American States Water Co (AWR) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Today is November 4, 2009. Welcome to the American States Water Company conference call discussing third quarter 2009 results. If you have not received a copy of this morning's news release and relative earnings for the quarter, please call 909-394-3600, extension 651 and one will be faxed or e-mailed to you.

If you would like to listen to the replay of this call, it will begin this afternoon at approximately 2:00 PM Pacific Time and run through November 11, 2009. The toll-free number for the replay is 800-642-1687 and the conference ID is 36158753. 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. At this time, I would like to turn the call over to Eva Tang, Chief Financial Officer of American States Water Company.

Thank you. Good morning or good afternoon. I'm Eva Tang, Chief Financial Officer of the Company. Bob Sprowls, President and CEO is also with me. I want to thank 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 will like to remind you that certain matters discussed during this conference call may be forward-looking statements intended to qualify for the Safe Harbor on liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the Company's risks and uncertainties in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission. All forward-looking statements are made as of today. The Company's under no obligation to update such statements.

During our presentation today, Bob and I may refer to American States Water Company as AWR, Golden State Water Company as GSWC and Chaparral City Water Company as CCWC and American States Utility Services as ASUS. I'll begin with the results of the third quarter 2009. Basic and diluted -- basic and fully diluted earnings as reported for the quarter ended September 30, 2009 were $0.52 per share as compared to basic and fully diluted earnings of $0.26 per share for the third quarter of 2008. Removing the effects of an unrealized loss on purchase of water , contracts of $0.13 per share from the 2008 results diluted EPS as suggested would have been $0.39 per share for third quarter of 2008.

In comparison, the $0.52 per share for the third quarter of 2009 is $0.13 per share higher than the same period of 2008 as adjusted. As discussed in previous quarters, even though we do have unrealized losses and/or gains on the purchase power contract effective January 1st, 2009, we have recorded them as regulatory assets or liabilities, therefore, not affecting our earnings. The $0.13 per share increase as adjusted in earnings for the third quarter of 2009, is due to the following significant items. First, the water margin increased by $4.7 million or $0.15 per share. Even though revenues were impacted by lower water consumption of approximately 9% or $4.4 million when compared to the same period of 2008, the implementation of the water revenue adjustment mechanism and the modified supply cost balancing accounts for reaching two and three in late November 2008 and September 2009 for region one, added a net increase of $7 million to pretax income for the quarter. Higher water rates approved by the CPUC effective January 1, 2009, also added approximately $2.9 million revenue for the quarter.

Another item that positively impacted the third quarter results was the improvement in the financial performance of our contracted services business, operating under American States Utility Services Inc. or ASUS. Pretax operating income four ASUS increased by $3.9 million or $0.12 per share as compared to the same period in 2008. This was due to increases in special construction projects at Fort Bliss and the military bases in Virginia, and improved the performance at Fort Jackson and Fort Bragg as compared to the same period in 2008.

In addition, the US government approved a request for equitable adjustment of $1.1 million at Fort Jackson for emergency construction costs previously incurred. This equitable adjustment increased construction revenues and pretax operating income by $1.1 million. The both increases were partially offset by the following items. First, operating expenses other than supply cost increased as the Company's water and electric utilities by $2.2 million or $0.07 per share. The increase is primarily due to an increase in pension costs of $829,000, an increase of $721,000 in water treatment costs, and an increase in depreciation expenses of $514,000.

A second item that negatively impacted 2009 third quarter's earnings is the recording of a loss on settlement for removal of wells of $760,000 or $0.02 per share by Chaparral City Water Company. In 2005, Chaparral reached a $1.5 million settlement agreement with a local district to permanently cease using one of Chaparral's wells. Based on previous decisions ruled by the original corporation commission on similar gains, Chaparral recognized a net gain of $750,000 which was 50% of the proceeds in 2005 related to the settlement agreement and established a regulatory liability for the remaining $760,000. Despite its previous rulings, on October 8, 2009, there was a commission ordered Chaparral to treat entire $1.5 million settlement agreement with a (inaudible) district as a reduction to rate base. As a result, Chaparral recognized a loss of $760,000 during the third quarter of 2009 which effectively reversed original gains recorded in 2005.

