California Water Service Group (CWT) Q4 2018 Earnings Conference Call Transcript

CWT earnings call for the period ending December 31, 2018.

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California Water Service Group  (NYSE:CWT)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 11:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day ladies and gentlemen, and welcome to the California Water Service Group Year-end 2018 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Mr. David Healey, Vice President and Corporate Controller. Sir, you may begin.

David B. Healey -- Vice President and Corporate Controller

Thank you, Skylar. Welcome everyone to the 2018 year-end earnings results call for California Water Service Group. With me today is Martin Kropelnicki, our President and CEO; Thomas Smegal, our Vice President, Chief Financial Officer; and Paul Townsley, our Vice President, Corporate Development and Chief Regulatory Officer.

Replay dial-in information for this call can be found in our year-end earnings release, which was issued earlier today. A replay will be available until April 30th, 2019. As a reminder, before we begin, the Company has a slide deck to accompany the earnings call this year-end and quarter. The slide deck was furnished with an 8-K this morning, and is also available at the Company's website at www.calwatergroup.com.

Before looking at this year-end results, we'd like to take a few minutes 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 that are subject to various risks and uncertainties, and actual results could differ materially from the Company's current expectations. Because of this, the Company strongly advises all current shareholders, as well as interested parties to carefully read and understand the Company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q, press releases, and other reports filed from time to time with the Securities and Exchange Commission.

I'm going to pass it over to Tom to begin.

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Thanks, Dave. So going through the slide deck, I'm going to start on Slide 6, and talk a little bit about on adjustments that we made to our financial statements. During the year-end close process, Company management discovered that it had incorrectly understated operating revenue for two cost recovery balancing accounts, the medical cost, pension cost balancing account that are authorized by the California Public Utilities Commission. What had happened was that, the Company took its actual expenses and compared them to the expense plus capital, which was adopted by the Commission. And what was proper was to compare the actual expenses to the adopted expense portion of those costs. Correcting the error increased our operating revenue, $9.2 million in 2017 and $6.9 million for the year-to-date period September 30, 2018, with corresponding changes to regulatory assets and liabilities. The Company has designed new controls to better prevent, detect and correct this type of error in the future, and we've been -- we got a lot more detail on that in the 10-K, which we expect to file a little bit later this morning or hopefully before this afternoon, so you can read all about that at your leisure.

Now I'm going to roll into our financial results. And the reason that we mentioned the adjustment is, because we are comparing our 2018 financial results to the adjusted 2017 financials. And so on Page 7 of the slide deck, our net income for 2018 is $65.6 million, that is down about 10% from $72.9 million in 2017. Our earnings per share is $1.36, and that is down from $1.52, again as adjusted for 2017.

Flipping through the quarter on Slide 8, we'll talk about net income there. We're basically flat from 2017, $15.4 million of net income versus $15.1 million of net income in 2017, again 2017 as adjusted. And the earnings per share in the quarter $0.32 versus the $0.31 in the similar quarter of 2017.

Looking to Slide 9, our financial highlights. Basically the same factors that have been driving the Company's performance throughout the year in 2018 were the story of the entire year, and that is that our net income decrease of $7.3 million is largely driven by three large factors. First was the reduced adopted cost to capital for 2018 for California, that reduced our revenue by $6.9 million. Second was the expenses related to business development, particularly the San Jose water that you all know about, and that was about $5 million of increased expense on the year, that was unanticipated at the beginning of the year. The third bullet grew a little bit in the fourth quarter as the stock market performance of our investments in one of the retirement plans decreased with the market, and we have about $5.4 million decrease in the value of those assets, and that's a mark-to-market that we have to do every quarter. So increased revenue from rate changes. If you'll recall, that we got a very large step rate increase at the beginning of 2018, that increased revenue was partially offset by increases in our operational cost, labor maintenance, property taxes, interest and deposition. Those are the kind of normal course things for us. We also at the end of the year received approval to recover $3.3 million of 2016-2017 drought expenses, that's reflected in our financials as a reduction to expense. That's how that's recorded. And finally, our effective tax rate for 2018 was about 20%. That's lower than we estimate for next year, and lower than we had anticipated, in part because of the large volume of capital additions for linear assets, the mains and services, and that drives the repairs deductions that we're able to take.

