California Water Service Group (CWT) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the California Water Service Group's fourth quarter year-end 2006 results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a Q&A session and instructions will follow at that time. [OPERATOR INSTRUCTIONS] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Marty Kropelnicki, Chief Financial Officer. Sir, you may begin.

Thank you, Javon.

Thank you for taking time out of your busy day to join us for our fourth quarter and year-end earnings conference call. With me this morning, I'm pleased to share with you, we have Bob Foy, Chairman of the Board and Stan Ferraro, VP of Regulatory Affairs.

Prior to jumping into the results for the quarter, I would like to remind everyone that this is being recorded and the replay is available through April 30, 2007. The number for the replay is 1-888-266-2081, pass code 1022927.

Before going into the results for the quarter and for the year, I would like to remind everyone that during the course of this conference call, the Company may make certain forward-looking statements. Because these statements deal with future events, they are subject to risk and uncertainties and actual results could differ materially from the Company's current expectations. Because of this, the Company strongly recommends all current shareholders, as well as all interested parties, carefully read and understand the Company's disclosures on risk and uncertainty found in our Form 10-K, Form 10-Q and other reports filed from time to time with the Securities and Exchange Commission.

Having said that, I will first review the results for Q4 2006, and following that we'll jump to the full year results. For the fourth quarter 2006, revenue increased $2.8 million or 4% to $80.6 million. The primary reason for the increase in revenue was $2.8 million coming from rate increases, $700,000 of increases due to sales to new customers, and that was partially offset by 700 -- a decrease of $700,000 in usage by existing customers. Total operating expenses for the quarter were $71 million, up 3% or $2 million from the same period last year. Of this amount, water production costs came in at $28.6 million, an increase of 5%, or $1.4 million. Most of these cost increases were being driven by wholesale cost increases from some of our water suppliers.

In other operations, other operations increased 9% or $2 million to $24.8 million. The majority of these cost increases were associated with transportation costs, things like depreciation of vehicles, higher gas costs, et cetera, higher payroll, conservation programs and outside services, in particular, compliance of Sarbanes-Oxley. Maintenance expense for the quarter increased 4% or $200,000 to $4.1 million. As you may recall, most of our maintenance programs deal with water mains, meters and hydrants. And depreciation expense increased 2% or $100,000 to $7.6 million.

Income taxes for the quarter were down 39% or $1.8 million, to $2.7 million. Basically, this has to do with the lower overall effective tax rate from the prior year, stemming from some changes in our flow-through accounting, as well as lower income for the year. Other income and expense was down approximately $400,000. We did not have any significant property sales during Q4, or for the year for that matter. Net income for the quarter was $6.4 million, an increase of 10% or $600,000 over $5.8 million in Q4 of 2005. EPS was $0.31 a share, down slightly $0.01 a share from the same period last year.

For the full year 2006, revenue was 30 -- excuse me, $334.7 million. It was up 4% or $14 million from 2005. Revenue increased $10.1 million. Excuse me, at 4%, it was up $14 million from 2005 revenue increased. $10.1 million came from rate increases, $3.1 million from sales to new customers and $800,000 increase from sales to existing customers. Operating expenses for the full year 2006 were $294.4 million, up 6% or $15.5 million from 2005. Of this amount, water production costs increased 7% or $8.6 million to $124.3 million. Other operating expenses increased 8% or $6.9 million to $95.7 million.

Costs associated with the increases in other operations was the upkeep of facilities, water quality treatment, employee health and welfare costs and outside services. For the year, maintenance expense increased $400,000 or 3% to $15.6 million and depreciation increased 7% or $1.9 million to $30.7 million. Other income and expense was down 28% or $900,000. Again, primarily due to the fact that we did not have any significant property sales during the year. Net interest expense was 4% -- it was down 4% or $700,000 to $17 million, primarily due to the increased capital expenditures that the Company had during the year and our ability to capitalize some of our costs associated with funding those projects as they are being developed. Income taxes for the year was down 14% or $2.6 million to $15.3 million. Again, due to the lower effective tax rate from the flow-through accounting, as well as the fact that we had a very wet first six months of the year and we had lower operating income.

