American States Water Co (AWR) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Today is March 11, 2011. Welcome to American States Water Company conference call discussing fourth quarter 2010 results. If you've 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 a replay of this call, it will begin this afternoon at approximately 2 PM Pacific time and run through Friday, March 18, 2011. After logging onto the website, click the Investors button at the top of the page. The archive is located just above the stock quote section.

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 is being recorded and will be limited to no more than one hour.

At this time, I would like to turn the conference call over to Eva Tang, Chief Financial Officer of American States Water Company. Ma'am, please go

Okay, thank you. Thank you all for joining us today.With me, is Bob Sprowls, President and CEO.

Before I start the quarterly result discussion, 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 from 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 is under no obligation to update such statements.

With that, I would like to discuss our financials results. Basic and fully diluted earnings for the fourth quarter of 2010 were $0.48 per share as compared to basic and fully diluted earnings of $0.18 per share for the fourth quarter of 2009. In 2010 we have income from continued operations and discontinued operations related to Chaparral City Water Company due to the pending sale. I'll begin with the earnings from continuing operations for the quarter.

Basic and fully diluted earnings from continuing operations for the fourth quarter of 2010 were $0.44 per share as compared to basic and fully diluted earnings from continued operations of $0.16 per share which was for the fourth quarter of 2009. They were -- there were two non-recurring items that significantly impacted the result of the fourth quarter of 2010. The first item related to the long awaited decision issued by the California Public Utilities Commission, or the CPUC, on November 19, 2010, approving rate increases in Golden State Water Company's region two and three customer service areas and to recover general office expenses as a corporate headquarters. The new rates were retroactive to January 1, 2010.

As a result of the final decision, Golden State Water recorded $9.4 million of pre-tax income, or $0.30 per share, reflecting the recognition of retroactive revenues for the first nine months of 2010. The impact of retroactive rates to each of the first three quarters in 2010 is summarized in our Form 10-K, which will be filed later today. I want to point out that 2010 was the first test year of the region two and region three rate case. Rate increases in the first test year are usually more significant than the remaining two years in a rate case cycle.

The second non-recurring item related to a pre-tax charge of $7.6 million, or $0.23 per share at Golden State Water Company for the impairment of assets and loss contingencies resulted from new developments in regulatory matters. Bob will talk about that a little bit later on the call. Excluding the effect of these two items, adjusted diluted earnings per share, which is a non-GAAP financial measure from continuing operations would be $0.37 per share for the fourth quarter of 2010. That is a $0.21 per share increase over 2009.

I will now discuss the items that resulted in the $0.21 per share increase. First, the water margin at Golden State Water increased by $3.1 million, or $0.10 per share for the three months ended December 31, 2010 as compared to the same period of '09. The increase is due primarily to high water rates authorized by the CPUC in November 2010 decision.

Second, the electric gross margin of Golden State Water increased by $1.4 million, or $0.04 per share during the fourth quarter of 2010 due to increases in electric rates approved by the CPUC effective November 2009 and January 2010. Third, excluding the supply costs which was part of the gross margin discussion, operating expenses for our related -- for our regulated businesses decreased by $2.9 million, or $0.09 per share, due primarily to a $3.8 million pre-tax charge during the fourth quarter of 2009, related to the legal and settlement costs in connection with an agreement reached between the Company and two former officers which did not recur in 2010.

A decrease in pension expense of $800,000 due to the implementation of a two-way balancing account and lower maintenance and other operating expenses of $1.1 million. These decreases were partially offset by an increase in labor and other related employee benefits and depreciation expense as a result of higher depreciation rates approved in November 2010 depreciation, and higher (service, close to) plants.

Fourth, pre-tax operating income at American States Utility Services decreased by $2.9 million, or $0.09 per share during the fourth quarter of 2010 as compared to the same period in 2009, due to a $2 -- $1.2 million decrease in the allocation -- I'm sorry, due to a $1.2 million increase in the allocation of costs from the corporate headquarters to SUS as a result of the CPUC's November 2010 decision. And a $1.6 million downward adjustment to construction revenues due to higher than anticipated costs related to certain capital projects. SUS has filed contract modifications with the US government to recover these additional costs.

