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Edited Transcript of AWR earnings conference call or presentation 7-May-19 6:00pm GMT

Q1 2019 American States Water Co Earnings Call

SAN DIMAS May 15, 2019 (Thomson StreetEvents) -- Edited Transcript of American States Water Co earnings conference call or presentation Tuesday, May 7, 2019 at 6:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eva G. Tang

American States Water Company - Senior VP of Finance, CFO, Corporate Secretary & Treasurer

* Robert J. Sprowls

American States Water Company - CEO, President & Director

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Conference Call Participants

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* Durgesh Chopra

Evercore ISI Institutional Equities, Research Division - Associate

* Jonathan Garrett Reeder

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Richard A. Verdi

Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst of Water & MLP

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the company's first quarter 2019 results.

The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 5:00 p.m. Eastern Time and run through Tuesday, May 14, 2019, on the company's website, www.aswater.com.

The slides that the company will be referring to are also available on the website. (Operator Instructions) This call will be limited to an hour.

Presenting today from American States Water Company is Bob Sprowls, President and Chief Executive Officer; and Eva Tang, Senior Vice President of Finance and Chief Financial Officer.

As a reminder, certain matters discussed during this conference call may be forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company's risks and uncertainties in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission.

In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles, or GAAP, in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information, but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release.

At this time, I would turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company.

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Robert J. Sprowls, American States Water Company - CEO, President & Director [2]

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Welcome, everyone, and thank you for joining us today. I'll begin with some highlights for the quarter. Eva will then discuss some financial details and then I'll wrap it up with some updates on regulatory filings, ASUS and dividends, and then we'll take your questions.

2019 marks our company's 90th year in business. I'm pleased to report that the company had another solid quarter of earnings. Consolidated earnings were $0.06 per share higher than last year, mostly driven by the performance of our contracted service business, American States Utility Services, or ASUS, which saw its earning contribution increased by $0.06 per share.

The increase in the earnings at ASUS was due in large part to commencement of operations at Fort Riley in July 2018 as well as increases in management fees in construction activity at several other military bases.

For our utility subsidiary, Golden State Water Company, the water segment's earnings increased $0.01 per share despite the delay in receiving a final decision on the water general rate case, which will set rates for years 2019 through 2021. Last month, we received a proposed decision on this pending general rate case, which approves nearly all the aspects of a 2018 settlement agreement entered into by the company and the CPUC's Public Advocates Office. Had new rates been placed as of January 1, 2019, reflecting the proposed decision, pretax income at the water segment for the first quarter of 2019 would have been higher by approximately $4 million or $0.08 per share.

I'll discuss the proposed decision in more detail later in the call. Golden State Water Company continues to invest in the reliability of our water and electric systems. During the first quarter, we spent $38.2 million in company-funded expenditures. We estimate our capital expenditures will be approximately $115 million to $125 million for the year, about 3x our expected annual depreciation expense.

I'll now turn the call over to Eva to review the financial results for the quarter.

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Eva G. Tang, American States Water Company - Senior VP of Finance, CFO, Corporate Secretary & Treasurer [3]

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Thank you, Bob, and hello, everyone. Let me start with an overview of our first quarter financial results on Slide 7.

Consolidated earnings for the quarter were $0.35 per share compared to $0.29 per share for the same period in 2018. As Bob mentioned, earnings at our water segment increased $0.01 per share as compared to last year, despite delays in receiving a final decision on the water general rate case.

Because of the delay, billed water revenues for the first 3 months of '19 were based on 2018 adopted rate, pending a final decision by the CPUC. As a result, the water gross margin for the first quarter of 2019 remains relatively flat after excluding the effects of changes in pension balancing accounts and various surcharges, both of which have no material impact to earnings.

The $0.01 per share increase in earnings from the water segment was due to gains on investments held to fund a retirement benefit plan as compared to investment losses recorded in the first quarter of 2018. This was partially offset by increases in water treatment, employee compensation costs and depreciation expense. Again, had new rates from the proposed decision on the water rate case been in place as of January of 2019, pretax income at the water segment would have been higher by approximately $4 million or $0.08 per share for the first quarter.

Our electric segment saw a decrease in earnings from $0.04 per share to $0.03 per share for the first quarter of 2019. This was largely due to an increase in operating expenses without an increase in customer base rates. Billed electric revenue during the first 3 months of '19 were still based on 2017 adopted rates, pending a final decision by the CPUC in this rate case application, which will be retroactive to January 1, 2018.

