Essential Utilities Inc (WTRG) 2010 Q2 法說會逐字稿

Welcome to the second quarter 2010 earnings conference call for Aqua America.

(Operator Instructions).

At this time I would like to turn the call over to Brian Dingerdissen, please go ahead sir.

Thank you Mike.

Good morning everyone.

Thank you for joining us for Aqua America's second quarter 2010 earnings conference call.

If you did not receive a copy of the press release you can find it by visiting the Investor Relations section of our website at AquaAmerica.com or call Emily Herman 610-645-1196.

There will also be a webcast of this event available on our site.

Presenting today is NickDeBenedictis, Chairman and President of Aqua America along with Dave Smeltzer, the Company's Chief Financial Officer.

As a reminder, some of the matters discussed during this call may contain forward looking statements that involve risk, uncertainties, and other factors that may cause the actual results to be materially different from any future results as expressed or implied by such forward looking statements.

Please refer to our most recent 10-Q, 10-K other SEC filings for a description of such risks and uncertainties.

During the course of this call reference may be made to certain non-GAAP financial measures.

Reconciliation of these non-GAAP to GAAP financial measures are posted in the Investor Relations section of the Company's website.

At this time I would like to turn the call over to Nick for his formal remarks.

After which we will open up the call for questions.

Thank you Brian.

Thank you all for joining us this morning for what I think will be an upbeat call.

Let's start first with the numbers for the quarter.

Revenue is $178.5 million, up 6.6% for the quarter.

Expenses $69.3 million up only 1.1% quarter over quarter.

Net income $29.9 million, almost $30 million, up 15.5% for the quarter.

And EPS $0.22 versus $0.19 on less than 0.80% dilution from outstanding shares and that is also up 15%.

And in line with the six month $0.38 versus $0.33, again up 15%.

So a very solid quarter.

Based on our results and also our strategic planning session, our board yesterday at the board meeting did recommend, declare a dividend increase of 7%, up $0.01 a share per quarter from $0.145 to $0.155 a quarter or $0.62 on an annualized basis.

That keeps intact what I think is one of the best dividend records on the New York Stock Exchange stocks, this is our 20th increase in the last 19 years.

It's been a consistent greater than 5% dividend increase year-in, year-out.

We're very, very proud of that.

Let me take some time and drill down on the revenue numbers first.

Because I think that's the most relevant.

Also, talk a a little about the expenses including interest and depreciation.

Give you ideas of where we are today and where we'll be for the rest of the year.

And then about the rates program to date this year and what is still outstanding.

And our capital program.

Well first of all, on the revenue side, the two areas that we have some control over both are showing a positive trend.

That is in the acquisition and rate case areas.

The one area we don't really have much control over but is really the general economy or cultural use trends, is organic growth and consumption.

If you take the 6.6%, roughly half of it is rates, about 3.4% of it and of that about 1.5% is what we call the surcharge where we get recovery for pipes and infrastructure rehabilitation.

The remaining 3.2%, or the other half, breaks down into about 1% acquistion and organic customer growth which has shown a little bit of life after last years comparisions.

The other 2.2% is consumption.

We did to return to normal weather in June.

April and May were very wet and weren't good months but June was a great month and that made the quarter positive for consumption year-over-year.

And of course we were up against a wet year in 2009 so the 2.2% is considerable but was up part of it was the based on 2009.

Looking at the gross side, the acquisitions last year we did about 18 acquisitions and grew about a 0.05% and then another 0.30% to 0.40% on organic, about 4000 for the entire year.

This year we've already done 12 acquisitions.

We think we're going to end up the year between 20 and 30 so an upbeat look at the number of acquisitions and the number of acquired customers so we think we'll be closer to 0.75% quarters by the end of this year and, therefore, share some positive year-over-year growth between 2010 over 2009 versus 2009.

Just to give you an example, just in Pennsylvania I was looking at the details statistics last night.

