Essential Utilities Inc (WTRG) 2005 Q2 法說會逐字稿

Good day, and welcome everyone to the Aqua America second quarter 2005 earnings results conference call. This call is being recorded.

At this time, I would like to turn the call over to the Director of Investor Relations, Ms. Cheryl Hansen. Please go ahead.

Thank you, Jennifer.

Good morning, everyone. If you did not receive a copy of the press release, you can find it by visiting the Investor Relations section of our web site at www.aquaamerica.com or by calling [Christopher Purcell] at 610-645-1020.

Presenting today is Nicholas C. DeBenedictis, Chairman and President of Aqua America, along with David Smeltzer, the Company’s Chief Financial Officer.

As a reminder, some of the matters discussed during this call may include forward-looking statements that involve risks, uncertainties, and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements. Please refer to our most recent 10-Q, 10-K, and other SEC filings for a description of such risks and uncertainties.

During the course of this call, reference may be made to the Company’s EBITDA, an reconciliation of EBITDA to net income is contained in the Investor Relations section of the Company’s web site.

At this time, I would like to turn the call over to Nick for his formal remarks, after which we will open the call up for questions. Nick.

Thank you, Cheryl. And thank you, everyone, for joining us this morning.

We had a busy two days. Yesterday we had our Board meeting, which is our strategic meeting every year of our Board, where we talk about our five-year plan and so on. And we’re happy to announce yesterday that the Board continued its dedication to helping shareholder value and in sharing the shareholder value with our shareholders by increasing the dividend 10% and also splitting the stock, reaffirming their thoughts that the, our trading range in the 20s is more amenable to our large retail base, which is about two-thirds of our 100 million shares, or so.

So, after the split, which won’t occur until the December quarter, the shares outstanding will move well over 100 million shares, and give us even more liquidity in today’s market. And the new dividend rate will be at – I don’t have it here, but I think it’s $.107 per share.

But it continues that trend. This is our sixth split in nine years, and it’s also our fifteenth dividend increase in 14 years. So, you can see our Board truly believes in dividends, and it reaffirms its goal to keep the payout ratio in the 55% to 60% range. And, of course, that’s why we try to look five years in advance, to make sure any dividends are sustainable.

The quarter was a good quarter. Net income was up 24% over YOY. Our net, our EPS on 3% dilution from the offerings we did last November and our constant drift program where people are buying the stock, our EPS grew 21% and revenues were up over 16%, so a very healthy quarter.

Let me dive into the revenues, because I think you can see where our earnings come from where our revenues come from. About 40%, 45% of the revenue growth came from rates. And these are rate cases that were achieved in ’04, which are still favorably comparing through Q2 in ’05, and also some rates that we’ve already achieved this year in Q1 and in Q2. We’ve been very busy trying to go in for rates on a routine basis so we have a major and very large for us, capital building program, and we don’t like to get regulatory lag and stay out longer than we do.

So, our theory has always been to be going for smaller rate cases, but going more often than wait and going for a large rate case in three or four years, which means it’s more work on the staff, it’s a little more in legal costs, but we think in the long term it’s better for the health of the Company and the health of the customers because it means we have less lag and more chance to invest needed capital.

About a third of the revenue growth came from the comparisons on AquaSource. We had the Heater and Florida Water purchases last June and July, so the first two quarters and this quarter, too, especially have had favorable comparisons. And the good news there is profitable comparisons, and that’s why the net income did so well.

And then the normal systems had a very good quarter of 20%, that we’re starting to see some industrial use come back, which is good news, and I think that’s economically driven. We have had good organic growth in the Southern States and normal organic growth in some acquisitions in the Northern States. And we also had some hot weather in some of our States, not all of our States. But that led to almost a 20% increase YOY. So, a very healthy quarter with all of the foundations of our long-term strategy clicking.

