Robert Sprowls - President and Chief Executive Officer Eva Tang - Senior Vice President of Finance and Chief Financial Officer.

Jonathan Reeder - Wells Fargo Richard Verdi - Atwater Thornton Angie Storozynski - Macquarie.

Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company Conference Call, discussing the company's Fourth Quarter and Full Year 2017 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 PM Eastern Time and run through Tuesday, March 6, 2018 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] After today's presentation there will be an opportunity to ask question. [Operator Instructions] Please note 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 Security 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 will turn the conference over to Bob Sprowls, President and Chief Executive Officer of American States Water Company. Please go ahead..

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

2017 was a strong year for the company, excluding a one-time gain on our water system sale, we earned $1.75 per fully diluted share, a $0.13 per share increase from 2016 all while increasing our dividend by 5.4%, continuing our record of 63 consecutive years of annual dividend increases.

At Golden State Water we invested $111.4 million in these infrastructure, filed our water and electric general rate cases where we are requesting average capital spending of $125 million per year for the water segment and $12 million per year for the electric segment, and we continue to provide a high level of reliability in customer service.

Continuing with our highlights on the next slide, during 2017 American State Utility Services or ASUS had a big win with the new 50-year contract to provide water distribution and waste water collection and treatment facilities services at Fort Riley, a U.S. Army installation in Kansas.

The initial value of the contract is approximately $601 million over the 50-year period and is subject to an initial joint inventory adjustment and annual economic price adjustment. We expect to assume the water and waste water operations at Fort Riley, in mid-2018.

In addition, during June 2017 ASUS assumed operations of the water and waste systems at Eglin Air Force Base in Florida with a contract value of $702 million over the 50-year contract period.

With the addition of Fort Riley, ASUS will operate on 11 military bases, including four of the largest military installations in the United States, Fort Bragg, Fort Bliss, Eglin Air Force Base and Fort Riley, as well as joint base Andrews owned to Air Force one. During 2017 ASUS completed various filings with the U.S.

government at its contract locations which provides for an annualized increase of approximately $5.3 million in contract fees over the year-end 2016 levels. Our overall company strategy remains the same. Deliver outstanding customer service, make prudent capital additions and continued to grow our military base presence around the country.

We had success in all of these areas in 2017. I'll now turn the call over to Eva to review the financial results for the quarter..

Thank you, Bob. Hello everyone, let me star with an overview of our fourth quarter financial results is on Slide 8. Consolidated earnings for the quarter were $0.35 per share, compared to $0.30 per share for the same period in 2016.

The tax reform which I will discuss later in the call negatively impacted the water segment by $0.03 per share but added $0.03 per share primarily and AWR current and to a lesser extent at ASUS and electric segment.

As a result, there is no impact to consolidate earnings excluding the tax impact diluted earnings for the water segment were $0.21 per share for the quarter. Consolidated revenue for the quarter decreased 2.6 million compared to the fourth quarter of 2016.

ASUS received a retroactive growth in the 1.7 million during the fourth quarter of 2016 for period prior to that. There were no similar retroactive revenues received during the fourth quarter of 2017.

Excluding the impact of this retroactive amount, ASUS revenues decreased by $1.8 million as compared to the fourth quarter of 2016, due to a decrease in construction activities in Q4 2017 partially offset by increases in monthly management fees from successful price adjustments, and the commencement of operations at Eglin Air Force Base.

Electric revenue was lower due a downward adjustment to the revenue requirement to reflect a decrease in the general office allocation, as it's related in the CPUC's December 2016 decision on the water general rate case.

Partially offsetting these revenue decreases were increases in water revenue, due to the CPUC approved rate increases effective January 1, 2017, as well as rate increases to specifically cover higher supply costs, experienced in certain rate making areas.

These were partially offset by decrease in revenue due to Ojai water system sales in June of 2017. Looking at Slide 10 our water and electric supply costs were 20.6 million for the quarter a decrease of $1.2 million from last year.

Any changes in supply costs for both the water and electric segment as compared to the adopted supply costs are tracking in balance [indiscernible].

Looking at total operating expenses excluding supply costs, consolidated expenses decreased $1.3 million, versus the prior year period primarily due to lower construction costs at ASUS as well as lower legal and other contamination related costs at Golden State Water company.