The six months through first six months of 2009 we add only 23 customers on a base is of over 300,000 and this year and I think some of it has to be attributed o the first home buyer because most of these came in April and May, but for the first six months in 2010 when we saw 466 customers.

That's nothing to write home about, but it's more normalized you know 0.60%, 0.70% growth that we used to see own Pennsylvania and that showed up in the first quarter.

So obviously let's hope it continues for the rest of the year.

So a little bit of glimmer of hope on the acquisition and the gross side customers, and we are seeing return to consumption and normal use levels as the weather has been hot in the area.

The capital program which is part of our investment for the future has done very well.

We're ahead of schedule.

We're already $141 million logged under on a $300 million plus budget and we're getting a lot done and we're seeing good prices as we bid these projects out from contractors and the other part of it, of course, is that we're internally generating most of the cash, 80% to 85%, which is why we're not seeing the need for much equity but on the other hands we're still borrowing money and I want to get into that I little bit.

The EBITDA was up again 10%.

The trailing 12 month EBITDA to revenue is about 53.5, which is pretty healthy.

And we think it'll continue increasing for the full year we can look for it to go up maybe another 50 basis points.

So more cash is being generated.

Regarding the expense side of the equation let me start with the interest in depreciation and then talk about O&M.

On the interest side we are up 10% for the quarter.

We're doing some borrowing to support the major capital program.

We did $70 million private placement in June, came in under 5%, about 15 to 16 year average life.

Pretty healthy and good rate.

We have a refinance that's due now.

Ten years ago we floated $3 million in tax free bonds.

Coupons were over six.

We think we're going to come in under five on the refinance so that'll be a savings to our customers and we planning to out with that plus we've been given verbal approval for another major tax free in Pennsylvania and we think the timing is right with the AMT still eligible in 2010.

We will be able to get lower rates on those bonds.

Again, we think under five.

So we're anxious to get the debt at these prices while they last.

Because of all this borrowing I think we should be looking at interest growing year-over-year, probably in the 10 to 15 range and then levelizing to the lower end of that range in 2011 and then actually dropping into the single digits as we get into 2012 and don't need as much borrowing percentage much our total debt load.

And again very little equity moving forward because we're using retained earnings to do most of this capital program.

The capital program still sits $1.5 billion over the five year period.

That's been pretty consistent and as we of who out a year you just keep adding the same about $300 plus million dollars.

The D&A is up 7%, a little over 7.4% quarter-over-quarter.

I think that's a pretty good projection for the year as we look at where our G&A will be so that's becoming a little bit more standardized.

Regarding O&M we had another great quarter shall a 1% increase second straight quarter of that and we made it due to labor.

We've had control and we've watched dollars and cents.

We resolved all our union contracts with no strikes.

We received what I think are fair concessions regarding pension and health care and all were 3% or below on increases in salaries.

Chemicals we've seen about a 20% drop and so that's a plus commodity plus and electric, we actually are using our solar to replace about a third of the use of our power plants.

That's actually cut our electric bill.

Now as we go forward for the rest of the year I think because we have some back end loaded pension and the electric rates are due to go up this half I don't think it's going to be very difficult to maintain the 1% level.

On the other hand, the bills for the increases for the pension and the electric rate increases were figured in as we went into our Pennsylvania case so we're covered in rates on it.

We're covered on the revenue side, but I don't think I want to lead you to believe we're going to hold expenses at 1% a quarter for the next two quarters although it'll still below our norm.

It'll still be in the 3% to 4% range or less.

One of the things that's really helping us and we're very pleased with is our reduction of bad debt.

Down $500,000 this quarter over the last year's quarter and if you look at the trend, in 2008 our bad debt to revenue was 1.1%, Still a lot of utilities would be very happy with that number.

That's the highest we've ever seen.

In 2009 due to our practices and collection practices we lowered that to 0.9%.

If you look at the first six month is we're down to 0.7% bad debt write-off and that's showing a positive trend on the EPS but more importantly it's showing that we have a key part of our business completely under control even in light of the current recession.

