Good morning, ladies and gentlemen. Welcome to the California Water Service Group Fourth Quarter and Year-End 2016 Earnings Results Announcement and Teleconference. I would now like to turn the meeting over to David Healey, Vice President and Corporate Controller. Please go ahead, sir.

Thank you, Don. Welcome everyone to the 2016 year-end and fourth 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 of today's proceedings will be available beginning today, February 23, 2017 through April 23, 2017 at 1-888-203-1112 or at 1-719-457-0820 with the replay pass code of 7406571. As a reminder before we begin, the company has a slide deck to accompany the earnings call this quarter and for the year-end results. 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/2016q4slides.pdf. Before looking at this quarter and year-end 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 year-end and fourth quarter 2016 results. I’m going to pass it over to Tom to begin.

Thanks, Dave. Everybody, this is Tom Smegal, I have a bit of a head cold this morning, and so somebody else might jump in if I get into a coughing fit, hopefully that won’t happen too quickly here. I’m going to start on page five of our slide deck, and work through the year-end and fourth quarter financials. And we did have a positive year. We earned $1.01 on an earnings per share basis for the total year, that’s $0.07 higher than the $0.94 last year, and net income of $48.7 million, as compared to $45 million last year. Revenue was up; our operating expenses were up as well. And if you flip to the next page, on slide six, just for the fourth quarter, we had a $0.31 earning for the fourth quarter as compared to $0.18 in the fourth quarter of 2015, primarily the result of regulatory activity in the quarter. Primarily I want to talk about the entire year, and that will be on slide seven, our financial highlights for the full year. As I mentioned, our earnings increased $3.7 million, largely attributable to the conclusion of the 2015 California General Rate Case. We had a $2.8 million increase in net income from the resolution of several regulatory memorandum and balancing accounts in the GRC that were effective with the GRC decision being adopted in December, a $1.9 million increase in net income relating to the recovery of drought costs. These are the drought costs from 2014 and 2015, in the amount of $2.9 million that were recovered, again, in December of 2016. We had an increase of $1.9 million in net income in other income area, and that is mostly due to a settlement agreement on litigation proceeds relating to MTBE. And those of you who’d…

Thank you, Tom. As was -- I’m on slide 10. And as was previously announced, California Water Service received the final rate case decision from the California Public Utilities Commission on December 15, 2016, late last year. And with that decision new rates were authorized and went into effect on January 1, of 2017, and were reflected in our customers’ January bills. The decision of our authorized California Water Service to increase revenues by $45 million in 2017 and of that amount $11 million was for increased water production costs. So over the three-year period, as a result of this decision, California Water Service was authorized to invest $658.8 million in capital and utility assets in California, and because California Water Service has decoupled revenue from water sales, we anticipate that our revenue across the year will be very close to the adopted revenue in the rate case. And then finally, I’d just like to point out that we anticipate the total adopted rate base for California plus our other three states, Hawaii, New Mexico, and Washington should be about $1.1 billion this year. Moving on to slide 11, this slide shows the adopted revenue distribution across the year. And you can see that most of our sales, and therefore most of our revenue comes during the summer months when there’s more outdoor irrigation that occurs in California. To the extent that there’s a variation between actual revenue collected and the adopted revenue from the rate case, our decoupling mechanism, which is known as our Water Reconciliation Adjustment Mechanism, or WRAM, will capture that difference for later true up. And also in this rate case, the commission authorized continuation of the Company’s sales reconciliation mechanism which readjusts sales forecasts each year the rate case cycles will account for changes in…

Thanks Paul, good morning everyone. I think some of you heard me this say before, the only thing predictable about California is the unpredictability of the weather and as we went from a five year draught now what is one of the wettest winters in history for the state. As of February 21, the precipitation and northern is about 150% of average water parts in Northern California actually about 200% of average is just depends on where you look and the snow accumulation year-to-date is 186%. Last night many of the ski resorts in the Tahoe area mentioned that they anticipate stay open and through the July 4 weekend which should be a new record for us in the state. To give you an idea of kind of the change in weather in went in and just look at a couple of spots and looked at the date range from October 1 to yesterday, in terms of the time stand what was the rainfall of last year at this time versus this year and if you look at Mount Shasta, last year for the same period of October 1 to February 22, they had 25 inches of rain, this year it’s over 43 inches of rain for the same period. Sacramento Airport last year that timeframe was 9.7 inches over 28 inches year-to-date, so far this year. Santa Rosa its 20 inches, last year at this time and Santa Rosa at this year is at 52 inches of rain and San Francisco Airport 11 inches last year, 26 inches this year. When you move down to Southern California, the numbers typically are in the single-digits so 7, 8, 9 as high as 11 this year they are in the mid to high teens, so even -- so we had more…

