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Operator Welcome to the California Water Service Group Fourth Quarter and Year-End 2015 Earnings Results Teleconference. Today’s conference is being recorded. I would now like to turn the meeting over to Shannon Dean, Vice President, Corporate Communications. Please go ahead. Shannon Dean Thank you, Nova. Welcome everyone to the fourth quarter and year-end earnings results call for California Water Service Group. With me today is Martin Kropelnicki, our President and CEO, and Tom Smegal. A replay of today’s proceedings will be available beginning today, February 25, 2016 through April 25th, 2016 at 1-888-203-1112 or at 1-719-457-0820 with a replay pass code of 4899398. As a reminder before we begin today the company has developed a slide deck to accompany the earnings call this quarter. The slide deck was furnished with an 8K this morning and is also available at the company’s website at www.calwatergroup.com/docks/earningsslidesfebruary2016.pdf Before looking at this quarter’s results, we would like to take a few moments to cover forward-looking statements. During the course of the 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 and interested parties to carefully read and understand the company’s disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q and other reports filed with the Securities and Exchange Commission. Now let’s look at the 2015 results. I will pass it over Tom. Tom Smegal Thanks, Shannon. Good morning everyone. Martin and I will be going through our presentation today a little bit differently than in the past and we will be walking through the slide deck that we distributed. So we’ll refer to page numbers as we go through to follow along on where we are on the slides and I will be and just to summarize we’ll talk about the financial highlights for the year. We’ll talk about the drought of course. Our regulatory update whether California GRC, some slides that we’ve developed relating to our adopted rate base and return on equity and lastly to talk about what we expect some of the things we expect for 2016. So very briefly turning to slide 5, our financial results, our operating revenue was down just a little bit that has to do with the unbilled revenue that we will discuss in a moment. Our operations expense was relatively flat, that is lower purchase water cost offset by higher costs in other areas particularly pension costs. All of those things are subject to balancing account protection in California, our main service area. I will highlight that our net income is down 11.7 million or 20.7% and the EPS is down $0.25 of that same 20.7%. Turning to slide 6 for a little bit of explanation and just as a reminder we talked about this for a number of calls in a row here but our unbilled revenue has been a factor for us all year and just to give an update on the accounting, unbilled revenue is excluded from our revenue decoupling mechanisms. The WRAM and the MCBA track, the actual bills that are sent out to customers and so as a water utility that does billing on an everyday, every workday cycle. We will have a period of time at the end of every accounting period where there are customers who have used water and are owing us money but have not been billed for that yet. So that’s excluded from the ramp. We just show how that’s calculated and the variance there really has to do with customer demand, rate design, weather and the number of days since the number of days left in the year from the end of the billing cycle. So it can vary from year to year and we did have a dramatic variance for 2015 versus 2014. In 2014 we had a revenue increase of 6.8 million that is comparing December of 2014’s accrual to December 2013’s accrual. The effect there is warm dry December 2014 as well as higher service charges that were adopted in the 2014 GRC decision. In 2015 we saw a revenue decrease by 0.5 million due to a cool wet December of 2015. The net difference there is 7.3 million when you take the tax effect of that, that’s the 4.9 million difference in net income. Our tax benefit we talked about in the third quarter 4.8 million received in 2014 that did not recur in 2015. Our incremental drought expenses for the year ended at 4.4 million and that reduces net income by 2.8 million. Again that expense is tracked in a memorandum account. We don’t get immediate recovery but we have to apply for recovery at the commission and once we do that we can book — we can collect that revenue. Finally the last item is maintenance costs and those increased 1.6 million for the year, again pretty much drought related we believe has to do with mains and service repairers, a lot of overtime was spent this year working weeks that we wanted to fix the day that they were discovered. That’s a policy change that we made in the drought to make sure that we’re doing the right thing and we’re out there in front of any water wasting that goes on. On slide 7 it’s just a graphical representation of what I mention that shows you the bridge from a $1.19 in 2014 down to the $0.94 in 2015. I won’t go over that in any detail. On page 8, I will highlight some important positive developments from a financial standpoint and this we’re really proud of the first item is that we spend a 177 million on capital improvements this year. If you recall I think our target was 125 million to 145 million. We’re anticipating the ramp up as we go into the 2015 general rate case cycle and if you’ll recall the 693 million of capital that we’ve asked for there, our engineering group did a really excellent job in our districts putting in all the capital improvements this year really exceeded our budget expectation really dramatically. That’s