Good day, ladies and gentlemen and thank you for standing by. Welcome to the California Water Service Group First Quarter 2010 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded. I’d now like to introduce your host for today’s event, Mr. Martin Kropelnicki, Vice President and Chief Financial Officer. Sir, please go ahead.

Thanks, Karen. Good morning, everyone. Thanks for joining us for our first quarter 2010 earnings conference call. With me today is Pete Nelson, President and CEO of California Water Service Group. I’d like to remind everyone that a replay of this discussion is available from April 29th through June 28th at 888-266-2081, ID 1442193. Prior to going through the results for the quarter, I’d like to take a brief moment to read a statement 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 risk and uncertainties down in our Form 10-K, Form 10-Q and other reports filed from time to time with the Securities and Exchange Commission. Having said that, the format today, I’ll briefly go through the income statement and I’ll turn it over to Pete to give an update on operations and I’ll come back and talk about the balance sheet and close. For the quarter, revenue was $90.3 million, up $3.7 million or 4% over the same period last year. The items that contributed to rate relief were as follows, we had $4.3 million of rate relief, $600,000 of revenue to new customers and that was partially offset by a decrease of $1.2 million in usage and other. Total operating expenses for the quarter were $82.5 million, up $2.2 million or 3% over the same period last year. I’m now going to go through the items that make up total operating expenses starting off with production…

Okay. Marty, thanks very much and good morning, everyone. The first quarter usually for us and for other water companies is just pretty uneventful and this one follows that pattern. For us, the big operational issue is our general rate case. I’ll talk about that this morning and this is what we call our 2009 general rate case, which is our major project. This is our $70 million request for new general rates that will start 2011 in California and then we’re requesting an additional $25 million in 2012 and an additional $25 million in 2013. We’re in the middle of this process and it seems like we’re always in the middle of this process and I get questions about this case all the time, because it can’t be forwarded to people who don’t deal with the rate making on a regular basis and it can seem like it goes on forever and in this case or for general rate cases in California, it’s 18 or 20 months. So that is partly true. So let me quickly describe the process regarding a few and I think after three or four minutes, should be more conversant on what the general rate cases look like in California, so you get a better handle on where we’re in this case and how it’s going. There are, as I count, nine steps in the process and I’ll probably shortcut a couple of these, but the first step is when we file a notice of intention. This basically puts the commission on notice that we’re going to make an official filing and this notice of intention is done two months before the official filing. In our case, this was done in May of 2009. It is a fall filing, so there’s an amount’s of paper…

Okay. Thanks, Pete. A couple of things in the balance sheet we like to highlight, starting off with net utility plants. We ended the quarter with approximately $1.1227 million in net utility plants that’s up approximately 9.3% from where we were last year. CapEx for the quarter was approximately $25 million, that’s a good start to our target of $125 million for the year. And we ended the quarter with work in progress balances of $103 million, up approximately 12% from $92 million in the first quarter of 2009. Our debt-to-equity ratios, we ended the quarter with approximately 52% equity, 48% debt. So we still believe the balance sheet is in very, very good shape as we’ve weathered the economic storm that we’ve gone through as a nation over the last 18 to 24 months. Cash flow from operations for the quarter was a positive $22 million and as Pete said, as we talked about on our year-end conference call, we have tried to kind of button down the hatches to get through 2010. We have tightened up the operating budgets to squeeze out efficiencies where we can find it and we continue to do that, a couple of things that have happened within the quarter. As you may recall, two of our subsidiaries reconverted to PeopleSoft last year that was New Mexico and Washington. We have recently converted our Hawaiian operations, including the companies that we bought in 2008 onto PeopleSoft, that’s now live. And so we’ve another, a lot of projects going on to continue to look for efficiencies to improve our support to our customers, as well as the operations of the company. Karen, with that, we will open it up to questions, please.

(Operator Instructions) And our first question is from Garik Shmois of Longbow.