The interest income, net of interest expense, increased by $1.4 million, or $0.04 per share during the fourth quarter of 2010, as compared to the same period of 2009, primarily due to a proposed settlement reached with IRS related to the Company's refund claims associated with a tax method change. Finally, a decrease in effective income tax rates favorably impacting earnings by $0.03 per share in 2010 fourth quarter, resulting from changes between books and taxable income that are treated as flow through adjustment in accordance with regulatory requirements.

I'll briefly discuss the quarterly results from discontinued operations related to Chaparral City Water Company. Diluted earnings from discontinued operations for the quarter of 2010 were $818,000, or $0.04 per share compared to $362,000, or $0.02 per share for the same period in 2009. The increase in earnings is due to rate increases effective October 2009 and a decrease in operating expenses compared to the same period in 2009.

The Chaparral sale required regulatory approval by the Arizona Corporations Commission, which is anticipated to be received in 2011. Therefore, no gain or disposal of Chaparral has been recorded, pending the approval. Had the transaction closed as of December 31, 2010, the Company would have recognized a pre-tax gain on disposal of approximately $5.8 million, net of transaction costs.

Now, onto a summary of the 2010 results. Basic and fully diluted earnings per share for the year ended December 31, 2010 were $1.78 and $1.77 respectively, compared to $1.63 and $1.62 per share on a basic and diluted basis for 2009. For 2010, diluted earnings per share from continuing operations were $1.66 compared to $1.61 for the same period in 2009.

Earnings for 2010 were largely impacted by two significant items. The first item is a pre-tax charge of $16.6 million, or $0.55 per share for the impairment of assets and loss contingencies resulting from new development in regulatory matters. The second item is an increase to pre-tax income of $6.1 million, or $0.19 per share during the first quarter of 2010, reflecting approval from the US government of a request of equitable adjustments for managing more infrastructure than originally estimated at Fort Bragg and for Bli -- for Bla -- I'm sorry, Fort Bragg and Fort Bliss military bases.

Excluding the effect of these two items, adjusted diluted earnings from continuing operations would be $2.02 per share for 2010. This represents a $0.41 per share increase as compared to 2009 due to an increase in water margin of $16 million, or $0.51 per share from higher water rates approved by the CPUC as discussed in the quarterly results. An increase in electric margin of $6.8 million, or $0.21 per share from higher rates also approved by the CPUC in November 2009 and January 2010. A pre-tax operating charge of $3.8 million, or $0.12 per share recorded in 2009 related to legal and settlement costs, which did not recur in 2010 and an increase in interest income, net of interest expense of $1.3 million, or $0.04 per share related to proposed settlement reached with the IRS related to the Company's refund claim associated with a tax method change.

These increases were partially offset by an increasing operating expenses other than supply costs of $10.1 million, or $0.32 per share at the Company's water and electric businesses, due to higher labor and other employee benefit related costs, an increase in property and other taxes and an increase in (maintenance),depreciation and amortization expenses. A decrease of $0.02 per share in American States Utility Services pre-tax operating income due to higher allocated cost from corporate headquarters and lower profit margins on certain capital projects at Fort Bragg and the military bases in Virginia, due to higher than expected construction costs.

A decrease in other income of $684,000, or $0.02 per share due to a loss on investments accounted for under the equity method. An increase in contact expense due to a tax benefit of $918,000 or $0.05 per share recorded in 2009 and a higher effective income tax rate for the year 2010, which are favorably impacted earnings by $0.02 per share and a decrease of $0.04 per share due to the issuance of $1.15 million of AWR's common stock in a public offering in 2009.