On the EPS Bridge, you can see the same factors discussed in a graphical form on Slides 10 and 11. I don't think there's anything else to highlight there on 10 and 11.

I'm going to turn it over to Marty Kropelnicki for capital investment update.

Martin A. Kropelnicki -- President and Chief Executive Officer

Thanks, Tom. Good morning, everyone. Happy to report that it was another record year for our infrastructure improvement plan. Our Company, developer funded, and litigation proceeds funded capital program investments exceeded $271 million or $271.7 million for the year, that's an increase of 4.8% over the same period last year of 2017. Couple of things driving the target above what our original range was, was general cost increases with the main replacement program, the cost of permitting, cost of paving. We saw fairly substantial increase in the cost of pipe through the year. And so as we go those projects under way and got that main replacement work in the ground, they certainly had higher costs. The Company funded component of the $271 million was $231 million. And then as we note on the slides, we had to do 1,2,3-trichloropropane or TCP work for 36 wells, that was $22 million, that was funded through proceeds where we sued the responsible parties for contaminating the water supply, and that was paid for by the legal proceeds.

Later on in the deck, we have a place order of $290 million as the holder for 2019. That is just a placeholder based on what was submitted in the 2018 general rate case, which was $825.5 million, and we're going to that process now. Paul is going to talk about the general rate case and where we are, but that is just a placeholder, and we anticipate as we get further along in the processor with the commission, in particular, in the second and third quarters, we will come up with a firm range for 2019 once we have some more clarity with the commission on our infrastructure improvement plan for the year in the rate case.

Now I hand it over to Paul who is going to start talking about what's happening on the rate case side.

Paul G. Townsley -- Vice President, Corporate Development and Chief Regulatory Officer

Thank you, Marty. So as Marty just mentioned, we filed our rate case in July of last year, and we requested $828.5 million of new capital investments, and those -- that capital will be made over the three-year period: 2019, 2020 and 2021. While we are in the midst of the rate case process right now, last Friday, February 22nd, we received the Consumer Advocates, California Public Advocate's testimony in the case, and so we are in the midst of reviewing all of that. It's a lot of documentation there. Tomorrow we are expecting testimony -- if there's any testimony from other interveners in the case, there are three cities that filed for intervention in the case. Don't know if they will provide testimony, but if they do that it'll be coming out tomorrow. And then our rebuttal testimony is due on April 23rd. So our team is really in the midst of reviewing the California Public Advocate testimony right now, and determining what we will be saying in our rebuttal.

Turning to Slide 14, we've also been active in other regulatory matters. We have filed for -- we filed for a step increase of $16.2 million of increased revenue, and that went into effect on January 1st of this year. We also have filed for some advice letter projects for about $6.6 million of additional revenue, and we'll be filing for other advice letter projects across 2019 as we complete those projects.

We have a two rate cases in Hawaii that we were completed last year. The Hawaii, the Waikoloa rate case which is on the Big Island, and that was -- it was finalized in 2019 with $2.6 million of additional revenue. Hawaii, we phased in rates if they are large, so $1.6 million will be realized in 2019, and the balance will be realized in 2020. And we also finalized our Washington rate case in November of last year, and that increased revenue up there by $1.1 million.

Turning to Slide 15, on the business development front. We've been very active in the business development area. We have a pipeline that we continue to grow. And I wanted to highlight four projects: the first one is, we have now received final commission approval to own and operate the Travis Air Force Base system, and we're going through the transition period on that right now. We expect to be operating that as a fully regulated utility in July of this year. We also began operating as an O&M contract, a wastewater system on the Big Island of Hawaii, called Keauhou, which is about 1,500 resort -- it's over 1,500 resort unit community. We're also operating the water in the wastewater system for Tesoro Viejo, which is a new development under construction in the Central Valley. And then we also agreed to acquire the water and waste water assets for another system in Central Valley, known as The Preserve at Millerton. So there has been a lot of activity in that area.