Hi. Thank you.

Hi Garik.

Just first off, I think, I might have missed it in the prepared remarks. Did you mention the rate case or a potential rate case to be filed in Hawaii?

Garik, I did not. We planned to file rate cases in Hawaii and there’s actually six or seven cases we’ll file there this year covering the entire operations on both islands. So we expect to file them this year for rates sometime next year. We’re pretty focused on the California rate case right now and once we free up those resources, we’ll be moving to Hawaii rate cases.

Yeah. Is it too early to say how much you will be looking for there?

Too early, yeah, we haven’t got the data together yet.

Okay. And just moving on maintenance expenses they were up I believe 7%, maybe a little bit higher than what you were hoping for on the last conference call. I know tends to move around quite a bit quarter-for-quarter but should we assume that it moderates from here on now?

You know, if you look at the company’s past history, we will -- maintenance will bounce around quarter-to-quarter, but we typically come in by the end of the year on target to what we think. So, yeah, we have had a little bit more maintenance this quarter. I expect that number will be a little bit higher than usual probably in Q2 but then we’ll see that start to come down in Q3 and Q4, a lot of it is preventative activities.

And then just if you could talk about consumption trends, certainly it’s been down. But excluding conservation efforts, I mean, could you parcel out if you are seeing any maybe pickup here as you moved through the end of the quarter or maybe even into April? It seems like industrial demand is starting to pick up nationwide a little bit residential seems to be bottoming out. Are you seeing maybe any improved consumption trends because of, I guess, an improved economic outlook?

See, Garik, it’s hard to tell why people use less water. I don’t think we see much of an impact from the recession out here. And we’re not seeing a pickup in consumption compared to last year. In fact, the first quarter was lower, this year than last year as far as our production. The end of the quarter was about the same. But we had a very wet winter here in fact it started raining yesterday, which is amazing in California. So kind of a long, cold, wet winter and I think that’s the main driver for keeping consumption and sales down for the quarter.

Okay. But you haven’t seen any really change because of the economy, just trying to show some signs of life?

No. As far as water production, no, weather is the main driver that kind of trumps everything.

Yeah. The one thing I would add here, Garik, just from a bad debt perspective. The company continues to have very, very low bad debt. In fact, I think a lot of industries would kill that bad debt at our level. Prior to the recession, our bad debt was approximately 30 basis points, it did shoot up to about 55, 56 basis points and we’ve seen that continue to soften up and come back down a little bit. So people have continued to pay their water bills. Our bad debt expense, we actively look at that as kind of an indicator of if things are getting better or getting worse. And I think from a bad debt perspective, it feels like things are getting a little bit better.

Right. Thank you very much for that.

Sure.

Thank you. And our next question is from the line of Christopher Purtill of Janney.

Hey. Good morning, Pete. Good morning, Marty.

Hey, Chris. How are you?

Good. Thanks. Just wanted to start off bigger picture, we’ve been spending some time looking a bit more at potential dividend, taxation changes. And with those rates likely to move higher, possibly up to 40%. Can you talk a little bit about how you are thinking about the pay-out ratio kind of how you are going to be deploying internally generated funds either in CapEx versus dividends. And just kind of the overall dividend policy in light of what’s probably going to be happening in the next 12 months?

Sure. That’s a really good question. And part of it is speculative, so I want to just throw that out there and note that to everybody. If you look at start off by looking at our balance sheet and if you look at Cal Water history over the last four to five years, we have continually dropped down that pay-out ratio and we’ve done that in an effort because we’ve been basically spending more on CapEx. So if you look at the compound annual growth rate of our capital expenditures that they are somewhere between 15% and 18% per year. So we’ve managed down our pay-out ratio to be between 50% and 60% as a target rate versus a high of 80%. Having said, the company has had a long history of increasing dividends every year and making sure that, that dividend gets paid to our shareholders. That’s one of the nice total part of being a total return story. So we understand that and we certainly respect where we’ve come from. Getting to your question in terms of what our tax rate is going to do, we certainly can’t forecast that. There certainly is a lot of discussion taking place in policy forums around that. But regardless of what happens from a tax perspective, the company’s balance sheet is in very good shape. Our pay-out ratio is not exorbitantly high. We’re not in a position where we’ve to worry about paying that dividend and we continue to do go rate based and we’re making money. So all in, I don’t foresee a change of policy per se for the company from where we’ve been historically over the last five to six years.