Slide 11 shows the EPS bridge comparing the fourth quarter of 2017 with the same period of 2016. Turning to Slide 12, for the full year consolidated earnings per share were a $1.88 for 2017, as compared to $1.62 per share for 2016. I will briefly discuss the year end results for each of our business segment.

Our water utilities reported earnings per share increase $0.18 for the year, the earnings for 2017 include a $0.13 share gain on the sale of Ojai water systems and a $0.02 per share increase in earnings related to the recovery of incremental drought cost incurred in prior years.

Excluding these two items and the negative $0.03 per share tax impact, diluted earnings on the water segment increased $0.06 per share compared to 2016 due to CPUC approved rate increases, lower legal expenses related to contamination matters as well as an increase in interest and other income partially offset by a decrease in earnings due to the succession of Ojai operations.

For 2017 earnings from electric utility increased by $0.01 per share due to additional costs incurred in 2016 in response to power outrages cause by severe winter storm experienced in January of 2016, as well as lower regulatory expenses and costs associated with energy efficiency and solar initiative programs in 2017.

For ASUS earnings increased by 0.04 to 0.37 per share compared to 2016, there was an include in management fee revenue from perceptual resolutions of various price adjustments and item transfers. There was also an increase in management fees and contraction revenues generated from the operations at Eglin's.

Increased earnings were partially offset by higher operating cost due to Eglin's transitioning FTP and joint inventory study, as well as increases in labor, OpEx services costs related to business development and compliance. AWR parent earning increased by 0.01 per share after excluding the positive 0.02 per share impact on the tax reform.

The increase was due to lower state taxes. Let me now turn to the impacts on tax reform on slide 13. The most significant exchange impacting us is the reduction of the corporate salary income tax rates on 35% to 31% impacted 2018.

As a result of remeasurements, the cumulative net deferred income tax liability related to Golden State Water very regulated activity were reduced by 90.1 million at December 31, 2017 to reflect the 21% tax rate.

However, this did not impact earnings thus this amount was recorded as a regulatory liability and it will be refunded to our customers over the remaining life of the asset.

The re-measurement of deferred tax balances not related to rate regulated activities had a negative $0.03 per share impact to Golden State Water offset by a $0.03 per share benefit primarily as a parent level into a lesser extent as the other two business segments as discussed earlier in the call.

We expect this reduction in the federal tax rate to benefit our customers. In addition, the effect of the access before taxes from the re-measurement is expected to be refunded to customer and effects the future customer rates as well.

Going forward as new plans is in service, the lower federal corporate tax rate will result in lower deferred tax liability which are reductions to rate base. The tax act also eliminates bonus depreciation for utility as the result of the lower federal tax rate and the elimination of bonus depreciation.

We expect the reform will create growth in rate base for same level of expected capital expenditures. However, the new tax law is expected to resulting lower cash flow for operating activities and additional borrowings at the Golden State Waters.

Regulated utilities will still have the full tax deductibility of interest expense and therefore the interest deductibility limit in not anticipated to have a material impact on this consolidated company. At this point we do not expect to issue equity in the near future.

As for ASUS we believe our existing 50-year control do not specifically address changes in pricing, we clearly found the impact of tax reform and the change in the federal income tax rate. However, the government has the opportunity to request an adjustment which would then we acceptable negotiation between the party.

There is no automatic for unilateral adjustment available to either the government or the company I'll briefly discuss our liquidity on this slide.

Net cash provided by operating activities for 2017 was $144.6 million as compared to 96.9 million in 2016, there was an increase in operating cash flow for Golden State Water due to various CPUC- approved surcharges implemented during 2017 to recover previously incurred cost, as well as federal income tax refunds received in 2017.

The increase in the consolidated operating cash flow was also due to the timing of the length [ph] in cash received for construction work during the year. As Bob mentioned Golden State Water invested $111.4 million in company funded capital project in 2017. We expect to invest an additional 110 to 120 million in 2018.

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

Thank you, Eva. I'd like to provide an update on our recent regulatory activity. In January 2018, the CPUC approved third year rate increases for Golden State Water, these rate increases are expected to increase the adopted water gross margin by approximately $4.5 million in 2018 after adjusting for the sale of the Ojai system.

As a result of the new tax reform Golden State Water intends to file revised revenue requirements and rate base in our pending water general rate case that will set new rates for the year 2019 through 2021 and in our pending electric general rate case that will set new rates for years 2018 through 2021.

