California Water Service Group (CWT) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the California Water Services First Quarter 2008 Earning's Results Conference. At this time all participants are in a listen only mode. Later we will conduct a question and answer session, and instructions will be given at that time. (Operator Instructions). As a reminder today's conference is being recorded.

I will now turn the program over to your host Martin Kropelnicki, Chief Financial Officer. Mr. Kropelnicki please begin.

Thanks, Christopher, and good morning everybody. Welcome to the first quarter 2008 earning's conference call for California Water Service Group. With me today is Pete Nelson, President and CEO.

I'd like to remind everyone that a replay of today's conference call will be available starting from about 2 p.m. today, and that's available through June 30th. And that number is 1-888-266-2081, ID number 1226399.

Before reviewing the results of the quarter I would like to take a brief moment to talk about forward-looking statements. In particular 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 various risks and uncertainties and actual results could differ materially from the Company's current expectations.

Because of this, the company strongly advises all current shareholders, as well as all interested parties to carefully read and understand the company's disclosures on risks and uncertainties and other important disclosure information found in our Form 10-K, 10-Q, and other reports filed from time to time with Securities & Exchange Commission.

Now I'd like to take a brief moment to talk about the financial results for the quarter. During the quarter revenue was $72.9 million, up $1.3 million or 1.9% from the same period last year. Contributed to increase in revenue was rate increases of $4.2 million, sales to new customers added $400,000, and we experienced a decrease in sales to the existing customers of $3.2 million.

Operating expenses were up approximately $1.8 million. Included in that number was a decrease of $500,000 for water production costs due to declining sales. Admin in general and other operations were up $1.8 million. Two primary contributors to that, one, we had payroll changes that took effect January 1st for the company. And two, the cost of benefit programs.

Maintenance for the quarter decreased $400,000 to $4.1 million, while depreciation expense increased $800,000 to $9.2 million. The increase in depreciation is primarily due to the net utility plant that went into service during 2007.

Taxes other than income increased $300,000 primarily due to payroll, property, and franchise tax increases that took effect on January 1st, and other income expense reflected a loss of $100,000 compared to an income of $800,000 for the same period last year. Primary reason for this change is interest income expense decline of $400,000 due to less money available for float in our bank account, as well as mark-to-market adjustment associated with our deferred comp plan and our pension plan of $775,000.

Net income for the quarter was $185,000 or $0.01 of share. Well, I'd like to turn it over to Pete Nelson for update on the regulatory side. Pete.

Thanks very much Marty, and welcome everybody this morning. The first quarter as you know from previous phone calls is always -- has low numbers, and especially in those years when we have a lot of rainfall which we did this year in January and February in California. So the action -- this conference call in this quarter is really on the rate front and I'll talk about -- my rate update will be in three pieces actually. The past, the present, and the future, and I'll add a comment at the end about a new director that was just appointed to the Board of Directors.

So first the past, and this would be our 2006 general rate case which covers general rates for eight of our 24 districts. This case was filed in July of 2006 designed as -- to start with July 2007 rates. In this case, the Commission was late making a decision. In fact they're about six months late. And the revenues that would have been collected if the Commission had made their decision on time was about $2.7 million. And I'll call this catch-up revenue.

We did begin collecting this revenue February 2008. We'll be collecting that revenue over 12 months. So we'll be finished collecting that $2.7 million in July of 2009. This will put the 2006 general rate case to bed, and with that the past.

The second item is the present, and there's two major cases here. First is our 2007 general rate case which is our big one. Total (inaudible) of about $68 million in first year revenue. This rate case covers eight of our 24 districts for general rates, and what's unique about it is it covers our quarter -- our headquarters cost, or general office costs to be reflected on all 24 rate districts at the same time when the rate case is approved.

You may recall the way the system has worked in the past is that the headquarters cost, corporate cost, are phased in or have been phased in and that can take up to seven years for a corporate cost to be reflected in all of our 24 rate districts.

