Thomas Smegal - VP, Chief Financial Officer Martin Kropelnicki - President and CEO.

Spencer Joyce - Hilliard Lyons Jonathan Reeder - Wells Fargo.

Good day, and welcome to the California Water Service Group Fourth Quarter and Year End 2014 Results. Today’s conference is being recorded. At this time, I would like to turn the conference over to Thomas Smegal, Vice President, Chief Financial Officer. Please go ahead, Sir..

Thank you, Marr. Welcome everyone to the fourth quarter and year end 2014 earnings call for California Water Service Group. With me today is Martin Kropelnicki, our President and CEO.

A replay of today's proceedings will be available beginning today February 26, 2015, through April 26, 2015, at 1-888-203-1112 or at 1-719-457-0820, with a replay passcode of 6105137. Before looking at this quarter’s results, we would like to take a few moments to cover forward-looking statements.

During the course of the call, the company may make certain forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company's current expectations.

Because of this, the company strongly advices all current shareholders, as well as interested parties to carefully read and understand the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q and other reports filed from time-to-time with the Securities and Exchange Commission.

Now, let's look at the quarterly and year end results. So I'm going to go through the income statement and then turn it over to Martin for some commentary. For the fourth quarter our revenue was $137.4 million, that’s up 2.8% or $3.7 million.

Our production cost for the quarter was $49.6 million, that's down 8.2% or $4.5 million compared to the year prior. The total water production for the company was down 13.4%, resulting from the company's conservation program and customer awareness regarding the California drought.

Our production mix for the quarter, our well production within the quarter was 46.8% of total production while purchased water represented 49.4%, and surplus water accounted for the remaining 3.8%.

For administrative and general expenses, we expended $24.7 million for the quarter, that's down 1.1% or $0.3 million, primarily driven by pension expenses which were lower by $1.6 million. Other operations were $17.7 million for the quarter, down 8.6% or $1.7 million.

$3 million decrease within conservation expense with the new GRC decision we are ramping up a new conservation program, so expenses are lower compared to 2013 which was the end of the previous three year program.

Our maintenance costs for the quarter were $5.1 million, up 13.2% or $0.6 million, $327,000 increase in wells maintenance and $442,000 increase in transmission and distribution maintenance caused to that change.

For depreciation for the quarter, it was $14.4 million, a decrease of 1.8% or $0.3 million and that's driven by lower depreciation rates within the GRC decision.

Our net other income for the quarter was $1.3 million, that's up 29.1% or $0.3 million, our total end income for the quarter $11.4 million compared to an income of $5.7 million in the same period last year was increase of 101.1% or $5.7 million.

And EPS for the quarter of $0.24 in earnings per share on a fully diluted basis as compared to earnings per share of $0.12 in the fourth quarter of 2013.

Now moving on to our yearend financial results, revenue for the year was $597.5 million, that's up 2.3% or $13.4 million; rate increases added $2.2 million, revenue decoupling mechanisms and balancing accounts added $9 million, sales to new customers added an additional $2.2 million.

Our production cost for the year was $223.9 million for the year, down 1% or $2.1 million. Total water production decreased by 6.4% for the year resulting in lower purchased water costs which were offset by higher power costs and pump taxes.

Our production mix for the year – well production increased to 49% of our total production as compared to 46% in 2013. Purchased water decreased from – to 48% from 49% while service water decreased to 3% from 5% in 2013. In administrative and general expenses we had $97.4 million expense for the year, down 0.7% or $0.7 million.

Our pension expense was lower by $6.8 million as compared to 2013, our medical cost was up $1.2 million, our liability insurance costs were up $1 million. In other operations we spent $65.8 million for the year, down 5.6% or $3.9 million.

Our conservation expense was down 57.5% or $5.8 million, again due to the base startup of the 2014 to 2016 conservation program. Company also spent around $0.5 million related to the drought which is subject to memorandum account treatment, meaning the cost maybe recovered in the future after approval by the California Public Utilities Commission.

Maintenance for the year $19.9 million, up 14.3% or $2.5 million, that's an increase in wells maintenance and transmission and distribution maintenance. Again the wells maintenance is related to the fact that we are using our wells more, and as you use them you need to maintain them more.