And with that, I'll turn it over to Tom.

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Thanks, Paul. Just a quick update on our Decoupling Balancing Accounts. This is an area that we like to talk about because of the balance of the receivable. And Cal Water in 2018 sold 95% of its adopted estimated sales, so that's a pretty good number for us. That was largely driven by the fact that we triggered the Sales Reconciliation Mechanism, which is in the California General Rate Case process. We believe that -- had that not triggered our sales percentage of adopted would be considerably less than that, and our WRAM balance probably would have grown. We estimate that the WRAM balance was reduced by $21.4 million throughout the year due to the SRM. So the good news is that the net WRAM receivable balance is $56.1 million, and that's down from $69.1 million at the year end of 2017. On Slide 17 you can just see the chart of that. And so we did engage the SRM mechanism once again for 2019. So hopefully with similar water sales this year, we will have a similar outcome as we continue to work on that balance of the WRAM receivable.

Now I'll turn it over to Marty for our outlook for 2019.

Martin A. Kropelnicki -- President and Chief Executive Officer

Great. Thanks, Tom. 2018 certainly was a very, very busy year here in the hallways of California Water Service Group. One of the big events was generally -- was getting to general rate case on file on time, as Paul mentioned. The third year of the rate case cycle on California typically generates a largest gap and cost recovery for us. And so, as we go into the third year, we're always mindful of our tightest year, keeping our operating budgets tight and staying focused on our mission, our objectives. We have a couple projects that I think are strategic and noteworthy to mentioning. One, we are doing our first call center consolidation project in Southern California. So each of our districts have had separate customer centered. In some of our regions, these customers centers might only be a few miles away. And so based on looking at customer flow through our customer portal, we put a portal in about five years ago, we've been tracking when do our customers interact with us, when do they pay their bills, approximately half of our customers pay their bills electronically. And we've noticed the change in customer preferences and it's moving away from -- the strongly moving away from our eight to five business models to be more around-the-clock business model. So we are doing our first call center consolidation down in Southern California. We anticipate that call center will be up sometime mid-year and off to the races, and then we will be enhancing and improving the vehicles by which customers communicate with us. And so the goal is to have customers always be able to talk to a Cal Water employee and not an after-hours call center who takes the message and calls and on-call employee. So we think this much better aligns our services to the customer's preference.

In addition, we are doing a major upgrade on our SCADA project. We have our fifth district that's gone live in the last two months on our SCADA project. In today's world of cyber, SCADA is really important, and as we've learned dealing with the major fires in the State of California where you cannot have staff, because it is an active fire zone, SCADA systems help us better run our systems and keep the water flowing, especially for fire flow purposes. So we have a SCADA project that's well under way. And then what's turning out to be probably the largest project in our Company's history, and this is part of our infrastructure improvement plan as a large pipeline project in Palos Verdes so down in L.A. So we're putting in 14 miles of Maine, which is providing redundancy for parts of the L.A. area essentially for fire flow purposes. And so anyone has been to Southern California, you know it's very, very crowd down there. This area that we are working in a lot of high-end homes, a lot of equestrian areas, but at the end of the day, only more redundancy of supply in that area. So this project is under way. And these projects actually

-- what should we're trying to ever wrapped up by the end of 2019, and I believe with an advice letter filing when we have it done. So we'll be reporting on these three projects: SCADA, the Palos Verdes pipeline project, and the call center consolidation throughout the year.

As I mentioned earlier, we have a 290 placeholder for the capital investment line for 2019, but that's really just a placeholder as we work through the rate case settlement process year, which will pick up, as Paul said, over the next couple of months. We think it's noteworthy, and this gets back into one of the projects that this team has been working on in the broader offers team was when we reengineered our capital, our investment process by which we invest capital, and as you may recall we talked about the fact we discovered we're leaving step increase dollars on the table. And so what the rate increases with Paul's help in the subsidiary companies as well as us being able to maximize our step increases, we believe that we will be much closer to earning authorized rate of return in 2019, and historically that hasn't been the case or the rate case cycle.