If I could switch now to rates, very positive quarter for rates as we settled two big cases that were in the last conference call up in the air.

Now they're actually being billed and we've reached agreement with the regulators so we have about ten cases behind us already through the first six months representing $43.7 million of annualized revenue.

We put that over the $700 million or so in total revenues for the corporation you can see it's a built in 6% top line growth for that 12 month period.

The company still has about $13.7 million in cases pending and they're in a couple of the bigger cases one in Illinois, one in Indiana, one in Ohio, one in Florida.

All are being briefing and we've had hearings and so on and we anticipate rulings on those sometime before the end of the year.

Most of the results of those, however, will end up impacting 2011's revenue stream whereas the first batch that I mentioned were a little bit split between 2010 and 2011.

You can almost figure half and half because most of them happened in June.

And then ever course we have another whole program getting ready for next year and later this year.

So you can see the infrastructure rebuild that we're doing in our system which has been very effective at reducing all our environmental issues and also rebuilding our pipe we're starting to see drops in unaccounted for water and lost water and pipes as you put the pipes in that's a very positive benefit for the environment.

It's cheap and we just got our second solar grant.

We'll be the largest solar producer in Pennsylvania and it really does make sense for a utility that's going to be around hopefully for a hundred years.

Even 20 years.

Because the pay back period is usually five, six, seven years and a lot of investors don't want to risk money for six, seven years, but this then is the gift that keeps on giving after that seven years and it not only helps our shareholders but helps our ratepayers.

I think I already mentioned the debt and the imbedded cost of debt now from most recent offering is down to 5.4% on over $1.6 billion and of course that should come down as we look at another $143 million going out under 5%.

So we're very pleased with that and we retained our A + rating when we did the last offering.

So it's been a busy quarter but a very productive quarter and I think I will open it up for questions now.

Thank you very much.

(Operator Instructions).

We'll go first to Jim Lykins of Hilliard Lyons.

Morning, Nick and congrats on the quarter.

Thank you, Jim.

Just a couple revenue questions first.

I was wondering if you guys are still seeing any kind of lingering recession issues on the commercial and industrial side and also if you could just comment on usage related to the -- or what you're seeing right now related to the low-flow devices and also just conservation from your customers.

Sure.

Let me give you the overview of how much our sales are so it puts it in context.

About 75% of our sales go to residential.

Yes.

15% commercial and then about 4% industrial, we're not heavily industrial and then 6% is the miscellaneous, fire, fees, things of that sort what our company is responsible for.

On the industrial side we actually saw a little pickup.

You can't relate industrial to water, but we did sell year-to-date about 4.2% so that's more than the rate increase and 4.4% the quarter.

So we're starting to see a little bit of life in the industrial side.

On the residential that's where we made most of the consumption gain and of course the rates were included in there.

That was up about 7% for the quarter year-to-date 3.5%.

So you can see this quarters really helped.

I'm going to say a lot of that was consumption and rates but a little bit of it was the growth I mentioned earlier.

And I guess in a back way that answers the usage.

Even though people are using the devices and that's a steady 0.50% or so decrease because of low flow toilets and things of that sort, the consumption patterns have returned from a standpoint of usage.

I guess what I'm saying is people didn't stop washing their cars and watering their lawns because it got hot but they still take showers with a low-flow shower head but that has been happening over ten years.

It's gradual.

The commercial side a little flatter and year-to-date up 2.1% so just about what rates were up.

3.1% for the quarter so just a little above what the rates were.

Actually no.

Rates were 3.4%.

So it's about right even with so I would say the consumption didn't return.

I'm on the board of an electric company we're seeing the same pattern.

The smaller businesses are not coming back as fast.

Yes.

They're flat.

They've not gone down any more but they are flat.

We are not seeing, however, an increase in bad debt which would be showing up in that figure and we're seeing increased steady across the map of collections.

And even the industrial numbers are a pretty small component, are there any concerns that there are any heavy manufacturing facilities out there that might change that number?

No.

Our areas are mostly pharmaceutical.