For 2010, income from continued operation decreased by $1.9 million, or $0.10 per share -- I'm sorry, let me start again for the discontinued operations. For 2010, income from discontinued operations increased by $1.9 million, or $0.10 per share as compared to 2009. The improved performance at Chaparral was primarily due to rate increases in October 2009 and a decrease in depreciation and maintenance expenses, partially offset by direct transaction costs associated with the pending sale.

In accordance with the accounting standards related to assets held for sale, we ceased recording depreciation expense for Chaparral as of June 2010. A more detailed discussion of our results for the quarter and the year is included in our earnings release issued this morning and will be provided in our Form 10-K, which will be filed today.

Moving on to our capital expenditure program for the year 2010, Golden State Water spent $77 million on capital projects as compared to $74.6 million for the same period in '09. Capital expenditure for 2011 are expected to be in the $75 million to $80 million range. Consolidated net cash provided by operating activities was $53.8 million for 2010 as compared to $72.6 million for the same period in '09. The decrease of $18.8 million was primarily due to an $8.4 million decrease in water consumption and the delays in the approval of the region two, three and the general office rate case.

Due to the implementation of water revenue adjustment mechanisms, or RAM, reduction in consumption doesn't impact the Company's earnings. We currently have surcharge in -- surcharges in place to collect the 2009 and 2010 RAM balances. Golden State Water anticipates issuing $62 million of long-term debt during the second quarter of 2011. The net proceeds from issuance would be used to pay down short-term borrowings and to retire certain long-term debt which has a higher coupon rate.

We don't anticipate an equity issuance in 2011 due to the proceeds from the potential sale of Chaparral. With that, I will now turn the call over to Bob.

Thank you, Eva. Hello everyone, and thank you for joining us today.

I'm pleased that the Company has grown its revenues to almost $400 million in 2010, not counting revenues from Chaparral City Water. It's an annual compounded growth rate of more than 12% since 2004 when I joined the Company. In 2010, we received final decisions on rate cases for all three of Golden State Water Company's service areas and saw American States Utility Services post another strong year. We continued building on our foundation of ongoing infrastructure improvements and outstanding customer service.

I'd like to take a brief moment to address the water supply conditions in California. Based on a recent California Department of Water resources report, as of March 1, 2011, statewide precipitation was at 125% of average, and reservoir storage was that 110% of average. Every year, the California Department of Water Resources, or DWR establishes the state water project allocation for water deliveries to the state water contractors such as the Metropolitan Water District of Southern California. The DWR generally establishes a percentage allocation of delivery requests based on a number of factors including weather patterns, snowpack levels and reservoir levels. In January 2011, DWR increased the allocation on the state water project from 50% of delivery requests in 2010 to 60% in 2011.

Due to the implementation of the increasing block rate design, water rationing in certain areas and the media attention encouraging Californians to conserve, Golden State Water Company's water sales in 2010 were more than [15%] lower than water sales in 2008. We believe that conservation is the most cost effective way of addressing some of the water supply challenges in the southwest part of the country. As Eva mentioned, the water revenue adjustment mechanism, or WRAM, keeps Golden State Water Company whole for the decline in sales.

Now, I will discuss the status of key regulatory filings and other matters for the Company. During 2010, Golden State Water filed advice letters with the California Public Utility Commission for recovery of the 2009 under collected balances of $20.4 million in the WRAM, net of the modified cost balancing accounts for all its water regions. Surcharges are currently in place to recover the balance.

As of December 31, 2010, we have collected $6.1 million on this balance. Please note that the implementation of the surcharges increases the Company 's cash flow and does not impact earnings. Going forward, Golden State Water will seek recovery of the net balance of these accounts on an annual basis.

In March 2011, additional surcharges were implemented for recovery of the 2010 RAM balances, net of the modified cost balancing accounts of approximately $19.6 million. Based on the CPUC's guidelines, recovery periods related to the 2010 balances will range between 12 and 36 months. In September 2010, Golden State Water, along with other California utilities, filed an application with the CPUC to modify the recovery period to 24 months or less. A decision is expected in 2011. As of December 31, 2010, Golden State Water has a net aggregated regulatory asset of $30.9 million related to the WRAM and the modified cost balancing accounts, which includes a component for unbilled revenue.

