美國水務 (AWK) 2011 Q1 法說會逐字稿

Good morning and welcome to American Water's first-quarter 2011 earnings conference call. As a reminder, this call is being recorded and also being webcast with an accompanying slide presentation through the Company's website, www.amwater.com.

Following the earnings conference call, an audio archive of the call will be available through May 12 of 2011 by dialing 303-590-3030 for US and international callers. The access code for replay is 443-3985. The online archive of the webcast will be available through June 6 of 2011 by accessing the Investor Relations page of the Company's website located at www.amwater.com. (Operator Instructions).

Today's call is scheduled for one hour, including questions and answers. I would now like to introduce the host for today's call, Ed Vallejo, Vice President of Investor Relations. Mr. Vallejo, please go ahead.

Thank you. Good morning, everyone, and welcome to American Water's 2011 first-quarter earnings conference call. As usual, we will keep our call to about an hour. At the end of our prepared statements, we will have time for questions.

Before we begin, I would like to remind everyone that during the course of the conference call both in our prepared remarks and answers to your questions we may make statements related to future performance. Our statements represent our most reasonable estimates; however, since these estimates 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. Such risk factors are set forth in the Company's SEC filings.

Now I would like to turn the call over to American Water's President and CEO, Jeff Sterba.

Thanks. Good morning, everyone. Thanks for joining us today. In the room in here with me is Ellen Wolf, our Chief Financial Officer, who will join me in the presentation; Walter Lynch, our President and Chief Operating Officer of Regulated Operations; Kellye Walker, our General Counsel and Chief Administrative Officer; Bill Rogers, our Treasurer; and Mark Chesla, our Controller.

We issued our earnings release last night, and we are pleased with the progress being made through a strong first quarter of execution. I'm sure you have had a chance to look at it. We will get a chance to take your questions, but we will hit on a few highlights first.

The key financial results are summarized on page four of the presentation, so if you will go to that slide, you can see that total system revenues increased just under 8% or about $44 million quarter over quarter, about $611 million. Our GAAP net income and earnings per share increased to $47.3 million and $0.27 a share respectively; however, a portion of this earnings increase is due to Arizona and New Mexico being classified as discontinued operations.

As you may know, when properties are classified this way, you first determine if the market value of the property is at least equal to book value. In this case, it is in excess of the book, but you cannot mark the property up. It has to stay at that cost, and then you cease depreciating those assets for book purposes until the sale of the property occurs. Had Arizona and New Mexico assets been depreciated as was reflected in the earnings guidance we provided earlier this year, net income for the quarter would have been $42.6 million, and earnings per share would have been $0.24 per share as shown on the table. This represents more than a 30% increase quarter over quarter on a comparable basis, and we will present earnings adjusted for this depreciation item so that it is comparable to the way that it was presented in our guidance for 2011 as Ellen will discuss later.

So the work we are doing to contain costs, drive efficiencies and obtain appropriate rate relief is driving improved performance as we sharpen our focus on building value for operating, investing and strategically growing in areas where we can best serve our customers.

Before having Ellen go into more detail on the financial results, though, let me turn to the next page and touch on some key rate and regulatory activities. We have received two rate decisions in recent weeks and filed four new cases.

On the Tennessee decision, while there are a few specific parts of it that we believe should have been decided differently, on balance the overall award is acceptable, and we continue to see improvement in the operation of our Tennessee business.

The West Virginia order, however, fell short of balancing interests in our opinion. This as is an important state to us, and we understand the economic difficulty West Virginia continues to face through the economic downturn. And while we will maintain safe and reliable service, we will have to adjust our operations to live within this order. This will include operating cost reductions, reduced investment in the state, and not being able to assist with addressing the issue of troubled water systems. We will direct our investment dollars to those states that recognize the critical need to attract capital so that we can make the needed investments.

We care about West Virginia. It is an important part of our state, but we are not going to have our shareholders subsidize rates in that or any other state.