We don't have any big auto or something of that sort that you know where you lose a plant.

The only place we used to have that was in Ohio and a lot of that we lost in he have 2007 and 2008.

Ohio dropped pretty good in 2007 and 2008 The two biggest concentrations for industrial are Maine, where our biggest customer takes seaweed and makes (inaudible) for make up and vitamins.

So I think that's a pretty steady market.

The other industrial is our Illinois where they have -- it's pretty diverse manufacturing.

There's no one industry.

Some pharmaceutical and so on.

Okay.

Switching gears a little bit could you talk a little bit about the acquisition landscape.

I know you can't make any specific comments, but if you're thinking 20 to 30 for the year, could you just give us maybe a feel for whether or not some of these might be some of the larger ones, maybe that sweet spot for you which I think is about the 3,000 to 5,000 number of connections.

You know, just also in general any comments you might have about the overall landscape.

Well, we've been doing a generalized 25 to 30 year even though we dropped a little last year.

We're picking up the pace again this year and I can't tell you we have -- we have one out there that has I think 2500 customers that we're talking to and should close before the end of the year and we did (inaudible) this year which was 3,000 earlier in the year I think it was.

They come -- you know, basically they're in the batch and we're talking to in every states probably a couple dozen.

We're always talking to them and we're concentrating on the smaller ones where we have a decided advantage because we're in those states and nobody else is there yet and we're really hustling in this area.

This is the area I think that distinguises is us and has for the last ten years when we look at some ten year cagers.

Although everybody talks about acquisition, we're probably the ones that's year-in, yeaer-out, the one that's doing both numbers and actually number of customers.

Having said that we're not happy with the current pace because we would like to get it at least double that.

I mean our organic growth needs to be a 1.5% because of North Carolina, Texas, and some of the Southern States and that's now dropped down to 0.50% so that's -- we blame on the economy but the other 2% to 2.5% of our 4% was from acquisitions.

So you are seeing we are running at half the pace we use to and we're just going to have to pick it up and that was the most of the discussion yesterday at our strategic board meeting on acquisitions and.

Okay.

I think we have -- mean the finances are there, the people are in place are there.

Its just when people are ready to sell.

Yes.

We can't control that.

Okay.

And one last question.

How much is the -- or what's the size of that tax free debt you were talking about NTA?

The $43 million, Tim, is the refinance so that is an easy that ove (inaudible).

We have asked for and we've had verbal indications that we can get another $100 million on top of that before the especially of the year.

Okay.

Thanks, Nick.

Now that'll carry us through for almost a lot of the capital program in Pennsylvania well into 2011 so you gets the money on time.

Okay.

We'll move next to Christopher Purtill of Janney Montgomery Scott.

Yes.

Thank you.

Hey guys, congratulations on the quarter.

Thank you, CJ.

Just wap to talk quickly about expenses, the efficiency ratio.

That was really strong during this quarter and I'm just wondering if you think there is still room for sequential improvement on that mid 38% level into the -- third quarter or do you think that level should kind of hold steady into the back half of the year?

Well, as you know, CJ, the -- we call it our quote efficiency ratio we track it pretty consistently and last year we came down to 40.3%.

We were up in the 41%, 42% range there during the clean up of the Aquasource which was 2008 and 2007.

Right now the trailing 12 months comes out to 39.5%.

The 12 month this time last year was 40.7%.

So you can see it's about 120 basis points.

If you take the 40.3 which we ended last year and take that 120 basis points you can see you're down to 39.1% so I'm pretty confident that at year end we'll be in that 39% range, maybe -- ten basis points below it, maybe ten basis points above it.

So you can see the acceleration is going to continue because we're adding revenue s faster than we're adding expenses.

All right.

Great.

And then just on -- rates you talked a bit about $28.5 million in planned cases to be filed before the end of the year.

I am just wondering if you can give us a little color there just maybe the amount that is surcharge related versus general filings or if you have any color on maybe.

Sure.

Maybe the filing in.

We'll be glad to spend extra time with if you want after the call.

