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California Water Service Group (NYSE:CWT)

Q1 2014 Results Earnings Conference Call

May 01, 2014 11:00 AM ET

Executives

Thomas Smegal - VP, Chief Financial Officer

Martin Kropelnicki - President and CEO

Paul Townsley - VP of Regulatory Matters and Corporate Relations

Analysts

Ryan Connors - Janney Montgomery Scott

Jonathan Reeder - Wells Fargo

Tim Winter - Gabelli

Operator

Good day and welcome to the California Service Group First Quarter 2014 Earnings Results Conference Call.

I would now like to turn the meeting over to Mr. Thomas Smegal, Vice President, Chief Financial Officer. Please go ahead, sir.

Thomas Smegal

Thank you, Kyle. Welcome everyone to the first quarter 2014 results call for California Water Service Group. With me today are Martin Kropelnicki, President and CEO, and Paul Townsley who is our Vice President of Regulatory Matters and Corporate Relations.

A replay of today's proceedings will be available beginning today May 1, 2014, through June 30, 2014, at 188-820-311-12 or at 171-945-708-20 with the replay pass code of 8667775. And 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, 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. And just as a reminder, we expect to file our first quarter 10-Q later today.

Now let's get into looking at this quarter's forward-looking statements. I would over the financial results on the income statement. In the revenue side we reported a $110.5 million of revenue for the quarter that’s down 0.8% or $0.9 million big factor here is our unbilled revenue accrual which was $2.6 million less than in the first quarter of 2013. And as a reminder unbilled revenue is in accrual that we performed at the end of each reporting period representing water which was used but not yet billed for. Unbilled revenue is not included as a component of the RAM mechanism that’s the decoupling mechanism that we have in California and it can vary significantly particularly in the spring and the fall as the weather changes here in California. Recorded sales once they occur are reflected in the RAM balances.

Our production costs for the quarter $45.4 million that’s up 8.9% or $3.7 million, the primary drivers here are increased wholesale water prices and a 6% increase in water production over the same period last year. These costs are booked to the MCBA. In addition, our mix changed I think favorably Marty will get into that a little bit later but our water production from wells increased, company pumped 46% of its production from wells as compared to 43% in the first quarter of 2013. Our purchase water declined from 52% to 50% of production whilst service water source has declined from 5% to 4%.

Looking at the expense side now are for administrative and general. We recorded $25.1 million for the quarter that’s down 0.6% or $0.1 million. As we indicated at year end and anticipated our pension costs are lower by about $1.8 million and that reflects the different interest rate discount rate environment, this benefit flows into our recorded balancing account and does not affect our overall earnings. Employee medical cost were up $1.4 million for the quarter, compared to the quarter last year and that reflects several cases with high hospitalization and drug costs.

Company maintains a self-funded medical plan for most employees and so there is variability from quarter to quarter in these expenses.

Our wages were up $0.6 million or 3.5% that effects the A&G and also other operations. Other operations were $16.4 million for the quarter, up 4.7% or $0.7 million that reflects again the labor cost and its offset somewhat by our planned reduction and conservation expenses, due to the success that we've in the last three years meeting the Governor's 20 by 2020 conservation targets in California.

On the maintenance side, we reported $5 million for the quarter, that's up 21.1% or $0.9 million, primarily the increase is in the costs of maintaining our well production facilities and pumping equipment.

Our depreciation cost is $16.1 million for the quarter, increase of 9.7% or $1.4 million and this is driven by last year's capital additions, 23 capital additions raising the amount that we're depreciating on.

Our net other income is decreased $0.6 million to $0.1 million during the first quarter as compared to the prior year. That's the combination of the lower revenue from our unregulated contracts as well as our insurance plan benefit obligations.

Our net loss for the quarter was $5.5 million, compared to a $1.1 million loss in the same period last year and our net loss per share was $0.11 on a fully diluted basis for the quarter as compared to a net loss of $0.03 per share in the first quarter 2013. I’d now like to turn it over to Paul for a regulatory update.

