Good morning, ladies and gentlemen. Welcome to the California Water Service Group First Quarter 2017 Earnings Results Announcement and Conference Call. Today’s call is being recorded. I would now like to turn the meeting over to David Healey. Please go ahead, sir.

Thank you, Christine. Welcome everyone to the 2017 first quarter earnings results call for California Water Service Group. With me today is Martin Kropelnicki, our President and CEO; Tom Smegal, our Vice President, Chief Financial Officer, and Treasurer; and Paul Townsley, our Vice President of Regulatory Matters and Business Development. A replay dialling information for this call can be found in our first quarter earnings release, which was issued earlier today. The replay will be available until June 27, 2017. As a reminder before we begin, the company has a slide deck to accompany the earnings call this quarter. The slide deck was furnished with an 8-K this morning and is also available at the company's web site at www.calwatergroup.com/docs/2017q4slides.pdf. Before looking at this quarter results, we would like to take a few moments to cover forward-looking statements. During the course of this 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 shareholders, as well as interested parties, to carefully read and understand the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q and other reports filed from time to time with the Securities and Exchange Commission. Now, let's look at the first quarter 2017 results. I’m going to pass it over to Tom to begin.

Thanks, Dave. And good morning, everyone. I'm going to jump in on the summary of the financials for the quarter and then Marty and Paul are going to add some comments as well. We are going through the slide deck and I'm starting on page 5, if you're following along on that slide deck. Our operating revenue for the quarter was $122 million, that was up from a $121.7 million in the first quarter of 2016. Our operating expenses were $140 million, that's down from $115.5 million in the first quarter of 2016. The result of those two things is that we did have a net income of $1.1 million for the quarter, as opposed to a loss of 800, 000 in the first quarter of 2016. And that meant that our earnings per share were $0.02 as opposed to a $0.02 loss in the first quarter of 2016. Jumping to page 6. The key components of this, primarily we had great relief that came out of our 20 15 general rate case. The decision that was granted at the end of 2016, that drove up our revenue by itself $11.5 million and there are some offsets to that. We'll talk about in a moment. We also had a decrease of $1.8 million in our incremental drought related costs. And we also had increases in our other income related to the implementation of allowance for equity funds used during construction or APDC, to that had a number of other accounting issues drove up the other income to $1 million there. Our CapEx for the quarter was $51.9 million, that is lower than our CapEx for the first quarter of 2016, in part due to the wet weather that we experienced in all of our California service areas over the last…

Yes. Thanks, Tom. This is actually one of my favourite slide that Tom and I use in our IR presentations, because it shows the adopted revenue by mark. So this information is derived right out of our general rate cases and it rolls out - and you can derive a couple things from looking at this graph. One, the first quarter is typically a flattish quarter for us. So we never get too excited about the first quarter. Two, the majority of our revenue is derived in the second and third quarters. In particular the July, August and September and three, our EPS if you overlaid our historical EPS on this chart, you’ll see that our EPS typically follows the same distribution curve, unless there's an unusual material event within the quarter. So we always like to show people the scrap. We don't - we never get too excited about the first quarter, as we start a year even when it means coming out of a general rate case, that's been put into effect as we saw in this quarter. You start to see a little bit the rate relief, start to trickle in, that we anticipate the majority of that rate relief will start hitting us more in the second and third quarter as we move into that peak consumption periods of our customers. I am going to turn over to Paul for a regulatory update. Paul?

