American States Water Co (AWR) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Today is August 6th. 2009. Welcome to the American States Water Company conference call discussing second quarter 2009 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 651, 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 2:00 p.m. Pacific Time and run through Thursday August 13th, 2009. The toll free number for the replay is 800-642-1687. The conference ID is 19929323.

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

I would like to turn the call over to Eva Tang, Chief Financial Officer of American States Water Company. Please go ahead.

Thank you. Good morning or good afternoon everyone. I'm Eva Tang, Chief Financial Officer of the company, and Bob Sprowls, President and CEO, is also with me today. I want to thank each of you for joining us today and for your continued interest in American States Water Company. 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 may be forward-looking statements, intended to qualify for the Safe Harbor liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the Company's risks and uncertainties in the most recent Form 10-K and Form 10-K on file with the Securities and Exchange Commission. All forward-looking statements are made as of today, the Company is under no obligation to update such statements.

During our call today Bob and I may refer to American States Water Company as AWR, Golden States Water Company as GSWC and American States Utility Services as ASUS.

I will begin with the results for the second quarter of 2009. Basic and fully diluted earnings reported for the quarter ended June 30th, 2009 were $0.64 per share, as compared to basic and fully diluted earnings of $0.54 and $0.53 per share, respectively, for the second quarter of 2008. Removing the effects of an unrealized gain of $0.06 share from the 2008 results diluted EPS, as adjusted, was $0.47 per share for the second quarter 2008. In comparison, the $0.64 per share for the second quarter 2009 is $0.17 per share higher than the same period of 2008, as adjusted. American States Water Company

The previous purchase power contract expires on December 31, 2008 and effective January first 2009 the Company begin taking delivery of power under a new contract. Pursuant to a decision issued by the California Public Utilities Commission, the CPUC, the Company would defer all unrealized gains and losses generated from the new power contract into a regulatory memorandum account throughout the the term of the contract. As of June 30, 2009 a cumulative unrealized loss of $8.5 million has been included in this account. Therefore not affecting the Company's earnings.

Impacting the comparability in the results of the two periods are the following significant items. First, the water and electric margin, which is the net of revenue and supply cost, increased by $5.5 million, or $0.18 per share during the second quarter 2009. The increase in the margin is due to the following reasons. First, higher water rates approved by the CPUC effective January 1, 2009, added about $2.4 million revenue for the quarter. Second, even though revenue were impacted by lower water consumption of 4.2% compared to the same period of 2008, the implementation of water revenue adjustment mechanism referred to as the WRAM and the modified supply cost balancing accounts for region two and region three in late November of 2008 added a net of approximately $2.2 million, to pretax income. That is about $0.07 per share.

The third point, as discussed in our last quarterly earnings call the CPUC approved $2 million of water conservation memorandum accounts for region two and region three in April 2009. We therefore recorded $2 million of additional revenues in the second quarter of 2009. We also reported additional revenues of $850,000 included in the water conservation memorandum accounts for region one. For the revenue shortfall from August 18th 2008, when the conservation memorandum account was in place, through the end of June 2009 due to the high probability of recovery. Region one will implement the WRAM account on or about September 1, 2009. Also, $2.85 million of additional revenues associated with recognizing the amount in the water conservation memorandum account. Approximately $2.6 million were for the 2008 year before the WRAM account were in place.

The second item impacting the quarterly earnings is a $1 million of proceeds received in May 2009 pursuant to a settlement agreement reached with Moran Trading. We recorded the proceeds of $1 million, or $0.03 per share, during the second quarter 2009 as a reduction to legal costs. There is no similar gain in the same period of '08. The settlement came after many years of legal proceedings which began in 2001 when the Company filed a complaint with the Federal Energy Regulatory Commission. The complaint was filed to refuse the $95 per megawatt hour rate in our contract entered into with Moran to a just and reasonable price.

Third item impacting the comparability of the two quarters is an increase in other operating expenses at Golden State Water Company. Excluding the settlement agreement with Moran, other operating expenses, including administrative and general expenses and depreciation expenses increased by $1.3 million at Golden State Water, or $0.04 per share for the second quarter of 2009. The increase is primarily due to an increase of $855,000 in pension expenses and an increase of $469,000 in depreciation expense.

