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California Water Service Group (NYSE: CWT ) Q2 2015 Earnings Conference Call July 30, 2015 07:30 ET Executives Thomas Smegal – VP & CFO Martin Kropelnicki – President & CEO Paul Townsley – VP, Regulatory Matters Analysts Spencer Joyce – Hilliard Lyons Jonathan Reeder – Wells Fargo Operator Welcome to the California Water Service Group Second Quarter 2015 Earnings Results Teleconference. Today call is being recorded. I would now like to turn the meeting over to Mr. Thomas Smegal, Vice President and Chief Financial Officer. Please go ahead, sir. Thomas Smegal Thank you, Kim. Welcome everyone to the second quarter earnings call for California Water Service Group. With me today is Martin Kropelnicki, our President and CEO and Paul Townsley, our Vice President of Regulatory Matters. A replay of today’s proceedings will be available beginning today July 30, 2015 through September 30, 2015, at 1-888-203-1112 or at 1-719-457-0820, with a replay passcode of 1770876. 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 advices all current shareholders, as well as 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 from time-to-time with the Securities and Exchange Commission. Now, let’s look at the quarterly results. I’m going to go through the income statement and then turn it over to Paul for an update on our regulatory activity for the quarter. So for the second quarter our financial results, our revenue was a 144.4 million that’s down 8.8% or 14 million and that’s two things going on there, the MCBA, the modified cost balancing account which tracks our production cost that’s reflected an entry of 6.7 million and then unbuilt revenue adjustment which we will talk about in a little bit more detail later reduced revenue by 10 million and those both result really from decreased consumption in the quarter and at the end of the quarter. Our production cost for the quarter 53.0 million that’s down 14.4%, 8.9 million and again that water production volume is down 21% for the quarter. So we see that conservation is having effect on our production cost. Our production mix, well production within the quarter was 52% of total water production, while purchased water represented 45% and surface water accounted for the remaining 3%. In 2014 in the same quarter, 51% of water production was from wells, 46% from purchase sources and 3% was surface water. Our administrative and general expenses for the quarter were up 11.9% or 2.8 million and that’s really driven by pension expenses which were higher by 2.6 million. For our other operations expense, that was 17.5 million for the quarter up 9.4% or 1.5 million. Conservation expense increased to 0.5 million and expenses recorded to the drought memorandum account for future recovery was 0.9 million during the quarter and just as a reminder in our past calls we are confirming that the company still expects to spend $4 million to $6 million on drought response this year and Marty will talk more about our drought response. And maintenance, we got 5.3 million for the quarter up 6.8% or 0.3 million driven by maintenance in services maintenance within the quarter. Depreciation and amortization was 15.4 million, a decrease of 4.6% that’s driven as it was last quarter by lower depreciation rates that were adopted with the DRC [ph] decision late in 2014. Our net other income was a loss for the quarter of $15,000 that’s down about 800,000 from the second quarter of 2014 and the biggest driver there is a change in the value of the company’s non-qualified benefit plans which are mark to market each quarter. For income taxes during the quarter they decreased 2.1 million to 5.1 million and that’s due primarily to a decrease in pretax income and partially offset by changes in tax benefits. During the second quarter of 2014 the company has realized tax benefit of 2.5 million associated with implementation of the tangible property regulations. No similar benefit was achieved in the second quarter of 2015. Consequently the effective tax rate for 2015 is estimated to be 38%. So our net income for the quarter was 9.8 million, compared to net income of 17.2 million in the same period last year for a decrease of 7.3 million and talk about two main factors there of course is the unbuilt revenue and the tax benefit that we had received in the prior year. Earnings per share $0.21 and earnings per share on a fully diluted basis for the quarter is compared to earnings per share of $0.36 in the second quarter of 2014. Please go through the year-to-date results, revenue 266.4 million for the year down 1% or 2.5 m. Production costs are down 8.5% or 9.1 million over the first six months and that is reflecting of course decrease in volume. Our production mix was 51% for the first six months was well production as compared to 49% in the first six months of 2014 and purchased water decreased from 48% to 46%. This reflects a scarcity of surface water during the drought and more pumping from our groundwater wells. Our administrative and general expenses for the first six months of the year were up 11% or 5.4 million again that’s pension expense which was 5 million of 5.4 million. Other operations, 33.4 million for the year up 3% for 1 million and that’s to be driven primarily by wages. Maintenance expense is 9.8 million for the year to-date down 2.1% or 200,000. So there is a decrease in well and pumping equipment maintenance for the year-to-date. So net income for the first six months of the year 11.4 million, that’s down 2.3% or 300,000. The earnings per share is $0.24 on a fully diluted basis for 2015 and that’s the same $0.24 as we achieved in the first six months of 2014. So now I would like to turn it over Paul for an update on regulatory activity during the quarter. Paul Townsley Thank you, Tom. Good morning everybody. I would like to provide you with an update on our regulatory activity in both California