Welcome to the American States Water Company Conference Call discussing the Company’s First Quarter 2018 Results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 5:00 PM Eastern Time and run through May 15, 2018, on the Company’s website, www.aswater.com. The slides that the company will be referring to are also available on the website. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] This call will be limited to an hour. Presenting today from American States Water Company is Bob Sprowls, President and Chief Executive Officer; and Eva Tang, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the Company’s risks and uncertainties in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles or GAAP in United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information, but are not presented in our financial statements prepared in accordance with GAAP. For more details, please refer to our press release. At this time, I will turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company.

Welcome, everyone, and thank you for joining us today. I will begin with some highlights for the quarter. Eva will then discuss some first quarter details, and then I’ll wrap it up with some updates on various regulatory filings, ASUS and dividends. And then we’ll take your questions. As we look at the first few months of the year, we continued our capital investments, spending more at the regulated utilities in the first quarter of last year. In addition, the cost of capital proceeding was resolved. Continued progress was made on the water and electric rate cases, and our A+ credit rating with stable outlook was affirmed by Standard & Poor’s global ratings for both American States Water and Golden State Water despite the loss of bonus depreciation in the change in the tax law. Looking ahead, we’ll bring our 11th military base on board this year, continuing our strong execution from our contracted services business. We are well positioned with both our regulated water and electric segments as well as our contracted services business and continue to focus on providing excellent, safe and reliable service to our customers. For the quarter, our diluted earnings were $0.29 per share as compared to $0.34 per share for the same period last year due to a decrease in our water utility segment’s earning. Included in last year’s results was a onetime $0.02 per share gain related to the CPUC’s approval of incremental drought-related costs for the water segment. Further impacting the comparability of the two periods were investment losses for market conditions in the first quarter of 2018 and a lower adopted rate of return at our water segment due to the CPUC’s cost of capital decision issued in March of this year. We expect the third year of water rate increases, while partially offset by the effect from the cost of capital decision, will still contribute to 2018’s earnings. Golden State Water Company, our utility subsidiary, continue to invest in the reliability of our water and electric systems. We estimate our capital expenditures will be approximately $110 million to $120 million for the year, about three times our expected annual depreciation expense. ASUS continues to work with the U.S. government to transition operations of the water and wastewater systems at Fort Riley, a U.S. Army installation in Kansas awarded to ASUS in 2017. We expect to begin operations at Fort Riley mid-year, bringing the total number of military bases we serve to 11, including four of the largest military installations in the United States: Fort Bragg, Fort Bliss, Eglin Air Force Base and Fort Riley, as well as a very high-profile contract at Joint Base Andrews. I’ll now turn the call over to Eva to review the financial results for the quarter.

Thank you, Bob. Hello, everyone. I’ll begin with an overview of our financial results on Slide 7. Diluted earnings for the quarter were $0.29 per share compared to $0.32 per share for the same period in 2017, adjusting for the onetime recovery of drought-related costs of $0.02 per share from the first quarter of 2017. Moving on to Slide 8. The operating income for 2017 on this slide has, again, been adjusted for the recovery of drought-related items approved by the CPUC in Q1 of last year. In addition, there were downward adjustments to revenue recorded for the first quarter of 2018 to reflect the CPUC March decision on the cost of capital as well as the effects of the tax reform. We expect a lower adopted return on the cost of capital decision to reduce 2018 annual adopted revenue by approximately $3.6 million. The tax reform lowered the federal corporate income tax rate from 35% to 21%. Accordingly, consolidated revenues for the first three months of 2018 were adjusted lower, with a corresponding decrease in income tax expense resulting in no material impact to our earnings. We expect to return the tax savings to our utility customers through lower rates. Despite the loss of Ojai water system in June of 2017, third year rate increases will add approximately $4.5 million to the 2018 full year adopted water gross margin, which were partially offset by the impact of the lower return. Lower revenues also resulted from customers’ reduced electric usage as well as lower construction activity at our contracted service segment. Our water and electric supply costs were $19.5 million as compared to $18.4 million for the same period in 2017. Any changes in supply costs for both the water and electric segments as compared to the adopted supply costs…

Thank you, Eva. I’d like to provide an update on our recent regulatory activity. In April 2017, Golden State Water filed its water cost of capital application with the CPUC. In March 2018, the CPUC issued a final decision on the cost of capital proceeding for Golden State Water and three other investor-owned water utilities that serve California. The final results were significantly improved from a very difficult proposed decision that was issued in early February of this year. Among other things, the final decision adopts for Golden State Water a return on equity of 8.9%, a cost of debt of 6.6%, a capital structure with 57% equity and 43% debt, a return on rate base of 7.91% and a continuation of the water cost of capital adjustment mechanism. Golden State Water’s prior authorized cost of capital for its water segment included a return on equity of 9.43%, cost of debt is 6.99%, a capital structure of 55% equity and 45% debt and a return on rate base of 8.34%. The lower return is expected to decrease Golden State Water’s 2018 adopted annual revenue requirement by approximately $3.6 million or about $0.07 per share. Final decision trued up Golden State Water’s embedded debt costs, which are included in the authorized return on rate base of 7.91%. The reduced debt cost contributed approximately 18 basis points to the 43 basis point drop in the authorized return on rate base from 8.34% to 7.91%. We have pending general rate cases for both our water and electric segments with the CPUC. Our water rate case filed in July 2017, will set rates for the years 2019 through 2021. We are currently engaging in settlement discussions with ORA on the water rate case and I of course cannot share details of those discussions. I…

[Operator Instructions] And our first question today comes from Richard Verdi with Atwater Thornton. Please go ahead.

