Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company Conference Call discussing the company’s Third Quarter 2020 Results. This call is being recorded. If you would like to listen to a replay of the call, it will begin this afternoon at approximately 5:00 p.m. Eastern Time and run through Tuesday, November 10, 2020 on the company’s website, www.aswater.com. The slides of the company will be referring to are also available on this website. [Operator Instructions] This call will be limited to 1 hour. Presenting today from American States Water Company is Bob Sprowls, President and Chief Executive Officer and Eva Tang, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company’s risks and uncertainties in our most recent 10-K and Form 10-Q on file with the Securities and Exchange Commission. In addition, this conference call will include discussion of certain measures that are not prepared in accordance with generally accepted accounting principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I would like to turn the conference over to Bob Sprowls, President and Chief Executive Officer of American States Water Company.

Thank you, Keith. Welcome, everyone and thank you for joining us today. I’ll begin with a few highlights for the quarter, Eva will review some financial details, and then I’ll wrap it up with some updates on regulatory activity, ASUS and dividends, and then we will take your questions. I would like to start by thanking our employees. Through these uncertain times, the employees of American States Water once again delivered solid results. Our consolidated results for the third quarter were $0.72 per share as compared to adjusted earnings of $0.69 per share for the third quarter of 2019, an increase of $0.03 per share or 4.3%. The adjusted earnings for the third quarter of 2019 exclude a $0.07 per share retroactive adjustment booked in that quarter for the August 2019 electric general rate case decision for periods prior to the third quarter of 2019. I am pleased to report that in July of this year, the company’s Board of Directors approved a 9.8% increase in the quarterly cash dividend from $0.305 per share to $0.335 per share. This increase is in addition to dividend increases of 10.9% in 2019 and 7.8% in 2018. Along with providing essential services and assistance to our customers and communities to get through the pandemic, we are working our way through some regulatory processes with the California Public Utilities Commission, or CPUC, which I will discuss later on. In addition, we continue to pursue new military-based contracts and our service levels remain high for all three of our subsidiaries. Now that we are going on month 8 of the COVID-19 pandemic, I wanted to reflect on the achievements of our personnel across the United States, both customer-facing and those who provide support in a remote working environment. Since March, our field personnel have worked tirelessly to keep the water, electricity and wastewater services operating smoothly for over 1 million customers, including 11 military bases. They have embraced more stringent safety protocols as we look to keep our employees and customers healthy. While doing this, we have kept our commitments to strengthen our infrastructure for the short and long-term benefit of our customers. For the 9 months ended September 30, 2020, our water and electric utility segments spent $82.3 million in company-funded capital expenditures, on track to spend $105 million to $120 million for the year, barring any scheduling delays resulting from COVID-19. This would be about 3.5x our expected annual depreciation expense. While we hope for a return to normal sooner rather than later, I’m proud of the resiliency that our people have shown. I will now turn the call over to Eva to review the financial results for the quarter.

Thank you, Bob and hello everyone. Let me start with a more detailed look at our third quarter financial results on Slide 7. As Bob mentioned, consolidated earnings for the quarter were $0.72 per share compared to $0.69 per share as adjusted for the same period in 2019. Earnings at our water segment increased $0.04 per share for the quarter. There continues to be volatility in the financial markets due at least in part to COVID-19 pandemics. This volatility resulted in an increase in gains on investments held to fund one of Golden State Water’s retirement plan contributing a $0.02 per share increase in the water segment’s earnings for the quarter. The remaining increase in the water segment’s earnings for the third quarter of 2020 was due to a higher water gross margin from new water rates, partially offset by an increase in operating expenses, interest expense and the effective income tax rate as well as lower interest income earned on regulatory assets. Excluding the $0.07 per share retracted impact from August 2019 CPUC decision, our electric segment’s earnings for the third quarter were $0.04 per share as compared to $0.03 per share as adjusted for the third quarter of 2019. Largely due to an increase in the electric gross margin, resulting from new rates authorized by the CPUC, partially offset by increases in legal and other outside service costs. The final August 2019 decision also approved the recovery of previously incurred incremental tree treating costs totaling $302,000, which resulted in a reduction in maintenance expense that was recorded in the third quarter of last year. There was no equivalent item in 2020. Earnings from our contracted services segment were $0.10 per share for the third quarter of 2020 as compared to $0.12 per share for the same period in…