In this case, the 2007 general rate case, all the testimony and the data is in, and we are awaiting a proposed decision from the administrative law judge. The target date for new rates is July 1st, and we don't have any reason to suspect a different date at this point.

Of note is one item left out of the general rate case is what we call cost of capital, which is the part of a rate case that sets the authorized rate of return, and currently we're at 10.2 authorized rate of return. I'll talk about costs to capital in a minute.

The second rate preceding that's -- I'll call it present, in the present category is results of the conservation proceeding Phase I. There's more than one phase to the conservation effort here. But Phase I of the conservation proceeding institutes in virtually all of our 24 rate districts with some small exceptions three things.

One is decouple sales from revenues. And we call that the water revenue adjustment mechanism. Second it puts in place tiered rates, also called [conservation] rates. So those customers with higher usage will pay -- be paying higher unit costs, or higher unit prices. And also institutes some modified cost balancing account which allows us to collect all of our costs of production basically. Wholesale water costs, electricity to produce water, and pump taxes, collect all those costs for recovery in the future under a balancing account.

We have notified the Commission that we will begin implementing these changes July 1, 2008, so we are busy gearing up to do all three things and you can imagine there's lots and lots of details to workout there before we start making those rate changes July 1st this year.

So that's the past and the present, and now I'll move to the future, and the future is today. Today we'll be filing our cost of capital application. This will set our authorized rate of return in the future. This is a new process as you might -- as you might know. In the past the cost of capital has been included in general rate cases, but in the new design for regulation in California, now we separate the cost of capital from the general rate cases, and today we'll be filing jointly with two other water companies, Californian American Water which is the American Water subsidiary in California, and Golden State Water which is the American State subsidiary.

So you've got the three major multi-rate district water utilities in California filing today for a new cost of capital. We expect that procedure to take about seven months, and so the target date for a new authorized rate of return, if there is one, would be January 1, 2009.

So you see the action right now is on the rate front. We've got a -- are waiting on 2007 general rate case proposed decision, gearing up to implement major changes in how we bill customers, and how we collect balancing accounts, and filing for new cost of capital which is today filing.

Last item is most recently our Board elected a new director to replace David Kennedy who passed away late last year. The Board appointed Ed Giles from Sempra Energy to the Board of Directors. Presently Ed is Executive Vice President of Corporate Development at Sempra Energy, but in previous positions there he was Chairman and Chief Executive Officer of both San Diego Gas and Electric, and the Southern California Gas Company. Ed is seen as a real leader in the utility business particularly in the electric and gas business, and he'll be bringing some real regulatory and utility experience to the Board, and I'm very happy to have Ed join the Board of Directors.

Now I'll turn this back to Marty for the balance sheet.

Thanks, Pete. One thing before I get to the balance sheet, there is -- was one other significant regulatory update that I wanted to share, and some of you have called and asked about this. We did have -- our PEBOP post benefits other than pension where we were funding it to the amount that we could permissible to get the full tax deduction and the offset to that was the growth of our regulatory assets. There was some speculation within the Commission about the collectability of that asset, so we did go through a formal process with the Commission. The Commission has concluded that that regulatory asset is fully recoverable, the full amount, and we've started amortizing that $10.8 million over 15 years. So I think again, it kind of speaks to how things are moving with the Commission and overall was happy with the outcome of our PEBOP case.

Taking a couple minutes to talk about some of the highlights from the balance sheet. Capital expenditure for the quarter were approximately $28 million. We ended the quarter with $1.22 billion of net utility plant that's up approximately $12 million from yearend, and construction work in progress was $57 million. So projects that were underway but not completed yet. So overall, we are on track with our capital expenditures for the first quarter. I feel really good about that.

Net balancing accounts for the quarter increased approximately $200,000 at $3.3 million. Again, this is a net amount and it basically mean that we under collected approximately $3.3 million. Those costs are incurred in the quarter, typically our water production costs, and they go into a balancing account. When they get to be a certain level we apply for refund. So overall balance sheet continues to look good, CapEx is going the right way. We hope to keep pushing to get more plants in the ground as quickly as possible.