Okay. Great. That’s helpful. And then looking a little bit at the quarter, can you expand just a bit on the improvement in the administrative expense? You talked about legal expenses down. I think $1 million quarter-over-quarter. It’s great to see those kind of controls, now that you are here in the tail end of the rate cycle and in this stretch year. So any color on how you are able to drive the reductions? Were there certain items in 2009 that you viewed as kind of one time in nature?

Yeah. Well, there is a couple of things and if you recall going in Q3 of last year, Pete and I were starting to talk about a couple major variances that were popping up. One was definite legal that was one of our biggest ones. We just had more litigation last year. We had more trip and falls. We had all kinds of miscellaneous cases at a general rate case there is legal fees associated with that. So we’ve started a process to try to look at that and understand where those costs are coming from and to better manage them. So that’s first and foremost. The second thing is outside services and again when you have a general rate case or as I mentioned, last year, we converted our subs to PeopleSoft. We had outside service cost and so we’re managing those costs down as well. So those were the two largest components. The third thing that contributed to the A&G numbers going down is really the benefit clearing rate. As everyone knows, medical costs continue to go up faster than inflation and on January 1st, we adjust our benefit clearing rate that gets charged to construction projects to reflect the updated cost structure for 2010. So we’re clearing out more of the benefit cost to construction projects. That coupled with during the 2009 budget season, we did a full labor analysis. As we talked about, we’ve been spending more on CapEx and we went through in looking at what allocation of our labor should be being charged to CapEx and we made some changes in that area as well. So tighter methodology, our year-end study is part of the budget process and so a combination of those three things really helped bring that A&G number down.

All right. And just lastly, Marty, in your prepared remarks, you talked about evaluating the expansion of regulated services, any color there kind of what you are looking at on the acquisition front, if it’s municipal, if it’s private, just kind of the outlook on either consolidation or acquisitions?

Yeah. You know, we can’t say a whole lot on that line because we’re bound by confidentiality agreements, et cetera. But obviously the company incurred a fair amount of money in the quarter pursuing business development opportunities and the cost associated with that was approximately $0.03 a share for the quarter. Those are costs that have to get pulled out of regulated operations and they get charged down through other income and expense.

Okay. So safe to say the environment, the deals are still out there and consistently and constantly being evaluated?

Yeah. And we haven’t changed our internal picture of what we do. We do have a business development team. They are always out there actively looking and as I’ve talked about in the past, there’s a lot of stuff that comes up that we don’t look at and then sometimes something good comes along that we will aggressively go after. Obviously, we went after something, we’ve incurred some cost but we didn’t get it.

Okay. All right. Great. Thanks so much, guys.

Thanks, [Chris]. Have a good day.

Thank you. And our next question is from the line of Jim Lykins of Hilliard Lyons.

Good morning, Pete. Good morning, Marty.

Good morning, Jim.

Good morning, Jim.

And thanks for walking us through the GRC process, that’s helpful.

I knew you would appreciate that.

First, a follow-up on an acquisition question, I know you can’t comment specifically on anything. But could you maybe just make some general comments about the environment. I mean would you characterize that as good, fair, poor, is there anything you could say?