The improved financial performance of our contracted services business operating under American States Utility Services Inc., or ASUS, positively impacted 2009 second quarter's earnings. Pretax operating income through ASUS increased by $1.6 million, or $0.05 per share as compared to the second quarter of 2008. This was due primarily to an increase in special construction projects at Ft. Bliss and military bases in Virginia, and improved performance at Fort Jackson and Fort Bass military bases.

Interest expense net of interest income, increased by $844,000 or $0.03 per share. Due to a increase in long-term debt resulting from issuance of $40 million of notes in March 2009. And recording of $480,000 in interest income during the second quarter of 2008 In connection with an Internal Revenue Services examination of the Company's 2002 income tax run. There was no similar recording of interest income in the same period of 2009.

Another item impacting the quarterly result is an increase in the effective income tax rate in the second quarter of 2009 which negatively impacted earnings by $0.02 per share as compared to the same period in 2008. The effective income tax increase was due to changes between book and taxable income, that are treated as flow through adjustments in accordance with regulatory requirements.

Now on to a summary of the year to date 2009 results. Diluted earnings per share for the six months ended June 30th, 2009 were $0.92 compared to $0.84 for 2008. Included in 2008 diluted EPS was unrealized gain of purchase power contracts which increased pretax income by $4.5 million or $0.15 cents per share. Excluding the effect of this unrealized gain, diluted EPS as adjusted, in 2008, was $0.69 as compared to the $0.92 reported in 2009. That is an increase of $0.20 per share. Impacting comparability of the resales of the two periods on a diluted per share basis as adjusted are an increase in water and electric margin of $6.2 million or $0.21 per share due to higher water revenues. An increase in other operating expenses of $4.1 million, or $0.14 per share, at the Company's utility businesses, including higher labor, pension and outside services costs to include financial performance of contracted services at the military basis resulting in increase in ASUS pretax operating income of $3.2 million, or $0.11 per share.

The recording of $1 million in settlement proceeds of $0.03 per share resulting from a settlement agreement reached with Moran Trading, as discussed in our quarterly results. An increase in interest expense of $281,000 or $0.01 per share due to an increase in long-term debt resulting from issuance of $40 million of notes in March 2009. A decrease in interest income of $338,000, or $0.02 per share, primarily reflecting $480,000 of interest income in 2008 from the IRS examination of the Company's 2002 income tax return, and a tax benefit of $918,000 or $0.05 per share recorded in the first quarter of 2009 due to changes in states apportionment law.

This concludes my report on the year to date result. In May of 2009, AWR, American States Water Company, completed a public offering of 1,150,000 shares of common stock at a price of $31 per share. The net proceeds from the offering were $34 million. For the six month ended June 30, 2009 capital expenditures were approximately $36.9 million as compared to $38.8 million for the same period in 2008. We expect our capital expenditures to be maintained at similar levels as 2008. Total capital expenditures for 2008 were approximately $77 million. Standard and Poor's ratings services recently affirmed the A corporate rate credit rating on both American States Water Company and Golden States Water Company and also upgraded the outlook to positive from stable. The positive outlook revision reflects the Company's solid capital structure and S&P's expectation on the Company for greater and more stable earnings and cash flow from enhanced cost recovery mechanism and continued regulatory support.

I will now turn the call over to Bob.

Thank you, Eva . Good morning or good afternoon, ladies and gentlemen. I will discuss the status of key regulatory filings and matters for the Company. First of all, the implementation of phase one of the cost of capital decision, in which the California Public Utility Commission authorized a return on equity of 10.2%, is expected to result in an increase in annualized revenues of approximately $670,000. The revenue increase for the 2009 year is approximately $300,000, implemented from early August of 2009, through December 31st, 2009.

On July 30th, 2009, the California Public Utility Commission approved phase two of the cost of capital application, which adopted an automatic mechanism called the water cost of capital mechanism to adjust the return on equity and return on rate base included in rates for significant changes in interest rates between the every three year cost of capital proceedings. Rates to customers will be adjusted only if there is a positive or negative change of more than 100 basis points in the average of the Moody's AA utility bond rate as measured over the period October 1 through September 30th. The initial benchmark for the average interest rate of the Moody's AA utility bonds is for the period October 1st, 2007, through September 30th, 2008. If the average interest rate of the Moody's utility bonds for October 1, 2008 through September 30, 2009 changes by over 100 basis points from the benchmark, the return on equity will be adjusted by one-half of the difference. Debt costs will be updated at the same time when the ROE adjustment is made.

