Ladies and
gentlemen, thank you for standing by. Welcome to the American States Water Company Conference Call discussing the company's Q2 2014 Results. You would like to listen to the replay of this call, it will begin this afternoon at approximately 5 p. M. Eastern Time and run through August 13, 20 14 on the company's website, www.aswater.com.
At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. At this time, I would like to turn the call over to Ms. Eva Tang, Chief Financial Officer of American States Water Company. Please go ahead.
Thank you, Gary. Welcome everyone and thank you for joining us today. On the call with me is our President and CEO, Bob Sprowls. As a reminder, certain matters discussed during this call may be forward looking statements intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company's risks and uncertainties in our most recent Form 10 ks and 10 Qs on file with the Securities and Exchange Commission.
With that, I will now discuss the 2nd quarter's financial results. Diluted earnings for the Q2 of 2014 were $0.39 per share compared to $0.43 per share for the same period in 2013. Net income for the quarter was $15,400,000 compared to $16,600,000 for the same period last year. The decrease in our consolidated earnings was primarily driven by lower construction activity at our contracted services segment, earnings at the electric segment decreased slightly due to the approval in 2013 for recovery of previously incurred costs that did not recur in 2014. So for the quarter, water revenues at Golden State Water increased by $2,200,000 to $86,200,000 as compared to the same period in 2013.
$1,200,000 of the revenue increase represented surcharges billed to customer during the Q2 of 'fourteen with a corresponding increase in operating expenses to recover previously incurred costs. These surcharges had no impact to net earnings. There were also 2nd year rate increases for 2014 approved by the California Public Utilities Commission. The impact to operating revenue associated with rate increases anticipated to be about $1,600,000 for the full year of 2014. Electric revenues at Golden State Water remained relatively unchanged at approximately $8,300,000 as compared to the same period in 2013.
Pending a final decision on the electric generate case, Revenues for our contracted services business, American States Utility Services decreased 7,100,000 dollars to 21.1 percent primarily driven by an anticipated reduction in construction activities at Fort Bliss and Fort Worth military bases. Where several large projects with significant activities activities during 2013 were either completed or near completion in 2014. The decrease in capital upgrade projects was partially offset by an increase in renewal and replacement capital work during the quarter. As we have stated in previous calls, renewal and replacement construction will continue to vary from year to year over the remaining terms of the 50 year contract with the government. Overall, construction activity is expected to increase during the remainder of for the Q2.
Any changes in supply costs for both the water and electric segment as compared to the adopted supply costs were trapped in balancing accounts, which will be recovered from or refunded to our customer in the future. Other operation expenses increased by $566,000 for the Q2 of 2014 as compared to the same period in 2013. There was a $209,000 increase in surcharges for recovery of costs previously incurred. This amount was part of the $1,200,000 surcharges recorded in revenue as I discussed earlier. As these costs were recovered in revenues to surcharges, the corresponding dollar amount was recorded to other operating expenses, having no impact on pre tax operating income.
The remaining increase as compared to the Q2 of last year was due to higher operation related labor cost and bad debt expense in the water segment. Administrative and general expenses for the Q2 of 2014 were $19,400,000 as compared to $18,100,000 for the same period in 2013. During the Q2 of 2014, there was a $685,000 increase in surcharges billed at our water segment for recovery of previously incurred AMG cost as compared to the same period in 2013. Again, surcharges had no impact on pre tax operating income. Additionally, in May 2013, the CPUC approved recovery of $834,000 in legal and outside services costs at our electric segment in connection with CPUC's renewable portfolio standard.
There was no similar reduction in 2014. Excluding these two items, overall A and G expenses actually decreased by $225,000 during the Q2 of 2014 as compared to the same period last year as we continue our cost control efforts. Maintenance expense decreased by 586 dollars,000 driven by a higher level of plant maintenance performed in 2013 at our water segment. We expect maintenance expense for the Water segment to be lower in 2014 as compared to 2013. Depreciation and amortization expense increased by $757,000 to $10,500,000 for the 2nd quarter of 2014 as compared to the same quarter last year, driven mostly by approximately $93,000,000 of capital addition to utility plants last year.
