Good morning, ladies and gentlemen. Welcome to the California Water Service Group’s Second Quarter 2017 Earnings Results Call. This call is being recorded. I will now hand the call over to David Healey, Vice President and Corporate Controller. Please go ahead, sir..

Thank you, Tracy. Welcome everyone to the 2017 second quarter earnings results call for California Water Service Group. With me today is, Martin Kropelnicki, our President and CEO and Tom Smegal, our Vice President, Chief Financial Officer, and Treasurer.

Replay dialing information for this call can be found in our second quarter earnings release, which was issued earlier today. The replay will be available until September 27, 2017. As a reminder, before we begin, the Company has a slide deck to accompany the earnings call this quarter.

The slide deck was furnished with an 8-K this morning and is available at the Company's Web site at www.calwatergroup.com/docs/2017q2slides.pdf. Before looking at this quarter results, we’d like to take a few minutes 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 advises 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 second quarter 2017 results. I’m going to pass it over to Tom to begin..

Good morning, everyone and thank you, Dave. Marty and I are going to go through the earnings slides that Dave mentioned and I will try to refer to page numbers when I'm talking about a specific slide and I’ll try to make it general enough if you don’t have the slides with you.

But hopefully you’ll be able to get to the Web site and take a look at the slides as we go through. Our operating revenue for the second quarter was $171.1 million, and that was up $18.7 million from the second quarter of 2016.

That’s primarily due to the general rate case that was adopted in California at the end of last year, as well as some purchase water offsets that we’ve achieved through the California regulatory process. Our operating expenses are $145.9 million, up $12 million from the similar quarter last year.

That is largely due to depreciation and purchase water cost increases. And if you go down to the bottom of slide five our net income is $18.5 million that is up $7 million from our net income in the second quarter 2016.

Earnings per share of $0.39 versus $0.24 in the second quarter of 2016, so very good quarterly results for us and we’ll talk a little bit more detail about that. On a year-to-date basis, I won’t go through that slide six in too much detail.

But I will point out that our earnings per share on a year-to-date basis are $0.41 versus $0.22 on a year-to-date basis for 2016. Looking to slide seven, the earnings increase of $7 million, as I mentioned, is largely attributable to increased revenue from the California general rate case that was established in December of 2016.

We had for the quarter an unbilled revenue accrual increase of $2.5 million, decrease of $1.1 million in our drought related costs for the quarter and decrease of $1.2 million in our maintenance cost for the quarter. And we do think at this time that the maintenance cost decrease is attributable to the lack of drought conditions.

We'll talk a little bit more about that as we go forward in the presentation. Finally, we have an increase in our other income of $1.2 million and the primary driver there is the implementation of equity AFUDC for the Company for the California operations of the Company.

And that was an authorization that was contained within the general rate case decision previously we only booked interest during construction on our capital projects. So just flipping to slide eight, again very similar explanations on the year-to-date result changes.

And I will point on slide eight at the bottom there, the Company and developer funded capital investments for over $108.7 million that's very similar to our investment for 2016 during the same period, and we are still on track to meet our targeted range of $200 million to $220 million of CapEx for the year 2017.

The earnings bridges on slide nine and slide 10 describe some of the same factors that I just mentioned. But just going through slide nine, which is the quarter two earnings bridge. Again, $0.159 increase due to rate relief, $0.033 increase due to the change in unbilled revenue, $0.014 increase due to the lack of drought expense in the quarter.

Effective the equity, AFUDC added $0.012 and then the headwinds rather were depreciation expense again because our capital investment last year created more plan to depreciate, that's $0.044, interest expense $0.012 decrease due to interest expense and then other items. So, flipping ahead to slide 11.

Just to give you an indication that the rate relief is consistent with our GRC decision, we're on target with the rates that we thought would be established. We're getting the revenue we expected from that GRC. The change in unbilled revenue is a seasonal factor and we've talked about that a lot on our calls.