The third item that partially offset increase in earnings for the third quarter of '09 is higher interest expense. Interest expense net of interest income increased by $553,000 or $0.02 per share due to the issuance of $40 million of 10-year notes in March of 2009 and the recording of $159,000 in interest rate balancing account which was -- the interest rate balancing account was ordered in July 2009 by CPUC in the cause of capital decision to try the difference between actual interest rate for any new debt issued after January 1st, 2009 and the rate authorized in the decision. Finally, the issuance of 1.1 million shares of AWR's common stock completed in May of 2009, diluted earnings by roughly $0.03 per share.

Now on to a summary of the year-to-date 2009 results. Diluted earnings per share for the first nine months of '09 were $1.45 compared to $1.10 for 2008. Included in 2008's diluted EPS was an unrealized gain of $0.03 per share on purchase power contracts. Excluding the effect of this on unrealized gains, diluted EPS as adjusted in '08 would have been a $1.07 as compared to $1.45 recorded in 2009. That is an increase of $0.38 per share.

Contributing to this $0.38 per share increased in diluted earnings as adjusted were the following items. Increase in water margin of $11.2 million or $0.37 per share, primarily due to higher water revenues. The recording of $1 million in settlement proceeds of $0.03 per share ,resulting from a settlement agreement reached with Mirant Trading. The improved the financial performance of contract to services at the military bases resulting in an increase in SUS pretax operating income of $7.1 million or $0.20 per share. And a tax benefit of $918,000 or $0.05 per share recorded in the first quarter of '09 due to changes in the state apportionment laws and a decrease in the effective tax rate during the nine months ended September 30, 2009, favorable impacting earnings by another $0.02 per share.

The increases in diluted EPS as mentioned above, were partially offset by an increase in operating expenses other than supply costs of $6.3 million or $0.21 per share at the Company's utility businesses, including higher labor, pension, outside service and depreciation expenses. The recording of $760,000 loss on settlement for removal of wells as a result of the ACC decision as previously mentioned in the quarterly results. The increase in interest expense net of interest income of $1.5 million or $0.05 per share due to an increase in long-term debt and interest rate balancing discussed above in quarterly presentation as well. And a decrease of $0.04 per share due to the issuance of 1.1 million shares in May of 2009. This concludes my report on the year-to-date result.

I also want to report that for the nine months ended September 30, 2009, capital expenditures were approximately $55.6 million as compared to $59 million for the same period in 2008. We expect our capital expenditure in 2009 to be approximately $75 million which is on target with our estimate for the year. At the end of the third quarter, we still have a balance of $83 million available under our syndicated credit facility to continue to fund our ongoing capital expenditures. We expect capital expenditures in 2010 for Golden State Water Company to be in the $85 million to $90 million range. I will now turn the call over to

Thank you, Eva. And once again, good morning or good afternoon, ladies and gentlemen. Now I will discuss the status of key regulatory filings and other matters for the Company.

Recently we were pleased to receive final decisions on some long awaited general rate case proceedings. Golden State Water Company's Bear Valley Electric Services division received a final division -- final decision on October 15th, 2009, regarding its general rate case filed last year. The decision approves a comprehensive settlement agreement between the Division of Ratepayer Advocates, DRA, and Bear Valley Electric.

The decision authorizes a return on equity of 10.5% with a corresponding return on rate base of 9.15%. The annual increases approved in the decision are $4.8 million for 2009, $1.2 million for 2010, $209,000 for 2011, and $168,000 for 2012. Since the new rates went into effect on November 1st, 2009, the revenue increase for 2009 would be approximately $800,000.