Thanks, Martin. Just a couple of informational tables on slide 16, we have the adopted regulated rate base of the company, and this is the same that we published in the third quarter slides, showing our estimated 2017 rate base would be 1.1 billion with the addition of the advise letter projects we are prioritizing, those advise letter capital projects in inclusion and rates and we will be completing them throughout the year. So, when we talk generally about 1.1 billion being the rate base and Paul mentioned that earlier, that's an opportunity for us to increase the regulated rate base throughout the year. On slide 17, our net WRAM balance is -- again for information, 37 million at the end of the year, it was a bit lower than that at the end of the third quarter, we have seen a little bit of backsliding on this since we got rid of the drought surcharges, but remember, the drops that were charged in 2015 and 2016 made a substantial impact on lowering this receivable from the decoupling mechanism. What we will see in 2017 is unknown at this point. Our sales forecast in the general rate case is also same in the sales forecast that we had in the last year. It's really going to be depended upon on our customer usage and how they react to a very wet winter and the tailing off a lot of the drought communications. So we will be monitoring that and obviously reporting on that as we go quarter-to-quarter throughout 2017. So now I'm going to turn it over to Marty for some final comments about what we expect in the coming year.

Thanks, Tom. First and foremost, we are in the process of preparing our cost of capital application that we will file at the end of the March with the California Public Utilities Commission. The three water utilities will be joining us and we will go through that process concurrently. This will result in a review of our debt and equity structure as well as our ROE and what their outcome is, and proceeding we plan to adopt that design time on January 1, 2018. For the year 2017, we anticipate investing between 200 million and 220 million in our capital investment program in accordance with our authorizations from the California Public Utilities Commission. We have a couple of focal areas that are interesting to note. One, TCT regulation, so that's one that's on the horizon that we see coming and we've been busy looking at what are the lowest cost treatment alternatives for our customers that we could put in place and meet the projected requirements for water quality. In addition, we are very focused on our earnings test as you may recall, to get our step increases we have to pass our earnings test, and as I mentioned earlier, the $230 million that we put into service and closed, we think will help position us very well as we get closer to that time and date. And then of course we have a lot of advice on our projects that we are working on and making sure that they stay on scope, on schedule, on budget. The drought response will start to transition to what was more tactical to kind of long-term strategic water used efficiency program, and we are coordinating with the state of California on that with State Water Resources Control Board and the California Public Utilities…

Thank you. [Operator Instructions] Our first question comes from Tyler Frank with Robert W. Baird. Mr. Frank, your line is open. Please check your mute button.

Hi, guys, thanks for taking the question.

Good morning.

So, yes, I guess I have a few questions I wanted to follow-up on. Your first and foremost, can you discuss how a change in corporate tax rate may affect you guys if taxes were to be lowered to, let’s say, 30% or 25% under the Trump administration, how we should think about that impacting your earnings going forward?

Sure. One of the things that -- maybe Paul could jump in here as well. One of the things that you should know is that the California Commission takes every advantage to make certain that the rate payer benefits completely from any tax law changes. So, for instance, a couple of years ago when we had bonus depreciation out of the federal government, the commission immediately passed a memorandum account resolution to track the benefit from the bonus depreciation that was in place at that time. I would expect that the California Commission would do the same with any tax law changes. If you think about what might happen if the tax rate is lowered, there is a customer benefit over time from that lower tax rate that is good. But then we do have a reduced value of the deferred depreciation which constitutes the deferred tax that is on actually a lowering rate base in the regulatory model. So it actually -- it lowers the expense of rates but it raises the rate base. And so from a customer standpoint we’re not quite sure -- certain where it would come out. But from a company standpoint I’m not sure that you could expect any big benefit there. And that’s just because of the strong regulators that we have. There has been a discussion of the possibility that there’s an elimination of the tax break or debt, the tax deductibility of long-term debt. California Water Service Group does not have any long-term debt at the holding company level. All of our debt is in the regulated equity debt capital structure at the utility level. So we would expect to be compensated in the rate making structure for any change in the deductibility of debt.