In November last year, we entered into a settlement agreement with the CPUC Public Advocates Office, resolving all issues in this general rate case. Had the new rates in the settlement agreement been approved by the CPUC and in place as of January 2018, the electric segment's pretax income would have increased by approximately $941,000 or $0.02 per share for the first quarter of 2019 and would have increased 2018's pretax income by $2 million or $0.04 per share.

We will record these increases to earnings in the period in which the CPUC's final decision is received. Our contracted services segment saw a $0.06 per share increase in earnings due to commencement of operation at Fort Riley in July of 2018 as well as an increase in management fees and construction activities at several of the other military bases.

This slide shows consolidated revenue increased by $7 million due largely to our contracted services segment. In addition to activity at Fort Riley, there were increases in management fees due to the successful resolutions of various economic price adjustments as well as increased construction activity at several other military bases.

While the revenue increased slightly during the quarter, again, because of the delay in the general rate case, billed water revenue for the first 3 months of '19 were based on 2018 adopted rates, pending a final decision by the CPUC.

Electric revenues were higher due to an increase in customer usage. There were also increases in customer rates due to advice letter projects approved by the CPUC during the fourth quarter of 2018.

Looking at Slide 9. Our water and electric supply costs were $20.8 million for the quarter, an increase of $1.3 million from last year. Any changes in supply cost for both the water and electric segments as compared to the adopted supply costs are tracked in balancing accounts.

Looking at total operating expenses, excluding supply costs and surcharges, consolidated expenses increased $4.8 million versus Q1 2018, due to an increase in construction costs at ASUS as a result of higher construction activity and increasing administrative and general expense due to employee compensation cost and higher depreciation and amortization expense due to planned additions. Interest expense, net of other income, decreased by $1.3 million due to gains on investments held to fund the retirement benefit plan as compared to losses incurred during the first quarter of last year.

Slide 10 shows the EPS bridge comparing the first quarter of 2019 with the same quarter of 2018. In terms of the company's liquidity, net cash provided by operating activity for 2019 was $29.4 million as compared to $35.7 million in 2018.

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Robert J. Sprowls, American States Water Company - CEO, President & Director [4]

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Is the operator there?

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Operator [5]

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Yes, sir.

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Robert J. Sprowls, American States Water Company - CEO, President & Director [6]

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Yes, we've been told we've lost audio. I don't know if...

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Operator [7]

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No, sir. You're coming through nice and clear.

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Robert J. Sprowls, American States Water Company - CEO, President & Director [8]

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Okay.

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Eva G. Tang, American States Water Company - Senior VP of Finance, CFO, Corporate Secretary & Treasurer [9]

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Okay. So I will start with Slide 11. In terms of the company liquidity, net cash provided by operating activities for 2019 was $29.4 million as compared to $35.7 million in 2018. The decrease in cash from operating activities during 2019 was due primarily to a decrease in water usage and expiration of various surcharges related to Golden State Water's regulatory accounts.

In addition, had the new customer rates been in place, cash flow from operations would have been higher. Golden State Water invested $38.2 million in company-funded capital projects during the first quarter of 2019. Continuing our strong investment levels, we expect to invest $115 million to $125 million in 2019.

In March of this year, we amended American States credit facility to increase the borrowing capacity from $150 million to $200 million to provide funds to both Golden State Water and ASUS in support of their operations and growth. We have repaid $40 million of senior notes at Golden State Water, which matured in March of 2019.

At this time, we do not expect American States Water to issue additional equity. I'm also pleased to report that last month, Standard & Poor's Global Ratings affirmed an A+ credit rating with a stable outlook on both consolidated American States Water and Golden State Water. In January of this year, Moody's Investors Service also affirmed its A2 rating with a positive outlook for Golden State Water.

With that positive note, I'll turn the call back to Bob.

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Robert J. Sprowls, American States Water Company - CEO, President & Director [10]

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Thank you, Eva. I'd like to provide an update on our recent regulatory activity.

As we discussed on our previous call, in August 2018, Golden State Water and the CPUC's Public Advocates Office filed a joint motion to adopt a settlement agreement to resolve all issues in the pending water general rate case. Last month, the assigned Administrative Law Judge issued a proposed decision, or PD, on this general rate case. The PD approves the settlement agreement with the exception of advice letter capital projects totaling approximately $20.4 million that were agreed to by Golden State Water and the Public Advocates Office in the settlement.

