American States Water Co (AWR) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing third quarter 2008 results.

If you have not received a copy of this morning's news release announcing earnings for the quarter, please call 909-394-3600 extension 710 and one will be faxed or emailed to you. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 3:00 pm pacific time and run through Thursday, November 13,2008. The toll free number for the replay is 800-642-1687 or local number 706-645-9291 and the conference ID number is 69552863.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this call will be recorded and will be limited to no more than one hour.

Thank you. I would now like to turn the call over to Mr. Floyd Wicks. Please go ahead.

Good morning, ladies and gentlemen.

Before we begin our discussion today, I want to introduce and welcome Ms. Eva Tang, the Company's new Chief Financial Officer as of November 1, 2008. In case any of you missed the announcement in our press release on Monday, November 3rd, Ms. Tang has succeeded Bob Sprowls as CFO, Senior VP, Corporate Secretary and Treasurer of American States Water Company to allow Bob time to focus on his transition to CEO on January 1, 2009. Bob will retain his position as Executive Vice President of American States Water Company and Eva will continue to report to him during this transition.

Eva, welcome, and I will now turn it over to her for a presentation of our financial third quarter.

Thank you, Floyd.

Good morning, ladies and gentlemen, and welcome to the presentation of American States Water Company's third quarter 2008 results. Today I have Floyd Wicks, President and CEO; and Bob Sprowls, Executive Vice President of the Company, with me. As usual, following the conclusion of our prepared remarks, the call will be opened up for questions.

I would like to remind you that certain matters discussed during this conference call are forward-looking statements, intended to qualify for the Safe Harbor from liabilities established by the Private Securities Litigation Reform Act of 1995. I ask that you review the forward-looking information disclosure in our Form 10K and 10Q on file with the Securities and Exchange Commission.

The factors that are underlying the Company's forward-looking statements are dynamic and subject to change. Therefore, these forward-looking statements speaks only as of the date they are given. The Company is under no obligation to update them; however, we may choose from time to time to update them. If we do so, we will disseminate the updates to the investing public.

During our presentation today, Floyd, Bob and I may refer to American States Water Company as AWR. Golden State Water company as GSWC and American States Utility Services as ASUS. Having said that, let's begin with the results for the quarter.

Basic and fully diluted earnings for the quarter ended September 30, 2008 were $0.26 per share, as compared to basic and fully diluted earnings of $0.44 per share for the same period ended September 30, 2007. Excluding the unrealized losses on our purchased power contracts of $0.13 per share for third quarter of 2008 and $0.03 per share for 2007, earnings for the 2008 third quarter would be $0.39 per share, compared to $0.47 per share for the same period in 2007. That is an $0.08 per share decrease.

The $0.08 per share decrease in adjusted earnings for the third quarter of 2008 is primarily due to the following items: first, a 6.8% decrease in water usage during the three months ended September 30, 2008 resulted in a $2.9 million decrease in water revenue, or $0.07 per share. Although precipitation was overall lower in the three months ended September 30, 2008, the 2008 water revenue appeared to have been impacted by the effect of statewide customer conservation efforts.

Second, American States Utility Service recorded a pre-tax operating loss of $1.4 million for contracted services for the third quarter of 2008 declining by $1.4 million or $0.05 per share, as compared to the third quarter of 2007 due primarily to losses incurred at two new bases we added earlier this year. ASUS commenced operational water and waste water system at military bases in North Carolina and South Carolina during the first quarter of 2008 and have incurred higher than anticipated transitions and emergency construction costs to address pre-existing conditions which were not anticipated in the original 50 year contract.

In addition, current estimate of construction costs compared to contract revenue indicate losses on certain initial capital upgrade projects. In September 2008, ASUS amended a request for equitable adjustment for the water and waste water systems at Fort Jackson, that is in South Carolina, in which we requested revenue for modification to recover all of the cost and profit margin on these initial capital upgrades and emergency construction costs. We will record additional revenues upon approval of the request for equitable adjustment by the government. Increases in gross receipts, tax assessment and other operating expenses also contributed to the loss at ASUS.

The third item is the increased water rates approved by California Public Utilities Commissions, partially offset by higher supply costs contributed $0.15 per share to earnings. Lastly, higher other operating expenses at Golden State Water in 2008, and the higher consolidated effect of the income tax rate resulted in an overall decrease of $0.11 per share, largely offsetting the rate increases as discussed above. As you recall, we mentioned $0.15 was the result from rate increases.