Paul Townsley

Thank you, Tom. As I previously reported last October 30th, we filed a rate case settlement agreement with a California PUC, and then settlement agreement was signed by CalWater, the Office of Ratepayer Advocates and 10 other parties to the case.

On January 6th, of this year the evidentiary process was completed with the filing of brief by various parties to the case and the hearing off took the case, took the settlement agreement and all the other evidence presented to him and has been working on a draft decision for subsequent commission action.

On March 28th, of this year as hearing officer send out a handful of questions to the parties to further clarify parts of the settlement agreement, the parties responded to his questions last week and the case is now back in the hands of hearing officer. Since the final decision on the case has been delayed past January 1st, California Water Service has approval to retroactively charge customers, the new rates approved by the commission back to January 1st, once the new rate case decision is final.

In the mean time we are planning and preparing for our next general rate case, which will be filed in the middle of 2015. Last month on April 1st, we filed two memorandum accounts where the California PUC related to the ongoing drought.

The first memorandum account updated our drought management plan, which is known as rule 14.1. In this plan we are asking our customers for a 20% voluntary reduction in water usage. The second memorandum account we filed on the same day request Commission to approve recovery of incremental operating and administrative costs associated with the implementation of rule 14.1. And both of these memorandum accounts need to be -- we are waiting Commission approval on them.

Also as I previously reported in January of this year, the Hawaii Public Utilities Commission approved the settlement agreement we reached for the consumer advocate on our Pukalani wastewater system. We’ve now reached settlement agreements with the consumer advocate, the Hawaii consumer advocate on all three Waikoloa water and waste water systems we own. These include the Waikoloa water system, the Waikoloa sewer system and the Waikoloa resort utility system. These settlements have been filed with the Commission and we are now awaiting its action on these settlements.

In the meantime, in Hawaii we’re gearing up for our next rate case filing there which involved the Coquille water and wastewater system. Overall, I believe that California Water Service is doing well in executing our rate case strategies in both Hawaii and in California.

And I am at the end of my report.

Thomas Smegal

Thanks Paul. Now I’d like to cover some highlights on the balance sheet Our plan, our net utility plan grew to $1.523 billion during the quarter, our work in progress increased from a $109 million to $115 million compared to year-end and our company funded CapEx was $23 million for the quarter. The company still plans to meet its CapEx target of $110 million to $130 million as previously disclosed and previously discussed on the prior call for the calendar year of 2014.

For our cash management, the company at the end of the quarter had $21.7 million in cash and $64 million outstanding on its revolving credit facilities and that’s a combination of California Water Service Company’s credit facility as well as that for the group.

Our balance in the major balancing account the RAM and CBAD coupling account remained stable this quarter at year-end and at the end of the first quarter, it is at $45.5 million receivable balance. And we do anticipate as I mentioned before that as we get a new decision and new adopted quantities that amount should decline and we should see that regulatory balancing account shrink.

Now I'm going to turn it over to Marty for some general comments.

Martin Kropelnicki

Thanks Tom, good morning. I have three things I'd like to cover this morning. One, just to take a moment to reflect on the first quarter and a couple other things that see in the financial statements and the company’s performance. Two, provide you an update on the drought conditions in California and perhaps more importantly talk about what we're doing as we prepare for the longer summer months. And three, talk about our next steps as we wait for the proposed decision from CPUC adopting this settlement in California.

First, let's talk about the quarter. As most of you know, Q1 is always our leanest quarter. Overall lower demand driven by the winter months coupled with the fact that approximately 70% of our cost is recovered through the quantity charge, I mean that anytime you have the quarter that has a lowest amount of demand, it's going to be difficult. This is especially through or waiting for the CPC approval of the all party settlement to establish new rates and deal with the regulatory lag. Some of our costs that we're dealing like medical et cetera they’re in the fourth year without being reset. So the previous four years we had inflationary increases but anything that has grown faster than inflation is certainly having an effect on our bottom-line.