So, Tyler, that’s a real hard one to answer because there’s been about three or four different models that have been kind of floated out there. And we originally were modeling those to figure out the net effect. And as Tom said, there’s some customer benefit. But the problem is there’s nothing concrete out there that you can say, yes, there’s -- if we had something more solid we could calculate the impact, but it’s really hard to speculate. And especially with fake news and everything else that’s going on. So we’re just going to continue doing what we do best, which is execute our business plan. And we will start patch planning to optimize whatever we need to do on behalf of customer benefit and stockholder benefits, and wait to see them come out with. I’ve read in the Wall Street Journal today that they’re saying probably by August they would have something out. But that’s to be determined.

Okay, great. And then just a quick question on the drought, when should we expect, I guess, the recovery costs to be -- for the costs to be recovered, both for the remaining 2015 costs and then for the 2016 costs. And then, as you look into 2017, as far as I understand, California is no longer in a drought in several areas, or at least that’s what the assumption is depending on the snow pack. And so how will this process work in 2017, do you expect to have less drought-related costs this year? And when will those also be recovered, will that be a 2018 event?

I’ll take the last part of the question, and I’ll hand it out to Paul on the recovery. Yes, we anticipate our drought costs dropping -- Well, first of all, the drought has been extended another 270 days, and that would be on February 8 on the State Water Resources Control Board. They said they would come back the end of May and evaluate that. But voluntary [technical difficulty] remain in place, and we’re reporting on that every month to the State Water Resources Control Board. Based on where we are and seeing things change, we think our drought costs, that will be expense during the year but ultimately recorded in memorandum account. We’ll be between $500,000 to $1.5 million, so it’s dropping a lot, but there’s still a lot of work to do. And I think where the state’s coming from with the continuation of the drought is -- you got to remember, we have almost 40 million people in the state of California. And people will say, well, look at Australia, look how fast they responded to their emergency drought, and that’s true. Australia did a great job with their crisis, but people don’t realize we have twice as many people in the state of California as the country of Australia. And so obviously the state became very diligent and very conservative when they look at the amount of water needed to run the state. And hence we spent a lot more time up in Sacramento participating in the workshops on what the State Water Resources Control Board is considering for their long-term water use efficiency program. Paul, you want to…

Yes, Tyler, Paul Townsley here. So in terms of recoverability of drought costs, as Marty mentioned, we actually record those as expense in the period that we incur them. But we record them as in a memorandum account for later recovery from the commission. So in 2015, we incurred about $4.3 million, and the commission allowed us to recovery in rates $2.9 million of that, that recovery is ongoing as we speak, because the commission approved that recovery late last year. The 2016 cost that we incurred, about another $4.3 million, we are currently going through those numbers, reviewing them, making sure that they’re correct. And we will make a filing with the commission later on this year, probably this summer. Yes, probably early summer to recover those costs. And we’re likely to see recovery of our approved drought memorandum costs beginning in January of next year. So there’s a one-year lag between the incurring of those expenses and the recovery of them.

Okay, right. So it the $1.4 million different between the $2.9 million approved and the $4.3 million of actual cost, is that $1.4 million -- are you not going to be able to recover that or is that still a possibility?

That will not be recovered as part of the memorandum account. The reason is primarily that those costs were reflective of costs that were already included in customer rates. We charge them to the memorandum account, but then after later review we determined that they were not incremental costs, but they were costs that were already included in rates.

Okay, got it, excellent. And then the last question for me, I’ll get back in queue is, the advice letter projects, how good is your visibility that these will get completed. And should we be assuming that they will be done in our estimates?

So we have a budget team that is focused from engineering and accounting, and rates, and other departments that is looking at these, I think, biweekly, not just monthly, but actually every other week. We’re going to do the best we can with these projects. One of the reasons or a couple of the reasons that advice letter projects are noted in rate cases is because there is some uncertainty as to the timing, whether it be permitting or some design or property aspect of a particularly large project. So typically we have not been able to complete a 100% of our advice letter projects. I’d like to say we’ll do better this year and in this rate case cycle because we’re really focused on it more. But you’re always going to have those projects where for some reason you aren’t able to get the permit to begin construction and there’s a six-month delay. So we’ll have to wait and see on that. The big amount of the advice letter projects really comes in the third year, and it has to do with our pipeline project that we’ve discussed on these calls before, it’s a $70 million project to increase the reliability of the water system for our system in Los Angeles. And that’s the one that is a very critical timeline to make sure that gets completed in 2019.

