California Water Service Group (CWT) 2004 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the earnings call for the California Water Service Group. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone.

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference Mr. Richard Nye, Chief Financial Officer and Mr. Peter Nelson, President and Chief Executive Officer. Gentlemen you may begin.

Thank you very much Pat and this is Dick Nye, Chief Financial Officer for California Water Service Group and joining me today is Pete Nelson our President and CEO and I'd like to welcome everyone to our earnings call.

Today we will be discussing the fourth quarter results and also the year results and we'll also be providing you an update on several other matters such as our regulatory matters, capital expenditures, financing plans, where we're at on meeting the new arsenic standard and our increased dividend that was just recently approved by the Board. Then we'll open it up for questions from our analysts at that time, but before we get started I need to take care of some legal matters and read the following statement.

As an introduction to the information we will be discussing, please be aware that some of our comments can be considered "forward-looking statements" as defined by the Federal Security laws and is outlined in the Company's SEC filings. As such, the "forward-looking statements" are based on currently available information and management's assumptions, expectations and estimates. However, actual results may vary significantly. Risk factors that could cause actual results to vary from expectations are described in the Company's filings with the SEC. These factors are also available in yesterday's new release which can be viewed from our website at www.calwatergroup.com.

So with that I'd like to talk about our financial results. I'm going to cover the fourth quarter results compared to fourth quarter of 2003 and also our year results - year to year comparison.

For the fourth quarter the revenue was basically flat decreasing just slightly less than at one percent and there's three main components that go into the change of revenue. The first one is the change from increase in rates. Those increased our revenue about $3.3 million and there's a couple of components in that number. First there's a positive $3.8 million that came from what I'll call permanent rate filings. Those that general rate case filings, offset filings that are permanent in nature and they don't expire according to a timeframe that will expire to be changed at the next rate filing.

The others are what I'd call temporary in nature in that they have defined termination dates and these are primarily for balancing accounts and a catch up amount that we received and that was a decrease of about half a million dollars in revenue for that. So combined that makes up to 3.3.

Going the other way is usage of our existing customers. It's decreased revenue about $4.3 million mainly due to the heavy rainfall that we had in Southern California and also because the rainfall came earlier in the fall than what we experienced in 2003. We had rains in October of 2004 and they were pretty much non-existent in 2003.

We also had increased revenue of about $800,000 from new customers. So that makes up the changes in our revenue.

Moving on to our operating costs. Total operating costs variances were again about flat but if you look in the components you'll see that reduction in income tax has offset increases in other areas. The first line on our income statement called "operations" it went from $45.6 million to $46.7 million. An increase of about 3%. This line really has two big components in it. The first big component is water production. Water production was down about $700,000 or 3% due to the decreased volume from the weather impact. Our volume as far as quantities go was down about 7% and that was partially offset by price increases in purchase water and we also had some small increases for our purchase power and pump taxes.

Our mix and this is just for our California operations because of all of our other states use well water only in their production - in their operations. The amount from purchase water was about flat from year to go. It was at 52% of the total. The production from wells was 44%, down slightly from 2003 at 45% and then from surface water was up. It was at 4% of the total in prior. It was at 3%. So that gives you the mix breakdown.

The other component in that operation expense line is - I'll just call them "general operation expenses," and those were up about $1.7 million or 9%. The big ticket items for the increase were in labor, medical benefit costs, costs related to Sarbanes-Oxley and also some increased costs related to our Bakersfield treatment plant.

Moving down on the P&L you can see maintenance costs is up slightly. Up about 5%. Depreciation and amortization is up about 13% primarily due to the Bakersfield treatment plant. The federal, state and income tax line is down due to the reduction in income and property taxes and other taxes are up about 3%.

If you'll notice that on - for this quarter we really had non-existent sales from property - or gains from property wherein the fourth quarter of 2003 we had a very large number of about $3.1 million and that equates to about eleven cents per share that we had in 2003 that was not there in 2004. The other non-regulated income is up about $300,000.