A couple of the highlights coming off the balance sheet and income statement for the full year, a couple of things to note. First and foremost, the Company funded a record $86 million in capital expenditures during the year. I believe this is one of the all-time highs for the Company. Net utility plant, again, this is plant that's funded by us and that we are earning on in rate base, increased 9% or $78.7 million and we ended the year just shy of $1 billion with $941 million in utility plant. During the year we raised a record $104 million of capital. $20 million came from issuing senior unsecured notes and $84 million from our stock offering that closed in October 2004. We ended the year with approximately $60 million in cash, well positioned for continuing our cash expenditure program going into 2007.

In addition, during the year, we adopted FAS 158, which I know I've talked to many of you offline about, which is the employer's accounting for defined benefit and other postretirement plans. As you may recall, this change requires companies to basically record the PBO, versus the ABO. The PBO is post-benefit obligation, versus the accumulated benefit obligation. Since we are a utility and we fall under FAS 71, and FAS 71 is the accounting for effects of certain types of regulations, we are allowed to recover these costs in rates. Accordingly, as a regulated entity, rather than taking these charges to the -- to OCI, our retained earnings, we were allowed to basically book a regulatory asset. As a result, during the quarter, our regulatory assets increased $35.5 million. The bulk of that increase is associated with recording the PBO. In addition, if you go down the line on the balance sheet, you will see a new line called "pension and postretirement, other than benefits." There was a net liability increase there of about $27 million.

Lastly, I would like to close, before I hand it off to Bob, pointing out our change in book value. We ended the year with book value of $18.31 a share, up from the $15.98 the previous year, which represents about a 14.6% increase in book value. So, overall, despite the slow start in 2006 with the wet weather, we finished the year strong. We exceeded our capital expenditure program and feel like we are in a good position going into 2007. And, with that, I would like to turn it over to our chairman, Bob Foy.

Thanks, Marty.

This morning, I would like to share three significant developments with you good folks. First, I want to cover the details of the California governor's race held this last November. Then I want to move on to the confirmation of Rachelle Chong by our State Senate as a Commissioner. And close up by giving you the background of Timothy Alan Simon, a nominee by our Governor as our newest CPUC Commissioner.

First the governor's election. As you all know, Governor Schwarzenegger was victorious in the state race and was reelected this last fall. Arnold was reelected by a very comfortable 56% of the vote. He received a little more than 4 million votes while his main opponent, past State Treasurer Phil Angelides, received only 2.8 million votes. We believe the Governor is moving in the right direction to improve the regulatory environment in the state of California.

Secondly, the California Public Utilities Commission Commissioner Rachelle Chong was appointed by the Governor in January of 2006. We all knew this. But just in the month of January of this year, Commissioner Chong was confirmed by the Senate. Commissioner Chong is known for her very informal and hands-on style. We are looking forward very much to working with her in her role in the regulated water arena.

Last of all, another recent development was the appointment of Timothy Alan Simon as a Commissioner. On February 15th of this year, the Governor announced that Mr. Simon was named to replace PUC Commissioner Jeff Brown, whose term ended in December of last year. Commissioner Simon's background is in business and it's in financial services and it's in regulatory law. Since January of last year, Mr. Simon, a 51-year-old Republican, has served as the first African-American Appointment Secretary in the Office of the Governor. Mr. Simon has a law degree from the University of California's Hastings College of Law, and a bachelor's degree from the University of San Francisco. Additionally, he's an adjunct professor of law at Golden Gate University School of Law, and taught at Hastings College of Law. He teaches securities, regulation, and advises on international law.

Prior to his appointment to the office of the Governor, he served as General Counsel and Chief Compliance Officer for Global Crown Capital, LLC, between the years of 2002 and 2005. He was Vice President and Chief Compliance Officer in Preferred Trade Inc., an online financial security and future broker. His other positions includes being a consultant to Barkley's Global Investors for three years. He also worked as Associate General Counsel and Director of New Business Development in the financial services division of Robertson, Stevens Investment Bankers. Commissioner Simon has until February 15th of 2008 to be confirmed. The California Senate Rules Committee will first review his qualifications and then make a recommendation to the full Senate. The Senate will vote to confirm or not to confirm Mr. Simon. In the meantime, Mr. Simon will perform all the duties of a commissioner to include voting. It is felt that Commissioner Simon's background in business, financial services and regulatory law will be a significant asset to the CPUC, and we welcome him to this position and we wish him the very best of luck.

