Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company Conference Call Discussing the Company's Fourth Quarter and Full Year 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 o'clock p.m. Eastern Time and run through Tuesday, March 5, 2019 on the Company's website, www.aswater.com. The slides that the Company will be referring to are also available on the website. All participants will be in a listen-only mode. [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 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 would like to turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company. Please go ahead.

Thank you, Nicole. Welcome, everyone, and thank you for joining us today. I'll begin with some highlights for the year; Eva will then discuss some financial details; and then, I'll wrap it up with some updates on regulatory filings, ASUS, and dividends; and then, we'll take your questions. For American States Water and its two subsidiaries, 2018 represented a continued unwavering commitment to safe and reliable service for our water, wastewater and electric customers, both in California, as well as in eight other states where we serve the country’s military personnel and their families. We concluded 2018 with two settled rate cases for our water and electric utilities, a record level of capital investment in our regulated utility, earned a record high earnings per share contribution at our contracted services subsidiary, commenced operations of water and our waste water systems at our 11th military base, and continued our 64 consecutive year of history of dividend increases. At Golden State Water Company, we reached settlements with the California Public Utilities Commission’s, Public Advocates Office on all issues for our pending water and electric rate cases. The water rate case sets new rates for the years 2019 through 2021, while the electric rate case, under the settlement, will set new rates for 2018 through 2022. We continue to invest in the reliability of our systems, spending a historical high of $121 million in needed infrastructure during the year. At American States Utility Services, or ASUS, we achieved a highest annual earnings per share contribution. In 2018, we further grew our military base footprint by commencing operations at our newest base, Fort Riley; increased our services at existing bases; and continue to work with the U.S. government on price adjustments and asset transfers. ASUS now provides services for water and our wastewater systems,…

Thank you, Bob, and hello, everyone. Let me start with an overview of our fourth quarter financial results on slide nine. Consolidated earnings for the quarter were $0.37 per share, compared to $0.35 per share for the same period in 2017. As Bob mentioned, results are -- were affected by losses of $1.4 million or $0.03 per share incurred during the fourth quarter of 2018 on investment held to fund a retirement benefit plan due to market conditions as compared to investment gains of $600,000 or $0.01 per share, recorded in the fourth quarter of 2017. This resulted in a $0.04 per share earnings decrease on a comparative basis. Excluding this non-core business item, consolidated earnings for the quarter increased by $0.06 per share compared to the fourth quarter of 2017. Consolidated revenue increased by $6.8 million due to the commencement of operations at Fort Riley, continued revenue increases at Eglin Air Force Bases since we took over its operations in June of 2017, as well as higher construction activity at Fort Bragg. Water revenues decreased slightly in 2018 due to downward adjustment to revenues, resulting from the tax reform, a lower authorized rate of return, based on the CPUC’s decision on the March 2018 water cost of capital application and the decreases related to the expiration of various surcharges that were in place to recover previously incurred costs. These decreases were largely offset by CPUC-approved third-year rate increases for 2018. Electric revenues were higher due to a downward adjustment to revenue requirement recorded in the fourth quarter of 2017 to reflect a decrease in the general office allocation. As Bob mentioned, we reached a joint settlement in our electric GRC for new rates retroactive to January 2018. If approved, the electric segment's gross margin would have been higher than…

Thank you, Eva. I’d like to provide an update on our recent regulatory activity. The settlement in the water general rate case application resolves all the issues and authorizes Golden State Water to invest $334.5 million in capital infrastructure over the three-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 gross margin. However, the 2019 water revenue requirement and 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. Had 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, in 2021 of approximately $10 million and $12 million, respectively, subject to the result of an earnings test and changes to the forecasted…

Thank you. [Operator instructions] Our first question comes from Durgesh Chopra, of Evercore ISI. Please go ahead.

Hey, team. Good afternoon.

Hi. How are you doing?

Good. Thank you for taking my questions. Just quickly on the -- in terms of like when I'm -- when we're looking at ‘19 and ‘20, Eva, could you help us with how should we be modeling the effective tax rate? And then, are you a cash tax payer currently, yes or no? And what does that look like in to maybe 2021?