Property and other taxes increased by $217,000 compared to the same quarter in 20.13 due to increases property taxes, franchise fees and payroll taxes. SUS's construction expenses decreased by $5,300,000 to $13,800,000 during the 2nd quarter as compared to the same period in 13, primarily due to several major projects either completed in 2013 or near completion during 2014 as previously discussed. This project had much more activities in 2013. Other income and expenses including interest expense decreased slightly to $5,400,000 for the Q2 of 2014 as compared to the same period last year. Income tax expense decreased by $886,000 to $10,300,000 as compared to the same period in 2013, driven by lower pretax income, partially offset by a higher effective tax rate for the quarter due to changes between book and taxable income from compensation related items that are treated as flow through adjustments.
Moving on to liquidity and capital resources. Net cash provided by operating net cash provided by operating activities increased by $57,300,000 to $90,900,000 for the 6 months ended June 30, 2014 as compared to $33,600,000 for the same period last year. This increase was primarily due to an increase in cash generated by contracted services driven by the timing of billing and cash receipts for construction work at an mature basis. In addition, there were water rate increases in May 2013 January 2014 and of various surcharges implemented in mid-twenty 13 in connection with CPUC's final decision on the water rate case. These increases in cash flow from operating activities were partially offset by tax refunds received during the Q1 of last year for which no similar refund amounts were received in 2014.
The timing of cash receipts and disbursements related to other working capital items also affected the changes in net cash provided by operating activities. In regards to Golden State Water's capital expenditures, we incurred about $27,000,000 excluding work funded by others during the 6 months ended June 30, 2014. We expect to invest approximately $80,000,000 to $85,000,000 in capital projects during 2014. Finally, I'm pleased to note that last month Standard and Poor's revised its rating outlook on American State Water Company and Golden State Water from stable to positive. S and P also affirmed A plus corporate credit rating on both companies.
For additional details on our Q2 and year to date information, please refer to our earnings release and Form 10 Q issued yesterday. With that, I'll turn the call over to Bob.
Thank you, Eva, and I appreciate everyone joining us today. I'd like to begin by providing an update on significant regulatory matters. Our largest subsidiary Golden State Water Company filed a general rate case last month for all of our water regions and the general office. The application will determine the water rates for the years 2016, 2017, and 2018. Golden State Water's requested overall capital budgets in the application average approximately $90,000,000 a year for the 3 year period.
The 2016 adopted water gross margin is expected to decrease by approximately 700
in annual depreciation expenses
resulting from an updated depreciation study. The new water rates will allow Golden State Water to earn its 8.3 4% authorized return on rate base and are expected to become effective in January 2016. With regard to our electric division, Golden State Water filed a settlement agreement with the California Public Utilities Commission or CPUC in May 2014 that had been reached with all parties involved in the electric general rate case on the revenue requirement. Settlement agreement, if approved, would resolve all matters in the pending electric rate case for rates in years 2013 through 2016. A final decision from the CPUC is expected in late 2014.
Pending a final decision on this rate case, electric revenues have been recorded using 2012 adopted levels authorized by the PUC. I'm also pleased to discuss that in June Golden State Water received approval from the PUC to provide water services for a new development in Northern California in an area near Sacramento in Sutter County called Sutter Point. With the PUC's approval, Golden State Water will create a water service district to supply the Sutter Point development the groundwater and surface water from the Sacramento River. The project will involve the construction of underground infrastructure and groundwater wells with a treatment plant and storage facility to serve retail, industrial and approximately 17 1,000 residential customers at final build out, which will take a number of years. We were very pleased to receive approval to serve this new a settlement resolving all issues in Golden State's application to acquire the assets of Rural Water Company, which serves approximately 900 customers.
