Good day, ladies and gentlemen and welcome to your fourth quarter and year end 2007 results conference call. (Operator Instructions) I would now like to introduce your host for today’s conference, Mr. Marty Kropelnicki, Vice President and Chief Financial Officer at California Water Service Group.

Thanks and good morning. Welcome everyone to our fourth quarter 2007 and year end 2007 conference call. With me today is Pete Nelson, President and CEO. I would like to remind everyone that a replay of today’s call is available and this call being recorded. The replay will be available from today through April 28 and the dial-in number for the replay is 1-888-266-2081, ID 835974. Last night, at the end of the day, we released our earnings. If you haven’t received the press release, it’s available on our website at www.californiawater.com. I would like to remind you every one and make a few comments about forward-looking statements. In particular during the course of this conference call, the company may make certain forward-looking statements, because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company’s current expectations. Because of this, the company strongly advises all current stockholders as well as all interested parties to carefully read and understand the company’s disclosures on risks and uncertainty found in our Form 10-K, 10-Q and other reports filed from time-to-time with Securities and Exchange Commission. We will start off today talking about the fourth quarter of 2007: revenue for the fourth quarter 2007 was $85.9 million, up $5.2 million or 6.5% over the same period last year. Contributing to the revenue increase was $3.3 million in and rate relief, $1.4 million in increased usage by existing customers and $500,000 in increased sales to new customers. Water production costs for the quarter increased 7% or $2 million to $30.7 million; embedded in that number are three components; purchased water increased $2.2 million to $24.6 million, which represented a 10% increase. Purchased power was down slightly approximately $152,000 or 3% to $4.7…

Thanks very much Marty. Good morning everyone. I am going to cover two areas; first is an update on our rate proceedings, which I usually do on these calls; and second I will talk about some new acquisitions that we were able to either close last year or expect to close some time this year. So first, rate cases, and I’ll talk about three here. First is our 2006 general rate case. This is the case we filed in July of 2006, expecting a decision in July 2007. It covers 8 of our 24 districts for general rates and we now have a decision in that case. We did not have a decision in July as we expected in 2007, so we were able to start interim rates of about $2 million annual revenue back in July of 2007. We now have the rate case approved in December for a total amount of $7.7 million. So we have rates going into effect with that additional $5.7 million, starting January 1 this year. Due to the delay in the decision there was what we’d call lost revenue from the July to December period of about $2.7 million that would have been in rates, if the Commission would have made a decision on time. So we were able to file and we will be recovering that $2.7 million over 12 months beginning March of this year as a surcharge to customers. This puts the 2006 general rate case to bed. It’s the last time I have to talk about it. Let’s move on to the 2007 general rate case, which is our $68 million request annual revenue, which also covers 8 of our 24 districts, but more importantly allows us to reflect our corporate or headquarters costs in all of our 24…

Thanks Pete. Couple of things on the balance sheet that we wanted to share with everyone today. First and foremost, the net utility plant passed up $1 billion in December. We think that’s significant. If you look at the capital program for 2007, total CapEx was approximately $102 million, a little bit more than 10% of our utility plant. The company funded portion of the CapEx came in at about $77 million of the portion that we earned our authorize rate of return on. So, that came in about 8% of our total utility plant. That was a couple of million short of our internal target. Our target was approximately $80 million. However, we did finish of the year with work in progress up slightly, from where it was the previous year. So, overall nice growth in rate base and we ended the year with work in progress balance of approximately $39 million, which is approximately $3 million from where we were the year before. We completed 2007 with no new financings, and no new equity offerings. As you may recall, in the fall of 2006, we completed a 2 million share deal and we also completed $20 million in senior unsecured debt. In 2007, we had no new financings and we ended the year with nothing outstanding on our line of credit, and an additional $6 million in the bank. Overall balance sheet is looking good. Our debt to equity ratios were approximately 43% debt, 57% equity, which is about where we ended up 2006; debt, 57% equity is the ratios that we used going into the 2007 general rate case and those equity ratios are included in our filings for the 2007 general rate case. Looking out at 2008, we expect the capital program to continue. The relevant…

I will just reiterate. In closing, we feel very good about 2007, a good year. Able to post solid financial results; continuing to implement the California Commission’s Water Action Plan, which we feel is good public policy and we are very pleased that the Commission remains fully committed to the plan as well. And happy that we are able to expand our footprint in Hawaii, to a new island, and in the state of Washington with acquisitions that were very important to us. At this point, I think I we will take any questions.