Yes. I think, the effective tax rate, I think if you use the -- we have a note in our 10-K talk about 2018, if you look at note 11, will tell you roughly what the ETR is for ’18 and for ‘17, so kind of give you a good estimate going forward there. What was your second question? I'm sorry.

Are we a cash tax payer? We are.

Yes. We are.

And is that -- does that tie pretty closely to your effective tax rate, or I mean, I'm just trying to get a sense of whether it is material or not.

A little different because there's always timing differences between book and taxes. So, this differs. So, it's not exactly tied into the provision. But, you always have to consider the timing difference. That's where you have the tax liability and assets there on our book.

Okay, perfect. And then, just big picture question, Bob. 2018 to 2017 looks like sort of on an adjusted basis, nice growth year for you, gained predominantly just on the sort of the contracted services side. Are you -- as we think long term, are you targeting a specific regulated versus non-regulated business mix, how do you think about that?

Well, to be honest, we're trying to grow both businesses. I do believe the contracted services business probably in the next five plus years will grow a bit more quickly than the water utility business. So, we might see ASUS represent a little bit higher proportion of the total consolidated earnings than they have historically. But, I don't see us ever sort of getting to the point where it would be 40% to 50% of total company earnings because we are going to be growing the water utility business over time as well.

Our next question comes from Richard Verdi of Coker & Palmer. Please go ahead.

Hey. Good morning, Bob and Eva. Thanks for taking my call here. I am quite clear on everything, good -- and by the way, this is good quarter. I just had a couple of quick questions here. For the ASUS unit, thinking back to last year, there was some discussion due to tax reform that this military based division might have to pass through some of that tax benefit to the military bases. And there was -- that was kind of offset by some thinking that while it's a contractual obligation where the military gets to keep a benefit to them and American States would get to keep a benefit. And so, that's also then kind of offset by the thinking of well, if you want to keep up a good relationship with the military bases, you also might want to pass through some of these tax reform benefits that the company is seeing. So, with all of that long-winded commentary in mind, how should we think about taxes for ASUS going forward? Are you guys going to pass through some of this, do you get to keep it all? I mean how do we think about this moving forward?

Yes. So, Richard, for our Company, the benefit of tax reform has sort of been negotiated contract by contract with the U.S. government. And the changes have not really at this point been material, which means good portion of the benefit has sort of gone back to the customer. We do have one contract remaining where we haven't negotiated the benefit at this point.

Okay. So, would it be fair, Bob, from -- and thank you for that, from a modeling perspective to kind of think, okay, well, everything for the most part has been passed through except for that last little wrinkle?

At this point, except for the one contract. But, it is -- it's not a little contract. I'll let you know that.

Okay. Fair enough.

We're still negotiating that and perhaps we'll have a little more clarity when we talk in a couple of months.

Okay, perfect. All right. Thank you very much, Bob. And then, just one other question too, and it's on acquisition front. Legislation across the country is becoming more and more supportive of privatization. And in your prepared remarks that you’d stated, Bob, that the Company wants to remain right on course with where it is currently. And I don't blame -- I mean, the stock was up 16% last year, it's doing very well. But, with legislation becoming so supportive -- and you think the two of your larger peers, they're doing quite well from the acquisition front and they expect to continue to do well. And then, in addition to that, I mean, you guys know that I'm also active with the NAWC and Rob Powelson has taken over there, and he's kind of refocused that group to more of a local level instead of a federal level, getting it out of the DC level and into that local level. And so, that should be more supportive of favorable legislation that would be supportive of acquisitions and what have you. And so, I'm kind of wondering, do you guys -- is there any thought to maybe possibly going out there and acquiring some municipalities possibly in other states? And then, the offset to that is, of course, the company captures a higher multiple, because you are based in California, right? And so, I was just wondering if you could give me some sort of thought process about how American States thinks about the acquisition front and balances that against the California backdrop, and if you guys will participate in the acquisitions?