Before I move on to discussing our contracted services business at ASUS, I'd like to talk a bit about our water supply and the drought situation in California. In April of this year, the Governor of California signed an executive order to address continuing drought conditions by directing urban water suppliers to implement plans to limit outdoor irrigation and wasteful water activities. In July, the State Water Resources Control Board approved emergency regulations that implement mandatory restrictions on certain outdoor urban water use to further reduce water use throughout the state. The regulations call for mandatory water use restrictions such as eliminating hosing of driveways, prohibiting irrigation runoff, etcetera. We are regulated by the CPUC on such matters.
As part of the PUC's rules, Golden State Water has filed documents in order to implement mandatory water use restrictions and will comply with PUC directives to implement the emergency regulations. If dry conditions continue in our service areas, Golden State Water Water may also need to implement mandatory water rationing to its customers. Also in the event of water supply shortages, Golden State Water would need to our customers, these additional costs would result in higher cost to customers, which taken together with mandatory water rationing may lead to customer criticism. Now let's turn our attention to the company's contracted services business at ASUS. For the Q2 of 2014, earnings from ASUS decreased as compared to the same period in 2013, primarily due to lower construction activities related to capital upgrade projects at Fort Bliss and Fort Bragg.
Major capital upgrade projects including the $58,000,000 water and wastewater pipeline replacement project and the $23,000,000 backflow preventer and meter project at Fort Bragg are nearing completion and work on several other projects was completed in 2013. This has resulted in expected lower revenue during the first half of twenty 14 as compared to the same period in 2013. While renewal and replacement work increased during the Q2 of 2014 compared to 2013, it was overall lower for the 1st 6 months of 2014 compared to 2013. However, we expect that overall construction activity will increase for the remainder of 20 14 as compared to the first half of this year. ASUS continues to work closely with the government on the various price redeterminations for each of the military bases.
We expect the 2nd price redetermination at Fort Bragg in North Carolina, the first price redetermination for Fort Jackson in South Carolina, the second and third price redeterminations for Andrews Air Force Base in Maryland and the second price redeterminations for the military bases in Virginia to all be completed during the Q3 of 2014. Filings for these price redeterminations, requests for equitable adjustment and contract modifications awarded for new projects provide ASUS with additional revenues and margin and the opportunity to consistently generate positive earnings. We also continue to work closely with the U. S. Government for contract modifications relating potential capital upgrade work that deemed necessary for improvement of the water and wastewater infrastructure at the military bases.
In addition, we are actively engaged in new proposals and expect the U. S. Government to release additional bases for bidding over the next several years. In regard to ASUS's outlook for the remainder of 2014, there are several variables that impact this business, which makes it difficult to predict its earnings with much certainty. With that said, we still think earnings per share for the full year 2014 could come out close to ASUS's 2013 results.
Excluding a one time tax benefit of $0.03 per share, earnings from ASUS were $0.27 per share for the full year of 2013. While we have a few large projects winding down in 2014, we anticipate renewal and replacement activity to increase throughout the remainder of 2014 as previously discussed. In addition, we expect to have a number of new construction projects for 2014, though individually probably not as large in size as the ones rolling off. ASUS is also expecting various price redeterminations to be finalized in 2014, as I just mentioned, which could result in retroactive revenues included in our estimates for 2014. Assuming successful resolution of these redeterminations, including anticipated retroactive revenues and the anticipated increase in overall construction activity during the second half of twenty fourteen.
Continue to believe full year 2014 earnings should look a lot like 2013 after removal of the one time tax benefit from 20 thirteen's earnings. Turning our attention to dividends. On May 19, 2014, the Board of Directors approved a 5.2% increase in the corporation's quarterly cash dividend from 0.20 $25 per share to $0.21 per share. This quarterly dividend will be payable on September 2nd to shareholders of record at the close of business on August 15, 2014. American States Water Company has paid dividends every year since 1931, increasing the dividend received by shareholders each calendar year since Before I close with my prepared remarks, I'd like to thank you for your interest in American States Water.
