Good day, ladies and gentlemen. And welcome to the California Water Service Group Year End 2018 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference Mr. David Healy, Vice President and Corporate Controller. Sir, you may begin.

Thank you, Scarlet. Welcome everyone to the 2018 yearend earnings results call for California Water Service Group. With me today is Martin Kropelnicki, our President and CEO; and Thomas Smegal, our Vice President, Chief Financial Officer; and Paul Townsley, our Vice President, Corporate Development and Chief Regulatory Officer. Replay dial-in information for this call can be found in our year-end earnings release which was issued earlier today. The replay will be available until April 30, 2019. As a reminder, before we begin, the company has a slide deck to accompany the earnings call this year end and quarter. The slide deck was furnished with an 8-K this morning and is also available at the company's website at www.calwatergroup.com. Before looking at the yearend results, we'd like to take a few minutes to cover forward-looking statements. During the course of the 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, press releases and other reports filed from time to time with the Securities and Exchange Commission. I'm going to pass it over to Tom to begin.

Thanks, Dave. So going through the slide deck I’m going to start on slide 6 and talk a little bit about an adjusted -- to our financial statements. During the year end close process, company management discovered that it had incorrectly understated operating revenue for two cost recovery balancing accounts that lead to pass pension cost balancing accounts that are authorized by the California Public Utilities Commission. What had happened was that the company took its actual expenses and compared them to the expense plus capital which was adopted by the commission and what was proper was to compare the actual expenses to the adopted expense portion of those costs. Correcting the error increased our operating revenue $9.2 million in 2017 and $6.9 million for the year-to-date period September 30, 2018 with corresponding changes to regulatory assets and liabilities. The company has designed new controls to better prevent the tact incorrect, this type of error in the future and we’ve been -- got a lot more detail on that in the 10-K which we expect to file a little bit later this morning or hopefully before this afternoon so you can read all about that at your leisure. Now, I’m going to roll into our financial results and the reason that we mentioned the adjustment is because we’re comparing our 2018 financial results to the adjusted 2017 financials. And so, on page 7 of the slide deck, our net income for 2018 is $65.6 million that is down about 10% from $72.9 million in 2017. Our earnings per share is a $1.36 and that is down from $1.52 again as adjusted for 2017. Flipping to the quarter on slide 8, we’ll talk about the net income there. We’re basically flat from 2017, $15.4 million of net income versus $15.1 million…

Thanks Tom. Good morning, everyone. Happy to report it was another record year for infrastructure improvement plan. Our company, developer funded and litigation proceeds on capital program investments exceeded $271 million, that’s $271.7 million for the year that’s an increase of 4.8% over the same period last year of 2017. Couple of things driving the target above what our original range was, was just general cost increases was the main replacement program, the cost of permitting, cost of -- we saw a fairly substantial increase in the cost of pipe through the year and so as we got those projects underway and got that main replacement work in the ground they certainly have higher cost. The company funded component of the $271 million was $231 million and then as we note on the slides, we had 1,2,3-trichloropropane or TCP work for 36 wells that was $22 million that was funded through proceeds where we sued that the responsible parties were contaminated in the water supply and that was paid for by the legal proceeds. Later on in the deck, we have a placeholder of $290 million as the holder for 2019 that is just the placeholder based on what was submitted in the 2018 general rate case, which was $825.5 million and we are going through that process now. Paul is going to talk about the general rate case and where we are, but that is just the placeholder and we anticipate as we get further along in the process here with the commission. In particular, in the second and third quarters, we will come up with a firm range for 2019 once we have some more clarity with the commission on our infrastructure improvement plan for the year in the rate case. I’m going to hand over to Paul who is going to start talking about what's happening on the rate case side.

