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‘Winter Is Coming’ (To Winterfell, Certainly, To The Market, More And More Likely.)

I predict that Game of Thrones, adapted from the books in the series A Song of Ice and Fire by George R.R. Martin, will most certainly outlive the current bull. Having been told repeatedly by scores of analysts that “winter is coming” to this particular market and that the White Walkers will surely destroy the market, we can be forgiven if we have tired of their bearish chatter. So like most residents of the lands south of The Wall, many investors have decided White Walkers (and bear markets) are only myth and we should go on about our business of seeking wealth and the power wealth brings. (Game of Thrones haters, you may read on; I promise to stop making references to the TV serialization or the books…) The point is that bear markets may still occur in our lifetime. At some point it behooves us to perhaps take some profits off the table, accepting the “possibility” that as much money might be made, going forward, in solid income-producing securities, as might be gained by buying index funds and such. Indeed, if the bear is more than a correction and truly awakens from hibernation, such an approach might not only provide reasonable returns in times of turmoil but may actually protect capital so as to provide truly exceptional entry prices at some point a bit down the road. I place myself squarely in this camp. Regular readers have seen a trend since we began to see our trailing stops execute at an accelerating rate in January and February. It seems ever clearer to me that mid-2016 is not likely to be a good time for “risk-on” investing. Why not? There are many reasons, but for this issue let me elaborate on two I have not discussed in as much depth in my previous articles on this subject. Both are strategic issues that must be addressed if the markets are to be trusted and the economy is ever to get out of the current government-induced doldrums. I’ll then provide some ideas for how to protect your capital in this environment. Reason #1: Companies have for years been able to use pro forma rather than GAAP accounting, merrily buying their own shares back to goose the earnings “per share” figure and therefore give their managers massive bonuses. Some analysts think this is a good idea – after all, it’s only stock, not dollars, and the number of shares is diluted over so many shareholders that the dilution isn’t as evident. But just as water flowing over a rock will not visibly alter it, over many years that rock will become “river rock,” not only rounded but smaller. It is the same with individual shareholders’ holdings. Drip by drip, hired administrators and their favored cronies are making as much or more than those few with real talent. The dizzying escalation in executive pay, and worse, stock options, has made a mockery of corporate “governance,” with a few at the top of public companies making hundreds or thousands of times as much as the workers in those companies. This practice is beginning to catch up to these firms as their boards of directors begin to realize their erstwhile golden boys, now retired with a similar-colored parachute, have left the companies far behind in research and development and far behind in capital expenditures. They have paid massive capital-draining salaries and bonuses and are now left behind the curve. Now the current crop of administrators must now make hard decisions. Having paid up to and including top dollar for shares selling at new highs, they need to conserve funds for R&D and CapEx or they will lose market share to those who spent their money more wisely. As this quarter’s results so painfully show, for many large and once-successful companies, their top-line revenues are down, their earnings are down and, for those realizing they can’t keep playing funny-money games, even their earnings per share are down. This leaves just one final illusion to perform. As quarter end approaches, they flurry to the Wall Street analysts who tout their shares and suggest the analysts (who want to look good to get their own bonuses) lower their quarterly earnings “estimates.” This incestuous relationship ensures that the analyst looks good and both Wall Street and the reporting company can trumpet that while revenues may have been down they once again beat the earnings estimates . You ask, they can’t really believe we’re so stupid we don’t notice the sleight-of-hand, can they? I respond: I assume your question is rhetorical. Not only do they believe it, but enough market players (I can’t bring myself to call them “investors”) swallow it hook, line, and sinker, that the game can go on. But by now, it is going on with decreasing volume. As more catch on, I fear for the aging bull. Reason #2: Regulations and red tape are strangling American entrepreneurs. Are we becoming just another tired and bloated European-style social welfare republic? The facts would support this argument. The American Dream of prior years is further and further out of reach of the average American. Red tape is now strangling the entire nation. Do you wonder why the elites in the boardrooms and corporate corner offices, the White House, Congress, the Fed, the SES’s (“Senior Executive Service”) administrators, etc. all tout how wonderfully the economy is doing while any cross-country road or rail trip will show just how poorly “the rest of us” beyond the Beltway are doing? It’s because “their” economy is doing fine. With what they make and who they associate with all doing exceedingly well, they just don’t understand why the rest of the nation doesn’t get it. We do. They don’t. They aren’t trying to start or run private or growing businesses, or earn an honest day’s wage for an honest day’s work at such a company. In many cases, they aren’t even subject to the onerous regulations they have imposed! They have their own “special” plans for special people. I am indebted to a new study by the Mercatus Center at George Mason University, whose authors (Patrick McLaughlin, Bentley Coffey, and Pietro Peretto) have put in dollar terms what those of us running a business or working for a living know: even Nazi Germany or Communist Russia never had this many regulations to run afoul of and, consequently, keep voracious government gorging itself on new fees, fines, licenses, lawsuits and taxes. The Mercatus Center paper looked at regulations imposed since 1977 on 22 different industries, those industries’ real growth rate, and what might have happened if all those regulations had not been imposed. Of course there have been benefits to some of these regulations, fines, fees, and so on. We have cleaner air, safer workplaces, more (though perhaps increasingly difficult to obtain) health care, etc. And I’m sure we’d all be happy to pay an extra, oh, call it a trillion dollars, for those benefits. But $4 trillion, including only federal regulations, not even counting the additional burdens imposed by states, counties, and cities? 4 trillion dollars. That’s how much we taxpayers have given up since 1977 to support the imperious and bloated federal bureaucracy. Click to enlarge The chart above shows that, if the economic growth lost to regulation in the U.S. were its own economy, it would be the fourth largest in the world! That’s not our GDP, it’s not our debt, it’s just our regulatory burden . Are we descending to the third-world model of central planning and economic misery? If ever there was a self-inflicted wound, this is it! Our Code of Federal Regulations is now more than 81,000 pages long! It wasn’t always this way. To cite just one example, in 1939, even after 6 years of the New Deal, our tax code consumed just 504 pages. Today that has mushroomed to 74,608 pages! Who can understand all of this? No one. Who gets to interpret little bits and pieces of it? Clerks within the bureaucracy and lawyers within and outside. The problem has hugely accelerated since 2008. The George Mason study notes that President Obama has imposed 85 more “economically significant” regulations than did President Clinton and 100 more than President Bush. (A total of 372 new pieces of suffocating red tape, 172 during his first term and now, with the finish line of his vision in sight and an acquiescent Congress, 200 more since then.) The cumulative effect of all these diktats are appalling. Not only have they hemmed in our freedom to move, to act, and to live, they have cost each of us financially. The Center’s findings include that if the regulatory regime in place in 1980 was still in evidence today, the US economy in study year 2012 would have been $4 trillion bigger. That would be equal to almost $13,000 per person in that one year alone. Lop off a trillion for the truly worthwhile