As previously discussed by Eva, on November 19, 2010, the California Public Utility Commission approved rate increases for the region two and region three service areas and to recover general office expenses at the corporate headquarters. Based on this decision, the approved revenue increases for 2010 totaled approximately $33 million as compared to 2009 adopted revenues, including an increase of $14.0 million for supply costs. Rate increases were retroactive to January 1, 2010. The $33 million revenue increase included approximately $12.2 million already collected as of the issuance of the decision through a supply costs offset surcharge in effect since 2009.

Among other things, the decision authorized Golden State Water to establish a two-way pension balancing account effective January 1, 2010, for its water regions in the general office, to track differences between the forecasted annual pension expenses adopted in rates for 2010, 2011 and 2012, and the actual annual expense to be reported by Golden State Water, in accordance with the accounting guidance for pension costs. The pension amounts for the entire Company included in the CPUC's decision are $4.1 million in 2010, $6.6 million in 2011 and $6.1 million in 2012. Based on the PUC decision in the fourth quarter of 2010, Golden State Water included a $1.8 million under collection in the two-way pension balancing account which favorably impacted Golden State Water's pre-tax operating income.

In December 2010, the California Public Utility Commission issued a final decision in the rate case related to the seven customer service areas in region one, approving rate increases for 2011 and 2012. On a year-to-year basis, the increase in 2011 revenues represents an increase of approximately $1.9 million over 2010 adopted revenues. The projected increase for 2012 is a $100,000.

The PUC has also authorized approximately $18.5 million of capital projects to be filed for recov -- for revenue recovery with advice letters when these projects are completed. The majority of these projects are expected to be completed over a two-year period. The decision also allows us to recover the cost of debt and equity used to finance these capital projects prior to their inclusion in rates.

In addition to the $33 million rate increase implemented for regions two and three and the general office implemented in 2010, in January 2011, the PUC approved step increases for region two and region three effective January 1, 2011. The increases are $1.6 million for region two, at approximately $2.4 million for region three as compared to 2010 adopted revenues. These estimates of additional revenues are based upon normalized sales levels approved by the California Public Utility Commission effective January 1, 2011, combined with increases in rate base and updated expenses, including pension costs.

In January 2011,the PUC approved rate increases for Bear Valley Electric Service effective January 1, 2011. The authorized rate increases are expected to provide Golden State Water Company with additional annual revenues of approximately $209,000, for Bear Valley Electric. In addition, the PUC has authorized rate increases to cover higher general office costs allocated to Bear Valley Electric. This is expected to add additional revenues of $1.4 million in 2011 as compared to 2010. A general rate case will be filed for all of Golden State Water Company's water regions and the general office in July 2011, with rates expected to be effective January 2013.

As you may know, the cost of capital proceeding is separate from the general rate case applications with the PUC. On May 1, 2011, Golden State Water Company, along with three other water utilities in California, will each file a seplate -- separate application for cost of capital. When finalized, the rate of return authorized by the Commission will be implemented into rates on a Company-wide basis.

Now, I'd like to take a moment to discuss the regulatory matters related to Golden State Water that resulted in a pre-tax charge of $16.6 million, or $0.55 per share in 2010 as discussed by Eva earlier in the call. The final decision on the region two, region three and general office rate case issued in November 2010 resulted in the disallowance by the PUC of costs associated with certain construction projects.

In addition, on February 15, 2007, the CPUC issued a subpoena to Golden State Water Company in connection with an investigation of certain work orders and charges paid to a specific contractor for numerous construction projects estimated to total $24.0 million, completed over a period of 14 years and ending in 2003. The CPUC's investigation focuses on whether Golden State Water was overcharged for these construction projects and whether these overcharges, if any, were included in customer rates.

