H2O America (HTO) Q3 2021 Earnings Report, Transcript and Summary

00:03 Good afternoon, everyone, and welcome to the SJW Group Q3 Twenty Twenty One Financial Results Conference Call. At this time all participants are in a listen-only mode. Later, we conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. And as a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. James Lynch.

00:36 Thank you, operator. Thank you, operator. Welcome to the Third Quarter Twenty Twenty One Financial Results Conference Call for SJW Group. I will be presenting today with Eric Thornburg, Chairman of the Board, President and Chief Executive Officer. For those, who would like to follow along, slides accompanying our remarks are available on our website at www.sjwgroup.com. 00:57 Before we begin today's presentation, I would like to remind you that this presentation and related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of its experience, historical trends, current conditions and expected future developments as well as other factors that the company believes are appropriate under the circumstances. 01:27 Many factors could cause the company's actual results and performance to differ materially from those expressed or implied by the forward-looking statements. For a description of some of the factors that could cause actual results to be different from statements in this presentation, we refer you to the financial results, press release and our most recent Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission, copies of which may be obtained on our website. All forward-looking statements are made as of today, and SJW Group disclaims any duty to update or revise such statements. 02:07 You will have the opportunity to ask questions at the end of the presentation. With that I will turn the call over to Eric.

02:17 Thank you, Jim. Welcome, everyone, and thank you for joining us. I'm Eric Thornburg, and it is my honour to serve as Chairman, President and CEO of SJW Group. As an essential service, we deliver life sustaining water to families and communities where we lives, work and serve, whether it would be high quality water in a glass, a robust supply at the nearby fire high grant or reliable infrastructure on main street to support economic development, water is at the heart of our communities. 02:51 Delivering on our vital public mission requires our leaders and employees to maintain a laser focus on the present planned decades into the future and as the past year and a half has shown, adapt to unforeseen challenges along the way. SJW group and its employees are committed to being a positive force for good in the community, protect and improve the environment support water equity have a diverse and inclusive workplace and engage vendors and suppliers that reflect the diversity of the communities we serve. 03:29 We are able to build for the future because of our solid foundation. Our employee teams are working across the country and leaning in to deliver on our commitment to be a leader across the environmental social and governance landscape. ESG reflects our longstanding sense of purpose and our culture of service. To that end, we are finalizing our first enterprise wide greenhouse gas inventory, which will be the benchmark for reducing our carbon footprint. 04:01 We already have solar installations in California, Connecticut and Maine, and we're working toward more. One promising project would eventually allow us to meet all of the power needs of our new Saco River drinking water treatment facility in Maine. The grounds of the new Saco River facility will also feature more than two fifty acres of protected almost open space pollinator garden. 04:27 Building on our twenty twenty human rights policy, every employee in our organization is required to complete training on the policy. Further, as an organization, we support water equity and believe that access to safe affordable and reliable water service is a human right. We have financial assistance programs to assist customers facing hardships and we're especially proud of our water rate assistance programs in California and Connecticut that provide a fifteen percent reduction on water bills for income, eligible residential customers. 