regulations and it still comes to nearly $10,000 per person. Could you have used an extra $10,000 a year for the past 4 years? Would the country be growing jobs and wages better with an extra $3 trillion in the real world of workers, innovators and businesses than in salaries for lawyers and administrators in federal agencies where more regulations mean more power and money for them? The Tax Code alone directs pork subsidies to allow the already-rich to buy Tesla “Electric Vehicles” (which, by the way, run on electricity produced by — coal, gas, oil etc.) and to buy insurance from a select list, to turn good food corn into more expensive gasoline, to replace our windows, adopt kids, pay for daycare, go to college…and the beat goes on. The latest stifling new batch of regulations include picking favorites from the health care industry, ensuring the survival of the banking and financial services industry, and making sure utilities (read: consumers) pay through the nose for natural gas if they don’t immediately switch to far less efficient wind or solar. We need a complete zero-based review of the cost and benefit of these mandates and dictates. It could happen with the sweep of a new broom in November. Until there is greater clarity there, however, I’ll take the “risk-off” approach that allows our clients to sleep well with fine income holdings. Here are a couple we are currently buying. A Fine Income Holding Starwood Property Trust (NYSE: STWD ) is a commercial real estate lending, servicing and investing company. It is the largest commercial mortgage REIT in the U.S. and one of the biggest and most successful in the world, yet its price has been under pressure lately. This may be because most people don’t believe rates will rise again (ever?). For whatever reason, I believe the current price of STWD offers us a unique opportunity to own a great company at a great price. Formed as the 2007-09 recession ended, and taking full advantage of the decimated commercial lending landscape, the company has yet to lose a dollar, yen or pound in commercial lending, which comprises 61.3% of its total assets. Being formed when it was, the assumption must always be that rates will (someday) rise. That’s why 82% of their loans are indexed to LIBOR; the interest charged will rise as LIBOR rises. Because of its current low valuation (the share price has fluctuated between about 16 1/2 and 24 1/2 the past 52 weeks,) STWD currently yields an excellent 9.9% yield. That’s not unusual for mortgage REITs but it is unusual for one of this heritage and quality. Despite the rebound as a result of somewhat improved investor sentiment toward high-yield stocks, Starwood Property is still down so far this year. It sells for just above 10x earnings, a hair above book value, enjoyed a return on equity (ROE) of just under 13% in the last reported quarter, and sells at a stellar 7.4x operating cash flow. I need to remind readers that what you are buying with a mortgage REIT is cash flow. Unlike equity REITs, 100% mortgage REITs have no opportunity for capital appreciation. Their stock may appreciate based on under-valuation, increased cash flow, or a favorable change in investor sentiment, but the company basically makes lending decisions and collects payments on the money they have lent out. Of course, how smart a company is in assessing and assigning risk is key. In Starwood’s case, their “loan to value” hovers right around 63% and consists primarily of first mortgages. In other words, if they believe a purchase, renovation, or other activity will create an asset value of a billion dollars, they might loan $630 million. Here is one example of the kind of upscale property they have financed: I think Starwood may benefit from all 3 possibilities I cite above for their stock to appreciate. Now the kicker: while STWD has 61% of its assets in commercial mortgage lending, the other 39% is in small equity positions and servicing fees for other lenders. They have the scale to service loans cheaper than many originators do. All this leads me to believe there is an additional possible wind at Starwood Property’s back and that is a dividend increase. With cash flow numbers like these and the likelihood that, in Europe, rates will not go further negative but begin to come back above zero, I think increased cash flow from all segments will mean an increase in the dividend. The company can afford it now and, as a REIT, it must pay at least 90% of its earnings as dividends. Finally, because of Dodd-Frank induced “risk-retention” rules, which force more firms to keep a portion of whatever they package as mortgage-backed securities, I see the number of competitors falling off over the next year or so. This places Starwood Property Trust in a great position. It has the experience, the head start and the right management team to be able to capitalize on the shrinking number of packaging sponsors. A Fine Income Holding, Part II Preferred shares might well lose value in a protracted bear market. In which case, we would simply add more. As long as they are bought at or below par and they are issued by companies with a future we believe to be secure, we’ll always get that nice, steady return. Bought below par, the return is better, of course. Every now and again the market will seriously over-react, as it did in late 2008 and early 2009, and provide us with a cornucopia of delightful offerings. I purchased one such one-time good deal on March 6, 2009 (by chance, not prescience, the absolute lowest day of the entire decline.) I purchased, to provide some ballast for the Aggressive Portfolio, 500 shares of Silicon Valley Bancshares 7% preferred (SIVBO), $25 par value for $10 a share. At the time, the prevailing panic was that all banks would go belly up. I figured if any survived it would be a bank that catered to the best innovators. It worked out. I list SIVBO’s current yield as 6.9% since it sells for a little above par now. But on a “yield-to-cost” basis, we are getting 20% a year in interest on this preferred. If it never moves a penny in capital appreciation, and there is little reason it should, over the past 7 years we have received $4900 in interest on our $5000 investment and now own something worth an additional $12,850. These opportunities don’t come along often but when they do, when the markets look bleak, hearken back to this article and take the plunge. Regrettably, I find no such bargains in preferreds today. It seems everyone has caught on to their benefits. But I have been buying a speculative preferred that is, at least, slightly below par. It is the Qwest Corp (CTY) 6.125% Notes due 2053 a synthetic preferred in that it is really a piece of a bond. It is callable at par (in this case, $25) anytime after June 1, 2018 by the parent company. Because it is part of a bond offering, the income is classified as “interest” and not as a “dividend.” These notes are unsecured and unsubordinated obligations of the company and will rank equally with all existing and future unsecured and unsubordinated indebtedness of the company. Qwest doesn’t exist as an independent company any more. It was purchased 100% by CenturyLink (NYSE: CTL ). The CenturyLink website refers to itself as “a global communications, hosting, cloud and IT services company enabling millions of customers to transform their businesses and their lives through innovative technology solutions. CenturyLink offers network and data systems management, Big Data analytics and IT consulting, and operates more than 55 data centers in North America, Europe and Asia. The company provides broadband, voice, video, data and managed services over a robust 250,000-route-mile U.S. fiber network and a 300,000-route-mile international transport network.” So it isn’t AT&T or Verizon, but neither is it a small fry. It operates in a tough neighborhood but, so far, seems to be holding its own. I think the company is a fair bet to last in its various niches. It has assumed the responsibility to repay the “preferred” shareholders of CTY at maturity. Currently selling for 24.70, we buy when we can. Of course, that goes for all preferreds we favor – below par, we’ll nibble, well below par we’ll back the truck up! Basic, Boring, Dull and Profitable Owning a merger and arbitrage mutual fund or ETF is every bit as exciting as watching paint dry on a too-cool day. But they do reward us with small but steady profits in most market environments. And they tend to be almost completely uncorrelated to what happens in the general markets, while still allowing us to benefit from extraordinary events in the markets. Among the funds I have researched, Vivaldi Merger Arbitrage (MUTF: VARAX ) has been rising to the top. My first caveat is that this is a load fund. It is waived for those broker-dealers and others