Suzy Papazian - General Counsel Richard Roth - CEO James Lynch - CFO Palle Jensen - Senior Vice President of Regulatory Affairs.

Good day, ladies and gentlemen. Welcome to the SJW Corp. First Quarter 2015 Financial Results Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's call is being recorded.

I would now like to turn the conference over to Suzy Papazian, General Counsel. Ma'am you may begin..

Thanks Operator. Welcome to the first quarter 2015 financial results conference call for SJW Corp. Presenting today are Richard Roth, Chairman of the Board, President and Chief Executive Officer; and James Lynch, Chief Financial Officer.

Before we begin today's presentation, I would like to remind you that yesterday's press release and this presentation may contain forward-looking statements. These statements are only projections and actual results may differ materially.

For a description of factors that could cause actual results to be different from statements in the release and in this presentation, we refer you to the press release and to our most recent Form 10-K and 10-Q filed with the Securities and Exchange Commission. All forward-looking statements are made as of today, and SJW Corp.

disclaims any duty to update or revise such statements. You will have the opportunity to ask questions at the end of the presentation. As a reminder, this webcast will be available until July 27, 2015. You can access the release and the webcast at the corporate website, www.sjwcorp.com. I will now turn the call over to Rich..

Welcome everyone and thank you for joining us. On the call with me today are our Chief Financial Officer, Jim Lynch, and our Senior Vice President of Regulatory Affairs, Palle Jensen. Although the drought in California persists, SJW's fundamentals remain exceptionally strong.

We delivered solid earnings for the first quarter; the company's cash flow remains strong as we continue to collect the 2013 and 2014 true up adjustment resulting from San Jose Water Company's delayed 2012 general rate case decision.

Our capital programs continue to deliver growth in rate base as we invest intelligently and methodically in our water systems. The San Jose metro area, Silicon Valley and the Texas I-35 quarter continue to enjoy robust economic growth and the Texas and California regulatory environments remain constructive.

San Jose Water Company is on track to invest approximately a $121 million in utility plan in 2015. This number includes almost 18 million associated with the complete rebuild of our Montevina Water Treatment Plant.

These California Public Utility Commission authorized investments will be recovered through rates authorized in the 2012 general rate case decision and through annual rate base offset filings with the Commission.

The progressive design build construction of the $62 million Montevina Water Treatment Plant, that project enables the company to deliver this project faster and maximizes the use of this low cost high quality water supply to the benefit of our customers. Finally we are rigorously executing San Jose Water Company's 2015 general rate case.

The rate are anticipated to be effective January1st, 2016 as well as the recently filed advice letter seeking to recover an approximately $9.6 million revenue shortfall due to mandated conservation measures for the period April 1st, 2014 to December 31st, 2014.

We'll now turn the call over to Jim for additional analysis of the Q1 financial results and how various regulatory mechanisms are affecting the company's results.

Jim?.

Thanks Rich, net income for the quarter was $4.7 million or $0.23 per diluted share. This compares to $906,000 or $0.04 per diluted share for the first quarter of 2014. First quarter revenue increased to $62.1 million, a 14% increase over the first quarter of 2014.

Our results reflect the full impact of new rates authorized by the California Public Utilities Commission last August as a result of our latest general rate case decision. They also include a ruling by the commission in March of 2015 on our application for a limited rehearing on the effective date of 2014 rates.

Recall that the decision rate increases were driven primarily by approved utility plan investments of $241 million for infrastructure, adjustments to customer demand to reflect downward trend in water usage and changes in operating cost.

The rate increases contributed $9 million in new revenue in the first quarter of 2015 compared to the first quarter of 2014. The Commission's ruling on our limited rehearing request contributed additional $1.9 million of revenue in the first quarter.

First quarter results also reflect the impact of lower usage as a result of drought related conservation activities in our California service area. Water usage declined approximately 12% for residential and business customers which decreased revenue by about $3.8 million.

In March of 2015 the Company filed its first filing under the Mandatory Conservation Revenue Adjustment Memorandum Account or the MCRAMA, for the recovery of approximately $9.6 million in authorized revenue lost due to conservation activities for the period from April 1, 2014 through December 31st, 2014.

The MCRAMA is similar to a water revenue adjustment mechanism. We anticipate a resolution on our request by the end of the third quarter. The MCRAMA will remain in effect until the state ordered drought water restrictions are lifted.

Turning to water production, first quarter operating results benefited from the use of approximately 920 million gallons of surface water from San Jose Water Company's Lake Elsman, compared to less than 40 million gallons used in the first quarter of 2014 and 420 million gallons used for all of 2014.

The increased supply resulted in a $2.1 million reduction in water production expenses for the quarter. Increases in purchased water expenses and ground water production charges of $1.5 million were offset by reduced customer demand, so the full impact of the $2.1 million reduction from Lake Elsman is reflected in our ending production cost.

Non-production operating expenses included an $800,000 increase in pension cost; the increase was driven primarily as a result of a decline in the discount rate from December 31, 2013 to December 31, 2014 and new mortality tables used to calculate the expense.

There're actually a couple of pieces of good news here, first on average we’ll all expected to live a little bit longer which should bode us all well. Second, the cost increase was contemplated and is reflected in the water rates for 2015. Our operating margin for the quarter was 21% compared to 11% in the first quarter of 2014.

Turning to our capital expenditure program we added approximately $16.3 million in utility plant during the first quarter which represents 15% of our 2015 planned utility plant capital expenditures, including our Montevina Plant retrofit project we plan on spending approximately a $125 million in capital expenditures in both California and Texas in 2015.