I'll now turn the call over to the operator for questions.
We will now take your questions. The first question comes from Ryan Connors with Janney Montgomery Scott. Please go ahead.
Hi, thank you. It's Ryan Connors with Janney. I had a question. Your prepared remarks are very comprehensive. So thanks for that.
I had kind of more philosophical question for you, Bob, about kind of the drought. I know you touched on this when you talked about the usage restrictions and so forth. But when it comes to the decoupling system and the way that it's constructed today and you look at a drought of this kind of severity, which doesn't look like it's getting better anytime soon, can the system still function effectively in your view if this severity of drought continues over an extended period? I know that there's always concern about consumers being asked to conserve and therefore pay more for less water. And I think you kind of mentioned that that sometimes creates some pushback.
So can you just kind of give us your expanded thoughts on this particular acute drought situation and how it impacts the decoupling system?
Sure. Well, first of all, the whole decoupling was tied into, as you know, Ryan, the tiered rates. The tiered rates have worked to reduce consumption, which have helped the situation. In fact, our demand I think is down, I want to say roughly 15% since we put the tiered rates in place. So all of a sudden we have a pretty good reduction in demand.
You are correct in that customers have given pushback because of surcharges with the sort of view that, hey, I've used less and then I get these surcharges. I do think they're starting to understand though that while they can serve and let's say their neighbor does not, they're ultimately still paying less than their neighbor. The neighbor gets the same surcharges as they got. And so their original bill is actually the conserving customer is actually less than the Nabors. So I don't think the decoupling will hamper or has hampered the situation in terms of the drought.
I mean, I think it's a good system that for the company and it works for reducing demand, because conservation really is the least cost way of sort of solving some of the water supply issues we have. It doesn't completely solve the issue. There's a number of other things the state's doing and the company's doing.
And then and you feel pretty good about where you are in terms of your demand forecasts and those not creating excessive RAM balances and that sort of thing. How do you feel about that side of the ledger?
Yes. It's some tough sledding early on here because there was initially the water consumption went down more quickly than what we had anticipated because of the tiered rates. As a result, our WRAM balances had been built up to the tune of almost $60,000,000 to $65,000,000 We're kind of now on the collecting side of that and our WRAM balances have come down considerably. In the most recent rate case that we filed, we've been able to adjust our sales forecast to take into account all that. So we don't feel like we're going to have the kinds of surcharges we've had in the past.
And so we think that's the customer we won't have sort of the same kind of customer pushback we've had in the past.
And Ryan, for the rate case cycle 2013 through 2015, the consumption we projected in the rate case is pretty close to our actual consumption. So our accrual run balance has been much lower in the last rate case cycle. Going to the next GRC filing I think our consumption level will adjust a little bit but not so far off from our current consumption
level. Okay.
So I think that's a good sign.
Yes. Maybe that a
lot of
the low hanging fruit has been gotten at this point and we're not predicting substantial reductions in sales going forward.
Got it. I'll have to borrow that forecasting model to try to predict the stock price, Ava.
And one last question, just I guess kind
of inverting that discussion on the drought in terms of going from risk to opportunity, does the drought is the drought sort of pushing some privately held and or municipal systems to the brink in terms of their own ability to meet their supply and so forth? And is that creating any needle moving opportunities for you in terms of acquisitions?
We haven't seen a lot of that to be honest, Brian. The municipalities that own water systems tend to really like to keep their water systems. And the difficulty is when you have rates that are somewhat subject to political pressures, it is difficult to keep systems reliable. And I think the investor owned we don't have those political issues. And because we invest to sort of have modest rate increases periodically that our systems we're able to attract capital and be able to make timely infrastructure change out.
Great. Well, thanks for your time.
Thank you, Ryan. The
next question comes from Jonathan Reeder with Wells Fargo. Please go ahead.