Hi, Bob and Eva, thank you for taking my call. I just have – I’m pretty clear on everything. I just have two quick questions regarding the contracted services group. The first question pertains to the tax rate. That came in much lower than our estimate, which is obviously a positive. But I was just wondering if you could give us some solid insight into what to expect with that ASUS tax rate moving forward here from – kind of from a modeling perspective.

Okay. Be happy to. We believe that though our existing 50 year contracts do not specifically address changes in pricing resulting from the impact of the Tax Act and the change in the federal income tax rate, we believe the government will request an adjustment in pricing of the contracts that maybe retroactive to January 1, 2018. So it’s a little bit of a wait and see approach, but we believe the government will be looking to make it retroactive to January 1, 2018. And the impact to the first quarter was not material.

Richard, the federal tax rate is due – is now 21%, right? And the state tax rate is a reduction to the 21% when we calculate the federal tax rate. Each day has a different day rate, so the blended rate may be impacted by each base’s pretax income. I don’t know if that helps with your question.

No, it does, thank you very much both of you. Thank you for the color. And then the next question just needs a little bit of a setup versus an explanation. So I spoke at a conference last week, and there was a lot of discussion there [indiscernible] surrounding how the drills on military bases can pollute the water. For instance, the test ran on these military bases, the water and the water of residence outside the military bases. Those tests find a lot of the fire extinguisher foam contamination. These military bases are frequently using the fire extinguishers to put out the fires in their drills, what have you. And so with American States being a leader on the military base on that front, I was wondering how this need to treat that water, how that could be maybe a negative for the base’s ASUS fronts? Or could it be more of a positive, and – for the bases that you run? And then could that also maybe be a positive in the sense where it provokes bases to sell – or I should say, I misspoke, not to sell, but to hurry along the negotiation process so that their bases can be ran by somebody like American States to have that water treated more frequently and sooner since it’s obviously an emerging problem coming up here.

Well, for the most part, Richard, we do not handle the – actually, the water quality aspect of water that we deliver, the base will contract with an outside party for the water, and then we’ll deliver the water through our pipes. So this issue hasn’t been a big issue for us that you brought up. Are there opportunities for us? Probably, and we’re always looking to do more construction work on the bases we serve. So it’s possible that this could be an area that we could delve into. But right now, it hasn’t been very high on our radar screen, to be honest.

Okay. So just that I’m clear. So it’s not causing a problem for you guys now, but it could turn into something down the road where the military bases, it could provoke them to maybe want to issue O&M contracts a little bit faster, you think?

Yes. It’s possible. It’s possible. But we haven’t seen this problem at this point. So I don’t know how big a mover it’s going to be down the road.

Okay, okay, great. Well, I appreciate the time. Thank you very much guys. Thank you both very much.

Thank you.

Thank you, Richard.

[Operator Instructions] And our next question comes from Jonathan Reeder with Wells Fargo.

Hey, Bob and Eva, I made it.

Hey.

Okay.

So I think you just answered my first question with Richard there. Bob, you expect the government to claw back 100% of the tax savings as a result of tax reform at ASUS? Is that correct? You’re saying retroactive back to beginning of January. That’s kind of your base case assumption right now?

Yes. We expect them to put forth that approach. Whether it completely turns out that way, it’s really hard to say. I mean, it will be subject to negotiation. But we do recognize the fact that because we have a great desire to continue to expand that business, that – then there, the customer, that we’ll have to work out something that works for both parties.

I think what I got on your – just maybe your comments on the rate case, and I believe you said settlement negotiations are ongoing. And as a result of maybe some progress in those settlements, the hearing days have gotten pushed back a little bit. Is that accurate?

Yes. I mean, there seems to be a desire by both parties to settle a lot of the issues, and the hearing dates have been pushed back a week. And so we’re working hard to work with ORA and trying to get as many things resolved as we can.

Okay. So perhaps in previous years, where you’ve settled a whole host of issues, but there maybe a couple that still have to go to hearing. That might be a reasonable expectation here?

Well, I mean, it’s – we’re working through that. It’s never done until it’s done. But if you recall, in the last rate case, we did take the entire capital budget to hearing. And we’re not afraid to do that, of course. It’s just costs money whenever you do that, as you know.

Yes. And then no reason to believe that a final decision can still be reached perhaps by the end of the year as kind of planned?

Right. We’re optimistic we can get a final decision by year-end.

Okay. And then last question. And I don’t know how much liberty you have to really speak. But just wondering what your thoughts are in the overall industry consolidation that we’ve seen kind of pick up as of late. Not just a smaller, municipal-owned systems, but even perhaps some of the publicly traded ones. What’s American States Water’s stance towards that? Are you buyer or a seller? Things along that line.

Well, yes. As you suspected, I’m not going to tell you very much about that. It’s been very interesting. I will tell you this, that our company’s Board of Directors and the management team believe we have very good plans in place for the businesses that we operate, and we think we can generate substantial shareholder value just by continuing to execute our plans. I think that’s – I probably should just stop there.

I appreciate the update today Bob and Eva, thanks for taking my questions.

Thank you, Jonathan.

Thank you.

[Operator Instructions] With no other questions in the queue, I would like to conclude today’s question-and-answer session and turn the conference back over to Bob Sprowls for any closing remarks.

Thank you, Brian. I just want to close by just, again, thanking everyone for their participation today. And let you know I look – Eva and I both look forward to speaking with you next quarter. So thank you.

Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.