Our depreciation expense for the full year, $61.2 million, the increase of 5% or $2.9 million, and the increased expense there is as a result of capital additions being partially offset by lower depreciation rates in the GRC decision.

Our net other income for the year was $1.8 million, a decrease of 12.8% or $0.3 million, and that reflects mainly lower gains in our non-qualified benefit plans for the year. Our net income for the year, $56.7 million, up 20.1% or $9.5 million and earnings per share for the year were $1.19 on a fully diluted basis, up 16.7% from $1.2 in 2013.

Now I'd like to turn it over to Marty for some comments..

Thanks, Tom and good morning, everyone, there are five areas that I want to cover this morning in my commentary.

One, talk about our 2014 results and what were the main drivers for my perspective behind our success; two, take a few minutes to talk about our 2015 business plan as well as recent rate increases that took place or starting to take place from the end of December through the first quarter.

And then what we'll be focusing on during 2015 as well as given the continued drought. Three, briefly discuss few recent projects that we have underway, that have been in the media, primarily Apple project and the Chromium-6 project in the State.

To talk about some of the changes after CPUC, in particularly the new Head of the CPUC that was appointed on December 23 by Governor, Jerry Brown. And then five, wrap up by just making a few introductions and comments about some of the new officers we have at the company that we announced at the end of the year.

First talking about our earnings, overall we had a strong finish where both the fourth quarter and look forward to the full year of 2014. And looking at it there are really four main drivers for our strong performance during the quarter and during the year.

One, first and foremost, the largest item being the 2012 general rate case, we received our decision from the commission, it was approved on August 14 of 2014, and that really allowed us to do two things; one, we're able to quickly adopt to new tier of separate rider rate relief for all of our districts in California; and two, we were able to book the retroactive portion of the rate increase in the third quarter that covered the period from January 1 to August 14 when the final decision came out and was approved.

Said at different way, the delay in a decision to prevent us from billing customers the new tariffs that went into effect on January 1, the difference between the old tariff and the new tariff was recorded in a memorandum account authorized by the commission.

Once the settlement was approved, we were able to recognize the revenue and record the balance of the memorandum account during the third quarter.

The second major thing that's contributing to our success for the year and I think strategically will help us going forward is our continued strong focus on financial planning and analysis and budget management as we talked about over the last three years, we've made some good investments in financial planning and analysis software as well as I would put together, financial planning and analysis team that works with all of upper entities to help them understand and better manage their controllable cost, and that clearly is helping us on to some of that results that we're seeing in the bottom line.

The third area that is showing up in our results for the year, as we have achieved some significant savings on the interest expense line, that why driven by two things; one, the overall low cost of blowing on our syndicate line of credit; and two, in November of 13 we had $40 million of mortgage bonds that matured and we paid off, those were not refinanced or replaced, so as a result I saved this money on the interest expense line.

And then lastly, as many of you are aware, this shows up when you read our 10-Ks, we have continued our long term emphasis around long term tax planning and the relationship between our capital program and rate making.

So we've made some pretty significant gains on the tax line by doing a better job of long term tax planning around our core utility business. These are the four areas that contributed – the largest contribution to our results for the quarter and you will see more of that in the 10-K that will soon be filed shortly.

In addition, as pointed out in the press release the groups spend $132 million in our capital program for 2014, exceeding our target range of $120 million to $130 million; this is a new record for the company.

As you may recall in the third quarter conference call, and given the delays with our decision, the rate case, we talked about the fact – we may have problems hitting our targets for the year.

Having said that, the engineering, operations and accounting team has done an outstanding job during the fourth quarter in getting us back on track and we ended the year slightly ahead of plan. This is a herculean effort and I commend the team for their hard work and efforts to get us there.

During the fourth quarter alone we spent over $45 million and deployed $45 million of new capital. Despite the hard work of the team, the simple fact is that timing of the decision and the final approval of the capital program, how these factor are stepping please for 2015.

With the majority of the capital being deployed later in the year after the rate case was approved, 16 of our 25 district pass their earnings test and are eligible for the inflation area or steep increase.