who have an agreement with Vivaldi to waive the load for (among others?) Registered Investment Advisors, the theory being that we will, for our clients, quickly reach the zero-fee breakpoint anyway. So for our clients, and maybe your advisor, there is no fee. VARAX provides a dose of what we want for the immediate future: low to no correlation with the market and low volatility during what I believe will be volatile times. Merger and arbitrage (M&A) funds don’t buy companies they think “might” be taken over or “hope” will be acquired. Instead, they purchase the stock of a company which has already announced it is being acquired (the “target” company) while at the same time shorting the stock of the company acquiring the target’s stock. The fund profits from the difference in price between the current trading price of the target company following the announcement of the merger (which is usually “close” to the acquisition price), and the acquisition price to be paid for the target company at that future point when the acquisition is consummated. In other words, VARAX is betting that the spread between the price the target jumps to on the news and the price ultimately paid for it justifies their time and attention. Often, of course, even if the deal falls through, there is a contractual fee paid to the target if the acquiring firm is forbidden by the regulators or finds it really wanted a different company or can’t get financing or whatever. In this case, I particularly like the experience level of the principals in knowing “when to hold ’em and when to fold ’em.” And I like what the following two charts so clearly show… It’s always, always about risk and reward. You can’t really compare an M&A fund to the S&P when it comes to performance in a bull market. But performance over time is another matter! As you can see VARAX compares, quite favorably, to both bonds and the S&P. More importantly, given my concerns for the next few months, is where it falls on the risk continuum, which is to say, it barely registers. We are buyers. I also see opportunity for income investors from the exodus of smart money from China and other less-stable, over-regulated regimes in Asia. That will be the subject of my next article… Disclaimer: As ​a ​Registered Investment Advisor, ​I believe it is essential to advise that ​I do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as “personalized” investment advice. Past performance is no guarantee of future results, rather an obvious statement but clearly too often unheeded judging by the number of investors who buy the current #1 mutual fund one year only to watch it plummet the following year. I encourage you to do your own due diligence on issues I discuss to see if they might be of value in your own investing. I take my responsibility to offer intelligent commentary seriously, but it should not be assumed that investing in any securities my clients or family are investing in will always be profitable. I do our best to get it right, and our firm “eats our own cooking,” but I could be wrong, hence my full disclosure as to whether we or our clients own or are buying the investments we write about. ​ Disclosure: I am/we are long STWD CTY VARAX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Am I Too Overweight In Mutual Funds?

As investors, one of our favorite words is diversification. We are taught to diversify our portfolios to avoid exposure to any one particular investment or sector of the market and achieve balance. One of the easiest ways to achieve diversification is through purchasing mutual funds, which I did at the beginning of my investing career. However, now that I have grown as an investor and now own 30 individual stocks, I wanted to take a look back at my current mutual funds to determine if too much of my portfolio is allocated to these diversified holdings. It is time to take a look at the five mutual funds I hold and determine if ACTION needs to be taken. The Mutual Funds Currently, I own five different mutual funds . In total, the mutual funds total $16,200, or 25.5% of my total portfolio. These five funds are located in two different accounts, which impacts the accessibility of the capital if I were to decide to make a move. Roth IRA Three of the funds are located in my Roth IRA. I opened these positions during the infancy stages of my dividend growth investing career. At the time, I wanted both dividend income and diversification, so focusing on dividend paying mutual funds sounded like a great idea. So I took the capital I had and divided it evenly among the three funds listed below. ACLAX – 119.803 Shares; MV $1,994; 3.0% of Portfolio – This fund is a four star, silver rated fund on Morningstar. Some of the top ten holdings include: RSG , EMR (One of our favorites), NTRS , OXY , IMO , and CAG . The major selling points on this fund were the diversification, historical performance, strong/consistent management team, and the fact that the fund has a mid-cap focus but still pays a strong dividend. The one major downfall of this fund is the expense ratio, which is slightly over 1%. However, I knew that a fund centered on finding mid-cap funds would cost more than others due to the extra research and time needed to manage the lesser-known stocks. OIEIX – 138.551 Shares; MV $1,916; 2.9% of Portfolio – Another fours star, silver rated fund. This fund does not mess around and is focuses on large cap, value stocks. Some of the largest holdings include: JPM , XOM , JNJ , MO , AAPL , PNC , PFE , and HD . My favorite aspect about this stock is that it pays a monthly dividend. While my check usually isn’t that large on a monthly basis, as evidenced in last month’s dividend income summary, it is nice to see your position grow on a monthly basis. Isn’t that right Realty Income shareholders? MEIAX – 55.556 Shares, MV $1,952; 3.0% of Portfolio – Also a four star, silver fund. This fund has some overlap with OIEIX as some of the top holdings include: JPM , JNJ , PM , PFE , LMT , USB , and MMM (one of my favorites). However, unlike OIEIX, this fund pays a quarterly dividend and has a lower annual fee than the other two above. Since these funds are held in a personal retirement account and are not affiliated with my employer sponsored retirement account, I have the ability to trade these funds without restrictions and liquidate my positions at any moment. Employer Sponsored Roth 401(k) Accounts Like most of us that are still working for an employer, we have a 401k plan that allows us to select from a small pool of mutual funds or the company’s stock. For my company, we are allowed to select from a wide variety of Vanguard mutual funds. Vanguard funds are nice because of the extremely low expense ratios. In this account, I own two different mutual funds. VWNAX – 149.224 shares; $9,726.42; 14.9% of Portfolio. This Vanguard fund is a large-cap value fund with an expense ratio of just .27%, significantly lower than the three funds disclosed above. Some of the top ten holdings include JPM , MDT , PFE , BAC , OTCQB:MFST , WFC , PM , and PNC . If you recall, I left my current employer in March and returned later in the year. This was the mutual fund that I contributed to in my first stint at my current employer and I am no longer contributing to this mutual fund. Therefore, the only changes in value/shares owned are related to changes in market price and the receipt of dividends. Another interesting nugget about this fund is that it pays a semi-annual dividend in June and December. So it doesn’t pay frequently, but when it does, the dividend income checks have a huge impact on my monthly dividend income figures. Want proof? Check out my dividend income summary from the last time I received a payout. VINIX ­- 224 shares; $9,726.42; .8% of portfolio very similar to the last mutual fund. However, two small differences. First VINIX focuses on mirroring the S&P 500 versus investing in dividend stocks so the yield is slightly lower. Second, VINIX pays a quarterly dividend versus a semi-annual dividend. When I re-joined my old company, I thought it might be a good idea to invest in a new mutual fund to diversify my holdings. Since this position will keep growing, I didn’t want to become too overweight in one mutual fund. So now I will share the wealth in Vanguard and continue to max my contributions in this fund so I can receive the full benefit of my employer’s 401k match, which can be a very powerful tool for dividend investors. Analysis As I compiled the section above, there were a few things that jumped out at me. Here are some of the thoughts that came to my mind. There is a lot of Overlap ­- This became evident when I started listing out some of the major holdings in each fund. Outside of ACLAX, which focuses on mid-cap dividend stocks, there is a lot of overlap