Among other things, the decision allows for an update to Bear Valley Electric's rates in 2010 for the corporate headquarters cost based on the California Public Utility Commission adoption by the end of 2009 of new rates for Golden State Water's current general rate case, including the recovery of expenses associated with its corporate headquarters. Based on the decision, Bear Valley Electric is also allowed to establish a base revenue requirement adjustment mechanism to decouple usage from revenue.

In June 2009, the CPUC had authorized the electric division to track the difference between the 2007 adopted general office cost allocation to Bear Valley Electric and the 1996 adopted general office allocation to Bear Valley Electric in a memorandum account effective and retroactive to June 4th, 2009. The amount in the memorandum account was about $761,000 at the end of September. However, the decision issued in October did not address the disposition of the memorandum account. We intend to seek clarification from the California Public Utility Commission on the treatment of the memorandum account.

Also in October 2009, Chaparral City Water Company received a decision from the Arizona Corporation Commission improving a rate increase of approximately $1.7 million or 23% over current annual revenues. As mentioned by Eva, this decision also ordered Chaparral to return to customers 100% of a settlement reached in 2005 with the Fountain Hills Sanitary District, resulting in the recording of a $760,000 loss in the third quarter of 2009.

Now I will discuss the status of pending general rate case proceedings for the Company. For the region's two and three and the general office general rate case that we filed in July of 2008, Golden State Water has agreed to reduce or eliminate certain requests. As a result, our revised request 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 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. At this time we cannot predict what the results will be, but we expect a final decision from the California Public Utility Commission by the end of 2009.

One other thing I'd like to mention regarding this current general rate case is that the DRA is challenging Golden State Water's historical practice of deferring direct rate case costs recorded as regulatory assets with subsequent recovery on the effective date of the new rates. These costs consist primarily of outside consulting services which are incurred in connection with the preparation and processing of a general rate case. This practice had not been challenged by the CPUC in prior rate cases and is permissible under the CPUC's uniform system of accounts.

Instead , the DRA believes that rate case costs should be projected for future periods and recovered prospectively. We will vigorously defend our position. However, if the DRA prevails, we may be required to write off approximately $2.3 million of regulatory assets during the fourth quarter of 2009, related to the costs incurred in the current water rate case. At this time, we're unable to predict the outcome of this matter.

We are currently preparing the region one general rate case filing. The rate case for Golden State's region one will be filed in January 2010 for a two-year rate cycle with rates effective 2011 and 2012. A general rate case for all three water regions will then be filed in July of 2011 with rates effective January 2013.

Now, I want to briefly talk about our contracted services business at American States Utility Services, also known as ASUS. I am pleased to report that ASUS has reported four consecutive quarters of positive earnings. The improvement of profitability during the nine months of 2009 is primarily due to increases in operation and maintenance revenues at Fort Bliss and new construction projects at military bases in Texas and Virginia, coupled with controlled spending and operating expenses.

As Eva mentioned before, on September 30th, 2009 the US government approved a $1.1 million -- $1.1 million in revenues for a request for equitable adjustment also known as an REA, filed by Fort Jackson for emergency construction costs mostly incurred in 2008. In addition to the $1.1 million equitable adjustment for Fort Jackson, ASUS received various contract modifications from the US government in September of 2009. The modifications provide funding for $7.3 million in new construction projects at various ASUS subsidiaries. The majority of this work is expected to be performed during calendar year 2010.

We are still working to finalize price redeterminations 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 REA filings, should provide added revenues respectively to help offset increased costs and provide ASUS the opportunity to continue to generate positive operating income at its military subsidiaries. The timing of the conclusion of such filings is somewhat unpredictable.

To summarize, I'll quickly talk about the status of each of our price redeterminations. First, price redeterminations for the four Virginia bases have been submitted and are under review by the US government. The review is expected to be completed by November 2009, followed by negotiations with the government which are projected to be completed by the end of 2009. We have received interim management fee increases at the four Virginia bases.

Second, the price redetermination for Andrews Air Force Base is subject to government audit which is expected to commence during the fourth quarter of 2009 and is estimated to be completed in the second or third quarter of 2010. This will be followed by negotiations with the government.

