Good morning, ladies and gentlemen and welcome to the California Water Service Group's Third Quarter 2017 Earnings Results and Teleconference. Operator instructions. I would now like to teleconference over to your host Mr. David Healey, Vice President and Corporate Controller..

Thank you, Sonia. Welcome everyone to the 2017 third 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 December 26, 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 also available at the Company's website at www.calwatergroup.com/docs/2017q3slides.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 third quarter 2017 results. I'm going to pass it over to Tom to begin..

Good morning, everyone. Glad to be here on a beautiful autumn afternoon or autumn morning rather it is here in California. So, I'm going to over our financial results and then turn it over to Marty for some color on some events during the quarter. And then we'll wrap up with a little bit more from me.

And I will be referring to slide deck that was furnished with 8-K as well as available on our website.

So, I am starting with slide number five in that deck and reporting that our net income for the quarter was $33.8 million, up 48% from the $22.9 million in the third quarter of 2016 i.e., $0.70 on an earnings per share basis up to $0.48 on an earnings per share basis in the third quarter of 2016.

Our operating revenue was up $211.7 million, rather as compared to $184.3 million in the third quarter 2016 on a year-to-date basis.

Turning to slide six, we show net income of $53.5 million that is up from $33.6 million or 59% over the year-to-date period in 2016 and we're showing a $1.11 of earnings per share as compared to $0.70 of earnings per share in the first three quarters of 2016. Just a flip to financial highlights on slide seven.

Again, the quarterly earnings release was primarily - earnings increase was primarily attributable to $12 million additional revenue from recent rate increases in California. We also had increased unbilled revenue accrual of about $3.4 million.

Our other income is increasing, its 700,000 in the quarter, primarily due to implementation of equity AFUDC this year in compliance with commission's decision and our California rate case last year.

Our other operations expense reflects the expensing of $1.1 million from unrecovered waste water treatment assets in Hawaii associated with their GRC and previously capitalized drought costs in California which we now believed to be expansible.

In comparison in the third quarter of 2016, the company wrote off $3.2 million from abandoned water treatment plan project in our Bakersfield district in California. On slide eight, the financial highlights on a year-to-date basis are year-to-date earnings increase of $19.9 million.

Again, largely attributable to the additional revenue from recent rate cases in California and on a year-to-date basis we do not see a significant effect from that unbilled revenue accrual change it was same as was last year. On year-to-date as well, the drought related cost has decreased very dramatically.

Obviously, we were in drought period in the first half of 2016 and we're not in drought here in 2017. Our other income has increased $2.9 million, again primarily due to the equity AFUDC issue and also, we've done head gains in our benefit plan investments.

Our CapEx for the year-to-date as of $180.4 million and that is an increase of $14 million or 8.4% compared to the amount for the first nine months of 2016.

If you go to the earnings bridge, EPS bridge on slide nine for the quarter, you'll see the same factors listed rate relief is the big increase, the change in unbilled accrual, the other income and the decreased drought expense. We do have increased depreciation this year because as we invest capital, we increase our depreciation expense.

On slide 10, the EPS bridge on a year-to-date basis. Again, the same factors today really the decrease drought expense other income which includes the equity AFUDC depreciation and also upon a year-to-date basis, the interest expense is a slight drag on earnings and that's due to more borrowing that we did in 2016.

And I think at this point I am going to turn this over to Marty for some thoughts on the quarter..

Great. Thanks Tom.

And I am on slide number 12, I am talking about the California fires that I think most people probably heard about over a last couple of weeks, we were lucky and in our northern districts we despite being on high alert didn't have to deal with any major fires within our service territory we did sustain some minor damages that had to do with three plums up near Orville that burned down so, there is about $1.5 million of damage related to those plums and getting those rebuild.

It was not a water source for drinking water. These were irrigation plums that were used to provide irrigation water to a small number of customers.

So, overall, we have survived the firestorms in northern California very well, as some of you may recall last year we had that risk in fire which was in the current county area, which is a service area that we were directly affected in part of our service burned down, as well the Orville dam emergency earlier this year and we have - taken our lessons learned from those events.

In terms of emergency preparedness and 2015 we promoted retired Fire Chief, Joel Simon, he was Fire Chief for the city of Oakland to our Chief Safety and Emergency Preparedness Officer, Joel has a long and distinguish carrier has a fire chief with whole host of credentials and he has done a great job at establishing our emergency preparedness program within all four states that we operate in.