(Operator Instructions). Your first question comes from Francesca McCann - Stanford Financial.

Good morning and congratulations on a good quarter and year. Looking forward to more. A quick question on the purchase of water costs and the increase there, if you can detail that out a little bit more and then also tell us what you see there moving forward, trend wise, what we can expect?

That’s actually a very good question and when we haven’t been in our blackout period, I’ve actually gotten quite a few calls about this issue, because some of the other issues that are popping up with other water companies within the state then have add some issues this year. The 10-K will be filed hopefully today or sometime tomorrow, and in the 10-K on page 35, we break out our water production. And really, when you look at this issue and how it works, I think there is a couple of things that are really important when looking at us versus other companies. First and foremost, mix matters. In total, the company produced approximately 141 billion gallons of water during the year. Of that amount, approximately 50% was purchased water from wholesalers, and the other 50% came from our own wells and surface water. When you look at the 50% that’s ours, the majority of that comes from our own wells. Approximately 46.4%; only about 3.7% of the surface water, came from our surface water plants of which we had four, and that was just down slightly. In total of the $141 billion of water produced, $5 billion came from our surface sources, and that was down slightly from $5.6 billion the year before. So, as the reservoirs have had lower water levels, etcetera, that has affected our ability to run the plant. But in terms of it being a material part of our overall portfolio, it is really not. The second thing is, given the fact that we have the largest number of districts in the state of California, I think we have gotten better at rate making around these issues and as you may recall in our rate making process, every year we’ve had 8 districts come in for rates, and we file our rate case for each of those 8 districts every year. That has allowed us to address the mix issue every year in districts that change. So I think we have gotten fairly sophisticated at our estimates in terms of how we look at the total demand. And then ultimately, we are big on trying to keep our wells productive. And so, as we saw some increases in demand this year, we have been able to increase our well production.

That’s right. In the L.A. basin we were able to increase production from our wells down there.

I think Francesca the 50-50 is probably a good ratio. Part of the CapEx program, we like to drill so many new wells every year as well. So obviously it’s more economically advantageous to us to pump water. But I think that 50-50 mix ratio is what to look at and again when the K comes out, look at page 35, because we break it out, all the percents so you can see it.

Perfect. Okay and the acquisition landscape, congratulations on what you did in this quarter and through the year, and if you can talk a little bit about additional growth opportunities, either in Washington or Hawaii, or elsewhere and then as a second part of that, where your focus is going to be for O&M versus full system?

Francesca we prefer to buy regulated systems, of course, at book value, so they are accretive immediately. In Hawaii, the O&M acquisition was a strategic one. That does serve 20 separate areas, up and down the Kona Coast and inland on the Big Island. I expect us to remain in our four states and look for prudent acquisitions in all four. This was a good year for Hawaii, as opposed to maybe two or three years ago, it was a very good year in New Mexico. So they kind of go in cycles, but I think what you have seen, 2007 and 2008 is pretty much the pace and the strategic direction you will see from us in the future.

Okay. Perfect. And any obstacles that you see looking forward as you expand your acquisitions?

Can you be more specific on obstacles?

More so on the regulatory side?

Francesca, this question has come out throughout the years. We do look at a lot of opportunities. Part of the challenge is finding opportunities that we can make money on, and that we can grow. As Pete said, growing rate based and growing the regulated business is always our first priority. However you are capped at how much you can pay for those systems and make money on them. So having a strong, disciplined approach on the M&A side is really, really important to both Pete and I, in making sure we can do deals that are accretive. So we go where we think we can make money and where the opportunities are. We are not going to spend shareholder money on places where we can’t make money, unless we think it is a strategic opportunity that we think will lead to future profits by expanding our footprint.

Okay. Perfect. And then just a quick question on the tax rate, which was not lower than last quarter, but lower than we’ve seen in a little while. So any further detail on that?