Third, we filed a request for equitable adjustment at Fort Bliss in connection with ASUS, assuming more infrastructure than was included in the original contract. Action by the government on this matter is not anticipated until the first quarter of 2010 at the earliest. The first and second price redeterminations are expected to be filed in December 2009. Action by the government on the price redeterminations is not anticipated until late 2010 at the earliest. The government is preparing contract modifications for interim management fee increases which had previously expired in September of 2009. We anticipate approval of these interim increases by the end of November 2009.

Fourth, in addition to the $1.1 million contract modification we received in September 2009, we have two more REAs outstanding at Fort Jackson. One has been filed for construction costs incurred in 2008, related to emergency work for a sanitary sewer overflow. A resolution of this REA is expected by the end of 2009.

The other REA related to infrastructure levels. While the actual amount of infrastructure at Fort Jackson is very similar to what was presented by the government during the bidding process, the condition of the infrastructure is worse than anticipated. Resolution is not expected until the first quarter of 2010 at the earliest. The first price redetermination for Fort Jackson is scheduled to be filed by December 2009.

Finally a request for equitable adjustment has been filed at Fort Bragg to reflect that ASUS has taken over more infrastructure than was included in the original contract. The REA reflects that Fort Bragg infrastructure is 40% greater than what was included in that original contract. The REA is expected to be resolved by the end of 2009. The first price redetermination at Fort Bragg is scheduled to be filed in December of 2009.

Let's now turn our attention to water supply issues. As you all know, due to the reduced state water project deliveries and reduced local storage levels, the Metropolitan Water District of Southern California, or MWD, implemented its water supply action plan to effectively reduce water deliveries across the region by 10% beginning July 1st, 2009. The MWD through its member agency's plans -- through its member agencies plans to achieve the reduction by imposing significant penalty charges.

MWD has also announced an 8.8% basic rate increase as well as a $69 per acre foot delta surcharge. These two elements result in a combined average increase of 19.7% effective September 1st, 2009. To ensure commensurate conservation levels, Golden State Water has implemented mandatory water conservation and allocations in certain service areas.

Consumption was down approximately 9% for the third quarter of 2009 and by approximately 8% year-to-date as compared to the same periods last year. Fortunately, we have implemented water revenue adjustment mechanisms and modified cost balancing accounts in late November of 2008 for regions two and three, and in September of 2009 for region one and therefore, have recorded a cumulative $12.6 million benefit at September 30th, 2009 that would have previously been lost due to lower consumption. The net of these two mechanisms resulted in an increase to the dollar water margin of $7.0 million or $0.22 per share for the third quarter and $11.8 million or $0.39 per share year-to-date.

As you may be aware, an extraordinary session of the legislature has been underway in Sacramento in order to agree on a comprehensive legislative water package to address the issues with the Sacramento-San Joaquin delta. As of this morning, five bills have been passed out of both houses of the legislature and will be sent to the governor for his signature. The bills deal with the following subject matters; delta policy and governance, a water bond, ground water monitoring, water conservation and specified appropriations.

The bills were just passed this morning and we're still analyzing their full impact. Golden State Water purchases water from six different member agencies of the Metropolitan Water District of Southern California, which in turn get a portion of their supply from the delta. While Golden State Water and its customers will be impacted by the final delta bill package, we have a significant portfolio of adjudicated water rights and other sources of supply to rely upon.

Finally, as reported in our recent news release, the Board of Directors of the American States Water Company approved a $0.01 per share increase in our quarterly dividend to $0.26 per share on the common shares of the Company. This represents a 4% increase in the quarterly dividend. Even with this increase, we think we can still maintain a dividend payout ratio on average of approximately 60%.

For more than 55 consecutive years, American States Water Company shareholders have received an aggregate annual increase in their dividend and this action marks the 294th consecutive dividend payment by the Company. The Company presently intends to continue paying quarterly dividends in the future subject to earnings and financial conditions and such other factors that the Board of Directors may deem relevant. American States Water shareholders should know that using the SEC guidelines for recording financial performance, $10,000 invested in the shares of American States Water at December 31st, 2004, would be worth $15,870 at September 30th 2009. This amounts to an annual compound growth in shareholder value of 10.2%.