Thank you, Marty. So as Martin just mentioned we filed our rate case in July of last year and we requested $828.5 million of new capital investments and that capital will be made over the three year period 2019, 2020 and 2021, but we are in the midst of the rate case process right now. Last Friday February 22, we received the consumer advocates, California Public Advocates testimony in the case and so we are in the midst of reviewing all of that. It's a lot of documentation there. Tomorrow, we are expecting testimony if there is any testimony from other interveners in the case. There are three studies that filed for intervention in the case. I don't know if they will provide testimony but if they do that will be coming out tomorrow. And then our rebuttal testimony is due on April 23. So our team is really in the midst of reviewing the California Public Advocates’ testimony right now. And determining what we will be saying in our rebuttal. Turning to slide 14, we have also been active in other regulatory matters. We filed for a step increase of $16.2 million of increased revenue and that went into effect on January 1 of this year. We also have filed for some advice letter projects for about $6.6 million of additional revenue. And we will be filing for other advice letter projects across 2019 as we complete those projects. We have two rate cases in Hawaii that we completed last year. The Hawaii, the White [coloa] rate case which is on the big island and it was finalized in 2019 with $2.6 million of additional revenue. Hawaii we phase in rates if they are large, so $1.6 million would be realized in 2019 and the balance would be realized…

Thanks Paul. Just a quick update on our decoupling balancing accounts, this is an area that we would like to talk about because of the balance of the receivable. And Cal Water in 2018 sold 95% of its adopted estimated sales. So that's a pretty good number for us. That was largely driven by the fact that we triggered the sales reconciliation mechanism, which is in the California general rate case process. We believe that have that not triggered our sales percentage of adopted would be considerably less than that and our WRAM balance probably would have grown. We estimated that the WRAM balance was reduced by 21.4 million throughout the year due to the SRM. So the good news is that the net WRAM receivable balance is 56.1 million and that's down from 69.1 million at the year end of 2017. On slide 17, you can just see the chart of that. And so, we did engage the SRM mechanism once again for 2019, so hopefully with similar water sales this year, we will have a similar outcome as we continue to work on that balance of the WRAM receivable. Now I will turn it over to Martin for our outlook for 2019.

Great, thanks Tom. 2018 certainly was a very, very busy year in the hallways of California Water Service Group. One of the big events generally, was getting the general rate case on file on time as Paul mentioned. The third year of the rate case cycle on California typically generates a largest gap in cost recovery for us. And so as we go into the third year, we are always mindful of tightest year keeping our operating budgets tight and staying focused on our mission, our objectives. We have a couple of projects that I think are strategic and noteworthy to mentioning. One, we are doing our first call center consolidation project in Southern California. So each of our districts have had separate customer center in some of our regions, these customer centers might only be a few miles away. And so, based on looking at customer flow through our customer portal, we put a portal in about five years ago, we have been tracking when do our customers interact with us, when do they pay their bills, approximately half of our customers pay their bills electronically. And we have noticed that the change in customer preferences and it's moving away from -- strongly moving away from us 8 to 5 business model to be more around the clock business mode. So we are doing our first call center consolidation in southern California. We anticipate that call center will be up sometimes midyear and off to the races and then we will be enhancing and improving the vehicles by which customers can communicate with us. So the goal is that our customers will always be able to talk to a Cal Water employee and not after hours call center takes the messaging calls and on-call employee. So we think this…

I'll walk very quickly through Slide 19 and 20, and this is just something that we provide out in the public and recorded. This hasn’t changed except for our reflecting the actual 2018 capital investment on Slide 19 and then flipping to Slide 20, we updated the actual adopted rate pace of the company as of 2018 there on the blue bar on Slide 20. And Martin, I'll get back to you.