Well, we are always looking for acquisitions. W have not sort of been as -- I would say, as aggressive as the Aquas of the world in terms of making bids for municipalities or that are not for sale to try to entice them to come to the table. I would say, for us to acquire a municipality outside of California, it would need to be substantial enough in terms of number of customers, for us to be able to influence the regulatory policy in the state. So, we would need to -- and as you know, regulatory policy is a state-by-state approach. Some states are much more -- much stronger on the regulatory front than others. So, it would need to be in a state that's got we would say progressive or at least fair regulation. But, we're not opposed to going out and doing acquisitions out of California. But, would have to be in the state where we can sort of get a large enough presence to be able to influence the regulatory policy.

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

What was the GSWC's earned regulatory ROE in 2018 versus the 8.9% allowed?

So, the ROE that we earned for all of Golden State was 9.8% for 2018.

And then, can you remind us, are there like opportunities where you earn in excess of the allowed ROE on a like consistent basis, I believe what shows up on your other income line for GSWC does not go into the earned ROE calculation. But are there other utility activities that flow through some of the other lines that also do not go into that earned ROE calculation?

I think, for the recorded, Jonathan, we do include it in the earned ROE because even though it’s not regulated. So, that's part of our 9.8% that Bob just gave to you. So, we do have some water lease under the non-regulated activity at Golden State Water.

Okay. So, you’re saying the 9.8% is on just the reported net income basically?

Yes.

Okay. And then, have proposed decisions been issued in either of those GRC cases, Bob?

They have not.

Okay. But, did you say you thought you would get a final decision on the water one in Q1, meaning like a proposed decision should be imminent?

Well, we think -- I think what I said, we expect to propose decision in the first quarter.

Okay. Got you.

Because when you time it out, there has to be 30 days between the proposed and the final, and then commission doesn’t have that many meetings between now and end of March. So…

Okay. And then the PD and electric case, I mean, you think it will get done at least in Q2 or who knows?

Yes. I would expect it in Q2. It is -- I would say it's a bit behind the water GRC. It's just sort of that business is pretty small and doesn't -- it doesn't get pushed along quickly at the PUC because of its size, given the other issues that the PUC is dealing with these days?

Sure. There's a few big ones, right?

Yes.

And Jonathan, just a reminder for the [indiscernible] we see the final decision, we of course will reflect in ‘19 with a new rate, but we also will book the $0.04 that belongs to ‘18 that's retroactive to January 1, 2018. So, if we receive that decision in ‘19, that will be booked in ‘19.

Okay. And then, Eva, on the cash flow from operations, the past few years or two years at least benefited from the annual regulatory liability recovery, it’s been like 40 to 50 million. Is that the WRAM MCBA balance recovery?

Mostly from the WRAM MCBA.

Okay. So, then, with the end of the drought and the new rate case, hopefully to keep that deficit from growing significantly, how much longer should we be assuming, like additional cash recovery at that level? Can you remind us where the WRAM balance currently stands and everything?

I think for 2019, we incurred I want to say -- 2018, about $9 million on the collection of the WRAM MCBA. So, if you give me a moment, let me tell you what’s the balance is in note two of our 10-K -- page, sorry. So, we still -- cumulative balance for WRAM and MCBA right now is at about $18 million, which is including a portion of the prior year and of course what’s incurred in ‘18. And we will file a surcharge recovery next month, early next month to recover the 2018 balance.

Okay. So, the $18 million kind of assumed recovery over maybe like a two-year period, which implies I guess cash flow from operations in ‘19 probably has stepped down from what we saw in ‘18. Is that accurate?

Yes, maybe a little bit. We usually recover between 12 to 18 months because the balance that’s decreased as compared to the prior year. So, we cover between 12 to 18 months is a reasonable period, Jonathan.

Okay. Thanks for the time today. I appreciate it.

No problem.

[Operator Instructions] As we have no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bob Sprowls for any closing remarks.

Thank you, Nicole. And thank you all for your participation today. And we look forward to speaking with you next quarter.

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