Thank you, Marty. So as Tom reported earlier we have now implemented new rates in customer bills beginning in January of this year. It has gone quite smoothly. And that was as a result of the California Public Utility Commission decision last December approving our general rate case for years 2017, ‘18 and ‘19. Earlier this month we also filed with the commission an application for a new cost of capital and we filed this application concurrently with three other class A water utilities. The commission will process this and it should and will establish new rates effective January of 2018. In our application our cost of capital application we have proposed a 53.4% equity capital structure and we requested a 10.75% return on equity in our application. We are also - even though we just received the decision from the commission last December, we’re already well into our planning for next general rate increase. We anticipate filing at in the middle of next year and we've had a lot of work going on throughout the company getting ready for that. Turning to Slide 11, there is a couple of other items, regulatory items I would like to mention on the call today. First of all, we will be filing later this year our escalation filing with the commission for a 2018 step increase. Now in the commission that they - in the commission's decision they authorized us a $17.2 million step increase. But that is dependent on an earnings test calculation and that earnings test will be included in our application that we will file later this year. And then finally, we are working on yet another application with the commission and that is to expand our service territory to include the Travis Air Force Base. You'll remember that we reported earlier that we were awarded the Potable Water System for the Travis Air Force Base from the Department of Defence. We will own and operate that utility system for the next 50 years and we're right now in the process of filing an application with the commission because what we are requesting is that it be treated as another service area and that our search - our rates and the rules of service will be governed by the Commission. With that, I will turn the meeting back over to Marty Martin Kropelnicki.

Great. I want to give everyone a quick update on the drought and where we are with the winter in California in particular. Some of you heard me say, the only thing predictable about California is the unpredictability of the weather and certainly we went from a five year drought to the wettest year on record for the State of California. As of April 21st precipitation levels in all the northern areas were in excess of 200% of the annual average. And these snow accumulations are 191% average per date. So as of April 7 the governor declared an end to the drought emergency in 54 of the 58 counties, four counties are still under drought emergency. That's Fresno County, King County, to Larry County and to all the county. So we still have two service areas, Selma and Visalia which are two areas that we serve in the Central Valley. They will remain on a drought program. As most you know we suspended our drought surcharges July 29 of last year. Well the drought is over. The state has continued to work on their long-term drought resiliency plans. And the first steps towards permanent water use regulations were released by the State Water Resources Control Board in January. That plan covers four key areas that are important, one using water more wisely, two, eliminating waterways, so main breaks things like that. Three, strengthening local drought resilience and four, improving agricultural water use in water efficiency and drought planning. So of these four objectives there's really four that are most impactful to Cal Water going forward. One is the permanent prohibition on wasteful practices, so water in your line within 48 hours of it raining that's kind of remain in place, reducing leaks, so water supply items there's language in…

Thanks, Marty. I wanted to talk briefly about the financial mechanisms of the California Commission has allowed us that mitigate the effects of the drought. First of all and most importantly for us is our decoupling mechanisms. Since 2008 how water has been decoupled, meaning that sales and production cost changes are not a big impact on our income statement. We have seen during the drought that our WRAM receivable, the customer receivable from lower sales actually declined during drought period and primarily the reason there was drought surcharges that we were putting on folks that happen met their drought budget. Now the drought surcharges have been gone since last July. And one of the things that we've seen in the quarter if you are looking at Slide 14 for a second is that our WRAM receivable balance has jumped quite a bit from the end of the year to March 30 first 2017. They are up to $48 million. The big reason for that is that we had about 75% of our adopted production in the quarter. The big deal there is obviously the weather. There is a residual conservation that's going on and after every drought in California you'll see residual conservation. But right now you know we believe that the lower water sales were primarily because it was raining all the time both in Northern California and Southern California. Regarding the drought expenses, you'll recall last year we received recovery of $2.9 million for 2015 drought expenses because the governor has announced an end to the drought. Our plan now is to file for the 2016 and the remaining 2017 drought expenses later this year. So we will incorporate the expenses from the first quarter which we're about 200,000 in any expenses that come up here as…

Great. So there is a couple evolving items in water quality. And again those of you that have seen our IR presentations in the past this will be anything new to you. We've talked in the past about 1,2,3 TCP, our trichloropropane, so the stage has come out with its draft regulations on TCP. And the maximum content level is five parts per trillion in the draft regulations, we don't believe this is going to change. We believe that the draft regulations will be approved probably in June or July and go into effect on the 1st of January. So we had treatment plan for 40 sites throughout our service territory throughout the state. We expect to invest about $25 billion, this is included in our capital projections for 2017. Again we've been monitoring this and factor that into our capital planning program. And we believe we'll be in position to meet the new MCL for TCP by January 1st 2018. In addition, there in California new legislation requires us to do specific testing for schools for lead in the lead and copper role from the EPA. There is a series of kind of requirements you know, when you pick an area that you're testing for lead. How old is the neighbourhood, the homes, the newer homes. You're typically not sampling a newer neighbourhood, you're looking at kind of pre 1950 pre-World War II homes in areas around there. So we were working on our own plan to start school testing this year. So we're basically rolling that out, which is we will go test every school in our service territory. There are 700 and - over 700 schools in the service areas that we serve. So we're aggressively going after that to offer these tests to schools in the…

[Operator Instructions] We’ll take our first question from David Cator [ph] with Baird. Please go ahead sir.