That translates into approximately $5 million step for the State of California, which is approximately 50% of what it could have been if we would have the capital budget released sooner by the commission, So the good news is we caught up, the bad news is it certainly affected the step forward for 2015 in a steep increase.

A few other recent rate changes, I want to identify, Washington Water Service Company on January 13, we see the crew from the Washington commission to increase rates $1.7 million, those new rates will take effect in February.

The next co-water service company received approval for their escalation rate, increased filing of $263,000 and Hawaii Water Service Company received approval and freezed rates associated what the Pukalani Waste Water System on the Island of Mali, a $150 on February 1, and we also recently received the approval to increase in our [inaudible] Water System $100.

So in total, there is about $7.2 million new tariff changes taken effect here during the first quarter.

Looking at our business plan for the year and what we're going to be focusing on, as many of you are aware we're moving into the second year of a three year rate case cycle in California which is the largest component of our business, it's our largest company.

This is typically where we start to see regulatory lags start to setting on some of our major cost lines, and while we work with the commission to implement balance accounts to self soothe out some of these swings and particularly production cost, pension cost, healthcare and conservation; it is still the second year of the rate case cycle and there is a possibility of some erosion of earnings as they move through 2015.

Again, we believe the mechanisms that we've put in place help mitigate some of that but nonetheless, as they go through this three year cycle there is ad inflow to the cycle and we're kind of right in the middle of it.

So what are we mainly focusing on for the year, first and foremost, our continued focus on cost management and tax planning, we've made some significant gains and we plan on keeping that momentum. Second, we want to execute our 2015 capital program, our capital program targets for the year are to spend between $125 million and $145 million.

As we've discussed in the past, we expect this amount to continue to increase annually for the next five years as we make necessary enhancements in replacements of our water infrastructure. Third, we are currently working on two general rate cases; in August we filed a rate case for our Kono Water System on the big island of Hawaii.

And then second, we are currently working on filing our major rate case for the State of California which gets filed on July 1.

As many of you are aware, this rate case is a very exhaustive effort, massive effort that eats up a lot of resources, and from my perspective it's hard to believe we just settled the 2012 rate case and we're moving in to file the next rate case here by July 1.

Lastly when we look at this year and what our plans are for this year, I want to take a few minutes to talk about the drought. A survey came out this morning and nine out ten voters in the State of California believe that drought is serious, with 68% of those voters believing in that the drought is very serious.

And if you followed any other weather patterns in the State of California, we started winner with a record storm that frankly covered almost the whole state, it started north in new south, and we had record rainfall in many of our service areas in 24 to 48 hour period, many of our have between 10 and 12 inches, so winner started off with a bang.

Now the OER on the earnings call today, towards the end of February and the fact is that we haven't had a whole lot of rain sense and we had one other storm. When you look at major reservoir levels for the state, the low is about 8% and the high is about 62% of their historical averages.

So even though we had one or two good storms, the fact and it helped, but the fact is we're still well below our average reservoir levels in the State of California.

More importantly to that is the snowpack, and when you look at the snowpack and this is as of the February 24 where below 20% of normal in the north, the central, south and with the state as a whole.

So that just as a good indication that unless we have a late winter here with a lot of rain, the drop conditions strength are going to continue and probably intensify going into the summer month of 2015. When we think about the drought, all of our description of the State of California faired very well.

In 2014 we had no critical shortages in any of our districts and we've seen the results of our conservation really start to pay some good. We have continued our long term planning and continuously planning in case the drop continued.

So we believe we're in good shape moving into the next phase of the drought if we're required to go to a stage three, there is more stages to a drought, we've been at stage two, I believe will be going to stage III unless we got some rain here in the next 60 to 90 days.

We have a drought task force that has continued and meet weekly to review the latest demand for water as well as supply info and deal with any of the emerging drought issues that take place in any of our service territories throughout the state. And we have also continued to aggressively implements; our supply and system atomization program.

In 2014 we had 46 projects undertaken to help improve supply and we have another 33 projects planned for this year to help boost supplies, this coupled of conservation program and the fact that we have continued to work with the cities and counties and the areas that we support, we think it sets us up well to deal with another year of drought conditions in the State of California.