Thank you, Eva. I would like to provide an update on our recent regulatory activity. In July, Golden State Water filed a general rate case application for all of its water regions and the general office. This general rate case will determine new water rates for the years 2022, 2023 and 2024. Among other things, Golden State Water requested capital budgets in this application of approximately $450.6 million for the 3-year rate cycle and another $11.4 million of capital projects to be filed for revenue recovery through advice letters when those projects are completed. A decision in the water general rate case is scheduled for the fourth quarter of 2021, with new rates to become effective January 1, 2022. On August 27, 2020, the CPUC issued a final decision in the first phase of the CPUC’s order instituting rulemaking, evaluating the low-income rate-payer assistance and affordability objectives contained in the CPUC’s 2010 water action plan, which also addressed other issues, including matters associated with the continued use of the water revenue adjustment mechanism or RAM by California water utilities. The final decision also eliminates the modified supply-cost balancing account or MCBA, which is a full-cost balancing account used to track the difference between adopted and actual water supply costs, including the effects of changes in both rates and volume. Based on the language in the final decision, any general rate case application filed by Golden State Water and the other California water utilities after the August 27, 2020, effective data, the decision may not include a proposal to continue to the use of the RAM or MCBA, but may instead include a proposal to use a limited price adjustment mechanism, called the Monterey-Style RAM and an incremental supply cost balancing account. This decision will not have any impact on Golden…

Yes, thank you. [Operator Instructions] And the first question comes from Angie Storozynski with Seaport Global.

Thank you. So, first question about the motor services business, so I understand the slowdown associated with COVID and permitting, so this year. I am a little bit surprised that you currently expected to have a negative impact on ‘21 as well, because I would have thought there is going to be like a catch-up of those projects, which have – which were delayed in 2020. So do you basically assume that COVID persists beyond the end of this year and has a negative impact and hence that low guidance?

Yes, I mean, we do think it will continue past the end of this year and will continue to impact somewhat our ability to get new capital upgrades as well as permitting on effective permitting on our jobs that we would like to do. I’m not quite sure, I mean it’s difficult to look into the crystal ball and see when this will all end, but we’re not – we are not really back to normal yet.

But does it mean that there will be a year like just for some 2022 where you are, where you have a disproportionate number of those upgrades and so then the step up in earnings would be above the trend for that business in 2022?

It’s difficult to predict. It’s possible, I mean it’s – because we have a number of projects in front of the government to do on the bases we currently serve and at – just the funding of these projects has slowed down a bit from what we’ve seen in the past years, does that mean that in the – in the future years we’ll make that up. It’s possible, but we are kind of un-chartered territory at this point. So it’s hard to really predict.

Great. And then on the – the change to the decoupling mechanism and the request for rehearing, so could you give us a sense when we will know the Commission will hear the case and what decision on the case and then what are the other options if the Commission denies those requests?

Yes. So I believe the Commission has some flexibility in terms of deciding whether the decision needs to be reheard. So it’s – don’t know if there is any hard and fast deadlines that they have to decide by, in terms of the second part of your question. The company has the company or companies’ water utility – water utilities have the ability to take this issue directly to the California Supreme Court. Currently in the legislation, we do not have the ability to go to the appellate court on this, but we do have the ability to go to the California Supreme Court. The California Supreme Court has to first decide whether they’re willing to hear the case.

Okay. And your – and you are in essence hedging on potential changes to the full RAM in your current pending rate case, because you’re being conservative or is it because you have heard something from the Commission that might suggest that they would enact those changes earlier than that, the decision with – would require meaning, the decision would suggest that on the cases following the – I think the August 2020, the filing after August 2020 would be impacted right that RAM change, but I am just wondering why you’re being so cautious about the potential impact on your pending rate case?

Well, Angie, you know, we are pretty conservative around here. So that’s – this is really just, we are just being cautious in the proposed decision – in the low income proceeding, public advocates put forth comments suggesting that it should apply to our rate case. In their protest of our rate case filing, they did put forth comments that it should apply to the rate case, but I will tell you that there are comments on the proposed decision. I think the language in the final decision was actually clear that it doesn’t apply than it was in the proposed decision. So that was an improvement. At this point, we don’t have anything further than that to sort of base our caution on. We understand that California Water received a proposed decision that said that the ruling in the low income decision did not apply to their rate case, so that’s a good fact. Another good fact is we have not had a pre-hearing conference yet in the rate case, it would be quite difficult for our company to have to pull our rate case filing and re-file it. We have already noticed our customers on the proposed rate increase. So there is a number of things that are stacking up in favor of it, if not applying to the 2022 through 2024 rate case, there is still a chance. And so we want to make sure that the folks that we speak to know that.

Very good. Thank you.

Thank you, Angie.

Thank you. And the next question comes from Ryan Connors with Boenning & Scattergood.

Hey, thanks – thanks for taking my questions good afternoon. So at risk of...

Hi, Ryan.

Hello. At risk of beating the dead horse here, obviously it’s a hot topic with the decoupling, but I wanted to get your take on the other side of this, which is cost of capital and ROE. I mean obviously the LRA has strenuously argued over the years that the coupling reduces risk and that’s why they argue for a lower ROE, seems based on the ROEs that they have successfully argued that, you kind of more or less affirm that concept when you say, you think your earnings will be more volatile going forward. So how do you see this all impacting the cost of capital side going forward?