The tax rate does bounce around a little bit. If you look at where we were, the effective tax rate in Q1 was 40.3%; the effective tax rate in Q2 was 40.8% and in Q3, it dropped to 40.2%; in Q4 dropped to 40.3% and we ended the year with an average blended effective tax rate about 40.40%. I think it’s going to stay between that 40% and 41%, and you see some volatility there, because you have the effects of flow-through accounting and some of the tax changes that we have to look at and address quarterly. So we have a quarterly tax provision that gets reviewed by the public accountants in our tax department. But then we have an annual true-up. But I think between 40% and 41% is the relevant range and 40.5% is probably a pretty good benchmark to model off of.

Okay, perfect. Thank you so much.

Our next question comes from Debra Coy – Janney Montgomery Scott. Debra Coy – Janney Montgomery Scott : Just to follow up a little bit on the acquisition, can you just give us a total aggregate number of about what the consideration was for the whole lot of what you have acquired in the last quarter, and what the revenue contribution would be?

I think we need to talk about each deal independently, because they are different types of deals. Debra Coy – Janney Montgomery Scott : And that’s even better. But I was just trying to get a sense of the size. It sounds like each one, other than the one on the Big Island, most are fairly small. But how do they add up?

Right. The purchase price for the one on the Big Island was $21.5 million and that includes the repayment of third-party debt, which was approximately $13 to $14 million. That’s probably the biggest one. That was an actual stock deal, so it was a developer built plant; it’s a growing area. That’s the one that adds 9,000 new customers to our business there, and that’s a regulated entity. That application has been filed with the HPUC and certainly you can pull information off that application. Debra Coy – Janney Montgomery Scott : All right. Okay.

The Island Utility Services one, that’s an asset deal that we are paying with company stock. That’s not a really big deal. It’s under $1.5 million. But as Pete said, that one’s very strategic, because it gets us into the non-regulated O&M business on the Island, and we deem that as being important. The Pukalani deal was an asset deal that we paid cash for and that was $2 million. These are at different phases, obviously the one on the Big Island, the Waikoloa, that has not closed yet. That will close some time this year. If I was to peg a date, I would hope by August. But that really is subject to the review and approval of the Commission of Hawaii. The Island Utility Services is pending as of right now and Pukalani is pending as well; it has been filed. Debra Coy – Janney Montgomery Scott : Okay. That’s helpful Marty, and similar on the Washington deals?

It’s a little bit different landscape in Washington, and most of the deals in Washington, we have paid cash for. Obviously as a public company, we like asset deals better than stock deals, because it limits the liability to the subsidiary, as well the parent company. But all the ones in Washington are closed. Debra Coy – Janney Montgomery Scott : Okay. And the aggregate value of the Washington deals? Will that be in the K?

They are not… Debra Coy – Janney Montgomery Scott : They are not material?

A couple million dollars total, Debra, it’s not a whole lot.

Little over $1 million if we add them altogether. Debra Coy – Janney Montgomery Scott : Okay. Actually that’s helpful. I just wanted to get a sense. So thanks for that. Pete, coming back to the regulatory situation. Two things, I’m interested in why you think the Commission has tried to separate out residential versus commercial and industrial customers from the RAM mechanism, and then how you think the timing of that processes is likely to go?

The Commission did not separate. The ALJ’s proposed decision did. Debra Coy – Janney Montgomery Scott : This comes from the ALJ, not from the Commission?

Yes, we’ve worked with staff and interveners all of whom agree that all customers should be included in the Revenue Adjustment Mechanism. The ALJ wasn’t clear on how the rate making mechanism would work for the commercial industrial customers. It was more of a clarity issue, but all the parties agreed that all customers should be included in the Revenue Adjustment Mechanism. So that’s what we are trying to change. Debra Coy – Janney Montgomery Scott : Okay.

As far as timing, it could be today, we don’t know. It could be soon. Actually it could be held today. I think it was on the agenda for today, but it could have been held; we will just have to see. Debra Coy – Janney Montgomery Scott : So, if we get a resolution on that, that all parties are happy with, it would take effect when?