in holdings in the other four mutual funds. Which makes sense considering that these funds are focused on generating a dividend from large cap stocks and there are only so many stocks to select from. However, if my goal is to achieve diversification among these holdings, do I really need four different funds investing the same pool of stocks? Wouldn’t one suffice? Why am I paying Such High Expense Fees – Is it terrible that my answer is “I don’t know why?” At the time of investment, it made sense to invest in mutual funds. But I wasn’t as much of an expense hawk as I am now so I was willing to overlook the high expense ratios to achieve my goal of diversification. In this day in age, with ETFs designed to achieve the same goal as mutual funds with minimal fees, why on earth am I voluntarily paying this annual fee? A stupid/reckless mistake on my part. I understand paying a fee for a mutual fund that invests in mid or small cap stocks because these companies require more time and research to identify/trade successfully. But paying a fee to invest in a pool of highly covered large cap stocks seems ridiculous going forward. Lack of REITs in Holdings – This one kind of surprised me, especially considering I selected these funds with a dividend-focused attitude. I did not see one REIT in any of the mutual funds I own. I am sure there is some reason why and the tax rules may be too unfavorable for fund families. This was just an interesting observation to me so I wanted to share it all with you. Where do I Go From Here? Based on my analysis and observations above, I think the answer to the title of this article is yes. Holding five mutual funds, which account for over 25% of my portfolio , seems a little heavy. Especially considering that many of the mutual funds invest in the same pool of stocks and are accomplishing the same goals. Well, first things first. Let’s talk about the liquidity of these funds. Since two of my mutual funds are in an employer-sponsored plan, there isn’t much I can do outside of investing my capital in a different mutual fund. And trust me, Lanny and I have performed plenty of research on the available plans in the portfolio and we have selected two of the best. So as of now, I am not going to touch the two Vanguard funds and I will continue to invest in VINIX with each paycheck. Our employer matches 50% of all contributions, so I will continue to contribute the maximum amount each paycheck that will allow me to receive the full employer match next year. Plus, the expense ratio is very low, which is a huge positive compared to the other funds. While I can’t liquidate my two Vanguard funds, it is a completely different story for the three mutual funds in my Roth IRA. I have the freedom to trade these funds as I please. When I initially invested in these funds, I was at a different stage of my investing career and I needed the diversification. However, now that I have grown as an investor, owning 30 individual stocks, there is no need to diversify through owning independent mutual funds. The fees are too high and diversification is achieved through my employer’s plan. So after I receive my capital gain distribution in December, which always results in a nice payout, I am most likely going to sell these funds and use the ~$6,000 to invest in some powerhouse dividend stocks. Which stocks will I invest in? I’m not entirely sure yet. I’m going to special screener in the next month unique to this situation that will help me identify how I should allocate the $6,000 in capital when it becomes available. The screener will look to identify great companies with a long-term track record with a yield in excess of the yield I am receiving on these dividend-focused mutual funds. I’m not certain yet, but I believe one of the moves I am going to make is to invest half in Realty Income based on the results of my last stock analysis. Another option is to focus on one of the stocks on my “Always Buy” list or one of the high yielding stocks on our foundation stock listing. What are your thoughts on my strategy? What percentage of your portfolio are allocated to mutual funds? Do you think I am overweight? Should I consider investing in ETFs in lieu of mutual funds or dividend stocks with the capital to maintain the diversification? Do you have any recommendations for stocks that I should consider?

American Water Works’ (AWK) CEO Susan Story on Q3 2015 Results – Earnings Call Transcript

American Water Works Company, Inc. (NYSE: AWK ) Q3 2015 Results Earnings Conference Call November 05, 2015, 09:00 AM ET Executives Greg Panagos – VP, IR Susan Story – President and CEO Walter Lynch – COO, President, Regulated Operations Linda Solomon – SVP, CFO Analysts Ryan Connors – Boenning & Scattergood Richard Verdi – Ladenburg Thalmann Michael Gaugler – Janney Montgomery Scott David Paz – Wolfe Research Operator Good morning and welcome to the American Water’s Third Quarter 2015 Earnings Conference Call. As a reminder, this call is being recorded and is also being webcast with an accompanying slide presentation through the Company’s Investor Relations Website. Following the earnings conference call, an audio archive of the call will be available through November 12, 2015, by dialing 412-317-0088 for U.S. and international callers. The access code for replay is 10074632. The online archive of the webcast will be available through December 7, 2015, by accessing the Investor Relations page of the Company’s website located at www.amwater.com. I would now like to introduce your host for today’s call, Greg Panagos, Vice President of Investor Relations. Mr. Panagos, you may begin. Greg Panagos Thank you, Frank and good morning, everyone. Thank you for joining us for today’s call. We’ll do our best to keep the call to about an hour. At the end of our prepared remarks, we’ll open the call up for your questions. As Gary said, my name is Greg Panagos, and I’m the new Vice President of Investor Relations for American Water. Before I read you our forward-looking statements, I would just like to say I’m happy to be here and excited about the opportunity with American Water. Before I read you our forward-looking statement I’d like to say I’m happy to be here and excited about the opportunity with American Water. During the course of this conference call, both in our prepared remarks and in answer to your questions, we may make statements related to future performance. Our statements represent reasonable estimates and assumptions. However, these statements deal with future events. They are subject to numerous risks, uncertainties and other factors that may cause the actual performance of American Water to be materially different from the performance indicated or implied by such statements. These matters are set forth in the company’s Form 10-K and in its other periodic SEC filings. I encourage you to read our Form 10-Q for this quarter, which is on file with the SEC for a more detailed analysis of our financials. Also reconciliation tables for non-GAAP financial information discussed on this conference call can be found in the appendix of the slide deck for the call, which is located at the Investor Relations page of the Company website. We’ll be happy to answer any questions or provide further clarification if needed during our question-and-answer session. All statements in this call related to earnings and earnings per share refer to diluted earnings and earnings per share from continuing operations. And now I would like to turn the call over to American Waters’ President and CEO, Susan Story. Susan Story Thanks, Greg. Good morning, everyone and thanks for joining us. With me today are Linda Sullivan, our CFO, who will go over the third quarter financial results and Walter Lynch, our COO and President of Regulated Operations, who will give key updates on our regulated business. Turning to Slide 5, we reported earnings of $0.96 per share for the third quarter, a 10.3% increase above the third quarter of 2014. Excluding the 2014 cost impact of the Freedom Industries’ chemical spill, third quarter year-to-date adjusted earnings increased 9.4% compared to the same period in 2014. Our employees continue to deliver strong operational and financial results reflected in our ongoing investment in our infrastructure, our improved operational efficiencies and the expansion of customers in our regulated and market based businesses. These results continue our progress toward achieving our long-term growth goal of 7% to 10% EPS through 2019. Based on our performance today, we’re narrowing our earnings guidance range to $2.60 to $2.65 per share. Slide 6 highlights the progress we’re making on our strategies across our businesses. We invested $970 million in capital year-to-date through September. The majority of this