Additionally, we don't anticipate filing a bunch of advice letters early on in 2019. As I mentioned, the PV pipeline project will be an advice letter project that would be toward the end of the year. So you're not going to see a lot of advice letter revenue getting approved during the year until we get toward the end of the year. And looking at our effective tax rate for 2019, as of right now we're anticipating that will be 24% because of uncertainty, and the amount of timing of the linear asset construction and mainly our main replacement program.

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

So I'll walk very quickly through Slide 19 and 20, and this is just something that we provide out in the public every quarter. This hasn't changed except for reflecting the actual 2018 capital investment on Slide 19. And then flipping to Slide 20, we updated the actual adopted rate base of the Company as of 2018 there on the blue bar on Slide 20.

And Marty, I'll get back to you.

Martin A. Kropelnicki -- President and Chief Executive Officer

Yeah. So in December, we announced some significant officer changes, so I want to take a minute and talk about that. And, but I first want to mention the process succession planning is something the Board of Directors here and the officer team at Cal Water take very seriously. We do an extensive succession planning and process led by VP of HR, Ron Webb every year. And in September we go through that succession planning process with our Board of Directors. And we did that, we jumped into this more detailed succession planning about five years ago, because we anticipated the Baby Boomers starting to retire. So we want to make sure we're doing what we needed to do to successfully develop, recruit, retain and build people skill sets, so they are available to move into these opportunities as they move up.

So in 2019 we had some changes. First and foremost, Tim Treloar, who is our Vice President and Chief Utility Operations Officer, will be retiring after 25 years of service. For those of you that know Tim, he is an outstanding individual. He is a water quality expert. He is a geologist by his educational background who just likes rocks and water. And Tim came up through operations. He ran our Bakersfield district for a number of years. Well known at Bakersfield for specific activities and being involved in the community and doing a great job running Bakersfield. He then came up to cooperate and he was the Head of Water Quality. While he is the Head of Water Quality I asked him to get involved in waste water when we did a number of acquisitions in Hawaii. We developed this integrated water, wastewater concept internally, and Tim jumped into a -- has got involved with the wastewater side of the business for us, and help us develop that business model. And just really, really a top-notch guy. And as much as I hate to see Tim retire, and my hearts breaking to say goodbye to him, I'm very, very happy for Tim, his lovely wife Erin and her daughters Kristin and Michelle. And the great thing about working for Cal Water is, we're like a family, and well he won't be here every day, we will certainly keep in touch with Tim and we wish him all the best in his retirement when he retires end of next month.

Along the lines of those changes, we promoted Mike Mares to be Vice President of Operations for California. Again Mike and Tim came up from the operation side. He has his Degree in Communications. He has his D-Five certification, which is the largest distribution sort of certification in the State of California. Mike came up in Northern California in Chico. We moved Mike to be a local manager over in Hawaii. So again where we have the integrator water and wastewater systems where we run both, the same set of customers. Mike went over there to run as a local manager, some of operations under Tim Treloar. Mike was then promoted to General Manager of Hawaii and did a fantastic job. After serving in Hawaii for a few years we brought him back to run Bakersfield. And he spent the last couple of years running Bakersfield. So Mike is certainly well positioned for operations, and he is an operations person. His high energy, a lot of charisma, he is in charge to help type of guy and we're not going to miss a beat with Tim's retirement. And Tim has done a great job in mentoring Mike and we anticipate a smooth hand off of that.

In addition as Paul mentioned, one of our goals over the last 18 months was to retour our business development pipeline. And Paul, who has had responsibility for rates, and then he added the business development piece of it, there's a lot going on in California and in the California rate case and given our infrastructure improvement plans in the State of California. So we promoted Greg Milleman, who reports to Paul Townsley. Greg is Vice President of Rates for California. Greg's been with us for about six years. We recruited Greg from Valencia Water where he was Senior Vice President of Admiration and Corporate Secretary. I believe he had the CFO function in there as well. Greg is a CPA. He is former past President of California Water Association. He is an outstanding rates person having the CPA background and knowing rates I think makes him very, very valuable. And he has taken over for Paul in the State of California.