Now relative to the new cases that we filed, I'm not going to go into detail. There are really five cases that have been filed. One the Hawaii case was filed back in February. The other four, which are a bit more significant, have been filed in the last week, and the total annualized increase for those five cases is about $108 million as shown. We will be happy to go through any questions you may have about the cases themselves, but let me just note that there are some strategic regulatory issues that we have previously discussed in our filings, as well as in our investor presentation in February, and I want to show how these are being addressed in the rate case filings we have made.

In all cases, the declining residential use, which is continuing, is being addressed, though in slightly different ways. In some of the cases, we have also filed either for specific automatic adjustment clauses cost balancing mechanisms that run through the balance sheet to address more volatile cost elements like chemicals, power and pension costs.

In the one state where we do not have a DSIC-like mechanism today, it is also being addressed in the filing, and we are continuing to move to single-tariff pricing at the state level to harmonize rates across systems within the same state in a reasonable manner so that we don't cause rate shock to anybody. And we are looking at even taking it a step further where in Pennsylvania, for example, we are in discussions with parties about extending the single-tariff mechanism to address both wastewater as well as water.

Now these issues are important to help us address regulatory lag, as well as improve the marketing position of our business to grow.

So, with that, let me turn it over to Ellen, and then we will come back for some summary comments.

Thank you, Jeff, and good morning to those of you who have joined us for our first-quarter 2011 earnings conference call. Jeff has just reviewed with you our results for the first quarter of 2011 and some of the key highlights of our rate case activity and delivering on our commitment to ensure reliable service to our customers and results to our shareholders.

I'm now going to take a few minutes to describe in more detail the drivers of our results for the first quarter. Additional detail can be found on our 10-Q, which we filed yesterday with the SEC. As you review the 10-Q, you will notice a change in our MD&A format where we have now clearly separated the analysis between our regulated operations and our market-based operations. We hope this will make it easier to understand and analyze our two segments.

Overall, as Jeff indicated, we experienced solid financial results for the first quarter of 2011 with increases in revenue, net income and earnings per share. These results were driven by our team's commitment to those key strategies that focus on portfolio optimization activities, applying for and receiving the appropriate rates of return on our investments and continued improvement in our operating efficiency ratio and operational excellence.

As you can see, for the first quarter ended March 31, 2011, we reported operating revenues of approximately $611 million, a $44 million or almost 8% increase over the approximate $567 million reported for the first quarter of 2010. Additionally we continue to see improvement in American Water's gross margin, which increased by 170 basis points or almost 8%, and the regulated O&M efficiency ratio, which improved by 120 basis points or approximately 2.4%.

Our first-quarter 2011 net income was around $47 million compared with approximately $31 million in 2010 or $0.27 per common share compared with $0.18 per common share in 2010. However, as Jeff mentioned, included in net income for the first quarter of 2011 is $4.7 million or around $0.03 per share related to the cessation of depreciation on assets, primarily Arizona's and New Mexico's, which for accounting purposes we have classified as discontinued operations. Since these assets were depreciated in 2010, it is more appropriate to view our growth in net income and EPS in 2011, assuming we did not stop that depreciation. Using this non-GAAP measurement criteria, both net income and EPS have improved more than 30% quarter over quarter.

Net cash provided by operating activities for the three months ended March 31, 2011, was around $162 million compared with $176 million for the same period in 2010. The slight decrease in cash flow was primarily driven by state income tax refunds received in the first quarter of 2010 and increased pension contributions in the first quarter of 2011 versus the first quarter of 2010.

Net revenues from our regulated business increased by around $39 million or around 8% from March 31, 2010 to 2011 driven by new rates awarded in various surcharges granted by regulators related to our continued investment in infrastructure. For the quarter the impact of these rate increases, some of which were granted and became effective during 2010, was approximately $44 million. These increases were offset by decreased revenues of approximately $7.6 million, attributable to a decrease in demand of around 1% in the first quarter of 2011 compared with the demand in the first quarter of 2010. During the same period, by the way, revenues from our market-based operations increased by $6 million or around 8%, increasing primarily as a result of higher revenues from our military contracts.