Got it. Okay, thank you.

Thank you.

We’ll take our next question from Jonathan Reeder with Wells Fargo.

Hi, good morning gentlemen. Tom, appreciate the comments on tax reform. The one that you didn’t touch on, and kind of curious about, would be the potential media expensing of capital additions, and if that’s included that would obviously impact rate based growth. Do you think that the commission would respond favorably and allow you to just kind of further bump up the CapEx? I know there’s a lot more work that you would like to get done to get back to closer to a 100-year replacement cycle. Just wondering what your comments are around that?

Yes, maybe I would turn that more to Paul. Obviously rate cases are give and take as far as the rate -- rate impact side, among other things. Paul, do you want to…

Yes, thank you, Tom. First of all there’s, as Tom mentioned earlier, there’s all kinds of speculation out there in terms of what the tax treatment may be, so I really don’t want to go too far in term of hypothesizing what may happen. But if we were to begin to expense capital in the year it was incurred I can see that their late impact to customers would be quite high. And so I would anticipate that the commission would have a lot of concern about that, and would provide guidance to us as to what extent that may affect us. Really what I’m saying is that I’d like to wait and see what the commission comes out with before we go too far down that road.

Yes, keep in mind -- Jon, this is Marty, keep in mind you have your GAAP books, we have our regulatory books, and we have our tax books. And the commission is going to be keenly focused on not doing things that skyrocket customer rates. The other thing I would say is, a week-and-a-half ago I was at a lunch with Kevin McCarthy, who is the majority leader in the house. He’s the elected representative for Bakersfield, which is our biggest district. And we had a good discussion with Representative McCarthy about the infrastructure bill and not forgetting about the investors. And so he make a comment to us about keeping close to him, and make sure we contact him with any concerns we have as these bills evolve. Not that any one source could have any input on it, but obviously I think the water industry has gotten smarter about dealing with evolving changes in accounting regulation, and evolving issues on the tax side. So between NAWC, AWWA, CWA, and our member companies, I think we’ll be keenly focused on these tax bills and infrastructure bills if they make their way through the congress in the U.S.

But then, I guess, from an earnings impact standpoint I guess it’s fair to say based on your experience with the way the CPUC work scenario being -- you would expect whatever may or may not be enacted, you know you’d kind of be held harmless on. I mean, be overall fairly neutral from an earnings impact standpoint?

That’s right, Jonathan.

Okay. And then if you could just remind us, are the rate based amounts on slide 16, are they averages for the year or year end?

That is our average for the year.

Okay. And then going to the cost of capital; is there any specific timeline for receiving a response from the CPUC regarding the extension requests that the four water utilities made?

So let me address that. First of all, the extension request that we applied for was not approved by the commission. So we are proceeding with our cost of capital filing which we will be making at the end of March, so we’re on schedule. That was always the schedule, and so we’re staying with that schedule. And the anticipated commission decision on the cost of capital matter would be in late 2017 -- later this year, with the new cost of capital going into effect January of 2018.

Okay, so at this point we should consider any potential for, I guess, a settlement with ORA or the other parties to either extend the requests or make some adjustments without going through the proceeding, kind of like the electrics had, that’s off the table this juncture. So now I guess you’re definitely making those filings, and then maybe settlement talks may arise once kind of the parties’ positions are publically made. Is that the way to be thinking about it?

Yes, that is the way to think about it.

Okay, looking forward to seeing those filings. So thank you for the additional time that I got.

All right, thanks Jonathan.

We’ll go next to Jim Von Riesemann with Mizuho.

Hi, gentlemen, Jim Von Riesemann with Mizuho. How are you?

Good morning.

Good.

Since I’m new to the water industry, can you just refresh my memory as to what the existing cost to capital or parameters are, and what the allowed ROE and equity thresholds are, and what is included and not included in the denominator?

Sure. So we have a 9.43% ROE, and that’s based on a 53.6% equity ratio. And as I’ve indicated earlier, the construction work in progress is not included in the rate base. So that’s what the percentages are based upon.

Okay. And then on the debt component, do they include customer deposits and all that as part of the capital…

No.