This will grow our rate base in both our California and Texas service areas.

From a liquidity perspective cash flows from operation increased by approximately $11 million or 69% due in large part to higher income and the collection of $6 million in tax receivable that was generated from the implementation of the bonus depreciation provisions included in the Tax Increase Prevention Act of 2014.

In addition, we continue to benefit from the collection of true up revenue recognized in connection with the decision. Recall that the $46.5 million in net true up revenue is being collected over a 36 month period that commenced in October 2014.

At the end of the quarter we had $85.3 million available under our bank lines of credit for short term financing of utility plant additions and operations. The borrowing rate on our credit line advances during the first quarter averaged approximately 1.46%. With that I'll stop and turn the call back over to Rich..

Thank you, Jim. As has been widely reported in the national media there has been a plethora of varying water conservation mandates issued by local, regional and state water agencies as well as other political subdivisions in California.

In addition to reconciling different quantitative water conservation objectives San Jose Water Company also had to reconcile a variety of rules and regulations decreeing how much water may be used in the communities we serve.

The California Public Utility Commission has been very effective in providing leadership, guidance and assistance to California inventorial and water companies and reconciling state and local mandates and they are supportive of the overall conservation effort.

Nearly all investor owned water companies are in the process of implementing the Commission's Schedule 14.1, which when fully instituted will include an allocation based rate schedule. In addition to Schedule 14.1 current water use restrictions will remain in effect.

San Jose Water Company's making the necessary preparations to briskly implement Schedule 14.1 subject to the public hearing and noticing requirements established by law.

Recognizing the extraordinary nature of the prolonged drought, the Commission has authorized San Jose Water Company to institute a temporary water revenue adjustment mechanism to track and recover revenue loss due to mandated conservation and restrictions.

They have also authorized a memorandum account to track additional conservation related expenses. These mechanisms provide a high degree of assurance that the company will continue to have a realistic opportunity to earn its authorized return on investments and utility plant.

As Jim mentioned the initial filing to recover the $9.6 million under collection was submitted on March 26th, 2015 and we continue to track any lost revenue for future recovery.

As previously reported on September 15th, 2014 San Jose Water Company filed another application for rehearing addressing two legal errors in the 2012 general rate case decision.

The first issue was a request that the revenue true up period authorized in the decision be extended to include the period from August 14th, 2014; the effective date of the decision, through the implementation of the 2014 rates on September 29th, 2014.

The second issue related to a misinterpretation of the cost allocation required or in this case not required related to the use of excess capacity. In a March 26, 2015 decision the Commission granted relief on both issues and ordered a rehearing of the labor issue and authorized the company to recover roughly $1.9 million of additional revenue.

While the extended drought is serious we believe that the Commission has and will continue to provide the leadership and regulatory guidance necessary so that its regulated water utilities can continue to make critically important investments in water system infrastructure and supplies.

We also believe the Commission recognizes that without such support conservation, critical water supply investments and other necessary investments will be stalled. The drought has created relatively complex and often problematic water supply and rate issues which are difficult to resolve and communicate to customers.

However we believe that the lessons learnt from this drought along with the actions taken and to be taken will ultimately result in better water use practices and sustainable solutions that will ensure our ability to deliver reliable water service in California well into the future.

Operationally we are preparing for a peak usage month anticipating limited water supplies.

The Santa Clara Valley Water District is continuing to reduce treated water deliveries to 80% of the monthly water contract allocations, however increased ground water production should allow San Jose Water Company to meet demand and we continue to refine our operations to maximize the availability, reliability, and quality of our water supplies.

In spite of the drought most of the San Jose Metro Area and Silicon Valley businesses are thriving.

New home construction is strong and many existing homes and businesses are being remodeled and refitted with upgraded water and energy efficient features that will benefit customers and the environment and will help ensure the wise use of precious resources for generations to come.

While businesses and home owners are taking impressive strides to use water and other resources more wisely most California water utilities will need to secure new drought tolerant and sustainable water resources to ensure future water demands can be met.

Since 2009 San Jose Water Company has worked with local agencies to expand the regional recycled water system. Our successful public private partnership with the city of San Jose has allowed the company to add 15 miles of non-portable recycled water mains to the system.

Pending regulatory approval we plan to add additional recycled mains in the near future. We believe that additional investments must be made in recycled water desalination and additional storage.

Portable solutions involving recycled water offer the most promise and San Jose Water Company is working closely with local and regional partners to fast tract these projects. We are encouraged by the responses and cooperation received in support of the development of additional water supplies.

Lastly, the board welcomes Dan Moore as our newest Director. Dan brings to SJW a wealth of experience resulting from his 36 year career as an investment banker. And most recently as a retired Managing Director and Global Head of Utility Mergers and Acquisitions of the investment banking division of Morgan Stanley.

His specialization in utility sector since 1986 will serve San Jose Water Company well as we look to capitalize on water sector growth opportunities. In summary, we are committed to and confident in our business model, operational initiatives and regulatory strategy.

The growing regulatory and water supply challenges are requiring more of SJW and its employees and I'm confident in our ability to meet these challenges and develop sustainable long terms solutions. We remain optimistic about SJW's prospects and our ability to deliver exceptional water service to our customers and outstanding value to our investors.

With that I will turn the call back to the operator for questions..

Operator:.

Thank you everyone for tuning in and listening to the earnings call for the first quarter. I'm sure there must have been some questions we answered them all, so that's good to know. But we look forward to talking to you at the end of the second quarter. Everyone have a good day and thanks for listening..

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