Second, I wanted to mention we were pleased that the California Public Utility Commission issued a final decision on May 21st, 2009 regarding our new purchase power contract. That approved the contract and also allowed for the establishment of a memorandum account to track derivative gains and losses throughout the term of the contract. As a result, we have removed the requirement to recognize the income statement impact of these unrealized gains and losses, that we have been recognizing on Golden State Water Company and American States Water's income statement since 2002 under previous power contracts.

Now on to our general rate case proceedings. We have general rate cases in progress for all of American States Water's regulated utilities except for Golden State Water's region one which will be filed in January, 2010, for a two year rate cycle starting 2011.

Here is a brief update of the rate cases still in proceeding. Golden State Water filed this general rate case for regions two and three and the general office in July 2008, with rates to be effective 2010, through 2012. In the filing, we requested rate increases that would be expected to generate approximately $50.3 million, in annual revenues starting in 2010, additional $4.3 million in 2011, an additional $7.9 million in 2012. During the course of our proceeding, we have agreed to reduce or eliminate certain requests. As a result, the pending rate increase request, if granted by the California Public Utility Commission, would generate annual increases of $42.2 million in 2010, $3.5 million in 2011, and $5.8 million in 2012 for both regions.

The Division of Rate Fair Advocates, DRA, still has a different position on the rate increases. For instance, as compared to the Company's revised request of $42.2 million in 2010, the DRA is recommending an increase of $31.7 million, in annual revenues. We are litigating the difference between these amounts. At this time we cannot predict what the results will be, but we expect a final decision from the PUC by November of 2009. Golden State Water's Bear Valley electric service division filed its general rate case with the PUC's electric division in June of 2008, requesting an annualized revenue increase of $6.8 million in 2009, and incremental increases of $3.7 million, over the three year period, 2010 to 2012 based on return on equity of 11.7%.

In May, 2009, a settlement agreement was reached with DRA. The requested increase for the first year has been revised to approximately $4.8 million, in estimated annual revenues, with an estimated effective date of September 2009, which would generate about $1.6 million for the remainder of 2009. The settlement stipulated in ROE of 10.5%.

Chaparral City Water Company is also expecting a decision from Arizona Corporation Commission, to approve its requested annual increase of $2.9 million in the third quarter of 2009. As of June 30th, 2009, Chaparral City Water has $3.5 million of goodwill on its books which may be at risk for potential impairment if the requested rate increases are not granted or are further delayed by the Arizona Corporation Commission.

Before I turn to water supply issues, I wanted to briefly talk about our contracted services business. Even without the receipt of price redeterminations and requests for equitable adjustments, I'm pleased to say that ASUS had a third strong quarter in a row. The improvement in profitability during the first and second quarters of 2009 is due primarily to increases in special construction projects at military bases in Texas and Virginia coupled with lower operating expenses. In addition, we saw improved performance at the Fort Jackson and Fort Bragg military bases compared to the same periods in 2008 resulting from lower operating expenses. Administrative and general expenses were ASUS were $5.2 million, for the six months ended June 30th, 2009, which to some extent are fixed costs in nature, at least for the short-term. The profitability at ASUS depends on whether it can generate enough margin to cover these fixed costs. While ASUS continues to have special construction projects on various bases, the earnings are somewhat predictable for the remaining balance of 2009.

We are working to finalize price redetermination and requests for equitable adjustments at various bases, which include adjustments to reflect changes in operating conditions and infrastructure levels from that assumed at the time of the execution of the contracts, as well as inflation and costs. Successful price redetermination and requests for equitable adjustment filings should provide added revenues prospectively to help offset increased costs and provide ASUS the opportunity to continue generating positive operating income at its military subsidiaries. The timing of the conclusion of such filings is somewhat unpredictable.

Let's now turn our attention to water supply issues. Statewide water supply conditions have improved in recent months but they remain below average for the third consecutive year. Total water storage in the Colorado River basin is slightly better than last year. The percentage of normal year Colorado River runoff is at 85% as a result of a persistent drought in the basin. Lake Mead, which supplies Southern California, is at 42% capacity, although it may receive more water from upstream Lake Powell as the season progresses.