On interest expense it's relatively flat except for the change in capitalized interest which is down and capitalized interest is a credit to interest so by having lower capitalized interest it reduces your net interest costs and that's primarily related to the Bakersfield treatment plant being in operation coming on board in 2003.

And on our weighted average shares they're up about 8%. So if I could summarize the fourth quarter just main areas the summary version is that net income is down about 47% with earning per share down 49%, earnings per share dropping from forty-one cents to twenty cents which is a drop about twenty-one cents. The main reasons for that decrease is we did not have any property sales in the quarter versus very large property sales in the third quarter of 2003 and we had lower usage due to the weather.

Now I'd like to summarize the results for the year 2004 and comparing them to 2003.

Our revenue is up substantially year-over-year. Up about 14% or $38 million. Of that $38 million approximately $30 million comes from increases in rates and using the same breakdown that I had before about $27 million is related to what I'd call permanent rate changes that are in place and then about oh $2.5-$3.0 million of temporary increases due to balancing accounts and the catch up amount. So that's what makes up the roughly $30 million.

We also had increases in customers. That represents about $5.4 million of additional revenue for us and our customer growth in number of customers was about 1.4% for the year which is similar to prior years.

As far as the overall usage, it increased revenues about $3.2 million. We had good weather in the beginning of the year and the spring time that helped our volumes, slightly lower temperatures in the summer so we had a little bit of a decrease there and then in the fall timeframe with the rain fall that we had, we had a unfavorable impact to weather and you mix that all together overall it's a slight increase for usage for our existing customers.

On our operation costs, we have on the second line on our P&L. It goes from $187. million to $206.2 million an increase of 10%. About $10 million of that increase or 9% change is due to water production. Our overall water production volume is up about 5%.

Again to give you the mix breakdown for the California operations for purchase water it was about 48% which is (inaudible) a year ago. For wells it was 48% which is down about 2% from 50% in 2003 and then for surface water it was 4% and up 2% from 2003 which was at 2%.

The other cost components that makes up that line in what I'm calling just general operation expenses. They were up about 11% or $8.6 million. One thing to note that a lot of these cost increases are covered by our increases in rates. So its really not a straight drop through to net income. But we did have a few surprises in our cost component.

Those were mainly in a line item that we have which is insurance and worker compensation costs. Those were up significantly year-over-year, up about 40% and we saw very high increases in medical costs. They were up about 25% which represents about $1.3 million increase. Oh, I'm sorry, the medical costs is $1.7 million and the insurance worker's comp is $1.3, excuse me. These two programs are basically self-insured. We do have some stop-loss programs in place to cover real high costs especially on the medical side we had a lot of what we call high dollar costs above $50,000 we experienced in 2004 which was really abnormal from what we've seen in prior years.

For Sarbanes-Oxley we did experience a lot higher costs to comply with that regulation on the internal controls and we saw our costs go up close to a million dollars related to Sarbanes-Oxley.

Other areas which were in line really with expectations, labor and some miscellaneous costs were up $2.9 million and on the Bakersfield treatment plant some operation costs that are up about $.8 million.

Quickly moving down on the P&L. Maintenance its up about 4%. Depreciation's up 12% and property taxes is up about 9%.

Income tax is up substantially due to the increased pre-tax earnings. It's up 33%. Our effective tax rate is 39.6% in 2004 compared to 39.9 and that's a blended rate for all the states that we operate in.

Non-regulated income is up substantially. Up about 13%. Although not a big number in the overall scheme of things. We were pleased with those results. Again on property sales, same story for the full year is what we had in the fourth quarter. We really had no gains from property sales in 2004, but substantial gains in property sales in 2003 of $4.6 million and that represents a change of seventeen cents. So if you took excluded property sales in the equation, our increase in earnings before would be even greater than what we have with the property sales in the equation.

Interest expense is down some due to lower bar rates on short-term interest and is partially offset by lower capitalized interest. Our weighted average shares is up about 11% due to the equity offerings that we did in 2003 and 2004.