Having said that the results were in line with our expectations for the quarter, as I talked about on the year-end earnings call with the delay going past January we thought we might be a little late and our results are in line with managed expectations for the quarter.

Couple key points in the financials that I think are noteworthy. First and foremost A&G expenses when you split (inaudible) and just look at pure A&G they are down slightly despite the increases in healthcare and higher wages.

The company has done a good job and remains keenly focused on cost management practices and it will do so accordingly as we go through the summer months. Now that we have a number of balancing accounts looking at the controllable aspects so we can’t control A&G become very, very important and we are very, very focused on doing that.

As Tom mentioned we did have a $900,000 increase in maintenance expense and that directly corresponds to higher water production for the company. As many people know water we produce is significantly cheaper for our customers than purchased water. More importantly as we go into the drier summer months the company is doing everything possible to ensure our water supply treatment and distribution systems are in place to meet customer demands as we deal with drought this summer in California.

Moving on talking about the drought. The current drought in our state of California continues to get national attention since our last discussion at the end of February. Various parts of states have received a decent amount of rain over the last 45 days and while be amount a rainfall is still well below normal that’s been enough to help increase reservoir levels and improve part of the snowpack. As the middle of April reservoir storage as I stated California is averaging about 66% and that is up significantly from where we were at the year end earnings call.

Compared that to the drought of 1976, 1977 at this time in ‘76 and ‘77 they were about 48%, so you have seen some run off go into reservoirs which has helped us. In addition today, it's the last kind of (inaudible) snowpack in the Sierras. So, we're waiting to see what the snowpack levels look like. As the last reading on the snowpack, which was a few weeks ago, the average across the state was about 19% in normal. So, we did get rain, it's going to reservoirs, but the snowpack is still fairly light and that means we're going to be in for a sub-long summer month with that snowpack and that being in place to help recharge some of the water systems. But things have improved.

The Department of Water Resources in the State of California and the State Water Project has increased its allocation about a week and half ago from 0% to 5%, which is a move in the right direction. And while they did increase it assuming it stands at 5%, two things kind of stand out to me; one, it's still the lowest allocations since the State Water Project began in the 60s; and two, the allocation really don't start until the end of September.

So, again looking at the summer month, that's going to be kind of the crunch zone, I think for the State of California. And making sure, we're doing everything we can to make sure our systems are ready to deal with the drought. And again, that maintenance number that you saw an increased ponds, the increase that you saw on the company's production that's all planned from the company in terms of getting ready to deal with the drought over the summer months.

So, what are we doing to deal with the drought? One we have fully ramped up our conservation programs that our focused on outdoor water use. You've had a hardening of demand in the State of California, as we've aggressively gone after conservation over the last 4 or 5 years. And as you put more conservation devices in homes, the demand becomes harder. And so we're now moved to outside the house looking at irrigation, et cetera things that we think have a bigger bang for the buck in terms of reducing water consumption immediately here in the short term and having a nice long-term payback.

Next week, the company's radio (inaudible) campaign kicks off across the state and throughout our service territories. In addition we’ve enclose partnering with our cities, counties and communities we serve to ensured a consistent message and while that is very simple phrase to say that fact is there are numerous water agencies, and water wholesalers and cities and counties of them all with the drought. And there are lot of inconsistencies in the messages being going out to customers. So the company has been very proactive in our higher risk districts and working with the cities and counties making sure that we have a consistent message and a joint unified front working with the cities and counties and have a end work with that.

So a lot of co-branding delivering the same material, working together to get the overall result of bringing consumption down going into the summer months. In addition we have fully enacted our drought team. Our drought team consists of our engineers, our conservation experts, our operations people, our rigs people and our accounting people working together to coordinate all aspects of the drought. So it’s a very, very busy team. We meet with more normal basis and their in-charge coordinate all the drought activities and conservation programs within the state including correspondence with the state and (inaudible).