The construction projects completed by this specific contractor related primarily to work on water treatment and pumping plants which have been placed in service and are used and useful. Should the CPUC investigation result in a disallowance of certain previously capitalized costs, such costs and potentially any return earned on such costs, may be required to be refunded to customers, resulting in a charge to operating income.

In addition to the disallowance of previously capitalized costs and the return earned on such costs, the CPUC also has the authority to assess fines and penalties. The staff of the CPUC has indicated to the Company that it intends to seek such remedies, including possibly a fine and penalty. The Company does not believe that a disallowance is required or that a penalty is justified and intends to vigorously defend the matter.

However, proceeding such as this are difficult to predict, and a final outcome is unknown. While reserving all rights, management believes it's prudent to reserve for a probable loss related to this matter. The reserve estimates for this matter are subject to change as additional information becomes known.

However, at this point, management does not expect increases in its recorded estimated reserve. As a result of management's assessment of the CPUC subpoena and the CPUC's final decision in the region two, region three and general office rate case, registered and recorded a pre-tax charge for the impairment of assets and loss contingency totaling $16.6 million in 2010.

Let's turn our discussion to the Company's military subsidiaries under American States Utility Services, or ASUS. ASUS has continued to record positive earnings contributing $0.38 per share in earnings for the year. Despite an increase in allocation of costs from the corporate headquarters to ASUS, as a result of the PUC's decision in the region two, region three and general office rate case. During 2010, ASUS's efforts in pursuing US government approvals on contract modifications paid off. Two significant contract modifications at Fort Bliss in Texas and Fort Bragg in North Carolina added $6.1 million in pre-tax income for the year.

I'd like to briefly discuss ASUS's fourth quarter results. ASUS had a pre-tax operating loss of $1.1 million for the fourth quarter. As Eva mentioned earlier, during the fourth quarter of 2010, ASUS recorded a $1.2 million increase in allocations of costs from the corporate headquarters to ASUS, as a result of the CPUC's decision in the region two, region three and general office rate case. The majority of the $1.2 million represents an incremental increase for the first nine months of 2010.

ASUS also had a $1.6 million downward adjustment in construction margin recorded in the fourth quarter due to higher than anticipated costs related to certain capital projects, due to site conditions encountered for certain projects. ASUS has filed contracts modifications with the US government to recover these additional costs.

We believe successful price redeterminations and requests for equitable adjustment, or REA filings, will provide added revenues prospectively to help offset increased costs and provide ASUS the opportunity to consistently generate positive operating income at its subsidiaries that serve military bases. We are still working to finalize prospective price redeterminations and requests for equitable adjustment at various bases, which include adjustments to reflect inflation in cost and changes in operating conditions and infrastructure levels from that assumed at the time of the execution of the contracts. The timing of the conclusion of such filings is somewhat unpredictable.

To summarize, I will quickly talk about the status of each of our price redeterminations. First, we continue to negotiate permanent price redeterminations for the four Virginia military bases. We received a contract modification in February 2011, resolving the operation and maintenance portion of the first price redetermination for one of the two contracts. We are currently in discussions with the government on the resolution of the remaining portion of the price redeterminations. We have recognized management fee increases of 16.9% in the revenues since 2008.

Second, we are currently in negotiations with the US government on the first price redetermination for Andrews Air Force Base. Pending resolution, the government has approved a retroactive adjustment of $1.0 million resulting in the recording in the third quarter of 2010 of $700,000 in additional revenues and pre-tax operating income and $300,000 for payment of work performed and previously recognized as construction revenues. A prospective 18.9% increase in the contract rates is also in effect on an interim basis.

Third, in April 2009 and December 2010, ASUS filed REAs at Fort Bragg with the government in connection with costs associated with initial capital work. Resolution of this request is expected in 2011. The first price redetermination for this contract is expected to be filed in the second quarter of 2011. An interim increase of 3.6% is currently in effect.

Forth, ASUS filed an REA at Fort Jackson in connection with the substandard condition of the inventory assumed at Fort Jackson as compared to what was presented in the government -- government's RFP. Resolution of this request for equitable adjustment is expected in 2011. The first price redetermination for Fort Jackson will be filed in the second quarter of 2011, an interim increase of 3.4% is currently in effect.