Paul's title has changed. Paul has become Vice President, Corporate Development and Chief Regulatory Officer. So Paul is overseeing rates in all four states, business development and working with Greg. So Paul has a new title. Paul congratulations, and it's great to see the pipeline fall in the business development side, we have been working on that.

In addition, so Tim had Water Quality and all of operations, and Tim was the first Vice President in our history to have Operations under him in all four states. So with his retirement, we've had to move a couple pieces around. As you may recall, we recruited Rob Kuta from the outside when we wanted to make some changes in Engineering and rethink our Engineering process. Rob has been amazingly successful, as you can see by our capital numbers. So Rob's title has changed to Vice President of Engineering and Chief Water Quality and Environmental Compliance Officer. So he has Engineering, Water Quality, and Environmental Compliance. So all four of these individuals kind of hit the ground running January 1st, and we are off to the races.

Looking at Page 22, and just kind of summarizing where we are, and looking at where we'll be going here. 2018 was a solid year for the Company, in particular, in all four states. We met and exceeded all the primary and secondary Water Quality standards in all four states. There were no penalties, no citations for primary and secondary Water Quality issues. Very happy with infrastructure improvement plan. It was another record year for us, and we busted this record now in the last three years and have maintained a 10%-plus growth rate on our capital expenditures, and our ability to execute our business plan around those expenditures.

We had three major wildfires that made the record books in California. Yesterday at our Board meeting we did a lessons learned, looking at what we could do better. We got excellent scores from our customers and communities for our emergency response, but safety and public health is paramount in what we do. So we took the time to do deep dive and lessons learned from the three fires, and we want to continue to make safety a priority. Having said that, we've made significant improvements in the Company's internal safety processes, which really reflected in a strong reduction in our accent rates et cetera during the year and employees getting hurt, so very, very, very happy with that.

As I talk about on this page, maximizing the step increases. I think are an important -- in the last two years this cycle we've achieved over $33 million of step increases. If you go back and look at the previous two years when we had step increases, we achieved $9 million for the same period looking backwards. So the realignment, the reengineering that we did in the capital program to maximize those step increases is really starting to pay off.

So as we look at 2019, a lot of step on the business development side going. We got the general rate case going in the infrastructure improvement plan in a number of key initiatives and keeping the 2019 California rate case on schedule, on budget is going to be our key.

And with that, Tom I will...

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Yeah. Let's turn it over for questions. Skylar, you can open the line for questions.


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Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Durgesh Chopra with Evercore. Your line is now open.

Martin A. Kropelnicki -- President and Chief Executive Officer

Hi, Durg.

Durgesh Chopra -- Evercore -- Analyst

Hey team, good morning.

Martin A. Kropelnicki -- President and Chief Executive Officer

Good morning.

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Good morning.

Durgesh Chopra -- Evercore -- Analyst

Thanks for taking my questions. Can you just discuss a little bit how are you going to fund the CapEx for the next three years? What combination of debt and/or equity are we looking at?

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Sure. So generally the Company's policy has been to maintain a capital structure that is closely aligned with what's been authorized by the California Commission, that's about 53% equity. And so if you'll recall, we did a debt deal last August-September time frame, were we put out $300 million of 2-year debts. We expect that we will have equity at some point in the next couple of years to manage the capital program and match this -- match the large expenditures that are going on through the GRC processing California. So look to long-term debt and equity as kind of the equal partners there. But also remember that the Company maintains large credit line, large line of credit, so about $300 million at the operating company and a $150 million at the holding company. So that gives us an opportunity to finance those capital investments in the short-term on the line of credit.

Martin A. Kropelnicki -- President and Chief Executive Officer

Yeah. I think the other thing I would add, and this is what our step increases are an important in our ability to execute the rate case plan as we're getting that stepped-up revenue which helps on the cash line for the Company. So being able to earn our unclosed or authorized rate of return versus having more of a lag which we seem historically allows us to take a little bit excess cash flow and pull right back into the infrastructure.

