Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the company's third 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 p.m. Eastern Time and run through November 13, 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]. This call will be limited to 1 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 in the 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 that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I will turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company.

Thank you, Sean. Welcome, everyone, and thank you for joining us today. I'll begin with some recent highlights. Eva will then discuss some third quarter details, and then I'll wrap it up with some updates on various regulatory filings, our contracted services business, American States Utility Services, and dividends. And then we'll take your questions. As a result of our continued investment in our utility businesses as well as growth from our new and existing military bases, the company's earnings increased by $0.05 per share over the third quarter of last year, an increase of 8.8%. Our 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 California Public Utilities Commission's Public Advocates Office, formerly named the Office of Ratepayer Advocates, filed a joint motion to adopt a settlement in August, which resolves all issues in our pending water general rate case, which will set rates for the years 2019 through 2021 and authorizes Golden State Water to invest $334.5 million in capital infrastructure over that same period. I will discuss the settlement in more detail later in the call. We are pleased with the progress on this important rate case. We have also reached a tentative settlement agreement with the Public Advocates Office on the electric general rate case, which set rates for the years 2018 through 2021. A settlement conference with all parties in the rate case is scheduled for this month. Among other things, the tentative settlement authorizes a new return on equity for Golden State Water's electric segment of 9.6%. When a…

Thank you, Bob. An overview of our financial results for the third quarter is presented on Slide 8. As Bob mentioned, diluted earnings for the quarter were $0.62 per share compared to $0.57 per share for the same period in 2017. I will discuss in the next slide the major items that impacted our revenues and expenses, including certain items that affect the comparability of our quarterly results. Consolidated revenues decreased slightly, largely due to downward adjustments to water revenues and, to a lesser extent, electric revenue, with corresponding decreases in income tax expense for the third quarter of 2018 to reflect the effect of the tax reform. There was also a decrease in revenues related to various surcharges to recover previously incurred costs that were implemented in 2017, which expired during 2018. Both of these items resulted in no material impact to earnings. Surcharge revenues to recover previously incurred costs are offset by a corresponding amount in operating expenses and have no impact to earnings. Revenue for the quarters were further lowered due to the CPUC's cost of capital decision issued in March of this year. We expect that the lower authorized rate of return for the water utility segment from this decision to reduce full year 2018 adopted revenues by approximately $3.6 million. These decreases were partially offset by the third year CPUC-approved rate increases effective January of 2018. Because of the delay in the electric general rate case, year-to-date 2018 billed electric revenue has been based on 2017 adopted rate, pending a final CPUC decision on the rate case. When approved, revenue and certain operating expenses will be retroactive to 2018. The revenue decreases at water and electric segments were largely offset by an increase in revenues at the contracted services segment between the 2 quarters. The…

Thank you, Eva. I'd like to provide an update on our recent regulatory activity. Regarding the water general rate case, the settlement with the Public Advocates Office resolves all the issues in the general rate case application and authorized Golden State Water to invest $334.5 million in capital infrastructure over the 3-year rate cycle. This includes $20.4 million of capital projects to be filed for revenue recovery through advice letters when those projects are completed. Excluding the advice letter project revenues, the water gross margin for 2019 in the settlement filing is expected to increase by approximately $6 million as compared to the 2018 adopted water gross margin. However, the 2019 water revenue requirement in gross margin, as settled, have been reduced for a decrease of approximately $7 million in depreciation expense compared to the adopted 2018 depreciation expense due to a reduction in the overall composite depreciation rates based on a revised study filed in the general rate case. The decrease in depreciation expense, as settled, lowers the water gross margin and is offset by a corresponding decrease in depreciation expense, resulting in no impact to net earnings. In addition, the 2019 water revenue requirement, as settled, includes a decrease of approximately $2.2 million for excess deferred tax refunds as a result of tax reform, which has a corresponding decrease in income tax expense and also results in no impact to earnings. Ad depreciation expense, as settled, remained the same as the 2018 adopted amount, and there were no excess deferred tax refunds that lowered the 2019 revenue requirement. The settled water gross margin for 2019 would have increased by approximately $15.2 million. The settlement, as filed, also allows for potential additional water revenue increases in 2020 and 2021 of approximately $10 million and $12 million, respectively, subject to…

[Operator Instructions]. Our first question comes from Durgesh Chopra with Evercore.