Good morning, guys. Thank you for taking the question. I am hoping you could provide a little more color on the sales decline, understanding it's going to be you know, for the all the surcharges in 2018. Can you maybe comment on the – quantify how your expectations were and maybe another way, how might that be offset and would you recover any of the drought expenses in 2017 or is that purely going to be 2018 as well?

So two questions there. Let me take the last one first. So our revenue recognition policy is that when we get authorization for recovery we will book the revenue at that time. So if we – we’ll we'll be filing an advice letter for drought expense recovery mid-year once we conclude on the drought expenses and assuming that the commission issues a resolution adopting our drought expense as a surcharge before the end of the year that will be booked as a 2017 item. If it drifts into 2018 and obviously it’s a 2018 item. So that's the first thing. The second thing is going back to the sales decline. You know, we don't really have much of a way of knowing how our customers are going to react the rest of the year. Obviously we've seen historically if you look back to the drought that we had 1975 through 1977 and the drought that we had from 1990 to 1995 there is an increase in sales that occurs after a drought that's relatively slow. It's not a snapback. If you think about five years of drought in California, there's been a lot of changes that people make, as far as their landscaping, taking out lawns, taking out high water using fixtures and putting in more efficient fixtures. A lot of the behavioural changes due to a drought do slack off pretty quickly. So people who take short showers are not going to take short showers anymore, now that they know that that the drought is over. But hose imbedded changes from new washing machines, drift irrigation on their landscape, changes in landscape. Those things tend to continue for some time. So it's very difficult to predict where the water sales are going to go. The rest of the year, we have to continue to monitor that. Again, with the decoupling mechanism that doesn't affect our P&L, it does affect the balance that is the receivable balance. And what we have to collect from customers in future years.

Yeah, I would just back on you know, the 76% of adopted sales that you saw in the first quarter, I'm not too concerned about that because when it's raining people aren't using as much water. I mean obviously for us personally I don't think any of us put that are sprinklers on in the front yard and that includes rain that actually took place up to this week. I was - when I was up this morning, the TV on CNN neighbours, look, this is on national news and local news, they just clean up the mudslide in northern California and they wrap it up and a lady stuck in traffic and has her phone and she's videotaping the workers and it's a nice day and all [indiscernible] starts to fall again and you hear oh my God oh my God, and you hear the rumbling and the mudslide they just cleaned up more of that now it came tumbling right back down. And so that will be on the news that you can look for it. So you know, there is a 76% of adopted sales and that's not uncommon, you know, when you're in the wet summer months. I think last year overall we were about 86% of adopted sales if my memory serves right. So we'll see that kind of inch back up here I think as we move into the summer months. But I think Tom's point, we don't expect a big snapback where people will go to 100% of where they were, 110% of where they were a year ago or two years ago and frankly being decoupled that's the benefit of being decouple that allows us to stay focused on our conservation program, our conservation messaging without affecting our margins.

Got it. Thank you. That was really helpful. And then one more question on the EP initiative. Another good opportunity to deploy capital, but is there any risk with the regulation does in past and how would that kind of affect your plans. And also, how do you kind of select partners for these initiatives, I know you selected Caragon [ph] TCP, how do you evaluate potential partners there?