Durgesh Chopra -- Evercore -- Analyst

Okay. That's great color. Thank you. Just, Marty, wanted to get your thoughts on the M&A to the extent you can comment on this. Obviously like in the past you have tried to merge with San Jose Water. Given what's happening in Connecticut? What's -- could a potential merger be on the table in the future, how are you thinking about that?

Martin A. Kropelnicki -- President and Chief Executive Officer

You know, well obviously we pulled our offer for San Jose, and there is no offer on the table nor we had discussions with them about merging. We believe the industrial logic is sound. Typically when we evaluate targets in our service area, and this is one of the things Paul is keenly focused on, we try to focus on what's the economic benefit not only for stockholders but for ratepayers. And what we have found when we have done deals in California, and I believe one of the largest one was Dominguez, Tom, when we did Dominguez several years ago.

We have found working with the commission is a lot easier when you go in and say here's synergies and we are willing to give up some of the synergies and share them with our customers as well as our ratepayers. So it really kind of creates that win-win environment. So with all the stuff that Paul is working on, some of it's greenfield development in the Central Valley, and so we are excited about some of that. And then other ones, our systems that are already development that were -- we are taking over and so we are after looking. We are not waiting for SGW to come back to the table. We got a business plan to execute, we have a growing capital budget that we execute on and we are actually in a really good spot because we have kind of nice rate base growth happening within the Company. And to the extent we can supplement that with strategic M&A growth, that's the way it's going to work. So primary growth is rate base growth. Secondary to that is the stuff that Paul's doing on the business development side and we'll look for opportunities to enhance stockholder value, but also for our customers. And to the extent we can get some savings out of system for them, that creates a win-win.

Durgesh Chopra -- Evercore -- Analyst

Okay. Thank you so much for taking my questions.

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Thank you, Durgesh.

Martin A. Kropelnicki -- President and Chief Executive Officer

Thank you. Good day.

Operator

(Operator Instructions) Our next question comes from Jonathan Reeder with Wells Fargo. Your line is now open.

Jonathan Reeder -- Wells Fargo -- Analyst

Hey, good morning gentlemen.

Martin A. Kropelnicki -- President and Chief Executive Officer

Good morning, Jonathan.

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Good morning, Jonathan.

Jonathan Reeder -- Wells Fargo -- Analyst

Hi. Just a little clarity on the earning the ROE in 2019. You calculate your regulatory ROE, does that include or exclude the items that fall under other income?

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Jonathan, that is a good question. I am looking to Dave, so it includes. So Dave is telling me... you can talk Dave. You're (multiple speakers). Yes it in does include those items.

Jonathan Reeder -- Wells Fargo -- Analyst

Okay. And then I guess if I take the $1.4 billion 2019 average rate base apply the CPUC approved, cost of capital metrics, you get something little north of $1.40 in 2019, and I guess strip out the fact that some of the device letter products won't ramp up until late in the year. So maybe it's a $1.40 or little less is a more realistic target. Is that kind of how we should be thinking about 2019 EPS?

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Yeah. We've always suggested that you do that kind of a calculation. And the company is nearly a 100% regulated -- the regulated model is rate base times rate of return times equity capital structure. So I think you're on the right track there with the type of calculation you're making.

Jonathan Reeder -- Wells Fargo -- Analyst

Okay. And then any -- I guess comments you can offer on your initial reaction to the intermediate testimony in the GRC and the prospect of being able to reach a settle agreement based on it?

Paul G. Townsley -- Vice President, Corporate Development and Chief Regulatory Officer

Yes, hi. So the testimony that we have seen -- first of all, we have only had it for about three business days. So we're still in the process of really understanding it all. We -- the only testimony we've seen so far is from the Consumer Advocate. We've not seen any of the other testimony if any other gets filed. And they often don't agree with us on every point. So we will go through it. We will be working on our bottle, which is during at the end of April. We will enter into settlement negotiations later on the spring and the process takes some time. So it's hard for us to comment at this point on their testimony given that we've just had it -- we really only had it a couple of days.