It was up a bit in the second quarter it's actually has been down a bit in the first quarter. And if you look on a year-to-date basis that unbilled revenue accrual has had no change from 2016. So it's not a real factor here this year. And I think I have covered everything else on this slide.

I'm going to turn it over to Marty to talk about some regulatory matters, starting on slide 12..

Great. Thanks Tom. Good morning, everyone. I want to start off by giving everyone a cost of capital update. As you may recall, we filed our cost of capital application with the California Public Utilities Commission. And so this is for the California Utility on April 2, 2017. We did request 10.75 ROE with no change to our equity structure.

The Company is currently at 9.43 ROE with 53.4% equity. The application that was filed at the beginning of the process, and we are waiting to get the rate payer advocate testimony sometime in August, and we have hearing schedule beginning in September.

The Commission has published and adopted schedule that should -- that has indicated a decision should be given out by the end of 2017 with any changes to the cost of capital effective January 1, 2018. On side note on July 13th, the commission did adopt the proposed settlement with the electric and gas companies as adopted.

We think that’s significant and that it shows the commissions continued willingness to work towards an agreed settlement with all parties, and the electric and gas cost of capital settlement has been filed and approved. Going on to page 13, a couple of other commission notes that I think are important.

First and foremost, we’re in that process are preparing for our escalation or what we call our step increase for 2018. There is up to $17.2 million that will be requested in the fourth quarter to go into effect after January 1, 2018.

These increases, as some of you may recall, it’s a little different in the water industry than the electric and gas industry and they are subject to an earnings test, which reviews our capital investment performance, our ability to hit our capital targets, increases or decreases also can vary with recorded inflation.

And the step increases that will take effect will also incorporate the sales reconciliation mechanism, which adjust for changes in the adopted quantities and the adopted rates for consumption.

So overall, I think we’re pretty bullish on the step increases for the year, The Company has continued to do a great job on capital, and I’ll come back on that in jut minute.

In addition, as you may recall, there is $30 million of aggregate advice letters for the state of California, which will be included in rates after the compilation of specific projects through 2019. For the second quarter of this year, the CPUC has approved three advisory at a projects totaling an additional $1.3 million of revenue.

Also, in May, we filed an application with the California public utilities commission to incorporate Travis Air Force Base into the California service territory.

The application requested that we establish Travis Air Force Base as a standalone district and thereby, giving a rate jurisdictional and capital jurisdictional oversight to the California Utilities Commission for the Air Force Base. And then lastly, on the commission notes, Hawaii Water is on schedule.

We've requested $1.5 million increase for Pukalani sewer system on the Island of Maui and that is proceeding as planned, and we hope to have something completing wrapped up sometime in September that we can talk about on the third quarter call. Moving ahead to slide 14, activity of other regulators.

I think it's important to note that the state board continues to work on permanent water use requirements with the State of California.

As the governor said, making conservation away alike, so we continue to be engaged in those discussions and we expect more to become an optimal state in terms of permanent conservation plans for the state in terms of preparing for the next drought.

In addition, the state board adopted a new water quality standard for 1, 2, 3-Trifluoropropane or what we call TCP. TCP is a contaminant that was used widely in the agriculture industry. The TCP part of it is really what was used to deliver the chemical to the Ag product, and it's some pretty bad stuff.

The requirement, the maximum contaminant level has been set at five parts per trillion, so its five parts per trillion. Cal Water has a total of 38 wells that are affected and will be using activated carbon filtration to treat for this. This is something if you’ve read our Q's and our disclosures we've talked about for some time.

Certain municipals have been caught off guard by this rule. We’ve been well underway with our treatment process plan and design on how we’re going to handle this new rule for over a year. In fact, we are expecting our final quotes for implementation from some of our service vendors to come in tomorrow.

We included in our capital plans for 2017, $20 million deal with 1, 2, 3, TCP and we estimate another $40 million will be included in CapEx for next year for 2018. So again, those numbers were already into the capital estimates that we shared with the street.