05:04 More than one point one billion dollars in federal dollars is earmarked two states to pay water and wastewater bills in arrears on behalf of low income residents through the low income household water assistance program. We are actively engaged to make sure that our customers in all four states can benefit from the program. Importantly, we believe our commitment to water equity includes investing in our systems, so they can deliver reliable supply of high quality water. Our subsidiaries are making consistent incremental investments in infrastructure so that customers at all income levels will have access to the quality and reliable water service they deserve with the costs and rate impacts of those investments incurred gradually. So, they can be more easily addressed by the utility and our customers. 06:00 Artificially keeping rates low, by deferring investment is short sighted and not sustainable and does not really serve our customers who all deserve quality water and service for the long-term. Unfortunately, the water shortage emergency declared in June by Valley Water, our California water wholesaler remains in place. San Jose water continues to aggressively promote water conservation to its customers in order to reach Valley water stated goal of reducing water consumption by fifteen percent compared to twenty nineteen. 06:37 The California Public Utilities Commission or CPUC has approved our request to establish a water conservation memorandum account to track the revenue impact of authorized versus actual water consumption while we are promoting conservation. A water conservation expense memorandum count was also authorized to track the incremental expenses required to implement our mandatory water conservation program. 07:09 Both memorandum accounts allow for the potential future recovery of the revenue and expense impacts. We continue have adequate water supply to meet the needs of our California customers. Just last week, some much needed rain move through the region. We're hopeful it is an early start to the traditional rainy season in the Bay area. 07:33 We are committed to strong partnerships with our communities. San Jose Water has been recognized by American best in Business awards for the company's response to COVID-19, which included donating and distributing PPE to other water utilities and community organizations. The CPUC held their nineteenth annual supplier diversity on bulk, titled driving and surviving during a pandemic on October fourteenth, a full day virtual event dedicated to supplier diversity. 08:10 All CPUC commissioner were present and led a conversation on supplier diversity including a recap of California regulated utilities supplier diversity results for calendar year twenty twenty. During the meeting, San Jose water was recognized by the CPUC for increasing our results from twelve point nine percent in twenty nineteen, the thirty point one percent of addressable spend in twenty twenty. SJW was also recognized as one of only ten California regulated utilities to meet the three supplier diversity subgoals for winning five percent minority fifteen percent and disabled better owned one point five percent spend. 08:59 Supplier diversity is a focus of all SJW group companies and another way we're having an impact for good in our communities coast to coast. Building and retaining our workforce of water professionals is also critical. Earlier this month, Connecticut Water was recognized at the state level as a top workplace and also at the national level for culture excellence by top workplaces for our professional development program, Connecticut water was one of about two fifty companies at size to be recognized nationally. 09:35 Cybersecurity is critically important to our industry and the country. In August, I was honoured to represent SJW group at the White House's cybersecurity summit, along with two dozen respected academics and top executives from leading firms and banking, commerce, energy and water. It was gratifying to see that the importance of water to our national security is recognized at the highest levels of government, including President Biden. 10:07 Attendees committed to sharing best practices and in a water space, SJW Group pledge to be a resource. The smaller organizations still developing their own cybersecurity resources. I'll now turn the call over to Jim, who will review our third quarter and year-to-date financial results. And after Jim's remarks, I'll address other regulatory and business matters. Jim?