You know, I’ll comment first and then I’ll let Pete comment. I don’t think the environment has radically changed. I think you still see a lot of little things kind of pop up from time-to-time. A lot of people ask that question, a lot of people ask, well, are you seeing any cities or (inaudible) looking at trying to sell? The environment from our perspective really hasn’t changed and again, we’re always out there looking. But as you know, Jim, in a regulatory environment, you can’t overpay for something because you can’t, you won’t earn on it. And so anytime you look at doing M&A in the space, you got to evaluate, what type of condition the systems in it. If that condition that system is going to require a lot of work, then you run the risk of not being able to recover those costs, et cetera. So from my perspective, the deal flow has been about the same. I don’t know, Pete, if you have anything different that you’d add to that.

No. I would say, Jim that the environment hasn’t changed on either the private side or the (inaudible) side for contract operation opportunities or for acquisitions, when we’re spending $0.03 in a quarter on a project that tends to be a specific singular project that’s infrequent in nature and pretty much project specific. So it’s just not something you’d see every quarter from us. It is pretty singular.

Okay. Well, that’s helpful. We know about the filing in California and you had talked about Hawaii. But are there any other states where you plan on making any rate requests?

The only two states left are Washington and New Mexico and no, I don’t expect to see any significant rate changes there this year.

Okay. And lastly, can we get the CapEx numbers for the quarter and also if you could just tell us if you are still at the same anticipated level for 2010 as you have been?

Yeah. And the Q will be filed next week and there is more disclosure on that in the Q. But we spend approximate $25 million on CapEx within the quarter. Net utility plant was $1.227 billion total for the quarter. And so our target this year is to be between $120 and $130 million, so let’s say, 125. So Q1 is typically our slowest quarter. So knocking out $25 million, we think is a very good start to 2010.

Okay. Thanks, guys.

Yeah. Work in progress is $103 million, up 12% from $92 million in Q1 of last year.

Okay. Thanks, Marty.

Okay, Jim. Have a good day.

Thank you too.

Thank you. And our next question is from the line of Roger Liddell of Ingalls & Snyder. Roger Liddell - Ingalls & Snyder: Good morning, gentlemen.

Good morning, Roger. Roger Liddell - Ingalls & Snyder: I want to touch on or my question involves a broad issue but it comes right down to what I think is the central issue and it’s the public’s perception of water and water issues. It refers back to Garik’s question, which you answered on Q1 consumption. But those not from California simply can’t understand the centrality of water and how with passions get inflamed and there has been this longstanding battle or hoped-for resolution, a global resolution of California water issues. So, what is the state of awareness now in the state and the possibility of there being a transformational change in the public’s thinking about water and consumption of water and where is the regulatory support for you if there is a transformation?

Good question, Roger. I’ll take a shot at it. California is unique as you well know and for the statewide water situation, which is production, storage, conveyance, there is major infrastructure needs that had been neglected for decades. And finally the legislature has put on the ballot for this November an $11 billion water bond that will go a long way towards fixing the infrastructure and I’d kind of shortcut that one but it’s a – it will provide, we believe more storage, better conveyance and better environmental protections for the state. I think because we’ve just been through a drought, there was much more emphasis by the public, which is your question about water usage, water shortages, the need to be efficient with water use and conserve. And I think that the table is set pretty well for a good reasonable decision on this water bond and we’ve got a lot of constituents behind the bond supporting it. The legislature is, of course, all the water agencies, chambers of commerce, business, agriculture many environmental groups are actually also behind this bond. So I think the table is set. It’s hard to say what will happen. We’re a long way away from November. But in my 15 years in the business, I think this is about our best shot, I think to really do a major job to fix the infrastructure. Also, with that, I’ll add that there is a puppet policy position by the state and this is the governor and the legislature, to reduce per capita use 20% by 2020 and our conservation programs are designed to do just that, but that’s a difficult goal to meet. You do the math and it’s like a 1.5 % per year every year for the next 10 years to reduce water use per capita. So I think those two things, public policy helps drive perception. I think we’ve got a good chance to have infrastructure improvements and I think the time is right. So I hope that helps you. Roger Liddell - Ingalls & Snyder: Well, let me just try one more shot at it. The $11 billion measure, I mean, the -- maybe you are suggesting that to the extent you participate in that $11 billion of expenditures that would be rate based growth and so that that can take care of the adverse impact, I guess, one would argue. But I just want to make sure that with these declines in consumption that you are busily working on that you are not left holding the bag as a consequence?