As we talked about in the press release we did experience a dramatic change in weather as compared to the first quarter of last year. If you remember the first quarter of last year was extremely dry. This year we had just the opposite and I want to share with you some of the totals for a couple of our areas that we operate in.

First and foremost the San Francisco region in 2007 had 27 days of marked precipitation, and five inches during 2007. For the same period in 2008, we had 32 days or 10.14 inches. East LA, we had approximately 15 days of precipitation and 1.16 inches in 2007. In 2008 we had 20 days and 9.62 inches of precipitation. Palos Verdes we had seven days of marked precipitation and 0.5 inch during the first quarter of 2007. 2008 we had 15 days, or 8.2 inches. And for Los Altos in 2007 we had 12 days of marked precipitation with 3. -- a little over three inches, and in 2008 was 24 days with 7.54 inches of rain.

So overall I think you can see the dramatic difference in water. You couple that -- excuse me with rain. You couple that with an average at one to two degrees lower temperature this average during the quarter and you can see where we had some softness in demand. Having said that, I did pull as of yesterday the California Department of Water Resources Executive update on where we are year-to-date with water. As of April 1st, the state precipitation levels are approximately 90% of average. Runoff is approximately 55% of average, and the reserve storage is approximately 85% of average. The snow pack water content is at 100%. So again, comparing last year to this year I think you see the difference and you can see what happened to demand for water during the quarter.

With that we will open up to questions, Christopher, please.

Thank you sir. (Operator Instructions). Our first question or comment comes from the line of Michael Gresens with Robert W. Baird. Your line is open.

Good morning, gentlemen.

Hi, Michael.

Michael.

First question in terms of all the proceedings that are going into effect on July 1st, have you made any attempt to determine the impact or what would the impact have been if -- if those were effective already in the first quarter of this year?

We haven't, Michael, and I'll tell you why. We are in the design phase of the RAM and the modify cost balancing account, and it's a fairly elaborate process that we have to go through. We have to design it, we have to share that information with the Commission to get their signoff. So we're approximately halfway through the design and obviously we have to have the conclusions made on that design before we can model anything.

So we have a tremendous amount of work and a very large cross functional team working on this -- this project. And I'll look forward to sharing kind of the details of the design with everybody -- in July when after we get them all approved.

Michael, I'll make one more comment, this is Pete. I know it's confusing to -- for rates to change midyear on everybody. July 1st is a tough time to kind of do your analysis but we're moving towards a January 1st rate year. So our next general rate case filing for the whole company, we filed in July '09 for rates effective January 1, 2011. I think from that point on it make -- make it a little easier to do your analysis because we'll be in a calendar year for rate making in California.

Alright, in terms of capital expenditures, where do you stand on terms of the annual forecast and some of the major projects that are going on? If you could update?

Sure, sure. Our forecast this year is to do between $80 million and $100 million. I realize there's a pretty broad gap there, but part of the problem is when you're putting a new plant into the ground, the permitting process, the signoff process, et cetera, takes a little bit of time. So if our goal's $100 million and we did $28 million in the first quarter I think we're -- we started off the year strong and we'll continue to put that pressure on.

So I'd like to see us get $100 million into the ground this year, but frankly I don't control the signoff. That's more a function of state and local government. But between Mike Rossi who's our VP of Engineering and myself, we keep a very close eye on that and we got a lot of pressure on to get those projects in the ground.

We do have -- what's improved in rates is approximately $100 million of CapEx for the year.

Okay, thank you.

You're welcome.

Thank you. Our next question or comment comes from the line of Vishal Khetriwal with Stanford Group. Your line is open.

Hello guys, good morning.

Hi, Vishal, how are you?

Being good, how are you?

Good, thanks.

The pension [business] costs, I would assume they are one time?