10:34 Thank you, Eric? Our quarterly operating results benefited from authorized rate increases in each of our four operating utilities. These increases were offset by a decrease in customer usage, most notably in our California utility as a result of the drought emergency declarations, by the State Governor and Valley Water and the decrease in the availability of surface water supplies in our California service area due to continued dry weather conditions. In addition, we experienced higher general and administrative expenses as we near the end of the third year of our three year California rate case cycle, with new rates anticipated to go into effect in the second quarter of twenty twenty two. 11:18 Third quarter revenue was one hundred and sixty six point nine million dollars a one million dollars or one percent increase over reported third quarter twenty twenty revenue of one hundred and sixty five point nine million dollars. Net income for the third quarter was nineteen point one million dollars or zero point six four dollars per diluted share. This compares with twenty six point one million dollars or zero point nine one dollars per diluted share for the third quarter of twenty twenty. 11:47 Diluted earnings per share for the quarter was primarily driven by cumulative rate increases of zero point two nine dollars per share and decreased production expense due to lower customer usage of zero point two eight dollars per share. These increases were offset by a decrease in customer usage of zero point four eight dollars per share, an increase in administrative and generally expenses of zero point one six dollars per share and an increase in maintenance costs of zero point zero seven dollars per share. In addition, the decrease in California Surface water production resulted in a decrease of zero point zero five dollars per share. 12:24 Turning to our comparative analysis for the quarter, the one million dollars increase in revenue was primarily due to seven point six million dollars and cumulative rate increases three point three million dollars in the net recognition of certain regulatory mechanisms in Connecticut and Maine, and one point eight million dollars in the recognition of California balancing and memorandum accounts. These increases were partially offset by twelve point nine million dollars and decreased customer usage. 12:56 Water production expenses increased two point four million dollars compared to the third quarter of twenty twenty. The expense increase includes seven point eight million dollars and higher average per unit cost for purchased and ground water and one point two million dollars for the purchase of additional water supply necessary to replace the below volume of California surface water. 13:21 These increases were partially offset by seven point five million dollars in cost savings due to lower customer usage. As stated on our previous earnings call, we anticipated producing approximately two point five billion gallons of surface water from our California waters shed, which is representative of our ten-year average production and consistent with the volume authorized in our twenty nineteen California general rate case. 13:48 Through the first nine months of twenty twenty one we experienced minimal rainfall and produced less than two sixty million gallons of surface water. We do not anticipate any significant additional surface water production in twenty twenty one. The incremental cost to supplement this shortfall is approximately four point six million dollars per billion gallons. Other operating expenses increased six point seven million dollars during the third quarter, primarily due to a three point two million dollars increase in administrative and general expenses, one point eight million dollars in higher maintenance expenses and depreciation expense of one point four million dollars. The increase in administrative and general expenses was primarily due to regulatory proceedings in California, Connecticut and Maine and compensation increases. 14:42 In addition, in twenty twenty administrative and general expenses benefited one point four million dollars from the adoption of a new accounting rule on the credit losses. And maintenance expenses benefited from the cost recovery of our previously reserved capital project. No similar benefits occurred in twenty twenty one. 15:02 Other income in twenty twenty included a third quarter gain on the sale of real estate of one point one million dollars and no similar transaction occurred in the third quarter of twenty twenty one. The effective income tax rate for the third quarter was thirteen percent compared to fifteen percent for the third quarter of twenty twenty. The effective tax rate decrease was primarily related to flow through tax benefits. 