So to sum up the year for 2004, net income up substantially, up 34% and earnings per share was up about 21% which is a lower percent due to the additional shares that are outstanding. If I had to give a headline on the year I would say it's primarily due to the large rate increases that we've received. We also had good customer growth similar to what we've seen in prior years. Some benefit from the weather, but it was kind of mixed. Good in the first part and worse in the latter part and then partially offsetting the increase was not having any gains from property sales in 2004 where we had very large gains in 2003.

One item I'd like to report on which is Sarbanes-Oxley section 404 which deals with internal controls. All our work is scheduled to be completed in late February and the reason for that is we have to get through all of our year-end close process reviews. Pretty much finalize the 10-K and footnotes and get those signed off by management and the auditors and that won't happen until February as we get close to our filing date. Our project is on track. We've done lots of work in the past six months to comply with this challenging regulation. A regulation that's had rules being promulgated as we've gone through the process and guidance's been given as we've got to the process. Even guidance given as late as December on how to do this thing. The audit committee is very pleased with the work that we've done to date and we also plan to include our internal control report with our 10-K filing. We could use an extension for this internal control report because our market cap is below $700 million and that was just recently announced. You could extend that report, but we're planning on filing it with our 10-K because we believe that we'll be ready to report at that time. Now I'd like to turn it over to Pete Nelson.

Thanks Dick and I also welcome everyone to the call and I appreciate those joining the call especially everyone from the East Coast. I know it's late in the day. This segment I'm going to talk about the California Public Utilities Commission and go over three items in that regard.

First I'll talk about some personnel changes that have taken place at the commission. Second, I'll talk about a favorable ruling that all the water companies got in December on an issue called, "excess capacity," and third I'll talk about an (inaudible) advocates report that we just released in the earnings press release yesterday about surplus property.

So starting with the personnel changes. You probably read about these, but I'll go over them anyway. First the governor announced his appointment of two new commissioners, Steve Poizner and Diane Gruenich. These two will replace Loretta Lynch and Carl Wood on the five member Public Utilities Commission and both Steve and Diane would serve six year terms. Pardon me. Both will serve six year terms.

Steve comes to the commission with telecommunications and an information system experience as an engineer, but also as a founder and starting up two very successful high-tech companies here in the valley and Steve also has a recent history in public service as a school teacher and he also ran for state assembly last year which is where I was able to get to know him. I think for Steve regulation will be a relatively new issue and I expect him to be in a very steep learning curve.

Diane is a lawyer in the energy and environmental area and she is very familiar with how the regulatory process works and in particular how energy regulation works. She's been in that field for 20-25 years.

Neither Steve nor Diane have had really a chance to have any impact yet and all I can say is that the governor maintains his commitment to improving the business climate in California and he mentioned that when he made these two appointments.

The next personnel issue really the third personnel change is an organizational change at the top staff level and this involves the water branch which is the main branch that we deal with. The main division that we deal with which has been in and of itself a division operating separately, but recently the water branch was combined with the energy branch and that combines new divisions that's been put under a new department head, Kevin Coughlin. We know Kevin. He's the past advisor to President Mike Peeve (ph) and we do see all these three changes, the two new commissioners and Kevin and the change in the water branch organization and we see all those three changes as very positive.

Second issue in regulation is the decision that all the water companies received in December, an issues that's called, "excess capacity" here. Some people would see this as kind of a small issue, but it's very important to the water industry especially those who are involved in non-regulated activities. The basic issue here is clarifying the rules under which we can enter non-regulated businesses in California be they leasing property for antenna sites or entering into contracts to operate someone treatment plants or operate a water system or provide billing services, whatever the non-regulated business is there has been disagreement between the water utilities and the commission staff on whether or not approval is needed from the commission before we enter any new contracts for these services and in December as I mentioned we did receive a favorable decision from the commission.

Bottom line what the commission decision does is as long as the non-regulated businesses that we enter or sign contracts for are included in a list of approved types of businesses and that list includes everything I could ever envision us entering. There is no approval needed from the Commission. So essentially what the Commission has done is gone back and put in place the rules we were using prior to Commissioner Lynch becoming president of the Commission.