In addition, in California, new legislation was passed that required water companies and water providers to do lead testing in schools, which Cal Water fully supports. And we have started our process of working with the 738 schools in our service areas to provide water quality testing looking for lead and copper under lead and copper rule.

The CPUC, our California Public Utilities Commission, has approved a memorandum account for us to track these costs as we move forward with continued lead testing in the State of California. It is noteworthy that of all the tests that we’ve done so far, we found no lead in schools.

We’ve had one that hit the maximum contaminant level of 15 parts per billion on lead. But we’re waiting for the final confirmation test to come in. So, so far all the testing that we’ve seen and the schools have been coming in clean other than one or waiting for a confirmation test on.

I am going to turn it back to Tom to talk about the residual effects of the drought..

Thanks, Marty. So as you may have heard, there was a small drought in California over the last four or five years, which we’ve been dealing with and talking about on these calls for some-time. The drought has been over. The official declaration of the drought has been over for some time.

And we’re now dealing with few of the after effects of the drought. And so I am going to talk about two factors and that’s the water sales and then the recovery of the drought expenses.

As you will recall, Cal Water has been decoupled since 2008 and that means that the changes in sales do not affect the income statement that flow through on the balance sheet, creating a receivable -- we’re getting a little vibration out my window there. Creating a receivable and that is our regulatory process to recover that receivable.

As we have seen in 2017 with the drought being over, water sales have come back very slightly and have not come back to the adopted quantities. So our sales have increased 3.5% this year as compared to the same period of 2016 where we were in the drought. However, we’re still about 20% below the adopted quantities for sales in our districts.

And as a result of that, the WRAM receivable balance has grown from about $37 million at the end of 2016 to almost $55 million at the end of the second quarter. And we do expect that if the water sales continue to lag the adopted that we will see an increased WRAM balance as we go through the end of the year.

I do want to point out that there are several regulatory mechanisms that are going to kick-in in 2018 that will start to show for us a reduction and a mitigation of the WRAM receivable balance. The first is the sales reconciliation mechanism that Marty touched on with respect to our 2018 escalation year filing.

What that does is if our sales, for instance, are 20% below the adopted targets, it will adjust the sales forecast for 2018 by 10%. And so that the rates in 2018 would be designed with 90% of the prior sales volume in mind, so it’s 50% ratchet mechanism designed to smooth that curve.

In addition, we have our WRAM surcharges, 12 and 18 months surcharges, those go into effect every April to collect the prior year balances.

And we did file, in April, for our WRAM recovery of the 2016 balances in April of 2017, so just showing on a bar chart on slide 16, the relative balances over the course of the years And then moving to slide 17, the recovery of the drought expenses.

As you'll recall from prior calls, the expenses to administer our programs were booked in the period incurred, and we need to get that back through the regulatory process. We have seen drought expenses of $0.3 million for 2017 that's down from $3.2 million and the first half of 2016.

So almost zero in terms of drought expenses we just have a few wrap up items that we've been doing. As you'll recall, our drought costs of $4.4 million expensed in 2014 and 2015, we did achieve a regulatory result returning $2.9 million to Cal Water to recover their.

And that really had to do with the determination of what was an incremental at the commission and what was the non-incremental cost, and that's why there is that adjustment there.

We did report drought cost of about $4.4 million in 2016 and so later this year, we will be asking the commission to recover those 2016 costs as well as the small costs that we’ve in 2017 and any capital that was associated with the equipment used by the folks in the drought.

As for our revenue recognition policy, we’re going to book the revenue when it's adopted for recovery by the CPUC. We would hope to get that by the end of the year, but there is obviously a regulatory process involved. And so there is no guarantee that we would get that approved by the end of the year.

So I'm going to turn it back now over to Marty to talk about CapEx..

Thanks, Tom. I just want to give everyone a quick update on where we are with our capital program for the year. Company funded and developer funded capital expenditures, our investments total to $108.7 million through the end of June.

