California Water Service Group

NYSE:CWT

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the California Water Service Group Fourth Quarter and Year-end 2017 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. David Healy, Vice President and Corporate Controller. You may begin your conference.

[David Healey, VP, Controller and Assistant Treasurer]

Thank you, Sonia. Welcome everyone to the 2017 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 Treasurer; and Paul Townsley, Vice President of Regulatory Matters. Replay dial-in information for this call can be found in our year-end earnings release, which was issued earlier today. The replay will be available until May 1, 2018.

As a reminder, before we begin, the company has a slide deck to accompany the earnings call this 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/docs/2017q4slides.

Before looking at this quarter's results and year-end results, we'd like to take a few moments to cover forward-looking statements. During the course of this call, the company may make certain forward-looking statements because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company's current expectations.

Because of this, the company strongly advises current shareholders as well as interested parties to carefully read and understand the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q and other reports filed from time to time with the Securities and Exchange Commission.

Now, let's look at the 2017 results. I'm going to pass it over to Marty to begin.

[Martin Kropelnicki, CEO, President & Director]

Great. Good morning, everyone. Thanks for joining us. There is a presentation over these slide upfront, which will be the order in which we present today. And you'll see us move around the room a little bit as each of us have a piece to say. Following that page, we added something new to our slide deck this year and we called it our operating priorities.

These 5 categories on this page are right out of our strategic plan. And so affordable excellent service, high-quality water, wastewater, employees as our best advocates, strong brand and reputation, and enhancing stockholder value are the 5 major categories that we use to plan on our operations at California Water Service Group.

The sample [ph] of points that you see in each of those categories are things that we call our strategic priorities. Those are the things that we use as we evaluate the projects, new investments and anything that has to do with our strategic plan. So you'll also noticed that if you read our proxy, anything that has to do with incentive compensation or any of the long-term goals of the company also center around these 5 major areas.

So we added this slide to give you a sense of what we look at when we plan for and execute to our business plan and this will be something that we'll be referencing going forward as we give updates to Wall Street.

With that, I'm going to turn it over to Tom to do the overview for the full year. Tom?

[Thomas Smegal, CFO, VP and Treasurer]

Thanks, Marty. So our financial results for the full year. Our revenue was up 9.4% to $666.9 million. Net income rose $18.5 million to $67.2 million, that's a decrease of 38%. And our EPS for the year was $1.40 versus $1.01 in 2016.

Flipping to the fourth quarter. Fourth quarter, we have revenue which increased 7.3%, and EPS for the quarter, I'll just jump down to that, we had a decrease of EPS for the quarter of $0.28 versus $0.31 in the prior year. In the fourth quarter of 2016 then we had a number of regulatory items related to the adjudication of the 2015 Cal Water rate case that had improved our earnings in the fourth quarter of 2016.

So just flipping to the summary that is on Page 8, our financial highlights. Again, the net income increase of $18.5 million, that's largely attributable to our increased revenue from that December 2016 California General Rate Case decision. That is really the bulk of what has changed for the company between 2016 and 2017. In addition to that, we were allowed by the Commission to recognize equity AFUDC, in lieu of just interest during construction on projects that added to our other income.

We eliminated our drought expenses in 2017 as compared to 2016 and before. We also had a lower effective tax rate and this was driven by the fact that our capital spending was a record for the year and particularly, capital spending on our network assets, our pipelines. Those are deductible under the repairs and maintenance deduction. And the flow-through of the state tax benefit there is causing a lower tax rate.

We did also have higher unbilled revenue accrual at the end of the year. You've heard me talk about this a lot of different forms over the year, but this was a very positive item for us in 2017. It added $2.5 million to our pretax earnings. And so that's something we'll talk about for next year how to look at that item and wrap our heads around that.

As I've started to mention, company and developer funded capital investments were $259.2 million. That is a record for us and an increase of 13.2% compared to 2016.

Final item of note on our financial highlights. In December, the company received $56 million of net proceeds from a lawsuit settlement over the contaminant 1,2,3-trichloropropane, which is what we call TCP. And that settlement -- those settlement dollars will be used to help fund treatment projects that are currently under construction in some of our districts in California Central Valley.

The next slide, Slide 9 just shows that graphically the EPS bridge. Again, the bulk of the change is increased revenue associated with the rate increases. The net other income that we talked about that relates to the equity AFUDC, some gains on our benefit plan investments and unregulated activities.