What do these changes mean for water utilities? We believe the changes in Sacramento, coupled with the recent changes at the California Public Utility Commission, will continue to improve the regulatory environment in California. Looking into the future, these changes, coupled with the approval of the very significant California Water Action Plan will set the stage for better water utility policies within the state. You will hear more about this plan, the California Water Action Plan in but a moment.

Thanks, Marty. Thanks, folks.

Great.

Now I would like to introduce Stan Ferraro, VP of Regulatory Affairs, for an update on what's been happening on the regulatory front in California.

Thank you.

I think worthy of note is that the Commission is holding true to its Water Action Plan, and we're seeing them take steps now to implement some of the key factors in that plan. There's two ongoing proceedings, one of which is dealing with the decoupling mechanism for sales and increasing conservation expenditures, as well as implementing conservation rate design. That's moving forward. Three major utilities are already in negotiations with the staff of the Commission, trying to come to some agreement as to how to implement those things. We expect that those negotiations will be completed successfully by the end of this month. And then the Commission to act on that probably by midsummer or sooner.

We heard from -- as we've talked about Commissioner Chong, our Board of California Water Service Company met with her yesterday, as well as with Commissioner Diane Grunick. Both of them talked about the Water Action Plan and implementing the Water Action Plan. So we heard first-hand that they are anxious to implement some of these key measures, and we see that likely to happen.

The second area of the Water Action Plan talks about streamlining the rate case process and correcting some of the inequities that exist now for the water industry. That proceeding is also moving forward. The proposal is for California Water Service Company, instead of filing a third of its districts each year, file all of its districts at once and do that every three years. That way we would look at a total company rate of return and total company general office costs being spread throughout the company, all simultaneously. Currently, that gets phased in over the three-year period and allows us less than full recovery of those costs. So we're very anxious to have that happening, and it looks like it will happen.

Again, all of this is contingent upon the Commission's actions. In our general rate case from last year, we just submitted a settlement on almost all issues. There's three or four issues that we are litigating this month, but most of them with major dollar impacts have been resolved. Of course, the Commission has to approve that settlement. Included in the settlement, which is public information, is an agreement with the staff on a 10.2 return on equity, which is the highest the Company has had for a while.

With that, that completes my regulatory update.

Great. Thanks, Stan. And again, thanks, Bob.

Prior to opening up for Q&A, I would like to remind everyone that we'll be filing our 10-K here no later than March 16th. We did go through a lot of numbers and a lot of things relatively fast, but you'll find more details and disclosures in our 10-K that's soon to be filed. With that, why don't we open up for a Q&A, please.

Thank you.

[OPERATOR INSTRUCTIONS]

Our first question comes from Debra Coy from Janney Montgomery Scott.

Yes, good morning, Bob and Marty and Stan.

Good morning, Debra, how are you?

Very well.

Stan, just to come back to the regulatory update, it certainly has been very encouraging to see the proactive stance by the Commission. Can you just explain to me a little bit more the streamlining of the rate case process? I had actually looked at that document, and I thought they were trying to go to a two-year cycle rather than combining everything into a three-year cycle. It sounds like what you are saying is that you will file everything, but only once every three years and that we would see some -- assuming that's approved, how would that phase-in work?

Okay. You are right in that the processing time for a rate case as proposed by the Commission is longer than what currently is in place. But the fact that we would be doing the entire company, rather than doing it three times, is the streamlining approach here.

Right.

As far as the phasing in goes, the proposed schedule is for Cal Water to file the entire company this year and we are in the process of doing that right now, expect to file an application - a proposed application at the beginning of May for all 24 districts. And -- but --

And then, I forget what the timing is, you would then receive a decision on that sometime in early '08?

Yes, mid '08, we would likely receive a decision under the current schedule. If the Commission implements the new schedule, it's kind of tricky here as to when they're going to adopt the new schedule and apply it. They could drag out the decision a little bit longer into 2008. So, anyway, the plan is for us to file this year with rates effective July 1st, 2008.

Yes.

But, yes, that's subject to modification by the Commission as it goes through this proceeding.

Okay. And then just so that we understand how that works in terms of returns in the interim. So your most recent general rate case is pending. So you should have those rates coming in, in the next --

July 1st.

By July 1st. And then that will obviously carry you through until the following year. So it sounds to me like you have the potential for doing a little bit quicker catchup than -- because there is also some forward-looking expenditures allowed, so that by next year you should be on a more favorable schedule of recovering more quickly for your CapEx. Is that correct?