From an investment perspective I think it's also noteworthy to point out that our sales and revenue are decoupled, our production costs are also covered by balancing account called DMCBA, and as Tom mentioned in May of last year, the California Public Utilities Commission authorized a drop memorandum account.

So we have passed that or associated with the drought response incremental cost associated with the drought response that are recorded at memorandum account.

In addition as Tom pointed out, we are – our supply mix has changed a little bit and one of the nice things about the position we're in as we have multiple supply sources and we have the ability to change or mix our supply as things change throughout the year.

So in short, from a drought perspective this is the stuff we plan for and worry about, this is what we do so our customers don't have to worry about it, and all of us account water in the state in the drought team, all of our employees have been keenly focused on this issue we'll continue to be focused on this issue including the allocation of any capital and resources necessary to do what it takes to make sure we ensure a consecutive water supply and keep our service levels high for our customers.

So as we look at what we're focusing on 2015, it's going to be a busy year especially on the capital side of the business, that's coupled with the general rate case in Hawaii and California is going to keep us very busy as well as dealing with the drought. So those are the focal points for the year.

Couple of projects I wanted to discuss briefly, we recently announced the Apple project which was a partnership between Apple Computers at Santa Clara Valley Water District, the City of Sunnyvale, in California Water to provide recycled water to the new Apple facility that's being built in Cupertino.

In this project we will be delivering 157,000 gallons of water, recycled water a day to the Apple campus. This project coupled with recycled water work that we do in Southern California and we have an estimated 2.5 billion gallons of recycled water a year that we delivered to our industrial customers, that's about 7,900 acre fee.

So we're very excited to be part of the Apple project. We think recycled water, reclaimed water is something the state needs to continue to improve upon, and certainly have an icon brand like Apple that we're working with which will go a long way. In addition, we've announced a couple of significant brands that I wanted to briefly talk about.

One, we received a $5 million grant awarded by the Department of Water Resources through a Proposition 50 funding for our Chromium-6 projects. Proposition 50 funding is typically meant for public water systems and as many of you may be aware, California adopted the swiftest water quality standards as it pertains to Chromium-6.

The part of the challenge that we face with the adoption of this Chromium-6 standards which is ten parts per billion is that the technology hasn’t been there to track and water at that level. So we've been involved in a number of R&D projects to how can we get the water treatment process now to that fine level.

So the process of developing that type of technology, we've been working with our partners and the good news is with this grant it's bringing the cost down significantly for the customers in our affected areas and this area the $5 million grant has been spend in the Villa’s District.

So that's about $8 million of capital and there is about 2,800 customers, so this $5 million grant goes a long way in terms of reducing our cost. We also received $175,000 grant from the Water Research Foundation for additional research on reducing the brine waste created by the Chromium-6 treatment process.

And the company and our partners on the treatment side have come up with a very fast meeting process, essentially it takes one gallon of brine water or salt water to treat about 15,000 gallons of regular water and take out the Chromium-6.

In addition, that brine water is then recycled and given to a company that takes the elements out and use that to manufacture Chrome. The third grant we received as a grant from the State Water Resources Control Boards Division of Drinking Water, we received another grant for $136,000.

This grant is being used to pay for the extension of the pumps pushing around about two feet up in Clear Lake California which is an area that we served in addition to the second part of the grants going for us to design a floating intake well that can rise and fall with the lake levels.

So last year with the drought, as the lake levels drop we had to extend our intake into our treatment plant, and so this will allow us to push out even farther than design a floating intake well that we can use going forward.

So my compliments to the excellent work by our water quality team, and the engineers, and our local service team who went after these grants and we were able to secure these dollars because they certainly helped keep the customer outrage down. I want to briefly now move on to talking about couple of changes at the CPUC.

On December 23 of last year Governor Brown appointed Mike Picker as President of the CPUC between Mike Pebe who retired.

Mike Picker is a 62 year old Democrat, he was first appointed the commission in January of 2014, he has held a number of positions in this state, most notably is the senior renewable energy advisor to the Governor from 2009 until 2014.

And if anyone has ever looked at the solar policies in the State of California, they’ve been very progressive but they’ve also been achieved their solar goals. So it's certainly very effective.

