The Group is focused on delivering safe, clean, affordable water to nearly 2 million Americans, a top challenge where preparedness and emergency response are priorities
When speaking about California Water Service Group’s (Group) strategy, plans and priorities, there is one word on top of Martin Kropelnicki’s mind: customers.
For the CEO of Group, all regulated-utilities must put customers first in everything they do, and then the rest will fall into place. The only way to reach this goal is to keep working as a team, moving into a service-oriented strategy “either to provide the best water for our customers 24-7 or to overcome in the best way possible a crisis that might threaten supply,” says Martin.
According to Martin, Group’s business is running fine and acquisitions too. With the help of key partners, the San Jose-based company is getting what they need to focus on how to reshape the business to be more sustainable.
He highlights that after going through a pretty challenging time during the Covid pandemic, when unlike others companies, they didn’t shut down.
“We stayed open seven day a week, 24 hours a day, doing what we do best – serve our customers,” Martin said to CEO North America. “One of the things I love about our employees is that, when there is a crisis, they step up. This is why we are on top in emergency preparedness and emergency response.”
Martin holds a Bachelor of Arts Degree and Master of Arts Degree in Business Economics from San Jose State University. Also, a lifetime in California has developed into some deep understanding of the region.
According to Martin, Group’s core business is reinvesting in core infrastructure three times its depreciation rate. The CEO warns that a lot of infrastructure on the West Coast was installed back in the ’30s and ’40s, so a methodical replacement plan must be implemented. Another growth engine is strategic acquisitions, where there has been “a lot” over the last couple of years.
Group has purchased 12 companies, including seven in the last five years. Its largest acquisition in recent years was in 2019, when it acquired Rainier View Water Company, which had more than 18,000 connections.
“On merger and acquisitions, we have been very busy. In this business, you have to be very strategic when doing acquisitions because you could dilute the core business very quickly,” Martin warns.
Meeting with employees
One of the first things Martin did when becoming President and CEO in 2012 was meeting with all employees in small groups to discuss the company. He had two distinct takeaways: “At that time, we didn’t have an employee stock purchase plan, and there was strong interest in having one. Employees were also asking a lot of questions regarding how they fit into the overall business strategy.”
Martin remembers the year and a half working with the Board and with the Vice President of Corporate Communications to develop an updated strategic plan focused on five strategic imperatives:
1. Affordable Excellent Service
2. Sustainability & Community Impact
3. Public Health & Safety
4. Employees as Best Advocates
5. Enhanced Stockholder Value
He then spent the next 6 months rolling out the updated business strategy, meeting with every employee to explain the strategy, and ensuring that every employee knew the important role they play in the company’s overall success.
Coping with the California challenge
The company’s purpose, which is enhancing the quality of life of its customers, community, employees and stockholders, can represent an additional challenge due to the increasing severity of drought conditions on the West Coast. Martin explains that to face this situation, subsidiary Cal Water needs to invest wisely in infrastructure investment, embrace new technology, and foster conservation.
“We are focused on keeping our promise of always delivering a reliable supply of safe, clean water at affordable rates,” Martin says. “Everything we do starts and ends with the customer. Being a regulated utility, you have to put the customer first in everything you do. If you succeed at that, everything else falls into place”.
Group’s CEO highlights that the company continues to be in great shape and that last year, in the middle of the Covid pandemic, it reported record net income exceeding $101 million. “That allowed us to give an 8.6 percent dividend increase to our stockholders in January. We have increased the dividend every year for the last 56 years and paid a consecutive quarterly dividend for the past 309 quarters,” says Martin.
Additionally, operating revenue increased 17.1% to $173.0 million in the first quarter of 2022, an increase of $25.3 million as compared to $147.7 million in the first quarter of 2021.
Further, the company continues to grow with well planned and executed acquisitions. “While continuing our growth, we’ve been able to maintain our focus on being a good company supporting our communities and, above all, our customers.”
“Some of the things we do to help support our communities are funded through our philanthropic and grant programs. For example, we have the Cal Water H2O challenge, where elementary schools across our California service areas compete with ideas of how to solve water-related issues. The program culminates with one class winning the grand prize, which includes grant funding for the classroom and scholarships for each student,” says Martin. “Working with young people, educators, and other community service organizations are just a few of the many things we do to help strengthen our community footprint and involvement.”
Aligned with ESG
Martin explains that everyone’s goal in the company is aligned. “It’s one team, the same direction,” and in this path, ESG has become a key driver.
“We recently published our second annual ESG report, which aligns with the relevant Sustainability Accounting Standards Board (SASB) standards and references the Global Reporting Initiative (GRI) standards. We live climate change every day and see firsthand the profound effects it has in the West,” he says. “ESG is our tool to help communicate what we are doing to mitigate the effects of climate change on behalf of our customers, communities, and stockholders. As pointed out in the report, we are very focused on climate change adaptation and things we can control.”
Among the many factors Group is dealing with, climate change, drought, and wildfires go hand-in-hand and can have a devastating effect on the communities the company serves.
To face this, the company has focused on working with local city, county and state emergency response organizations to make sure nobody runs out of water in fire zones, strengthening both preparedness and emergency response.
The coordinated effort also contemplates the Public Safety Power Shutoff (PSPS) program, where Cal Water has to make sure to have enough backup generators to prevent any interruptions in its service areas.
Two key success factors for the company are: 1. employee emergency response training, and 2. building strategic relationships with key stakeholders. This includes strategic relationships with a number of key suppliers—suppliers who play a critical role from managing supply chain issues to dealing with major catastrophic events.” For Group, all these relationships have helped the Company deal with emergencies and climate change, and played a very important part with the Company’s strategic response.