going to drive our rate base growth in the future and the rate base growth as we’ll talk about later does drive earnings growth in the future. The other big item which is important for us is that our WRAM decoupling balance which has been a problem issue for us really since the beginning of the decoupling era in 2008 that actually as a result of the drought surcharges that declined to 40.6 million. So the receivable balance is 40.6 million. It was in the range of 45 million at the end of last year that is a really positive development considering all of the drought savings that we had. As you also know we completed a successful debt offering in the fourth quarter and that was a 100 million debt offering long term debt and as well as 50 million that we expect to receive as a delayed draw in March of 2016 and we also re-upped our line of credit so we have 450 million on the credit lines we did that earlier in the year. So company is on very good footing financially, lots of liquidity the ability to do the CapEx that we’re going to discuss in the deck. And we did just get a reaffirmation from S&P of our A plus stable, AA minus for our first mortgage bonds. The next thing I wanted to point out is of a little bit of a difference in how we look at return on equity versus how you would look at it just from a from 10k and income statement balance sheet review. Our California adopted return on equity which is the bulk of our business remember 94% of our businesses in California. The adopted return on equity is 9/43% and just as an addendum there we did get a delay in the cost of capital proceedings so that will be our adopted return on equity for 2016 as well for the entire year. Our GAAP ROE if you calculated from the 10-K that will be filed later today is 7.1%. In California we are not including construction work in progress actually none of the states we include construction work in progress in our rate base. So by deducting the equity equip we value our return on equity really at this 8.45%. Now that’s not at the adopted level and so we’re certainly not jumping up and down over that but we wanted to make you aware that there is a difference between what you see straight from the balance sheet and what we’re allowed to earn based on the regulation. Right now with the regulation we’re booking the interest during construction or the AFUDC, on all of our planned projects into the ending values of the plant. So we do collect that money over time later but we don’t have a return on construction work in progress. The last item on that table, is just a demonstration of what would the ROE under this scenario have been if we didn’t have the drought cost and that’s almost 9% really relatively close to the authorized ROE. Now I’m going to turn it over to Marty. Martin Kropelnicki Thanks, Tom. Good morning everyone I want to give everyone a update on what’s happening in California with the drought. Starting off talking about kind of where we are and what it shaping up to be for ’16 and then on slide 11 I’ll talk about some of our results of our efforts for 2015 to save water. First and foremost California is entering potentially the 5th straight year of a record drought. So far we have had good — our precipitation up and down the state but it has warmed up pretty quick from a water supply standpoint if you look at the major reservoirs where they are today versus where they were a year ago. They’re mostly about the same, there hasn’t been a big change in reservoir conditions year over year. The thing that has changed is the snow back and act as earlier this week as of 23rd February our snow pack for the state was 93% of normal. If you go back to the end of January, the snow pack was 124% normal and that will give you an idea how much it’s warmed up over the last 30 days in the state. So it’s good to see the snow pack is at 93% that’s certainly better than last year, but we like to see that snow pack a little higher and not have the warm weather that we’ve been having throughout the state. So the snow pack is good but really what’s going to happen they’ll do a snow pack measurement in April and that will determine kind of our next steps with the drought. Having said that the state has extended the drought emergency through October 31 as I mentioned the final allocations and targets will be set at the snowpack reading later this spring. In the updated provisions that the State Water Resources Control Board has published, it’s basically the same kind of program but they did add three provisions to the calculations. One there’s a provision for growth. So when you look at a city like Visalia for us for example, Visalia growth 3% or 4% a year. So when you locked in the drought targets based on the 2013 consumption there was no modification of those targets for growth and population connections and so that’s very difficult to deal when you have a growing city to try to hit those targets. They have added a provision for the growth modifier. They added a climate adjustment modifier. So you if you think about the drought in the state of California whether if you were coastal, you had an allocation that was potentially the same as someone who is inland where it’s much harder. So they’ve added a climate adjustment mechanism and then they added a third piece a modifier which is a drought what they call a drought resilient supply modifier. Though as you bring in recycled water projects or desalinization that will allow you to adjust your targets within a given geographical area. So as of right now applying these provisions looking at what the potential targets might be for 2016. We anticipate approximately a 2% to 4% adjustment in many of our districts depending on whether located