Welcome to the American States Water Company Conference Call discussing the Company’s Second Quarter 2018 Results. This 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 August 14, 2018, on the company’s website, www.aswater.com. The slides that the company will be referring to are also available on the website. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Today’s 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 consolidating financial information, but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I would like to turn the conference call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company.

Thank you, Jamie. Welcome, everyone, and thank you for joining us today. I will begin with some recent highlights. Eva will then discuss some second 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. A regulated utility subsidiary, Golden State Water Company, continue to invest in the reliability of our water and electric systems. We are on track to invest approximately $110 million to $120 million of capital in 2018, about 3x our expected depreciation expense for the year. On the regulatory front, Golden State Water Company and the Office of Ratepayer Advocates or ORA have reached a tentative settlement, which resolves all issues in our pending water general rate case, which was set rates for the years 2019 through 2021. A settlement conference with all parties in the rate case has been scheduled for August 14. We are pleased with the progress on this important rate cases. As previously announced, on July 1st of this year, our contracted service of subsidiary, American States Utility Services or ASUS, assume the operation maintenance and construction management of the water distribution and waste water collection and treatment facilities at Fort Riley and Kansas under a 50-year contract with the U.S. Government. ASUS now provide services for water and our waste water systems and treatment plans to 11 military bases, including some of the largest military installations in the United States, Fort Bragg, Fort Bliss, Eglin Air Force Base and Fort Riley, as well as one of the most high-profile bases joint Base Andrews. In addition, last week, our Board of Directors approved a 7.8% increase in the company's third quarter cash dividend. Our long history of dividend increases is something we're very proud of. And this recent…

Thank you, Bob. An overview of our financial results for the second quarter is presented on Slide 8. As Bob mentioned, included in the second quarter of 2017 results or the $0.13 per share one-time gain on sale of the Ojai system, and retroactive revenue of $0.02 per share at ASUS associated with period prior to the second quarter of 2017. Excluding these two items, consolidated earnings for the quarter was $0.44 compared to $0.47 per share for the same period of 2017. The operating income on this slide has been adjusted for the Ojai gain and retroactive revenue at ASUS. Quarterly revenues decreased by $5 million, partially due to downward adjustments to revenues recorded for the second quarter of 2018, to reflect the effect of the tax act, and a decrease in bill surcharges. Both of these items resulted in no material impact to earnings, the tax act lowered federal corporate income tax rate from 35% to 21%, effective January of 2018. Accordingly, water and electric revenue for the quarter were adjusted lower with a corresponding decrease in income tax expense. The decrease in surcharges related to the exploration of various surcharges implemented during 2017. Surcharge revenues are offset by a corresponding increase in operating expenses and, as I mentioned, had no impact to earnings. Revenues for the quarter were further lowered due to the CPUC's cost of capital decision issued in March of this year. We expected the lower authorized rate of return for the water utility segment from this decision to reduce full year 2018 adopted revenue by approximately $3.6 million. The decrease in revenues was also due to lower construction revenue at this contracted services segment between the two quarters. However, looking ahead, as you had expected construction revenue for the second half of 2018 to…

Thank you, Eva. I’d like to provide an update on our recent regulatory activity. As you recall, we have pending general rate cases for both our water and electric segments with the California Public Utilities Commission or CPUC. Our water rate case filed in July 2017 will set rates for the years 2019 through 2021. Among other things, Golden State Water’s requested capital budgets in this application, average approximately $125 million per year for the three year rate cycle. Golden State Water and ORA have reached a tentative settlement, which results all issues in the water general rate case. The settlement conference with all parties and the rate case has been scheduled for August 14th. Our electric rate case filed in May 2017, will set rates for years 2018 through 2021. Once the CPUC issues a final decision on this rate case, new rates will be retroactive to January 1, 2018. As a result of the Tax Act inactive last December, earlier this year, we filed revised revenue requirement and rate base amount for both of these pending general rate cases. On July 1st, we implemented lower water rates to our customers to reflect the lower corporate income tax rate. Let’s move on to ASUS on Slide 14. As I mentioned earlier, we began operating at Fort Riley on July 1st of this year. Although, we will only have 6 months worth of operations at Fort Riley for fiscal 2018, we expect Fort Riley to have a positive contribution to ASUS since 2018 earnings. In addition, we expect the contract to contribute $0.03 to $0.05 per share on an annualized basis, beginning in 2019, the first full year of operations. We’re also involved in various stages of the proposal process at a number of bases considering privatization. This is a…

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

I was wondering on the ASUS construction activity that should pick up in the second half. I was hoping you could share with us how we should expect that to be waited for both quarters and what the reasoning would be for that waiting?