Yes, that is the plan, that we should be on a -- to coordinate the CapEx and the recovery better. Yes.

Okay. And then my follow-up question to that is, what is the -- you said you came in at $86 million in CapEx, Marty said for '06, which was a record. What is the plan for '07?

Debra, it's Marty. Right now, we're estimating between $80 and $90 million. Obviously if we can accelerate CapEx, we will. There's a couple difficulties in some of our CapEx programs, things like getting permits --

Sure.

Through the local agencies, or when you bring it online, getting the Department of Health Services to signoff. So there's a couple of variables that will push or pull that number. But I think our main point is that we have our foot on the accelerator. We are keeping our foot on the accelerator and we're going to push CapEx as hard as we can.

Okay. Because that was really my understanding from previously, that you are entering a period of rising capital spending over -- looking over a five-year plan.

Yes, that's right.

Is that still correct?

Yes, that's still correct.

Okay, great. Thank you.

Sure. Thank you.

Our next question comes from Francesca McCann from Stanford Group.

Yes, good morning.

Good morning, Francesca.

Just one quick question and then I may have further followup. But, on the tax adjustment for this quarter, if you can just give a little bit more detail on that. And if there's something -- what other ramifications may there be relating to that? Is this something that we could see, either similar or the down side of, in another quarter?

Oh, boy, I was dreading someone asking that question. The short answer is as follows. And by the way, anyone on the call, if you want more detailed explanation, certainly call me back and I will get our controller, Calvin Breed, to participate in the discussion with us.

But, essentially, we have what is called pre-'82 assets and the effect of the pre-'82 assets has been pushing our effective tax rate up. And so if you look at last year, we were getting closer to a 42% tax rate. However, one of the things we noticed during the year is that we do have the cost to remove some of these certain pre-1982 assets, and essentially those costs become deductions and essentially push the effective tax rate down. You saw that start to hit in Q4. And looking out over 2007, I think you will see us come in closer to the statutory rate or just slightly above the statutory rate, probably somewhere between that 41 and 42%.

Okay. So averaging that year forward?

Yes, yes. The flow-through accounting issue is a utility tax accounting issue. It's very complex. That's kind of my simple layman answer to think about it. And obviously tax strategy is very, very important for us and the Company has very good tax advisors that we use to come in and help us. So we'll continue to focus on that to try to maximize tax benefits for both the ratepayers and the shareholders.

Okay. Excellent. And then just a quick follow-up question to Debra's on CapEx '07 plan, and then any even preliminary '08 plans?

Sure. I think, generally speaking, the current level of CapEx between $80 and $100 million is our target for the next three to five years. As Stan mentioned, that's subject to ebb and flow changes that may come from the Commission. But the Company basically does a very good job at maintaining our infrastructure and replacing our infrastructure, so we feel really good about that. That, coupled with increases in demand and new population, we're always going to be investing in [the]plant.

What I think is interesting about the 2006 capital budget, it was hundreds of little projects. There's not one big mammoth project I can say, okay, Francesca, 25% of the CapEx budget went to plant x that we had to build. So the good news is, we have a bunch of small essential CapEx projects that we see going out probably for the next five years, and we plan on continuing our track record of maintaining and building our infrastructure.

Okay. Excellent. And then one last question, just on the wastewater side. It's something that Aqua America is currently looking to expand their operations in. It's something that is more and more on the table for discussion. As you look into the next one to three years, say, what expansion do you see on the wastewater side?

Well, Francesca, it's Stan. The primary growth areas that we look at is acquiring water systems.

Right.

However, we are also looking at wastewater systems as we are looking at water systems, especially where they are combined. We do want to expand our wastewater operations, but our first area is water and then second is wastewater. And so most of our activity, though, is outside of California, when it comes to wastewater right now.

Okay. So kind of considering, but certainly not a priority at this stage?

Right.

Okay. Great. Thank you.

Thanks, Francesca.

Our next question comes from Selman Akyol with Stifel Nicolaus.

Good morning. Thank you.

Hey, Sel, how are you?

Good. Yourself?

Good, thanks.

Two questions, if I may. First of all, in terms of the usage in the decline, was there anything going on behind there? Anything that really accounts for that?