Hi, Bob and Eva. I was hoping you could discuss in further detail the components of your recently filed GRC, in particular when you kind of discussed the gross margin, I thought that was typically just revenues less supply costs or in other words kind of prior depreciation?
Right. Yes. And generally your margin is supposed to kind of cover your increases in expenses as well as growth in rate base. And so the comment in the materials about depreciation was that just sort of let folks know that we did have this depreciation study that was completed and they have lengthened the lives of the assets. And now this has to all be approved by the PUC.
But as a result, our depreciation expense is going to be lower in 2016 than what we are currently are seeing in our financials, which allows us to sort of get by with a gross margin that maybe isn't growing as much as some might expect. So that was sort of a tie in there between depreciation expense and the gross margin change.
So when you talk about gross margin, I mean, are we talking revenues less all operating expenses then not just supply costs?
Yes, just supply costs. So it's revenues less supply costs.
So we thought that's a more meaningful information, supply cost is a kind of pass through item for us. And we usually update that even before the decision issued.
So I mean in the rate case, are you still filing for, I guess, a rate increase to cover the operating expenses ex supply costs? Or are you saying depreciation, the decrease is offsetting the increase in other accounts?
Yes. The decrease in depreciation is offsetting increases in other accounts. And in terms of the overall revenue increase, I mean, the in some areas it's not an increase. In other areas it is. It depends on what rate making area we're looking at.
But in total is there a revenue increase that you're requesting?
Well, and again
If you added all of your jurisdictions together?
From a I guess from a revenue requirement standpoint,
it's a small
decrease. The main reason Jonathan is the supply cost in this filing is about $2,700,000 lower than the last adopted number because we have improved our supply mix. As the main reason. We'll be able to pump more from our own water source. So since supply cost is passed through, so you're kind of adding back to your revenue is actually lower revenue than the currently adopted rate.
And this is why we focus try to get the market to focus on the gross margin rather than on revenue because when you do have sort of sales that are declining, that's going to bring some cases your supply cost down, absent inflation. So that's why we sort of start at the gross margin line.
Right. I'm just trying to fully understand I guess how that accounts for the growth in rate base over that time?
Yes. So we're going to sort of manage the operating expenses. We have this sort of reduction in depreciation expense. And then we've got to cover the increase in rate base as part of the plan.
Okay. And then you all talked about the Sutter Point development. When will we start to see some of the growth from the new service kind of flowing through the financials? What's kind of the CapEx expected to build out this new system? And would that be embedded in the CapEx projections for the new rate case?
No, it's not we don't expect the CapEx to start within that period. So in terms of us, the company having to spend money. So it's several years out. It's just we talk about it now because it is something that's going to happen. We believe eventually it's just then it's a bit of a function of how quickly the real estate market moves.
Okay. And then my last question is on ASUS. How many I guess, open bids on basis does ASUS have? And are these all water? Or have you made some electric at this point?
And then the last part of the question would just be, when might we see the next contract awarded by the government? Do you have any ideas or any clarity there?
Yes. The I guess the official bids we have outstanding are all for water and wastewater. The we bid on actually, I don't think we've shared with the market how many bases we've bid on. And there's a reason for that. It's highly competitive.
So I mean we are gearing up to bid on the electric. We have not submitted a bid there, but water and wastewater, there's a number of bases we're bidding on. We take it very seriously. We've in sourced sort of the whole bidding process. That's how important this is to us.
See was there another piece to your question Jonathan?
Yes. Just if you have any clarity as to when they might act on some of these open bids?
Yes. To be honest, Jonathan, it's going more slowly than what we thought. Personal view is the whole DoD budget issues we think are having an impact a bit on the privatization of some of the bases. So it's more it's slower than what we thought it would be at this point and makes it more difficult to predict when. But we've been in there bidding and bidding hard to get new bases.
It's just the government is going to move at a pace that the government wants to move.