No actually it's not and that's a good question. Let's talk about that for a minute. We have two components of our pension plan. We have a qualified plan which is in a separate trust and you don't -- you do not have mark-to-market adjustments for the RSS sponsored qualified plan. And then we have a supplemental executive plan which is a non qualified plan. The part where we have to mark-to-market adjustments is typically is on the surp. In addition to that the company sponsors a nonqualified deferred compensation plan. And as everyone knows the market's been under a lot of pressure in Q1 and we do have to make mark-to-market adjustments on corporate wholly owned life insurance policies that the Trust owns. And the Trust is owned by the Company. And those change daily as market values change.

So those are not onetime events. They happen -- we've had these for sometime. When the market's up it runs the other way. When the market's down it goes the other way.

Okay, so depending on the market conditions that in the next quarter it will either go up or go down.

That's right. And that's why we kind of have it -- we have that down on other income and expense so people can clearly see what the utility operations are versus the mark-to-market adjustments associated with the pension and the deferred comp plans.

Okay. And I'm sorry if I missed it, but did you -- did you mention that out of the 1.8 million increase in administrative and general expenses, how much exactly was from payroll increase and implied (inaudible) programs?

No we don't -- we'll have more information on the 10-Q when we file that next week to break that out. We just talked generally about the $1.8 million. And those are the two primary drivers. I don't -- I do not have the split here in front of me.

Okay, and is there -- in terms of water sold -- quantity water sold during the quarter, can you give me the number for this quarter versus first quarter last year, and also your normalized number?

Sure. Usage was down approximately 3.9 million acre feet, or 5% from the 74 million acre feet that we had the previous year. I don't have a normalized number. We don't think of it that way. We do track production and we look at production on a monthly and quarterly basis.

Okay. Another question is how much of your operating expenses except general taxes would you say is fixed versus variable?

That's a good question. Economically speaking it depends how you look at it. We are a high fixed cost producer. Most utilities are. And depending on how you define labor, in the short-term, i.e. less than 12 months, labor becomes a fixed cost. Labor over -- longer than that 12 month period can become a variable cost. But the bulk of our cost is twofold -- threefold. It's property, plant, and equipment. It's the cost of operating that property, plant, and equipment. And it's people. So I haven't sketched out what the break would be, but it would also -- it would depend basically on the time period that we're talking about.

But let's say that you breakdown the property and expenses, I can assume the water operating -- water production costs to be variable, but what about maintenance and administrative and general costs. Would you say those are fixed or there is a variable component of that as well?

Well I think again, what period are you talking about? If you're talking about in a short-term labor costs are going to be fixed. In the long-term labor costs will be variable. We control when we hire and when we -- attrition as people retire. But in the short-term labor becomes a fixed component.

That helps, thanks a lot.

Thank you. Our next question or comment is from the line of Tim Winter with Smith, Moore. Your line is open.

Good morning guys.

Hey Tim, how you doing?

Good morning Tim.

Good, good. I was wondering if you could go into a little bit more detail about the implementation of these items -- the water action plan items that go into effect July 1st. Is this going to cover all districts? I believe Phase II is going to be the ROE applied to these rate adjustments, and maybe if you can talk about how it's going to impact the income statement going forward.

I guess if I'd just looked at the first quarter and you were $3.2 million short due to conservation or leather tax affected that it would like it would be about a $0.10 impact in the first quarter. But if you could just apply how that's going to affect things going forward, and whether there's cost of capital filing in the future is going to cause adjustments to the rate adjustments in July?

Sure well let's talk about our current process and then contrast that to where we're going. I think that's the simplest way to understand the change that we're about to go through.

First and foremost I think Pete and I would both agree that this is probably one of the largest single fundamental shifts Cal Water's ever gone through in it's long rich history. We're going from a simple revenue environment where you have rate cases and you have tariffs, and tariffs time consumption gives you revenue, to where we are going to have basically a marginal -- our modified cost balancing account in a RAM for every district that we operate.

And so the water production costs will flow through the modified cost balancing account. When there -- I believe it was a 2.5% threshold when a cost goes up or down 2.5% we'll either have to ser -- write it up or sur-credit it back. And that'll have an affect on the revenue stream. The revenue stream will based the adopted sales and how we stand at the adopted sales.