throughout the state to be finalized after that final snow pack reading in the spring. So the drought is going to continue, it’s going to continue to be a challenge for us. We will keep our drought team fully intact. We will be making some modifications as we move forward as those rules are finalized with the State Water Resources Control Board. Having said that we do believe we have positioned well and manage well during 2015, if you go to slide 11 our customers achieved a net reduction of 28.6% exceeding the state’s requirement of reduction target of 25%. To just put that into perspective of how much water that is that 68,000 acre feet or 22 billion gallons of water say by Cal Water customers to take it one step farther that’s 46,000 gallons per connection and that’s enough water to provide everyone in California 580 gallons of water. So that’s a real big savings and we were very, very happy with the results of our drought outreach and our drought team that has done a fantastic job. Having said that to give an idea what it took to achieve those targets I just pulled some statistics from the team throughout the seven month drought period in 2015 we ran over a 1000 radio ads. We designed and we ran 23,000 plus cable TV ads, we designed and we ran in movie theaters over 73,000 radio ads. We distributed and helped install over 10,000 low flow toilets. We had processed over 50,000 of rebates for water efficient appliances and we processed and issued over 190,000 rebates for turf replacement projects. So when we talk about our drought cost you could see where a lot of the money was spent it was clearly spent on outreach and trying to work with the customer with our customer first approach to help all of our customers set their targets. As Tom mentioned that the decoupling mechanism we believe worked well and we believe it’s the right rate design, if you think about the way the rate design is working. There were a few analysts reports that were published that was worried about that the WRAM account ballooning. The way we designed the rate design was for people who were hitting their targets. They had no change in their rates. But people who went above their targets when they hit first unit above their budgeted amount was two times their highest rate. And any drought surcharge that the company received was then used to offset the WRAM balance. So people who are abusers of water were panned on the WRAM balance to the people who were doing the right thing. So we continue to believe that it’s the right rate design and we believe it’s worked well. The incremental cost associated with the drought as Tom mentioned that’s a $0.06 impact for the year that was recorded in an incremental cost memorandum account, those costs are everything I just talked about in terms of the outreach we have a full time team of 39 employees that have been working on the drought nonstop. We believe those costs are recoverable and we will have them — we will be filing for recovery later this spring and they are subject to a prudent sea review and [indiscernible] review by the CPU but we do believe they will be fully recovered. On the customer surcharges in the WRAM balances, it gave us an extra cash flow of $36.9 million and ultimately when we apply that and the changes to revenue that go through the WRAM when it all nets out we had a net reduction in our WRAM balance of 4.6 million or 10.2%. So very happy with the rate design, very happy with how the WRAM has worked in 2015 with the drought. In addition as you may recall we recently adopted a sales reconciliation mechanism and due to the conservation and the significant drop in consumption the sales reconciliation mechanism will be filed and most of our districts will have a reset on the rates that we will file for here shortly as well. So that’s another mechanism that will keep the WRAM balance from growing and keep the adopted numbers closer to what actual [indiscernible]. So it’s a nice tool to have to keep the WRAM balances minimal and keeping rates close to what the actual costs are. Moving ahead to the next slide, as Tom talked about you know we had a great year in engineering. We got a lot of capital done as you may recall we spent a good part of 2015 reorganizing our engineering division, our engineering department including a new Vice President that we hired from outside the company. We did that because of what we were anticipating in the rate case, we did file the rate case in early July seeking about $95 million in 2017 and then 23 million in steps for ’18 and ’19, 80% of that rate increase of that 95 million is capital related and so in addition we made a commitment its rate case to keep expense headcount flat. So where we really been focused on capital, what’s embedded in the rate case is a proposed capital budget of $693 million over three years. So we’re well into the process now, we are scheduled to get the advocates or the ORA report next week. We will have about 30 days to respond to it and then we move into the next phase of the GRC process which is a settlement process. So there will be more to come and more to talk about on the first quarter earnings call. Looking at one of the big drivers of capital for us on page 13, as we’ve talked about and we’ve had in our investor slides we own and operate over 600,000 miles of main and I always like to tell people that’s equivalent from flying to San Francisco to New York J.F.K and then fly back and add 500, 600 miles and you will get that’s the amount of mains that we operate. We were on a 300 year main replacement cycle which is too long and with the drought as Tom mentioned we’ve put a program in place to fix leaks same day. So it’s 24/7 if we had a leak we wanted