The diversification idea now being in 13 States also is proving helpful when you look at rainfall patterns and temperature patterns. Our biggest State, Pennsylvania, which I guess you could figure over 40% of our stream, our revenue stream, did not have an abnormally good year so far. June was okay. The quarter was right on target. And although we’re seeing hot weather in the Mid-Atlantic Region it had hot weather with rain. That’s not good for us. Hot weather and humid weather is great for electric companies, but not necessarily for water companies unless it doesn’t rain a lot. We’ve had a lot of rainfall.

On the other hand, Texas, it was their driest April in history. Ohio and Illinois had five inches of rainfall, below normal in May and June. They helped. Florida, on the other hand, had the second wettest quarter on record at seven inches above normal. And Maine had six inches above normal. So, you can really see the – when you start looking down and drilling down into the different States we’re in you can still see the patterns that develop and how geographic diversity helps.

Obviously, I would have loved to have had a much hotter, dryer year in Pennsylvania since that’s 40% of our revenue base, but when that happens that would obviously make more of a bias on the numbers upward or downward.

As for growth, we’ve done a number of small acquisitions. We have a couple more in the pipeline. And that pipeline keeps getting fed because that’s part of our long-term strategy, to go after some of the municipal government entities and also the many small water companies that are in the market. And we’re not seeing pricing pressures in that area because of competition anymore. There was an AquaSource in [Bucane] and a lot of the electric companies were getting into the system, and we were starting to see some overpayment on the small systems. Unfortunately, some of the people are still thinking those days are here, and don’t want to sell until they realize that there’s a limit to what a company will pay. And we’re starting to see a lot of discipline from the European companies in that area, too.

The other big part, of course, of our story this year was rates. We had major cases in last year that are flowing in through the first two quarters, and will continue to help the first part of the third quarter. That’s Pennsylvania, New Jersey. Especially in Ohio. We had, and Texas, I’m sorry. Texas is in a fourth stage rate increase, the second stage occurred this year, in July. And that one is under bond until it’s formed. In Texas you’re allowed to raise the rates before you get the final ruling, as long as you bond it. And we’re – we have done that.

And, basically, we’re going through all of the regulatory approval processes, and we think we’re within six months to a year of final approval. It takes a long time in Texas, and it’s an expensive process. But we find it very predictable and a fair process, too. But, obviously, we have to qualify whenever you do something under bond, you’re never sure until the final document is signed. But that’s obviously helping the comparisons, especially in the AquaSource States.

And we have a number of cases that we’ve already done in ’05, a lot of small ones, mainly waste water with [DISC] filings, and DISC is the surcharge for pipe replacement. And we’ve had filings in Illinois, Pennsylvania, and in Ohio, all successful. And then we’ve had index filings, which is allowed in some of the Southern States where you can just get your index of CPI on your operating expenses on a routine year-to-year basis. We’ve done those in, I believe, in New York, which also allows that, but especially in Florida and Virginia where that’s a way of keeping up with regulatory lag on the expense side, and then you go in for a rate case when you have the major improvements.

And then we have major cases planned but not filed yet. They’re in Pennsylvania later this year, New Jersey later this year, and then Indiana later this year. And a major case in Florida, in our Sarasota Division, where we’re investing over $6 million to improve their waste water plant there and to accommodate the rapid growth that’s occurring in Sarasota.

So, you can see our Rates Department has been and will continue to be very busy, especially as we assimilate the capital that we’re spending to catch-up on the AquaSource States which was not spent by AquaSource, and that’s why they had so many consent decrees with environmental agencies which we’re now working our way off, and now assimilating the rates to pay for all of that investment. And that should be an ’05, ’06 process. At which point in ‘07 we’re looking at growth to carry us in the AquaSource States versus rates.

The other good news is we’re continuing to get more efficiency, obviously, you get more efficiency by economy of scale and investing in non-labor intensive capital, which we do when we change meters out, when we build plants we put automatic type devices so we don’t have as many employees, so that’s good.

And last year on this call we tried to say what would the annualized run rate of O&M to revenue be, because that’s the thing we track. We call it our ‘efficiency ratio.’ It’s really the reverse of the gross margin, but it’s a good way to track how we’re running the business, and whether the economy of scale and the expenses are being kept under control.