investment is in our regulated business, which is the core and foundation of our growth. These investments are mainly for infrastructure to continue providing safe, clean and reliable water services for our customers. Walter will talk further about our ongoing O&M efficiency efforts, which allow us to mitigate build increases to our customers despite this critically needed capital investment. In addition, we continue to invest in regulated acquisitions. Year-to-date, we closed seven acquisitions totaling or adding about 19,200 customers and we have 16 pending acquisitions, which when approved and closed will give us the opportunity to serve an additional 13,300 customers in several of our jurisdictions. We closed the Keystone Clearwater Solutions acquisition in the third quarter. Keystone, while a separate subsidiary is being reported as part of market-based businesses. Last month we were very pleased to be awarded a contract to serve the military community at Vandenberg Air Force Base in California. We now serve 12 military installations across the country. We consider it an honor to provide our service men and women and their families with reliable high quality water and wastewater services for the next five decades and beyond. Our Homeowner Services business continues to grow as well. Within the past couple of weeks, we received a Notice of Intent to award an exclusive contract with Georgetown County Water and Sewer District in South Carolina. Pending contract negotiations we should be able to offer programs to their 22,000 eligible homeowners. Looking forward, we remain confident in our ability to deliver on our long-term earnings per share growth goal of 7% to 10% through 2019. At the end of our prepared remarks, I’ll spend just a few minutes talking about our regulated business and how our investments and our positive financial performance demonstrate our customers and the communities we’re privileged to serve. And with that, Walter will now give an update on our regulated businesses. Walter Lynch Thanks Susan and good morning, everyone. As Susan mentioned, our regulated business have delivered strong results year-to-date. We continue to improve our owned and efficiency ratio as shown on Slide 8. We reached 35.8% for the 12 months ending September 2015. This is the result of a disciplined approach to cost management by our employees. We continue to make steady progress towards achieving our goal of 34% or less by 2020. Achieving sustainable O&M reductions is important to our strategy as it enables us to redeploy these cost savings in the capital investments in our water and wastewater infrastructure with minimal impact on our customer’s bills. A perfect example of our strategy and action as our recent New Jersey rate case order on Slide 9. During the third quarter, the New Jersey Board of Public Utilities approved the 3% or $22 million annualized increase in water and wastewater revenues that became effective on September 21. Since the last rate case in 2012, the company invested more than $775 million to replace and upgrade our water and wastewater infrastructure including approximately 160 miles of water mains and connection pipes. During the same time, New Jersey American lowered their operating expenses by more than $90 million. Those cost reductions supported more than $125 million of infrastructure investment with no impact on customer bills. Also last week in Virginia we filed a rate request for $8.7 million. The request seeks recovery of about $53 million in system investments made since our last rate case in 2012. Our operating expenses in Virginia have declined 2% since our last rate case reflecting our continued success in driving operating efficiencies. We use those cost savings to offset some of the revenue requirement requested for our capital improvement, which again minimizes rate impacts on our customers. We expect the decision in the next nine months. When we talk about owned and efficiency improvement, this is exactly what we mean, inventing to ensure reliable service while limiting the impact of when our customers pay. Moving to California, our team continues to display leadership in dealing with the draught and we’re certainly proud of all of their work to help our customers during this period. Overall five of our six districts are meeting the State Water Resources Control Board reduction targets. In venture accounting where customers are almost meeting their targets, we recently implemented Stage 3 conservation measures. These measures along with other customer outreach is helping us encourage conservation during this draught and we want to thank our customers in California who really stepped up to the challenge. I’ll give a quick update on our Monterey Peninsula Water Supply Project as well. Last month the California Coastal Commission approved an amendment to our permits to operate a test line well. This minor amendment allowed us to restart the well and continue to prove up the operational feasibility of subsurface intakes for this water supply project. The project is undergoing environmental and regulatory review by the California Public Utility Commission and we expect to start construction in the second quarter of 2017. Lastly let me discuss the weather impacts during the quarter. As we mentioned in our second quarter call, we experienced heavy rainfall in our central states during July. We saw this pattern continue in that region through August. Also in the quarter we experienced hot and dry conditions primarily in our northeast region. Due to our geographic diversity, these varying weather conditions largely offset each other in the third quarter, so there was no net material impact on our financials. Now I’ll turn the call over to Linda for more detail on our third quarter financial results. Linda Solomon Thank you, Walter and good morning, everyone. In the third quarter, we continue to deliver strong financial results. As shown on Slide 11, revenues were up 6% quarter-over-quarter and up 4% year-to-date. Earnings per share for the third quarter were $0.96, up 10% over the same period last year. Year-to-date earnings were $2.09 per share, which after adjusting for 2014 impact of the Freedom Industries chemical spill were up about 9% over the same period last year. In terms of business segment contribution, for the quarter the regulated businesses contributed earnings of $0.97 per share or an increase of about 10%. Our market base businesses contributed $0.07 per share, an increase of about 17%. Parent interest and other, which is primarily interest expense on parent debt was a negative $0.08 per share for the quarter, relatively flat to the prior year. As Susan mentioned because of the Keystone acquisition in the third quarter and the financial results of Keystone have been included in the market base business segment, the purchase price after purchase price adjustments was $133 million. As we’ve previously disclosed, we expect Keystone to be earnings neutral in 2015 and accretive to earnings in the first full year of operation. Now I’ll go over the different components of our third quarter earnings per share growth as shown on Slide 12. In the third quarter, we reported a $0.09 increase in earnings per share. Approximately, $0.05 of that increase was due to mild weather during the third quarter of 2014. As Walter mentioned, during the third quarter of this year, the financial impact of the varying weather conditions largely offset each other. As we had higher revenue of around $10 million from hot and dry conditions in the Northeast, which was offset by lower revenue of around the same amount from the wet weather experienced in our Central State. Next the regulated businesses benefited from higher revenues of $0.04 per share mainly from authorized rate increases, from infrastructure charges and rate cases in a number of our regulated states and additional revenue from acquisition growth, partially offset by lower demand in California. For the market-based businesses, earnings per share were up a penny due to additional construction projects under our military contracts and the addition of two new military bases in the second half of 2014. We also had contract growth in our Homeowner Services business. Partially offsetting these improvements were higher depreciation and other cost of about a $0.01 per share mainly due to growth associated with our infrastructure investment programs at the regulated businesses. Now let me cover the regulatory highlights on Slide 13. We currently have three general rate cases in process, West Virginia, Missouri and Virgina for a combined annualized rate request of approximately $69.5 million. For rates effective since October 1 of last year through today, we received a total of approximately $77.5 million in additional