Golden State Water and the Public Advocates Office have separately filed their response and comments to the PD, and both parties dispute the Administrative Law Judge's rejection of these advice letter capital projects. The settlement agreement was a result of extensive negotiations between Golden State Water and the Public Advocates Office, and as such, both parties continue to support the settlement as proposed and believe that the settlement, in its entirety, represents a reasonable compromise of the contested issues and is a beneficial outcome for customers. At this time, we cannot predict the final outcome regarding this matter.

However, if the PD is approved as is, it would authorize Golden State Water to invest approximately $314.1 million in capital infrastructure over the 3-year rate cycle and would increase the water gross margin for 2019 by approximately $7.1 million as compared to the 2018 adopted water gross margin. This was $1.1 million higher than when we last spoke with you due to adjustments made to update inflation index values since the August settlement.

The 2019 water revenue requirement in the PD has been reduced to reflect a decrease of approximately $7 million in depreciation expense compared to the adopted 2018 depreciation expense due to a reduction in the overall composite depreciation rates based on a revised study filed in the general rate case. The decrease in depreciation expense lowers the water gross margin and is offset by a corresponding decrease in depreciation expense, resulting in no impact to net earnings.

In addition, the 2019 water revenue requirement in the PD includes a decrease of approximately $2.2 million for excess deferred tax refunds as a result of the 2017 Tax Cuts and Jobs Act, which has a corresponding decrease in income tax expense and also results in no impact in net earnings. Had depreciation expense in the PD remained the same as the 2018 adopted amount and there were no excess deferred tax refunds that lowered the 2019 revenue requirement, the water gross margin for 2019 would have increased by approximately $16.3 million.

Due to the delay in receiving a final decision on this water general rate case, billed water revenues for the first 3 months of 2019 were based on 2018 adopted rates, pending a final decision by the CPUC. As we mentioned earlier, had the new rates in the PD been in place as of January 1, 2019, pretax income for the water segment would have been higher by approximately $4 million or $0.08 per share in the first quarter.

When approved, the new rates will be retroactive to January 1, 2019, and retroactive adjustments will be recorded accordingly. In addition, the PD approves the recovery of previously incurred costs that were being tracked in CPUC authorized memorandum accounts, which will result in a reduction to operating expenses of approximately $1 million or $0.02 per share if the PD is approved by the CPUC. The PD also allows for potential additional water revenue increases in 2020 and 2021 of approximately $9.6 million and $12 million, respectively, subject to the results of an earnings test and changes to the forecasted inflationary index values.

As to our electric rate case, as I discussed in our year-end call, in November 2018, Golden State Water and the Public Advocates Office filed a joint motion to adopt a settlement agreement between the 2 parties, resolving all issues in connection with the general rate case. Among other things, the settlement extends the rate cycle by 1 year through 2022 and authorizes Golden State Water to construct all the capital projects requested in its application, an increase for the addition of a fifth year in the rate cycle, which are dedicated to improving system safety and reliability and total approximately $44 million over the 5-year rate cycle.

As we discussed earlier, had the new rates in the settlement agreement been in place on January 1, 2018, the electric segment's pretax income would have increased by approximately $941,000 or $0.02 per share for the first 3 months of 2019 and would have increased 2018's pretax income by $2 million or $0.04 per share.

Let's move on to ASUS on Slide 13. ASUS's earnings contribution for the first quarter of 2019 was $0.11 per share, $0.06 per share higher than last year. The increased performance this quarter was largely due to the commencement of our contract at Fort Riley in July of 2018. There was also an increase in management fee revenues and construction activity at several other military bases. The higher management fee revenues were the result of the successful resolution of various price adjustments.

We reaffirm the guidance we have previously given to the market on ASUS's expected earnings contribution of $0.43 to $0.47 per share for 2019. We are still involved in various stages of the proposal process at a number of other bases considering privatization. The U.S. government is expected to release additional bases for bidding over the next several years. Due to our strong relationship with the U.S. government as well as our expertise and experience in managing bases, we are well positioned to compete for these new contracts.

I'd like to turn our attention to dividends outlined on Slide 14. The Board of Directors, last week, approved a second quarter dividend of $0.275 per share on the common shares of the company. American States Water Company has paid dividends to shareholders every year since 1931, increasing the dividends received by shareholders each calendar year for 64 consecutive years, which places us in an exclusive group of companies on the New York Stock Exchange that have achieved that result.