As Paul mentioned, we have filed the update to our Drought Management Plan 14.1 in addition we requested a drought memorandum account for incremental costs associated with the drought as we move into the summer month. So overall we think we’ve positioned ourselves well, we feel that we're ahead of the game right now, moving in the summer months. But dependent how warm it gets this summer, if we could have a long couple of months here.

Moving forward there is really three things that we're keenly focused on. First and foremost is the drought making sure we do everything their work with the customers, to work with the communities that to make sure we're doing everything to ensure water supply and that all of the needs the customer are taking care that’s first and foremost that’s our focus point. Two staying focused on cost management and operational efficiency, making sure that as we’re waiting for rate relief to come in that we continue to manage our budget our bottom-lines to best of our abilities. And then three, continue working with the PUC to conclude the 2012 General Rate Case in the State of California.

So that’s focus point, our three focal points going in into Q2. The company as try to be as transparent as possible in the press release and included a lot of information about the pending settlement, Tom I think you want to take a couple minutes and give some clarity around those elements and what was in the press release and try to fill in some of the gaps with pending settlement. What would it look like at the settlement was completed?

Thomas Smegal

Great thanks Martin. Yes, let me give you some detail on the potential outcome of the delayed rate case decision in California. In our press release we noted that if the settlement we’re adopted as proposed we would have tracked around $8 million this quarter in service charge and flat rate and fire service revenue, which would have to be recover through future surcharges.

In the past these types of surcharges have range from 12 to 24 months and our company’s revenue recognition policy is to book surcharge revenue when it is built. And therefore in addition to uncertainty over whether this settlement will be adopted there is still uncertainty about the timing of both the decision and the surcharge revenue. And as you know with the high water sales that we have in the summer typically it’s going to be when the rate case gets decided if it’s before the summer month we’ll likely to see a lot of that revenue come back into 2014, if the rate case gets decided after the summer months it’s more likely that that surcharge revenue is going to come in future years.

In addition, we also noted that the proposed medical cost balancing account had it been adopted and effective would have shown $1.6 million receivable balance. After commission decision in the case if it adopts the proposed balancing account the company will record amount in that account in accordance with the Commission’s order and so we would hope to see that when the commission adopt decision assuming they adopt that.

Finally the propose rate case settlement should impact the sales and production costs balancing mechanisms known is eliminating MCBA we estimated that it's a commission adopt the settlement the change in that operating revenue due to the change RAM adopted quantities with negative $0.2 million, $200,000 in the first quarter and that will change from quarter-to-quarter as we go through.

One of the big aspect of the rate case I think as we've mentioned over the course for these calls more realistic sales forecast so that we don't have the large RAM balance going into the future and I think the settlement does adopt reasonable sales forecast and we do hope that when the commission approved his decision not only will it adopt the settlement and hold, but in particular, we'll adopt the sales forecast that's embedded into that settlement.

So that ends our prepared remarks for this morning. Kyle we're happy to take questions at this time.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And we'll take our first question from Ryan Connors with Janney Montgomery Scott.

Ryan Connors - Janney Montgomery Scott

Great, and thank you. I had a question in regards to the general rate case in California. Just I'm trying to understand what the holdup is I guess. Obviously this is becoming a bit of a pattern as some of your peers are having a similar kind of delays. What do you think the problem is? Why is it taking the Commission longer to work through these things? Do you see that becoming a pattern going forward? You mentioned you're getting ready to file your next subsequent case.

Paul Townsley

Thanks, this is Paul, responding. I do not know what the particular hold up there in our case and I sure can’t speak to hold in other cases, one of our strategies in this case was to attempt to regional party settlement in order to make this easier on the commission and to making a more streamlined process. And so that’s why we worked very hard with the other parties to reach this all party settlement which we filed. We are still within the normal time table for the commission issue or proposed decision in this particular case.