Jonathan Reeder -- Wells Fargo -- Analyst

Knowing that they don't typically agree with you on disagreement so far along the lines of expectation, I guess...

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Yeah. I think let me add a little bit of color to what Paul was saying. In my reading and I only read kind of half of it or a third of it, because a lot going on this week as you can imagine. But the impression that I get is that, it is a similar type of report that we received before with similar types of issues, similar stances on the policy issues, and so there's nothing that I saw personally that was an out of less field kind of an argument that is different from the kind of things that have been argued before by that group.

Martin A. Kropelnicki -- President and Chief Executive Officer

And I agree with that position, Tom. I read it all and it is not uncommon position for ORA to take, but it is to our Cal PA, but it is very similar to what we've seen in the last two rate case cycles.

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

And then the question about settlement or not, it really comes down to the willingness of both parties to settle. So we have filled that we put on a stronger case in this rate case cycle, stronger every time we filed, with more backup and more evidence behind our position. So with this -- for the positions that are in dispute will just have to look very carefully at what is the evidence that we present, what is the evidence that Cal PA is presenting and maybe other interveners, and then decide on whether settlements appropriate based upon their willingness to settle at terms that we would be willing to settle on.

Martin A. Kropelnicki -- President and Chief Executive Officer

And there are also evidentiary hearings scheduled for the summer. So we ca -- we have those in front of us as well.

Jonathan Reeder -- Wells Fargo -- Analyst

What are the dates on those evidentiary hearings?

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

You know, Jonathan, we could probably point you to the website at the commission were those are listed, those often change as the parties attempt to negotiate settlement. So that's at the CPUC's website. There's a scoping memo for the proceeding and it has those dates on there.

Paul G. Townsley -- Vice President, Corporate Development and Chief Regulatory Officer

So you need to get a settlement, I mean, it doesn't necessarily have to be in front of those hearings, it would be nice if they were, but...

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Yeah. We had settlements both ways. We've had settlements before hearing and we've had settlements after hearing. So typically they would -- any settlement would be before hearing so that the hearing can just focus on any absolute issues, but sometimes you get to a hearing and then everybody realizes that positions around that or whatever.

Jonathan Reeder -- Wells Fargo -- Analyst

Okay. And then last question for me, the Travis Air Force Base, can you remind us about the CapEx rate base growth opportunity there, if I recall correctly start with the rebate value of zero and then start building it up as you invest the capital.

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

That's right. We have about $12 million of initial capital investment that we're going to be making over the first couple of years of the program there. And I believe the total is about $50 million when we announced the deal and obviously inflation happens and other things might come up, but the total CapEx that we had expected over the medium term was about $50 million.

Jonathan Reeder -- Wells Fargo -- Analyst

Okay, all right. Thanks very much for the time this morning.

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Okay. Thanks, Jonathan.

Operator

At this time I'm showing no further questions. I would like to turn the call back over to Tom for any closing remarks.

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Great. Well, thank you all for your interest in our earnings call this morning, and we look forward to talking with you throughout 2019. Marty, do you want to fill in anything there?

Martin A. Kropelnicki -- President and Chief Executive Officer

No. I think 2018 was certainly a really busy year. We started off 2019 with a bang and we remained steadfast on our execution of our business model, in particular the infrastructure improvement plan and getting to this rate case. So we appreciate your support, and any questions feel free to give us a call. Thank you.

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Duration: 39 minutes

Call participants:

David B. Healey -- Vice President and Corporate Controller

Thomas F. Smegal, III -- Vice President, Chief Financial Officer and Treasurer

Martin A. Kropelnicki -- President and Chief Executive Officer

Paul G. Townsley -- Vice President, Corporate Development and Chief Regulatory Officer

Durgesh Chopra -- Evercore -- Analyst

Jonathan Reeder -- Wells Fargo -- Analyst

More CWT analysis

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