The $0.11 per share decreases in expenses is a result of three items. The first item is an increase in administrative and general expenses due to higher labor, imposed benefit costs, and the increasing OpEx services related to tax, (inaudible) and consulting services. The second item is an increase in depreciation and amortization expense reflecting among other things, the effect of closing approximately 55.2 million of additional utility plants during 2007.

And the third item is a change in the effective income tax rate. The effective tax rate for the third quarter of 2008 increased by 2.2% to 42.9% as compared to 40.7% for the same period of 2007. The increase in effective tax rate is principally due to changes between books and taxable income that are treated as flow through adjustment based on regulatory requirements. Flow through adjustments are mostly compensatory related in nature.

Now briefly on to the year to date 2008 results. Net income for the nine months ended September 30, 2008 was $19.1million, equivalent to $1.10 per common share, compared to $21.9 million or $1.26 per share for the nine months ended September 30, 2007.

Excluding the fact of realized gains on power purchase contracts, basic and fully diluted earnings would be $1.07 per share for the nine months ended September 7, 2008 and $1.21 per share for the same period of 2007. Among other things, a decrease of 6% in water consumption during the first nine months of 2008 resulted in a $6.5 million decrease in water revenue, which is equivalent to $0.16 per share.

In addition, a significant waste water expansion product which contributed $0.17 per share in 2007 from our contracted services business also impacted the comparability of the two periods. There was no similar significant construction project in 2008.

Before I turn the call over to Floyd, I would like to take some time to discuss the Company's liquidity and capital resources. Although we believe that the economic downturn that has surfaced in the past month will not have a major impact on our financial performance or material diminishing our ability to assess the capital markets, it may impact the timing of when to access the capital markets. We are still planning to issue common stock over the next 12 months, which of course, depending on market conditions.

In August 2008, the Company amended its $85 million syndicated credit facility to increase the aggregated bank commitments by $30 million to a total of $115 million. The credit facilities currently utilized to support ongoing operations and capital needs. As of September 30, 2008 AWR has $38 million available to borrow on this credit facility.

The expansion of this line allows us time to explore other opportunity in the debt and equity markets. We believe are some capital structure and the a-stable credit rating, combined with our financial discipline will enable us to access debt or exit markets. However, unpredictable financial market condition in the future may limit our access or perhaps impact the timing of when to access the market. In which case, we may choose to temporarily reduce our capital spending.

Our capital expenditure were approximately $59 million during the nine months ended September 30, 2008, which is an increase of $26 million over the same period last year. This resulted from the Company increased effort in the area of asset management, which included a more focused infrastructure replacement program. Capital expenditure during the nine month ended September 2008 were funded primarily by internally generated cash, short-term borrowings and advances in contribution from developers. I will now turn the call over to Floyd. Floyd?

Thank you, Eva, and once again, good morning, ladies and gentlemen.

As discussed by Eva, the Company's third quarter results have been negatively affected by the financial performance of ASUS due to increases in operating expenses incurred at Forth Bragg in North Carolina and Fort Jackson in South Carolina. These are the two new military bases where ASUS began its contracted services in 2008.

As previously mentioned, we have been incurring higher than anticipated operating costs and emergency construction costs not anticipated in the contracts. We also incurred more costs on certain capital upgrade projects than originally estimated in the fixed price contracts due to the age and preexisting conditions of the infrastructure.

ASUS has filed a request for equitable adjustment with the government to recover these higher costs. If the scope of the contracted services changes in the future, ASUS will seek contract modification approval from the government before any work begins in order to minimize loss on these firm fixed price contracts, unless it is emergency related work. In addition, the fact that ASUS has not received timely approval from the US government to date on other similar contracts also negatively impacted the profitability of the contracted service business.

We intend to continue to vigorously seek resolution of the price redeterminations, request for equitable adjustments and modifications to the contracts for recovery of unexpected emergency construction costs. We are still optimistic for this segment of the business to succeed, because in many ways, it is similar to our regulated business. Once ASUS has successfully negotiated the initial price adjustments with the government, for each of the bases, the price redetermination process will be very similar to a general rate case cycle every three years.