Since 2015, we have activated our EOC, our emergency operations center a total of 14 times dealing with local emergency type of events.

We also run joint emergency operation exercises with many of the communities that surround our service area and in fact, a few weeks ago, we had the Chico and Marysville emergency operations training with about 80 participants from local services close by. So, well it was a close call for us, no real damage sustained with the fire storm.

However, we do always keep our guard up when it comes to emergency preparedness. And in fact, many of you may have noted, we did add a new director to the Board of Directors for California Water Service Group, Vice Admiral Health [ph] who had retired a couple of years ago from the U.S. Navy as a three-star admiral.

Carol has a long, long bio of success including being one of the first women selected to serve at sea for the U.S. Navy. The first female officer to command a battle strike group and a battle command. We were very interested in Carol for a couple of reasons. One, she has a strong background and asset protection.

Two, she has a very good background in cyber securities from her time with NATO. And three, she has run a couple of large scale disaster relief operations including assisting with the Fukushima reactor plant and the Haiti earthquake. So, we figured we are very, very fortune that Carol joined the board. We are happy to have her on the board.

She is a delightful person and she will complement our already strong emergency preparedness strain that the company goes through on a normal basis. Turning to slide 13, I want to take a moment to talk about the cost capital.

There was not a settlement reach in the cost to capital nor do we anticipate a settlement be enriched, it will be a full litigated cost to capital proceeding, going on the proceeding we request an ROE of 10.75% with equity of 53.4%, so keep in equity flat. The rate care advocate proposed an 8.22% ROE with 54.4% equity.

So, we were not able to reach an agreement with the advocate. We are currently authorized at 9.43% with 53.4% equity. We had our hearings in September, the commissioner has adopted a schedule for decision that we expect to have done by the end of this year, but it will be a fully litigated cost of capital proceeding.

Going to the next page on other regulatory notes mentioned. We are in the process for preparing our step increases, our escalation rate increases.

There was approximately $17.2 million available that is the cap and that subject to an earnings test and an inflation adjustment and will be replenishing that number in the fourth quarter, we're currently in the process of preparing the filing for that and I don't have any final numbers yet, but I am very bullish on our performance given our capital spending and expect there we will be in the higher end of the range receiving that step increase.

In addition, we will be incorporating the sellers - our sales reconciliation mechanism adjustment that will affect in 2018.

So, we have adopted consumption that's greater than 5% of actual greater than 5% of adopted the following year we have the ability to file with the commission to capture 50% of that change in the sales forecast into the next year and so certainly looks like all of our - trigger that going into 2018 and then helps with WRAM and the decoupling mechanism and our cash collections.

The $30 million of aggregate advice letter projects that the company has an outstanding through the third quarter, CPUC has approved forward advice letter that we filed for an additional $1.3 million of revenue that will be included going into 2018.

In addition, we filed an application with the California Public Utilities Commission to incorporate the Travis Air Force space into its service territory, so it will be WRAM after regulated district one of our regulated districts the application is still in process with hearing scheduled sometime here in the fourth quarter with commission to try to work that into the rate regime that we have here in California.

Looking at some of our other states, we did receive decision by the Hawaii commission authorizing us for an additional $800,000 of revenue associated with our Pukalani waste water plant.

As Tom mentioned we did have some assets that we impaired as part of that settlement that was reach with the Hawaii commission and, so we impaired those assets the decision has come out and that $800,000 will be phased in over the next four years effective in October of this year, so that's none.

I also want to just take a moment to point out a couple of rewards that the company has won at a last couple of weeks. Normally we don't talk a lot about words but there is a couple interesting awards so I think are noteworthy. The first one was yesterday we were awarded the AWWA the American Water Works Association, Larry. C. Larson a safety award.

As anyone who has studied our management incentive plan that we have in place safety is one of our five key objectives within the company, so it was nice to receive that recognition and a great job by Jerald and the safety team who has really gone to work on improving our safety scores. In addition, on Tuesday the U.S.

Department of Commerce and President Donald Trump awarded us the 2017 distinguish supplier diversity award and we had people at the White House to receive that award.