He is also been the Deputy Treasurer for the State of California, cheapest out for the Mayor of Sacramento; Deputy Assistance to Governor’s Office on talks of substance control and a number of other job. So he has an MBA from Davis and he was preciously on the board of the Sacramental Municipal utilities district.

So overall our first impressions of Mike are very favorable. And as commission he was a little quite but I think he was getting the way of the land over the last year. Now they have moved into the Presidents role, he has quickly taken the helm and I think he is off to a really good start and we look forward to working with him.

The second person who was appointed was Liane Randolf [ph], she is a 49 year old Democrat, she is an attorney who attended UCLA Law School. She’s had previous positions at the California Natural Resource Agency, should practice at a number of find and she was also chairman of the California fair political practices committee from 2003 and 2007.

We haven't worked with Ms. Randoff and as a commissioner and we don't really know a whole lot of about here but nonetheless we looking forward to working with her in our new role. So there are some big changes happening at the commission, we're happy to Mr.

Picker become President of CPUC and look forward to working with him on some of the changes that we know he will be focus on going forward. Lastly, I just want to take a brief moment to talk about – couple, the officer chance that we have here at California Water Service Group, we announced those right before the holidays.

First, Lynn Maggie was appointed Vice President, General Counsel; I believe this is the first Vice President; General Counsel the company has had in the company's long history. Lynn joined the company in 2003 as associate corporate counsel.

Prior to joining that she served as staff counsel at the California Public Utilities Commission and legal advisor to two commissioners. Lynn also spend a few years in private practice. Lynn has a Master’s Degree in Law from Georgetown University and a JD from Southwestern University, as well as Bachelor Science and Math from Cal State Northridge.

Secondly, Shannon Dean, was promoted the Vice President, Corporate Communications and Community Affairs. Shannon Demenges [ph] Water Company in 1991 that merged with Cal Water in 2000. Shannon has a Masters Degree in English, as well as her Bachelors Degree in Journalism and Public Relations were from Cal State Long Beach.

Third, Michelle Morton, similar as promoted to Corporate Secretary. Michelle joined us in 2008 as a regulatory accounting manager, we hired her at a high tech, she helped implement the ramp and the modified cost balancing account after she completed her time she moved over to finance, and her last appointment was a treasury manager.

Michelle holds a BS in Commerce and Finance from Stanford University, as well as licensed stock broker with Series7 63 and 65 broker license. Lastly, it is a promotion, Dave Healy who is our Corporate Controller was promoted to Vice President, Corporate Controller at the same time.

Dave joined the company in 2009 as Director of Financial Reporting, he was promoted to controller in July of 2012. Dave has an excellent background in regulatory reporting, financial reporting and corporate tax.

Dave has his Bachelor of Science from the University of San Francisco in Accounting and he is a Certified Public Accountant, as well as a Certified Managerial Account. So that's a brief, brief update of a lot of things that are going on.

Certainly in 2014 we finished strong, I'm very excited about the management team at Cal Water, we are certainly up to the challenges of filing the rate case for this year, continue our strong efforts on cost management, tax planning, as well as managing the drought. So with that Tom, I'll turn it over back to you..

Great, thanks Marty, I'll just complete our presentation by talking a little bit about the balance sheet, just some highlights, our utility plant grew to $1.59 billion as of December 31, our work in progress decreased to $90 million, and our capital investments as Marty mentioned were $132 million for the year.

On cash, we had $19.5 million in cash at the end of the year and $79.1 million outstanding on our revolving credit facilities at the same time. And the WRAM MCBA balance stayed relatively flat for the year, increased just a little bit to $45.2 million. So that is the end of our presentation and we are now happy to take questions..

[Operator Instructions]. And we go to our first question from Spencer Joyce at Hilliard Lyons..

First question I want to go back to capital budget and the step up in revenue allowance for this year.

I know you all noted that 2015 will only get about 5 million of the revenue step up where potentially we could have seen a little bit more than and my question is if we could potentially see a little higher bump up in '16 to recoup a little bit of that in '15 based on perhaps how much capital you might be able to get into the ground during this year..