So it is a big shift. It's much more complex. The revenue accounting, the cost accounting on the front side of the business become a lot more important and timely to how we operate and recognize things in the financial statements.

So in terms of the impact on the financial statements, again, once we have the model signed off and so hopefully in Q2 I'll be able to describe this in detail to everybody. But until we have the exact mechanisms pinned down and agreed to with the Commission it's kind of hard to say what the exact impact's going to be, but I think generally speaking you see the direction. This should smooth out the seasonality. This allows the company to promote conservation, and to promote conservation in a big way and basically allow us to I'd like to say normalize our sales cycle a little bit more.

The -- will the implementation go across all districts?

Yes.

Okay. And then as far as the allowed ROE is applied to the adjustments, will that be based on the 10-2 of the most recent case, or how will that be decided?

As of right now it would be based on a 10-2. As you know there have been some discussions of we'll offer you an implant of RAM. And the modified cost balancing account, you're taking away some of the risk. You were at the water -- NAWC meeting in San Diego, and some of the -- some people at the Commission think that therefore you should take a haircut on your ROE. I'm not prepared to talk about our cost of capital filing as of today because it's being filed, but I can certainly talk about it tomorrow. And I -- the Company's position is that the 10-2 is a modest ROE and when you compare it to the analysis that's included in our cost of capital filing we believe that number should be higher not lower.

Okay and then just one last question for clarification. Pete had mentioned that in July of '09 you're going to file consolidated cases. So all districts -- all 24 districts at Cal Water will fire -- file at one time for a three year cycle with the rate impact being in effect January 1st of 2011. Is that correct?

That's exactly correct Tim.

Okay. And then you'll still get the three year -- the annual step adjustments to make sure you can earn the allowed ROE up until year three?

Yes, that would be attrition adjustments in the two inner gaining years. We're still on a three -- we'd still be on a three year rate case cycle, but the whole company would be filed every three years.

Alright. That'll make things a lot easier. Looking forward to that. Thanks guys.

Alright, thanks, Tim.

Thank you, sir. Our next question or comment is from the line of Heike Doerr with Janney Montgomery Scott.

Good morning.

You're line is open.

Thank you. Good morning gentlemen.

Hey Heike, how are you?

Good. I'd like to talk a little bit more about the cost of capital proceeding that Tim was referencing. I believe that this is the first time that you're working in such a concentrated effort of cooperation with the other two companies. Can you talk a little bit about how this works and how the three companies have worked together to put this forth in front of the Commission.

Well, yes I think cooperation is somewhat of a nebulous word. Obviously we do talk to our brother and sister companies within the state of California. But each company is filing their cost of capital.

So you've each got a separate docket number?

Correct. Correct.

Okay.

So we're all filing today. And that makes sense. If you think about it, each company we're separately publicly traded companies. We have separate balance sheet, we have separate income statements, separate regions that we operate in, and separate drivers of our business. Well, collectively in terms of regulatory finance we talk about the weather, we talk about kind of the generalities that drive our business, but the fact is we do operate in a very large state and we do have separate drivers.

So we have had discussions and we have talked though some base strategies with our peer companies, but it is our own cost of capital filing and we do our own work on it.

So does that mean that you haven't all asked for the same authorized return?

I can tell you as CFO at Cal Water I do not know what our peers are going to ask for.

That is a fair answer.

Yes, and I do not know what their support -- their worksheets are going to show and support of that answer. I do know for us as you know Heike because you published the information on the betas, there is something going on in California because the beta's -- for water companies has gone up approximately 40 basis points higher than the average utility beta. So I don't know if they're going to use that argument, but I'll what. We certainly are.

Okay. And touching on the RAM recently. I know it was approved for residential. Can we have an update on how you're doing on getting C&I folded into that?

Yes. The RAM that was -- the RAM that's approved is actually for all. So it's the whole enchilada so to speak.

Oh great. I didn't know that had gotten approved. That's great to hear.

Yes.