First question, just a clarification on that $0.43 to $0.47 earnings contribution in 2019. Is there an assumption of any new bases or that's just based on what you have currently locked and loaded?

It's just currently what we have locked and loaded. As you know, there is generally a 9-month transition period after a company is awarded a new base. So to a degree, we would get a new base between now and year-end. We may see a little bit of earnings in 2019, but it wouldn't be much.

Got it. Okay. And then the $23 million, how does that compare to maybe 2017 or 2016? I'm just trying to get a sense of whether that is the normal level of construction expenditure in your existing assets or that is -- basically, I'm just trying to get a sense of how should I think about what's normal going forward in your existing bases.

Sure. We do expect additional awards of -- additional construction dollars before year-end. But the $23 million is a little bit higher than what we received last year. I believe we had $21 million, if I'm not mistaken?

Right, for the whole year.

For the whole year, for all of 2017. So it's a little higher.

Okay. And then just high level, the 6% dividend growth, I mean, I guess, the target is 6% -- more than 6% CAGR over the long term. I'm just trying to understand, like is that -- I mean, it seems like you're flooring it at 6%, and it could be higher. Is that where you think the sustainable level of earnings growth is in the long term? Just if you could share your thoughts a little bit on how you arrived to that 6%.

Sure. We took a look at where we thought the dividend should grow to and where earnings were expected to grow to. And we're a pretty conservative company, so we came up with more than 6%. So we believe that earnings will be growing at that level or more over the next 5 to 10 years.

Our next question comes from Jonathan Reeder with Wells Fargo.

Nice presentation, touched on all the bases that I pretty much had. And good questions by Durgesh, too, because he anticipated some of mine. The only thing I have left would be on the water rate case settlement. And correct me if I'm wrong, but that gross margin going at $15.2 million, that's, I guess, a little higher than what you had initially set. I guess, maybe you didn't include that tax component previously. Is that accurate?

Yes, that's accurate, Jonathan. When we compare previously, we're purely just comparing the adopt to adopt the number. In 2018, if you recall, as a result of the tax reform by the end of 2017, we had an excess deferred taxes, about $83 million booked. That should be refunded to our customers over the remaining life of the asset. So it's about $2 million, $3 million a year. So in the base rate in 2018, those adopted base rate has not reflected those dollar amount yet. But during the settlement, we actually -- the excess deferred refund for 2019 to 2021 has been built into the base rate for settlement agreements. So we want to bring this factor out, so we don't -- we give you all the information. What's encouraging in 2018 in terms of excess deferred, about $2 million, $3 million, we're tracking a minimal account, which will be recorded throughout the year. It's just not in the adopted number. So we want to make that clarification.

Okay. And that $2 million to $3 million, I guess, that's over like a 20- or 30-year period, I guess, something like that?

Yes, because utility life is very long to finalize. Yes, it's in a long period of time.

Okay. And then I think I already know the answer to this, but the electric GRC settlement, I mean, it's a pretty small portion of the business. Is that supposed to or expected to do anything from an earnings standpoint? I mean, I know you cited a little bit of a headwind this quarter expenses there. Does the settlement lease, I guess, cover those higher operating expenses?

Right. We're a bit unsure as to when that settlement will get approved. So it's possible we'll have a little bit of an uptick in either 2018 or 2019 from retroactivity associated with that rate case.

But on an ongoing basis, I mean, I guess, the settlement at least covers those higher operating expenses that are currently a drag on an ongoing basis?

Yes.

Yes.

They definitely do, yes -- or it definitely does.

[Operator Instructions]. At this time, it appears there are no further questions in the question queue, and this will now conclude our question-and-answer session. I would like to turn the call back over to Bob Sprowls for any closing remarks.

Yes. Thank you, Sean. And I just wanted to say thank you to all of you for your participation today and your interest in the company, and we look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for attending today's presentation, and you may now disconnect.