, the CEO who received a $52,000 raise from a board of directors with MBA background. Don’t forgot the stock options all these executives get. It’s like a gold parachute. The founder and previous presidents would never approve the actions of these executives.
Sentiment: Strong Sell
Macquarie Group is a global provider of banking, financial, advisory, investment and funds management services.
In 2010, Macquarie group was financial advisor to JP Morgan Asset Management and Water Asset Management on the acquisition of SouthWest Water Company $US443m.
Will we see future acquisition by JP Morgan's IIG?
With the turmoil at JP Morgan, the outlook is bleak.
Wow, JP Morgan suffered a 2 billion trading loss! Most people did not expect that. How does this affect their Infrastructure Investment Group? I would venture to say that all investments will be re-evaluated. Most likely no acquisitions by IIG in 2012.
Depending on how the US Economy shapes up at the end of 2012 and economic conditions in Europe will determine the expansion of IIG in 2013.
Are there other potential buyers for AWR???
Electricity North West Limited (ENW): In December 2007, IIG closed on a 50% interest in ENW, formerly United Utilities Electricity, for £265 million in a deal valued at £1.7 billion at closing. ENW is a regulated electricity business that has the exclusive right to distribute electricity to approximately 2.3 million residential and industrial customers in the northwest region of England.
Southwest Generation (SWG): In July 2008, IIG closed on a 45% equity interest in SWG, a portfolio of gas-fired contracted power generation plants in the western United States. With a total generating capacity of 974 megawatts of power, SWG includes seven facilities located in four states (California, Colorado, Nevada and New Mexico).
Southern Missouri Natural Gas (SMNG): In July 2008, IIG acquired a 98% stake in SMNG, a regulated natural gas distribution company with operations located in Missouri. SMNG currently serves over 8,000 residential and commercial customers in Missouri, and recently acquired the franchise rights to serve both Lebanon and Branson, the fastest-growing tourism and retirement destination in the state.
Coastal States Wind Holdings LLC: In December 2008, IIG acquired a 37% stake in Coastal Winds, a portfolio of three wind farms located in New York, Oregon and Texas with electricity generating capacity of 350 megawatts.
Cairns and Mackay Airports: In January 2009, IIG acquired an approximate 50% stake in two airports located in the Australian state of Queensland. The airports service 4.5 million passengers annually in the major tourism and business destinations in the region.
SouthWest Water Company: In September 2010, IIG acquired 90% of Southwest Water Company, a water and wastewater business within nine states in the south and west United States. SouthWest Water Company serves over one million customers through its regulated businesses’ 130,000 connections and 660 operating contracts principally in California, Texas and Alabama.
Noatum Ports: In December 2010, IIG, together with a minority partner (who acquired a one-third interest), acquired Noatum Ports, the twelfth largest global port operator with a leading presence in southern Europe comprised of a diversified portfolio of 9 terminals in Spain. The portfolio comprises four major container and three major conventional terminals as well as several smaller terminals that enjoy excellent strategic locations in the western Mediterranean region due to the vicinity in which they are located and their accessibility to the trade routes.
Given the fact the J.P. Morgan Asset Management Group took Southwest Water Company private, they have the financial backing to do the same with AWR (market cap approx. 700 million). By taking the company private, it opens new opportunities in bidding for water/waste water government contracts.
Boy, I just stumbled across this stock. I thought water stocks are boring. This one has the potential to be very exciting and lucrative for their shareholders.
I started digging into Southwest Water Company. Here's the timeline:
LOS ANGELES, CA, March 3, 2010 -- SouthWest Water Company today announced it has entered into a definitive merger agreement to be acquired for approximately $275 million in cash, or $11.00 per share, by institutional investors advised by J.P. Morgan Asset Management and Water Asset Management L.L.C. (the partnership).
On September 13, Southwest Merger Acquisition Corp filed with the SEC the acquisition of Southwest Water Company. Southwest Merger Acquisition Corp. is based in New York.
LOS ANGELES--(BUSINESS WIRE)--SouthWest Water Company today announced that its new owners, investors advised by J.P. Morgan Asset Management and Water Asset Management, LLC, have selected Floyd E. Wicks as chief executive officer. Wicks succeeds Mark A. Swatek, who is leaving the company to pursue other opportunities.