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

(Operator Instructions). Our first question will come from Nancy Doyle with Met Life.

Good afternoon. I just wanted to know what method you're going to be using for financing your CapEx of next year? Do you plan on doing any debt issuance?

Eva, I'll let you answer that one.

I don't think we are going to financing the debt equity probably for next year, unless there is some unexpected capital expenditure comes up. We do have a syndicated facility that expires in June of 2010. We're considering up that facility a little bit, currently is at $115 million. We think we'll have enough funding next year to support our capital expenditures, but things could change during the year if something happens unexpectedly.

Eva, we have significant cushion in our revolver to cover our CapEx?

Right now, we do have as of end of September 30th, we have $83 million on the line.

Okay.

All right. Thank you.

You're welcome .

The next question will come from Debra Coy with Janney Montgomery.

Thank you. Hi, Bob. Hi, Eva.

Hi, Debra.

Couple of follow up questions. One, to go back to the beginning of your presentation, Bob, on Bear Valley, the $4.8 million that you received, you're only getting $800,000 of it since it was not effective until November. Is that how it works for the electric side? On the water side, you're getting retroactive to the beginning of the period rate increases, but essentially you just forego $4 million of the $4.8 million for the '09 decision?

Yes, that's right. That's how it works. Now, we do have this potential retroactive recovery associated with the general office clause.

Right.

But that's really the only piece that would be retroactive.

And that would be relatively small. Any adjustments there?

Yes. That's roughly about $800,000 at -- the amount in that account is $761,000 at the end of September.

Right. But there could be a decision to either give you the whole -- since they haven't made a decision, you get the whole $760,000? You would get some portion of that or get none?

I think it would either be either you get it all or you get none.

Okay. And when would you expect to hear on that?

Should be shortly, Debra. We're trying to file an amended application to have the commission taking care of this item. That's in the process. I don't know when the final order will be on this one, but we're working on that. Hopefully, we can resolve the issue in the fourth quarter.

And then if you got a favorable resolution, you would take a one-time benefit?

Yes.

Yes. That's right.

Okay. That could happened in fourth quarter. And then looking ahead on to the Virginia bases and the others that you outlined under ASUS, I'm trying to get a sense of how to calibrate the amounts of this. You walked through and gave us a little detail on the timing and various actions that you're filing, but you didn't give us any numbers.

Is that because those are not public filings? Like when you file rate cases obviously, we have the amounts and something to think about going forward. I don't have a good sense of what's the aggregate or the individual amounts of these various REA and price redetermination filings. Can you give us any help on that?

I think we have some numbers, Debra, in our 10-Q that will be issued tomorrow afternoon. Look through the MD&A section -- the overview section that we talk about those REAs and dollar amounts. I'll be happy to walk you through once the 10-Q is issued tomorrow.

Okay. All right. And just from a policy standpoint in terms of how you're handling these, so your intent would be that you'll disclose the amounts of the REA filings. And then a number of price redeterminations you mentioned but which haven't actually been filed, when you do file those at the end of this year, would you disclose the amounts of those as well? Like a normal rate days?

I think that is something that we would consider. I don't believe at this point we have those in the Q, do we, Eva?

I think they will need a certain basis. We are certain of dollar amounts in the Q.

And some of them you don't know yet?

Right.

And just from a broader standpoint, do we have a number of bases to track and this will be like tracking individual rate cases, but even from an aggregate amount in terms of forward modelling, and I presume that similar to public utility rate cases, you don't necessarily get the full amount of what you file. But it would certainly be helpful to us in terms of trying to understand what the potential improvements might be over the next one, two, three years to have the sense of what the amounts of filings are.

It will be a negotiated process after you do your filings and there is a certain amount of negotiations that do take place.