You may recall, we got off to a slow start to the year given all the rain that we had during the first and early on in the second quarter. But we've regained some ground and we believe we’re on target to complete $200 million to $220 million of capital for 2017. In addition, the planning for the next rate case has been well underway.

And once we file the GRC next year, we’ll share everyone what the capital plans are for 2019 to 2021, but that process has been going very, very smoothly. We’re well into the justification phase of the capital program for the next rate case and staring to work on our prepared testimony and filing for their rate case that will get filed in 2018.

If you look at page 19, we've updated the chart for the capital investments so you that under 2017, which shows the $108.7 million out of the $210 million average target that we’re driving towards. And on page 20 is our rate based estimates and those haven’t really changed.

Prior to wrapping things up and open it up for Q&A, I want to deviate from what we would normally do on a call and take a moment to pay tribute to someone who has been very important to our Company who passed away on June 9th. Bob Foley or Robert W.

Foley served as our Chairman of the Board for 16 years and served as a Director for the Company for a total of 35 years. Bob passed away in June after a good fight with a very serious illness that ultimately took his life. Bob joined the Company in 1977 as a Director, outside Director and at that point we were a single state company.

We had a $156 million of net utility plant and only $45 million in revenue. Bob was one of our champions and instrumental in expansion within California and our growth in the three other states. In addition, Bob was the driving force at the recruitment of Peter C. Nelson or Pete Nelson who is our current Chairman of the Board.

Bob had many personal achievements throughout his life, far too many to talk about. For those of you that know Bob, you know exactly what I mean, but some of the major ones he was the outstanding male graduate from San Jose State University in 1956. A couple of years ago, he was voted Stocktonian of the year from his hometown, city of Stockton.

He's an honorary life member of the National Association of Water Companies where he chaired in Government Affairs Committee for a number of years, and he was awarded with life time membership from American Water Works Association. Bob had a zest life and a unique ability to bring out the best in anyone and everyone that he talked to.

In particular, his warm handshake, the sparkle in his eyes as he engaged in conversation and his ability to strike up a conversation with just about anyone he needs. We're only of the few of the key things I think made him so special.

Bob cared deeply about our employees, our customers in the communities that we serve and the image and the brand that our company employees portrayed every day when they went to work.

He was the leader that helped built our culture of "do the right thing and always put the customer first" while firmly believing the human spirit that hard work always pays off. Well, it's sobering for all of us here to accept the fact that Bob is no longer with us.

His philosophy of to do the right thing always exceed customer expectations as well as the love for our company California Water Service Groups lives here daily and the culture that he up shape in the legacy that he's left behind.

Our since condolences go out to Barbara, Matt, and Peter for the loss of a truly outstanding human being who will be dearly missed but never forgotten. With that I want to take a moment to just wrap up the quarter before we open up with Q&A. Obviously, a solid quarter on a year-to-date basis and for the quarter itself.

Primarily, we see the results rate relief coming in from the 2015 General Rate Case. The Company continues to execute well on its operational and capital plans.

I think both Tom and I are very-very happy with the budget actual management on the expense side for the Company as well as the capital investment plans and our ability to regain some of the ground that was lost due to poor weather earlier in the year.

For the last half of the year, we kind of shift gears now and there're a couple of major things going on. First and foremost, completing the cost of capital proceeding, the regulatory team is busy working on that, complying with the new California TCP regulation.

The engineering and operational crews are executing our plans that we've developed around. Meeting the new water quality standard and of course preparing for next year's General Rate Case will be a major driver of our efforts for the rest of the year. Operator, with that, we will open it up to questions..

Thank you. [Operator Instructions] We'll go first to Tyler Frank with Robert Baird..

Just wanted to touch on the drought recovery real quickly. When would you expect decisions that we made and for that the flow through the P&L? And then given that there was a delta, I think you guys asked for 4.4 million last time and only recover 2.9 million.

Should we expect similar amount to be recovered this time with your request there? And then I have a follow-up..