In addition to pumped water from its wells, which accounts for more than 55% of Golden State Water Company's water supply, Golden State has contracts with various government entities, principally member agencies of the Metropolitan Water District of Southern California, to purchase water for distribution to the Company's retail customers. Due to the third consecutive year of drought and court ordered pumping restrictions that limit the flow of water through the Sacramento, San Joaquin delta in an effort to protect the environment, the Board of Metropolitan Water District voted on April 14th, 2009 to implement its water supply allocation plan to effectively reduce water deliveries across the southern California region by 10%, beginning July 1st, 2009. MWD plans to achieve the reduction by imposing significant penalty charges to its member agencies who do not achieve stated reductions. The member agencies are implementing similar penalty structures to Golden State Water Company to ensure commensurate conservation levels.

As a result, Golden State Water has filed advice letters with the California Public Utility Commission, seeking to implement similar mandatory water conservation and rationing schedules, and to establish a mandatory conservation and rationing memorandum account to track the additional administrative costs, operating costs, and revenue short fall in Simi Valley and certain region two and region three customer service areas. Reduction goals range from 6% to 15% depending upon the area.

So far Golden State Water has implemented water rationing in the Bay Point customer service area. Golden State Water is closely monitoring developments and working with its water suppliers to safeguard supply and evaluate potential emergency responses to a prolonged reduction in imported supplies.

As reported on our recent news release, the board of directors of American States Water Company approved a quarterly dividend of $0.25 per share. This action represents a 293rd consecutive dividend payment by the Company. For 55 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 of directors may deem relevant.

American States shareholders should know that using SEC guidelines for reporting financial performance $10,000 invested in the shares of American States Water at December 31st, 2003 would be worth $16,281 at June 30th, 2009. This amounts to an annual compound growth in shareholder value of 9.3%.

Before I turn the conference over to the operator to entertain questions, I would first like to thank you again for your continued support and interest in the Company. With that I will turn it back to the

(Operator Instructions). The first question will come from Debra Coy with Janney.

Thanks, good morning, Bob, good morning Eva. Couple of follow up questions. First Bob, on the phase two of the cost of capital proceedings and the tie to the utility bond rate, we can go back and do some figuring on this too, but can you just help us out on where the additional benchmark was set in terms of an actual interest rate percent for the utility bond that you mentioned from October 27th, to 2008 and then where it is now? I'm guessing that perhaps thus far this year it's a little lower than it was in the benchmark year.

To be honest, we haven't done that calculation at this point.

Just out of curiosity because we are not far away from the full year.

That's right. We aren't. Just have a couple of more months in the calculation period.

Suffice it to say if the new benchmark period is, say, 100 basis points lower, just for the sake of example, that your adjustment would be then 50 basis points?

That's right. That's right. Well the measurement period from October 1st of 2008, through September 30th of 2009, that was a very choppy time period. You saw rates probably run up a little bit because of credit spreads. But then maybe come down a little bit because of the underlying treasury being so low. We haven't done the calculation. But one thing we could maybe do, Eva, is possibly get back to you, Debra, on that.

Okay, just curious to see what direction we are heading. Then if there is any change one way or the other, when would that take effect?

I believe it would take effect January 1st.

Of 2010.

Yes. Generally these rates, it takes a little while for them to come out, so there would be this averaging mechanism, and everyone would have to be comfortable that the math had been done right. So it would take a month or two probably to get this in place. But it would be planned for January 1st and then it would be in place for calendar 2010.

Then you do it again next year. It's rolling every year for that same test period.

That's right.

Then turning over to ASUS, it was a nice quarter, as you said. It sounds like the bulk of that benefit was the new contracts. And you said something to the effect that you gave us our operating costs and you said that second half earnings were, I think you said predictable excluding the projects. I haven't gone back and looked at those numbers yet but are you implying that until you get the price redeterminations, that the core business, leaving aside the projects, is still in a money losing proposition for the remainder of this year?