Supplier diversity is a goal in all of our states but it's really a big goal in California and it's nice to receive some recognition at the Federal level for the work that we have done, working with the disabled veterans and other diversifiers to bring them into our service chain.

So, the idea is created competition, more competition lowest prices and leads to long term better value for stockholders.

In addition, last week at the National Association Water companies' annual summit, our conservation team received the management innovation award for their work on drop conservation and using GPS on Gulf Coast to define trip areas that could be taken out and replaced without affecting the actual Golf Course.

So, nice couple of awards last three weeks by the team and I want to congratulate them for a job well done. Turning to slide 15, I want to take a moment to talk about water quality and what's happening in there.

We continue to make good progress on the 1,2,3 Trichloro propane or TCP which will go in regulation will go into effect on January 1, we are adding granular activated carbon filtration at 38 sites within our service territory, we are investing about approximately $20 million this year and additional $40 million in 2018 to meet the new regulation, we anticipate new regulation to be in a compliance on schedule and on time.

In addition, some of you may saw in the State of California there was a lawsuit against the state and the state has temporarily withdrawn its regulation for Chromium 6 pending the new cost benefit analysis but the lawsuit that was filed claimed that that state did not take into effect the economic burden put on small added compliance water systems.

We were in compliance with Chromium 6 again if you go back to our management incentive plan it's to meet and exceed all the water quality standards, so when there is a new regulation that's adopted we raised to meet that regulation.

We are in full complains Chromium 6 and we continue to be in compliance while the state works out this issue and the courts here within the state.

In addition, some of you may have seen in California, California passed a law that requires us to do lead testing at schools, so in the lead and copper rule schools were not necessarily tested this part of the process. The concept of adding school is I think it's a right thing legislatively to be added to the state of California.

However, Cal Water was already adopting a policy to test schools and there are 700 plus schools in our service territory and any threat of lead in the schools are very serious issue. So, we had already developed and started implementing that plant to test schools in our service area.

So, the legislation coming out behind us, I think will just further enable us to be able to recover those costs and rates as we move forward. I am going to hand it back to Tom to talk about the residual effects of the drought..

Thanks, Marty. So, as we've talked about over the course of the drought period. We're very fortunate to have a decoupling mechanism adopted in California in 2008, and that insulates company and its customers from changes in water sales.

In addition, the drought rate design that we employed during the drought allowed us to collect surcharges from those who didn't meet their water budgets and deposit those surcharges to offset the WRAM decoupling balance.

And so, during the drought we actually saw the receivable balance on our WRAM decline over the couple of years that we were doing the surcharges. However, we discontinued the surcharge in 2016. We continue to see lower water sale than adopted in our rate cases.

In 2017, our sales have increased about 4.9% from the drought period from last year, but there is still much lower than historical averages and they are lower than what we had adopted in this last rate case. So, as a result, our WRAM receivable is growing this year is currently at 61.6 million, if you see on slide 17.

And that balance can continue to grow throughout 2017, because we continue to see that lag in sales. We don't anticipate a fall where we're going to sell a 100% of the water that is adopted for us to sell. So, a couple of mechanism that the CPUC has adopted for us.

First as Marty mentioned there are just sales reconciliation mechanism so, if you see that we are about 20% below our adopted volumes in 2017 or 2018, we are going to take 10% of that and build it into our base rates through the sales reconciliation mechanism.

So, if all other things were equal in 2018 sales were exactly the same, we would only see a 10% miss on the sales rather than a 20% miss as we're seeing this year.

So, that is an opportunity in 2018 to get a lower accrual into the WRAM and then as we've been doing for many years, every year we have an amortization of WRAM balance that's usually filed in March or April and we'll collect that balance over 12 or 18 months as is appropriate for the district involve.

So, that is slide 16 and 17 and just a quick update on our drought expense recovery. Remember that our expenses to administer drought programs were booked in the period that they were incurred. Our drought expenses for 2017, are really only about 200,000 that's down from 4 million in the first nine of 2016.

So, we have a total of about 4.6 million that's expensed in 2016 and the beginning in 2017. We are going to make a filing to recover these costs, we'll be making that filing in the fourth quarter, not yet made that filing and it looks like now the expected timing would be CPUC ruling on that filing in 2018.

And Marty, I'll turn it back to you to talk about CapEx..