Sure, Tyler. So this is an advice letter process what's called a Tier 3 advice letter in the California commission prevalence, which means that the commission has to adopt a resolution. So it’s a decision per se, usually it's as little as a 90-day process, but it can take longer depending on the staffing of the commissions water division.

It's our intention to file as soon as possible. Obviously, there is a few more expenses that have been trickling in and we're just trying to wrap up the accounting and get the accounting clear for the commission staff to review. As far as the percentage of recovery, I think that is an open question.

We're reporting the cost of the drought that have to do with anybody who does any work on drought activities. And what the commission found in the 2016 filing was that, some of that was probably already covered in rates. And what they are really looking to reimburse this for, are the incremental cost.

So, the additional cost of hiring new person or the new mileage or equipment or outside expenses that have to do with the drop. People do a better job this time then we did in the 2016 filling because we now know what they are looking for but there is obviously no guarantee that we're going to get the full amount back.

And so I can't offer firm guidance on that but we’re trying to maximize that as much as possible..

And then looking forward over the next 18 months or so, looks you guys what have about little over 300 million and CapEx spending.

How should we think about the balance sheet and your ability to be able to fund that?.

I'm sure. So, we so maintain a revolving credit line that have the operating company level has a 300 million cap and there is also a credit line for the holding company as well and that’s a 150 million credit line there.

We’re currently I believe a 140 million out on the Cal water revolver and the limitations there are both the maximum the 300 million and also the timing with the California commission. So we’re required every two years to pay that down for regulatory purposes. So it can be considered short-term debt.

And we relapsed off the line in September, October of 2016. So, presuming that we don’t get to the maximum amount on that line that the 300 million, we would have to do the financing before October of 2018. So that’s the consideration.

As far as the long-term financing goes we intent to stick to the capital ratio that’s been adopted for us if the California commission and the essentially similar ratios are obviously present in the other states, but California dominate the conversation there.

So our long-term financing will continue to be a combination of debt and equity that keeps us in that range as close as possible..

And we go next to Spencer Joyce with Hilliard Lyons..

A couple of really housekeeping questions for me this morning. Tom, I saw in the release looking for full year taxes closure to 37 and kind of the 37% to 39% range that we had previously.

Is there anything that we can read through perhaps into 2018? Or should we perhaps stay with kind of that midpoint of 38% for the out year?.

So what we see, Spencer, driving that percentage number is primarily the amount of deduction that we have for what’s called the repairs deduction and that has to do with small replacements of mains within our linear asset structure, so within our district -- the main replacement program.

The way that our rate case authorization per capital has worked, the bulk of those were in 2016 and kind of a normal amount in 2017. And we see probably a little bit less on the main replacement side in 2018. So that would tend to give you a slight upward pressure. Again these are not major differences, but they can move the needle a percent or two.

So I guess I would say for 2018 the rate is not as likely to be 37 as is to be 39, so….

Okay, that was helpful and very clear.

Also kind of minutiae here, but Tom can you talk about any special expenses we saw from the fires in Kern County? Is there anything we should back out or add back kind of to the current year to get kind of a fair run rate?.

That’s a really good point and we didn’t mention that it didn’t to rise to a level of some of these other factors. But we did actually receive an insurance settlement for our business interruption insurance that recovered about 6,000 of the expense that had been reported in the 2016 period.

So we did have a blip in expenses in the second half, I believe that was in the third quarter of 2016, and that 6,000 in reflected in the results for the first half of 2017. So a little bit different timing there I guess you could say that.

The expense was high in the third quarter and that expense hopefully will not be there in the third quarter of 2017, but we did see that benefit come through in the first half of this year..

Okay, got you.

And the insurance settlement specifically on the income statement, what was that in offset to, was it in other line or was it up in kind of either the maintenance or the G&A?.

That’s in A&G expense..

[Operator Instructions] We will go next to Jonathan Reeder with Wells Fargo..