The company's current dividend policy is to achieve a compound annual growth rate and a dividend of more than 6% over the long term.

I'd like to conclude our prepared remarks by thanking you for your interest in American States Water, and we'll now turn the call over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Durgesh Chopra with Evercore ISI.

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Durgesh Chopra, Evercore ISI Institutional Equities, Research Division - Associate [2]

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Two questions. Number one, the advice letters. Can you share, maybe give us a little bit more color around why that was an exception and sort of what was the reasoning behind not approving those? And then secondly, I just wanted to get a sense of, Eva, this may be for you, but like when and if you get the final rate decision, are you going to be booking all of that $0.08, if I add all that up, $0.08 plus $0.02 plus $0.04, $0.14, all of that, if assuming you get what you requested for all of that in like -- in 2019?

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Robert J. Sprowls, American States Water Company - CEO, President & Director [3]

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Okay. So I'll take the first one, Eva, and you'll take the second one. Sound okay?

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Eva G. Tang, American States Water Company - Senior VP of Finance, CFO, Corporate Secretary & Treasurer [4]

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Okay. Sure.

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Robert J. Sprowls, American States Water Company - CEO, President & Director [5]

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So Durgesh has asked about what's the issue with the advice letter projects, why are they singling them out. We're not entirely sure what the problem is with the advice letter projects. We believe, perhaps it could be that there's not as much clarity when the rate increases go in effect for advice letter projects.

As you know, we have to do the project first and then submit the advice letter project for recovery and that's different than, of course, going through the general rate case process. So perhaps, it is that.

We say that, but it's been a common practice by the commission to approve advice letter projects that includes them in general rate case decisions. So it's a little bit of a head scratcher for us, to be honest. So Eva, I'll let you take care of the second question.

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Eva G. Tang, American States Water Company - Senior VP of Finance, CFO, Corporate Secretary & Treasurer [6]

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Yes, Durgesh. So second question, you mentioned when we're going to book the retroactive effect. We will book it when we receive the final decision on the water rate case. So if the final decision is issued, we'll book the retroactive to $0.08 for the first quarter for the water segment. We also had about $0.02 for recovery of previously incurred costs that got approved in the PD. It doesn't have any objection to us recovering that. So we will also book that $0.02 when the decision is finalized.

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Durgesh Chopra, Evercore ISI Institutional Equities, Research Division - Associate [7]

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Okay. And then -- but would you also go back and look at the 2018, like for the electric rate case and book that as well?

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Eva G. Tang, American States Water Company - Senior VP of Finance, CFO, Corporate Secretary & Treasurer [8]

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Yes, we will. I'm talking of the water case. When we receive a decision on the electric case, we will book the $0.04 for 2018 for the electric case and also whatever the increment impact for '19. Yes, we'll book at the time of decision.

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Operator [9]

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Our next question comes from Richard Verdi with Coker & Palmer.

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Richard A. Verdi, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst of Water & MLP [10]

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Nice quarter. Just a couple of quick questions surrounding ASUS. I guess, Bob, for the year-over-year growth in ASUS, how much of that was attributable to Riley and how much of that was attributable to other activity?

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Robert J. Sprowls, American States Water Company - CEO, President & Director [11]

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Are you talking about fourth quarter?

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Richard A. Verdi, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst of Water & MLP [12]

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Q over Q, yes.

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Robert J. Sprowls, American States Water Company - CEO, President & Director [13]

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Yes. I would say about $0.05 of the $0.06 was due to having Riley on the books. That's it. Actually, it was more like $0.03. Sorry, Richard.

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Richard A. Verdi, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst of Water & MLP [14]

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No, no. That's Okay. Okay. That's helpful. That's all I needed to know. And then for my second question, I guess it was last week, American Water Works had their call, your top peer in the military privatization front here, and they had mentioned that they have about 3 decisions they're waiting on potentially this year. So I was just wondering, not going into too much color with giving us how many decisions you might have in the pipeline, but what does that pipeline look like right now for ASUS? I mean, could you give us a little bit of color on that? Do you maybe have a half a dozen RFPs outstanding or there may be a dozen? Is there one? Just a little color to give us some sort of sense to what new contract could look like for that moving forward.