Lastly, ASUS reached in inventory settlement at Fort Bliss with the US government in January 2010. Fort Bliss, the subsidiary that serves Fort Bliss and the government agreed to waive the first and second price redeterminations under the original 50 year contract, and the third redetermination period filing will be in 2012.

Before I turn the conference over to the operator to entertain questions, I would like to first thank you again for your continued support and interest in the Company. Okay. I'll turn it over to the operator.

(Operator Instructions) And our first question comes from Garik Shmois from Longbow Research.

Hi, Garik Shmois with Longbow. Thank you. Just have a question on the contractor services business. We're certainly hearing about potential increase in project lettings there. Just wondering how you view your opportunities to pick up some incremental business in contractor services and your long-run position in the business.

Well, we are responding to additional military base solicitations.Additionally, we are at this point, we're on, depending on how you count them, as many as 10 different bases throughout the country. And as work -- special work comes up, we are there to not only do the work on the assets that we manage, but to do additional work. So, we think the future is bright with regard to additional work to be done, both at new bases and at the bases in which we continue to operate.

Okay. And just looking towards the upcoming rate case, the 2013 to 2015 that you will be filing in July. Is it possible to give us some direction as far as the size that you're going to be looking for in that rate case over the next couple of months?

Yes, I don't think we know that number right now, because we're still putting the materials together.

Right. It's pretty intensive process, and the engineers who are doing the planning and make sure our capital project's in the rate base. So, it's going to take a while before we come out with a final increases request to the Commission.

Okay. I thought I'd take a shot and give them that.

I know you would, Garik.

And just lastly on DDMA, it picked up on the quarter. Was the fourth-quarter run rate is good one to use? Just what your outlook is for 2011.

Well, of course in the fourth quarter, we had some charges there that were something we wouldn't expect to see in the future. As long as you sort of carve those things out, it's probably a pretty fair run rate. But we had the loss contingencies that we booked in the fourth quarter. Additionally, we picked up some things, ASUS' bottom-line performance wasn't as strong as it has been, but that was because of some adjustments we had to make, and including the allocation of general office cost for the entire year to ASUS for the quarter. Additionally, we made some accounting adjustments because of site conditions at a couple of the bases that we had, in fact, booked some higher revenues previously under our percentage of completion method, and the expense side of things was higher than we anticipated. So we, in effect, had to reduce our revenues somewhat for that.

But would you expect the run rate to more closely reflect the third quarter? I think it was about $8.4 million. Would that seem more reasonable?

Well, Garik, in the K that we are going to file pretty soon, we have a summary of each quarter's impact as a result of this retroactive revenue. Because everything we received, we recorded in the fourth quarter. So, we kind of break down so each quarters impact to give you a better fun rate on the quarterly basis, at least for Golden State Water. So, look for that 10K pages in there. That will give you a better idea about regulated Golden State Water, at least.

Okay.

I think that's a nice addition, Eva, to the 10K. It will really give a little more transparency to the analysts because we -- unfortunately the region two, region three rate case was 11 months late in having a decision, and so it makes it difficult, I know, for you folks to analyze the Company. But we tried to put a table in there that will help you analyze the Company and what should be in what quarters.

Okay, great. We will look for it. Thanks a lot,

Okay.

(Operator Instructions) And our next question comes from [Heiki Heikador]. Please go ahead with your question.

Thank you. I'm wondering if you can talk a little bit about the increased seasonality and if we'll be seeing that going forward? We know some of the other California companies have talked about the new rate structure. And can you talk about how we should think about that going forward?

Well, Heika, if you look at the 10K this afternoon, the quarterly result will represent the seasonality. We have been recording our WRAM and modified cost balancing account with seasonality all along. So, whatever we recorded is reflected in our results.