No. I think -- that's a very good question. In fact, I was thinking about something Pete Nelson told me when I was interviewing for the job, and I going to steal a quote from Pete. And he said the only thing predictable about the water business is the unpredictability of the weather. Basically, that there's nothing behind that other than it was we had some changes in demand, essentially. Likewise, I think if you look at our temperature or our water patterns, last year we had a very, very wet fourth quarter and a very, very wet first half of the year. This year we are much drier. So there's really nothing that I can give you in terms of data behind that, other than that some of our existing customers showed a decreased usage during Q4. And it could be as simple as going into Q4 -- like for me, I turn off my sprinklers typically come around the end of October or early November.

Okay. And then the other question as it relates to your O&M expenses. You talked about conservation programs. Is that just for general information, sort of supporting it, or is there more to it? Can you just give me a little color on that one item?

Well, yes. This is Stan.

California, as you know, is a state where water is in short supply when it comes to M&I usage, and we are continuing to grow and continuing to put greater demands on the existing resources and conservation really is the tool that we need to pursue aggressively in order to maximize what resources we do have. Unfortunately, the Commission has not put us in a good situation in order to pursue conservation because as we do, we lose sales and we lose revenues. So there's a clear disincentive for us to want to push conservation.

However, this has been one of my pet peeves for the last 15 years, is trying to get us on the same level playing field as energy companies, where they have revenue mechanisms that insulate them from changes in sales due to weather or more importantly, conservation. The Commission has finally recognized that, put it in its Water Action Plan, and actually last October told us -- well, told us to file last October an application to implement such a mechanism, which we have done. And as I mentioned earlier, which the Commission is now trying to implement in a separate proceeding with us and other major water companies. So once that is in place, then the tools are there for us to aggressively pursue water conservation without impacting our earnings.

Right. Maybe I'm not asking this correctly. When it says conservation programs here, is this just like public service announcements that you are putting up or -- ?

That's part of it. It's also low flush toilets, shower heads. It is how you use water outside, irrigationwise, timers and lower, more directed sprinkler heads. Things of that nature. So it's hardware, education and public announcements.

Great. Thanks.

Thanks, Selman.

[OPERATOR INSTRUCTIONS]

The question comes from Michael Gresens from Robert W Baird.

Morning, gentlemen.

Hey, Michael.

I'm wondering about, first, the offsetable account from last quarter. We had a bigger swing in the third quarter, but how did that act during the fourth quarter? Were you able to get any recovery so far on that?

Sure. Very good question.

Michael is referring to the balancing accounts and, in particular, in April of last year the W1 rule was overturned, which allows us to record certain costs that may get expensed in the quarter, like water production costs and we weren't getting certain recoveries from these costs. That rule was overturned in Q2, but into Q3 our balancing accounts had grown $2.6 million. We did have a rate case decision that came out in -- was it August, Stan, we got the --? It came out in August. And as a result, we were able to recover some of those costs and our ending account balances net were about $1.5 million. So we recovered about $1.1 million in Q4 of those balances.

Okay. And for Stan, one of the things in the case that you were looking at was the automatic recovery of the postretirement and other pension costs. How was that? Is that part of the settlement issues or is that something out there yet?

There's a separate application that we filed last month to address that, and we're in negotiations with the staff. At this point, it's too early to say, but we're optimistic that we are going to be able to recover those costs.

All right. Thank you.

Sure. Thanks, Michael.

Our next question comes from Tim Winter from AG Edwards.

Good afternoon, guys.

Hi, Tim.

I'm looking at your book value of 1831 in the 10.2 ROE that you settled for. If we were to just do the simple math, you would have earnings power of roughly $1.85, assuming you get all these adjustments in 2008. Are there some items that I would be missing that would not allow you to earn your allowed ROE?

Yes. The first is the 10.2 only applies to the districts that we filed last year. Anything else, Marty?

Yes. Well, I think it also, as we said, some of those barriers. I mean, it really depends on what happens with the rate case streamlining process with the Commission and how that works out. Tim, the way I describe it to people, especially on the phone, is if you draw a rectangle on top and underneath that rectangle put three boxes, assume a geocost goes in that rectangle, that cost allocation, that geocost will go into one box every year. So if you count it up, you have a total of four objects that equal four years by the time that stuff gets embedded into rates.

But don't the step adjustments help you get there? And if you're able to streamline, would you have uniform rates in 2008?

No. We won't have uniform rates. There will still be rates on a district by district basis. And the earliest those rates could go into effect would be July 1, 2008.