Great. For those of you that follow our capital investment program which has been growing fairly rapidly and if you may recall early this year we had a lot of delays given whether that was experienced up to and through the majority of Q2.

So, the good news is we have regained a lot of that ground as Tom mentioned earlier, our capital spending is that year-to-date is up about $80 million or 8.3%, which we believe puts us well on track to hit the midpoint of the range that we have given the street and in fact we believe we will probably on the higher end of that range, assuming we don't have a really wet fourth quarter, which is Tom said, it's beautiful weather here in California today, and frankly it's been quite hot this week.

So, cap program, is clearly on track on schedule and going just fine. On page 20, we put the regulator rate base forecast looking out, just to remind everyone, there is a lot moving parts, that go into rate base, obviously, you have depreciation coming out, you have advice letter projects, and new capital going in.

So, we started publishing, what we believe the regulator rate base is going out. So, we like to include that slide just to remind everyone, kind of how the components work and how we see it looking, going out from next couple of years. Looking ahead to what's happening here in the fourth quarter, a couple of things that we're really keenly focused on.

First and foremost is the waiting for the comp, cost to capital decision, we were keen about that decision when it comes out and we expect to probably sometime near the middle of end of December, if everything stays on schedule.

In addition, as we've mentioned a couple of times here today, we anticipate following the advice letter for escalation, our step increases in California, as well as the sales adjustment mechanism for all six in the state of California, that Tom mentioned. And we believe that these new rates will be effective sometime in early January.

In addition, we anticipate filing for the recovery of the 2016 and 2017 drought expenses during the fourth quarter, and we don't know, when those will ultimately get approved, but it is the start of the process and last year when we filed it, it was a fairly quick process to go through, it took about two months, I believe with the commission to have them renew the past and conclude in negotiations with us.

So, we will start that process here in the fourth quarter. I've already talked about capital, feeling good about capital. We believe we will be in the upper end of range between 200 million and 220 million towards the top there. We continue to make good progress on the 123 PCP regulation and we expect to be in full compliance that from January 1st.

And of course, the general rate case, where we had a lot of people working on the GRC in our long-term capital plans. And that will be a focal point of the company and many, many, many of our employees, until we get that filed on July 1st.

Slide 22, I'd like to include slide 22, Tom and I, we always go back, what should we included, or should we take it out, but I think it serves as a good reminder, that because we are decoupled, it's important to understand that slope of the adopted revenue curve, because you can predict really what our financial performance is going to be based on how that curve is sloped.

And so, obviously, as we look to the third quarter, that is our best quarter of the year. Clearly, that shows up in our results.

We're happy with our results for the quarter, we're very happy with the budget that actual management that has, the company has continued to do quite well on, especially on items and SG&A that we've been able to successfully manage. Things do start to soften up in the fourth quarter, as the demand starts to fall off.

In addition, it's noteworthy that during the fourth quarter of last year, when the 2015 general rate case was approved, we had about $0.13 of kind of catch up or one-time items that were booked in the fourth quarter. So, I wanted to share that information, because I don't want anyone to get ahead of the estimates that are really out there.

We don't really give any forward guidance, but we try to give enough information that people, we transparent with the business model, so they see how things slow and how the pieces fit together. So, we normally don't get too excited during the fourth quarter of any given year.

And this year, obviously, we're going to have our handful with a lot of regulatory filings going on, between everything I just talked about the cost of capital, the sales adjustment mechanism, the drought, the surcharge, the drought, our recovery cost, et cetera.

So, fourth quarter, I think is consistent with other fourth quarters we had probably since 2009, since we decoupled or not. We're not super excited about the fourth quarter, we think it will be a fine quarter. But nonetheless we do see consumption start to taper off during the fourth quarter of the year.

And with that, so now, I believe, we will open it up for questions please..

[Operator Instructions] Your first question comes from the line of Angie Storozynski from Macquarie. Your line is open..

Good morning..

Forgive me, I'm sorry. Good morning. So, I'd like to say that I'm newer to your story, but I have covered utilities for a while and I understand that we - CapEx cycles and the ROV cycles now.

So, when I look at your CapEx versus your race pace you clearly have under invested assets and, so you have had pretty meaningful step-ups in CapEx over the last - especially last year's peak.

How should we think about the potential optic and CapEx? I mean is it fair to assume that we might have a similar step-up versus what you saw last time at least what you going to file for?.