Okay, so if we look at the 2010 revenues, the way you add back the rates, had they hit when they should have, whatever that seasonality is of revenue breakout, we can expect it to be similar year-over-year 2011 to 2010?

I think so.

Okay, great.

I think, Eva, isn't the adopted sales levels sort of on a --

An annual basis.

Okay, but it's -- the adopted is allocated to the quarters appropriately.

Right, and we use -- when we file adopted, we use a five-year historical seasonality to come out with the forecast. So, we use the same methodology to record our revenue.

Okay, that's helpful. Thanks.

Okay.

(Operator Instructions) And we do have a question, this comes from Christopher Purtill from Janney.

Good afternoon, hello, Bob, hello, Eva.

Hi, CJ.

Just a housekeeping question. Can you break out supply cost that flowed through for the fourth quarter? I'm sure it will be in the K, but just trying to get a sense for water, power, groundwater and then kind of the change in the supply cost balancing account because of the rates coming in?

Let's see here,

I don't have the fourth quarter.

Full-year would work.

Full year?

For the full year, it's in the K, but I think I can mention that to you. For the full-year 2010, water purchase is $46.9 million, and power purchase for counting is $9.1 million, groundwater production's $11.5 million, and we also have a power purchased for resale, that's usually the electricity, that's $13.1 million. And we also -- do you have a different number, Bob?

No, it's just on this page we break out the supply cost balancing account between electric and --

Okay. In consolidated, I think we also have a supply cost balancing account, which is $20.6 million, CJ.

And, CJ, in the 10K, of course we do break out what's due to the electric business and what's due to the water business, so you can get right to the heart of the supply cost for each business.

Yes. The one I just quoted to you is for both water and electric.

Okay, great. And, all right. That's good. The impairments that you booked in the third and fourth quarter, that flowed through general and administrative, correct?

That's right.

And if we were to X those out, specifically for the fourth quarter, if we were to X out that impairment, is a fair number to use through 2011 in terms of run rate?

Are you asking is the fourth-quarter run rate a good run rate to use, or?

Yes, is the fourth quarter G&A, X-impairments kind of a fair assessment of overall quarterly G&A?

I think fourth quarter, do you need to take away the $9.6 million we talked about, $9.6 million -- I mean $7.6 million impairment . You also -- we have some retroactive impact from the rate increases in the fourth quarter. So, in the news release, on the first page of the news release, we have an increase in depreciation of $2.6 million. That's the cumulative impact for three quarters. We also have a decrease in pension expense, and other operating expenses about $600,000. So, I think you should back those out. Those are the nine-month impact in the fourth quarter when we received the

Okay. All right, great.

Yes, he was -- I think you were asking about G&A, so.

G&A is the pension. It would be the pension.

Right.

Yes, it would be --

Right. So, it is just the impairment and just the pension. Everything else kind of flows through on different line items and I can do that. But it is just pension and impairment?

Correct.

Perfect. Thank you.

Allocation is --

Yes.

Our next question comes from Jonathan Reader from Wells Fargo.

Hi, Jonathan.

Hey, Jonathan.

Hey, how are you all doing? Just a quick question. It sounds like it is probably going to be in Q, but can you help reconcile the four quarters of the year to the $2.02 annual number?

Okay. So, you wanted to -- let me see if I have a copy of that,

Were going to need to add that impairment

Yes, the adjusted ongoing quarter by quarter is kind of what I'm looking for.

For Golden State water only?

No, for the entire Company.

Yes. I think to get to the $2.02, we have the benefit of having the fourth quarter table in front of us that you will see later today. But that hasn't been adjusted for -- I would suggest you take out the contingent losses and possibly then the REAs at Fort Bragg and Fort Bliss. So, the Bragg and Bliss will be an adjustment to the first-quarter, the impairment losses will be adjustments to the third --

-- and the fourth quarter. We have $9 million the third quarter we booked and $7.6 million in the fourth quarter we booked for the impairment loss. So, you need to adjust that for each quarter.

Okay.