“Floyd Wicks has exceptional credentials in the water and wastewater industry,” said Andrew Walters, managing director of J.P. Morgan Asset Management’s Infrastructure Investments Group. “He brings a wealth of experience and is eminently qualified to lead SouthWest Water as the company enters the next phase of its growth and development.”
Here's J.P. Morgan Asset Management Investment Group:
The J.P. Morgan Infrastructure Investments Group (IIG), headquartered in New York, is a part of J.P. Morgan Asset Management – Global Real Assets. IIG was founded in 2006 to pursue investments in essential facilities and services that are vital to the economic health of our communities. Led by industry executive Mark Weisdorf, the group is represented by over 30 dedicated professionals who source, analyze, negotiate, acquire, and manage infrastructure assets across the thirty member countries of the OECD.
IIG’s investment activity on behalf of its clients includes:
Summit Utilities: In May 2007, IIG closed on an approximate 80% interest in CNG Holdings, Inc., later renamed Summit Utilities. A regulated utilities company with operations in Colorado and Missouri, Summit Utilities owns and operates local natural gas distribution networks supplying natural gas to over 10,000 customers. In the third quarter of 2010, IIG increased its ownership interest in Summit to approximately 99%.
Zephyr Investments Limited: In the summer of 2007, IIG closed on a 33.33% interest in Zephyr Investments Limited, owner of the largest portfolio of wind farms in the U.K. The portfolio includes 17 wholly-owned wind farms with electricity generating capacity of 391 megawatts. Medium- to long-term contracts are in place for 100% of the electricity generated.
Southern Water Capital Limited (SWC): In October 2007, IIG led a consortium that closed on SWC, one of the fastest growing companies in the U.K. water and wastewater sector, in a deal valued at £4.195 billion. SWC supplies water to approximately 2.3 million customers and provides wastewater services to 4.3 million customers in southern England. SWC is currently the seventh largest water and sewer company in the U.K.
OK, I found some interesting information about Golden State Water Company and its ties to Southwest Water Company.
Floyd Wicks served as CEO of Golden State Water Company till Jan. 2009. Robert Sprowls became CEO after Floyd Wicks left. Floyd Wicks joined Southwest Water Compamy as CEO in Sep. 2010.
Robert Sprowls left CILCORP and Central Illinois Light Company following the sale of the company to Ameren Corporation in 2003. Mr. Sprowls joined American States Water Company in June 2004.
Here's another interesting fact I found Southwest Water Company in CISWorld...
The Oracle Utilities suite also provides industry-leading applications for customer care and billing, mobile workforce management, outage and distribution, and work and asset management, pioneered by the former SPL WorldGroup. With Oracle's standards-based applications, utilities have the flexibility to choose to implement one application, several integrated applications or the full suite, depending on their unique needs. Customers such as Southwest Water Company (SWWC), a water provider to more than two million customers across the United States, see the value of the integrated Oracle Utilities suite. SWWC became an Oracle customer in 2007.
And this what I found on Golden State Water Company from Blue Heron Consulting Group.
February 1, 2009
Golden State Water Company has awarded Blue Heron Consulting Corporation a contract to be their prime system integration partner to implement the Oracle® Utilities Customer Care & Billing (CC&B) product.
Given the facts that Floyd Wicks knows Golden State Water Company very well and Robert Sprowls left previous employer after the company was sold and both Golden State Water Company and Southwest Water Company use Oracle Customer Care and Billing System, I would guess there maybe close ties between these two companies in the future.
AWR, the parent company for Golden State Water Company, is faced with internal challenges.
* The settlement with Northern California - see the ruling below....
* The negative publicity generated by increased water bills to customers.
* More scrutiny on future rate cases filed with the California Public Utility Commission.
* Audits on past, current and future rate case filings.
The CPUC has made it very clear in their ruling that GSWC cannot overchange the ratepayers.
Yet, the officers of GSWC gave themselves a pat on the back by providing all officers with a 20% to 50% bonus incentives.
What's wrong with this picture?