I will now discuss the status of key regulatory filings and important actions, and those still pending. As Eva mentioned earlier, earnings continued to be impacted by statewide customer conservation efforts. On August 21, 2008, the PUC in California issued a final decision which approved the settlement agreement between Golden State Water Company and the Division of Ratepayer Advocates regarding conservation rate design, the implementation of a water revenue adjustment mechanism to decouple sales from revenues, and the establishment of a modified cost balancing account that allows recovery of supply cost for changes in water supply mix.

In accordance with the PUC's administrative processing rules, GSWC will implement two tiered increasing block rates 90 days after the August 21st approval of the settlement agreement or around the 21st of this month. During the interim, Golden State Water Company has begun to implement customer education initiatives which will provide customers with conservation rate notices in bill inserts and will explain the impact of conservation rates on customers' bills.

Furthermore, in a separate proceeding, the PUC also approved an advice letter filing to allow Golden State Water Company to create and implement a water conservation memorandum account to track the extraordinary expenses and revenue shortfall associated with conservation measures in conjunction with the declared drought in California. The water conservation memorandum account was effective and approved by the PUC on August 18, 2008, and will be used to track the revenue shortfall until the WRAM, that is the Revenue Adjustment Mechanism, and modified supply cost balancing account are implemented later this month.

As of September 30th, approximately $2.2 million of net undercollection has been tracked in the water conservation memorandum account. While the water conservation memorandum account to track revenue shortfall will ultimately be replaced by the WRAM after November 20, 2008, the water conservation memorandum account will still be tracking extraordinary expenses associated with drought in California. However, unlike the WRAM, which is probable for recovery, according to the August 21st PUC decision, the recovery of the water conservation memorandum account is not certain and will not be recorded until approved by the PUC. This is why the decrease in consumption during the third quarter still negatively impacted earnings by $0.07 per share. We will file an advice letter seeking recovery of this amount tracked in the memorandum account and if approved by the PUC, Golden State Water will then record a regulatory asset and an increase to income.

For 2009, the following regulatory proceedings at Golden State Water are expected to impact earnings. First, revenues will be adjusted for all regions based on the result from the cost of capital proceeding. By the end of this month, we will be filing to request a second year rate increase for region one, a third year rate increase for region two, and an interim increase for region three. All to be effective January 2009. We do not have these amounts finalized as of this date.

Now, on to Golden State Water company's electric business. Golden State's Bear Valley Electric Service division filed its general rate case with the PUC's electric division in June of this year. Additionally, Golden State Water executed new purchased power contracts in October of this year that will provide power to Bear Valley Electric effective January 1, 2009 at a fixed cost over a five year term. The new contract is subject to PUC approval.

Once the contract is approved, Bear Valley Electric will file a separate application to incorporate the new costs into rates, including energy purchases and delivery costs. The new contract will also be subject to derivative accounting. Bear Valley Electric expects to make another separate filing requesting the PUC to authorize all unrealized gains and losses generated from the new purchased power contracts be deferred on a monthly basis into a noninterest-bearing regulatory asset or liability account that would track the changes in fair value of the derivative throughout the term of the contract.

Upon approval of the new contract by the PUC, changes in the fair value of the derivative throughout the term of the new contract will be included in the regulatory accounts; thereby offsetting the entries required by the derivative accounting. By allowing for such regulatory accounting treatment of the derivative, fair value changes of the purchased power contract will no longer affect Golden State Water company's earnings.

Water supply issues in California are tightening up. In order to help ensure the reliability, quality and affordability of water, Golden State Water Company manages a portfolio of water supplies including ground water production, use of treated water, treated surface water and arrangements with water wholesalers. For example, Golden State Water has contracts with various governmental entities, principally the Metropolitan Water District's member agencies, MWD; and other parties to purchase water for distribution to the Company's retail customers.

MWD's principle sources of water are the Colorado River and the state water project in California which conveys water from the northern part of the state. Water supplies available to MWD through the state water project have historically varied from year to year based on weather although MWD has generally been able to provide sufficient quantities of water to satisfy the needs of its constituents. However, a key link in the state water project is the Sacramento San Joaquin River delta system which exits to the San Francisco Bay. Due to the recent federal court ordered pumping restrictions from the delta, the current outlook for deliveries of the state water project has not improved.

Allocations during 2008 have been dramatically diminished to approximately 35% due to these restrictions. Without the court ordered delta restrictions, the state's Department of Water Resources, DWR, has indicated the allocation would have been approximately 50%. Due to declining storage levels in the state's reservoirs, the DWR in late October announced an initial allocation of only 15% for 2009 water deliveries, which is the second lowest in the history of the state water project.