And 19, was that $0.19 for the REAs?

Yes, it's about 20 -- yes, $0.19.

$0.19.

And of course, the fourth quarter, the retroactive revenues that needs to be adjusted throughout the year.

Right.

Yes.

Can't we just read these to him? I don't know why we can't.

Okay.

Why don't we just -- yes.

Read something for him.It's in the K.We have it in front of us, but that doesn't add that.

Well, we've got reconciliation in the K to the $1.66 sort of by quarter.

Okay. Are you able to read that? That would probably help.

I think we can. Okay, for the first quarter $0.48, for the second quarter $0.58, the third quarter $0.45 and the fourth quarter $0.14. So, to get that to the $2.02 --

And in the fourth quarter you need to add back the $7.6 million, which is $0.23 in the fourth quarter. And in the third quarter we booked $9 million, so that's $0.30 in the third quarter, right? And then in the first quarter there is REAs in there, it's about $0.19, $0.20, so you need to put it in there, so.

Yes. So, there's still -- there still is the adjustments you are going to have to make, Jonathan.

Yes, those are -- the number Bob just read to you was really the impact of the retroactive revenues.

Right. Okay, well that's helpful. And definitely look at the K. And then I was just hoping, can you guys comment any more in-depth on your interactions thus far with the new commissioners and I guess which are strategy might be going into the cost of capital?

Sure. With regard to the new commissioners are very interesting. We haven't really had a lot of interface with them, they are just getting their feet on the ground, and we're expecting them to be good commissioners going forward. In terms of cost of capital, one of the issues that will be talked about is whether the RAM is going to result in any sort of reduction in ROE. We're going to vigorously fight a reduction in the ROE because for the RAM, we think we have got some pretty good arguments to make with regard to that. So, I think we can hold our own on that. But, it will be an interesting process like it was the last time. Last time we had three companies in, this time we will have four, and the cost of capital is always an interesting discussion.

Each of us has different capital structures.

We do, that's true. And actually different, in theory, different risks.

And what you believe is the appropriate timeframe for resolving the cost of capital? Is it going to be a length similar to the first time around, or might we have something by the end of the year?

Well, Eva and I were talking about that before we -- as we were getting ready for the call. I think it is really hard to predict at this point how that's going to play out. We may have something by year end, but we may not. I don't know what you're hearing from other companies, Jonathan, but --

Last time took much longer than six months, than we thought.

Longer than we thought it was going to take, and the Commission is still short one commissioner too, so we don't know how that will play in.

Right, that actually leads in great to the last question, then I'll let you go. Do you know of any plans to fill the fifth spot or -- I know there was some earlier speculation that Governor Brown may name a new president. Do you believe (inaudible) is a -- will be the president going forward, and when might we see a fifth commissioner appointed?

Well, I could just sort of tell you what I've heard. And I don't know how much credibility it has, but I've heard that there was a great push to get two commissioners named so they could conduct business. And then given that Brown's got -- Governor Brown's got so many other things to take care of, it may be a while before a fifth commissioner comes on board. The signal's I am getting is that [PV] is going to stay around for a while. I doubt that he is going to stay through the end of his term because he's -- I don't know that he wants to, but I'm expecting him to be there the entire 2011 from what I know. But I don't really have any better information than anyone else has, to be quite honest.

All right, I appreciate the additional comments.

Okay.

And this will be our last call for questions. (Operator Instructions) And at this time, I'm showing no additional questions, would like to turn the conference call back over for management -- to management for any closing remarks.

Yes, I just want to thank everyone for their participation today and for their continued interest and investment in American States Water Company. Thanks, everyone, have a good weekend.

Thank you.

That concludes today's American States Water Company conference call. As a reminder, the call will be archived on our website and can be replayed beginning Friday, March 11, 2011 at 2 PM Pacific time, will run through Friday, March 18, 2011. After logging onto the website, click the Investors button at the top of the page. The archive is located just above the stock quote section. Thank you for your participation, you may now disconnect your telephone lines.