And then, the red boxes, you'll note are interest and depreciation. Remember, as we add capital, those items in our income statement are going to increase. The depreciation will get bigger. The interest to finance, the capital improvements will also get bigger.

And so with that, I am going to flip it over to Paul Townsley to talk about the California cost of capital update.

[Paul Townsley, VP of Rates & Regulatory Matters]

Thank you, Tom. So as many of you know, on February 6, a Administrative Law Judge at the California Public Utilities Commission issued what's called a proposed decision on our cost of capital application. California Water Service Company had a consolidated application with 3 other major investors and water utilities in California and that was filed a year ago, March. And the proposed decision came out on February 6.

Regrettably, the proposed decision by the judge rejected the arguments that were put forward by Cal Water and by the other water utilities and adopted in whole, the arguments put forward by the Office of Ratepayer Advocates or ORA.

Now, this is a proposed decision it has not been approved yet by the Commission. But if it were to be approved without modification, one of the results of this decision would be that Cal Water's return on equity imputed in revenues would be 8.22%, which is by far the lowest authorized ROE of any state commission for water utilities that we're aware of.

You can see at the bottom of that slide, the average ROE for water utilities in U.S. is 9.56%, last year.

Then following slide is a comparison charts that really shows how this ROE, which is on the right, in the yellow, compares to some of the other benchmarks. The 9.56%, I just mentioned, just over 10% ROE for California Energy utilities, our current authorized ROE of 9.43%. And the lowest of any water utility ROE authorized last year in the U.S. was in New York, which was 9.0%.

The following slide, third slide on cost of capital. Needless to say, we strongly disagree with the findings of the proposed decision. We think that it is a badly flawed. And we have been going through a process -- a normal regulatory process to advise the Commission of where we believe that the proposed decision got off the path.

We have filed comments along with the other parties. Those comments were filed on Monday with the Commission. And we've also been meeting with each of the Commissioner's offices to discuss with either the Commissioners or their advisers on some of the errors of the proposed decision.

As you can see in the sub-points while it would have a significant impact on our EPS between $0.17 and $0.19 per share, it has a quite minimal impact on customer bills, really only just about perhaps 1% to 2% on customer rates. And I think one of the parts of the decision that we felt was fundamentally flawed is that, the proposed decision talked about the supported regulatory mechanism in California and how some of the mechanisms that are in place today reduced the utilities Cal Water's risk.

And they talked, in particular, about the WRAM or the decoupled water revenue adjustment mechanism. And we point out in our comments that, that is not a risk mitigating mechanism, that is in fact a mechanism that was put in place to achieve Commission and State objectives to drive down water consumption and enhance conservation.

The PUC is scheduled to hear this proposed decision and vote on it on March 22, at which point, they could either approve it as written, reject it or have it modified.

And with that, I will give it back to Dave Healey.

[David Healey, VP, Controller and Assistant Treasurer]

Thank you, Paul. The impact from tax reform summarized on our slides. Before I get started, an important take away from tax reform is that it does not change the company's fundamental investment strategy to continue the much-needed infrastructure investments for our customers and local communities we serve.

Tax reforms is complex and require numerous judgment interpretations of the tax law changes and how our regulators will handle these changes. We are waiting for additional interpretations or guidance from the U.S. Treasury Department to finalize the impacts to ratepayers.

For us, tax reform impacted the following 4 areas. First, the decrease in the federal income tax rate from 35% to 21% lowered the company's operating cost, effective January 1, 2018. And because almost all of our operations are regulated, these cost savings will be passed to ratepayers.

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The timing of the changes to ratepayers monthly bills will be determined in the regulatory process and all 4 of our regulatory commissions have initiated procedures to ensure ratepayers receive these cost savings, which could be during the next general rate case proceedings or sooner if ordered by regulators.

There is no impact to earnings for this change. However, as we return the tax savings to our customers in the form of lower monthly bills, we expect a decrease in cash flow from operations.

The second impact, the loss of bonus depreciation and qualifying production activity deductions, along with additional taxes on developer contributions in aid of construction will cause the company to start paying income taxes in 2020. There is no impact to earnings for this change. However, when we begin paying income taxes, it will reduce cash flows from operations.

The third impact. We re-measured deferred tax balances to reflect the federal tax rate decreased from 35% to 21%, which resulted in a net refund of $108 million. Most ratepayers will get a refund. However, there are ratepayers that owe taxes to the company. We will work with our regulators to determine how best to provide the tax savings or cost to our customers.