The big cases -- let's see.

We're going to be filing in Florida.

We've already announced that.

We have a case -- another case -- two other cases in Indiana, one of our new acquistions that we have now fixed up and actually both are fairly new acquisitions.

We also have a couple surcharges late which is very small 85,000 and another water pass through in Flordia.

The big cases, though, are going to be in Florida, Texas, one of the regions in Texas, actually two of the regions in Texas, and North Carolina.

That consolidated case.

And while we're on that I do not want to note (inaudible) we did resolve in (inaudible) case against our Texas rate case.

The judge ruled in our favor and there was no appeal.

So that one now is done and that was a -- huge risk, I guess.

That's why we put it in the queue if had gone against us.

So that's good news and the other issue that we are in the midst of resolving was in the last (inaudible) is the suit that the -- group of homeowners had against the old Aquasource claiming that the old Aquasource President had promised he would take down a sewer plant.

Of course, he never thought what he would do with the sewage if he didn't have a plants there but other than that a small detail.

We had to work that out with them, which we did.

We have a settlement and it's in front of the IURC to be approved.

So two of those big issues that were in the queue are on their way to -- the last two are on their way to resolution.

So now thousand, they're the cases they're mostly southern cases, Indiana being the exception.

We have a couple small ones in Maine, but that's consistently (inaudible).

They add up to $28.4 million.

Okay.

But the majority being rate cases as opposed to surcharges?

Oh, yeah.

Yes.

Okay.

Well, we do have one surcharge.

Pennsylvania.

You know but that's the -- we just got the case so the third quarter we wouldn't be filing against, but the fourth quarter we anticipate filing and of that $28 million about $7 million of it is the disc.

Okay.

Perfect.

So that 25% you could argue, 25% our surcharges (inaudbile) and the rest is then subjects to the normal negotiation litigation practices of a rate (inaudible).

We're sometimes (inaudible).

Okay.

Great.

And then just lastly if as you look out for financing requirements you're generating a lot of that cash internally now, but is it fair to say you're still looking at a small $1 million to $1.5 million in new shares in the next maybe six months or -- I guess any color you have the on the timing or --

Yes.

I think our plan on -- the acquisition pace that I mentioned earlier in the call and the $300 million capital pace and the borrowing that we're going to be a chiefing and the cash we're generating the only shares we're going to need are the 1 million or so shares a year that we sell-through the (inaudible).

Got it.

Not an extra 1.5 million.

Now couple of types of acquistion that Jim had asked about we would be glad to sell shares to pay for them because they would be accretive immediately.

All right.

Great.

Thanks, guys.

Okay.

(Operator Instructions).

We'll next go to Gabelli and Company's Tim Winter.

Good morning, Nick and congrats on the quarter.

I have two questions for you.

One, the two larger cases that you settled this quarter I guess that's Pennsylvania and New Jersey.

Can you provide a little more color there?

Sure.

Effective dates, ROEs, revenue amount.

Yes.

I'll do them in chronological order.

Although we filed in December the first one that we resolved, we filed it a month after the Pennsylvania case in New Jersey which actually resolved a month in advance which is an all time record for us.

We had stipulated 10.3% which is the highest ROE we've ever received in New Jersey and the total settlement was $4 million, I believe, right?

Most of the deductions were based on ROE, we had asked for 11.75% or 12% on the ROE side so you bring it down to 10.3%.

All capital was allowed throug October.

We won't end up with lag because the capital was allowed through a certain time period even though we settled.

(inaudible)Now, you know, when you do these black box settlements what I think we got I mean they may have given it to us and which on the apples you make up for the on the oranges.

I don't know how they classify the apples and oranges and how we classify them, but we think that we got all capital allowed, all pension requests allowed (inaudible).

That solidifies our pension plan and that's part of the reason that the OEM is going to go up in the spend half a little faster than 1% because all the pension in Pennsylvania is back end loaded we wanted to make sure we got the case first before we added to the pension expenses.