15:29 Turning to our year-to-date results, twenty twenty-one revenue was four hundred and thirty three point nine million dollars a one percent increase over the same period in twenty twenty. Net income for the first nine months was forty two point five million dollars or one point, one point four three per diluted share compared to forty eight point two million dollars or a one point six eight dollars per diluted share for the same period a year ago. 15:58 The change in year-to-date diluted earnings per share was primarily driven by rate increases that contributed zero point five three dollars per share, decreased production costs due to a decrease in customer usage of zero point two two dollars per share and favorable changes in balancing and memorandum accounts and other regulatory mechanisms of zero point one five dollars per share. 16:19 In addition, the TWA purchase price hold contributed zero point one one dollars per share. An increase in flow through tax benefits contributed zero point one two dollars per share, and new customers contributed zero point zero eight dollars per share. These increases were offset by a decrease in customer usage of zero point five three dollars per share an increase in general and administrative expenses of zero point two nine dollars per share and an increase in average per unit water production cost of zero point two four dollars per share. 16:51 In addition, the decrease in California surface water production impacted earnings by zero point one five dollars per share. And depreciation expense increased zero point one six dollars per share, while maintenance costs also increased at zero point one two dollars per share. Our twenty twenty one year-to-date increase in revenue was primarily due to fourteen million dollars in cumulative rate increases two point four million dollars in the net recognition of certain regulatory mechanisms in Connecticut and Maine and two million dollars from new customers. These increases were partially offset by a decrease in customer usage of fourteen point two million dollars and winter storm credits in our Texas service area of eight hundred thousand dollars. Water production expense in the first nine months of twenty twenty one increased five point one million dollars. The increase was primarily due to six point three million dollars in higher average per unit cost for purchased water and ground water and three point nine million dollars from the California Surface water decrease, partially offset by a five point eight million dollars savings due to lower customer usage. Other operating expenses increased thirteen point nine million dollars year-to-date, primarily due to six million dollars in higher administrative and general expenses, four point two million dollars as an increase in depreciation expense and three point three million dollars in higher maintenance expenses. 18:23 The increase in general and administrative expense was primarily due to the same items noted in the discussion of our quarterly results. Other income for the first nine months of twenty twenty one included the TWA hold amount, which I discussed during the second quarter earnings call. Turning to our capital expenditure program, we added sixty nine point one million dollars in company funded utility plant in the third quarter of twenty twenty one. Bringing total company funded additions for the year to one hundred and sixty nine point two million dollars We are on track to add approximately only two thirty nine million dollars in utility plant in twenty twenty one consistent with our twenty twenty one construction budget. 19:06 For the nine months ended September thirty twenty twenty one, cash flows from operations increased approximately twenty nine point seven million dollars over the same period in twenty twenty. The increase was primarily due to an increase in accounts receivable and accrued unbilled utility revenue collections of fourteen point eight million dollars. Payments have announced previously invoiced and an accrued of seven million dollars an increase in net income adjusted for non-cash items of five point four million dollars that was due to deferred income taxes, and general working capital items, which increased three million dollars. In addition, in the prior year, we made an upfront payment of five million dollars in connection with our city of Cupertino service Concession agreement that did not recur in the current year. 19:55 These increases were partially offset by a decrease in income tax receivable of five point five million dollars. At the end of the quarter, we had one hundred and thirty seven point nine million dollars available on our bank lines of credit for short term financing of utility plant operations and operating activities. The average borrowing rate on our line of credit advances during the first nine months of the year was approximately one point three four percent. 20:24 With that, I will stop and turn the call back over to Eric.