It looks like July 1 would probably be the optimal time. Obviously, it’s a huge change to the front side of our business and on the revenue side. It will probably be the one of the largest single changes our industry goes through, and that affects the work that my team has to do. But obviously, we would like to cut that over on the quarter, so it’s a clean cut over. Debra Coy – Janney Montgomery Scott : And particularly, given the timing of your rate cases?

Yes, exactly. Debra Coy – Janney Montgomery Scott : And in terms of that, one of the surprises, Marty you mentioned earlier the mix issues relative to what we are hearing from other companies. But the other thing that we really didn’t see from you this quarter and perhaps it’s geographic as much as anything else. But we are certainly hearing about some conservation related reductions and usage. You talked a bit about that in the third quarter. Are you really not seeing much of a conservation impact on your revenues, since usage was up in the quarter, or do you think that was just more weather related?

That’s a very good question and just let’s go back to Q3 and when we talk about revenue, we always break out the three components: what was you know rate relief, what was changes in demand by existing customers and what is sales to new customers. In Q3, we didn’t see an increase in demand by existing customers. In Q4, we did see that go up by I think I mentioned it was $1.4 million. Debra Coy – Janney Montgomery Scott : Right.

But we had a dry fall and we went into winner relatively dry. So I think it’s probably a combination of both, it was overall a drier year and conservation. But it’s hard to disaggregate the two to see which is which? Debra Coy – Janney Montgomery Scott : Obviously we are still on the midst of 1Q, but it has been relatively rainy. Can you comment on how you are seeing trends as we start into the new year?

Not giving any forward guidance personally. Debra Coy – Janney Montgomery Scott : No, of course not.

If you go back and look at 2006, it rained almost everyday in January and close to everyday in February, and we had one of the rainiest quarters on record for the state of California. This year, we have had a lot of rain and we have had a lot of snow. But they have been pocket storms. The storm rolls in, we get a storm for a week and it rolls out. Last week it rained, this week at 70 degrees here in San Jose and in the Bay area. So I think, when I looked at the weather patterns, we were about 135% to 140% of normal as of last week. The snowpack was looking good, because they got that big storm last week. But it’s a little different than what it was in 2006; it was just constantly raining. Debra Coy – Janney Montgomery Scott : Okay. So we are normal-ish, is the way it looks so far? Whatever normal means anymore.

I don’t know if there is such thing as normal in California. But I think that the pattern is probably getting back to what we have typically seen in the past. Debra Coy – Janney Montgomery Scott : Okay. Thanks. That’s helpful.

Our next question comes from Tim Winter - Smith Moore.

I was just wondering if you could clarify the numbers for the 2006 general rate case, did you say $7.7 million of revenue increase?

Let me try that one. I thought that might be confusing. The total increase in revenue from that rate case is $7.7 million. We started $2 million of that back in July of 2007, which was interim rates and then we added the $5.7 million additional starting January 1 this year.

Okay. And what was ROE?

ROE is 10.2%.

Okay. And did you record any of the difference or the gain between the interim and actual increase in 2007 results? And if not, will you be recording that in 2008’s results?

That’s a very good question. We recognize revenue when it’s billed; that’s been our revenue recognition policy, that’s what’s on file with the SEC and that’s within our 10-K and in our footnotes. Obviously, as we move to implement, that changes, and there is a very good chance those balancing accounts will be balanced and recognized on a go-forward basis. So when we look at 2007, in our current world, we ended the year with approximately $3 million in balancing accounts; that was down slightly from $3.9 million in Q3. So I think that will change, but the short answer to your question is no, we don’t recognize that revenue until we bill it, and then we recognize it over a time period as consumption is used.

Okay. So, the surcharge that you will be charging through 2008 will be to make up for the delayed timing?

Actually it will start in March 2008 and finish in February 2009; 12-month recovery.

So we can expect an additional $0.05 to $0.06 of revenue recognition that was actually billed in 2007?

Potentially, yes.

Not billed in 2007, Tim.

It wasn’t billed; it was deferred.

It was used.

That’s right. Water was used, expenses were recorded and recording the revenue March this year to February next year.