Yes. So, in December, we announced some significant officer changes, I want to take a minute and talk about that and but I first want to mention the process. Succession planning is something in the board of directors here and the officer team at Cal Water take very seriously. We do an extensive succession planning process led by our VP and HR run web every year. And in September we go through that succession planning process with our board of directors. And we did that, we jumped into this more detailed succession planning about five years ago because we anticipated the baby boomer way of starting to retire and so we want to make sure we were doing what we needed to do to successfully develop recruit, retain and build people still such there they were available to move into these opportunities as they move up. So in 2019, we have some changes. First and foremost: Tim Treloar who is our Vice President, Chief Utility Operations officer who'll be retiring after 25 years of service. For those of you that note him, he is an outstanding individual. He is a water quality expert. He is a geologist by his educational background who just likes rocks and water. And Tim came up through operations, he ran our Bakersfield District for a number of years; well known on Bakersfield for civic activities and been involved in the community and doing a great job running Bakersfield. He then came up to corporate and he was the head of water quality. Well, he is the head of water quality, I asked him to get involved in waste water when we did a number of acquisitions in Hawaii. We developed this integrated water waste water concept internally and Tim jumped into that involved with the…

Yes. Let's turn it over for questions. Skyler, you can open the line for questions.

[Operator Instructions] Our first question comes from Durgesh Chopra with Evercore. Your line is now open.

Greeting, good morning, hi.

Hi there. Good morning.

Good morning.

Thanks for taking my questions. Can you just discuss a little bit how our unit fund the CapEx for the next three years, what combination of debt in our equity are we looking at?

Sure. So, generally the company's policy has been to maintain a capital structure that is closely aligned to what's been authorized by the California commission. That's about 53% equity. And so, if you'll recall, we did a debt deal last August September timeframe where we put out $300 million of two-year debt. We expect that we will have equity at some point in the next couple of years to manage the capital program and match the large expenditures that are going on through the GRC process in California. So, look to long-term debt and equity as kind of equal partners there but also remember that the company maintains large credit line, large line of credit. It's about $300 million at the operating company and a $150 million at the holding company. So, that gives us an opportunity to finance those capital investments in the short-term on the line of credit.

Yes. I think the other thing I would add in this what those step increases are important in our ability to execute our rate case plans is we're getting a step step revenue which helps around the cash flow in for the company. So, being able to earn our current post during authorized rate of return versus having more of a lag which we're seeing historically allows us to take all that excess cash and pull out right back into the infrastructure.

Okay, that's great color, thank you. Just Martin, I wanted to get your thoughts on M&A to the extent you can comment in this. Obviously, like in the past you've tried to moderate San Jose Water. Given what's happening in Connecticut, what's could a potential merger be on the table in the future. How are you thinking about that?

Well, obviously we pulled our offer for San Jose and there is no offer on the table nor we had discussions within about merging. We believe the industrial logic is down. Typically when we evaluate targets in our service area and this is one of I think is Paul's team had focused on. We tried to focus on what's the economic benefit not only for stockholders but for rate payers. And what we have found when we've done deals in California and I believe one of the largest ones was humungous time when he did come in here a number of years ago. We have found working with the commission is a lot easier when you go in and say here's synergies and we're willing to give up some of these synergies and share them with our customers as well as our rate payers. So, it really kind of creates that win-win environment. So, with all the set up I was working on, some of its Greenfield development in the Central Valley and so we're excited about some of that. And then other ones are systems that are already in development that we're taking over. And so, we're also looking, we're not waiting for SJW to come back to the table, we got a business bound plan to execute. We have a growing capital budget that execute on and we're actually in a really good spot because we have kind of nice rate based growth happening within the company. And to the extent we can supplement that with strategic M&A growth. That's the way it is going to work. So, primary growth is rate based growth, secondary of that is the stuff that Paul's doing on the business development side and we will look for opportunities to enhance stock holder value but also for our customers and to the extent we can get some savings out of the system for them, that creates a win-win.

Okay, thank you so much for taking my questions.

Thank you, Durgesh.

Thank you, good day.

Our next question comes from Jonathan Reeder with Wells Fargo. Your line's now open.

Hi good morning, gentlemen.

Good morning, Jonathan.

Good morning, Jonathan.

Hey, just more clarity on the earning the ROE in 2019. When we calculate your earn regulatory ROE, does that include or exclude the items that fall under other income?

Jonathan that is a good question. I am looking to Dave. So, it includes. So, Dave's generally meet -- we can talk Dave.

Yes, it does include those items.