20:28 Thank you, Jim. SJW Group continues to execute on our core growth strategy of investing in high quality water systems to provide safe and reliable service to customers and communities and earning a fair return on those investments. We have invested seventy one percent of our planned twenty twenty-one capital spending through the end of the third quarter. Our board has authorized a two twenty three million dollars capital spending plan for twenty twenty-two. Nearly half is allocated to pipeline replacement projects. 21:02 California's forward looking capital spending authorization and the WICA and WISC infrastructure recovery mechanisms in Connecticut and Maine minimize regulatory lag on these infrastructure investments. As mentioned in last quarter's call, on July twenty eight, the Connecticut Public Utilities Regulatory Authority or PURA approved an increase of five point two million dollars in annual revenues, which is an increase of about five point one percent. On August eleventh, twenty twenty one, Connecticut Water filed a petition with PURA for reconsideration of the rate case decision related to the treatment of excess accumulated deferred income taxes. PURA issued a draft decision on October twenty fifth, that would allow the company to increase annual revenues by an additional one point eight million dollars from the amounts previously authorized in July. The company appreciates the time or PURA commissioners and staff invested in understanding this complex tax matter and in reaching a fair draft decision. A final decision on the matter is expected on November ten with new rates affecting as of that day. 22:20 If the final decision is unchanged from the draft, the result from the general rate case will be a total increase in authorized revenues of seven million dollars or a six point eight percent increase in base rates. The water infrastructure and conservation adjustment was reset to zero as part of the July twenty eight twenty twenty one general rate case decision. This week, Connecticut water filed for a WICA increase for approximately twenty two million dollars and completed WICA eligible projects. Many of the projects were those that were not considered by PURA and the general rate case because of the deadline for capital additions. If approved as submitted, (CWC) [ph] expects a WICA surcharge charge of two point five percent to be added to customer bills in January twenty twenty two. That would generate two point six million dollars in revenue. 23:20 Between the anticipated resolution of the general rate case reconsider and the WICA filing, Connecticut water expected to generate revenue increases of one point eight million dollars and two point six million dollars respectively by the first quarter of twenty twenty two. The total increase including the five point two million dollars addition from the general rate case, final decision in July is nine point six million dollars in total. The combined outcome is near what was anticipated in the company's original rate case filing. 23:57 San Jose water company’s twenty twenty one general rate case application for new rates in twenty twenty two through twenty twenty four is pending before the CPUC. The application seeks an increase of nearly eighty eight million dollars in the revenue requirement over the three year period, authorization for a four thirty five million dollars capital budget and request to recover eighteen point five million dollars from balancing and memorandum accounts. 24:27 New rates are anticipated in the second quarter of twenty twenty two. However, the company will file for rates to be effective on January one twenty twenty two. SJW sees advanced metering infrastructure application is also pending before the CPUC. Of all parties settlement agreement was submitted to the CPUC for adoption that would authorize capital investments of approximately one hundred million dollars over the next four years, with the development of AMI outside of the capital budget requested in the twenty twenty one general rate case. A final decision on the settlement agreement is anticipated in first quarter of twenty twenty two. 25:13 The twenty twenty two through twenty twenty four cost of capital proceeding is also pending before the CPUC. The application requests increases in revenue and return on equity and adjustment to the proposed capital structure, and a decrease in the cost of debt. If improved new rates are expected to be effective in the second quarter of twenty twenty two. Taking into account these current developments, our forecasted earnings remain within our guidance. Of one point eight five to two zero five but as stated last quarter are toward the lower half of the range. 25:53 On September eighth, twenty twenty one main water company filed a supplemental application with the main public Utilities Commission or MPUC for the second step in the rate plan for the Biddeford-Saco division. Main water requested a six point nine million dollars in new base revenues related to the construction of the new SACO River drinking water treatment facility. This is a sixty million dollars generational investment to replace a vintage facility that has been in service since eighteen eighty four. A decision is expected in the second quarter of twenty twenty two in alignment with the completion of the new treatment facility. 26:39 Beginning July one, main implemented an innovative rate smoothing mechanism authorized by the MPUC. The rates moving mechanism mitigates customer rate shop by providing a more gradual ramp to new rates driven by the completion of the SACO River facility. Customers will pay a surcharge until June twenty twenty two with those payments funding a regulatory liability account which will later be used to provide credits to customer bills to mitigate the impacts of the full rate increase when the plant is completed and in service in twenty twenty two. 27:19 Our third and final step filing associated with the new treatment facility is expected to be filed in the second half of twenty twenty two after the plant is in service and operating costs are documented. Before the end of this year, main water will file for two point four million dollars of investment recoverable through the water infrastructure surcharge. 27:42 The company also expects that by March one of twenty twenty two that will have filed rate increase applications in four of its divisions. The rate filings are a condition of settlement in the twenty nineteen tax cut and jobs act quarter. We continue to see a pipeline of growth opportunities at SJWTX, our Texas water and wastewater utility. 28:07 On July twenty third, SJWTX filed for authorization with the Public Utilities Commission of Texas to serve Canyon lakes states which is next to its existing service area. On August eighth, the company filed a change in ownership application with the PUCT to acquire Texas Country water. A decision on that application is expected in the first quarter of twenty twenty two. 28:38 Decisions on the previously filed applications to acquire the Kendall West and Bandera east water utilities are anticipated in our fourth quarter of twenty twenty one. Combined, these pending applications would add more than one thousand five hundred service connections. SJWTX has more than tripled its customer base over the past fifteen years, and now has approximately twenty two thousand connections, providing service to about sixty five thousand people. Within the company's existing service area are Comal and Hays Counties, which are two of the four fastest growing counties in the nation. The addition of Kendall west would add Kendall County, another fast growing county. 29:26 SJWTX has been successful at securing water supplies and building economies of scale that enable organic growth and acquisitions. We are bullish on SJWTX and its increasing contribution to consolidated earnings. On behalf of SJW Group, I want to thank all of our employees in all of our states for their commitment to protect public health, protect each other and deliver life sustaining water service, to families and communities. 30:01 With that, I would like to turn the call back to the operator for your questions.