Our approach will include options to moderate the impact on cash flows from operations and ensure compliance with the federal normalization rules.

The fourth impact. We expect reduction in the company's deferred tax liability balances over time, mostly due to the loss of bonus depreciation and refunds of the re-measured deferred tax balances to ratepayers.

The reduction in deferred tax liability balances over time will increase rate base in future general rate case filings, which will increase earnings and cash flow from operations.

In summary, the enacted changes to the federal tax laws are complex and require additional guidance from the U.S. Treasury Department. Our work with state regulators will determine the best path forward and optimal way to proceed. Regardless of which path the regulators take, it's clear that cash flows from operations will decline as we start paying taxes in 2020, and we expect a reduction in our deferred tax liability balance to increase rate base and earnings over time.

Now, I'll turn it back over to Martin.

[Martin Kropelnicki, CEO, President & Director]

Great. Thanks, Dave. Before I give the outlook on -- for 2018, 2 weeks ago, I was at the NARUC, the National Association of Regulatory Utilities Commissioners'. And I was on the general session panel talking about the new tax laws.

And there was a lot of interest in the first layer of the tax law, which is just the overall lowering of the corporate tax rate, the change of 14% from 35% to 21%, which generally is a good thing, because it makes us more efficient. It helps keep our rates low and allows us to get more capital in the ground.

But as I describe it to the regulators, and I was on this panel with Moody's and some Commissioner and a Executive Director of water division within 1 state, I called it the good, the bad, the ugly. The good is the lower overall tax rate, that's actually a very good thing.

The bad, and frankly, it's a very bad thing for the utility space is the loss of bonus depreciation, it's the loss of the qualified facilities deduction and it's the fully taxable CIAC, Contributions in Aid of Construction. And then the ugly really is the deferred tax assets and deferred tax liabilities to the extent that state has deferred tax asset, that means the customer owes us the money to the extent we have a deferred tax liability, we owe the customer money.

And as you refund that deferred tax liability, you're essentially increasing rate base because in the ratemaking process, deferred tax is net out and lower overall rate base. So the ugly part is pretty ugly. And the tax bill is somewhat nebulous in a lot of areas. So further guidance from the Treasury Department is really important and from the Commissions to figure out how we're going to deal with this.

And as Dave said, the overall concern as expressed by, for example, Moody's, is they put a negative outlook on the whole utility industry as everyone figures out the FFO to debt or the cash flow from operations to debt ratios.

So having said that, just remember the good, the bad, and the ugly and as we all work through this process over the next 12 months with the Commission to figure out how we're going to proceed on it.

Looking ahead for 2018, a couple of things I'd like to point out. One, for 2018, we anticipate our capital investment range to be $200 million to $220 million. That's a little bit lower than where we were in 2017, that is by design. If you recall, strategically, we changed the way we were planning our capital cycle. So we can maximize our step increases during the second and third year of the rate case.

So 2017 was the -- really the third year of the capital component of our rate case. And so we really knocked that out of the park. As we put in the slide deck, we received approval for almost a $16 million step increase, that's the largest step increase the company has achieved and that was over 91% of the overall target that we were able to obtain.

Along with that, looking in 2018, we anticipate depreciation to be $6 million or $7 million higher, and we expect the interest cost associated with the higher capital investments to be another $2 million. So essentially, there's $8 million or $9 million of cost that will net out against the overall step increase.

In addition, through January 1, the CPUC has approved advice letters for the State of California for capital projects totaling an additional $2.8 million in annual revenue out of a total available additional project budget of about $30 million. So for 2018, we're going to be keenly focused on wiping out the rest of those advice letter projects as we go into a rate case year.

At this time, we're estimating that our effective tax rate will be about 24%, much closer to the statutory rate of 28%. And that's really due to the reduced budgets for repairs projects that we have within 2018 and the deductions that go along with that. This could change as the new law gets interpreted and guidance comes out from the Treasury Department, the IRS and the Commission.

The unbilled revenue that Tom mentioned being high, we've had a very, very dry winter. In fact, as of Tuesday, our snowpack was about 23% normal. So that was a very dry winter for us, which meant consumption stayed high going through December and January.

We are facing a very large winter storm right now and expected snowfall on the Sierra is as of this morning for the next 4 days is 60 to 80 inches. The significance of that is it sets us up -- the state up for very well for the snowpack reading on April 1 provided that, that the climate stay cool enough not to melt that into runoff.