Remember that’s a delay in the case was not because of the commission slowdown but because we spend more time working on a settlement agreement. So we do not believe that our case is delayed because of commission action but we are continuing to pay close attention of what goes on there.

Ryan Connors - Janney Montgomery Scott

Okay. Then, I'm kind of switching gears. You touched on this at the end of your presentation a little bit. But obviously last time we had a drought of this severity. There were issues with the RAM both for yourselves, and others in the collectables, and deferrals, and this sort of thing. You mentioned a more realistic forecasting. Is there any chance that there's any kind of issue that develops either similar or different from last time around in terms of the RAM balances and collectability creating noise in the P&L over the balance of the year?

Thomas Smegal

Ryan this is Tom. I think that we have a really solid collection process now with the RAM with the change that was made back in the 2012. And you will see temporary differences more potentially, if there is a decline in water sales due to the drought, you will see larger balance throughout the year. But that will be recovered more quickly, because of the new amortization policy that the Commission adopted a couple of years ago.

So, we don't anticipate it leading to more deferral or RAM revenue as we had back in 2011 and 2012.

Ryan Connors - Janney Montgomery Scott

Okay, that's helpful. Then my last question is a related one in the sense that being that the rate case has taken longer. Being that we have the drought situation, yes we kind of have a backlog of sort of potential issues here impacting rates; including the rate case, and potential RAM collection. What's the likelihood of a kind of rate shock so to speak? How do you manage layering those rates in, in a way that doesn't create quote unquote, rate shock?

Thomas Smegal

Paul and I are looking each other. We can definitely both answer the question, but I'll let Paul take the first crack out it.

Paul Townsley

I would answer the question, a couple of ways Ryan. First of all as Tom mentioned the sales forecast including in this particular settlement agreement. We believe to be even where the drought to be much more reflective of what we think customers will be using in most of our districts.

So, the RAM build up that we've seen previously, we don't expect that to be as big on customers.

The second issue is that depending upon how big the balance gets for, they true up for the interim rates. The Commission will choose to either have a 12 month or a 24 month recovery periods, in order to minimize the impact to customers. So my belief is that with a lower ongoing RAM surcharge and a limit on the amount of interim rates surcharge that we should be okay with the rate shock element to the customers. Tom, do you have anything to add?

Thomas Smegal

The only thing I would add Paul is that and we do get this as a point of confusion with our customers a lot, remember that when we are talking about customer rate increase percentages and surcharges on units, we have had substantial conservation. And so customers are experiencing lower bills as a result of their conservation and the customer, if they’re aware this, should be looking at their total bill, even though the components of the rates might be going out, the usage is probably down and their total bill is probably not up as much as they think it is.

Ryan Connors - Janney Montgomery Scott

Okay, great. Well that’s very comprehensive. I appreciate it. Thanks for your time.

Thomas Smegal

Thanks Ryan.

Martin Kropelnicki

Thanks Ryan.

Operator

(Operator Instructions). We’ll take our next question from Jonathan Reeder from Wells Fargo.

Jonathan Reeder - Wells Fargo

Good morning, gentlemen. You mentioned efforts to control the non-water production cost the past few years and in particular in Q1. And given the GRC delay, did you do anything extraordinary in like Q1 to help mitigate the impacts of the -- will it be sustainable for the full year?

Martin Kropelnicki

That’s a good question Jonathan. And as you may recall, about two years ago now, we implemented an application called Hyperion; and we basically got it out, the old way the company was doing the budgets, and adopted more zero based kind of bottoms up approach and then what drive that to tie in to the regulatory rate case.