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Robert J. Sprowls, American States Water Company - CEO, President & Director [15]

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Yes. We've hesitated to give that information out because it is competitive intelligence. We are bidding on a number of bases, and we'll tell you that, and we continue to be very focused on trying to win as many bases as we can.

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Operator [16]

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Our next question comes from Jonathan Reeder with Wells Fargo.

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Jonathan Garrett Reeder, Wells Fargo Securities, LLC, Research Division - Senior Analyst [17]

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So you mentioned in the release, the water segment's EPS would have been $0.08 higher, electric $0.02 higher. Just curious if you operated or managed the business differently at all in Q1 to help offset the absence of that rate release or if we should view Q1 as have -- it would have been just $0.10 higher otherwise. Like, for instance, I saw maintenance expense was about $0.03 lower this quarter.

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Robert J. Sprowls, American States Water Company - CEO, President & Director [18]

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So Jonathan, we do -- we did not manage the business any different than we normally would despite the delay in the rate case. Maintenance, as you know, bounces around from quarter-to-quarter based upon the level of unplanned maintenance. And so the unplanned maintenance in the first quarter was very low, which is a good sign and created a favorable variance for us for the quarter. But that was not intentional. It's just sort of a function of the reliability in the system.

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Eva G. Tang, American States Water Company - Senior VP of Finance, CFO, Corporate Secretary & Treasurer [19]

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And I think, Jonathan, to add to that, I think maintenance, it's likely the timing differences there when they catch up in the following quarter -- following the quarters after the first quarter. So that's happened in the first quarter and also in the first quarter, and you also mentioned in your report that you kind of included the gain on investment in there to annualize your annual forecast. And first quarter, everybody has a great quarter in terms of market conditions. So I think you probably have to normalize that a little bit for your annual forecast there.

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Jonathan Garrett Reeder, Wells Fargo Securities, LLC, Research Division - Senior Analyst [20]

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Right, right. Yes. That was just kind of fair disclosure to the [rate]. But I do appreciate you affirming. So it sounds like you did read the report, so you probably know what this next question might be. Has there anything that's changed recently as maybe part of the pending settlements that's going to alter the gains which you booked, your water gross margin throughout the year, where Q1 becomes bigger percentage of consolidated? Or is that all pretty much consistent with historical -- recent historicals?

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Robert J. Sprowls, American States Water Company - CEO, President & Director [21]

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It would be very consistent with historical in terms of the water -- the water gross margin.

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Jonathan Garrett Reeder, Wells Fargo Securities, LLC, Research Division - Senior Analyst [22]

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Okay. And then remind us, Eva, what's the 2019 authorized average rate base for water as well as then for electric per those pending settlements?

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Eva G. Tang, American States Water Company - Senior VP of Finance, CFO, Corporate Secretary & Treasurer [23]

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I think for water, it's $852 million for settlement without the advice letter at all. So $852 million. For electric, it's a different kind of sentiment. I think estimate about, I would say, $50 million. So in total, I would say a little bit over $900 million authorized rate base for '19.

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Jonathan Garrett Reeder, Wells Fargo Securities, LLC, Research Division - Senior Analyst [24]

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Okay. And that's the average rate base for the year?

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Eva G. Tang, American States Water Company - Senior VP of Finance, CFO, Corporate Secretary & Treasurer [25]

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Yes, that's the weighted average.

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Jonathan Garrett Reeder, Wells Fargo Securities, LLC, Research Division - Senior Analyst [26]

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Okay. And then -- okay. The Wildfire Mitigation Plan that Bear Valley has filed, do you expect any elevated CapEx and rate base growth opportunities as a result of that as we look forward?

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Robert J. Sprowls, American States Water Company - CEO, President & Director [27]

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We do. It's still being sorted out. There's a proposed decision that's been issued. We're working through that, but there should be additional CapEx that will be spent for that if the proposed decision results in a file.

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Jonathan Garrett Reeder, Wells Fargo Securities, LLC, Research Division - Senior Analyst [28]

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Is it -- I mean, is it a meaningful driver of rate base growth off that $50 million or just really pales in comparison to the rate base growth, the magnitude of the rate base growth on the water side?

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Robert J. Sprowls, American States Water Company - CEO, President & Director [29]

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It's not insignificant. I'd say it's fairly significant. If memory serves, it's maybe in the range of an additional $4 million to $6 million of CapEx.

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Jonathan Garrett Reeder, Wells Fargo Securities, LLC, Research Division - Senior Analyst [30]

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For the year?