So, we haven't finalized the 2018 rate case filing. I will say that I've gotten our regulatory people to agree that yes, we're going to file for more than we received in terms of CapEx last time, but we can't predict what the commission is willing to do with our CapEx results. Obviously, that's part of the negotiation and litigation of any case.

What I will tell you just going back to kind of principles, we made a big effort in the last case to reduce our main replacement cycle from a 300 year to a 200-year main replacement cycle and so we're going to further those efforts because we think that a 200-year cycle is not adequate to meet the needs of the water system.

We also have other programmatic needs on our replacement cycle. So, I don't anticipate that we have a lack of CapEx to spend on the system and we expect to continue to request that in the rate cases..

Okay, understood. Now on the financing side growth, your CapEx that will potential grow up. It does seem that like you need equity. Your stock is that all time high every day.

You do have some uncertainty around the ROE, but do I do need to have it in before I should expect you to issue equity?.

So, our financing plans are based upon the line of credit that we have and established with the commission some rules around the line of credit. So back in 2015, I believe that commission gave us permission to be on the line of credit for up to 24 months. We're currently on the line of credit financing our construction activity there.

So, we do expect that before the end of 24-month period being on the line of credit that we will have to do some long-term financing.

We're going to keep our financing to try it over long-term to mask the capital structure that the commission authorizes for us and that will mean some combination of debt in equity depending upon how the retained our earnings and other factors going to the company and be how the commission determines the outcome of cost of capital application.

And so obviously if you follow the logic we will probably be doing some financing in 2018 that should be expected, but we've not determined that the relative volumes of different types of financing or the timing of that financing..

And Tom, I believe our capital structures pretty spot on, we're not having equity right now or fairly balanced?.

Yeah, I think we're comfortable with where the capital structure is right now, but obviously to do have to defray that line of credit at some point here..

And so how many months in to the line of credit are you?.

The last time we were off a line of credit for the operating company as I described was November of 2016..

Okay. Thank you..

Your next question comes from the line of Tyler Frank from Robert Baird..

Hi guys, thanks for taking the question..

Yes, of course..

I guess as you look at to your pipeline, capital sanctuary projects going to 2018 and potentially in 2019 can you discuss how confident you are? You'll be able to hold you CapEx targets and maybe gives a little bit color on what those projects look like, having from a standpoint and how many you may have already identified?.

Yeah, Tyler this is Tom.

So, one thing to keep in mind is that the commission authorized for us I believe the number was $658 million of CapEx over three-year period and obviously we spend almost $230 million in first year in that cycle and it looks like we're going to be closer to $220 million on the second year of that cycle depending where the fourth quarter comes out.

And if you just do some simple subtraction there is some risk that CapEx for 2018 really has already been done into some extent in 2016 and 2017 to meet that authorization and so we could see a slightly lower number in 2018.

We are ramping up for the 2018 rate case filling and that there'll be new project and new projects that we propose in the rate case and, so we may start to get to work on some of those projects, so I don't want to just say that it's simple math and the numbers going to be 200 for 2018 but I think that you're most likely not going to see a number in the 220 to 230 range just because of the amount of capital that we have authorized.

I think that was the question I predict that was the second question for that..

And I think to Tom's point, it's really a three-year target that we have in the rate case, one of the strategic changes we made internally was opening up those capital projects sooner and effort to obtain more of that step increase.

So, if you look back after last step increase that we got it was two years ago was about $3 million as we said on the call there was a $70 million potential for step increase that's available right now.

We think we're going to be on a much higher uptake of that $70 million because we are allowing the capital to flow over a three-year period, kind of naturally versus kind of budgeting kind of year by year, so we want to do as much as the capital as we can early on in the three years cycle, because it helps us maximize our step increases..

And Tyler, I remember you other question now, sorry for the slip there.

Most of our projects are relatively small we did a lot of projects, we do have one large project, which is the pipeline [ph] alignment and storage project, it's a reliability project for Pal [ph] district in Los Angeles County where we are putting a second supply line up the hill to our large storage tanks that feed most of the system there.

That's about a $65 million project. The project is ongoing, and we do anticipate spending the bulk of the money as planned, the conclusion of that project is subject a lot of permitting issues and getting the project finally in service, but I don't think it will affect when the money is spent, it may affect when the final project is closed..