So, we didn’t do anything differently than we haven’t done over the last two years. I think like anything else with the new application and our new team that was put in place to help manage cost within the company, the team just gets better every day, they keep doing it. And so overall, the company has gotten very, very proficient at analyzing the P&L every month for every single district for every single department, looking at controllable versus non-controllable, looking at the rate case, reconcile numbers back to the rate case. And it’s a pretty complicated system and that every district has a separate rate case, has a separate budget, and we’ve got to roll everything out. But then you have to put your corporate cost on top of it et cetera. But we have a very good FP&A team and as important of that we have a very good group of managers that have adopted to the training very well and part of the process every month is reviewing the P&L in details.

Thomas Smegal

And Marty the only other thing I would add is we did have a number positions that were authorized to be included with the rate case settlement and we are being very, very cautious with those new positions. And so, we’re waiting to hear what the commission thinks of the proposed settlement before going forward with them, the bulk of those positions.

Jonathan Reeder - Wells Fargo

Okay. So Tom based on that, once you can get clarity on the GRC, you could fill those positions and then you might see a little more of jump up in employee cost, stuff like that?

Thomas Smegal

That is possible in the second half of the year assuming we get that rate trigger, we could see some of that.

Jonathan Reeder - Wells Fargo

Okay.

Thomas Smegal

The part of the settlement that would include the new cost, the new employees that’s why we’re not doing them right now.

Jonathan Reeder - Wells Fargo

Sure. What I am kind of getting at is you made the comment that if the settlement had been in place in Q1, the quarterly benefit would have been like $0.11 or $0.12 kind of pick up. And so I am just trying to think of how we should be looking at the quarterly impacts over the remainder and kind of the full year impact, is $0.11 or $0.12 every quarter once we get the rate case or how should we think about that?

Thomas Smegal

Well the two components that the majority components we talked about, the flat rate revenue, the service charge revenue that kind of 8 million number, that would be relatively consistent throughout the year. This healthcare number, the 1.6 million, we mentioned that would have accrued the healthcare balancing account. That’s as a result of the higher costs that we experienced for medical in the first quarter and so that would be quite variable. And the RAM is going to vary. The difference between the adopted quantities that we now have and the adopted quantities in the new case is going to vary quarter-to-quarter. I'm not sure that we've modeled that out yet Jonathan. But the 8 million is the key number on the revenue side, that's kind of pretty well known fixed revenue that's going to be the same every quarter.

Jonathan Reeder - Wells Fargo

Okay. And then from an expense perspective, only a portion of that would get offset by incremental expenses once the case does come in?

Thomas Smegal

That's right.

Jonathan Reeder - Wells Fargo

Okay. And then last question, is there any reason to expect that the ALJ and/or the CPUC wouldn't adapt the settlement agreement at this juncture?

Paul Townsley

This is Paul responding. We do not believe there is any -- a good reason that it would not adopt the settlement. But at the same time, it is a Commission decision. So, we are hoping and anticipating that the judge will adopt the settlement and that the Commission will then adopt the judge's recommendation. I might point out that there were a handful of items that were not included in the settlement agreement. And so those are the issue that judge is probably working on this point.

I might also point out that under the Commission’s rate case plan, the judge has 110 days after the close of the case, the issue address decision. So we are still within that 110 days today. So there is not really a delay on the Commission side, as I pointed out earlier, the delay that we have which really because we were working with the other parties to get a comprehensive settlement.

Jonathan Reeder - Wells Fargo

Okay. Like the issues, the ALJ, I guess is working on that weren’t addressed by the settlement, were they like rate design, I mean stuff that doesn’t truly impact I guess the P&L?

Martin Kropelnicki

That’s correct, I believe virtually all of them had to a with rate design.

Jonathan Reeder - Wells Fargo

Okay. And so your best guess as far as timing, ALJ’s proposed decisions, I mean it still could be any day now essentially and then you know I think there is about 30 days before the Commission can act, where we still might have something in time to get the revenues in Q2, is that fair?

Martin Kropelnicki

I am not sure I would say that it is any day now; in my comments I talked about the handful of questions that the ALJ asked to the parties and we responded to those questions last week. So, [Ed] shows that he is actively working on our draft decision. And as soon as he is digested those answers and addressed those issues, we would expect to see a draft decision from him fairly soon, but I don’t think any day is the right timeframe.