That’s another good follow-up question. With our decoupling, which took place about 18 months ago with the WRAM and MCBA, that’s what -- that mechanisms were designed to do just as you are suggesting, that is to mitigate the impact of drops in sales on our financial condition. Let me clarify this water bond, I don’t expect to have any impact on our rate base. Public and private agencies both have access to the grants or loans, but I don’t expect our rate base to change as a result of this bond out there, basically building large conveyance, storage, distribution systems. Our capital was directed to our customers and not our wholesale suppliers basically. Roger Liddell - Ingalls & Snyder: Yeah. Yeah. Okay. Thank you, Pete.

Thanks, Roger.

Thank you. (Operator Instructions) And our next question is from the line of Jonathan Reeder of Wells Fargo.

Good morning, Pete and Marty.

Good morning, Jon.

Hi, Jonathan.

Could you just give a little more insight into the discussions, I guess, with the DRA, I guess some color as far as what issues you aren’t seeing at add-on and how they’ve been progressing and, I guess, maybe compare your request to what they recommended things along that line?

I’ll take that because Marty has been involved, so I don’t want him to say anything. But the discussions are confidential and they have to be to be constructive. All I can say is that they’ve progressed as scheduled and they’ve been very constructive and held in good faith by both the staff and all parties actually. So, I think, they’ve been good construction -- constructive and all parties have acted reasonably and in good faith.

I mean, can you make any sort of comments like how far apart you guys are on a lot of the issues like the recommendation, how far away is it from your request. And now that you’ve taken the cost of capital out of it, I mean, being one of the larger points of contention? What are the items that are being discussed?

Yeah. I get asked that all the time. I just cannot comment on that. They are confidential and that’s the agreement we have with all the parties.

Okay. Thanks.

Thank you. And we’ve another question in queue from the line of Tim Winter of Gabelli & Company. Tim Winter - Gabelli & Company : Hi, Pete and Marty. Just to follow up on Jonathan’s question. Can you summarize for us the report or recommendation that the DRA issued in early February?

I, well, it is so huge, but it looks like our rate case and you can see that there were preceding that, there were 250 data requests. So I really can’t comment on what they issued in early February. Plus it in the bottom, in the final analysis, it doesn’t make any difference because we are in settlement and then we will go to hearings.

Okay. I think the other thing on that, Tim, too is that this is a major rate case. We have a lot of people working on it and they have a lot of people working on it. It’s a massive document. I think the point, Pete points about people working in good faith for resolution. I think is a very valuable data point but as any discussion, litigation discussions and settlement discussions, we would be piercing our covenant a bad faith here if we gave any indication of what was going on there.

Yeah. I will summarize it. I’ll just say that there were differences across the board. That’s about as far as we can go. Tim Winter - Gabelli & Company : Okay. And the expectation is that it’s going to go as you laid out earlier comments to schedule?

Yeah. I expect to stay on schedule and we’ll have a decision in December for rates effective January 1st. Tim Winter - Gabelli & Company : Okay. Fantastic. Thanks, guys.

Thanks, Tim.

Thanks, Tim.

Thank you. And I see no further questions in queue at this time.

Great. Thanks, Karen. Well, everyone thanks for joining us. Obviously, there is a lot going on between the company and being in its third year of its rate case cycle, filing for the full company and we can assure everyone that we have our best and brightest resources actively and aggressively working on the general rate case. And thank you for your support and we will look forward to talking to you at the end of Q2. Have a good day. Bye-bye.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great weekend.