And they have been delayed again and again on certain RFPs that they said they're going to issue. So each RFP issue that we'll evaluate to see whether it's a valuable base for us to go in or not.
Yes. We found that the length of time from when you start bidding to when base is awarded is lengthening as well. So it's a little frustrating. I mean it's a very good business. We like it.
We think we do a great job. The government is a very good payer of their bills and there's a lot of good things to like about the business. The only frustrating part is it's always slower than what you think it should be. And this is not this is no criticism to the government. I mean they've got a lot of things to manage.
But so it makes it very hard for us to predict when these new bases are going to sort of cross the finish line.
Okay. I appreciate the response. Yes, I understand the difficulty there too. So, thanks a lot. Yes,
Jonathan.
The next question comes from Richard Verdi with Ladenburg. Please go ahead.
Good morning, Bob. Good morning, Eva.
Hi, Richard. Good afternoon, I
should say. My questions have pretty much been answered, but I wanted to follow-up on the last caller's question. There are approximately 20 or so bases that are expected to be auctioned in the next, let's say, 12 to 24 months. Could you just give us a little color on maybe how many bids you have outstanding right now?
Yes. Well, when Jonathan sort of asked that same question, we kind of said that it's because of the highly competitive nature of this business, we're really trying to avoid putting out there sort of what our strategy is and how many bases we bid on. So we have not published that.
Okay. All
I can tell you Richard is we view this as a pretty good growth vehicle for the company and we are spending the time and the money to put forth a number of bids on substantial basis.
Okay. And I know when we were on the road, you gave a number a while back. Could you just share with us what you think the market share might be right now between yourselves and as well as American Water Works?
Yes. I think I've done this in previous conference calls, but I've always caveated it as being a very loose estimation, very rough estimation. And then etcetera. Etcetera. My personal view is we have about 40% of the market in the water and wastewater space and American has about 40% of the market and that the other 20% is made up of by regional players.
So
Okay. That's helpful. And what about the electricity side exploring the military bases that have not only water, but electric, you have the electric side of your business. Could that be a possibility for American States?
Right. We are in some select areas, we are looking to bid on the electric operation.
Okay. And can you give us any sort of color on when that we might see a first type of contract materialize?
Yes. It's going to be it won't be within the next year in terms of getting contract. I don't think. Because it the lead time on these things are they're beyond a year and we really haven't submitted a bid on the electric at this point. So but we're gearing up to submit 1.
So now I don't want you to think the electric component is going to be for us as substantial as the water wastewater. I mean we're focused on water and wastewater and the electric allows us the opportunity to possibly provide the electric service on the bases we serve or on other bases. But one of these things we want to get our sort of feet wet first on the electric before we decide to go sort of full force into that.
Okay. That's about it. Thanks, Bob. Thank you for the quarter.
Hey, Richard. Thanks.
The next question comes from Tim Winter with Gabelli and Company. Please go ahead.
Good afternoon, Bob and Eva.
Hi, Ken.
Hey, on the subject of
the military basis and as this business grows, the price redeterminations, if I can try to understand those a little better. What prompts the filing? Who makes the decision? Are these becoming more standardized? Each place different?
Can you maybe just sort of provide some color there how that works?
Sure. Well, generally under the way the contract works is you bid a levelized payment stream for, let's call it operations and maintenance renewal and replacement. And renewal and replacement is generally replacing the system over 50 years if you will. So you bid a levelized payment stream. And then 2 years after you take over a base and every 3 years thereafter, you can get a price increase on both of those revenue streams.
And so it's incumbent upon you then to make your price redetermination filings and then work through the Defense Logistics Agency Energy, which is DLA E, that's the group of contracting officers. That's where the contracting officers are housed that sort of handle all of the bases that we manage on the East Coast. Fort Bliss has a separate contracting officers that's not part of the DLAE. So we make our filing with at each of the 6 contracts that we have. And then, let's just say the DLAE is handling it and they'll DLAE is handling
it and they'll review
our filing. There'll be a lot of back and forth on what the cost increases are. But the point is that the first price redetermination under each contract has been very difficult. It seems like the second redetermination goes more smoothly and then so sort of getting that first redetermination done is really key. Now you're allowed to get retroactive adjustments back to the time when the price redetermination was supposed to be done.