Okay. Whatever information we can get on that will be helpful. And then just finally, you did mention you got the contract modifications that outline about $7 million in construction approach for calendar 2010. I believe that was all at Fort Jackson. Correct?

No. It is really spread across several bases. The Fort Jackson piece was $1.1 million and the rest of them are several different bases.

Okay. That's an additional $7 million in construction projects that you have outlying now, but that doesn't mean that there couldn't still be other additional ones that could arise over the course of the year?

That's right. These are special projects. The fiscal year for the government ends September 30th so it was a rush to get these dollars appropriated in effect. Contract modification then would follow. To the degree there are special projects, then we would get contract modifications for those. We have had -- I think, special -- at least one special project every year since we've been in -- I think, well, '06, '07, '08 and '09. The last four years.

And we still have ongoing R&R projects every year.

That's right. That's right. Because when you do put these contract together there is at least two different revenue streams. There is the renewal and replacement which is just an ordinary replacement of the system through CapEx. Those are going to be some -- we will have construction expenditures associated with those projects as well.

But those were the -- as I recollect, you had the O&M expenses and R&R expenses later on top of that, but those are built in for quicker pass-through or recovery, if you will, as opposed to the special projects.

Yes. They're already included in the cash flow stream. When you establish a contract with a particular base, there's two revenue streams you get and it's a fixed amount. And those are -- probably revenue isn't the right term, cash flow streams. It's revenue on the O&M side, but it's cash flow on the renewal and replacement side because you're really not allowed to book them as revenue unless you're actually doing the construction work.

But in some cases we're getting the cash ahead of when we do the work, and in other cases we're doing the work ahead of when we get the cash. I don't know if that confused the issue or not. There is also something called initial capital upgrades where some of these bases are in need of initial upgrades to the system. And so those are identified and you get a separate revenue stream for that as well.

But they are built in. Right. I understand that your cash outlays for the actual work may not match precisely, but those are built in initially. And then the special projects or any of the other adjustments in the amount of infrastructure or whatever, that all gets rolled into -- either the REAs and then also the inflation gets rolled into the price redeterminations.

That's right.

Okay. I think I understand that. And then my final question is coming back to the California legislation that passed early this morning. We've had a number of conversations over the past two or three years with you guys about this whole issue of water rights and the value of the the water rights portfolio. Certainly Golden State has done a lot to perfect its portfolio of water rights and storage capabilities.

It sounds like that may begin to be put more to the test. Can you talk a little bit more about how you envision that playing out? Or you're already -- or is it simply that all of your customers are going to see the same level of water cutbacks that everyone else is? At 10% already, and another 20% that they're calling for in this legislation. How do you envision that at this point, based on what you know so far?

Currently we purchased roughly 45% of our supply.

Right.

And so that's the piece that's really most impacted by what is going on with the delta and what is being--what is done with the particular legislation. However, the legislation could have impacted to a certain degree some of our supply as well, when it comes to water rights. We work very hard to include a certain amount of water right protection in the bills that were being passed and I think we were successful in getting some coverage there for that. Now, of course, these bills haven't been signed by the governor yet, but I believe the view is that the bills will get signed by the governor.

Getting back to protecting our customers, as I said, 55% of our supply is owned supply and 45% is purchased. It is really the purchase component that gives us the difficult management process. We are having mandatory conservation in many of our particular districts because they do rely -- a portion of their supply is a function of what is coming from the metropolitan water district and what's coming from the state water project. We're going to continue to work very closely with our customers to inform them on what the rules and requirements are.

We have been doing that already through public participation hearings. Unfortunately, the cost of our supply is going up because of these delta issues and because of, as I mentioned , the increase from the metropolitan water

Is it possible that your mix could change? Do you have room on the 55% side where that could increase and the purchase water percentage could go down? Or is that pretty much set?

I think if you just looked at the mix to date, you will see that we were using a little more of our supply to serve our customers to try to get them water. That's not sustainable long-term though. It is basically a 55-45 mix.