The third California regulatory issue is the Office of Ratepayer Advocates, which is the division of the staff that represents ratepayers. That staff divisions report on our excess or surplus property sales. We covered this issue in significant detail in our press release that you would have seen last night, so I refer you to the details there. But the issue involves us selling excess property that has outlived its useful life and then reinvesting the proceeds back into water infrastructure. And these are mainly old well sites that have been abandoned because the source water is no longer there, either is contaminated or the groundwater is not there in sufficient supply. This issue actually came out of our 2001 general rate cases and, to me, it reflects -- at least the ORA position here and report is still reflective of the fact that this remains a very difficult regulatory environment in California. And we do not expect the Office of Ratepayer Advocates, which I said is charged with representing the ratepayers' interests, we do not expect them anytime in the future to shift their posture in this regard.

So on this issue of the sales of surplus property, we feel very strongly that we have complied with all the State laws and regulations. We will litigate this at the Commission and we feel our position is solid and we're very confident that we will prevail on this issue.

So now I'll turn it back to Dick for some more financial information.

Thanks a lot, Pete. On our rate filing activity, as noted in the press release, we have received approval for step rate increases of about $4 million. That's an annual number that were effective in January. And in the last 3 months, we received approval on balancing accounts that's about $9 million. Now the balancing accounts are a little harder to work out where the revenue impact is going to be because of it varies by district and it ranges from a 1 to 3 year period when we will receive that revenue from the balancing accounts. But those were 2 approvals that we did receive recently.

We've had a lot of filings that happened in 2004 and I know it's kind of difficult or challenging to work through kind of what all the impact is, especially for some of the balancing accounts and the catch-up amounts because those have termination dates. So when the termination date hits, it's actually a decrease to the revenue in the following period. So if you put all those approved filings together and schedule them all out, you would get that for 2005 we'll have revenue increases of around $7 million, assuming that our usage in 2005 will be similar to what we experienced in 2004. Now, those are the filings to date. Obviously I'm not trying to predict the impact of any future filings in that number.

For our pending filings, I'm glad to report that we are all caught up as far as the backlog goes. We do have 1 substantial filing that was made last year. It's our 2004 general rate case filing for $26.5 million. Now I have to give a lot of caveats with that because that's the amount that was filed and, as we go through the approval process and investigation process, that number -- history has shown that number will change once we get a final decision on that. But what that number will be I really can't predict. Now, we do expect to get a decision on that in the September/October timeframe, so that's when we'll see an impact to our revenue from that decision.

We also have some filings for New Mexico's wastewater operation and Hawaii. These are really minor amounts as far as the total company is concerned and these are progressing along well. We've got settlement agreements that have been filed to date with those filings.

Moving on to our capital projects and financing, for our company-funded spending for 2004, we spent about $50 million in expenditures. That compares to about 54 million spent in 2003. That's below our budget number; we budgeted for about $66 million. And we didn't really cancel projects. We'll have projects that lag and will spillover into 2005 and that's fairly normal for us because some of these projects are really long projects as far as completion times.

For our budget for 2005, capital spending -- and this is company-funded -- is about $85 million. That's an increase of about 20 million, substantially due to arsenic, which Pete will comment on in a little bit. Beyond 2005, we think our capital expenditure will remain at these high levels, around 70 to $8 million is the projection right now. We didn't do any major financing in the fourth quarter. We did do a minor debt placement in New Mexico where we have a $3.4 million debt placement that's 10-year fixed rate debt for them.

Our liquidity is in really good shape. At December 31 we had about $19 million of cash. On our credit lines, we don't have any borrowings against them. They were scheduled to expire in April of 2005, but they were renewed and they now extend to 2007. And our credit facilities remain the same; we have $45 million at the California Water subsidiary level and then $10 million at the Holding company.

For 2005, we are expecting to place additional debt to meet our cash flow needs in the range of 20 to $40 million and that's expected to be placed in the second half of the year of 2005. And then beyond 2005, we plan to meet our financing need through a balanced approach of about 50/50 split between debt and equity.