So the unbilled occurrence is really kind of unique to have an unbilled revenue that high. And usually, we see that reverse in the fourth quarter and not actually add to income. And really -- that really just -- it's our revenue accrual at the end of the quarter. We usually see that reverse out.

Beginning in the first quarter of 2018, there is some changes in GAAP that are important in the non-service component of the pension expense and this gets a little actuarial-ish. But when you look at pension expense, you have the calculation of what's called the normal cost. And within that normal cost, it helps determine what the average cost is per employee.

And then you have this other piece called non-service component. So it could be unamortized losses. If for example, and we don't do this at Cal Water, but if we had a real estate investments that went bankrupt, you would have unamortized loss that you'd be adding into your service component.

We don't have anything like that. But to the extent, we have -- you might have some passive losses that you have to recognize within a year from some of your investments, that will start flowing through other income and expense due to the implementation of ASU 2017-07.

And for any questions on that, call Dave Healy for dial-in. I haven't been a CFO for a while and I don't miss the old actuarial days. Paul, do you want to give an update on the rate case?

[Paul Townsley, VP of Rates & Regulatory Matters]

Yes. Thank you, Marty. So 2018 is the year that Cal Water, again, filed the triennial rate case. Our last rate case was filed in 2015. On July 1 of 2018, we will make our current application. We, frankly, have been working on this process for over 2 years in getting ready for this application.

The application itself will cover the subsequent 3-year period. So what that means is that rates -- it will cover capital investments from 2019, 2020 and 2021. And rates would go into effect from this rate case effective January 1, 2020 and would cover those years, 2020, 2021 and 2022.

Consistent with our last general rate case, we continue to prioritize capital investments in replacing our infrastructure, particularly pipelines, which are in many parts of the country are becoming more aged and need to be replaced. We anticipate requesting more capital in this case than was approved by the Commission in the last case. And as I said before, it will be a capital for years 2019 through 2021.

We go through a capital review process. We call it our 9-year process to really look out not just over the next rate case cycle, but over the next 3 rate case cycles in terms of our capital planning. Then out of that 9-year plan, we include the first 3 years in the upcoming rate case cycle. So stay tuned for more information as we have it after we make our filing. Tom?

[Thomas Smegal, CFO, VP and Treasurer]

Thanks, Paul. So the next slide we're talking about are California drought recovery and regulatory mechanisms associated with water sales. Just to give everyone an update, it wasn't mentioned in the press release. The WRAM balance, that's the Water Revenue Adjustment Mechanism. The net balance grew to $69.1 million in 2017 and that was largely due to the fact that our sales were 82% of what the adopted sales had been expected to be.

Fortunately, California has adopted several remedial mechanisms to try to improve that situation coming into 2018. First of all, we have a sales reconciliation mechanism that triggered for all of our districts in California. And what that means is that the projected sales forecast for each of those districts has declined by about 9%.

So the target that we have to reach to get to our adopted sales is much lower. If you think about that 82%, if that same exact pattern of usage happens, we would be at about 90%, 91%. And so the WRAM balance would grow much less significantly in 2018 if we had the same quantities of water sold.

In addition to that, we do in April, make a filing to recover the last year's balance through a surcharge mechanism and that will be effective in the second quarter as is typical, those are 12- to 18-month surcharges. So we'll start to hopefully see that balance come down in the WRAM mechanism as we get through the year assuming all else is equal.

I do want to mention, I think as Marty said, we had a dry January and a dry February until the last couple of days. Reservoir storage is actually above normal for the day. So the State is not as worried as you might think about an immediate drought, although it's obviously a concern to monitor over a year-to-year situation. And happy to talk about that a little bit more as we get forward through the year.

The last 3 slides are really graphs of some of the things we've been talking about. The WRAM receivable balance, as you see, grew there in the year due to continuing sales lag. The CapEx on the next page, the $259 million and then the projection there for 2018, $210 million, that's the midpoint of our range of $200 million to $220 million CapEx for the year.

And finally, the regulated rate base of the company. The 2017 rate base there, the $1,119,000,000, that represents the average rate base for the year and not the year-end rate base. The year-end rate base was slightly higher than that leading to our projections for 2018 and 2019. So that is -- turning it back over to Marty for summary.

[Martin Kropelnicki, CEO, President & Director]

Great. Thanks, Tom. So just to recap, 2017 really was an outstanding year for the company. We exceeded our business plan on multiple levels. We had 0 primary, our secondary water quality violations in all 4 states that we operate in. We had no wastewater spills -- major wastewater spills or violations in the 4 states that we operate in.