However, we are looking at -- and this is a little more long-term, but we are looking at adding various other pieces to our water supply portfolio. You've probably read that we've been interested in this [Gates] project that's being done. We've also looked at desalination and possibly getting involved in one of the new plants that's going up, but nothing definitive there. We also would like to get regulatory approval before we change our supply mix because you don't want to go there and commit and then have the commission not approve that as being an additional component in your supply. Because then you don't get recovery.

We're very much aware of what's going on around us and we're very much in the middle of the process. Even the delta package that looks like it's going to get approved -- and it isn't going to fix things overnight. It is going to take 10 to 15 years to resolve some of the issues. We're going to stay focussed on getting water to our customers. But right now, we don't have enough water to give them.

All right. Thanks, Bob. That's helpful .

Okay.

Our next question will come from Garik Shmois with Longbow Research.

Thanks for taking my questions.

Sure.

Hi. Real quick on the 9% lower consumption , I know it is offset by the WRAM and the TBA, but is it possible to perhaps parcel out how much of that was actually conservation lower organic consumption versus if there was any weather impact or any impact from the decline in the construction

It would be difficult. One thing we've seen is our number of customers has not gone down, so that's -- the drop in number of customers isn't contributing to the drop. In terms of weather, I think this year was pretty normal year in terms of weather, if I'm not mistaken. And so --

And we implemented mandatory rationing in a lot of our service areas and that has probably contributed to this consumption decline, too.

If I had to take an educated guess here, I would say nearly all of it is conservation-driven.

Okay. Okay. And given what you're seeing in the legislative environment, this high single digit, low teen run rate going forward is to be expected?

Yes. I think the -- for the near-term that 9% reduction is -- we're going to see that going forward. I don't think it being a -- I don't think it will be a one-year phenomenon. Now, if we get a good year from a precipitation standpoint, and then we can relax some of things -- some of these mandatory conservation efforts. But we're going to obviously take our lead from member agencies of metropolitan water district because that is our key supplier for nearly all of the 45% that we purchase.

And just lastly real quick on interest expense, Eva, do you have an estimate for 2010 what that might look like?

It should be pretty in line with this quarterly expenses if we don't have new debt issuance. If you take the quarter and maybe just come forward, pretty much it will give you a pretty good number. One will warnings though, we go to do our credit facility in June of 2010 and we expect a spread. It will be much larger than we have right now. Because the facility we have now is a five-year facility.

I think back in 2005 which is -- the spread was very low. We expect the spread will be around 180 basis points range. The short-term interest rate will go up for next year.

We have been paying interest rates on the short-term borrowings in the 1% range. It was LIBOR plus [62.5] (multiple speakers). Because of the upheaval in the financial markets and the fact that the LIBOR rate has gone down, the spread to LIBOR -- even good, strong credits like our company are going to have to pay more, a greater spread to LIBOR. We're going to negotiate the best deal we can with the banks and try to get as many bitters in the mix, but other folks who have done this are seeing their increases in their short-term borrowing costs.

All right. And actually one more question . If you could talk a little bit about status of any bids that you might have for any new military base contracts -- if there is anything in the pipeline there that you're close

Sure. That's a -- it is difficult to predict what bases we're going to win. We have been on some other bases. Generally what has been the -- what generally has happened has been -- the military has been slower to grant bases to various companies. And so though we think we've got a couple of good bids out there, it's not clear that we're going to win those. But it is very difficult for us to give anything of -- to help you predict what bases we're going to get.

Okay. Thanks for the color and good luck.

Sure.

Thank you.

Thank you.

There are no further questions at this time. I would like to turn the conference back over to Mr. Sprowls for any closing remarks.

Again, thank you all for your participation today and for your continued interest and investment in American States Water Company. We really appreciate that interest. And that's it.

This concludes today's American States Water Company conference call. As a reminder, the call will be available for replay beginning at approximately 2:00 p.m. Pacific Time. The number for the replay is 800-642-1687 and the conference ID number is 36158753. You may also access the replay at www.aswater.com. Thank you for your participation. You may now disconnect.