These next two slides include detailed information relating to our rates and the Company's focus on earning an appropriate rate of return on the services provided and our prudent investment in infrastructure. You will also be able to find this information on our website.

Since April of 2010, we have been authorized additional annualized rate increases of $212 million. Included in the $212 million are two second-quarter 2011 awards mentioned by Jeff in both Tennessee and West Virginia.

Just, as a reminder for those of you viewing the chart, shown on this chart are the annualized increases, which will be realized over at 12-month period from the date the new rates were effective. This may or may not match our calendar year for reporting purposes.

Additionally, over the past year, we have then authorized increases of around $27 million related to infrastructure investments, which has not yet been rolled into the authorized rate cases. Of the $27 million, around $11 million was authorized in just this first quarter of 2011.

Also, during the first quarter of 2011, we made one rate filing in Hawaii for $1.8 million, and subsequent to the quarter's end, we filed general rate cases in four more states requesting additional annualized revenues of $106 million if approved as filed.

As Jeff noted, in these rate cases, we are addressing some significant regulatory lag issues, including (inaudible) usage and infrastructure spend, as well as pass-through mechanisms for key expenses that are an essential part of the service we provide such as chemicals and power costs.

As of May 4, 2011, the Company now has approximately $173 million in general rate cases filed and awaiting final order in eight states.

In addition to the general rate cases, we also have outstanding requests for annualized revenue increases for infrastructure surcharges, purchase water and sewer treatment surcharges amounting to around $2 million. There is, of course, no assurance that the filed amount of any portion thereof to any requested increases will be granted.

Turning to our water sales volumes for the quarter, public company sales volumes decreased from the quarter ended March 30, 2010 to 2011 by 652,000 gallons or around 1%. This 1% is an average, and it does vary on a state-by-state basis.

During the first quarter, usage is generally not impacted by weather. The quarter-over-quarter decline we are seeing is slightly less than we have seen over the past couple of years, but does seem to be more in line with the five to 10-year trends that we have seen. While we can never be completely sure of the reason for the decline in usage, at this time it appears that for residential, the decline is related to conservation and more efficient water-related appliances. For industrial usage, we have seen an increase quarter over quarter of 2.2% in usage, which would imply continued economic recovery in some of the areas that we serve. And our public and other usage did decline by about 2.5%, which may be an indication, we believe, of the economic hardships that many municipalities are beginning to come to grips with. We will continue to monitor water consumption carefully and address this decline with our state regulators.

I would now like to take a few minutes to discuss our expenses. Total operating expenses for the 2011 first quarter increased by approximately $24 million or 5.4% from the first quarter of 2010 with depreciation and general taxes accounting for over 28% of that increase. Regulated O&M expenses increased approximately $14 million or 5.4%. One key driver of this increase was an increase in pension expense. Excluding pension, O&M expenses increased slightly under 4%. This was driven by increases in contracted services and increased transportation costs from the higher gasoline prices.

Our market-based operation expenses increased by $2.3 million. This is mainly due to increased operating supplies and costs related to higher contracted services. Overall our regulated O&M efficiency ratio improved from 49.4% for the quarter ended March 31, 2010, to 48.2% for the quarter ended in 2011. We continue to see improvement in this ratio quarter over quarter as we remain committed to cost containment and long-term margin improvement.

And finally, to meet our continued commitment to providing water resource solutions to communities we serve and to deliver reliable service to our customers, we incurred capital expenditures of around $176 million during the first quarter of 2011 compared with around $143 million incurred during the same period last year. This is in line with the guidance that we provided for 2011 to invest between $800 million and $1 billion in our capital program. We should note that during 2011 we do have some major plant construction in both Pennsylvania and New Jersey.

I would also like to note that we announced earlier this week that the American Water Board of Directors declared a quarterly dividend of $0.22 per share, reaffirming our commitment to providing to our shareholders a total shareholder return consisting of both stock price growth and dividends.