And when we extrapolate it in, the new system, it’s the small systems in the South, first AquaSource, and then overlay that with Heater and Florida Water, which all occurred in the beginning of the third quarter of last year. We said a year-to-year would have been basically a 42.5 efficiency ratio, much higher than we were used to at just Pennsylvania, which was in the 30s, and then consumers, which we brought down into the high 30s.

The trailing 12, which you can look at, but basically I figured we’d look to track it, because I think that’s the best comparison. We dropped that efficiency ratio down to 40.2. So, we’re very pleased that we’re on target.

Take the expensive costs out of the AquaSource, and we’ll continue to have as we replace people with capital, needed capital, and spread the existing administrative and operational staff, especially in the South, over more customers as the growth occurs. We’ll continue to see an improvement in that ratio. At this point, of course, our target is to get below 40 by yearend, and we’re working hard to get there.

I think our EBITDA, which is a good number to see where we’re generating our cash to work on future capital needs and so on and reinvest it, EBITDA has reversed and is now on the positive trend again. It’s still very positive. Even when it went down it was still above 50% which I think most companies would die for. But we hit this year YTD 52% EBITDA to revenue, and I think we’re back over 18% on return on revenue after taxes, which again is a very positive thing.

We’re also seeing a nice trend in the flattening of the yield curve, and trying to take advantage of it by locking in a lot of long-term financing. In the first quarter, actually second quarter, May we did 72 million in Pennsylvania, which will lock-in debt needs probably over the course of a couple years. But we’ve got 4.8% average on those three traunches. One was a refi. $20 million was a refi. The rest was new debt to build new pipe and water plants, and whatever. But that tells our customers for 30 years you’re going to have a very low cost of capital which keeps rates down. And allows us to have a little more flexibility for our equity component of the rates, which of course, that’s the part we earn for our shareholders.

We’re also going to do a major refi and new debt in Ohio, where we’re building a couple of plants and doing a lot of capital. And I believe we’re looking at even a lower rate now, maybe in the 4.6, 4.7 range for that 20 million or 22 million. So, you can see we’re starting to look at the difference between short and long-term. And it’s pretty compelling that we might want to have to start going a little more long rather than running a big short-term measure so we can lock-in some of these rates over the next couple of years which we think will stay in this, hopefully stay in this range, and give us a low cost basis for years to come.

I think that – those are the main points I’d like to discuss, and maybe we can open it up for questions?

[OPERATOR INSTRUCTIONS.]

Our first question comes from David Schanzer, Janney Montgomery Scott.

Yes, good morning. Congratulations on another great quarter.

Good morning, Dave.

I know you guys are going to be doing that August 9th Analyst presentation in New York, so I’m going to hold some of these questions till then. But I just wanted to get some clarification on some of the things that you said this morning.

You gave us a lot of color about the weather in the second and third quarter, but I was wondering if there was any way you could sum it up and kind of talk about it on a system wide basis as to whether or not weather was positive or negative for the quarter, and whether, I mean given the geographic diversification that you have? And whether or not it’s been positive as a whole for the third quarter?

Normal for the second quarter.

Okay.

Within I think half a percent of budget. Actually, it was below our budgeted number. And that’s because Pennsylvania was slightly below.

Right.

In the first six months, so it came back in June, that was good. And then to date, same pattern, Florida is now coming back. It’s not raining as much. Texas had a little more rain in July than it did in June. But it’s strong. North Carolina is very strong. Pennsylvania actually, although we had a very, very hot July actually didn’t have a great – because of the rain. Now, we’re having a great August, it’s only three days into it but it hasn’t rained for a week, so all of a sudden people are filing their pools and watering their lawns. But they hear on the newscast, 'thunderstorms tonight or tomorrow night,' and nobody waters their lawn.

Right. The other thing is you alluded briefly to some waste water kind of growth in the system, and I was wondering if you could kind of break-out the differentiation between customer growth for normal water usage as opposed to the growth in the waste water business?