You know, that's a really good question. You know, what's hard with the regulations is once they start to move they move fast. And you know as a public utility our goal is to always be compliant to meet they see the water quality standards. And so this one, you know, we hope and start, we have a very effective water quality department and a very good lab. You know, we do the majority of our own testing. So they are they are very involved in tracking things as they are evolving. Once we see them start to get to a point where we believe they're going to start moving to become a new law, we start looking at what type of treatment may be necessary. We might start piloting treatments doing a little R&D on what's the lowest cost treatment. So this one we've been watching for about two years. We will evaluate vendors during that time. Typically in each project over a couple thousand dollars frankly we tend to put out big a competitive bid on something like this. We will work with a science technology provider that look for the lowest cost treatment alternative for our customers. So this one because where is the draft regulations out. We did attend the draft regulation hearing. There was a lot of support for the TCP initiative from ourselves, the public utilities, the municipal water association, AWWA et cetera. So I don't see this not slowing down. It's going to go live and it's going to be effective January 1st. The adoption of the draft, I think will be in June or July at the latest, but it'll be happening. So things are comparatively bid. We tend to look at the cycles early, so we can stay ahead of treatment options and then we look for the lowest cost provider and implementation schedules that we can to make sure that we're in compliance with the new regulations.

Excellent Thank you, guys.

Thank you.

We'll take our next question from Jonathan Reeder with Wells Fargo. Please go ahead.

Hey good morning, gentlemen. Thanks for hosting the call. I'm just wondering - have a procedural schedule been established in the cost of capital?

. Jonathan, this is Paul Townsley. No, it is not yet been established by the commission. So we're watching for it, we're expecting it any time now, but we've not seen anything yet.

Okay. Can you kind of discuss the prospects of you know, maybe settling the cost of capital I know you know you weren't able to achieve the extension, but you know should we think that that precludes the opportunity to potentially settle this and you know what might the timing be around a settlement if one is achievable?

Jonathan, the procedural schedule will provide for the opportunity for settlement. We've now filed our application. I'm sure that the office agrees, their advocates will provide testimony in this case along with anyone else that chooses to intervene. After everyone's positions have been made clear there that then provide the opportunity to sit down and discuss settlement, if settlement is not achieved then there will be evidentiary hearings. So you know these types of things will be occurring later on this year and enabling the commission to make a decision by the end of the year.

Okay. And on that if we just you know isolate the troop on the cost the debt in your application it looks like it could be you know roughly $4 billion kind of native revenue impact or you know roughly $0.05, is that accurate?

Say that again, so if we're just talking about the through up on the cost of debt, that’s your calculation?

Yes, yes, for just the lower cost of debt and this new application, I just want to make sure I'm kind of doing the math right that you know looks like it maybe lowers, with lower revenue just that aspect by kind of $4 million or you know maybe roughly $0.05 EPS impact?

You know, Jonathan, I haven't looked those calculations lately, and I have to get back to you on that. Obviously we do lower the cost of debt. Our latest debt offerings that we did last October and March are lower than our average, the weighted average that was in existence before. It's also because it's an estimate for 2018 cost of capital. We have talked about our significant capital program and we do likely have forecasted in there some new debt and again the new debt rates if you kind of project out over the next 12 to 18 months are still likely to be lower than our embedded cost debt.

Okay. And then as you look at kind of financing your CapEx budget is you know, is that something you can achieve just with debt or do you think equity will be needed as well?

So we're going to balance the commissions adopted equity capital structure. Right now in our view we're leaning a little bit more on the equity side, as far as where we are currently, the current snapshot. So it's likely that our next round of financing when that occurs is going to be debt financing. Just to keep that in balance and we'll take it from there.

And I think it's worth the time, we don't have any plans to do any debt financing as of right now any time this year or anytime soon.

No and one of the things that we've talked about is that the commission last year gave us authorization to be on our line of credit for up to two years. And so we've currently have been on the line of credit with a balance for the operating company for about six months. So we certainly have some runway there. We have space in terms of borrowing power on the operating company line of credit. So there's no there's no real need to go out for debt financing in 2017 and really looking at 2018 at this point.

Okay. So finance the line of credit at that point in ‘18 and then possibly you know evaluate the structure you know in terms of needed for equity after 2018 I guess the debt financing is what you're kind of thinking?

Yes. That's right. And then obviously we'll get you know, ruling from the commission at the end of the year here about what the adopted capital structure and we’ll try to match to that, to the extent it is possible.