And then finally, we are reaffirming our earnings guidance for 2011 of $1.65 to $1.75 per share, which reflects our ongoing commitment to enhancing the value of this business for our employees, our customers and our shareholders. The earnings range, however, does not recognize the benefit to net income and earnings-per-share of the cessation of depreciation for discontinued ops, which is estimated to be around and at around $0.08 to earnings-per-share for 2011.

And with that, I would like to turn the call back to Jeff for some concluding comments and then open it up for questions.

Thanks, Ellen. If you will flip to page 14, this is something that you will see every quarter as we have talked about before, and it shows what the status is of the seven items that we said you could look through us and hold us accountable for working to achieve during the year. So let me provide just a quick few highlights.

Relative to the portfolio optimization initiative, we expect now that the Missouri acquisition and Texas sales should close in the June/July timeframe by the midsummer. We filed for regulatory approvals for the transactions into Mexico and Arizona. They are scheduled to go to hearing both in August, and I think this does keep the door open for the potential of having a closing by the end of the year.

Relative to the rate cases, we have discussed those. We had $93 million of outstanding cases waiting for decision. We received decisions in two of those with about $10.6 million, $10.7 million as we talked about before. And on addressing declining usage, every single one of the cases that we have filed in slightly different ways has addressed this issue for the commission to consider.

On operating efficiency ratio, Ellen went through the continued improvement, which is about 120 basis points in the first quarter of the year over the same period last year. On return on equity, it has increased 39 basis points over the comparable last 12 months, about a 6% improvement.

There's a number of things going on in the business development front. Most of them are what I call things in process, but let me just note one item. Homeowner Services, as you may recall, has really only been involved on the residential side to date, and after a very successful test in one of our markets in looking at the commercial sector, we are going forward with moving homeowner Services into providing commercial sector warranty work in addition.

So all-in-all I think a strong first quarter of the year continuing to execute effectively. We are seeing it not just in our financials, but, frankly, in all of our operating statistics. Safety, our overall IR indices have improved another 13% or so in the first quarter of the year. So we are quite pleased, but also even more committed to continuing the progress.

So with that, we will turn it over back to the operator and open it up for questions.

(Operator Instructions). Maria Karahalis, Goldman Sachs.

In the commentary, there was a discussion that gasoline had impacted transportation costs. Yet in the production costs for the regulated segment, the fuel costs and chemical costs in the first quarter actually showed a decline. Can you talk a little bit about that disconnect and how we should be thinking about the impact on higher fuel and chemical costs on the business going forward, please?

This is Walter. I can address some of it on chemicals. We have entered into a number of contracts in 2010 and 2011 that are really showing a reduction year over year from 2010 to 2011 of about 1.5% in chemical costs. That is addressing the chemical costs. We have done a good job leveraging our purchasing power across our business to drive down those costs, and so we are seeing that in the chemical side.

Walter, on the chemicals, will that sustain itself for all of 2011, in other words? Is that what you are saying?

Yes, those contracts have been entered into, and we timed them with the rate cases. So just, those are annual contracts that we will see throughout the year.

Okay. Thank you.

And, again, just to remind you that the actual costs will be dependent upon the number of our sales and consumption. So when the per-unit will be down, it depends on again how many gallons we have sold.

One other trend that we have seen in the power contracts that we have entered into, we are seeing these are those that we procure on the competitive market, about a 5% reduction. And I think that probably applies to about half of 40% of our total power --

That is right, 37 million --

So those two we are seeing reductions in while the cost of diesel obviously is going the other direction.

And on the fuel and power, on a go forward basis, to the extent that it is competitive, should we expect to see some incremental costs in general in that area despite the very favorable results achieved in the first quarter?

Do you expect to see natural gas prices stay low?

Okay. So you are speaking to natural gas? Fair enough. (multiple speakers)

Well, natural gas fires an awful lot of the power.

Understood, understood.