In February of 2008, MWD approved a water supply allocation plan. And under this plan the MWD board can declare a water supply shortage and allocate water to the MWD member agencies. Depending on weather conditions during the pending winter of 2008 and 2009, such a declaration could occur as early as January of '09. The MWD has indicated that a regional shortage of 10% to 25% or more is possible for 2009.

Approximately 55% of Golden State Water Company's supply comes from our own ground water production wells situated throughout our service areas. Golden State Water Company owns a total of approximately 118,000 acre feet of water rights, mostly ground water, to help meet our supply requirements. The Company purchases from the MWD and its member agencies about 45% of our total demand.

In light of restrictions on imported water supplies and drought conditions in southern California, Golden State Water has been engaging in a comprehensive and ongoing assessment of its water rights and ground water storage assets. In addition, the Company has begun to aggressively pursue voluntary conservation measures among its customers and implement customer education initiatives to help to deal with supply variability and the general scarcity of water supplies.

As reported in our recent news release, the Board of Directors of American States Water approved quarterly dividend of $0.25 per share. This action represents the 290th consecutive dividend payment by the Company. For more than 54 consecutive years, American States Water Company shareholders have received an aggregate annual increase in dividends. The Company presently intends to continue paying quarterly cash dividends in the future, subject to earnings and financial conditions and such other factors as the board may deem relevant.

American States shareholders should know that using SEC guidelines for reporting financial performance, a $10,000 invested in the shares of American States water at December 31, 2003 would be worth $17,712 at September 30, 2008. This amounts to an annual compound growth rate in shareholder value of 12.8%.

And now I'll turn it back over to Eva to review further information.

Now I would like to turn our discussion over to Bob Sprowls, Executive Vice President and soon to be President of AWR, who has a few words he would like to add today.

Bob?

Thank you, Eva, and good morning, everyone.

I would like to take this moment to make a few comments about Floyd, given that this will be our last earnings conference call with Floyd as President and CEO. Floyd is a person we have all learned from and respected for many years here at the Company, both as a leader and as a person. He is a dedicated, compassionate, knowledgeable, and respected member of the water industry as a whole. And his contributions and passion for water and water issues is both contagious and exhaustive.

As President and CEO of the Company, Floyd has led the Company's growth in revenues from $100 million in 1992 to over $300 million in 2007, and growth in assets from $312 million in 1992 to over $1 billion today. His day-to-day leadership will be missed by all here at the Company after 21 years of service. He will continue to serve our shareholders and the industry as Vice Chairman of our Board of Directors beginning January 1, 2009.

Floyd, on behalf of the men and women here at the Company, our shareholders and customers, and the communities we serve, I thank you for the leadership you have given our company.

Well thank you very much, Bob, for your kind words.

I must say in my 41 years in this industry, I have always found the industry itself to be an extremely valuable experience; and I will continue seeking ways in which to improve the presence of the private sector in the water space.

I will now turn the conference back over to the operator to entertain any questions you may have. Thank you, again.

Thank you. (OPERATOR INSTRUCTIONS)

First question from Jonathan Reder with Wachovia.

Good morning, I guess your time. Good afternoon, mine.

First off, Floyd, we are going to miss you but enjoy the well deserved time off. And Eva, welcome to the team and look forward to working with you. And congratulations to you, Bob.

Wanted to get in a little more clarity on the 2008 CapEx plans. What's the full year number looking like? I thought before you were talking 55 to $60 million range. Clearly we are already in that. What's the full year going to come in at?

This is--I think what happened here, we had a--got a little bit behind in prior years, and some of the catch up you are seeing now in the current year-to-date numbers, we believe will probably add about another $15 million or so by year end.

Is that the number you have come up with, Bob?

Well, we are at $59 million I guess through nine months ended. So that's roughly $20 million a quarter clip. It is really hard to be any more specific than that. I mean, we are--as Eva talked about in her prepared remarks, we are talking to the markets as to funding sources. It's one of these things where the--our asset management group has done almost too good of a job at this point.

But we--I think CapEx going forward is going to be a function of to the degree we can fund it; and we are talking to various groups as to access to the capital markets. But at this point, we really haven't cut become our CapEx budget. So I think the $15 million number Floyd is throwing out is probably pretty reasonable at this point.