So now I'd like to turn it back over to Pete.

Thanks, Dick. And I'll conclude with 3 quick issues, 1 is arsenic, second is the dividend, and third is just a concluding comment on Sarbanes-Oxley.

First, arsenic. This is an issue I'm asked about all the time. This is the most imminent new water quality standard and you probably recall that the standards have been strengthened from 50 parts per billion to 10 parts per billion and the effective date for compliance is January 23rd, 2006. We do have plans in place and foresee no problems meeting the new standard. To do so involves capital spending for new supplies and treatment and pipelines. And I say pipelines because sometimes it makes more sense to increase the supplies elsewhere and then move the water through the distribution system to meet the standard.

In 2004 we spent about $10 million in capital on the arsenic standard, getting ready for it, and in this year in 2005, we budgeted and expect to spend about $16 million in 3 of our districts to meet the new standard. That's a total of $26 billion (ph). And for us, the new arsenic standard is fully accommodated in our infrastructure planning and capital budgets last year and this year.

The last 2 items, first is the dividend. Yesterday the Board approved a new dividend for 2005 at 28.5 cents per quarter and that works out to an annual dividend of $1.14 a share, which is 1 cent more than what we paid out in 2004.

And just a last quick comment on Sarbanes-Oxley and especially Section 404, which is a documentation and control section of the law. I know every major company has focused on compliance in 2004 for 2005. It does take a lot of resources, both internally and externally, a lot of work involved here and we're no exception at all to that and I feel very good about the work we've done and the results we have achieved. And we're on track to fully comply with Sarbanes-Oxley Section 404.

Now I'll turn this back to Dick for questions and answers.

Okay. Thanks, Pete. Matt, if you could open it up for questions now, please.

Thank you, Mr. Nye. (OPERATOR INSTRUCTIONS)

Our first question comes from David Shanter (ph).

Hi. Good afternoon, everybody. Given the importance in terms of its impact on earnings of the Office of Ratepayer Advocates' decision, could you give us a little more color about that headache? What kind of schedule, if anything, has been established for getting the problem resolved? Have there been preliminary meetings with PB (ph)? Are the new commissioners aware of the problem? Who oversees these guys?

Well, the Office of Ratepayer Advocates works for the executive director of the Commission and this report was just issued, I'm going to say a couple of weeks ago, I think it was January 11th, and there is no schedule for resolving it. (audio interruption) fully litigated at the Commission.

What does that mean in terms of time, Pete?

It's hard to predict how long it will take to get it in front of...

Is there anything that's set a precedent in terms of similar kinds of negotiations historically?

I can't think of anything in this regard. I just can't pick out a timeline for you.

Okay. How familiar is PB with the process at this point?

With the same issue?

Yes.

I don't know if we've talked to him or not yet about it. Again, this is very recent report from the...

Right.

...not just obviously for water, but for the other...

Sure. Is there a particular sticking point on the part of Office of Ratepayer Advocates with regard to why they don't want to regard this as no longer being used and useful? Is it just because there's water there?

I think I'm going to step in a little bit here, but there's -- as far as property that a utility owns, really only 3 categories of property. One is operating, so that's something that's operating in the water business producing water. The second category is plant health for future use and that means that there needs to be a definitive plan to use that property...

Right.

And third is surplus. And the properties we have sold are surplus, they're...

Okay.

...future use. And I think that's probably the issue with the Office of Ratepayer Advocates (inaudible - audio interruption).

Is the holdup in the sense the definition of what surplus might mean as opposed to no longer used and useful?

I expect we'll get into that issue, sure.

Okay. I'm just trying to get a sense of how long this will drag out because clearly the faster it's done, the better -- the more of a salutary (ph) effect it'll have on valuation of underlying financial security. So I mean my point is that if, in fact, the Commission and the new commissioner then the chairman are apprised of the fact that the quicker it's litigated, the better, I think would be beneficial for Cal Water shareholders and investors, both debt and equity. I mean I think issues like that are what really holds up investment and infrastructure in California and I think we've talked with BV in the past, I think it's important for him to understand that. So I mean to the extent that you guys can build a schedule and let the financial community know, it would probably be a great idea. I don't know whether you have plans on trying to do that or not.

