Drought hikes flow of profits at small water-supply firms.

Drought hikes flow of profits at small water-supply firms

"We're doing quite well," replied J.B. Gallagher, secretary-treasurer of Southern California Water Co., when asked how his San Dimas-based company was faring amid the much-publicized California drought.

Traded on the NASDAQ National Market System, SoCal Water, which has annual sales of $90.40 million, is one of four shareholder-owned water companies with headquarters in Los Angeles County. Also traded on the NMS are Long Beach-based Dominguez Water Corp., with $19.14 million sales, and La Puente-based Southwest Water Co., with $41.09 million sales; tiny Azusa-based Azusa Valley Water Co. is traded over the counter.

Municipally owned water departments, such as L.A. Department of Water & Power, distribute most of the water consumed within the county, and they have been moaning loudly about the drought. But shareholders of at least two of the companies here seem to be benefiting:

* SoCal Water, which paid $2.16 a share in dividends last year, currently has an annualized rate of $2.20, Gallagher said. The share price was at $31 last week, just a tad below the 52-week high of $32 and 23 percent above the low of $25.25.

Net income climbed to $8.91 million in 1990 from $8.73 million in 1989 and $6.127 million in 1987 as SoCal Water's net per share grew to $2.81 from $2.76 and $1.94, respectively. Sales were expanded to $90.40 million last year from $85.56 million in '89 and $80.18 million in '88.

While observing it is too early to forecast 1991 figures, Gallagher said: "The March rains helped."

Also helping, he indicated, is the California Public Utilities Commission, which is "trying to be as responsive as it can" and which last August allowed SoCal Water to track revenues lost because of consumer efforts to conserve water. The company made a filing to the commission in mid-March to make additional charges and hopes the request will be in place in May, Gallagher said.

Mark Matheson, who follows local water companies at Cruttenden & Co., a Newport Beach brokerage, observed the commission is "a little more prompt" in granting relief to water companies than to electric, gas or telephone utilities.

* Southwest Water's current dividend rate is 93 cents a share, up from the 90 cents paid last year, 88 cents in '89 and 85 cents in '88, reported President Anton C. Garnier. The share price last week was at $17.50, a half-buck below the 52-week high of $18 but 49 percent above the low of $11.75.

Net income climbed to $3.31 million last year from $2.69 million in '89 and $2.44 million in '88, and Southwest Water's primary net per share jumped to $1.44 from $1.19 and $1.10, respectively. Sales grew to $41.09 million in '90 from $37.80 million the prior year and $35.83 million in '88.

"Water utilities make money selling water," Garnier remarked, adding: "The drought has been good for us." The ideal is a long, hot summer and a short, cold, wet winter, he declared.

With ground water providing 70 percent to 75 percent of Southwest Water's supply, Garnier said, the company has enough for its own needs. Given the March rains and snows and considering April is not done yet, Garnier asserted, he is sure the company will get through this year.

Southwest Water is not in the dire straits of the 1977 drought, he assured, then recalled that one ended during the winter when water ran over during one month.

In fact, Southwest Water currently is facing a different problem: All the publicity given to the drought caused the company customers to cut consumption in January and February, and the March rains replaced customers' watering their yards and gardens.

"Last March was terrible because we didn't sell much water," Garnier groused. "Ninety percent of our customers are residential," he explained, and 70 percent of their usage goes into their yards; only 30 percent is used within the home.

Although describing himself as "an optimistic guy," Garnier hesitated to project full-year 1991 financial results after seeing "a dramatic reduction in water sales" during the first quarter. It is too early to tell whether that will turn around during the rest of the year, he indicated.

To be sure, Garnier said, California Public Utilities Commission rules allow for a rate increase as an offset for loss of revenue. While it is easier to get an offset for mandatory rationing, he said, it still is harder to earn the full rate of return - generally 11 percent to 12 percent of depreciated fixed assets - supposedly allowed by the rules.

* Dominguez Water's 1991 dividend rate is 98 cents, reported John S. Tootle, vice president, treasurer and chief financial officer, up from the 96 cents paid last year and 92 cents in '89. The share price was at $14.75 a share last week, compared with the 52-week high of $16 and low of $13.25.

Net income slipped to $1.37 million last year from $1.51 million the prior year and $1.43 million in '89 while Dominguez Water's net per share dipped to $1.37 from $1.47 and $1.42, respectively. Lower earnings reflected weaker sales: to $19.14 million from $20.36 million and $19.41 million.

"We're experiencing conservation in our area," Tootle said, and the company's water production is down 20 percent. Conservation probably will bring down earnings, he projected even while looking for "some offset" from the Public Utilities Commission.

Anticipating the conservation trend will not last forever, Dominguez Water is putting three additional wells "on line" and plans to drill another two or three, a company engineer said: The plan is to make more use of the company's rights to pump from groundwater basins and to rely less on the Metropolitan Water District of Southern California, the public agency that wholesales water to much of the area.

While Garnier said Southwest Water has no acquisitions planned, both SoCal Water and Dominguez Water have acquisition plans in the works:

SoCal Water has a couple of L.A. County water systems "pretty close," Gallagher disclosed, and they "won't hurt us" with dilution.

Dominguez Water still is acquiring small companies in the Lake Isabella area, Tootle revealed, basically mom and pop operations with 250 to 1,000 customers.

PHOTO : Anton Garnier: President of Southwest Water