annualized revenue from general rate cases, step increases and infrastructure charges. We encourage you to review the footnotes in the appendix for more information. Slide 14 is a summary dashboard of our financial performance, which showed improvement across the Board. During the third quarter of 2015, we made investments of approximately $455 million, primarily for regulated infrastructure investments and the acquisition of Keystone Clear Water Solutions. Year-to-date we have invested a total of $970 million of which $793 million was for regulated infrastructure investments and $44 million was for regulated acquisitions. For the year, we expect to invest $1.3 billion to $1.4 billion with almost $1.2 billion to improve our regulated water and wastewater systems. Regulated infrastructure investments are projected to be about $100 million higher than we originally planned as we continue to optimize capital deployment under our infrastructure mechanisms. For the quarter our cash flow from operations increased approximately $48 million and year-to-date $15 million primarily from earnings growth and the timing of working capital item. Our adjusted return on equity for the past 12 months was 9.12%, an increase of approximately 48 basis points compared to the same period last year. We also paid a $0.34 quarterly cash dividend to our shareholders in September, which represented about a 10% increase compared to last year. And on October 30, the Board of Directors approved a $0.34 dividend per share to be paid on December 1 and as Susan explained, building on our strong financial performance year-to-date we’re narrowing our 2015 earnings guidance from continuing operations to be in the upper end of our prior range or $2.60 to $2.65 per share. And with that, I’ll turn it back over to Susan. Susan Story Thanks Linda. Before taking your questions, I’d like to spend a few minutes talking about how our investments and our strong performance benefit our customers and the communities we serve. As Linda mentioned we planned to invest up to $1.4 billion in 2015 with almost $1.2 billion of that total to improve our regulated water and wastewater systems. So what is investing more than a $1 billion a year mean to our customers and communities? It means we replace up to 350 miles of pipe every year. To give you an idea of the size of our water pipe network if you placed all the pipes we manage end to end, it would stretch over 48,000 miles nearly enough to go around the earth twice. It also means a strong water quality record. We are 20 times better than the industry average for meeting all drinking water requirements and we’ve earned more awards from the EPA partnership for safe water than any other water utility in the Nation. Why does this matter? Even though we serve about 15 million people across the country, we never forget that at the end of every pot line, there is a family depending on us to provide life’s most essential ingredient. Not only as investment in our water and wastewater system is critical to families, businesses, industry and fire protection, but that investment also provides jobs and economic benefit. According to the Water Research Foundation, $1 billion invested in water infrastructure creates approximately 16,000 jobs. So American Water’s regulated infrastructure investment through 2019 will result in more than 80,000 new jobs in the communities we serve. We know that we have to be sensitive to the impact of cost increases to our customers, even for something as necessary as infrastructure replacement. We also know as Walter mentioned that for every dollar we save, we can invest $6 of capital with no impact on our customer build. By combining effective cost controls with regulatory mechanisms that smooth cost out, we can make a big infrastructure impact without a big bill impact. In fact, we’ve invested almost $700 million nationally in our basic type programs in just 2013 and 2014 and all of that investment impacted customer build by just $1 almost on average. That’s less than the cost of a loaf of bread, a cord of milk and far less than what it cost you to get your own money from a general ATM machine, which is about $3 to $4 a transaction. Across our footprint, most of our customers still pay about a penny per gallon of water. Our average family pays a little over $2 a day for all of their water needs, which is literally a ton of water a day delivered directly to their sink, their showers and their washing machine. At the end of the day, we know that what we do in our customer’s long term best interest will also be in our investor’s long term interest and we never lose that focus. So with that, we’re happy to take your questions. Question-and-Answer Session Operator Thank you, ma’am. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Ryan Connors from Boenning & Scattergood. Please go ahead. Susan Story Good morning, Ryan. Ryan Connors Good morning, Susan. I had a question on the rate case in New Jersey. You’ve got $22 million in new rates there which is about — I guess about a third of the $66 million you requested. Obviously, that’s a very crude metric that I guess maybe gets too much attention sometimes. But that does seem to continue a trend where the gap between asked and received rates has been kind of growing. Can you just talk about why that’s happening and what the ramifications of that are for the business? Walter Lynch Yes Ryan, Walter here. Thanks for the question. Just to put a little clarification on it, the last time we filed a rate case in New Jersey, we didn’t have a disc mechanism. So in this case, the disc mechanism is included but you have to look to the revenue that was generated from it. If you do that and include the $22 million we came in, in excess of 50% of our filing. So that’s the difference. We invested as Susan said, a significant amount of money in New Jersey and in our infrastructure and when you include that, with the outcome of the rate case, again we’re in excess of 50%. So it’s right in line where we’ve been historically. Ryan Connors I see. So the national trend then would be a function of the fact that D6 are becoming more and more prevalent. Walter Lynch Absolutely. Ryan Connors Okay. Interesting. My other question was there were some fairly notable development yesterday with one of your peers California basically saying that they’re going to have to defer revenue recognition in the fourth quarter because WRAM balances are increasing. I know you’ve had your own issues having to extend the collection period on your own WRAM balance, can you talk about the situation in California related to the WRAM and the outlook and also maybe give us your take not only on how that impacts your business, but where you see the regulatory evolution going, whether the draught creates any change in the regulatory situation in California? Linda Solomon Ryan, this is Linda. Let me start and talk first about the accounting issues around revenue recognition. So the accounting rules require that if revenue is extended — collection of revenue is extended beyond two years that you need to defer the equity component or the equity return of that revenue. And so this is really an accounting timing issue versus a collection issue. We did experience something similar in the third quarter when we requested and filed our application with the CPC to defer recovery in Monterey over a 20-year period and including a return. We have recorded that impact in our third quarter results and it was about a $5 million pretax impact. Now in terms of the regulatory environment, I’ll start and ask Susan if she would like to add to it, but really decoupling mechanisms were put into place in California to deal with situations like the severe draught the California is going through now so that you can align the customer conservation with the goals of the company and so these decoupling mechanisms really align these goals and allow us to help our customers and serve in the long term. Susan Story Right, and I think Linda is exactly right. The only thing I would add is this is an extraordinary situation in California and we all know that and we believe — we know that the Utility Commission, the companies were all trying to work together to find a way forward that’s in the best interest of our customers and the companies and everyone involved. Ryan Connors And then while we’re on California, one last one if I might sneak it in is that on the terms of return on equity you’re at 9.99 in California. Most of you appears are at 9.47 because you stood at the automatic downward adjustment duty or credit rating situation there, but the credit standing continues to improve. So is there any chance that you could be re-trued up or trued down to that level and talk about how that mechanism works and the