Your comment is well taken. Obviously we endeavor to resolve this successfully and quickly.

Thank you. Our next question comes from Debra Coy from Stanford Washington.

Hello, guys. Actually a follow up on the same issue and you can see, Pete, that this jumps obviously to our attention. Just to understand, this ORA report is specific to Cal Water, not broader impact on the utility industry overall? This is specifically to Cal Water, is that correct?

Yes, that's correct. It is specifically to Cal Water, but obviously they would -- the ORA's position on this would eventually apply to all the other water companies and also possibly apply to all the utilities in California.

Well, that's...

But they haven't stated that in their position. Right now it's just directed at Cal Water.

Okay. And this, to your knowledge, is the first one of these? I mean you get to be the lucky one to be the first company that they hit with this?

That's true and I think I mentioned that this does go back to 2001 on our 2001 general rate case, so it's been in the ORA's mind for a while here.

Okay. And when you say that they came out with a report recommending or expressing their opinion, does the Commission have to -- an ALJ have to approve? I mean do you go direct to litigation based on an ORA recommendation or does it still have to go through some sort of CPUC or ALJ determination before you get to litigation?

This is Dick. My understanding is that it will be reviewed by an ALJ and then we'll be providing our point of view at that point. And then, depending on the outcome of that, then it will go to the Commission where we will have further arguments on both sides before the matter is resolved.

So it's possible that this thing gets killed by an ALJ or it's possible that it gets killed by the CPUC. And if the CPUC ultimately upheld it, then that would be the final decision.

Right, and hopefully everyone understands. The ORA, they're making a proposal. Their proposal is not binding.

Right. That is exactly what I was getting at. So we have several steps to go through before it becomes clear what the decision process will be ultimately by the Commission?

That's correct.

Okay. And that's what Pete said earlier, we don't know what the timing of that will be. Okay. I understand that it's new, but it's a lot of money at stake and so obviously, to second Dave's point, it would be helpful to understand the timing of it.

Looking back more at the basic business outlook for the year, obviously had a lot of rain this fall, still having a lot of rain and snow this summer. I presume we can say that you would expect at this point to have plenty of full reservoirs going into the spring and summer? I mean do you have enough visibility at this point to know what your water supply looks like going into the more normal usage season?

Yes, we see supply as not a problem for us in 2005. There's always small pockets, very small systems that are remote that supply is an issue, as well as the Colinas (ph) Valley is always an issue for us. But that's not really dependent on precipitation, that's more groundwater contamination, which we...

Right.

...with new supply. The rain has helped a lot.

And there's also been a lot of snowfall in the Sierras, which will -- obviously when it runs off will help replenish aquifers and reservoirs.

Right. So we should -- if we have a hot, dry summer, that'll be a good thing.

No one's mentioned the word drought here.

Not lately. Final question, I think I asked you this a quarter ago, Pete, but I'm still interested in your view. Obviously Cal Water is spending a lot to come into compliance with the arsenic standards last year and this year. I'm still curious about your sense as to how you compare with your compatriots in the municipal community, whether you're seeing the same level of enforcement or the same level of scrambling around to upgrade to meet standard? And if so or if not, whether there's some opportunity for you to step in and perhaps provide some services to some of the municipal utilities or smaller, less well capitalized private utilities? I mean are you seeing the arsenic issue impacting your market opportunities at all?

Actually, my observation is that the arsenic non-regulated opportunities are not obvious and have not surfaced themselves yet. There's still some time to go before the standard is enforced and needs to be enforced obviously. I do see some of the munis who have problems scrambling around and spending money to solve the problem, but it's kind of a moving -- not a moving target, but a dynamic situation because there are many ways to solve the problem, not just put in expensive treatment or new wells. You can move supply around and provide new supply just to solve the problem, too. So I think we're still sorting out, not for us, but I think we're still sorting out in the California and the Southwest how the problem is going to be solved.