So it really does affect us in the power section.

Let me separate, too, onto two things. There is fuel related with our production, and there is fuel which is sitting in other and miscellaneous which is related to (multiple speakers) and transportation and (multiple speakers) and that is what we are referring to when we talk about fuel going up.

Yes, absolutely. No, that was clear. It was the fuel and power and the production costs that seemed to be showing declines, and the fuel on the transportation side was showing the increases. Great. Thank you for that.

(Operator Instructions). [Jonathan Weber], Wells Fargo Securities.

A quick question on the declining usage that you're addressing in your rate case filings. Are you just talking about filing for de-coupling mechanisms, or can you go into the specifics a little bit as to how it is being addressed, or is it just purely resetting, I guess, the usage levels as you would in a normal rate case?

It is fundamentally the latter. It is basically putting in testimony to make a building determinate adjustment on the basis of the trend that we have seen, and moving -- depending on the state -- this is where it really varies -- moving it forward as far as we can in terms of projecting what that will be. When you look at the de-coupling mechanisms, we just came to the conclusion that, frankly, they can fairly cumbersome and complex. And we think it is more simple and understandable to the commission to look at making the consumptive level adjustments in the billing determinant side rather than trying to implement a rather complex tracking mechanism. We do have those in California and New York. They are established. They work. They are fairly large systems, and a number of these systems that we file cases on, except for Pennsylvania, are a little smaller. But they are mostly adjustments that are done on the billing side.

So is this some sort of like just forward-looking test year kind of thing, or you are actually updating on like a monthly basis on a consumption? I'm not following it completely, I guess.

What we have done in the filings is looked at the 10-year trend, and then in the filings themselves we have projected into what that trend would do in 2011 or 2012 depending upon what year we are trying to get rates set forth.

The other is in New York, as Jeff mentioned. That mechanism allows for a balance sheet adjustment where you offset some lower costs, too. So it is a net account that then gets charged out to the customer.

Yeah, we have not filed for what you would call an automatic adjustment mechanism that adjusts for consumption no matter what the cause of that consumption may be. What we are trying to do is to say that let's look at what is the normal level of change and forecast what that should be, but move it forward into what I think you could call test your like system. And part of that is because you always end up in the issues, and as happened in California about whether how much of it is happening by normal computation as opposed to trigger conservation, and I think this kind of adjustment really helps fill that gap of about the percent decline that we see on the residential side.

Okay. So, yes, it just sounds like it is a forward test year just purely on the consumption side of it for those states that have had a historical test year?

That is correct.

That is right.

Okay. How is that being -- is that being received positively by the commission, or is it just too early?

There are some places where we had conversations before the filing, and we will continue to have those conversations. These cases are -- the ink is fairly dry.

Okay. And then the other question I have, could you, Ellen, go into whether weather impacted maintenance expense during Q1? I think in Q1 in 2010 you had an abnormal level of pipe breaks. Is it a favorable comp?

Yes, that is correct. This year there were some states that had more pipe breaks than others, but systemwide it was -- not that there is such a thing -- as sort of an average year. We did not see total throughout the system anything greater, but some of the state specifics may have had more.

Okay. I know not to ask to quantify the weather impact -- (multiple speakers)

Yes, and I would say it is minimal for this year over year.

Okay. And then the other weather question was not quantifying the impact of weather on the quarter. I know that would be just the wet weather, especially that we have seen in Q2 thus far. Does that impact your aspirations for the CapEx budget? Should we expect maybe towards the lower end, or is there a enough of the year left that anything that has been pushed out can be made up?

We feel at this point we are going to be spending what we had in our $800 million to $1 billion in our capital plan, so we are comfortable with that for the rest of 2011.

(Operator Instructions). Garik Shmois, Longbow Research.

Just a question on your long-term EPS growth target of 7% to 10% and how we should be thinking about the cessation of depreciation going through that. Clearly it is too early for you to be offering 2012 guidance, but should we be thinking off of the run-rate given that long-term EPS growth, off of the $1.65 to $1.75 guidance for this year, or should we be thinking a bit more of a $1.73 to $1.83 and then a (multiple speakers) just the 10 off of that?