ROE outlook for California thanks. Susan Story Absolutely, we’re at 9.99 in that mechanism in its current formal extent through the end of 2016 and then we would go through the next profit capital process in California to reset rates going forward. Ryan Connors Got it. Okay. Thanks for your time. Operator And our next question comes from Richard Verdi from Ladenburg Thalmann. Please go ahead sir. Richard Verdi Good morning, everyone and nice quarter and thanks for taking my call here. Just a quick follow-up question to Ryan I enter my question. The Pence or the New Jersey rate case outcome in combination with the D6, Walter you had mentioned it’s in excess of 50%. We have that around 54.6%, does that sound about right? Walter Lynch Yes that sounds about right Rich. Pretty precise. Richard Verdi Okay, perfect. Okay and then Susan a quick question for you surrounding the acquisition strategy. Somewhat recently you were quoted saying American is going to ramp up its focus on the wastewater acquisition front. So can you just maybe talk a little bit about how you see this benefiting American Water? Susan Story Sure. I’ll start and then Walter may want to add something to it. So one of the things that’s interesting and I know the national numbers are about 84% of Waters provided by public entities and about 98% of wastewater is and what we find Rich is that of a 3.3 million metered customers we have that only about 150,000 of those are wastewater customers. So we know that we’ve got several communities around the country where we already serve water and someone else serves wastewater. So that’s one piece and then you add to that the fact that there is growing number of EPA consent decrees, you got an issue where a lot of the wastewater infrastructure is aging and needs investment and you have some community who would prioritize other needed critical investments above their wastewater. So far us the real value is in many of these places we already served water. So to serve wastewater we know the communities. They know us. There are efficiencies we can gain because we already have offices there even though you would have different people doing some of the work. So we think it’s just a natural progression. Then on top of that you add the fact that we just talked about California. When you look at water, it really is a single one-cycle for water and in the past, where we separated portable water with stormwater and wastewater, those days are — they’re starting to merge. So we believe that as the leading water utility in the country, we want to a leadership role in looking at water as one water from start to finish and especially given our strength in our research and development efforts that we got on the whole water cycle. Walter Lynch Yes, Walter here. Just to emphasize the operational synergies. We already have offices. We have relationships. We have employees that are proving service to our customers. To us it makes too much sense not to engage on a wastewater side and that’s what we’ve been doing and we’re getting really positive feedback in those communities where we do provide both services. Richard Verdi Excellent. Okay. And next, thinking about the Water Infrastructure Protection Act recently implemented in New Jersey, clearly that’s a great outcome for American and Americans performed well from that Act and now Chairman [indiscernible] in Pennsylvania implement something similar. So if Pennsylvania does when considering that both New Jersey and Pennsylvania in this situation will have attractive legislation, do you think that it may eventually result in the American Water middle region representing more than 50% of its current, where that currently or do you think you would try to exploit that Pennsylvania move, but then grow in other state to maintain that diversified geographic footprint? Susan Story I’ll start and Walter may want to add. So number one, we value very mach our geographical diversity and how we do look to grow in Pennsylvania and New Jersey, we’re also looking to grow in the Midwest for example where we have a significant presence. So we do think this legislation and Walter and his folks have been key at proving research and information for those policymakers who are looking at different options to improve the economy in their areas. We think that it’s important to have good legislation everywhere and we think it’s good for the citizens and the people who are consumers of water and wastewater. Walter Lynch Yes, with those definitely are huge plus to accelerate acquisitions in New Jersey. If we get that in Pennsylvania, it will provide the same benefit, but we also have enabling legislation in many of our other states including many Midwestern states and some of this was tailored after the legislation we had in our Midwest states. So it looks very, very favorable in the Northeast, but we have the same favorable regulation in the Midwest. Richard Verdi Okay. Great. Thank you for that color guys and last one for me, looking at the non-regulated side, in our view we see that Keystone acquisition is just a super move, that’s a great move from our view. Is there anything else like that in the pipeline or maybe better put, can you give us — just give us an update on the non-regulated position driven strategy there? Susan Story Sure. So first of all fundamentally there is two things I want to say is that when we go into the market based businesses, we ensure that it leverages the core competencies that we have as a company. We’re not going to be going at two and three steps beyond what our core competencies are, which is water, wastewater, stormwater, those type of efforts. So I just want to make sure people understand that clearly. The second thing is as we said in our last earnings call, the market based businesses, which include all of the American Water enterprises lines of business and Keystone, we will not — we don’t see that growing beyond 15% to 20% of earnings and only towards the high end of that if it’s regulated like in the military services. So I just want to say that’s it’s on. So in terms of opportunities, again we’re going to stick to our netting, stay close to our core competencies, where there are opportunities to number one leverage the expertise we have in water, wastewater, water treatment, infrastructure investment, those type of things we will look at, but we also look at the risk profile of anything we do because we are extremely cognizant and dedicated to let our core we’re a regulated utility and we want to ensure that any growth we have is smart growth. Richard Verdi Okay. Great. Thank you Susan. I appreciate the guys and great quarter once again. Susan Story Thank you. Operator [Operator Instructions] Next question comes from Michael Gaugler from Janney Montgomery Scott. Please go ahead. Michael Gaugler Good morning, everyone. Susan Story Good morning, Mike. Michael Gaugler Just a couple of things. I would appreciate an update on the potential headquarter move and the timing implications in terms of the tax breaks and then also your thought on Keystone Clear Water now that you’ve been in that business for a bit. Linda Solomon Mike, this is Linda. Let me start with the move to Camden. We’re currently in the site selection process and we’re continuing through that process. We’re working to make sure that we have all of the tax issues handled appropriately with the City of Camden and we are very excited to be part of the revitalization of Camden. On Keystone, so everyone of course on the call is aware that there are market conditions on oil and gas and of course from the negative side from the market is that, the activity in the capital spending has been reduced somewhat. The number of rigs are down and again in the Marcellus and Utica interestingly while we have the cheapest cost for natural gas drillers that also require more water we know that there is an issue for the supply actually to take away capacity. So from the market issues that everyone is familiar with, we also are tracking this. We’re tracking it with the business. We also are very encouraged and we’re following very closely the progression of the construction of the takeaway pipes because we believe that whenever the takeaway pipeline are completed, that that is where and I know that all of you know this, where we’ll see a resurgence in that particular area of the country for natural gas. And with that said, since we have bought Keystone and since we closed in July, there are some positives that are going on for us. Number one, it’s interesting that as several of the ENP are looking at the current situation, they’re also looking at water infrastructure that will be needed for the resurgence that is expected at the end of ’16 and into ’17. So we’re in conversations looking at future