Yes. Of course, the waste water ‘growth’ in units is more important than usage.

Right.

Because the usage follows directly. You don’t have a meter on your sewers, whatever your water bill is you just get charged on your sewer bill. So, your key is to not have a lot of infiltration inflow coming into your plant that you’re treating that you’re not getting paid for. You know, the rain water. So, that’s what we’re spending a lot of our capital to tighten up these systems which, of course, is right in line with what the environmental agencies want.

The second aspect of waste water is there is no new growth without waste water. The developers will always assume they’ll get water. Drill a well, you buy it from another municipality. There’s always water available. It’s the waste water that needs the environmental permits and stream allocations and spray fields and all of that. So, expertise in this area is very, very important to developers and new growth. And that’s why we’re looking at becoming the, you know, one-stop solution for developers as part of our future strategy for waste water.

We’ve been doing it a little bit in Pennsylvania. The fact that AquaSource really had a much larger share of their customer base in revenues in waste water, we now have more expertise than we had prior. And we’re trying to extrapolate that across the Midwest, too, to make sure that, you know, sewage is not just an afterthought anymore, it’s waste water that takes a little more. Waste water is no longer an afterthought of the water industry, it’s really part of our ongoing business.

And in line with that we’re working on legislation in Washington, twofold. One, we are basically convincing legislators, Congressman and the EPA that if they want the private sector to help solve the solution of waste water, which is a big part of the capital needs going forward, that EPA has said I think it’s over a quarter of billion dollars. I’m sorry, a quarter of a trillion dollars, 250 billion over the next 20 years needed.

We said if you’re going to do it with Federal grants then fine. Then it’s going to be a free money. And we can’t compete in that. And we’re seeing time and again people saying everybody has got to have fair rates, they have to pay for it, the Federal government is not going to get free money. And then 20 years later you have to rebuild the whole systems again, like what happened in the ‘70’s and ‘80’s.

A Bill came out last week of the house, I’m sorry, Senate Environment Public Works Committee, a key committee, and very clear that they’re going to give low interest loans, no grants, and that they’re encouraging privatization. And the third part is that private companies are eligible for these low interest loans. So, that would line it up with what the water companies and the water legislation have said for the last 20 years. I’ve found that very optimistic, and I think waste water is going to be one of our growth areas going forward.

Is there any way to put a number on that, like on a three to five-year basis as to in terms of maybe just revenue or just something so we can internalize it in one way or the other?

I’ll try and have that, Dave, a little bit more with clarity for the August 9th…

Great. Thanks.

The last question I have, and I know you’re going to be covering things like your, you know, initiatives, economic development issues, and what you’re doing with [arsenic] and supply, and CapEx, all that stuff on the 9th.

And the last question I wanted to ask today was with regard, you mentioned the DSIC, their sort of refilings and then the indexing that you were talking about, but I guess more specifically what I was interested to know is whether or not you had any plans to file for the DSIC State, in States that don’t have it? And, if so, which States?

It’s in all of our State Presidents’ objectives, to encourage their States if they don’t already have it, to file for the surcharges.

Any of these filings imminent?

We are working politically with the regulators in the legislature, but I can’t say, I don’t want to say that. New Jersey is a key State that does not have the surcharge. If you then go right across the Mid-Atlantic and Midwest every other State has it, Delaware, Pennsylvania, Ohio, Indiana, Illinois. Missouri does not, but is considering it.

It’s not as relevant in the South, Dave, because of…

Because of the indexing.

And the pipe isn’t needed.

Right.

We could get a DSIC, but we wouldn’t use it.

Right.

Because the pipes are new. And it’s all developers, and we’re making sure they’re putting in good pipes so we may never have to use it there.

Right.

Of course, our biggest State, Pennsylvania, is the one that we’re using it the most, and I think the relevance is really shown because the other utilities which are [automatic] on -- and if you listen to their conference call, back to basics, we love the regulated model, we’re going to start paying dividends, that’s a lot different than it was three or four years ago.

Duly noted.