The regulatory mechanism at the commission wouldn’t allow us to back but what we would see I expect is a much greater percentage of the 2016 step. So with that step being the potential for about 10 million, I would hope if we continue our CapEx through the next couple of quarters that we will see us reaching much closer to that 10 million for '16..

Also was assuming we fall a little short of the 449 million authorization from this rate case, did you all identify that early enough to make some adjustments for the new proposed capital budget that you will be filing in July of this year?.

Washington, New Mexico and Hawaii are historically -- they have spend capital to get it and California it's a perspective rate. So all the capital gets approved as part of the process except the advice letter projects and once those are completed we file to get those worked into rates.

So capital projects are complex, it's not uncommon that some of these projects take 2 or 3 years to finish up.

So part of the rate case process when we go in with the new capital program is we have to reconcile what's and old and outstanding from the previous program that’s in process to what are the new products and provide justifications for all the new projects.

So we finished our capital planning last year for the rate case, we’re going through refinement process and we’re tweaking that.

As I said in my comments we don’t see that capital number going down anytime soon, it's going to continue we seem to go up as we make necessary enhancements to our infrastructure and then when the projects are approved and we’re working on them, we will get them done. So there will be a lead lag effect on that.

It's not perfect typically it gets caught up in the next rate case..

Totally switching gears, I want to talk about the tax rate a little bit and I know we have talked about this a time or two in the past but several years ago it seemed like we were talking about a potential special item or two but at this point now you won't have three full years kind of behind this a low 30% effective rate or so.

Are you pretty comfortable at this point that the low 30s will remain kind of in effect on a go forward basis and we’re not going to see a jump up from 30 to 39 or 40 that could really drive some delta to our estimates..

So we had a three year period where we were doing the result of our tax planning was a lot of look back and so for instance on the repairs deduction we were looking back to 1986 for plant, and making the adjustment for the tax repairs regulation.

On a go forward basis it's really related to how much capital investment in qualifying facilities, qualifying for the repairs deduction that we have on a go forward basis. And so we do look at that.

We estimate that in the last year we had about 2.4 million of the tax benefit coming from this new plant and equipment and so whether that’s a good number, whether we can raise that number going forward with a higher capital budget. Remember this repairs deduction is related to mains and services and linear assets of the utility.

So it's really going to be dependent on our capital spending and completing those projects..

And that’s exactly when Spencer we talk about the relationship between the capital program long term planning and the rate base because we think you’re right, we have basically being able to help improve the bottom-line by doing more effective tax planning and so our corporate controller is very well versed in that area, we have added some resources to that staff and so we will continue to look for ways to optimize the company’s performance using tax strategy..

[Operator Instructions]. We will move on to Jonathan Reeder at Wells Fargo..

Marty, I don’t know if you can but can you try to breakdown the $0.12 improvement in Q4 like how much is attributable to the GRC to the operating cost savings, interest savings etcetera?.

That’s a long, complicated answer Jonathan, and a lot of tat detail will be find in 10K that will get filed today. But you will see on the A&G lines, you know A&G has been better managed, it's been more efficient, we have picked up some ground on the tax line.

I think what's complicated when you go back and look at '14 you did have a onetime pickup when we booked the interim rates memorandum account that was booked in Q3, that was approximately $6 million to $7 million.

And then if you recall on the third quarter conference call, we talked about the fact that you had a change is happening between a fix charged and the quantity charge and so we pushed about 5% more into the fixed charge and so one of the things you’ve seen in the fourth quarter is I would estimate about 5 million, more of the fixed charge that’s being picking out of the quantity charge and picked up in the fixed.

That certainly with consumption going down our [Technical Difficulty]..

Okay so the pickup in that fix charge, is that something that’s going to help I guess smooth out the quarter distribution of earnings a little bit where Q1..

Exactly right, Jonathan so we mentioned that on the third quarter call that this revenue curve that we have the adopted revenue curve in California is going to get flatter.

So when you see a fourth quarter and a first quarter those will tend to be more improved than the second and third quarter just because more of the revenue is coming from the service charge..