to fix it but ultimately those main should be should be changed out every 100, 150 years and if you look at the American Water Works Association they recommend a 100 year main replacement cycle. So in this rate case we have proposed going from a 300 years cycle to a 200 year cycle. Most of our peer companies in the state of California are already at a 100 to 150 year replacement cycle. So we think we’re on the right approach with the main replacement program and look forward to working through that with the commission. In addition we have in the rate case we’re very focused on water supply reliability, more tanks, more wells doing a brackish desalinization study for here in the Bay Area. So there is a lot of capital projects, there’s one large project but most of these projects are kind of the routine kind of capital maintenance capital improvement and it’s what’s going to drive our rate base growth going forward. In addition, we had one policy change, Tom do you want to take them to the policy change we applied for? Tom Smegal Thanks, Marty. This is an item I talked earlier about the construction work in progress and it’s exclusion from rate base. We did have comments in the last rate case cycle from the rate advocate actually suggesting that it would be better for us from their perspective to move to construction work in progress instead of accumulating interest in construction into project costs. So we did make that request in the rate case. We think it will be adopted based upon the earlier motivation of or [indiscernible] and just remember that there would have an immediate effect on our adopted rate base in the rate case we’ve asked for 80 million which represents a long term average of construction work in progress and 80 million would be added to rate base on an annual basis and that roughly translates to 4 million of net income or $0.08 on a per share basis if that is adopted. Turning to slide 14, just to give you a graphical representation of our CapEx and how well we did this last year. What you can see with the yellow bars is that we have increased over the last eight years from a capital expense of 76 million, 100 million moving up, 177 million. The blue bars for ’16, ’17 and ’18 represents what we filed for in the general rate case the 205s that I showed there in 2016 that represents what we filed in California plus what we expect to spend in the other states. And we have given a range in our 10-K that we expect to spend between 180 million and 210 million in 2016. So we will forward already working on the CapEx for this year as you would expect and we look forward to that level of CapEx continuing into the future based upon the main replacement program moving to a more normal level of a 200 year cycle. Flipping to page 15, again this is a graphic representation of the company’s authorized rate base. If it’s application in California were adopted as proposed. So a lot of caution particularly on ’17 and ’18. These are the numbers we proposed to the commission there’s always changes to the rate case process but just to give you an idea that our authorized rate base in California and all the other subsidiaries about 977 million in 2014, 1 billion of [indiscernible] in 2015 and a little bit more in ’16 so there’s not much incremental rate base in ’16 but a tremendous increment in ’17 and ’18 based on the rate case CapEx as well as the inclusion of the construction work in progress. And again just to reiterate these are projections that are based upon the regulatory filing and certainly will change based upon the outcome of that proceeding. Flipping to slide 16, just to get everyone in the mind set of what that means for the company and for its earnings potential. As we’ve talked throughout the call and over the quarters since 2008 we have adopted a decoupling of revenue from earnings and that means that there’s a very — it’s very unlikely for us in our regulated arena to earn more than our authorized rate of return. So the table on slide 16 shows that based on the rate base that we have authorized and the capital equity structure that we have with the debt equity ratio there’s a maximum allowable regulated earnings and you see that for ’14, ’15 and ’16. Remember that that does not include such things as regulatory lag, any cost that we’re not recovering through the process. Other income and expense is outside the regulation area and regulatory tax differences. The point of this slide is to get us in the ballpark of where we would expect our earnings to be in ’14, ’15 and ’16 and then for ’17 and ’18 it’s really going to be dependent and the earnings of the company are really dependent upon the rate base that’s authorized particularly in California as well as by the other state regulators and the numbers that are reflected on the right hand side of the table again are the rate basis for ’17 and ’18 assuming that the application in California were granted in full and we do know that that isn’t typically the case. So now I’m going to turn it back to Marty for slide 17. Martin Kropelnicki Great. So let’s talk about 2016 and what to expect. First and foremost as I mentioned earlier, continued drought conditions and mandatory restrictions in the State of California. We don’t see that going away now until the end of October and this will be a standing kind of agenda item that will update everyone on the quarterly calls. Based on current conditions we expect drought expenses to reduce earnings per share between $0.05 and $0.10 a share and again those costs will even though they are expensed in the period they will be recorded in a drought memorandum account that’s already been authorized and we apply or recovery of that at a later date. It’s the