And lastly, we get lots of questions about how the economy impacts water consumption, and the typical opinion has been it doesn't really impact on the residential side, but you do see it on the commercial and the industrial side. We've heard antidotal evidence from some of your peers that operate in other states that they are seeing some impact here, recession related decreases. Can you comment on that? I don't know if that's something you breakout in your Q.

We don't, but I can certainly talk about it a little bit. In looking at Q1 and looking -- one thing to keep my -- where we have to use a chart of accounts that the PUC publishes. So we have to subscribe to what they publish. So it -- every state's going to be a little different on that chart of accounts. So to some extent you may be comparing apples and orange. And so for anyone who's going to do this you need to get into the chart of accounts to understand the components.

In looking at our chart of accounts, and looking at just residential this year to last year, our residential demand, our sales, grew approximately 2/10ths of 1%. Demand for businesses who use our water services were -- grew by 2.7%, and industrial customers is up 17.1%.

Really I think from a water standpoint what Pete and I are and the executives at Cal Water talk about is, when did you turn on your sprinkler system? Last year we were turning our sprinkler systems on in February because it was so dry. This year I think most of us turned our sprinkler systems in the end of March.

And so we don't quite look at it that way. We do track it based on residential, business, and industrial. But in this case we did see more increase in the business and industrial versus the residential.

Okay, that's helpful.

I think that's to be expected given the, call it, sprinkler syndrome.

Okay. And Marty you gave us some weather statistics for the first quarter. Are the weather statistics out yet for April? I know that it -- the month just closed yesterday, but have -- do you have any indication of how the second quarter has started?

They're not out yet. The information I gave you yesterday most of it referenced back to as of April 1st. Right -- I can certainly talk about it. We do know January was a very wet month. And February it started to dry out. We had a little bit of rain in February. And then March was -- for the most part was fairly dry, but the average temperatures have been approximately two degrees cooler.

So I expect that the start of Q2 will be relatively good just given where we are.

Great, and one last question. I know in the fourth quarter conference call you had mentioned all of these Hawaii acquisitions, and can we just talk quickly on -- are those approvals happening in the timeline that you had been expecting?

Yes, again it's the process we have to go through on the regulatory side.

Right.

The Waikoloa and the Pukalani, those applications were filed. They're moving through the PUC. So far they look to be on track. I would expect them to close sometime this summer.

And the unregulated business acquisition, that was supposed to close in March. Did that occur?

That is still -- that we have not closed on that yet. I anticipate that closing sometime in the next week to ten days.

Great. Thanks. That's been helpful gentlemen.

Okay, thanks Heike.

Thank you. Our next question or comment is from the line of Jonathan Breeder with Wachovia. Your line is open.

Good morning, gentlemen.

Hey, Jonathan, good morning.

A few questions on the ROE. So right now you guys are authorized a 10-2. Will a new ROE be set in the 2007 GRC, or is the 10-2 going to be adopted in that? Do you know?

The 10-2 is the basis for the '07 general rate case, so it will not change -- that decision will not change the authorized ROE at 10.2.

Okay, so you're authorized ROE will stay there, and then in this cost of capital application you said it would be effective January 1, 2009? Is that correct?

That's correct.

Would that then reset the rates based on that new ROE at that point?

If the ROE does change, yes that'll change the rates.

Okay. And what is going on with like the -- like Tim referenced? The Phase II aspect of the conservation proceeding with the ROE. That's a different track from these cost of capital applications?

A different track. The testimony and the data is in, and then we're waiting a proposed decision on that. No time schedule yet. In fact, there's no target date. There's no schedule from the Commission on when that might occur.

I mean, will -- whenever that decision comes out is it going to actually give what the ROE is, or is that just addressing whether or not there should be adjustment to the ROE?

We don't know yet. We're still waiting for word from the Commission.

I think part of it Jonathan is -- as we talked about, the change we're about to go through is significant, and I think all hands are kind of on deck, but with the RAM and the modified cost balancing account and getting through that first. So I don't anticipate a whole lot of activity in that area until we kind of get this next wave.

Okay. And as far as the 2007 GRC, your filing was based on a 10.2% ROE, correct?