Now, what we’re hearing is why shouldn’t we have the surcharges for gas companies and electric companies? And they see the value of what we fought for almost now 10 years ago, and it’s really helped build acceptability of the rates needed to redo infrastructure.

Okay, thanks a lot.

Okay.

We’ll now go to Kevin Monroe, Thomas Weisel Partners.

Good morning.

Good morning, Kevin. How are you?

Doing well. I was wondering if you could highlight, usually every quarter you kind of give out the rate cases that you filed in that quarter, and kind of what they amount in the different States. Can you go through that for the second quarter?

Sure. 2Q, we got the North Carolina Heater case, that was a new acquisition we did last, 3Q of ’04. We got rates in May, I think it was, equivalent to about a 1.5 million annualized rate. We received in April at an annualized rate of 1.3 rate increase in Vermilion, which is the Danville area of Illinois, it’s our second largest operation. About a half a million of index filing in Florida. About 100,000 of index filings in Virginia. About 9.5 million of surcharge filings in Pennsylvania.

And we’ve got, oh, waste water, we’re trying to get caught-up in our Pennsylvania waste water small systems, but that’s 125,000, which gets them earnings close to what the regulated return is. Huge rate increases, and we were able to get all of those done in a small rate case system.

And then we have a case filed in 2Q in Missouri for $1 million to consolidate rates, and that, again, we have a lot of small systems in Missouri, and we’re trying to get them to earn their keep.

We did get a waste water index filing, I think it was, which we did not get yet, but we filed it, which was your question, in 2Q in Indiana, about 300,000. And in Illinois we filed for three cases, large rate increases on three small systems which we had not gone in for rates for quite awhile, which would total 1.2 million in our request.

Thank you. Next question is on, you know, acquisitions have been a big part of the growth story for Aqua America, and the past two years, I guess, has been really highlighted with some of these significant acquisitions you’ve done. Can you talk about the landscape going forward in terms of the types of acquisitions you think you’ll be doing. Would it be more of the small systems that you’ve done in the past, or do you just still see some sizable deals to be had out there?

Well, the sizable deals, we’ll categorize two ways. One would be one of the existing large companies that used to be publicly traded, which are now privately owned, or still publicly traded. And we would be interested in any of those if and when they’re available. There the key is paying the right price, and not overpaying, because it’s an established franchise with established growth patterns, established regulatory patterns.

The second acquisitions of significant size would be some municipalities, and I would bifurcate those from the, let’s say 500 largest municipalities in the country which are about 100,000, 200,000 or more in customer accounts, because I think they’re more subject to the European model which is to run their systems rather than own the assets. It’s just a lot more politics in a big city.

Whereas, we’re starting to see a lot of interest now that the Federal Government has said ‘we’re not going to get any more grants,’ from small town USA to find a, you know, 5,000 people to maybe 25,000, 50,000 people. Which I believe is below the radar screen of the O&M contracts.

I mean they could do O&M there, but the real issue is these municipalities are facing major capital, and they don’t want to put the capital up and raise the rates. So, that’s the opportunity we see. Now, to predict that you’ll do one a quarter and get exactly X percent is very difficult. It’s a longer gestation period to work with a municipality than not.

There are still some reasonably sized private companies left, which obviously are our largest targets. But this is really working in the vineyards, and that’s why having people in 12, 13 States, and we have a corporate development person now which we did not have when we talked last about this, maybe a year ago. Every State now has a corporate development person who 100% of the time is knocking on doors. And that really is going to uncover new developers before they start building their own system and also the fact that we’re the only buyer.

We did have a bias, and I think I may have mentioned this earlier in the call, when AquaSource was out there, and some of the electric’s, and when the European market first started, the European investors first started getting in of to build their customer base, there was a little bit of overpaying, not only for the big ones. But a lot even for the small ones. And when we go knock on the door some of these people feel that those prices are still out there. At which point, we say ‘call us when you’re ready, here’s our price.’ And then there’s nobody else calling, so that’ll get some sanity back into that market. And we’re starting to see that turnaround a little bit, too.