30:27 [Operator Instructions] And first question comes from the line of Angie Storozynski from Seaport. Angie, your line is now open.

30:37 Thank you. So, I wanted to ask about the pending rate case in California. I heard in your prepared remarks, comments about how important upgrades. So, water systems are, which and sorry from that that there is pushback to the CapEx plan as you've published, we're hearing some opposition to the fixed charges that you guys have proposed in the filing. Also there seems to be some pressure on allowed ROEs or we're about to see it in the lot of ROEs in the pending cost of capital proceeding. So, talk to us about, what are your expectations for the earnings power of your – of San Jose Water in California?

31:28 Yes. Thank you, Angie. Thanks for joining our call today. I appreciate your question. I'll provide my perspective and then of course, Jim has anything to add jump right in. We're in the midst of actually settlement discussions with the office of public advocate. We think those discussions have been very productive and we're progressing through those, I think really well. I think we are optimistic that we'll have the majority of issues settled. And as you know in California, the items that you don't settle in are open and subject to litigation and the actual hearing process. And so, we should know fairly shortly just how many issues would proceed on to litigation if any and I'm actually optimistic that we're going to achieve a real fair resolution for our customers and for the company. So, stay tuned, hopefully, we'll add some news in the next quarter or so.

32:37 Yeah. And Eric, the only thing I would add is on the cost of capital proceeding. There have been some procedural delays on that. So, we've not yet started down the path of processing that proceeding, but we'll certainly keep folks updated on that as we embark on that.

33:01 Okay. And now you mentioned the Connecticut rate case and the twenty twenty eventual increase of nine point six million. Can you remind us, what's the level which this nine point six million dollars to which the nine point six million dollars will be added still? So, what's the revenue level for Connecticut water in twenty twenty one?

33:28 Jim, do you want to add, at the top your head?

33:32 I believe the authorized is, there about around twenty nine million dollars, I'm sorry. In revenue no, let me get that for you by Angie and then I can intervene while we're answering questions.

33:49 Okay. This is, I'm trying to remember, when you guys were merging what Connecticut water that is expectation in the long-term growth or earnings growth of about five percent and granted that the weather has interfered with this trajectory, but given the settlement discussion in California and the outcome of the Connecticut rate case, do you see, do you continue to see this five percent earnings trajectory? I mean I'm talking about basically normalized CAGR?

34:21 Yeah, has continued to remain our guidance overall that over time, that's what we'll achieve and if you think about this year, the value of having the combined company has really been evident because of the water supply challenges we've had in California, the contributions of our New England companies two earnings this year have really been important. So, our goal main goal was to provide the diversity of regulatory exposure and utilities across the country, and we feel really great about having achieved that that's been usually helpful to us here in twenty twenty one and to a great step last year as well as we navigated through the water supply challenges in California. 35:11 There's nothing like a drought to sharpen the focus of all people on the importance of adequate water supply and that's true of our company employees and regulators as well. So, I remain cautiously optimistic that we're going to be in a much better place next year.

35:33 Okay. And the last point. So, I understand it's the last year of the current rate cycle in California hence some inflation and operating expenses. But we are seeing actually the opposite trend with some modern utilities given that we're in the COVID environment and there's these corporate overheads, a lower interest expense is lower again, at the corporate level. So, are you not seeing similar offsets to those inflation pressures that you see for the rest of the business?

36:12 There's certainly as you point out some synchronizing with our current rate cases, that's part of the part of the process. We're very proud of our expense control over time. Connecticut water hadn't been in for rates for over a decade. And so, but when we do go in, we needed to synchronize expenses with what we would expect to see going forward and same is true in California. We've had an uptick in maintenance costs in California with the drought that's kind of a natural situation your experience Angie when to get the drought and the ground gets hard and dry and starts to move a bit, we've had more main breaks than typical and that's contributed to some of the higher maintenance expenses we seen. But overall, we're really pleased with our overall cost efficiency and what we presented to the commissions. We think we compare very favorably when you look at our total O&M costs across on a per customer basis. So that's been our experience. Jim, would you have anything to add to that?

37:19 Yes. I think that's exactly right. Eric, we have started to see a little bit of price increases in some of our CapEx spend, especially in the area of pipe and other areas where there's a little more short supply out there right now, but as it relates to our O&M expense, Eric is spot on Angie that revenue number is one hundred and ten million dollars.