Jonathan Reeder - Wells Fargo

Okay, but I mean is it something that a Commission final decision still could be before the end of the second quarter?

Martin Kropelnicki

I think that’s the reasonable…

Jonathan Reeder - Wells Fargo

Or that that would be pretty aggressive.

Martin Kropelnicki

No, I think that’s a reasonable expectation.

Jonathan Reeder - Wells Fargo

Okay, all right. Well, I appreciate the additional clarity.

Thomas Smegal

Thanks Jonathan.

Martin Kropelnicki

Thanks Jonathan.

Operator

(Operator Instructions). We have no questions at this, we'll take our next question from Tim Winter with Gabelli.

Tim Winter - Gabelli

Good morning, gentlemen. I just wanted to follow up on the accounting for the retroactive rate case. So, let's say there was a decision by the end of the second quarter. How would you account for that in the second quarter results?

Thomas Smegal

So, when there's a decision, we're going to have a higher rate revenue on a go forward basis. And then, we will have a surcharge that's authorized by the Commission. We're going to book the revenue from that surcharge as it’s built. And so that the $8 million component that we talked about that's the kind of the revenue, direct revenue shortfall, that amount is going to get billed over time, most likely over 12 months to 24 months.

Tim Winter - Gabelli

Will that be a one-time catch up gain for reporting…

Thomas Smegal

I don't believe that's the way that we're looking at it from our revenue recognition standpoint. We're going to take that surcharge revenue as it’s billed over that 12 month period or 24 month period, whatever happens to be. And it's going to vary district by district. Though it could be some over 12 months and some over 24 months.

Martin Kropelnicki

Yes, so it gets amortized then Tim. So, if this is a real kind of complex quagmire [BMB] case or under the old rate case settlement with certain balancing accounts, you have new balancing accounts coming in and you have revenue and you have expenses.

So, things that are expense related like Tom mentioned, the healthcare balancing account that would get booked and it's prospectively. But things where we're making up for the $8 million that Tom talked about that will be a surcharge, a revenue piece of it, that will get amortized over the life of the surcharge based on our conclusion and agreement with the commission.

Thomas Smegal

And Tim what I mentioned before was the surcharges mostly likely going to be a quantity based surcharge. So since we sell the bulk of the water in the summer months, July, August, September and into October if we can get that surcharge in place, we're going to see a lot more of that surcharge revenue coming in those months than we would if surcharge started in October, November. Then we would having to weigh for the bulk of that revenue to come-in in the next summer.

Martin Kropelnicki

It’s not a uniform.

Thomas Smegal

Not a uniform 12 month surcharge (inaudible).

Tim Winter - Gabelli

Okay and just to clarify on Jonathan’s question. You mentioned 110 days from the closing that there used to be proposed decision and then is there any timeframe, is there 30 days from that point that we need a decision?

Paul Townsley

The commissions rate case plans says that it is typically 110 days from the closing of the case to the draft decision and then it is 30 days from the draft decision that commission action. The parties will have an opportunity to file comments on the draft decision. And so it’s possible that could be delay, but everything goes smoothly and within all party settlement, it should go smoothly, it would be typically a 30-day window.

Tim Winter - Gabelli

Okay. Great thank you.

Martin Kropelnicki

Thanks Tim.

Paul Townsley

Thanks Tim.

Operator

(Operator Instructions). And we have no further questions in queue at this time. I’d now like to turn the conference back over to our moderator for any additional or closing remarks.

Thomas Smegal

Thank you Kyle. Just want to thank everybody again for their continued interest in California Water Service Group. And we look forward to talking to you again with our second quarter results around the end of July. Thanks very much everybody.

Operator

And this does conclude today’s conference call. Thank you all for your participation. You may now disconnect.

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