Yes. That two year runway that Tom and Paul were able to achieve with the commission, that gives us so much more room to manoeuvre. Jonathan as you may recall we were going out [indiscernible] every year for something, so we would do a baseline of equity and then we can follow up with a couple of years of debt. And a lot of times we had to go to market for debt because we're going to bump into that 12 month roll with the commission. So having that freedom over two years really gives a lot more room from a planning perspective to not be running to the market all the time, which is nice. I would say - I'd rather have our resources focused on getting the cap on the ground and on the rate case planning a long term capital planning then you know going to the market all the time and because there's a cost to doing that in there it takes up a lot of Tom’s time and Dave's time and the cost of the auditors and the cost of the attorneys and it gets pretty expensive. So having extra that two year window is a big plus for us.

Makes sense, and as you can see kind of the outcome of this proceeding and you know factor that into the plans as well. And you know what - I did notice you all the other - the other three utilities you know filed for increases in there you know proved equity ratios, do you expect kind of a capital structure will get more scrutiny in this proceedings. You know given those requests I know you guys aren't asking for any change in your current capital structure?

That's a difficult one. I've been through a couple of these and you know it does come up. But I think the most contingence one was two cycles ago where there was a proposal for a flat 50/50 debt equity structure. I don't remember it. I think we did settle the last case, 20, 11 case. So we'll see what the ORA -ADR wants to emphasize and what the others intervenes want to emphasize.

Okay. And then just on the capital planning process, has there been any you know feedback from the CPC or other influential parties that would materially kind of alter the level of spend that you see you know, being needed going forward. I know you got a nice bump up you know, in the CapEx and the last rate case and you know, you feel there's room to accelerate beyond that. But then also in addition you know, how you I guess balance the capital needs with the affordability issues you know, are you already kind of bumping up against those pressures?

You know, affordability is always a problem that you bump into. But as we've done our rate case planning and as we looked at kind of half the average household budget, the smallest part of the utility budget has continued to be and we don't see it changing in water, water significantly less than the cell phone bill, than the cable bill, the power bill, in a lot of cases even the garbage bill. So I think it's more important to look at what's the long-term structure that the state striving towards. That's why I want to mention the executive order B-3716 which is the making water conservation in California weigh of lives, specifically calling out the idea of eliminating water waste. You know, if you look at our main replacement program, we wrap this up a couple of steps ahead of the state. So our timing was pretty good. So you know given where we are the state does now have enough supply. I mean, the drought may be over in the short term, but the need for long-term supply and long-term supply plan is going to be critical. I think that's going to remain on the governor's radar screen and you'll continue to see capital needs being driven by the long-term planning, water quality things like that.

And Jonathan this is Paul Townsley. You know Cal Water has long been a leader in affordability issues and working to address those. You know, we've had a low income resistance program in place for a long time. We've had our rate support fund in place for a number of years. We have in the last case you may have seen we've proposed consolidating some of our smaller high cost districts in with some of our larger lower cost districts. So as Marty said affordability is always at the front of our mind. But at the same time continuing to invest in making the system reliable and safe for customers is also critical. So as we put together our rate case, we're really looking at both of those elements and see how we can achieve prudent investments. But at the same time, working to address concerns from customers on water rates.

Okay. And then one last one, any update on kind of M&A opportunities, not just within your existing states, but also in new states Marty?

You know, you mentioned M&A, so when stand for our retired, Paul Townsley to go with the M&A team and we've been busy with the Travis Air Force Base. We have retooled the team a little bit and kind of tightened up our M&A planning. So you know again we're always out there looking as you know Jonathan what's always hard is you know, once you start paying above two times rate base you know, you get to a dilutive transaction pretty quick. And so you know, we continue to be out there looking. We continue to participate when there are sales and bake-offs. But really I think where most the opportunities lie are probably rolling up smaller systems that may not be on other people's radar screens in other states. You know, California gets a lot of attention, but you know we’ve we've been successful in Hawaii where we did roll up in 08 and we have those companies all profitable now. You know, Washington is a big state with some room there. So Paul is a busy guy getting comments but I know you've been spending a lot of time on looking at things and retooling the team and looking at our strategy behind M&A.