Good morning Marty and Tom. Very sorry hear about the loss of Bob. Those are some very kind and accurate word to describe the man..

Yes, thank you..

Yes, so a couple of questions on my end. You indicate 23 million of drought expense in 2017.

Is that the expense that we are going to see before you indicated maybe you are expecting 0.5 million to 1.5 million?.

Yes I think we’d really wrap it up. I was talking to our conservation director yesterday and they are obviously getting ready to make that filing with the commission to recover the drought expenses. So, he does think those charges are over in all significant ways.

Now there could be a charge here and there that we capture but I don’t think there is going to be much more..

Okay, great. And then sort of expenses like A&G other operations beginning I see they are down year-over-year on a year-to-date basis.

Do you expect will be the case for the full year?.

So just taking maintenance for example obviously we did direct our staff at the initiation of the drought to go out and fixed every week any time and make sure that the customers knew that we won't be wasting water and we back up on that somewhat with a new maintenance rule probably around the first of this year.

So we could continue this year decline in maintenance cost obviously the bump-up in maintenance, if you go back historically, was over the last year and year and a half and then probably was related to the drought.

But with that said things do break and you can have major maintenance that occurs regardless of whether it's a drought or not, so the general trend is probably down on the maintenance side line, but there is no guarantee that it's going to stay low for the rest of the year.

As part of the other things they are tracking pretty well to our budget and I don’t know that I can point you one way or the other as far as the second half of the year as far as A&G and other O&M expenses..

Okay, but I guess they are online with kind of your budget but you are expecting at least kind of for the full-year?.

Okay. And one of the things, Johnson I think, Tom's team has done really well, as we've kind of -- we've retooled over the last two years kind of the whole budget management on both the expense and the capital side.

So I think were fairly comfortable with the operating environment and everyone's ability to kind of manage your budgets, both on getting the capital on the ground, but also on the A&G side..

Okay. Now look like, it's working so good job there. And then kind of last question I have, I'm not sure if you've had any dialogue with any of the key interveners on the cost of capital. But obviously, the electric settlement approval process at -party meeting provided a glimpse into the various parties' thought.

What do you anticipate kind of mean the hot button issues to the waters and in that regard do you think the CCM will remain will place and or kind of be modified in some regard?.

So, given that the commission has established a three year cycle, I think it's reasonable to expect that there will be an adjustment mechanism that has to occur and whether there is thoughts on whether that should be modified, that's always been a discussion point in the cost of capital foreseeing that we've sponsored whether there is a different caller on it or a different way of indexing and that sort of thing.

So let's wait and see, I think we are going to get the DRA report, ORA report, pretty quick here in next couple of weeks, is my understanding. So I would rather not guess as to what their issues are going to be and be surprised and like everybody else when I read that report..

Yes, so far we only got one intervening party and it's a local city and they were involved in the rate case as well I won't say they were very active intervening parties. So I'm not aware if anyone else intervening in the process.

I also think that the water cost of capital proceeding is somewhat different then the electric folks in terms of getting the big interveners involved. And I suppose they can jump on us at anytime. But we're pretty small potatoes compared to the electric and gas companies, and so far as it looks it's just going to be a normal process.

It was nice to see the schedule get posted that shows this thing being completed by the end of the year. And we are going to charge full steam ahead and hopefully get it done before January 1st..

Okay, when you said one, only one intervener, I mean, is that besides ORA in turn or it's….

Not in our case..

Just ORA one city..

That doesn't mean that turn couldn't decide today we get into the case, but they're not in the case as of now..

Yes, I mean so, when you kind of went through the white paper the commission put out on kind of cost of capital stuff like that.

I mean nothing that seemed I guess overly concerning in your opinion or I guess vastly different than the issues that should be begin in this process on a regular basis?.

No, I mean it's a pretty theoretic. It's an odd mix because you've already a lot of theory around cost of capital and then ultimately it comes down to a decision of the commission and the State Law Judge that has to take into account lots of different interpretations of the facts that relate to those theories.