Thank you. And then just a couple of quick follow-ups.

Number one for military basis I have heard you guys touch on this in the past as well as some of your competitors, could you just discuss what the opportunities are there and do you also - in navy as potential future opportunity and then also on opportunities for potential acquisitions just Municipal water systems out there and how is that looking.

Thank you..

Sure, so military basis certainly our target for a lot of water utilities, the government and the Department of Defense is being going through a process of privatizing the number of bases. The Travis for example is a joint base, a lot of the Army bases have gone through this process but not all the navy bases et cetera.

So, there is a long lead time type of projects. For us military bases that are adjacent to our close to any major service area for us is really an attractive opportunity because we have staff and resources right there, so the marginal cost adding that business to our portfolio is fairly minimal other than dealing with some direct labor.

To the extent there are remote bases, those are little more complicated in terms of set up costs et cetera, because there is just not incremental resources around our service area around that we can fill our resource front. So, we do think it's a source of potential growth for us.

I don't think we think of it as big as a potential for our core business as some of our other peers in the water space do, certainly we will compete if they are in our service area, around our service area, we are always looking at them, we are always looking for opportunities. So, but they just take forever.

I think for the Travis base, we submitted our proposals five years ago and went through a period of almost year and a half of really no information then one day getting a call, hey you are one of the finalist congratulations. So, it's got - and I think you need to keep it in the context of its network and plan accordingly.

In terms of M&A, certainly we are seeing a little bit more kind of greenfield development start especially in the central part of California. We do have a full-time business development team, that's active in all four states that we operate in.

I am more interested in kind of greenfield development versus kind of asset big ups because the asset big ups tend to attract the lot of competition valuations and run rate high, and when you're buying a regulated asset, once you start paying above a certain amount typically, that's about 1.5 to 2 times book value, it becomes diluted pretty quick.

So, we're pretty selective on things, that we look for and what we look at, we don't want to do acquisition that are diluted for our stockholders will take some dilutions during the first year to integrate them, but then we like to add nice productive utility assets.

So, short answer is we're always looking, we're very selective I would see the pipelines fairly fall, but there's nothing really big in the pipeline there is lot of small little projects out there, that we're looking at.

And in terms of municipalities, it's very hard to buy a municipal system at state of California, because it requires a vote of citizens. So, I think, you'll tend to see more P3s, Public Private Partnerships evolved as these municipalities start to get squeezed.

We have seen in the last three months specifically, where the California public employees' pension [indiscernible] also known as has done to the local cities instead you need to pay more on the plan, there are results on where we thought they would be, they're stepping up their input cost basis for people who are funding the retirement plan, in some cities are having a hard time meeting that obligations.

And so, we think that may help drive some municipalities to consider P3 opportunities in the future here. Sorry for the long answer, but it's a complicated question and I think it's fairly complicated answer..

Right. Thank you for the color..

[Operator Instructions] Your next question comes from the line of Spencer Joyce from Hilliards Lyons. Your line is open..

Martin and Tom, good morning. Great quarter..

Good morning Spencer, thank you..

Just a really helpfully quick question for me, mostly housekeeping. First one, just to be clear, all of the regulatory items here we're working through Q4, across cap, will device - filings, drought filing all that stuff.

More to that to spill over into early 2018 that would all be Retro Active to kind of January 1 effective day, is that right?.

So, the cost of capital, the last time there was a delay in the cost of capital they did adopt, what's call an effective date and they did go back and make company's refund or a surcharge to customers for whatever time period there was there.

So, we would anticipate if there is a major delay that, that would happen again, that would come from the judge in the case and we've not seen anything like that yet.

As far as these other step increases are a very formulaic advice letter process and those generally are effective on January 1, and there are generally would not expected to be a delay there. As far as the drive recovery that is subject to the discussion of the commission.

That not can be retroactive that is going to be an amount that is set on the date that's approved..

Okay, perfect.

Also, Tom, I know it's off to project kind of how the capital will fall but, as we close out this year and above kind of 37% full year tax rate is that an air base case, as we perhaps from up our estimates kind of help to 2018, 2019 or there are some special items here in 2017, that maybe we should take into account and looking at those forward rates..