Okay.

Have you indicated anything for 2009, provided the fundings there, expect similar levels, or could we even see an increase from 2008?

I think similar levels is probably where we are at for 2009, with the caveat that providing there is funding sources out there. It's just such a difficult time in the financial markets. Though we are a utility company, which should have probably more access than any of the other companies, still not clear how much access we have. Every day is sort of a new experience I guess for these financial markets.

Okay.

It sounds like we are talking about then 75 to $80 million full year. Is that just the Company funded portion, or does that include the developer advances in contributions?

That's actually total, yes. So some of that is being funded by our developers. But as you know, Jonathan, if you were to look at the Company's cash flow statement you'll see down in the bottom third the amount that's funded by others.

But at the same time we also have refunds due to these providers. Historically there has been a little bit of cash flow that's come out of that. Little bit of net cash flow. Net positive cash flow.

Okay.

And I believe if I understood correctly in the prepared remarks, right now you have $38 million available under the $115 million total credit facility, is that correct?

That's correct.

Okay.

And then, what is the current I guess common equity ratio? How far out can you kind of delay your equity issuance plans?

Well, we should probably make this point here. And is yours sort of a rating agency type question, Jonathan? Or a commission question?

I guess it really doesn't matter. But in any event, during the third quarter when we increased the revolving credit facility, we did borrow at the parent and pushed $30 million, is that right Eva?

Yes.

Into Golden State Water as equity. So the equity ratio at Golden State Water is very solid at this point. The plan is to then go out and do a stock offering eventually. But two things: the PUC likes to see us with a strong equity position at Golden State Water. Rating agencies do, as well.

And that was--there was a third reason for doing what we did there and that was to get us out of short-term debt once a year at Golden State Water. So we basically borrowed money at the parent, moved it in as equity into Golden State Water. Golden State Water took the cash and paid down its short-term intercompany loan between the parent and the subsidiary. The plan, ultimately, is though, to do an equity offering.

But I think what we have done at this point has approved Golden State Water's equity ratio which the PUC likes to see and the bond rating agencies like to see as well. We are going to do to do some equity eventually, though.

Okay.

And then I guess the last question, just dealing with, I guess, what you are seeing in the credit markets, is it just you are waiting for prices to rationalize a little more before trying to float debt out there, or is it just completely inaccessible?

I believe it's accessible. What happens, though, to companies that are out there issuing equity today, is they are taking, I think in terms of like a 10% haircut off their market price to issue equity. So it's pretty brutal out there and typically we don't see that kind of discount that has to be provided to do the equity offering.

Right and on the debt side, is it just the interest rate that the market is requiring right now is more than what you guys would like to typically finance at?

Well, yes. I mean, we are looking into the debt side of things. Equity was our preference, but at this point debt is something we could do. Though the treasury rates are pretty low right now, the actual credit spread for corporate these days is probably in the 300 basis points greater than what we are used to paying. So it's--the credit spread has pushed up interest rates to corporates right now, despite the fact that the treasury rates are pretty reasonable.

So I mean, we are still talking to folks. We haven't completed our due diligence, so we are really kind of at the early stages of that. And we are looking at both debt and equity.

Okay. Thanks.

I'll let someone else hop on and ask some questions.

Thanks, Jonathan.

(OPERATOR INSTRUCTIONS)

Next question comes from Heike Doerr with Janney Montgomery Scott.

Hello. Congratulations, Eva.

Thank you, Heike.

I wanted to start with a regulatory item.

Floyd, it wasn't clear to me. Are you saying for the RAM you are going to file an advice letter and that would, in effect, retroactive the benefit back to August; is that what the plan is?

It's a little confusing. The RAM is a result of the long investigation on conservation conducted by the commission. Other companies already have that in place. We were not in the first round of companies that went through that process.

In order to at least grab some piece of time where we could at least record lost revenues into what I'm going to call a secondary regulatory process known as memorandum account, the--we did file for a company-wide memorandum account prior to putting the RAM into place because we knew we had this window of time where we were losing revenue because of conservation and weren't able to capture it. We hope the memorandum account process allows us to capture some of that lost revenue.

There is no guarantee of it, but the commission did approve the memorandum account over and above the RAM, if that makes any sense. I hope I'm not confusing you further; but as of August 18, I believe, it was that the memorandum account was approved. And if everything goes as planned, some of the loss for the third quarter that we announced today, I believe was $0.07 per share loss. We think some of that will be recovered in the future through this memorandum account process.