And then I think it was in Q2, you kind of booked one non-recurring tax benefit, it was about $0.05. Was there anything in Q4 that you would consider non-recurring or I mean it's just part of that redistribution on the fixed versus quantity charge and just overall -- improvement over all that..

Yes there is no non-recurring tax benefits in the fourth quarter..

Okay.

And do you have what -- Cal Water's earned ROE was in 2014?.

We’re looking it up in the K. So if you look on a very gross basis we have an earned ROE of 9.3% that’s what's in the K.

You do have to consider that in California what's -- this category of plant called construction work in progress, not included in our rates for remaking purposes until it's incorporated into final plan and so we’re earning interest during construction on construction work in progress.

So when we look at it we see of the authorized rate base, we did better than the 9.3% when you think of it that way..

Yes, and when we file our proxy because part of our management incentive [ph] plan centers around five key areas one of which is ROE, there will be a good disclosure about what the target was versus what the actual was. So you will see that when we file the proxy..

And Jonathan, let me add one more bit of color to the tax situation. Remember that Marty said we made a really herculean effort on the capital in the fourth quarter. We spent $45 million on capital in the fourth quarter.

That contributed to lower tax rate because we did construct a lot of mains and services that allow us to take that deduction for the repairs, maintenance repairs but that’s an ongoing tax item..

And then how about the other states, non-California, I know you’ve always have the regulatory lag issues with historical test years, where are they kind of earning right now? I mean I think previously they were close to breakeven but it seems like you’ve been getting some new rates pushed through particularly in Hawaii, are they starting to contribute little more to the bottom-line?.

Hawaii, we’re not making money in Hawaii, we have the Turner rate case there, it's a fairly large one and it seems to take forever in a day when we have settlements take it with the Hawaii Commission but I think things are changing up there a little bit.

One of the things we have been focused on at the group level is having when I call the integrator rates platform, so we’re looking at all the subsidiary playing as well as the California planning and make sure we’re coordinating everything.

So these will -- rate cases and step ups that we’re seeing that’s a result of us coordinating I think tighter with all the subsidiary companies. So Hawaii, I hope that we will be breakeven to making a profit this year that is our goal for the team. Washington I think was interesting example that’s what we’re talking about an dissecting a little bit.

Washington when I file for the general rate increase requested a $1.5 million increase and the commission approved a $1.7 million increase and that’s because we acquired a small system up in Washington that was having operational issues and the Department of Health Services was encouraging us to work with them to take that system over and help make them compliant and in doing so the commission that you see [ph] up in Washington as the commission is named allowed us to add into the proceeding that was already underway as a rate base as well as operating cost.

So we actually got a higher number out than what we requested by $200,000. So Washington has about a 10.7 ROE but you never hit it because again it's a historical rate making state.

But we have been very encouraged by what the commission did with this rate case filing and the fact that they are continuing to work with us on ways we can improve our operations up in Washington..

If you can only get over a 100% of all your asks [ph] in every jurisdiction, that would be great..

I think it's in the environment -- and I think it's indicative of how we run the business. We have a relationship with the regulator to take a small system that’s not performing at the request of the Department of Health and get it to our standards but then it has a regulator allow us to step up that rate base.

I think that speaks well of the partnership that we have up in Washington..

And Jonathan, it also reflects our philosophy of asking for what we need and not asking for more than what we need in having to get cut back on that..

Okay. And then just last question as we kind of look forward to '15, I mean the $1.19 we take out the $0.05 so kind of a $1.14 is the starting base and you would expect to kind of grow off of that, you know the $1.14 is a relatively good run-rate..

We think from a core business number, you’re thinking about the right way, I think the question is while we’re having erosion with any of our cost lines because there is not, in California which is essentially 92% of the business. Other than that step increase, there is not new revenue coming into offset those cost.

So when you look at the big picture that’s why we really emphasize the financial planning and analysis and building up the budget skills within the company, so we can better manage through the second and third year period of the rate case..

And just being awry that the step increase was the 5 million and the total increase in the first quarter is about 7..

[Operator Instructions]. Mr. Smegal there are no questions at the moment..

Okay. Well I want to -- then we will be done and I want to thank you all for your continued interest in California Water Service Group and we look forward to talking to you again after the first quarter..