Both rate cases are scheduled to be finalize in 2018. In addition, the CPUC ordered water utilities to establish a memorandum account, effective January 1, 2018 to track the impact on the revenue requirements caused by changes in the tax rate and other taxable changes from the tax act.

The impact will be included in this memorandum account is expect to generate on regulatory liability to be refunded to Water Customers at a later date.

In February 2018 the CPUC issued a proposed decision on the water cost of capital application, the proposed decision recommends and authorized return on equity of 8.23% and a return on rate base of 7.39% for Golden State Water segment effective January 1, 2018.

Golden State Waters current authorized return on equity or its water segment is 9.43% and our authorized return on rate base is 8.34%.

If the commission adopts the recommendations in the proposed decision the lower return on rate base is expected to decrease Golden State Water's annual revenue requirement by approximately $9.5 million beginning in 2018.

We have filed our comments in the proposed decision with the CPUC and have been taking steps to convey our points to the commission. A final decision could be issued by late March. Let's move on to ASUS on Slide 16, the ASUS had another strong year highlighted by the award of the $601 million privatization contract at Fort Riley.

ASUS will assume operations at Fort Riley in mid-2018, while we don't expect a significant contribution from the new base, in 2018, we expect the contract to contribute $0.03 to $0.05 per share on annualized basis beginning in 2019. The first full year of operations. Also, ASUS began operations at Eglin Air Force Base in June 2017.

After the completion of the joint inventory study conducted with the U.S. government the Eglin contract is valued at approximately $702 million subject to economic price adjustments. We are 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 basins for biding 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.

Turning to ASUS's fourth quarter performance, our management fee revenues increased as a result of various successful price adjustments during 2017 as well as revenue generated from Eglin Air Force Base. We continue to work closely with the U.S.

government for contract modifications related to potential capital upgrade work or improvement of the water and wastewater infrastructure at the military bases we serve. During 2017 the U.S. government awarded ASUS $20.2 million in new construction projects, the majority of which are expected to be completed through 2018.

We will file the first economic price adjustment for Eglin later in 2018, and we will assume operations at Fort Riley mid-2018. We currently have economic price adjustment filings pending with the U.S. government for all other bases which we serve.

Completion of filings for these economic price adjustments, requests for equitable adjustment, asset transfers and contract modifications awarded for new projects provide ASUS with additional revenue and dollar margin.

In order to project ASUS's earnings for 2018 we continue to evaluate the amount of capital work that we expect to complete which includes discussions with the respective contracting offices and the direct group of public works at the various bases.

Taking into account the $20.2 million in new construction projects awarded in 2017, as well as operating Eglin for a full-year, we expect ASUS' 2018 earnings to be between $0.38 and $0.42 per share.

I'd like to turn our attention to dividends outlined on Slide 17 where our Directors recently approved a first quarter dividend of $0.25 and [five tenths cents] [ph] per share on the common shares of the company.

The dividend reflects the Board's confidence and the sustainability of the company's earnings at both our Golden State Water and ASUS subsidiaries as well as the prospects for our future. Our calendar year dividend has grown at a compound annual growth rate of 9.4% for the five years ended 2017.

American States Water Company has paid dividend every year since 1931 and has increased the dividends paid to shareholders every calendar year to 63 consecutive years, given our earnings growth prospects there is room to grow the dividend in the future.

Finally, I’d like to convey that as a water utility that provides a precious limited resource of water, American States Water is proud of its continued efforts related to environmental, social and governance issues. The prime example is the great strides we've made on the water conservation front.

In fact, total water usage by Golden State Water customers was down approximately % since 2007, while our number of customers has increased over that same time period. We have strong corporate governance practices focus on our employees' developments and well-being and are active responsible community partner.

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..

[Operator Instructions] The first question comes from Jonathan Reeder with Wells Fargo. Please go ahead..

It looks like you bumped up ASUS' '18 guidance by a 0.01 from your Q3 call, what was the driver there?.

The driver there was a lot of times we look at the fourth quarter and try to see what was going to come in and there were some things that didn’t come in that we thought would and so we moved those into 2018. .

Are you talking about like construction work you are seeing or…?.

More price adjustments that sort of thing..

Okay, so maybe some sort of retroactive component that bumped it up or something?.

That’s not necessarily retroactive but it we have filed for various economic price adjustments in at the transfers and expect to have those come in 2018 when we originally thought maybe they would come in 2017. .

Okay, so what is the guidance assume with regards to tax reform and lower tax rates. .