We had no major EPA violations or fines in the 4 states that we operate in. And we had the highest customer service scores on the service metrics that we track ever in the history of the company. So that coupled with the record capital spending that we had within the year, I think, bodes well for our execution of the business plan.

And then we entered 2018 with achieving the majority of our step increase, which is one of our goals that we set a couple of years ago, as we retooled our strategic plan.

So the company has positioned itself very, very well. Now, obviously, we do face some headwinds with the current situation with the Commission and the proposed decision on the cost of capital. I would say, historically, this process has worked. The Commission has a job to do to ensure that they get the best cost for the customers. We respect the position and the work that they have to do.

However, as Paul said in this case, they accepted a single-point data model. And typically, we all submit multiple models. And you pick an average point within these multiple models on the cost of capital. So we're doing everything that we can to influence a proposed decision that's modified and has a cost of capital that is more in line with the current market conditions.

As Paul said, we are all hands on the general rate case, which we'll file in July. We continue to see the need for more capital than we can physically get into the ground, or can physically afford to get into rates. So I anticipate a higher CapEx number being submitted than what we had in the last rate case. And I believe that's a really important number as we continue to make progress in upgrading our infrastructure.

For 2017, we replaced a record 23 miles of main, which is a new record for us. But that is a small dent in the 6,000 miles of main that we operate in the State of California. So there is a lot to do. In fact, 2 weeks ago, we had a major main blow-out in San Mateo.

It was all over the news. It was a piece a main we've never had a problem with, but it was a piece of main that was put it in the late '40s and it just blew out and flooded part of downtown San Mateo during the commute.

So the good news is no one was hurt. The good news is, the team responded very, very well with a lot of outstanding support from local authorities. And the restoration of any affected customers has been going very well.

But having said that, we are not a risk-free business, which is what the proposed decision on the cost of capital applies. So we have a lot of work to do getting the capital on the ground, replacing mains and operating on our infrastructure and doing it in the way that makes sense for the Commission, for customers and for stockholders.

So also kind of the last point is that we are continuing to work through kind of the new tax issues, again, the good, the bad and the ugly. Dave was really talking about kind of the ugly part of it and working through with the 4 state commissions that we work with to figure out how to determine what to do with the deferred tax assets and liabilities that we have to deal with over the next 12 months.

So with that, we will open it up for Q&A. Operator, please.

[Operator]

[Operator Instructions] Your first question comes from the line of Jonathan Reeder from Wells Fargo. Your line is open.

[Jonathan Reeder, Wells Fargo]

Hey, good morning, Martin, Tom, how are you all doing today?

[Martin Kropelnicki, CEO, President & Director]

Just fine. Good morning.

[Thomas Smegal, CFO, VP and Treasurer]

Good morning, Jonathan.

[Jonathan Reeder, Wells Fargo]

Couple of questions, if you don't mind. For the unbilled revenue remind us, I know 2017 was $2.5 million higher than '16, but I think it was, like, $4.5 million on an absolute basis. Is it best for us just to assume kind of 0 for that line item since it could theoretically swing either positive or negative in any given year-end?

[Thomas Smegal, CFO, VP and Treasurer]

If we go back, Jonathan, over the long term, we see that number being anywhere from 0 to a $1 million on a long-term average. And so, certainly, 2017 was quite a bit higher. Part of what you had going on there was when you increase rates as we did for the year, you increase the average bill, and so the average unbilled balance at the end of that period will be higher.

So that's probably some of what we saw in 2017. As we don't anticipate large rate increases, net-net, when you think about the step increase and the potential for decrease from the cost of capital decision, that's probably fair to be closer to that 0 to $1 million range.

[Jonathan Reeder, Wells Fargo]

Okay, great. And then can you kind of walk us through your $0.17 to $0.19 EPS impact if the proposed decision is approved? Does that also reflect the lower cost of debt piece, which in t theory is just kind of supposed to be a pass-through versus only capturing the EPS impact from the lower ROE and the new equity ratio?

[Thomas Smegal, CFO, VP and Treasurer]

Sure, Jonathan. So that is the full effect of both the reduction in the cost of debt and the cost of equity. And just as a further explanation for those who haven't been following closely, Cal Water did propose lowering its cost of debt to reflect the actual cost that we are incurring with respect to our long-term debt and that was not challenged by ORA or adopted any differently in the rate case.