Okay. And then, I guess if I take the $1.4 billion 2019 average rate pace, apply the CPUC through plus capital matrix, you get somewhere a little north of $1.40 in 2019. But then, I guess they'll strip out the fact that some of the advice letter projects wont wrap up until late in the year. So, maybe it's the $1.40 or a little less the more realistic target. Is that kind of how we should be thinking about 2019 EPS?

Yes, we have always suggested that you do that kind of a calculation and the company is nearly 100% regulated and the regulated model is rate base times, rate of return times, equity capital structure. So I think you are on the right track there with the type of calculation you are making.

And then any, I guess comments you can offer on your initial reaction to [indiscernible] testimony in the GRC and the prospects of the early settlement agreement based on it?

Yes. So the testimony that we have seen, first of all, we have only had it for about three business days. So we are still in the process of really understanding it all. The only testimony we have seen so far is from the consumer advocate. We have not seen any of the other testimony if any other gets filed. And they often don't agree with us on every point. So we will go through it. We will be working on our rebuttal, which is due at the end of April. We will enter into settlement negotiations later on this spring and the process takes some time. So it's hard for us to comment at this point on their testimony given that we just had, we really only had it a couple of days.

John, typically agree with you on -- disagreement so far along the lines of expectations, I guess.

Yes, I think let me add a little bit of color to what Paul was saying and my reading and I only read kind of half of it or a third of it because a lot going, you can imagine but the impression that I get is it is a similar type of report than we received before with similar types of issues, similar stances on the policy issues and so there is nothing that I saw personally that was an out of left field kind of an argument that is different from the kind of things that have been argued before by that group.

And I agree with position Tom. I’ve read it all and it is a not uncommon position for ORA to take, but it is for Cal PA that is very similar to what we have seen in the last two rate case cycles.

And then, the question about settlement or not, it really comes down to the willingness of both parties to settle. So we have felt that we put on a stronger case in this rate case cycle, stronger every time we file with more backup and more evidence behind their position. So we will list for the positions that are in dispute. We will just have to look very carefully at what is the evidence that we present, what is the evidence that Cal PA is presenting and maybe other interveners and then decide on whether settlements are appropriated based upon their willingness to settle at terms that we would be willing to settle on.

And there are also evidentiary hearings scheduled for this summer. So we have those in front of us as well.

What are the dates on those evidentiary hearings?

Jonathan, we could probably point you to the website at the commission where those are listed. Those often change as the parties attempt to negotiate settlement. So that's up at the CPC’s website. There is a scoping memo for the proceeding and it has those dates on there.

Immediate settlement, I mean, it doesn't necessarily have to be in front of those hearings, it would be nice if they were but –

Yes, we had settlement both ways. We’ve had settlements before hearing and we had settlements after hearing. So typically they would, any settlement would be before hearing so that the hearing can just focus on any unsettled issues, but sometimes you get through hearing and then everybody realizes their positions aren't in that par or whatever so.

And then, last question from me, the Travis Air Force Base can you remind us about CapEx rate base for opportunity there. If I recall correctly, it starts with the rate base values here and then start building it up as you invest the capital?

That's right. We have about $12 million of initial capital investment that we are going to be making over the first couple of years of the program there and I believe the total is about 50 when we announced the deal and obviously inflation happens and other things might come up. But the total CapEx that we had expected over the medium term was about 50 million.

Thanks so much for the time this morning.

Thanks Jonathan.

At this time I am showing no further questions. So I would like to turn the call back over to Tom for any closing remarks.

Well, thank you all for your interest in our earnings call this morning. And we look forward to talking with you throughout 2019. Martin you want to fill in anything there?

No. I think 2018 was certainly a really busy year. We started off 2019 year with the bang and we remain steadfast on our execution of our business model and particularly infrastructure improvement plan and getting through this rate case. So we appreciate your support and any questions feel free to give us a call. Thank you.

Thank you.

Ladies and gentlemen, thank for your participation in today's conference. This does conclude the program. You may not disconnect. Everyone have a great day.