activity, because there is a time period that we need to develop water infrastructure, which is critical for most of these wells. Another thing that we see is that there are some near term opportunities with the ENPs continuing to prioritize their capital for their core business, there is more of an interest of us taking a role into water infrastructure and water pipeline including owning it which would be a little longer term in some of the contracts that currently have. Looking at construction ownership of storage and exchange facilities and not just pipeline and we’re seeing that there is a renewed interest as the ENPs have a goal of 100% water reuse and recycling. So we do the transports and we’re seeing really a pre-robust business on the transport to the recycling facilities to ensure extremely high levels of reuse and recycling. And then another positive that we’ve seen in the almost six months we’ve owned Keystone is that, they are increasing their customer base significantly with the addition of several new large customers and we’ve calculated that our market share of the water services in the Utica, Marcellus has increased from about 20% to 25%. So yes it’s a difficult environment as we know, but being a water focused subsidiary of ours looking at solutions for that area we’re seeing some bright spots for us and we continue to, we said earlier when we purchased Keystone, we expect it to be EPS neutral in 2015 and to be accretive next year as Linda mentioned. Michael Gaugler All right. Thanks Operator [Operator Instructions] Follow up question from Richard Verdi from Ladenburg Thalmann. Please go ahead. Richard Verdi Hi guys, thanks for letting me back in. Just a question on — just a follow-up to Michael’s inquiry surrounding Keystone, this might be a tough question right, I am just curious to see what the take is, when you look at the frac sand guys or the oilfield services players, it’s up in the air when that energy space is going to recover. Some say it’s going to be — we might see a bottom in Q1 and then improvement back into ’15. Some others say it won’t even be until ’17, whether its improvement. But it sound like what you just said you expect it to be accretive in ’15. So I am kind of wondering, one, what maybe your outlook is there for, what may be Keystone’s outlook is for energy space and maybe what you guys are doing differently to ensure that that’s one of the expense in 2016. Susan Story Rich, thank you for this and so on December the 15 at our Analyst Day the CEO of Keystone Ned Wehler who has been in the business for years, he is actually going to be part of our Investor day presentation and he is going to offer his insights that will give an additional month to see where everything is playing out. Again I think we can say some things now, but I think it would be better to wait till Investor Day and really talk to the expert. We’re looking at a lot of different options. We’re trying to be very practical and realistic, which is why in answer to Mike’s question, I wanted to give both the positives but also the things we’re very cautionary about. And so it will be interesting. We do have some thoughts at this time, but on December 15, we fully expect that question to be asked and from there to give his thoughts about that. Richard Verdi Okay. All right. Fair enough. Thank you, Susan. Operator And our next question comes from Ryan Connors from Boenning & Scattergood. Please go ahead. Ryan Connors Great. Thanks also for letting me in and again to figure out coming with one more I have since there is time, so rising interest rate environment that we’re likely to enter into here that’s starting to raise rates, obviously there are various commission look at benchmark rates as a proxy for risk free and there is interest in theory, that’s a positive tailwind for ROEs. How does that impact what you do when you’re asking — when you’re filing rate cases and what you’re asking for an ROE? Do you start to reflect that into higher requests for ROE as the Fed is getting ready to raise rates or talk to us about that dynamic? Linda Solomon Yes Ryan, this is Linda and generally what we have seen with regard to past trends is that as interest rate rise then over time that is correlated with increases in the return on equity and so I would expect that moving forward to the extent that interest rates improve that we would see similar trends. Ryan Connors Okay. But you used to say that goal to actually — where do you start building that into what you’re asking for? Is that coming later or is that something you’ve started to do right here as we’re sort of getting ready to enter into rising rate environment? Linda Solomon Right Ryan and really what we will do, typically most of our states have the cost of capital as part of the general rate case profit and so we would be looking across our states and determining the optimal time to go in for general rate case. We also have some states that have a separate cost of capital mechanism like California which has a set schedule, which we would be — which is set through 2016 and then we would be setting new rates for 2017. So it will depend on the jurisdiction and it will also depend on a multitude of factors that we look at in terms of the timing of our general rate case filings. Ryan Connors Interesting, well thanks for that. Linda Solomon Absolutely. Susan Story Thanks Ryan. Greg Panagos Operator, do we have any more questions? Operator, are you there? Linda Solomon Maybe he is experiencing some technical. Susan Story Yeah, we can’t hear anything. If you can hear us, we can’t hear you. Operator Pardon me, the next person to ask a question is David Paz of Wolfe Research. Susan Story Okay. Great, hi David. David Paz Good morning. Susan Story David, that’s quite a dramatic kind of intro to your question. David Paz Yeah, you can take credit for that one, but you may have actually just one of my questions on California, but just can you remind me when the cost of capital proceeding and where ended? Susan Story The cost of capital proceeding will be filed in the beginning of 2016, so about March of 2016. David Paz Okay. And if you — it was extended once before correct? Susan Story That’s correct and it’s extended through the end of 2016. We actually begin the filing in the first quarter of 2016 for cost of capital affected in 2017. David Paz Right and just remind me, were there any changes to the mechanism when you extended it this last time versus the original I guess agreement? Susan Story No, it was extended in its current forms. David Paz Okay. And is there any chance for you guys to extend that another year, given that not much has changed on the rate side? Susan Story We’re always looking at opportunities so that — and working with the Commission on these types of things as well as the other investor owned utilities in California. David Paz Okay. Separately this year have you announced any new large regulated projects like water treatment plants or the like that, that were incremental to the plan you gave last year? Walter Lynch This is Walter, no, no, it’s has been in line with what we’ve said last year. We just continue to upgrade our plants as part of our normal capital investment but no new plants in line. David Paz Okay. And you’ll give a 2016, 2020 capital plan in December. Walter Lynch That’s correct. David Paz Great. Thank you so much. Susan Story Thanks David. Operator And this concludes our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks. Susan Story Thank you, Frank. We would like to thank everyone for participating in our call today. And as always if you have any questions, please call Greg or Durgesh and they’ll be happy to help. Before I let you go, I’ve mentioned it during the Q&A, I would like to remind you all that we’re hosting our Investor Day at the Western Times Square in New York on December the 15 from 9 AM until noon. We will have a light breakfast beforehand and lunch available for afterword. So it is not the program that attracts you, hopefully the food will. We will be discussing our plan for 2016 to 2020. We’ll have added color around 2016. You’ll hear updates and projections for our regulated business from Walter as he has already said. An update from Sharon Carmen on our plans for the American Water Enterprise’s lines of business, homeowner services, military services and contract services. And as I mentioned before, you’ll hear from the CEO of Keystone, Ned Wehler who is going to offer his insight into that business and the market, and of course Linda will provide updates on our financial plans. We hope all of you can attend. The session will be webcast and thanks again to everyone for listening and we’ll see you in December. Operator The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect the line.