and our subsidiaries. Let me start with Hawaii, our subsidiary Hawaii Water Service Company received three decisions from the Hawaii Public Utilities Commission during the second quarter of this year. These three decisions will provide the company with an additional revenue of $2 million annually. The three decisions conclude general rate cases for our Waikoloa Water Company, the Waikoloa Sewer Company and the [indiscernible] water Service Company, all of which are located on the Big Island of Hawaii. In addition to revenue increases to offset changes in operating expenses and to provide a return on our invested capital, these decisions also authorize the company to establish power cost pass through mechanisms so that energy cost are shown directly on customer’s bills and cost saves are pass through rather than eroding range [ph]. These three decisions conclude a series of Hawaii Water Service Company rate cases that is being working their way through the regulatory process since 2011 and 2012. Our net rate cases in Hawaii are for our Maui based, [indiscernible] service areas which we plan to file early next year. In California we filed our 2015 general rate case application in early July of this year. The application was covered of three year forward looking period request California Public Utility commission approval to increase revenue by $94.8 million in 2017, $23 million in 2018 and $22.6 million in 2019. The application also requests commission approval for Cal Water to invest $693 million in capital over the three year period of 2016 through 2018. The main driver for the requested revenue increase in this rate case application is investment and infrastructure. About 80% of the requested revenue increase in the rate case is attributable to capital investment and of the $693 million in requested capital investment over 40% or about $280 million of it is because of our stepping up of our pipeline replacement program. By stepping up our pipeline replacement program we can ensure that we’re replacing older pipeline in a systematic and timely manner which will reduce failure and leakage rates over the long term and the balance of the capital request that we have made to the commission is for other types of normal utility investments wells, pumps, tanks, treatment plants and water meters and service lines and technology, the usual bread and butter of our water utility investments. The rate case filing also reflects Cal Water’s aggressive cost control measures which include reduced benefit costs and increasing employee head count for all positions except for those that are required and make water supply improvements. We also want to point out some other important elements of the rate case application. In this case we’re proposing to consolidate a number of our service areas, our application details proposals to combine for rate making purposes 16 of our service areas in the five regions. We believe that proposed consolidation will help with a customer affordability concerns and also improve administrative efficiency. We have also requested that the commission continued the company’s sales reconciliation mechanism also known as SRM that was approved in our last rate case and to further enhance it to make it better reflect annual changes in customer sales. And finally we’re proposing to improve construction work and progress also known as [indiscernible] in rate base rather than including capitalized interest in our project announced. This last change will make Cal Water’s approach to construction accounting more consistent with other California Public Utility commission regulated water companies. The commission has not yet established a schedule for our rate case. However in accordance with the commissions established rate case plan new rates should go into effect on January 1, 2017. That’s my update, Tom. I will give it back to you. Thomas Smegal Thanks, Paul. Now I would like to cover some highlights on the balance sheet. So our plant balance at the end of the period net utility plant grew to 1.64 billion as of June 30 of 2015. The work in progress as Paul was talking about, construction work in progress increased to a 135 million. Our capital investments from both company funded and developer funded activities were 75.8 million on a year-to-date basis, it’s a 32% increase from the same time in 2014. This increase is primarily driven by increased activity on projects approved in the 2012 California General rate case application which went into effect last year. And as we have mentioned earlier the company expects to spend between a 125 million and a 145 million on company funded improvements in 2015, so we’re well on our way to meeting our target goals there. Cash on hand was 24.5 million. We did have a 126.6 million outstanding on our revolving credit facilities as of June 30th. I wanted to talk a little bit about our accrued unbilled accounts receivable what we call unbilled revenue and because that was the main driver of the change in earnings for the period. Unbilled revenue accrual represents water which has been used but not built for at the end of the period. The unbilled revenue is not reflected in the RAM decoupling mechanism which is recorded on a cash basis. Once built of course the revenue is recorded in the RAM and it flows through the normal decoupling process. The accrual we do this every quarter and it is very seasonally and very with REIT changes typically as in 2014 the accrual is higher at the end of the second quarter as compared to the end of first quarter. This year we asked our customers to conserve 25% to 30% state wide and they really came through as Marty will talk about in the discussion of the drought, our customers in June conserve 30% based upon their usage in 2013. With that consumption our unbilled revenue accrual is down as compared to 2014 and that’s what’s really driving the change in earnings this year. This has the seasonal