So the $17 million to $19 million and the $13 million reflect the total overall decrease associated with the proposed equity and debt rates in the case. So there will be a decrease, even if we were to somehow get the Commission to change the equity piece back to 9.43%.

Hypothetically, there still would be a decrease related to the debt side. And yes, we have lower debt costs. We continue to finance in the prevailing even as the rates have gone up, the prevailing debt costs are quite a bit lower than the embedded debt cost the company has in the 6s and 7s for the embedded older debt that we're refinancing. And so the company feels comfortable with its estimate of the cost of debt in the case.

[Jonathan Reeder, Wells Fargo]

Okay. And then just curious how you think yours and other water utilities feedback to the CPUC has been received thus far and the likelihood that something other than the PD will ultimately be approved?

[Martin Kropelnicki, CEO, President & Director]

It is hard to say that, Jonathan. I mean, I'll tell you and I'll let Paul comment, too. I mean, this is all we've been working on is meeting with the Commission, meeting with the Commission staff, pointing out what the historical process has been to what we think is an error in the process now, again, relying on a single point.

And Jonathan, the cost of capital, I mean, the risk premium model, this kind of cash flow model, I mean, you get different cost of capitals depending on which models you apply and that's why historically the Commission has wanted 3 or 4 different models being employed to get an average cost of capital band that you typically work around within a reasonable range.

So this is all we've been working on. And I don't know how many meetings probably 10 over the last 2 weeks, but we have been busy. And clearly, we have not been in the office because we've been up talking to them. And so it's really up to the Commission, we're dealing with new ex-parte [ph] communication rules that make the communications a lot more challenging in terms of actually talking to commissioners.

But overall, I would say that the water companies involved in the proceedings and the CEOs of the companies involved as well as the regulatory staff have done a good job of trying to cover all the bases as we go through this process. Paul, anything you'd add?

[Paul Townsley, VP of Rates & Regulatory Matters]

Yes. Thank you, Marty. So Jonathan, this proposed decision is really an outlier from our experience with the Commission, this Commission and with other commissions. We hope that the Commission will rethink this and those are the points that we've been making with the commissioners offices when we've been meeting with them, but I don't have any visibility as to what the commissioners maybe thinking about doing between now and March 22.

[Jonathan Reeder, Wells Fargo]

Sure. That's certainly a tough situation on your end. I guess, last question. What are your latest thoughts on equity needs? I think you're slated to probably issue some, just to kind of fund the large CapEx budget you guys have been deploying lately and now you have the lower cash flow impacts starting in 2020 from tax reform. Just curious as to thoughts around equity needs?

[Thomas Smegal, CFO, VP and Treasurer]

Yes, so we have looked at that, I think, part of the question is really going to relate to how quickly the commissions want to refund that excess deferred tax liability that's right now regulatory liability as we re-measured it. If that goes back quickly, then I think there is a lot more equity need than if they treated as the other normalized items and spread it out over the remaining life of the planned assets.

And obviously, there is a lot of regulation yet to be done to figure out what happens there. As you mentioned, we do have some time. We will be doing some financing this year. I think we talked about that before.

We have to get off of our company line of credit once every 2 years and that comes up here in October. So we will be doing some most likely debt financing to get off of that line of credit.

But the need for equity will be there and the size of it is the question. And really, also, the -- one of the things that's highlighted in the cost of capital we don't talk about very much is we did get an increase in our equity ratio as a percent increase from 53.4% to 54.4%, I believe.

So that will affect the calculation as well assuming that goes through, right now it's looking like the Commission was going to adopt that proposal from ORA to raise our equity. So all that said, I think we'll have more information as we go through the year on the financing needs and the plans going forward.

[Jonathan Reeder, Wells Fargo]

All right. Thanks for answering my questions. And good luck later this month assuming the commission acts and based [ph] discount.

[Thomas Smegal, CFO, VP and Treasurer]

Thanks, Jonathan.

[Operator]

I'm showing no further questions at this time. I would like to turn the call back over to Mr. Marty Kropelnicki.

[Martin Kropelnicki, CEO, President & Director]

Well, thanks, everyone. Obviously, it's been a very busy first 2 months of 2018. And we'll remain diligently focused on dealing with the cost of capital as well as preparing the 2018 general rate case. In addition, as we work through any of these issues, if anything material comes up, we will be the first to communicate it either via 8-K or through press release and we look forward to talking to everyone at the end of Q1. So thank you very much for staying with us throughout 2017 and we look forward to talking to everyone at the end of the first quarter. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. And have a wonderful day. You may all disconnect.