Yes, so really hard to say how it's going to turn out. But I would say it's -- we probably see a lot of construction in the third quarter and maybe a little less construction in fourth quarter.

Okay. And what could drive it one way the other way would it be weather conditions or…?

Right. It's the weather conditions in the fourth quarter, towards the end of the year gets a little tougher to do that construction.

Okay. And let's say, Bob, that weather conditions were a little bit challenging in that quarter, could it -- would they then -- would it be -- could it slide down into Q1? Or is there a tight constraint that you'll almost be going in Q4?

I would expect it all to get done in the last two quarters of the year. And I don't expect it to slide into the first quarter.

Perfect. Okay. Thank you for that. And then I have a quick question that I asked American Water last week on their call. And they provided a very favorable remark that was very supportive of our estimates. I mean, the question pertains to the ASUS unit. You saw in the initiation, I'm sure, by our estimates, the military contracted services is a larger opportunity and there should be a number of awards announced between this year and 2024, 2025. And American Water verified that expectation. And they see potential for three award announcements this year with five more in the pipeline. So I was wondering if American States could be seeing something similar in the near to eat immediate term?

Yes, I mean, we -- as you know, we're -- us an American aren't sort of leading competitors in the industry, and we can, we're agreeing with their assessment of what the market to hold. Now we do go after somewhat smaller basis from time-to-time along with the larger basis. So we believe there could be as many as five bases award before year-end. But again, I think, the difference between sort of our perspective and theirs there is there a couple of couple of military, smaller military bases that could get awarded that maybe is not on their radar screen.

Sure. Now, I understand. I just wanted to get a broad picture and that was excellent color. Thank you very much for the time. I appreciate it. And thank you very much again. That's it. Bye, bye

Thank you, Richard.

[Operator Instructions] Our next question comes from Jonathan Reeder from Wells Fargo. Please go ahead with your question.

Hey, Bob and Eva, hope you all are doing well. Good job on the prepared remarks. I appreciate the improved format this quarter versus some others.

Hey, welcome, Jonathan.

Yes, appreciate you recognized that.

No, it was good. You cited up a little bit and it went on great with the slides. So good job. Keep it up there. But just wondering, Bob, are there any additional details regarding your settlement with the ORA that you can share, in particular how does the agreed upon CapEx level compared to your $125 million request?

Right. We’re not at liberty to share that at this point. But like we mentioned in the prepared remarks, in approximately a week, hopefully will be filing the settlement. I think soon after the settlement conference, the plan is for us and at least ORA to sign the settlement document and then file it with the commission and then we would put out our press release at that point giving you the details.

Okay. So you do plan on putting out a press release once it’s been signed and delivered and, hopefully get a few other parties onboard as a result of that conference?

That’s right. We have three small cities that are parties to the case. So it’s just sort of the five parties. So hopefully, we will either that's ORA will file the settlements possible the other three parties could join the settlement agreement.

Okay. So that was my other question. So the other parties to the case beside ORA are just those three other cities turn or somebody else is not involved?

No. It’s just the cities of Carson, Lakewood and Lawndale. TURN is not part of this proceeding.

Well, good luck with the settlement conference. Hopefully that goes well. Just wondering what are the -- in the prospects you think for getting the final decision on the water GRC by year-end? How does kind of remainder of the procedural schedule line up with getting?

Well, it's possible. I think the fact that we would have a settlement before between us and ORA helps us get to the end zone here by year-end. But it’s hard to predict whether the PUC can move it along that fast. It shouldn’t be a problem, but it always sort of function of what other things they’ve got going on. And they're a very busy agency.

Yes. Because suffice to say, I guess from capital planning perspective and all that, I mean, this one, assuming, you have that full comprehensive settlement agreement should get approved faster than maybe to your more recent cases that kind of dragged on and allowed you to kind of plan both capital and expense levels, appropriately in '19 and beyond?

I mean, I think, that’s the conventional wisdom, Jonathan. It should move more quickly. As you recall in our last case, we went to hearings on our entire capital budget. And so that was more difficult toward get done by the scheduled timeframe.

Okay. All right. Well, thanks for the update today, and good luck. Look forward to that press release coming up in a week or so.

Ladies and gentlemen, at this time, I’m showing no additional questions. I’d like to turn the conference call back over to management for any closing remarks.

Thank you, Jamie. I just want to wrap it up today by thanking you all for your participation. And we look forward to speaking with you next quarter. Thank you.

Ladies and gentlemen, that does conclude today’s conference call. We do thank you for attending. You may now disconnect your lines.