effect, this is a transitory effect. We’re going to be doing this accrual every quarter and it’s just a natural part of us doing it. And of course the company cannot predict the future effects on net income due unbilled revenue accruals but we will see how it goes throughout the rest of the year. And just a final update from me on the balance sheet net RAM and MCBA balance actually decreased 0.3 million during the quarter to 47.9 million from 48.2 million at the end of the first quarter. The balance is up 2.7 million for the year from 45.2 million at the year-end. So now I’m going to turn it over to Marty for some comments on the drought and the quarter’s results. Martin Kropelnicki Thanks, Tom. Good morning everyone. If we sound like we’re a little off because Tom and I are in Boston after our board meeting yesterday we flew out east and we will be meeting with investors in Boston today to talk about the rate case we just filed. So it’s really early in the morning our time and we struggled to find Tom coffee this morning and me a cold diet coke but we got the first shot. I think we’re warming up here. So I want to cover really five things, one talk a little bit about the operating results for the quarter. Two, spend most of my time giving you kind of detailed drought update and what’s being going over the last really 60 days in the State of California. Three, give some thoughts on the GRC and highlight some of the things in what we’re doing that Paul talked about. Four, talk about the [indiscernible] workplace which we won for the fourth year in a row and then lastly talk about our plans as we move into the second half of the year what are our priorities as we move into the last part of the year and one of our goals for the company. So first and foremost, as Tom mentioned we saw significant decline in demand, our consumption laid in the quarter. So if you remember, Jerry Brown, Governor of California signed the executive order by extending the Emergency Drought Declaration in April that was ultimately put into place about May end of the first week in May and then we had to ramp up to be in compliance with that role start in June 1st. So it’s interesting that we did see the consumption prior that declaration being extended if you recall the medium wasn’t very good and in most places the consumption was down anywhere from 0% to 7% and that was really driven by the fact we had a very long dry winter. So people continue to use water. Once we did the public participation meetings, we communicated the drought plans. We sort of implemented our customer first approach. It shouldn’t be a surprise to anyone that we saw a significant decrease in consumption that really hit in the month of June and Tom kind of hit the bad news with that and it does affect the revenue accrual which is outside the regulatory accounting mechanism. That’s a good news in that and that most of our districts hitting or exceeding the conservation targets, what are the major step from where they were 60 days ago. So while that’s create a little bit of short term volatility the fact that is it’s step in the right direction for the company being able to hit it’s required targets as prescribed by that emergency declaration by the governor. Tom, you might want to take a quick minute if you can just to go through kind of the surcharge accounting and now that we’re into the penalty phase where people are charged a surcharged regarding their allocation how their accounting is going to work for that, because they will start showing us really in the Q3 numbers. Thomas Smegal Sure, Marty. The commission adopted our what’s called schedule 14.1 which is our drought plan and our drought water budget plan. In it there is two types of monetary penalties, one is a surcharge on excessive use over the budget that the customer has, each of our customers is given a specific budget that’s based upon their past usage in 2013 in the similar period. That surcharge money that comes is going to be put in the RAM of decoupling account, so that goes offset the deficit that might occur in the RAM with reduced sales. So that’s something that are going to be looking at very carefully to see where that goes. There are also penalties that would be associated with customers that misuse water or use water against the rules that have been established by ourselves, by the state and by local ordinances such as washing their car at an inappropriate time or watering at an inappropriate time or wasting water down the side walk. Those penalties, those fines really will be put into the drought memorandum account. That drought memorandum account I mentioned has we recorded 900,000 for the quarter and as we go forward that will be collected on a future basis so that’s drought memorandum account, it’s not something that we will recover immediately it will be something we recover probably in 2017. Martin Kropelnicki Right, so the end build revenue versus the ramp kind of creates a timing difference and the ramp balances for the quarter really went down actually slightly from where they were at the beginning of the year, so now you will start, we believe we believe you will start to see as the RAM balances start to grow as we move into the summer month and it’s kind of the change in consumption is being recorded now in June. It will start moving through the regulatory accounts going forward. As Tom we spent about a $1 million incrementally on our drought response and we’re still stand at the 4 million to 6 million is about the right amount. About 40 people dedicated full time in our drought centers working in each of our regions and through a dedicated call center to assist our customers and help high volume users in each of our districts. In addition on the numbers for the quarter, the 75.8 million and the capital program that the company has recorded that’s really good news. So we’re actually ahead of plan on a year-to-date basis, our