third year of rate case cycle. So you we know limited rate relief, we had $5 million in escalation plus a miscellaneous advice letter filings. It’s the greatest period of regulatory lag. One of the questions people ask me is well you have a year round balance in account which covers your revenue, you got your production costs balancing account you’ve got a health care balancing account, you’ve got a pension balance account, well what else is there well? Well there’s labor and as Tom mentioned with the leaks we told our team across the state you fix leaks 24/7, you don’t let water run. Any incremental costs like that are going to hit the labor line. You’ve chemicals, you have filters, as water conditions change throughout the state change. It can become more challenging from a water quality perspective. So those cost of treating water are not covered by any type of balancing account, those are forecasted into the rate case and any significant changes in water supply that we have to change treatment we have to absorb those cost and try to get them back in the next rate case. So it’s the greatest period of regulatory lag. So we’ll be very, very tight with our operating budgets this year. We did put in the slide deck here the 2015 tax rate which is 36% and we anticipate a tax rate of 38% in 2016. We did noticed and some of the questions we got from our investors is that they were missing some of the tax estimates or they would take a one-time tax adjustment and take it out in perpetuity. And when you have things like the maintenance repairs, deduction and currently congress is extended bonus depreciation that will cause the tax rate to move around but for us in terms of 2016 we’re anticipating a 38% tax rate. In addition we have a capital range which is a new all-time high for the company of $180 million to $210 million subject to the adjustments of the pending rate case that’s a big capital program for us and that’s why the reengineering or engineering was really important to us. So we did reorganize the department to focus on expedited capital delivery and getting all the projects done on scope, on schedule, on budget. A couple things to mention as well to keep on everyone’s radar screen we do have two commissioners in the State of California that will term out at the end of 2016 so we’ll be watching that and see who will become two of the commissioners, one of them is Commissioner Sandoval who has been our water commissioner. So that will be worth watching in the state to see how that plays out. In addition we announced in the fourth quarter we have a new board member that I believe is very significant. We hired Greg Aliff we invited him to join our Board, Greg has 38 years with Deloitte & Touche. He has a CPA. He recently retired as Vice Chairman and Senior Partner of Deloitte and Head of their U.S. Energy and Natural Resources. In his career he’s done a lot of things most of it’s centered around utilities including heading their sustainability practice. He also served on the Board of the Deloitte U.S. practice. So Greg truly is a utility expert and another financial expert. He’s our third financial expert that we have on the Board that really has a grasp of the regulatory mechanisms and processes and how they work and so are very, very honored to have Greg on our Board and look forward to working with them. So what are our focal points for 2016? First and foremost the drought, continue what we’ve been doing to help our customers hit their mandatory conservation targets. We don’t see that changing anytime soon. Second thing is the GRC, the GRC is a big deal. A lot of resources get burnt up and used up in the process but it’s going to be a focal point of the company and our goal is to try to drive up the GRC to conclusion before the end of the year on schedule. And the third thing is one of the capital program. Make sure that we are getting that capital on the ground, that we’re getting it closed and that we’re getting it embedded in rates and that will be our 2016 which will be a blink of an eye and I’ll be a year later we will be here talking about what we achieved in 2016. So with that operator we would like to open it up for questions please. Question-and-Answer Session Operator [Operator Instructions]. And we will take our first question from Spencer Joyce with Hilliard Lyons. Spencer Joyce Just a couple of quick ones from me, first off I know you mentioned the drought memoranda account had grown to about 4.4 million and I was hoping you could refresh us on the time table for making a recovery filing. I guess correct me if I’m wrong, at some point we will work that even as somewhat of an addition to the general rate case. Is that correct? Martin Kropelnicki Well it’ll be incremental to the rate case so essentially we will file an advice letter later most like an advice letter later this spring and then once that’s approved we will book that revenue. It used to be before we decoupled when we had memoranda accounts we would book the revenue as it was billed. So as that account balances worked out it was incorporated in rates and that’s when we recognized the revenue. Now that we have decoupled the balance in accounts it will happen as once the commission completes it’s prudency review and they authorize the collection of that memorandum account we will book all that revenue at once as it’s collectible. Spencer Joyce Okay. So if we file this spring would — is it correct to assume that we would only be filing for amounts accrued to that point so say if we file May 1st, we may go kind of May 1 through December and not accrue that additional expense? Martin Kropelnicki Yes. That’s right there’s going to be a delay for the 2016 expenses because the