Yes. Thanks, Marty. Clearly we can't talk about anything that we are looking at, but we do have a very sharp focus in this area and we're bringing some internal resources onto the team so that we can look at both the tuck-in opportunities that Marty mentioned and there were a lot of them in the [indiscernible] states, as well as some of the larger acquisitions opportunities. So just stand by on that more to come.

Okay. And then is it fair to say you're also still evaluating more military base opportunities?

Yes, it is fair to say that we're actively engaged in that sector as well.

Okay. Thanks. I appreciate the time, guys.

Thanks, Jonathan.

We will take our next question from Spencer Joyce of Hilliard Lyons. Please go ahead.

Good morning, guys. Thanks for taking my call.

Yes, that's better.

Just really one quick one for me. And actually kind of flows in line with Jonathan's final thoughts there. You know, rightly so California in kind of the drought specifically is kind of dominated the conversation over the past several years. Marty, I was just wondering if you could kind of give us a state of affairs maybe with some of your other states be it Washington or New Mexico or Hawaii? And then as kind of a follow up to that. You know, I'm sure that those states have seen what has transpired in California this year and you know I'm sure they've seen the flint ph crisis and some of the other issues, back east here you know are there any legislative initiatives in those ancillary states for you guys that may change the way you all do business there over kind of the next few years?

Good question. Paul and I do spend a fair amount of time meeting with the regulators in other states. You know California gets the biggest chunk of my time, but we are meeting with regulators two to three sometimes four times a year. You know the concept of the drought, we’ve had you know, kind of the whole West Coast including in parts of Washington we're in a drought. Likewise they’ve got clobbered [ph] this year with a ton of rain that that continues. In Hawaii you know, in the many meetings Paul and I've had with the commission in Hawaii, they've been very interested in what have been the long-term policies in California around drought planning. Hawaii continues to grow frankly and it's an island, so you know there's not an unlimited source of supply in Hawaii. So you know we've been talking more about conservation programs in Hawaii and not that there are actionable items yet in Hawaii. But I think the commission is actively listening. In Washington, we have a great relationship with the regulators. They've said hey why don't you guys come pick up some of the small systems so we don't have to deal with them. Well that's a great concept, it's easier said than done. Being a publicly traded you know on utility, public utility you know we're always concerned about compliance. There's no amnesty period for compliance when you pick up on your performance system. And in New Mexico you know we did pick up a couple of small systems there last year, we’re always you know careful in New Mexico as well for compliance issues. So you know it's an active dialogue. I think you know all eyes have been on California and I think you know the governor has frankly done a really good job at managing through the drought. But I think you know, all eyes will continue to be on California because simply while the drought may be over in the short term, it's not over in the long-term. And with a state with 40 million people in ag crops that I believe will exceed $56 billion this year, long-term water supply planning is going to stay you know, at the front and canter, it has to because we don't have enough supply in storage. There are supply alternatives, but they're not to the point where those are harvested yet whether it be diesel, wastewater recycling. So continue to watch the policies in California, I think especially in wastewater recycling, and I think you'll see that they will continue to lead the U.S. in terms of how they deal with long-term supply planning. And I think then you'll see some of the other states follow, especially as they are more water constrained, probably Hawaii will be right behind California, that followed by Washington. And I don’t know Pal if you have any thoughts on that.

No, I think it's – we are very well regarded in all of the states that we operate in by the regulators and key officials to state. So we continue to talk with them. So you know we will continue to do that. But as Marty said when you have a state the size of California that's really where the focus is because there's so much opportunity here.

Thanks, guys. Very helpful on that front. But the quarter was pretty clean, so that's all I have for you.

Great. Thanks, Spencer.

Thanks, Spencer. Happy day.

You too.

And it appears there are no further questions at this time.

Okay. Well, thanks everyone for your interest in California Water Service Group. We look forward to talking with you at the end of July with our second quarter results. And I did want to mention that we do plan to file our 10-Q later today, so you can - if you really want to delve into the details they're all there and anyway we appreciate the interest. Have a good day. Thanks everyone. Bye-bye.

And this concludes today’s call. Thank you for your participation. You may now disconnect.