None of which are always headed as been the right answer. And so, what we've found over the years is obviously those things are influenced by the cost of capital, that's been adopted for the utilities, the general mood of the commission, which expert essentially are you going to believe in which way if -- which of the models as you run through them..

So, I mean you take a settlement is still -- with ROE certainly a possibility or is kind of predestined to be fully litigated given the gap between the last proceeding?.

So, what I would tell you is based on my experience as the Regulatory VP at Cal Water. I was always interested in talking to ORA and DRA, and all the interveners in an effort to make a settlement. I think that we would continue that policy.

I'm sure Paul is not here with us today, but Paul would tell you that that’s his first instinct as well, obviously there's times when you can't reach a settlement and this is a multi-party proceeding.

So there's a number of different factors at play, it's not just Cal Water making a settlement, but you'd probably most likely have to get everybody in the room to make a settlement. So with that said, we have settled this case before the last case six years ago was settled among the party.

So, we're constructively optimistic that we could achieve a settlement but again we haven't seen what ORA testimony is..

I would add too Jonathan.

I think we were generally pleased with the settlement that the electric and gas company has got, I mean they took a -- if you look at their average hair cut on ROEs and all their ROEs were in the mid-10s, it was 11 basis points on average and I'm not saying that's indicator of where ours is going to go, but I think the fact that they could negotiate a settlement and they all ended up slightly north of 10% given the interest rate environment we've been in now for the last seven years I think is a good indication that that we probably have a chance at settlement..

And we'll go next to Tim Winter with Gabelli..

I've got two quick regulatory questions first just a follow-up on Jonathan.

Is it a certainty that this is going to be a three-year cost of capital making this?.

Tim, I'd say that because that's in the rate care plan for water utilities, but that's the way this works..

I haven't heard anything different than that. There hasn't been a move to amend the rate case plan..

Okay so that’s a safe assumption..

For now, I mean obviously I guess the Ratepayer Advocate could put something in there testimony that they want to revisit this, but to be frank it's very expensive process for everybody evolved.

These financial experts that both sides higher to weigh in on what’s the reasonable cost to capital are, it's an expense to the commission as well as an expense to the Company which you get passed on right there.

So I think the its really a matter of efficiency of regulation that we don’t see this proceeding going on every year and so I would think that they would stick to it three year schedule and that’s something really unusual is happening..

And then I was hoping you could just quickly walk through the regulatory issues in the Travis Air Force Base..

First of all I believe that the first in California where anyone file for a military base to be under PUC jurisdiction, so most of the models that are out there is more like contract then contract negotiations so many years take place between the department of defense or wanted their sub-agencies and the utility doing the operations.

So this is a bit of a deviation in terms of the business model, we think if the business model that’s much more like lined or core competency it gets the DOD and the military out of rate design discussions and allows the commission to get over sight and I think we would.

We would argue the commission in California joined as a very, very good job with oversight of water utilities. So application is been filed we're going through a process of discussion now and ultimately the commission will have to approve adding that as a service territory.

I don’t fore see any big, enough big hurdles with that, obviously if its added the service territory there is a fee that has be paid to have the oversight and regulations, so that the revenue if you will of the public utilities commission. In terms of timing Tom, on an application right that what would be normal..

Tim what I was going to add to that is I know about the week before we did a tour of the travel system with ORA folks. I don’t believe we're falling along in that process to know what their issues might be or what the timing might be.

On an optimistic, on one end of it if you were truly optimistic and they didn’t have much of an issue with some corporate and they could be relatively quick application process and incentive they don’t end up protesting and raising a lot of issues.

And so we will be hopeful for that, if you raise issues and I get there is a variety of issues they could raise if they wanted to. Then it could be an extended discussion..

And there are no other questions in the queue..

Alright, well, thank you all for listening in and your good questions are second quarter earnings call. We look forward to having good rest at the summer and talking to you all in October. So thanks very much..

Have a good day everyone. Thanks..