Okay, great. Thank you, that’s all I have.

Okay, thanks Jim.

If you have questions about the water industry feel free to give us a call.

Will do.

We’ll take our next question from Spencer Joyce with Hilliard Lyons.

Hi, good morning guys. Thanks for taking my question. I know we’re getting a little long today.

Good morning, Spencer.

Good morning. No worries, take your time.

You all just had a lot going on out there. A couple of pseudo housekeeping questions here. Tom, the litigation proceeds that -- the $1.6 million of net income impact, was that all in the fourth quarter?

That was booked as of the result of the rate case. It was a settlement item in the rate case, so we did book it in the fourth quarter, yes.

Okay, perfect. And similarly the balancing in memoranda account item, I would assume that was all booked into the fourth quarter as well. But my question is, is that indicative of a sustained bump or step function higher in earnings or is that almost a one-time item that shouldn’t repeat kind of across 2017?

Yes, I think that generally our view would be those are one-time kind of cleanup items. So, for instance, one of the big memorandum account items was the recovery of a return on a piece of property that we had been excluded from rates in the prior rate case, and then was allowed three years worth of revenue requirement from one piece of property was in there. And so that’s going to be included in the rates on a go-forward basis, and not that issue. If you’re looking for the go-forward, I think we often say, look at the rate base of the company and the authorized rate of return and the capital structure, and that gives you a better guide about where we’re going on future years.

Yes, okay, perfect. As far as the CapEx goes, it looks like a really nice quarter of spend here in Q4. And has that been kind of parlayed, if you will, into a pretty good pace of projects here in the first quarter. And I know it’s still early to say if you’ll hit the full-year target or not. But has some of that momentum carried over?

Well, keep in mind we have a lot of dry weather the last couple of years. And wet weather certainly slows down construction work. So no, it has been a very, very wet winter, as I mentioned, one of the wettest winters on record. And that affects our ability to move capital and get it in the ground quickly. Especially when you have things happening like all the flooding that you’re seeing right now, that things just come to a halt. So I think the clip during the first quarter is going to slow down probably substantially over the first quarter of last year just due to the change in weather condition. And then you’ll see a lot more capital deployed and put in the ground during the warm summer months.

Okay, that makes sense. And a final item here, just so I’m clear. The drought-specific or at least the drought expenses tracked in the memoranda were essentially equal in 2016 to 2015, is that correct, right around the $4.3 million-$4.4 million amount?

Yes, that’s right. And that, by the way, purely a coincidence -- that worked out that way, not by any great planning on our part, but as the conservation program changes, and you put these programs in place then they have a tail. And some customers take up on what we offer, and some don’t. So it’s just a coincidence this year they were the same two years in a row. But I think as Paul pointed out earlier, we learned a lot going through that first filing with the commission and reviewing it with them. And so I think the accuracy of the numbers for ’16 are probably -- I know higher than what they were the first time through it.

Okay, perfect. That was my follow-up question. That’s all I had. Congrats on a pretty interesting and a pretty strong year. Thanks guys.

Thank you, Spencer.

There are currently no questions in the queue. [Operator Instructions] And it appears we have no more questions at this time. I will turn the call back to Martin Kropelnicki for any final remarks.

Great. Thanks, Don. Actually Spencer's party comment there was a great way to end the call. '16 was the third rate case cycle for us, which is always the most challenging year, and that coupled with things like the Erskine Fire and the drought made it -- certainly we had a lot of things to work on throughout the year, but even despite some of the roadblocks we had to work around, 2016 actually turned out to be a very good year for the company with the amount of capital that was employed best in the ground, the rate case coming in on schedule, and I think this is the first rate case in a decade for any utility in the state to come in on time, and everything that we got done. There is a whole list of projects the company got done, including putting in a new billing system. There is just -- went into JD Power award, voted top Bay Area workplace. So, the company is always firing on all cylinders right now, and so we believe what is the most challenging third of the cycle into '17, which is off to a really good start albeit wet, but a very good start, and so we have new projects, new targets, a lot of enthusiasm and a lot of momentum leaving '16 going into '17. And we appreciate everyone's support of Cal Water. We are around if anyone has any questions, and we look forward to talking to everyone at the end of the first quarter. So with that done, I think we are all wrapped up.

That does conclude today's conference. Thank you for your participation. You may now disconnect.