Okay. Okay. And then can you talk a little bit about what some of these little capital expenditure projects that you are doing are related to? Is it just replacing pipe, or is it have more to do with water quality issues like arsenic or any contaminants like that?

All of the above. It's obviously a major main replacement program we have ongoing. There's new wells to meet both existing demand and that may be replacing older wells, as well as new demand that's coming online from growth. And then there's water quality issues, building treatment facilities for wells.

Yes, and I think in total, Tim, we had -- I think it was 750 projects last year. So that will give you an idea of how many of these little projects we have.

Okay. And then going forward, your well situation versus your purchased water situation, are you finding that you have the technology now to keep wells from shutting down and open up ones that had shut down? Will your mix improve from more groundwater well than surface water?

Not likely. You know, the technology of treating groundwater is -- it's always improving, but there's no quantum leaps that have been made to bring wells back in service that we have taken out of service. It's the economics of, do we purchase water? Do we put in a new well? Do we treat an existing supply?

And those economics vary by district. For example, in Bakersfield, we are actually moving away from a lot of the well supply. We built a new service water treatment plant there. We are building another one that will be completed this year. And we will be probably expanding the first one that we built. So we are finding that the economics there and the water quality, it's better to deal with surface supply in that -- that district, which is our single largest district.

But, Tim then -- this is Bob Foy. It still remains approximately, all the water sources, 50% is purchased and 50% is water from our own wells or reservoirs, rivers, that kind of thing.

Right. And also Tim, too, that is something that we look at. We look at production data all the time. Obviously our margins are a little bit better with well water that we produce, versus purchased water.

Is the rule of thumb still like five-to-one? Purchased water is more expensive by a five-to-one margin?

Yes, it's about three and a half to four to one. Well, I mean, you saw some increases in wholesale costs.

Well, let's put it this way, purchased water costs, they vary by area, but if you go to the L.A. area, you are $500 to $600 an acre foot. If you put in a well, you're probably - you've got the cost of the well and the return associated with that, as well as the pumping costs. The pumping costs themselves might be $75 or more an acre foot. And then -- then you've got pump taxes on top of that, which can be over $100 an acre foot. I would say, in the high cost areas, you might be looking at two to three times difference at most.

Okay. Thank you, guys.

All right. Thanks, Tim.

Tim, we welcome your questions. I've got one for you. Who is going to be the new quarterback at Notre Dame?

It's going to be Clausen, we're sure of it.

What's his number?

What is his number? Probably 3. I don't know.

Three. Okay. Continuing the tradition. Thanks, Tim.

Thank you.

Our next question is a follow-up from Debra Coy.

Just a follow-up on Tim's question, actually, on the relative costs of purchased water. It does appear that purchased water costs are rising. I wonder if you can -- Bob or Marty or Stan or whoever, just give us a quick view on how you see the pricing at the wholesale level developing over the next year or so. It does appear that the net and the other suppliers have been putting through more price increases.

We expect price increases to continue and outpace inflation, but I don't know of anything that's going to cause a quantum leap in the L.A. area. In San Francisco, they definitely have plans, as they are upgrading the Hetch Hetchy system, to have significant increases in the cost of purchased water. That's not all going to hit in one year. That's over a long period of time.

Okay. And, as part of your regulatory streamlining program, you would be hoping to cover those through the new balancing account mechanism pretty quickly anyway?

That's correct.

Okay. All right. Thanks.

It is significant to us because a number of our districts, or customers, are on the San Francisco peninsula and we purchase a very, very high percentage of our water directly from the city and the county of San Francisco.

[OPERATOR INSTRUCTIONS]

Sir, I'm showing no further questions.

Okay, thanks, Javon. Well, everyone, thank you for taking time today to talk about what's happening in California. As you can see, we have a lot going on. Despite our wet start in 2006, the Company finished the year strong. We have a strong balance sheet, good cash position. We started off with utility plant in 2007 at about $941 million, and we plan on continuing our CapEx program going into 2007.

In addition, as Stan mentioned, we continue to be optimistic about the changes that we're seeing at the CPUC and we are full supporters of the California Water Action Plan. While it's always difficult to forecast what is going to happen in the future and what changes may come our way, our management team stands very focused on providing excellent water quality, outstanding customer service, and building long-term shareholder value.

We want to thank everyone for your interest during 2006, and we look forward to our next call at the end of Q1. Thank you and have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.