That's correct.

So I mean how -- I how -- I don't know if you can give any indications as to how that's progressing. It's a fairly large dollar amount you guys are requesting. If it's based on the 10-2 -- I mean how much of that do you think we can reasonably expect to be approved? Or is it just too early to speculate? I mean is a settlement, is that out the question at this point?

Well, it's too soon to speculate and I would be crazy to speculate. I've never been correct on a -- speculating on a Commission decision. All I can say at this point is it's on schedule and the data and the testimony is in, and we're just waiting as the ALJ to produce a proposed decision.

Okay, but -- so you're past the settle -- the chances for a settlement or anything like that?

Well, as the case goes on, several things are settled with the staff and some things are not, and then the ALJ writes the proposed -- the decision and we'll deal with that when it comes out.

Okay. And then if I heard you correctly, there will be no 2008 GRC. The next one is just a consolidated filing?

You're right.

Is there -- I mean I guess there's a still attrition or step increases associated with the 2007 GRC that will occur up until the consolidated filing is effective?

That's right. For the -- for all 24 districts they have a general rate case every three years, and then the intervening years two and three have attrition increases. And that's built into the -- into each general rate case.

Okay. And then as far as the three aspects being implemented as -- from the Phase I conservation with the effective July 1st date, is there -- I mean is there any concern that -- with the designs not being finalized yet that those won't be ready, and it wouldn't be in effect at July 1st? Or --

You can answer that one.

Yes, thanks Pete. I think generally speaking to almost all your questions, things with the general rate case have progressed as planned. The PEBOP if you've read our 10-Qs and 10-Ks, that we got a favorable resolution of that, 100% resolution of that in our favor. And I think generally speaking, things are going well at the California Water Action Plan and how we're implementing them. Could things get delayed? Absolutely. Is this a complex thing we're trying to do? Yes it is. But so far our meetings that we've had at the Commission have gone well. They've liked what we've come up with. They like the elements of how we're proposing the recording, et cetera. And I think for us until we hear otherwise we are going to drive that July 1st date.

Okay, and that's good. And then just last clarification. You were talking about the mark-to-market losses. Could you give that number again, what it was on an after tax EPS basis?

It was approximately $750,000 before tax. To break that down on an EPS basis I'd say it's about $0.025.

Okay. I mean as far as an ongoing basis, I mean it will reoccur but it's completely out of your guy's control, therefore -- I mean we're going to normalize earnings. I mean we should probably take it out, right Marty?

Yes, I think that's right. And that's why we have it down in the other income and expense line. It's one of those things people tend not to look at when it's added into earnings. So when the market runs the other way, it gets more attention. But it's always down in the other income and expense line. And in fact we always talk about it if there's swings in it in our Qs. So we try to make that transparent so people can see that and certainly if you have questions about it you can certainly call me and I'll walk you through the accounting for it.

In case you want to an actuary I'll be happy to walk you through the actuarial calculations.

I'll let that up to you guys, but appreciate the responses today.

Alright, thanks Jonathan.

Thank you sir. (Operator Instructions). Our next question or comment comes from the line of Andrew Shirley with Ivory Capital. Your line is open.

Hi. My question was asked and answered.

Thank you sir. There are no further questions in queue at this time.

Great. Well I just -- in closing as Pete and I talked about today, we have much going on between the '07 general rate case, the conservation, the RAM, the modified costs balancing account. Q1 certainly was a soft quarter. I think everyone understands why. We certainly had much different weather this year than Q1 of last year.

We continue to believe that the Company has made significant progress [and with] the California Water Action Plan. I think we are pleased to date. We continue to believe that we have positioned the Company the right way for a bright future with the Water Action Plan, and certainly we look forward to being able to share the details of the RAM and the modified cost balancing accounts now. It's all going to work hopefully next quarter.

So we want to thank everybody for your support this quarter, and that if you have questions feel free to give us a call. Thank you.

Ladies and gentlemen. This does conclude the conference for today. We again thank you for your participation. You may all disconnect at this time. Good day.