So, the guidance assumes, sort of status quo, it assumes that we're not going to be able to take the benefit of the -- keep the benefit of going to 35% down to 21%. However, we believe that our 50-year contracts do not specifically address changes in pricing from the impact of the tax act.

And the government does have the opportunity to request an adjustment which will then be subject to negotiation between the parties to the degree we would be able to keep the benefit on the existing basis that would be upside to the $0.38 to $0.42. .

Okay perfect, when you expect to kind of get some clarity on that issue, there are certain times that you normally have this conversation with the government or something you would initiate or how is that going to work?.

So really clear at this point, sometimes I would come up in a price redetermination process which since all of our current contracts or economic price adjustment at this point, they doesn’t seem to be a natural vehicle for this coming up. My sense is it would come up through a request from the government but we've not received that at this point. .

Okay and then last question, any portion of that $0.03 to $0.05 annual contribution from Port Rylie's is that included in the 2018 guidance, small portion, you expect to assume operations during '18. .

We assume to start operating in 2018, there is a small portion of the earnings contributed there. So, we’re doing the transition active here as well as the inventory, joint inventory with the government, so till that’s done we decide [indiscernible] contract will go forward and we start operation.

So, we do expect some small amount of contributions on Rylie this year..

It’s a small amount, nothing close to the $0.03 to $0.05..

Okay and then shifting already the utility, how do you characterize kind of the ex-parte, meeting you had on cost of capital and do you get the sense the CPUC is seriously considering altering the proposed decision. .

Well to be honest we're in uncharted territory there, so it's really hard to say Jonathan. The fact that the proposed decision took [ORA] to a point almost was quite surprising and disappointing for us.

But we're trying hard to make our points there, we and the other three companies that are in this application, we all sort of have the same major issue which is the return on equity, and it's really difficult to see whether there will be changes or not. .

Right, certainly the interesting proposed decision that came out, certainly surprised us, do you think that CPUC act on I think March 22nd when they are first able to or if you don't think they are going to -- or if they don't act would you view that as a greater likelihood that they are going to modify the PD, that they are basically taking it under further consideration?.

Really difficult to say, if it gets deferred, maybe there'll be added hope there, it's just really hard to say, it's just such a strange decision that -- and obviously it's the thing I scratch my head about over this is, California needs to be investing in water infrastructure and lowering the ROE, it's not exactly what we do when you want to encourage investment in water infrastructure or encourage the purchasing of troubled systems.

So, it's a bit strange that, [a bit off hilter] with California policy. .

Eva, I think you mentioned that you are going to file some revision for pending rate cases, I think in terms of revenue requirement but also, I think you might have mentioned rate base, do you have -- my favorite question of all kind of all the authorized rate base is for water and electric utility in 2018?.

Yes, we are for '18 the one we are going to file is we need to update rate case for '19, through '21 for that new rate.

So, we will be filing that probably in the next week or so to tell you the number at this point Jonathan, so the tax rate will impact revenue but that should have earnings impact but the rate base should have a little bit uptick because of the tax rate is lowered from 35% to 21%..

The creation of less deferred taxes going forward..

So, you will have a higher operating income than derived revenue requirements, but we expect to get that wrap up in the next week or so..

What's the authorized rate base, average rate base for water and electric in 2018?.

For '18, I think we have 752 million for water for '18, electric is about $45 million to $47 million, but this is based on the current rate case cycle, it's based on the rate set for '16, '17, '18..

For water..

For water, so..

So, the 752 for '18 is based on the '16 through '18....

Rate case..

Rate case..

And then I guess just kind of last question, I noticed your utility maintenance expense was down 11% in '17 versus '16 and kind of largely been flat over the past few years, just kind of curious how you have been so successful controlling that line item and is that something you expect to be continue control going forward?.

Yes, it's a function of planned and unplanned and one of the reasons for the success in '17 was there was less need for unplanned maintenance than there has been historically.

We're also recently more down to single last year or two we implemented some more efficient approach to dispatching our field workers and that seemed to create some efficiencies for us..

I guess if you have a normal year of kind of unplanned maintenance we might see a little bit of the tick up maybe not probably back to the 2016 level just given some of efficiencies above was up there?.

It's possible, yes. We've been implementing this program through our various customer service areas and it's not fully implemented at this point so hopefully that will continue to be upside on that..