I think the point here is it's difficult to predict, still difficult to predict this business. These special projects come up from time to time. Additionally, some of the projects that are under the regular contracts in some cases haven't gotten started on time, particularly Fort Bragg, there is substantial construction work to be done there under the contract. That's behind schedule, as well. So still difficult to predict the profitability of that business. But I'll tell you I believe our Company is doing a much better job of managing the costs at the various bases and are focused on making sure we can at least break even while we are waiting for some of these price redeterminations to kick in. The special projects do come up. Because we now have eight bases, there's likelihood we will have special projects but we can't really come out and guarantee they are going to be as significant as they have been in the first six months of the year.

But the $5.2 million of G&A expenses, is that down relative to the first six months of last year?

Not necessarily. One of the reasons for putting that out there is just to let folks know that that's what we are going to have to cover.

$10 million on annual basis or $10.5 million call it.

Right, and that includes overhead that gets pushed down from the corporation and also includes overhead at the regional headquarters, or Costa Mesa headquarters, and then just regular A&G expenses. We are trying to run a pretty lean shop there because we are really focused on making that business profitable. That's really what it takes to run the eight bases at this point.

Your base revenue, excluding the special projects, isn't it $10 million a year or plus? So you should be breaking even, at that added $10 million, $10.5 million cost base you should be breaking even, shouldn't you? Or is your annualized revenue not quite there?

In terms of the O&M revenue?

Yes.

It's not quite. Eva what do you think?

I think it's about a little over $10 million for the O&M revenue. We are trying to control our fixed charges, so to the extent that we can cover it by the O&M revenue that's our goal. I think we are not there yet. We rely on special projects Bob mentioned. Some of the projects in second quarter was still going on and continuing in the third and fourth quarter. So that would help a little bit. But as Bob said, the big project, Fort Bragg, hasn't started.

Right, okay. That helps me to understand that. Just finally, I know I ask this every quarter, and every quarter you say it's unpredictable and it sounds like it's the same, but what is your current best sense of the timing on the redeterminations? They certainly have continued to drag on longer than we hoped.

Maybe I can just walk you through by group of bases, if I could. Let's start with the four Virginia bases along with Andrews Air Force base in Maryland. Redeterminations have been submitted and are under review by the government there. The price redeterminations are expected to be completed in late 2009 or early 2010. And you recall in 2008 ASUS received interim increases at the four Virginia bases. We move to Fort Bragg, there with have a request for equitable adjustment filed to reflect the fact that ASUS has taken over more inventory there than was included in the contract. The REA that we filed there at Bragg reflects infrastructure that is 40% greater than what's included in the contract. We expect a resolution to that REA hopefully in the third quarter of this year.

Okay. So that one could be sizable.

Yes. Additionally we filed a request for equitable adjustment at Fort Bliss due to ASUS, assuming more infrastructure there than was included in the original contract. We continue negotiations with the government to finalize inventory adjustment necessary as a result of the increased infrastructure. We plan to file our first price redetermination at Bliss during the third quarter of 2009 to be followed by a second price redetermination during the fourth quarter of 2009. So the plan at Bliss has been to try to get the inventory sorted out first and then file the price redetermination which the redetermination will be a function of how much inventory we have there.

You said two price redeterminations, you filed one in the third quarter and one in the fourth quarter?

That's right because we started that base in 2004, so the first one would have been due in 2006, and then due in October of 2009.

So it's like filing two rate cases back to back because you never got the first one.

That's right. Then finally in September of 2008 we submitted a request for equitable adjustment at Fort Jackson for $1.6 million for the water and wastewater system, really requesting a contract mod there for our initial capital upgrades and for emergency construction costs that we incurred during 2008 due to basically preexisting conditions associated with the water wastewater system. As you'll recall, we had significant emergency type related repairs that we had to make to the wastewater system in effect right after we took over the base. In addition, another REA, or request for equitable adjustment, which would increase our annual O&M and our annual renewal and replacement funds by about $1.6 million, related to joint inventory level has been filed. So there we've also taken over more inventory. But resolution on these is not expected until the first quarter of 2010.

That's very helpful, Bob, to walk through that. So the only other last follow-up question I have, you mentioned these numbers related to Fort Jackson but can you give an aggregate of what all, if you add up the price redeterminations and all the REAs that are out, how much does that all add up to in terms of your request, obviously understanding that you may not get everything you request?

I don't think we've put that number out anywhere, have we Eva ?

I don't think so.

The Fort Jackson ones you gave because you filed them, the others you haven't put in your public filings?