goal is a 125 million to 145 million the significance in why I’m pushing this number and I want to highlight this number a little bit is because of the rate case numbers that Paul mentioned. We [indiscernible] $700 million of new capital and that is a significant increase what we asked for in the last rate case, the largest components of that being made and then pumps treatment, water supply, water [indiscernible] items. So this is kind of a transition here in terms of our ability to execute a $200 million year capital program. So we have been very focused internally looking at our capital processes and making sure we have the ability to implement a significantly larger capital program in the coming years and as we said before we don’t see the capital slowing down as Tom and I have mentioned before, you know our mains are getting older. We need to start changing out those mains. Obviously water supply and scarcity is playing in the California so we have a lot of projects to bring new water supply on board and also make sure as the water level has dropped in California while the quality issues become more difficult to deal with. So we’re dealing — we’re spending more money on purification for our programs. By the way we know that it’s very complicated on the RAM accounting and all everything gets involved in it. So when we look to our 10Q there will be a lot of disclosure around this and we try to highlight the changes in the MD&A so people can really follow in our 10Q that we plan to file shortly. Now moving on to the drought, so bad news is out of the way, the decline in consumption now let’s stick to the good news and that’s really the customers and our footprint within the State of California has done an outstanding job at the first month of required mandatory conservation. To give you an idea how our districts faired, we had six districts that achieved greater than a 40% reduction, and the water consumption we had 15 districts that achieved greater than 30% reduction and 19 out of our 24 districts were in compliance that means 80% of our districts were in compliance. The ones that were out of compliance most of them was the exception of one district which I will come back were a stone throw away from hitting the targets. So that’s first month of reporting that’s required and the penalties are rolling in, I’ve been very, very happy with the drought response and our customers’ ability to hit their conservation target. Call center volumes have leveled off from a higher 45,000 calls per week down to approximately 20,000 calls per week and in total we have received approximately 4000 customer applications for appeals are requesting changes to their water budget. If you put that into perspective of how many meters we have in the State of California that’s less than 1% of their customers are coming back saying they need a little bit more out of their water budget. So we have an approved approximately 1600 applications and adjusted water budget and those are remodeled or we just had twins or my in-laws has just moved in with me and so we go and we verify all that and we will adjust their water budgets based on the supporting documentation that’s put in. But nonetheless, it’s less than 1% of the customers coming and asking for a change in the water budget and to me it speaks the fact that the message of the drought in what we need to do is really clearly being understood by our customers. In addition towards the end of the quarter we did a few customer focused groups, and the feedback has been mainly positive. What we try to do is get customers in a room and ask them what’s working, what’s not working, what is it going to take them to help conserve and overall it’s been a very supportive environment with the customers and the communities that we serve. In addition to the focus groups about 82% of the media coverage in our service areas has been neutral to positive versus 18% which is negative and again we believe that’s reinforces, that’s the message is getting out and it fits nicely with decline that we have seen in consumption at our customers understand that we need to hit these targets. [Indiscernible] supply standpoint our water supply conditions have been steady and we’re in the process of launching five new conservation programs that will bring us upto 12 conservation programs that have been launched over the last 60 days, the new programs will drive our outreach and continued success, and allow us to continue to target high end users, high volume users and the water that they use. In addition, we started rolling out a new report. This new report was traded with an application called BEACON. We have partnered Badger Meter to design and build an application to produce easy to read graphical reports for customers to help them track and understand their water usage compared to people in their neighborhood so it doesn’t identify who your neighbors are but it’s basically a graphical report that we produced and give to the customers, that shows their trends and how they are trending compared to people in their neighborhood. And so that was a good project that we partnered with Badger Meter and we’re in the process that we’re rolling it out. We’re rolling it out to the high volume districts first and then we will roll out to the districts that aren’t as hard hit with the drought, what the idea that is being fully rolled out here during the third quarter. So overall I’m very pleased with the progress that we have made on the drought, I think we’re off to an outstanding start, it has been a lot of work for the team but all this indications are heading in the right way. Customer usage is down, customer understanding is up, media coverage has been good and we’re hitting our targets and I think that’s the most important story here. In addition as Paul mentioned you know the rate case, the rate case we’re moving into the next stage so it’s being filed. We start our tours