So for instance, the 1st price redetermination, if you started your base on January 1, 2008, manage it 89, your redetermination would be effective January 1, 2010. And then you would do another one 3 years later and so that's sort of how it works.
And Tim to Bob's point, fortunately we have done all the gone through all the first price redetermination approval except for Jackson which we expect to receive in the next quarter. So once the first redetermination is done, the second and third become more routinely processed. So that's the process side for those government process there.
Yes. And both our company and the government, the DLAE have been trying to work at an approach to try to streamline the process going forward, possibly considering putting an index or something like that in to sort of help streamline the process.
Okay. And then if I could ask a more conceptual question on the same topic. If you were to take your bases that you operate and exclude construction projects, would you say that they're earning near the returns that you had forecast when you entered these or that you need further price redeterminations?
Well, okay. So that's a bit of a difficult question because the I mean we're talking about 3 years of delays here in prices. So my view is once we get the redeterminations done, I mean, we're already very pleased with the business. Once we get the redeterminations done, we'll even be happier with it because it's a business that's sort of pulled our overall return up return on capital up. And the retroactive revenues for price redeterminations will help.
And so we like it. We like the business. I also think this whole redetermination process is a bit of a barrier to entry for other folks that come and want to be in this business because it is a different animal than the utility business, I can tell you that, and learning how to interface with the government on a variety of fronts. I mean, it is a government contracting business. It is not a utility business.
The management is utilities, but in terms of pricing and dealing with the government, I mean, we are a government contractor and we're required to abide by all government contracting requirements.
Okay, great. Thanks, Bob. Thanks, Eva.
Thank you.
The next question is a follow-up from Jonathan Reeder of Wells Fargo. Please go ahead.
Hey, Bob, if I could just go back to the GRC. If depreciation rates weren't revised, if you're just kept them at your normal level, how much of a difference would that have made? I mean, what's the absolute dollar impact from the extended depreciation life?
Well, okay. So your gross plant is growing all the time because our CapEx is higher than our accumulated depreciation. Our net utility plant is growing. So absent the depreciation change, we probably would be looking at what $7,000,000 or $8,000,000 increase in depreciation expense. Is that a fair statement?
Because I mean depreciation expense absent changing your composite rate is going to grow over time, because what you're depreciating is growing over time.
Right. So $7,000,000 to $8,000,000 increase over the depreciation that you filed for, Is that what you're implying?
Yes. I think that's call it maybe 7 to 8 is too tight on each, maybe 5 to 8.
Okay. But it's over the amount that you requested in the filing, I guess?
Yes. Yes. As we have reduced the composite rates, We have extended the lives because of the depreciation study.
Okay. All right. That's very helpful.
Yes. The depreciation expense the decrease in that expense in our application for 2016 compared to the current depreciation expense level, it's about $1,400,000 lower. So imagine we're having changed the composite rate or do the study that rate that dollar amount would be much higher positive number, Jonathan.
Right, right. Okay. All right. That's very helpful. Thank you.
As there are no further questions, this concludes our question and answer session. I'd like to turn the conference back over to Mr. Bob Sprowls for any closing remarks.
Thank you, Gary. Again, I just want to thank everyone for your participation today and your continued interest in the company and appreciate talking to everyone going forward. So thank you very much.
This concludes today's American States Water Company conference call. As a reminder, the call will be archived on our website and can be replayed beginning Wednesday, August 6, 2014 at 5 pm Eastern Time, 2 pm Pacific Time and will run through Wednesday, August 13, 2014. Thank you for your participation. You may now disconnect.