Thanks for the question. I appreciate it truly so we can be very clear about it. The guidance is really off the $1.65 to $1.75. The projected $0.08 that that would add is not really true growth; it is just the discontinuing of depreciation. And so we don't look at that as a growth element.

Thank you for the clarification. And then just one more question on cash taxes. Can you provide an update on what the cash tax was for the quarter and your outlook for the full year?

We pay minimal taxes. We have a significant NOL carryforward, which you can find in our footnotes. But I would add we will probably pay some A&P this year, but, again, it will be minimal.

Okay. Can you remind us how sustainable the tax rate is?

Long-term? I'm sorry, ask the question again. I missed it.

Yes, just how sustainable is that long-term?

We have enough NOLs for the next, I would say, seven to 10 years.

David Paz, Bank of America/Merrill Lynch.

I just had a question regarding the Arizona/New Mexico operation. Can you remind me what were your earned ROEs at those businesses as of year-end 2010?

We don't give breakouts of returns by individual states. I think, suffice it to say, there is a certain logic stream to why we are exiting those states, and part of it has to do with the earned return what we look forward to in the future. And what we have said is that the sale of those properties will be in total will be slightly accretive to earnings in the first year, and that's a combination of the loss of the business and the decision, the ability to -- the use of the capital proceeds from the sale and the ability to avoid an equity issue.

Okay. All right. And then switching to ROEs, you said that ROE for the quarter trailing 12 months was 39 basis points higher. Can you tell me either what last year's was or what this year's number was for ROE?

At the end of 2010, it was 6.5%. And I'm sorry, just off -- I don't remember what it was 12 months ago, but I would just -- (multiple speakers). Right. The first quarter rolling off, it will add some to the 6.5%, but that is generally not our largest -- it has never been our highest earnings quarter.

But think of it this way, (multiple speakers) we can always get that number, but it was 6.5% for the 12 months ended December, and for the 12 months ended January or March, I'm sorry, a 39 basis point increase year over year. So it's good to be somewhere between 6.5% and [6.89%].

Great. And just lastly, on potential tuck-in, -- (technical difficulty) just M&A in general, can you tell us what you see playing out this year? Do you see opportunities, anything you can say on that front?

I will let Walter make a few comments. We do have a number of marketing endeavors underway that are both tuck-in related above water sales, plus some other what I will call expansions of territory or services that we are not in today in a position to talk about, but Walter, do you want to add anything on that?

That is good, Jeff. What we continue to have discussions with communities around tucking them into our systems, and we are in a number of discussions right now with communities in our service areas, particularly in many of our larger states.

Heike Doerr, Robert W. Baird.

Congratulations on a solid quarter. I wondered, Ellen, if you could give us a little bit of color on the state level as far as the industrial consumption goes and the states that have been performing well and perhaps the states that are slower to see the economic improvement?

In terms of our industrial usage, mainly the Midwestern states is probably where we see the higher percentage of usage by industrial as opposed to the Western or East Coast. And it is within those Midwestern states that we have been seeing the increase in industrial usage.

Okay. And can you provide an update as far as when we can expect the timing of a debt paydown on the parent level?

As you know, we are cash flow negative after our CapEx program, and our dedication really is to reinvesting the money within the regulated entities appropriately and into infrastructure and making sure we get our return there. So the biggest piece of that about 70%, 75% does not come due until 2017.

But is that something that we would be looking to see you pay down in the next, let's say, two to three years perhaps after an equity issuance in 2012?

One, we have not announced any equity issuance, and second, I would note that, again, we will just have to look at our cash flow. We would have to call that debt, and again, because there is no callable feature and it is due, we will look more toward 2017 on the debt itself.