with the regulators here in next month and we start notifying our customers. I believe this week with build notifications of the rate case process. We get what’s called an exception report from the — we file a prelim rate case and then give us a deficiency report and then we have to correct those deficiencies before make the final filing. Our deficiencies in this rate case were down about 65% from where they were with the last rate case, I think that speaks to the companies extra care and timing is put into preparing this rate case, in particular the capital work and the capital program across the state. So as we move into the rate case space here and continue to deal with the drought those are our two priorities as we go into the end of the year. Droughts number one, rate cases number two. Lastly I want to take a couple of minutes to talk about the award we announced a couple of weeks ago, the Bay Area Top 100 Workplace so this effects our employees in the Bay Area which is about — it’s about 25% to 35% of the company. For the fourth year in a row we have been named a Top 100 Workplace in the Bay Area and once again we’re the only utility to win this award and we take great pride in being an 89 year old water utility located in the heart of Silicon Valley competing with 1000 of tech companies that are around us. It’s nice to be a winner and I believe that the award shows the type of company that we’re, the type of employees that we have and I sincerely believe that happy employees help create good customer service and that good customer service also helps [indiscernible] response. So we’re very happy to have won that award for the fourth year in a row. We did take a small moment to have lunch with the employees to celebrate their success and it was back to our come back to dealing with the drought. So in closing while the drought is creating a little bit of volatility on the unbuild of revenue side which is outside the regulatory mechanism, the fact is there is a lot of great things are happening in Cal Water. We’re off to a great start with the drought and we’re hitting our targets and really because we’re in the emergency declaration, it’s about doing the right thing right now and dealing with the short term volatility and so I’m very pleased to where we ended the quarter in terms of the products with drought and think we’re off to a great start. So, Tom with that I will turn it back to you. Thomas Smegal Okay, great Marty and Kim that is the end of our presentation and we’re happy to take questions. Question-and-Answer Session Operator [Operator Instructions]. Our first question is from Spencer Joyce from Hilliard Lyons. Spencer Joyce Couple of quick ones for me here, first I think you briefly touched on, did you say the CapEx spend so far this year has been about 75 million? Thomas Smegal Yes 75.8 million so almost 76 million. Spencer Joyce Okay, so we’re over half way to kind of the full year goal here. Thomas Smegal Spencer that does include a little bit of developer contributions so that’s not all what we call company funded CapEx and when we’re targeting we’re targeting the company funded CapEx. So we’re right about half way there little bit better than half of our goal right now. Spencer Joyce In any case tracking well may be at least if we think about last year where we kind of undershot a little bit. Thomas Smegal I think Spencer, one think to look at is the company funded over the last 12 rolling last 12 months, half of last year we really accelerated and then this has continued that trend. So I think that shows a good track record of what we can spend in the future. Spencer Joyce Separately with the drought kind of dominating the conversations here over the last year or two, I want to ask about acquisition potential. Has the drought or any other external factors perhaps brought any potential targets kind of to the forefront or have any opportunities maybe percolated on that front? Martin Kropelnicki What’s the drought done, I think is really highlighted kind of some of the weakness in the State of California around the long term planning for water supply and Spencer you’re right, NAWC Financial forum I shared with the people of the financial forum what the population growth curve was for California versus kind of the water supply and the demand curve and the supply curve are growing apart right now, they are not going together which is highlighting a lot of need for a lot of capital infrastructure both for new water supply but also upgrading existing water supply and that’s start with the state and goes all the way through to companies like us. So [indiscernible] covers a lot of stones and when that babbling brook [ph] goes down you start to see the rocks that usually lie under the water. So we’ve seen some of the rocks, just some of the weakness in the system right now. Having said that, our water supply has been fine that we have a few cities that were trucking water to help get them through the summer months because they have just run-out of supply. I also mentioned at the conference that none of the investor-owned utilities have run out of water, it’s been more a small kind of undercapitalized city or meeting systems have been the ones that have been strained and run out of water. So it hasn’t popped into any type of M&A market, in California it’s hard to buy a muni system because it requires a vote of the local taxpayers to approve it but clearly you’re seeing the stress on the smaller systems and the inability to meet water quality standards or add adequate supply for their customers. So I think the jury is still out on that. I think part of it’s going to depend on what happens over the next 12 to 18 months, it’s drought, if it continues. I will say it’s fascinating to me that we are focused on California but Oregon declared a drought here in the month of June, Washington declared a drought in I believe it was late April, early May and I