So, a long-winded way of saying I think we have a lot of small out there. Our hope is we can get some more cities to move, and if a big one comes up we’re ready, but only at the right price.

Thank you.

We’ll now go to Stewart Scharf, Standard & Poor’s Equity Group.

Good morning.

Hi, Stewart.

Hi. Could you add a little color to your comments recently regarding private equities funds? And to acquiring utilities?

Right. I guess I’m switching hats from Aqua America to maybe my role as the former President and now past President of NAWC, our trade association, and now as probably one of the senior members in the water industry, the private water industry. And I just, I mean we saw a wave of investors come in with the electric’s, when they were all going de-reg and had a lot of money, and had to put it somewhere. All with a different strategy, and some of us sat back and said, ‘gee, they must be smarter than we are. What are we missing?’ And it turned out we weren’t missing much.

Then the next wave would be the European wave, which were the large multi-utility conglomerates which saw something called convergence that’s the issue, trading, electric to your water customer, things of that sort. And those payments were geared to a strategy that has not panned out. The other part of that strategy was beachhead to get into the bigger profits which are, and what they’re more known for, which is privatization of operating contracts for big cities, which has slowed down a little bit. I mean they were looking at one point, I know that because [Vivendi] had been a big ownership of our Company. I mean they thought the O&M market was going to grow at a 10% pace a year, which it hasn’t.

Now, this latest wave is and it hasn’t been voluminous, but we’re starting to see two or three funds looking at it. And I think you’re going to see a lot more in the electric area. And I think it probably has some more adaptability in the electric area if they’re willing to take low returns. But when you read or hear what their managers are saying, they’re looking for high teens in return, down from the low 20’s, and they’re looking at a possible exit strategy in a reasonable time period, three to five years. Which means you have a terminal value which then is calculated in present value fact, and that’s how you get your dollars.

Well, I don’t think the water business, which is 100 years of pipe, 45 years of plan, and your depreciation schedule is amenable for that kind of financial model. And I think, you know, you can’t put a square peg in a round hole, even though you can look at all of the various strategic reasons why it might work, it just physically won’t work. And, therefore, the regulators will react negatively when and if it doesn’t, it isn’t successful.

Now money funds, they can put their money anywhere they want. And if they’re willing to take low returns and bid properties up, that’s up to them, but there’s no magic of double leverage in this business, or such rapid growth or cutting costs. I mean one way, you know, the old private equities funds used to do a [cert], was programming is at the gate. You buy rentals, [fat] management, cut the costs, generate enough cash to pay your high-yield debt, and then sell the company for an enhanced value, right? That’s the old strategy. Or go public. None of these companies are big enough to go public other than probably the European companies, the ones the European companies bought.

And the second piece is if you want to cut costs, that’s great, that’s what you should be doing, but your regulators are going to take it back and give it to the customers, not to the shareholders. So, the model is different, and I just want to make sure the private equity funds, when they jump into this, because they’re hearing how great a business the water business is from all of the, you know, TV talk shows, that they think it through. Because I don’t want the way that we’ve built, I think a major trust factor with regulators, on what we’re doing, we’re investing huge amounts of money, and hoping to get it back by regulators being fair. We don’t want that type of trust broken by somebody who misreads the financial model.

Does that help?

Okay. Yes, very informative. And just one quick question that shouldn’t take you as long to explain. Just targets for efficiency ratio remains the same, 100 to 150 basis points a year, and targeting 36% within two or three years?

I’m going to, at the Analysts Meeting, maybe I’ll try and refine that a little more because now we have a five-year model we just developed. But I think our target for this year was to get under 40, and I think that’s doable. It depends on, obviously, the weather in the third quarter, because that’s where your revenue stream comes from and some rate cases. But I know our expense line is on target. I can’t say what the revenue line is, and that’s the other part of the formula. But we’re still hopeful to get under 40.

Okay. Thanks a lot.

Good.

Your next question comes from Michael Gaugler, Boenning Scattergood.