Well, I think it – I think we, and maybe the other RAM companies will make an argument for the fact that it perhaps increases the risk of the utility in future cost of capital proceedings. Now, for us just to sort of line up the periods a little bit here. We are – we, and the three other large water utilities in California are required to file our next cost of capital in, on May 1 of 2021 and that’s for the – that is typically for the period 2022 through 2024, given that your cost of capital. We don’t think that the elimination of the RAM applies to our 2022 through 2024 rate cycle, so it makes it a little difficult for us to then use it in the cost of capital proceeding, because it really, the period doesn’t fit. However, I am sure that others will think about, we will think about it as well in terms of it being something that we perhaps could argue in the cost of capital proceeding.

Okay. Okay. Well, I mean – I think you could maybe educate them that we and others are going to value your stock based on the long-term volatility profile, the earnings. So it actually is relevant, the day it takes. Alright. But anyway, the other question I had was, you noted that the peer companies that do use the Monterey-Style RAM have adapted pretty well to that, so it can be done. And so my question is, even if there is a chance that you could answer in a negotiating position on the cost of capital side, why would you not welcome the elimination of the coupling, if in fact you do believe as you said that ultimately Monterey is workable and especially, why would you choose to – you are talking about the California Supreme Court, and these are supreme nuclear options in terms of spending political capital taking it that far. Why would you want to do that if expect you think systems workable do get a little bump on the ROE.

Well, first of all, I didn’t say we were going to take it to the California Supreme Court. It is an option we’d have to think through that depending upon how the Commission decides. I think for us, we are just used to the full RAM at this point, the Monterey RAM like we said, other companies have done well with that and you know we will we’re just a bit unfamiliar but we have plenty of years to get our arms around it, and I am sure we will do as well with it as we have with the full ramp, there potentially could be a little more volatility is what we are saying.

Got it. Okay, very helpful comments. I appreciate it. Thanks for your time.

Sure, Ryan.

Thank you.

[Operator Instructions] And the next question comes from Jonathan Reeder with Wells Fargo.

Hey, good morning, Bob and Eva. How are you all doing?

Good, Jonathan.

Okay, Jonathan.

How about you?

Not too bad. Not too bad that all things considered from, we got a little summer weather and...

Good presentation at the CWA though.

That was a curveball thrown and stuck out some time. So haven’t gotten a chance to dig as deep in your earnings as I want. I got to soft balls for you like that.

That’s true.

That’s all.

Can you all comment how Q3 Utility results compared to your internal expectations heading into the corner? Were there any like headwinds perhaps COVID-related and then anticipated but perhaps are not expected to impact your longer-term EPS growth trajectory, the regulated segments.

Yes, I know it was, I mean we were taken by surprise or anything. If that is what you are asking about.

Yes, I – no I mean just trying to get a sense of where things came in for the quarter on the regulated side obviously excluding the market gains, the benefit plan like if everything else was kind of right where you were expecting it to be or were there some corporate expense pressures or anything like that that may be shaved a couple of pennies off?

I don’t believe so for the regulated utilities. They are pretty much on target on their expenses – to the expenses that’s incremental due to the COVID-19 we do book through the same account. So not much impact to the utility side of it, we do incur some more treatment costs. But you know as the other expense decreases offset each other. So, I don’t think there is surprises to our utilities earnings for the quarter.

Okay. And then I know it’s kind of already brought up earlier, but when and how do you expect to gain the clarity with regards to whether that obvious decoupling order will be applied to the 2020 to ‘24, TRC obviously would be going against the date specified in the order, does the ALJ respond specifically to pose protests that were filed like when the ALJ issues, the scoping order, is there a specific date or does just kind of linger out there until you get a proposed decision?

We believe that we will get some clarity on this, when there is a pre-hearing conference and a scoping memo is issued by the Administrative Law Judge.

He has not done that, yet.

Right. We haven’t had the pre-hearing conference yet. I will tell you we do have the same administrative law judge that Cal Water had in their case, and the case has been assigned to Commissioner Shiroma.

Okay. When is the pre-hearing conference and scoping memo due? Is there like a due date on that or when do you expect it?

Well, it is behind schedule. And...

You are already behind schedule.

Well pre-hearing conference, I mean, I believe it’s behind schedule. I mean I think we were – we were thinking it was going to perhaps it’s not significant – significantly behind schedule, but I think we were – we were perhaps expecting it in October and the Commission of course has got their hands full with a lot of issues these days.

Sure, sure. Okay. So, but something perhaps later this month there are certainly by the end of the year, you would hope to have the clarity to figure out whether or not you need to kind of pull the case and re-file it or something like that.

That’s my understanding. It’s likely to happen before year end.

Okay, that’s it for me. Thanks very much for the time. Appreciate it.

Okay, Jonathan.

Thank you, Jonathan.

Thank you. And this concludes our question-and-answer session. So I’d like to turn the conference back to Bob Sprowls for any closing remarks.

Thank you, Keith. Well, I just want to thank you all for your participation today and let you know. We look forward to speaking with you next quarter. And just want to wish everyone a happy holiday season. Well, thank you very much.

Thank you. The conference is now concluded. Thank you for attending today’s presentation. You may disconnect your lines.