was recently talking to somebody who is from Vancouver, British Columbia who was telling me how horrible the drought conditions are in Vancouver. In fact their water restrictions are worse than ours. So the drought is really a whole west coast item right now and I think it’s going to be changing some behaviors and changing how capital is directed within the state and whether that leads more M&A I think the jury is still out on that. Spencer Joyce So it sounds like maybe nothing eminent but at least you guys are kind of keeping your ear to the ground there. One final, one from here. I know if we think back to last year Q3 was a pretty strong quarter, Q3 ’14 that is as we recouped a little bit of benefit via the rate case or the generate rate case that may have been otherwise earned during the first half of 2014. Correct me if I’m wrong there first off and then second if you could, what is roughly the kind of net revenue benefit that might come out of Q3 this year in order to maybe get a more fair comp looking at Q3. Thomas Smegal I would have to go back to our communications in Q3 of last year and unfortunately don’t have that open in front of me. We did recognize the benefit of the rate case and the interim rates associated with the rate case in the third quarter but I think that was fully disclosed in the press release so that number is pretty quantifiable. As far as on a go forward basis I think you would look to that adjustment to get to your comp. As far as the rate changes and the way to think about our the profitability of the company from last year to this year we have identified that we had step, what’s called the escalation step increases of about 5 million, a little less than 5 million. We did at the beginning of July, get approval from the CPUC on $5 million revenue requirement worth of these [indiscernible] letter capital projects that they have been approved in the prior rate cases, this all on an annual revenue basis and of course what’s going on in Hawaii we will start to see in August the revenue coming in from those rate changes that we got at the end of June. And so those are just some of the things that are going on and obviously the drought response is another factor that we have identified it could be a change as we go forward. Operator [Operator Instructions]. We will move on to Jonathan Reeder from Wells Fargo. Jonathan Reeder Couple of questions, first on the revenue, since this will essentially get captured by the RAM in Q3 it’s about $0.30 headwind for Q2, should we view that as something that’s just going to reverse and add $0.13 of incremental earnings in Q3? Thomas Smegal Jonathan, I think that this is the line on the balance sheet, you can go back and then anybody can pick this up out of the Qs and the Ks. We see a variability in the accrued revenue, from anywhere from 15 million to 30 million at the end of every quarter. Right now we are at — I think it’s 26 million, at the end of the year last year we were 23 million so this is a very small increment. If you follow that, it’s really — it’s kind of a sea level change or it’s the tide going in and out. If it happens that in the third quarter we get that popped in and what we mean by that not that it’s going to up higher but that is not going to fall like it fell in the third quarter in the prior year. So always going to vary, it varies a lot less the second quarter because of the conservation whether it comes back to a normal level at the end of year. I think it’s dependent upon a couple of factors both the customer conservation, the effect of the surcharges that will be calculated in the end bill and also the effect of the rate design that we have seen over the last couple of quarters where more service charge revenue less quantity charge revenue. So it will come back it’s a question of timing really, will it come back in the third quarter, fourth quarter when the droughts over-rise I can’t say at this point. Martin Kropelnicki Yes I think it was interesting to know Jonathan that typically in the second quarter we see a really big step in that number and in this quarter we see that down because of the consumption, that consumption really had in June and that’s what it relates on that calculation as the 21 day average of what people consumer. So it — when you flipping in the context of what the swing was that we typically see this time the year, it’s a pretty big swing. Jonathan Reeder And then on the mark to market life insurance in Q2, what was the absolute like benefit or loss, I mean you said it was 800,000 quarter to quarter. Thomas Smegal So the loss in that area was about 200,000 so that’s made the rest of that category includes benefits from other unregulated activities. Jonathan Reeder So anything else that we should be thinking about in terms of ongoing earnings number for you all in Q2? Thomas Smegal No just the things that we mention the drivers on the rate changes that are going to hit in Q3 from Hawaii and from the rate base offsets. Martin Kropelnicki Yes. And again when the Q comes out you will see in the rate section we have that identifying what those increases were both the escalation in steps and the Hawaii changes and for this quarter John it really comes down to those three items, the changes and the end build revenue, the non-recurring tax credit and now I’m blank on the third item because it’s early but it’s really the [indiscernible] that we talked about, those are called out in the press release and also in the Q that will be filed. Operator [Operator Instructions]. And it appears there are no further questions today. Gentlemen I will turn the conference back over to you. Thomas Smegal Great. Well I want to thank all of you for your continued interest in California water service group and we look forward to talking with you again after the third quarter. Thanks. Operator And that does conclude our conference today. Thank you all for your participation.