memorandum account deals with incremental expenses, there’s a proving to the commission that these expenses are actually incremental that you know we backfill the positions that we’re assigned to this drought task and all that. So we’re really looking at the 2015 costs and the small amount that was in 2014. Those costs are what we would file for in 2016. Any costs that are incurred in 2016 are likely to be filed in 2017. Spencer Joyce So those costs that we file for in 2016 that would likely be a net income benefit at some point in 2017? Well it depends on the length of time of the commission review. This is an informal review not a application filing. So I would anticipate that the review would take 90 to 120 days. So we’re talking about most likely what would that be? Probably a third quarter type event but it could be early or it could be later. I would hope that we would get recovery of that within 2016. Operator [Operator Instructions]. We will take our next question from Jonathan Reeder with Wells Fargo. Jonathan Reeder So I might have missed it in your remarks Marty, the 2% to 4% adjustment you said in the conservation goals kind of across the district that you expect this spring. Is that like allow more usage or would it just increase the level that they have to conserve? I miss which direction it’s going? Martin Kropelnicki It would allow for more usage. So essentially if you look at the comments of the State Board right now they’re anticipating — we had a 25% kind of total target for the state last year in 2015, they are talking about an approximate 20% target for ’16 but again that’s subject to the final snow pack reading here in April. So it’ll allow customers to use a little bit more water essentially and it’ll vary by region by region which is nice. The other thing I’ll tell you from a rate design perspective that we’re looking 70% to 80% of our customers are doing a great job and hitting their targets and we have that 20% that are going over their numbers. We’re looking at trying to incorporate in our rate design to call the dead band, you know that’s not a technical rate making term. But for example if Tom has a water budget of 10 units and he uses 11, on that 11th unit Tom will pay two times the highest rate and if you assume Tom hit his target all year [indiscernible] pretty mad when he gets that one unit at the super high rate. So a dead band essentially would put a little bit of a buffer in there before the surcharges kick in and again we have been very happy with our customer responses across the Board and we serve a very diverse slice of California from low income areas to very, very high income areas and overall just 70% to 80% of our customers have just done a fantastic job at hitting those targets. Jonathan Reeder Okay. So if you implement that dead band and that might I guess impact how quickly you I guess recover — under recovered WRAM balance, is that right how you made some headway there because of the surcharges? Martin Kropelnicki That would reduce the surcharges, remember also that Marty mentioned the sales reconciliation mechanism. So the extent that we had a 28% drop in our sales in ’15. We’ve adjusted our sales targets within the rate design by 10% to 15% across the Board. So they were actually collecting more cash throughout the year in base rates. So that is going to have the opposite effect and hopefully the combination that you won’t change the pace of recovery of the WRAM balance. Tom Smegal I think the other thing too, Jonathan again the surcharges are being paid by 20% to 25% of our customers who go well above their targets, their authorized water budget. So that dead band will basically give the customers who are been doing the right thing a little bit of breathing room. But the ones who really you know basically where we have collected the majority of the surcharges, I think they’re going to continue to go away over their budgets and those are people who tend to be less price sensitive and they just continue to write the check. So it’ll be interesting to see a year from now how that plays out. Jonathan Reeder Okay. So that’s good there and then I guess the other part the you mentioned the higher usage. If it does move to 20% that should hopefully help the unbilled revenue issue in ’16 where that’s actually may be a tailwind turnings, is that accurate? Martin Kropelnicki Again it’s very hard to say because it’s so dependent upon really the usage in December and so month the month it may have an impact really comes down for the annual basis it really comes down to December of ’15 versus December of ’16. And remember we’re incorporating – we’re as good as we are based upon the surcharges because we’re incorporating the unbilled surcharges as well, the drought surcharges into that number. If we get to October and that drops off we could still have a problem of unbilled in ’16 and expected to normalize later. Tom Smegal Yes I think Jonathan , a lot of times I think people get — the unbilled can be complicated but it’s just a revenue accrual at the end of the quarter. So if consumption is going down your revenue accrual is going to go down, if consumption starts going up at the end of the accounting period your revenue accrual is going to go up. So it’ll follow that and then it’s just subject to you know weather conditions and where we have seen more of the violent swings in the unbilled balance or the revenue accruals is been where we’ve had significant shifts in weather. So as Tom mentioned a warm dry December it was a $6 million pick up and now this year we had a really a wet December, a lot of rain in December and it ram back the other way. Jonathan Reeder Unfortunately unbilled not going through WRAM and