Right, our planning process including detailed planning for the planned maintenance and on time you should be [indiscernible] predictable..

The next question comes from Richard Verdi with Atwater Thornton. Please go ahead..

A lot of my inquiries have already been addressed, Jonathan asked a lot of them for me. But just on a higher-level question regarding ASUS and I'll use Fort Riley's as an example.

We closed that in October of last year and I'm wondering could one of you just maybe talk a little bit about the selling or closing process from when it was discovered the base would be auctioned to when the close was announced to last October and what might make that process a little bit shorter or longer?.

It's by far not a clear process and it's varies by days, it's really difficult to predict how long it's going to take.

some cases it will take maybe as little as three years and some cases it's been five years, it just takes longer than the government says it will and they've got other priorities and we were so happy to be a part of this industry we don’t really press it with them, we just respond to their inquiries and there is several different phases of each bit and so you go through the bidding process and try to stay in as one of the competitors because competitors do drop out as they sort of move through that.

My understanding is that they move through the various phases. Well I'm sorry I can't give you anymore clarity than that, but it's just seems each prioritization has its own issues. .

And then just one other question and it's again little bit on the higher-level side here.

You had mentioned Bob, that California water infrastructure is falling apart part clearly, it's very unfavorable out there the whole situation, I'm wondering if you could just talk a little bit about what the acquisition landscape might look out there, is fruitful, I mean are more utilities are coming to see the [light ware] hey, we might need to start a utility here because water infrastructure is so bad.

Can you just talk a little bit about that? And may be where American stage might fall in that process. .

Sure, I mean, the comment I made was there just as a need for infrastructure replacement in California, not unlike most of the rest of the states in the country and that we have the additional issue of water supply issues which would be a state that does encourage water infrastructure investment.

but with regard to purchasing systems, last year the year before we did see a few more systems come up for sale than we have seen in past.

Now we haven't really seen that in the last I would say six months to a year but there will be more systems up for sale and these would be municipally run systems, usually, they are pretty small systems that are being sold, it's not sort of a major, less than 5000 customers in some cases, less than 2000 customer.

I think there is great interest by investor owned industry to purchase these small systems and we believe that if you bring professional water operators in that customers, are better served that way and you get infrastructure replaced timely.

We as a company would be very interested as systems come up for sale, it's just right now we're not seeing a lot of system up for sale.

As you know part of the water action plan and continued California policy is for the investor owned utilities to step up and help on sort of troubled systems and we will be glad to be part of that, we're not seeing a lot of those come to the table either.

Those troubled systems are difficult to acquire, you may have to sort of carry them on a few more years than you would have a system that reflects trouble but it's still is a situation where you could put capital to work and improve the system, the reliability and the customer service. .

Actually, I'm sorry I do have one other question and its sort of a follow up to Jonathan's regarding the rate base.

I just want to confirm something here, for 2017 the rate we adopted rate base should have been about 717 million and for 2019, we're looking at about 876 million, so that 876 million because of the tax reform, that should be essentially going up in 2019 correct?.

Yes, I mean I haven't seen the number but I believe it should, yes..

And that number is our requested number, so at the end it may be a different number but if you compare to this number the rate base should be showing up. .

Sure, so that’s a 22% jump in two years and that figure is probably going to go up.

Is that fair to say, I guess it's fair to say on the request is going to go up from that 8.76% and a 22% jump level, is that a way to put it?.

That's accurate yes. Richard the ORAS filed the report on the rate case and as of a week or two ago, we had asked for about 375 million over three years, their [RH] report suggest 260 million over three years, so it's a good starting point for us, to negotiate I think..

Here are the other questions, I wasn’t going to ask this, just as you reminder, so this case -- let me look at my note here, so you had asked for American States had asked for about 11% ROE, ORAs position was 8.23%, that's about a 275 basis points left, when I look back at the 2011 cost of capital hearing, that was originally about a 275 basis points spread where originally American States was granted something much lower and then it was finalized near 10% at 9.99%.

I mean theoretically, I mean could that happen again here?.

For the record there was no decision below the 9.99%, I mean the decision was 9.99% in that case. I mean ORA put out a lower number but the ruling in the case was 9.99%..

And that was a -- ROE, ORA and the four companies, so 9.99% ROE for all four companies..

It's an excellent point..

Yes. So, we didn't go through the core hearings [indiscernible] and we went to land at the end but it basically just validate all the numbers..

Yes, right we had a settlement and then we still had the hearings..