I don't recall us putting those our public--

You just mentioned them, the $1.6 million.

Right, I did mention the $1.6 million at Fort Jackson.

The Fort Jackson, $1.6 million, Debra, as you recall, negatively impact our third quarter 2008 earnings.

Yes, I do, and you did talk about that in your 3Q filling.

To the extent we can receive the approval for that one we actually can put back to our income because we expensed it already in the third quarter of 2008. The second piece of the Fort Jackson is more prospective due to increases.

Coincidentally, it's the same number.

Yes, the same number.

But they are two different things, I do understand that. Suffice it to say, it sounds like there is, even though you are not disclosing a specific number, it's certainly in the multi millions of requests that you are making.

Yes I think that's a fair statement.

And Debra, for the O&M revenue for the military bases, you mentioned about $10 million, actually it's about $13 million a year just on the O&M revenue side.

So you should be making money there then.

No, the $5.2 million was just the A&G costs, it really doesn't cover --

Doesn't cover construction costs and the like.

And it doesn't cover operating and maintenance costs in there either.

Okay, got it.

The O&M cost is really a variable to the O&M revenue, but the A&G is fixed cost. Always have to make it over that number.

Okay, all right, I will come back to you on that.

I'm glad you asked those questions because we don't want to mislead you here to think we just have this $5.2 million.

No, so then you've got the additional what we would call cost of goods sold is not included in that.

Direct costs.

Okay. Thank you for that. I just have one last question and I will stop dominating the call here. On the supply side, you talked about the supply issues they are facing in California and some of the net cutbacks. So you are only seeing a mandatory rationing in a relatively small proportion of your customer base so far, as I understand it. Is that correct?

No it's really not correct I guess. We are getting ready to do rationing for a lot more basically, a good part of what we have in southern California. It encompass a good part of regions two and three.

So that we are facing the prospect of an average 10% usage reduction across most of your service territory to meet net requirements?

Yes.

Whether or not you have the supply you still have to do those cut backs.

Yes.

In other words, what I'm trying to understand if Met cuts back your supply by 10%, and you put in place rationing but yet you have all the perfected water rights and stuff you have worked on, and storage and so on and the other 55% of your supply, would that mitigate those usage cutbacks or it doesn't matter?

It's sort of by region, it's basically by district is the way it works. So yes our ground water will help to mitigate some of this but it is a function of some areas will have the 10%, others may not. We are able to use some of our water to help out the situation here.

Because I thought that was always the intent of working to perfect your water supply.

Right. Yes. So control your own destiny. And we are using our own water supply here, it's just we are trying to avoid the penalties from MWD, and to the degree we get penalties we feel like we can pass them on to customers but our customers are the most important to us so we are trying to avoid this situation.

I'll just put a little color on this. We have these public participation hearings whenever we implement rate increases. We also have had these public participation hearings for situations where we are implementing rationing and trying to explain this whole situation to our customers. In certain areas where we were getting maybe 30 people to come when we had rate increases, we are getting maybe 150 people to come when we are talking about rationing. The customers are very interested, as you might guess, in how this all works and so its something we are very focused on managing properly and trying to maintain the strong brand equity we feel we have with our customers.

Since they're going to be paying more for less and less water.

That's right.

Debra, we have been putting a lot of effort to fully utilize our ground water rights. We're pumping as much as we can so we don't have to rely so much on the purchased water. Our supply is actually being improved compared to the adopted number. We purchase less than what we originally expected to be, at least for now. That's an effort to mitigate restriction from that.

This isn't an exact science, because we're not really working with Met, we're working with individual member agencies of Met. Which complicates it.

They all have their own issues that they are facing.

They do. It's a very complicated process.

Sounds light you want to get more ground water supplies. I will get back in line, thanks so much.

Thank you, Debra.

(Operator Instructions). At this time, there are no further questions. I would like to turn the conference back over to management for any closing remarks.

Sure. I just would like, before we close today, just thank you all for your participation today and for your continued interest and investment in our Company. Thank you very much.

This concludes today's American States Water Company conference call. As a reminder, the call will be available for replay at approximately 2:00 p.m. Pacific Time. The number for the replay is 800-642-1687, and the conference ID is 19929323. You may also access replay at www.aswater.com. Thank you for your participation. You may now disconnect.