No, I think that 37% rate is appropriate obviously there is rumbling in Washington about corporate tax changes, but we don't really know anything about that, or when it might be effective, but based on what we know, about 37% is a reasonable target for us, for '18 as well..

Okay, thank you.

Final one here maybe Marty to the extent might be able to comment, maybe as we look at the cost to capital filing, if we get to little bit deeper than just saying, hey, we want 10%, commission was 8%” are there any major underlying of condition or point of the methodology that you can point to that are you driving the weigh between filling companies this year and the regulatory commission?.

No. other than when we sat down around the table we just, we couldn't get to a settlement and we have a very good working relationship with the advocate and they wanted a lower number and we like our number.

Now, for those who you are - there is a lot of movie part and forecast rate and forecast all the time and but what I look at the Moody's, utility bond index, things have been kind of flattest on the spread and we are not bumping around a whole lot.

In 2008, 2009, 2010 and 2011, you had a very kind of perverse kind of credit market where you saw risk premiums expand and yields dropped.

So, I feel like we're on solid footing with our position that's why there really wasn't a settlement none of the California utilities settle with the advocate, so, we just have to go through the process to see when we come out, when the electric companies, I believe they are settled they were all in the 10 plus range 10.3, 10.4 they all think about average 20 basis points haircuts, 15, 20 basis points haircuts.

I can't get into details of settlement discussions, but obviously we just didn't get there with the advocate when we were on settlement discussions. And so, it's being litigated, I don't think it's a big deal, I think the company - as we normally do, and we'll get through the cost of capital and I just have to see were we end up..

Okay. Thanks a lot for those additional comments there. That's all I had. Again, big quarter, thank guys..

Thanks, Spencer..

Your next question comes from the line of Jonathan Reeder from Wells Fargo, your line is open..

Hi, Martin..

Good morning..

Good morning, Jonathan..

Good morning.

Most of my questions have been address Marty at this point, but just I guess could you - I mean you really think decision can come out by year end or did you think it more likely there?.

So, it's all in the hands of the administer - at this point and so we really don't have any visibility your control the judge can be motivate and get the decision done there, there is certainly the case was submitted a couple of weeks ago so, to the - judge has motivation to get the first decision out by the middle of next month but it can be decided in December that will be a treasure point for us remember that the California commission has kind of a 30 day window or needs to be a public, our first decision so, we actually know by the middle of November whether it's going to able to get under December agenda or not.

And so, that's going to be your indication. I don't have any indication or word one way or another on how the judge is treating the time line so if somebody has more information, I don't have that myself..

And I think the only thing I would add Jonathan is, I think if we look back to the last two to three years the commission has been pretty on schedule with all of our regulatory stuff that we've ....

Little hard. It's ultimately, it's not a general rate case with thousands and thousands of patients of testimony it's really the judge, the judge's responsibility at this point..

All right, so I mean assuming the judge gets his part done, you don't think I guess from the commission standpoint some of things going on whether its wildfire related or some other things other energy utilities that going on would distract the commission from I guess handling their part of it..

As you and probably others know I worked at the commission for a number of years before - the Cal Water just keep in mind the California commission has five basically full-time commissioners and a staff of 1200 and so, I bezel a little bit when somebody says that the, the current court commission has distracted by another issue there is plenty of banned with the commission to get something done at the want to get it done.

And even as the commissioner level I think that's true so, there may be an excuse here and there about well the commission working at something else but there is a lot of resource there..

Okay. And then last question just on the drought cost recovery if we buy in Q4 and you get another quick decision such as early 2018. With that recoveries potential recorded in Q4 2017 and or is it automatically be 2018 recovery item in terms of the income statement..

Yeah, I think that our revenue recognition standard was most comfortably with booking something when it is authorized for recovery by the commission and to a fast authorize for recovery date is in 2018 I think that's going to be a 2018 item, obviously if it comes out before k-filing we'll make note of it and I'm sure we'll 8-K it as well, but nevertheless it will be a 2018 figure..

Okay, thanks for clarifying that..

Thank you, Jonathan..

I am showing no further questions at this time. I would now like to turn the call back over to Mr. Tom Smegal..

Thanks everyone very much for your interest in the company and our third quarter and year-to-date results. We look forward to talking to you again at the end of the year. Thanks for calling in..

Thanks everybody. Have a good day..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may now all disconnect..