Yes, that one hearing..

So, going for the averages, what's your question?.

I am trying to determine I mean what's the probability that this comes back up from here, to a higher level?.

Yes, I mean we are working -- we are trying really hard convince them that this is not a good policy but we really don't know, now this is the same commission that approved the 10.2% to 10.3% ROEs for the electric companies and that was a settlement that they approved less than a year ago, it is a head scratcher as to why we would be at 8.23% when the electric companies are in the 10.2% to 10.3% range..

The next question comes from Angie Storozynski with Macquarie. Please go ahead..

So, I have two follow ups, the ASUS, the earnings the projections that Eva you gave us for '18, does it assume -- do they assume that you keep the benefit from the lower tax rate through 2018?.

No, it assumes that it's basically it assumes that we are paying at 35%. I think it assumes that it all flows back to the customer. Anything we are able to keep it if we are able to keep anything would be upside. .

On your comments about municipal M&A and some reluctant from those troubled systems to offer themselves up for sale, is this a California based comment because I remember that in the past you guys were saying that your community relationships in one of the states would you actually have the military base contracts could enable you to have some municipal M&A also in other locations, so is this just California or other states have some similar reluctant..

California centric comment, is just -- we understand there is a lot of systems in need, it's just we don’t see any of them being put out for sale, so that's where that comment came from. .

And lastly on the [Indiscernible] proceeding, is your pace of capital deployment going to change depending on what that ROE ends up being and I know that those are two separate proceedings one is at your CE and one is the cost of capital proceeding.

But are they in anyway intertwined, I mean would you attempt difference and send a message to the regulators in California that there is a certain threshold below what you are not going to deploy as much CapEx as you had proposed?.

That's a difficult question. We obviously will make all of the capital that we need to make and make the systems pace and reliable, we never understand associated with those kinds of issues.

generally, the capital will get -- the amount of capital that we're going to spend will be approved during the general rate case and so that becomes a question of how harder we are going to fight for the capital in that rate case. I think we would have to go back and think about and think about that a little bit.

we do understand, we do think these projects all need to be done so it will be a little bit difficult for us to sort of back away from our capital request that are all necessary projects. so, I guess on balance we continue to pursue the capital that we have and then work to try to get the ROE changed.

There is an ability in California to request rehearing. if you are denied rehearing by the commission you can then go to the California Supreme Court to get a potential relief..

But on the flip side you could say you have or something that is lower ROE sticks or if something similar to that level.

You have a lower returning and some tax related benefits to customer bills which would potentially open up some disposable income from your rate payers which would enable you to actually invest more is this at all or something that you would be willing or while the commission would be willing to discuss as far as your GRC discussions are concerned, I mean there is to be limiting factor for spending is the affordability of bills, so those two drivers which would provide more of an affordability cushion.

.

Right, that’s why this is really a head scratcher, the reduction in the ROE for us is going to drop our customers' bills, 1% to 3%. So that just really is, it's not a huge savings to customers and when you factor in its going to create additional cost with the company.

We do still feel really good about the capital projects we have in front of the commission and more than like that would be continuing try to argue for those capital projects in the GRC. .

Next is the follow up question from Jonathan Reeder with Wells Fargo. Please go ahead. .

Just want to visit you comment that, your lower cash flows, don’t require new equity in the near-term.

Should we interpret that as meaning that may be for looking beyond kind of the next two to three years, you think you would need equity to kind of support, whether it’s a 55% or 57% equity capital structure at the utility level or how should we interpret that in near-term, I guess raise. .

I think Jonathan in the next two to three years we don’t believe we need to issue equity, we're doing a detailed forecast right now just to see how that goes but our equity ratio is still a little bit higher at this point, the next level will be a debt issuance that was not at '18 probably for the '19-time frame.

So that will be a debt issuance and then we will see how that goes. .

So, the equity that Eva was talking about and that’s a AWR consolidation level, and then of course the other component here is the CapEx that will be coming out of the rate case, that will determine the cash flows need of the company going forward. .

And I guess the timing is kind depended on one the authorized equity level as part of the cost of capital but if you also what your CapEx budget will result with GRC..

Yes..

This concludes our Question-and-answer session. I would like to turn the conference back over to Bob Sprowls for any closing remarks..

I just want to wrap up by saying, thank you all for your participation today and your good questions and we look forward to speaking with you next quarter. So, thank you. .

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