Okay. And can you guesstimate how much that negatively impacted 2007 results − the delay, the difference between the $7.7 million and the interim had it been in place?

We talked about that on the Q3 call, and if my memory serves me right which every year I get older, so there’s no guarantee on this, folks. This is why we do that Safe Harbor Provision at the beginning of this call. I believe we recognized a couple of cents of increase in Q3 and Q4, but it would have been close to the $0.05. So there is probably a net $0.03 incremental difference there. And again I am working from memory; I would have to pull notes from the Q3 call.

Okay, thank you.

(Operator Instructions). Next question comes from Justin (inaudible) – Stifel Nicolaus. Justin (inaudible) – Stifel Nicolaus : Quick question for you. When I’m looking at the non-regulated expenses, it looks like you were up slightly over $1 million over the last year. I was hoping you could add a little clarity on what’s pushing that higher?

Sure. You have a couple of things that flows through that line and again I will call everyone’s attention to the 10-K when gets filed here in the next 24 hours. We have a couple of things that flows through there. One, we have antenna leases; we lease our space to cellular companies to put antennas up. We have our Extended Service Program, ESP, that flows through that line and then we also have non-regulated contracts that we operate. So, you have three primary vehicles there. The cellular lease program continues to grow every year. Our ESP program continues to grow. So those are the three primary vehicles that roll through there. Justin (inaudible) – Stifel Nicolaus : No acquisition costs or asset sale costs are built in here?

Not yet. It depends on the deal. Obviously if it’s a regulated deal, you have to throw it all above the line into the regulated balance sheet. If it’s a non-regulated deal, it would go below the line. But those costs usually all get netted through as you close the deal and as it comes out of that scrub. Justin (inaudible) – Stifel Nicolaus : Great. Thank you very much.

(Operator Instructions). Next question comes from Debra Coy – Janney Montgomery Scott . Debra Coy – Janney Montgomery Scott : Pete, just to follow-up on the acquisition outlook. Interesting that we really haven’t seen acquisitions in California. You mentioned earlier, you are looking at all of your service territories for opportunistic acquisitions. Can you talk a little bit about the environment in California, why we really haven’t seen much M&A activity in the state, what the outlook might be?

We just don’t see the opportunities in California at this point. We are working on several things that are in motion now, but nothing huge, and I am not sure why that is… Debra Coy – Janney Montgomery Scott : I am not sure why that is either; it seems considering the same needs for capital spending and developer systems and so on.

And the pressure that some of the cities are having right now on their financials, it’s a little surprising. But I think if you look at the other California companies, you won’t see many California acquisitions either. Debra Coy – Janney Montgomery Scott : No, that’s completely true. And I was just wondering your take on that. We’re hearing from some of the other companies in other states that they are beginning to see some opportunities in municipal market, because of the budget pressures as you’ve mentioned, but you are not really seeing that in California to-date?

Not yet. It’s probably going to be a little delayed, I would guess here. We do have a one city in the Bay Area that’s close to bankruptcy. But I’ve just not seen the opportunities, and that’s why we have moved our focus to Hawaii and Washington. Debra Coy – Janney Montgomery Scott : Okay. Thanks.

(Operator Instructions). I’m showing no one at the queue at this time sir.

Thanks Syed. I’ll just make a couple brief closing remarks on the financial side, and then I’ll turn it over to Pete to close that on the operating side. Again obviously, 2007 was a good year for Cal Water. We have remained steadfast and focused on addressing the regulatory lag issues that has kept us from heading our authorized rate to return, and return on equity. As Pete said, we are aggressively going after the water action plan and we remain from a financial standpoint, focused on building out long term shareholder value. So we do have a number of analysts to cover us and we want to thank everyone for their support throughout the year. We have some excellent analysts and excellent coverage out there, and I know for me, I look forward to the next conference call. Pete?

Me too. Thanks Marty. Thanks to everyone for being on the call this morning. I really appreciate it. 2007 was a good year for us and 2008 should be a very exciting year as we go through and expect a decision on our 2007 general rate case and on the conservation proceeding. So I think it’s going to be a lot of activity in 2008 for us. Thanks very much, have a good day.