just been kind of a timing issue, it creates a noises for the quarter, for the year and for the investors that maybe aren’t paying as close of attention. Martin Kropelnicki Right. And really that’s kind of why we’re pointing in those last few slides of the deck to sort of what’s the core earnings potential of the company just to get focused on that. It is noise related to that unbilled issue and it does float up and down and try to kind of pass through that and say what should we really expect this company to earn. Jonathan Reeder Right. So turning to the rate base forecast. What you showed does that included the 80 million pick up from the [indiscernible] or would that be incremental to your forecast? Martin Kropelnicki That does include that. The 1.3 billion – 4 billion estimate for ’17 is California GRC as filed which includes [indiscernible]. Jonathan Reeder Okay. And then why wasn’t there much of an increment to rate base in 2016 given you know the high level of CapEx in ’15? Martin Kropelnicki Remember this is the authorized, this is not the actual rate base that we went in and calculated what’s there on the balance sheet as far as the rate base goes. This is what ended up being additional authorized rate base. Two things drive that, one is that if you look at our CapEx, the 177 million about 60 million of that, 65 million of that is still in SEWIP and so it’s not earning a regulated return. There was an increase to the SEWIP balance from ’14 to ’15. So that’s part of it. There’s also timing issues associated with the rate case, they’re looking at an weighted average plant and a lot of our CapEx was at the end of the year so we’re looking at 177 million through the end of the year. A lot of it is necessarily going to get incorporated into ’15 whereas it would get incorporated for the following year. Jonathan Reeder Okay. And so the projections you’re showing are they average rate base or are they year end balances? Martin Kropelnicki Those are average rate base, so that is the weighted average rate base that we’ve applied for with the commission for ’17 and ’18 plus what we in the other states. Jonathan Reeder Okay. So that’s the total company rate base not just California? Martin Kropelnicki That’s right. That’s the total company rate, yes. Jonathan Reeder And then I guess last question and then I will let some other people get in there but the higher level of CapEx that you’re doing so does require that advice letter recovery for the portion that was above the authorized amount in the last GRC and I guess there is like a little bit of a lag involved there, is that how to kind of think about those higher amounts? Martin Kropelnicki Yes. I think there’s two things, remember in the GRC process. The last year GRC was filed in mid-2012 and so to forecast out what we’re going to spend and what we’re authorized to spend in 2015 is a little bit of a stretch from that vantage point from the vantage point of when you initially file. So part of the CapEx for ’15 is anticipating the recovery in the 2017 test year. So we do have potentially a lag between what the actual rate base and what’s the adopted rate base for ’16. That kind of what you’re talking about there. Some of these projects are advice letter projects and we will be filing for recovery of some of the advice letter projects throughout the year. The difficulty in predicting those into our earnings for ’16 is really the timing of the commission’s authorization for recovery as we go through the year as you get later, later in the year you get less and less of a recovery within the year. So we do have a number of advice letter capital projects that we expect to file but that the amount of revenue that we can expect from that is fairly limited based upon when we think we’re able to file that during the year. Jonathan Reeder So last thing to understand, you were talking about kind of the headwinds against achieving that maximum regulate earnings should we also think I guess [indiscernible] on SEWIP is I guess offsetting a portion of that? Martin Kropelnicki Well I mean those are it’s really timing differences, so when we say the AFUDC on the SEWIP what we’re talking about is including those costs and we have for the last 15 years included those costs in our rate base figures as the products are completed and recognized in rate base and so that adds whatever it adds 2% to 5% of the project cost based upon how much interest happened during the period that the project was under construction. So what you’ll see is an initial bump based on the SEWIP and the trend will be that for each project going forward there will be no capitalized interest included in the project cost of the trajectory of CapEx would decline somewhat over what it would have been including interest during construction. Jonathan Reeder Right, but until that potential change like for 2016 when we look at what you said the maximum allowable regulated earnings I guess why you’re still accruing AFUDC that potentially offset some of the cost recovery and regulatory lag those kind of headwinds. Martin Kropelnicki It does but you don’t see it right away, I think that’s what I’m getting at. That gets capitalized and incorporated into the plant that’s built in 2016. Operator [Operator Instructions]. It appears we have no further questions in the queue at this time. Martin Kropelnicki Okay. Well thanks everybody for joining us and we look forward to discussing our first quarter results at the end of April. Thanks very much. Tom Smegal Thanks everyone. Operator And that does conclude today’s conference. Thank you for your participation. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. 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