Sure. But it certainly does suggest that larger, better capitalized systems that have a broader service territory and access to more diverse water supplies should be in better shape than the smaller ones.

And finally, this is a real broad question that is probably too early to know the answer to yet, too, with the change on the Commission that you outlined earlier. Have you had any inklings yet of how they might view the issue of M&A as well? Certainly the M&A environment has been unfavorable in California in terms of ability to recover acquisition premiums and do you see your opportunity for acquisitions changing at all under this new regime?

I think you probably answered your own question, too early to tell. We haven't talked to either new commissioner about this issue and they really have no track record yet.

Thank you. Our next question comes from Jonathon Reader (ph) of A.G. Edwards.

Good afternoon, gentlemen. I've got a couple of questions for you. Did you say what the likelihood with the new makeup in the Commission that constructive regulatory principles, such as like the purchased water and pump cost pass-through, that those would be reinstated?

Well, I'll just talk about the 2 new commissioners. Neither is very conversant in water regulation. The purchased water pump tax electric cost of pump is strictly for the water industry, so first step is to educate these commissioners in water regulation, which is a combination of the staff doing it at the Commission and industry doing it also. I think, Jonathon, we're just too far away from seeing where they're going to come out on those 2 issues. The current commissioners, the 3 that are there, might be the -- Susan Kennedy and Jeff Brown, I think 2 of those 3 are the open -- or open to suggestion and would be good advocates for us in that area.

Okay, so it sounds like there could be some possibility there. And have the 2 new commissioners, have they been confirmed, then, or are they still waiting to be confirmed?

They're both waiting to be confirmed by the State Senate, which has not occurred yet.

And is there any doubt that that would happen or is that...?

I have not heard any doubt. When the governor here makes an appointment, he's a very powerful person in the state. And I don't foresee a problem with confirmation.

Okay. And now shifting gears a little bit, your land sale program, you didn't have any gains this year. Was there any particular reason why not and what should we kind of expect going forward because we had been incorporating that as ongoing earnings because you have (inaudible) program?

We do have a program that, I think as I've mentioned in other calls, it will be sporadic on when sales happen. And as far as predictability in that they're going to happen year after year after year, I can't really say that. We're not backing away from our program, although with this ORA ruling, things that we have in the pipeline we're not going to back away from, but things that might be way out there, we'd like to get better clarification from the commissioners standing before we really do a lot of work on properties that we don't have in -- what I call kind of in the pipeline right now. And again, these properties, when we sell them, it's a long time for them to finally consummate into sales. It's not like we have -- you can put them on for sale and then it happens in a month or 2. It can take a very long time because developers are involved in the equation and you're talking about entitlements and things like that. So there is a pipeline of them, but it'll be sporadic is the best I can give for prediction on what will happen in the future on gains from these surplus properties.

Okay, that was helpful. And then 2 quick easy questions. I just kind of missed it as you were going through. The plan debt issuance that you said was going to happen in the second half of '05, could you repeat that number? And then what CapEx is that you see in 2006 and beyond on an annual basis?

For 2005 capital expenditures, we're planning -- the budget is about (audio interruption). For 2006 and beyond our projection right now is between 70 and $80 million. For the financing that we're planning on doing in 2005, right now were' not planning on doing any equity offering. I didn't mention that before, but should have. And for the debt offering, the plan is to do between 20 to $40 million of debt, placing that in the second half of 2005.

Thank you. Mr. Nye, I'm showing no further questions at this time.

Okay, thank you very much. I really appreciate everybody's time listening to our call for today. I would like everyone to know that the next teleconference is scheduled for April 28th, 2005. If you'll please check our Website at www.calwatergroup.com to confirm the date and time so you can get that on your calendar. You can also subscribe for reminder service so you can receive an e-mail a couple of days prior to the call. And thank you very much for your time today and listening to our report for California Water Group and -- California Water Service Group and have a great day today. Bye bye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Have a great day.