37:45 Okay. And just last one. So, as you negotiate the settlement in California. And I know that we're not yet in the rainy season even though it seems like it is, we have started it. I mean, again, it’s guess and gain probably at this point, but any sense of how your water procurement will differ – in twenty twenty two will differ from what will be reflected in your rates from the GRC? I mean, we already feel like you haven't been sufficiently conservative, and you asked in the pending rate case?

38:27 Angie, I'm going to defer that answer till we complete the settlement process out of respect to it. But like, I mentioned earlier, there's nothing like a drought to really focus everybody's attention on it. And so, we're pleased that the public advocates office and our the regulatory step at CPUC recognized the issue. And so, we're all working together to make sure we do our best to address it. So, I hope we'll have some updates here in the next quarter.

39:01 Okay, great. Thank you. Thanks James.

39:03 Thank you, Angie.

39:05 Thank you.

39:09 Next question comes from the line of Jonathan Reeder of Wells Fargo. Jonathan, your line is now open.

39:17 Hey good morning. How are you guys doing today?

39:21 Oh good.

39:22 Hey Jonathan Thanks for dialing in today.

39:24 Thank you for asking.

39:27 Thanks. Just to build on Angie’s [Technical Difficulty] a little bit in the GRC process, is there a statutory requirements at the ten-year average your service water production be embedded in the case? Is that very much negotiable items?

39:43 There's no statutory requirement is but the evidence is extremely important, of course that experience. And so, but there is the opportunity as well negotiate that in a settlement agreement process just as part of the overall settlement. So, there's puts and takes in any settlement negotiation of course.

40:08 Okay I guess maybe maybe ask slightly different or get little insight. What would the ten-year average look like? Basically, rolling forward to three years including this year extremely low production. How that compares to that two point five billion dollars.

40:29 Jonathan, I don't have that just at my fingertips here, but candidly, what had been previously in rates of two point five billion dollars was pretty close to that average. As I recall, but subject to check, but of course, the last two years we'll have pulled that number down. But over time, the two point five million dollars has been a pretty good average. But if you look at the trend, it's well above the trend.

41:02 Yes that's Just kind of [Indiscernible] nineteen, if I recall is a really surface water for you guys and then obviously twenty twenty, twenty twenty one, those were very bad. So didn't know how that affected the early years that would be rolling off of that ten year average so, okay. On the Q2 results, just to be clear, they didn't include any benefit from the WCMA or the WEMA memo accounts approved by the CPUC is that right?

41:38 Yes, that's right. Jonathan, we have not yet met some of the accounting requirements in that regard. And so, we have not reflected any of the benefits of the two mechanisms and recall that the WCMA was really effective as of August one. I think it was passed in July – Mid July seventeen, but the true impact would have been measured from August first going forward.

42:10 Yes. So, based on that just for effective date is there like a retroactive when you meet those accounting requirements, are you able to extensively in Q4, book it retroactively to that August first effective date then?

42:27 Yes, we would be.

42:29 Okay. Okay. And so that's in part factored into, I guess the reiteration of the guidance range the lower half of it or whatever?

42:40 Yes, it is.

42:42 Okay. Okay. No, that's key to me. All that zero point two dollars delta and was kind of wondering about that. So okay, I think that's all of the questions that I have. Angie asked a few of the other ones I had. So, appreciate that and good luck with the California settlement discussions.

43:03 Hey Johnathan, Appreciate it.

43:06 Thank you, John.

43:24 [Operator Instructions] There are no further questions at this time, presenters, you may continue.

43:29 Very good. Well, thank you operator and thank you everyone for joining our call today. We really appreciate your interest and in support of our company. We're really proud of our people. I want to once again thank them for really delivering excellence in the last quarter under really challenging circumstances, both COVID and droughts and hurricanes and the like and we just couldn't be proud of our people, and we look forward to keeping you posted on our progress in the fourth quarter. Thank you all.

44:04 Thank you so much for our presenters. And to everyone who participated. This concludes today's conference call. You may now disconnect. Have a great day.