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Eva G. Tang, American States Water Company - Senior VP of Finance, CFO, Corporate Secretary & Treasurer [31]

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For this project.

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Robert J. Sprowls, American States Water Company - CEO, President & Director [32]

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Yes, for the first plan.

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Eva G. Tang, American States Water Company - Senior VP of Finance, CFO, Corporate Secretary & Treasurer [33]

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And then over the 5-year rate case cycle, as we settle, in total, it's $44 million. So if you use that divided by even 5, that's about $8 million to $10 million a year plus this mitigation plans in addition to that. So we expect big spending at Bear Valley electric segment in the next few years.

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Jonathan Garrett Reeder, Wells Fargo Securities, LLC, Research Division - Senior Analyst [34]

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Okay. And then I noticed in the Q and presumably the K, you're trying to transfer the assets and liabilities of Bear Valley into a separate legal entity from the water utility. Is that move designed to just kind of isolate any potential wildfire or inverse condemnation risk or it's exclusively to the electric segment?

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Robert J. Sprowls, American States Water Company - CEO, President & Director [35]

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Well, it's really designed to -- there are differences in the operations, regulations and risks associated with managing electric business and managing a water business. So the goal is to sort of move that into a stand-alone subsidiary so that it's -- we can focus on the risks, regulations, et cetera, and the issues associated with operating that business separately from the water business. One of the -- obviously, one of the risks there is wildfire issues.

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Jonathan Garrett Reeder, Wells Fargo Securities, LLC, Research Division - Senior Analyst [36]

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Okay. So I think that kind of leads into my last question. So should we read into -- that kind of might impact the cost of capital for that business relative to the water? Like I know you have a different ROE, but at least cap structure is consistent with the water business where, I guess, that's back to, I guess, kind of separated out down the road?

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Robert J. Sprowls, American States Water Company - CEO, President & Director [37]

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It could get separated out down the road, but it's going to be several years because we have a settlement on the BVE case for 5 years. The application that we have pending to separate Bear Valley electric from the water business is one that was put forth for the sort of the near term, should not be something that's detrimental to the cost of our electric customers.

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Jonathan Garrett Reeder, Wells Fargo Securities, LLC, Research Division - Senior Analyst [38]

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Okay. And then the last one from me. So the settlement stipulates a 9.6% ROE, which, that's awfully low compared to the cost of capital filings, the electrics in the state just made a request ROEs north of 14% and as high as almost 17%. So just kind of curious what your rationale was for agreeing to that lower ROE, because I think you went from maybe 9.95% down to the 9.6% in light of that elevated wildfire risk in the state and how do you think the currently pending electric cost of capital proceeding could potentially impact when the waters file again next year.

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Robert J. Sprowls, American States Water Company - CEO, President & Director [39]

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Well, admittedly, the 9.6% is low compared to what the other -- the large electrics have recently filed. Please understand, it was 1.75 years ago, almost 2 years ago that we agreed to the 9.6%. A lot has happened since then. And just part of it is a function of the process of getting the rate case approved. I do believe the recent filings by the electric companies should lift their rates of return for them, and we believe it should have some positive effect on the water utility's ROEs, but that's just one man's opinion who has a vested interest. I'm hardly objective, I would say.

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Jonathan Garrett Reeder, Wells Fargo Securities, LLC, Research Division - Senior Analyst [40]

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Okay. So maybe to put it in another way. When you guys do file your cost of capital, assuming the electrics are successful, to some degree and making their argument, we should expect you to kind of put forth somewhat of similar argument since even as a water utility, you still are prone to inverse condemnation risks?

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Robert J. Sprowls, American States Water Company - CEO, President & Director [41]

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That's all correct. And we were not -- we weren't happy with the 8.9%, as you know, Jonathan. So yes, I didn't think that was fair to our company, but others did. So the regulators apparently did.

So we're looking to try to get one that's at least reflective of what we're seeing across country for other water utilities. Plus, as you pointed out, we do have the inverse condemnation risk on the water side as well as the electric.

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Operator [42]

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(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Bob Sprowls for any closing remarks.

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Robert J. Sprowls, American States Water Company - CEO, President & Director [43]

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Thank you. And I just wanted to say thank you to all of you folks on the phone today for your participation, and we look forward to speaking with you the next quarter. So thank you very much.

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Operator [44]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.