Good morning, Nick. Good morning, Dave.

Hi, Mike.

Congrats on another great quarter.

Thank you.

Listen, most of my questions have been answered, but I do have one follow-up to Kevin’s questions on the acquisition. I noticed that you bought several properties out of a bankruptcy estate. And I was wondering is this kind of a one-off for you, or are these types of opportunities becoming more frequent?

Well, I would say that a bankruptcy is the ultimate definition of a troubled water company. And that’s the only difference. It still pumps water. This guy didn’t even, couldn’t even pay the bank bill.

So, but I would say it falls in that definition of the small group which many are still operating and troubled but need investment, and the manager says, ‘okay, I just can’t raise this kind of money, or I don’t have the professional expertise.’ And they’re the ones that the various States, we’re working on legislation in Ohio but we have the legislation in New Jersey, and Pennsylvania, and North Carolina, where if it’s a troubled company you get what you pay for it, so there’s no risk in acquisition adjustments. You pay more than what the ‘rate base’ is, because these States want these companies fixed.

And they’re the ones that probably, you know, the old 20% of the problems cause 80% of the noise, whatever it is. These are the ones that the regulators hear the most about, even though they’re small, because they have troubles. So, the bankruptcy one is, yes, it’s probably an exception rather than a rule, but it’s just the worst of a trouble company that couldn’t even keep their liquidity.

And this is a follow-up, did the State contact you on this one or did your own internal people turn this one up?

No, this is one where it was well known, I mean our internal people knew about it, but the State turned it up because they basically had tried to work with this gentleman, and especially the DEP which is the environmental agency, he actually, you know, purportedly, I wasn’t there, but chased them off with a shotgun. So, they said, we’ve got to get this guy out of business or we’re going to lose an inspector, I guess.

All right, thanks, Nick.

[OPERATOR INSTRUCTIONS.]

Our next question comes from [Steve Gambuzo], [Longbow Capital Partners].

Good morning. I was wondering if you could tell us what CapEx was for the quarter? And if there have been any changes to kind of your long-term capital budget, which I think was around $200 million a year in your 10-K. I don’t know if that’s been revised per your recent Board meeting?

Well, Steve, I can tell you what our planned capital is for this year, and that is – Dave, help me, 262?

Right.

Okay. And I don’t, I assume in the K we said over $1 billion over the next five years.

Exactly.

And I think when we look at our five-year plan that could be higher. And I think we’re seeing 250 run rate this year, which I think is not only sustainable from a standpoint of capability to do it, you know, and prudency and need. But also sustainable in getting it back in rates.

And would the increase versus what was in the K, would that be driven by just more pipe replacement, or what would you say is the driver in the increased capital deployment expectations?

Well, the increase for this year was major construction in some of our AquaSource space, which won’t be repetitive. Major waste water plant upgrade in a town called Monticello, Virginia, which is one of the fastest growing areas in Virginia, and they were held back from growing because the waste water plant was in violation.

Major expansion and upgrade of a plant in Sarasota, Florida. And cleanup to the tune of probably $15 million, $20 million of wells, tanks, whatever, in Texas for promises AquaSource made back in the mid-‘90’s, late-‘90’s, and never delivered. So, those are all getting done, so the environmental agency – and one more in Indiana, a water and waste water consent decree, again, signed on by AquaSource, and that’s over $10 million to $12 million there.

So, all these things are getting done so that the environmental agency can say, ‘okay, this company is now meeting all of the standards.’ On the other hand the repetitive part is the massive amount of pipe we’re putting in in New Jersey, Ohio, Illinois, and in Pennsylvania.

Great. Thank you very much.

And at this time, we have no further questions. Mr. DeBenedictis, I’d like to turn the call back over to you for any further remarks.

Okay. I appreciate everybody’s time, and if you have anymore questions we’re all available today or any time. And I hope maybe many of you can come to our Analyst Briefing on August 9th. Thank you.

Once again, ladies and gentlemen, that does conclude today’s conference. We do appreciate your participation. You may now disconnect.