Okay. That is helpful. And then a final question, I wonder if you could comment on what we are seeing as we start the second quarter and if the flooding in Missouri has impacted you? I know April is not the largest usage month in the second quarter, but what are we seeing so far?

As far as the usage?

Yes.

Yes, just the flooding. Obviously we are seeing a lot of rain in the Midwest, particularly in Missouri and Illinois, and we have had one of our systems actually in Cairo be impacted somewhat by the small system. But overall our usage is in line with what our projections are.

You don't really see irrigation, which is the big step obviously. You don't really see your addition loads start to build in April and for that much of May. It is really with us in June, July, August and into September. So we really have not been able to sell that.

But the good thing, if you want to say there is a good sign to this, is that you are having stronger aquifer recharge throughout the country, and that will be helpful for the longer term. But the consumption statistics are kind of following on the same pattern as they did first quarter so far.

Okay. And as a final question, Jeff, you mentioned in one of the rate cases you recently filed that you would be filing for a DSIC in the state that does not have it yet. Are you referring to Iowa?

Yes.

Great. Thank you.

Yes, Iowa is the one state of the four where we don't have that mechanism, and we filed for both that mechanism, as well as another automatic adjustment clause that will recover additional costs on power, chemicals, and they have also got a declining usage component. Really three different things in the Iowa rate case.

Cleo Zagrean, Macquarie Capital.

I have two questions. The first one, could you please clarify what should be the basis for the long-term EPS growth target? In other words, whether we could still report in 2010 or maybe moving on to the $1.65, $1.75 range for 2011?

And second, if you could share with us the key states in which you will be filing for the rest of the year and some of the usage adjustment mechanisms you have in mind? Thank you very much.

I'm not quite sure I understood the first question. You asked about the long-term growth rate. I think you asked the question to talk a little bit about the long-term growth rate relative to the $1.65, $1.75, and we continue to believe that a long-term growth rate of 7% to 10% over time, not year by year but over the period, is reasonable. We obviously have to work hard to get there and that that would be appropriately off of the base of the $1.65 to $1.75 for this year.

Thank you. And then about the rate cases that you plan to file for the -- (multiple speakers)

We are not in a position to forecast what specific states we will be filing in. But there are probably another three or four -- three at least that will probably be filed -- one this summer, probably the other two later in the fall.

Any major states that you would like to highlight for us that we should be looking out for?

No, we are not going to highlight those. We believe we need to have those conversations first with our interveners and regulators in those states before we disclosed that.

(Operator Instructions). David Paz, Bank of America/Merrill Lynch.

Can you just give us an update on the DSIC proceeding at New Jersey?

Well, we are continuing to work in a cooperative way with the commission and interveners and the Ratepayer Advocate in New Jersey, hoping to get to a consensus by year-end. We are still in discussions. We are working in an industry-wide effort with the other water companies in the state so through the National Association of Water Companies New Jersey chapter.

So we continue to work with them. We are hopeful by year-end that we will have something that will work for us in the industry, and it has been a long and very detailed discussion with the interveners and with forward staff.

And now is there a procedural schedule out there, even if it is preliminary?

No.

Okay.

One of the things when you go through this kind of rulemaking is they really don't want to set a procedural schedule until they give the parties adequate time to see if they can come to agreement and then set a procedural schedule for that agreement. Obviously we want to move that to a point where we can get into a procedural schedule, but the first thing has got to be, can we close the gap in desires?

Right. And then who are the primary interveners?

The discussions are being held with the consumer advocate group in New Jersey, the legal staff, the accounting staff and any of the water companies within the state.

That is right.

Thank you. This concludes the question and answer portion of the call. I would now like to turn the call back over to Jeff Sterba for closing remarks.

Well, thank you all very much for joining us today. As you know, we also have our annual meeting tomorrow morning, which will be webcast if you care to join us for that. Otherwise, we look forward to seeing you down the road and being able to report another strong quarter at the second point. Thank you very much.

Ladies and gentlemen, this does conclude the conference call. You may now disconnect. Thank you for your participation.