Because as of August 18th, which is halfway into the quarter, from that day forward, we are able to at least track lost revenues and place those dollars in this memo account for future recovery. And we won't know for sure until we file to get that recovered, and it's really only going to cover the point in time from August 18th to November 20th when the RAM takes over for regions two and three; but it will continue to track for region one which is not under the RAM yet, which probably confused you even more.

Yes. So why is it that all three regions aren't being implemented at the same time?

Well we are into a transition period where two of our three regions are now--will now be on track for filing along with the general office. That rate case is actually in process now. Region one was out of synch by, I believe, two years. But by the time, I think, 2012 or 2013 is the first date where all three regions will actually be filed at the same time along with the general office. So it will be a company-wide filing at that time with regions two and three and the GO this year we're almost there because region one is our smallest region. It has, I believe, around 50,000 customers compared to our total company-wide of about 250,000.

So just to clarify, when is it you will be filing for region two, three, and the general office?

That's already been.

It's already been filed?

I think it was July 1st But Bob, do you have a better date than that?

Yes. July 1st effective January 1 of 2010. And then we're trying to bring all three back together through a filing mid-year 2011 effective January 1, 2013.

Got it. Okay. On the electric side, has the purchased power contract and the refiling you are going to need to do on that side thrown off the timing of implementing that rate increase?

No. We have actually filed a full blown general rate case for Bear Valley Electric this year also. We've got a lot of regulatory activity at the PUC here in California. That filing, though, I would think the decision is expected around the middle of the third quarter of '09, as I recall. I might ask Bob and Eva to correct me if I'm wrong on that.

That's right.

Yes, that's right.

Okay.

And if we could switch gears to ASUS, can you disclose how much you filed for at Fort Jackson and what the timing is of that being implemented?

The things we file is enough to cover all the costs we lost as well as the emergency costs. And on top of that the profit margin. And we have to add the number in the 10Q that we will release tomorrow. But safe to say that we covered the cost plus profit margin on whatever we lost in this quarter.

The other thing, Heike, it's a little confusing with my engineering background, have never thought of a capital project that we incur costs on a capital project, yet we have to expense them if we don't have the full government approval for that extra cost we incurred on a capital project. So even though it's capital, it becomes an expense during the third quarter of this year until such time as the military base approves our request for funding for that extra we paid for the project?

Yes.

So it becomes a temporary, I'll call it a temporary expense because we are hoping to get approval in near term time. But when we get that approval, it will allow us to book a revenue increase, because we now have more of a regulatory asset in hand as opposed to no approval by the government yet. I hope I didn't confuse you more on that one too.

No, that makes sense. I guess what I'm trying to understand is how much of these transition costs or initial capital costs that we are talking about, how much of this are we going to see in the coming quarters, or is this isolated to the third quarter event?

You can go ahead, Bob.

Heike, as you know, we are moving up the learning curve somewhat in this business. Some of these costs were costs that we had to--we had to do because of emergency situations. Some of the other costs were things that maybe we could have waited to spend the money until we got a contract modification.

So I guess the expectation is we'll see less of these going forward, because it really is one of these things you have got to get approval from the government before you spend the dollars; and then once you do that, then you can spend them without concern about recovery. So some of it is moving up the curve. Others of it is emergency repairs that is very difficult for us to avoid spending those dollars when you have got situations that require the emergency dollars to be spent.

For the transition cost, Heike, that is a fixed dollar amount usually for any new military bases. So in that sense that we spend under that, we get to take it into income. In this case, we did spend more than what we were authorizing the contract. So we are asking for additional dollar recovery for that additional cost.

Okay. That was helpful. Thank you.

(OPERATOR INSTRUCTIONS)

At this time, there are no further questions. At this time, I'll turn the conference back over to Mr. Floyd Wicks for any further remarks. Please go ahead.

Thank you, Casey.

Again, thank you all for your participation today and for your continued interest and investment in American States Water Company. Have a good day.

Thank you for your participation.

As a reminder if you would like to listen to the replay of this call, it will begin this afternoon at approximately 3:00 pm pacific time and run through Thursday, November 13, 2008. The toll-free number for the replay is 800-642-1687 or local number, 706-645-9291 with conference ID number 69552863.

This does conclude today's conference. Thank you for your participation, you may now disconnect.