This decision adopts a settlement,1 between Golden State Water
Company (Golden State) and the Commission’s Division of Water and Audits
(Water & Audits), and imposes one further requirement. The settlement resolves
an allegation that Golden State did not exercise reasonable management
oversight, and failed to apply adequate internal control of the costs of specific
projects and related contracts primarily in Region 1. Because of these failures
ratepayers may have paid too much for water service in authorized rates.
As a result of the settlement Golden State will refund $9.5 million to the
customers of Region 1 (with a small portion going to customers in Regions 2
and 3) and will permanently reduce rate base by $2.5 million which results in
lower rates in the future. A further $500,000 is removed from the existing
Arden-Cordova Memorandum Account. The settlement requires three
subsequent independent audits and reporting to both Water & Audits and the
Division of Ratepayer Advocates. Finally, Golden State will pay a fine of
$1 million to the State of California’s general fund for not informing the
Commission of internal control failures. In addition to the terms of the
settlement, we order Golden State to address its ongoing compliance with
internal control in its next two general rate cases, the first of which is anticipated
to be filed for test year 2015.
This proceeding is closed.
Golden States Water Company made the front page on the LA Times.
The article reads:
"Bell resident Robert Mackin is frustrated that his monthly water rate keeps rising, by about 50% in the last few years.
He writes the check to his water provider, Golden State Water Co. But he is actually served by six separate agencies that each play a role in delivering his water — and charging him for the service."
Article like this will have an affect on the price their stock. Will wait to see if more negative articles are printed before buying this stock.
I am in total agreement. The public utility commission needs to protect the ratepayers from excessive corporate executives salaries and bonuses.
Filed with SEC, the following:
The individuals who have been selected as Participants in the 2012 STIP are set forth below together with the amount of their Target Aggregate Bonuses as a percentage of Base Salary:
Participant Target Aggregate Bonus
Robert J. Sprowls 50 %
Eva G. Tang 25 %
Gladys M. Farrow 20 %
Diane D. Rentfrow 20 %
Bryan K. Switzer (Keith) 20 %
Denise L. Kruger 25 %
Patrick R. Scanlon 20 %
William C. Gedney 20 %
Shengder D. Chang (David) 20 %
Roland S. Tanner 20 %
McClellan Harris III (Bud) 25 %
Granville R. Hodges, Jr.(Rusty) 20 %
James B. Gallagher 20 %
That seems like a lot of officers and a lot of bonuses for a small company of 750 employees.
Take a look at the makeup of the board of directors for AWR. Half of the board members are from the financial sector. There is no one from the utility sector.
Last month, the board approved the following incentive program for the executives....sounds like other companies I know out there...
On March 27, 2012, the Compensation Committee of the Board of Directors approved the 2012 short-term incentive program (the "Bonus Program") for the executive officers (the "Executive Officers") of American States Water Company. Under the terms of the Bonus Program, each of the Executive Officers is eligible to earn an objective cash bonus and a discretionary cash bonus for the 2012 calendar year.
The target aggregate bonus for Robert J. Sprowls, President and Chief Executive Officer of American States Water Company and its subsidiaries, Denise L. Kruger, Senior Vice President-Regulated Utilities for Golden State Water Company, McClellan Harris III, Senior Vice President and Assistant Secretary of American States Utility Services, Inc., Eva G. Tang, Senior Vice President-Finance, Chief Financial Officer and Corporate Secretary of American States Water Company and its subsidiaries and Treasurer of American States Water Company, and Patrick R. Scanlon, Vice President of Water Operations of Golden State Water Company is 50%, 25%, 25%, 25% and 20%, respectively, of his or her base salary for 2012. The objective bonus is 80% of the aggregate target bonus for each of these Executive Officers and will become payable based upon each Executive Officer's attainment of specific performance targets established for the business criteria set forth in the Bonus Program. The discretionary bonus is 20% of the aggregate target bonus for each of these Executive Officers and is payable based on the Company's subjective assessment of the Executive Officer's performance in the areas of our business over which he or she has responsibility.
Last year, AWR issued a 62 M unsecured note to paid off medium principal and short-term debt. Is this the first time an unsecured note was issued by this company?
It would see odd from a company that has a long term history of solid returns to investors.
Since the company transitioned to new executive management, there has been odd things reported by the company.
More research needs to be done before investing in this company.