Electric rates they gave us electric through the rest the year so we picked up some of the increases that are coming in from the electric rates.

Allowed for solar plant which was a policty call.

I think they were appreciative of what we showed them the pay back and I think it's a real win-win and a couple positions here and there but nothing significant that we argued over.

Dave, anything else you can think of?

No, but I would say in addition to ROE the only other cut backs were expense related and they were things that changedduring the context of the filing and we were able to reduce our expense claim in the case for those matters.

That's significant.

Our chemical costs when we bid them out this year came in 20% or about a $1.25 million less than a year prior which was in the case so we gave that back and the same with electric.

When we put the solar on, we were saving more electric usage than we had anticipated.

We gave that back.

So those are the kind -- I mean we didn't give back anything that they didn't deserve to have, but that was significant drop in the (inaudible)A couple million, $2.5 million right there.

Okay and the revenue amount was what and were you willing to talk about the ROE?

Sure sure.

23.6% is what we were given and that I think represents a somewhere between 10.5%and 11% and I can give you a call later on that.

Okay.

And hen moving on to the southern -- the Aquasource can you talk about the performance there ROE wise and I guess specifically Florida, you know, your ability to consolidate --

Well, this -- quarter for the first time ever we were able to tell our board every unit that we had that we bought from Aquasource is now profitable.

So the cases now turned them around.

We are still not earning anywhere near our expected ROE in Florida.

Until the Sarasota case comes in which is a pretty healthy case, what's that about $2.5 million -- Sarasota water is 1 point -- about 2.4 million.

Until that comes in that's a third of Florida.

We won't be earning our keep and then the next case in Florida is going to be to get our ROEs up.

I would say the ROEs in Florida are very low single digits.

And that's going to be one of our concentrations.

We are done with all the capital.

I say all.

We have completed the major environmental issues, all meters are new and now we're going to be more of a reliability and sustainability type so much lower than the infusion, now we have to get recovered all that capital we put in.

Okay.

Great.

Final question.

The through the month of July how is consumption across the bigger service territories?

Is it dry.

That's interesting.

You're in the Midwest so you can comment what it's like in St.

Louis.

Illinois has been hottest and wettest July on record.

It's just rained every day.

In Pennsylvania we're a little better off.

We were just looking at these numbers earlier.

We had a record number of days over 90.

On the other hand, the rainfall was 43% above normal.

So what's happening is every third day we have a thunder storm and soaks the ground so we haven't seen as much -- I'll call it a blow out if you want to call it that.

Nowings compared to last year when it wasn't hot and it rained every day it's going to be much better so July will be a good month year-over-year comparison, but didn't beat budget by that much because we had anticipated returning no normal, but it was a little over budget.

So if we can continue that trends we'll have another good call in three month.

Okay.

Great.

Thanks, Nick.

We'll move next to Jonathan Reader of Wells Fargo Security.

Good morning Nick and Dave.

Hi Jonathan.

How are you, .

Doing well.

Like Tim, I'm trying to survive the heat out here but -- yes.

Yesterday was quite incredible, well over a 100 degrees but if we could touch on consumption, Nick, you kind of talked about a 2.2% of the growth in Q2, at least revenue wise , was consumption so that's like $0.01 to $0.015.

Is that pretty much all weather and would that just be a return to normal

Yes.

I think the two would be I would say all weather, Bob.

Because the rates are in the three four.

Yes recalled say that's all weather.

It's really year-over-year we had such a bad year in '09 that some of this has returned.

A lot of the -- at least in the Pennsylvania, Ohio, area Illinois has been the low last year all year so (inaudible) economy.

Texas is down, Illinois is down, North Carolina -- North Carolina is up sharply and Pennsylvania is up over year-over-year but we had such a lousy year last year.

Jersey is way up over last year.

They're much more volatile in their swings so the Jersey Company you're going to see bigger swings I think I think in their profits this year and that's good for them.

We're little bit more levelized because of our diverse nature and because we're not big in New Jersey.

That's when we saw the biggest jump from last year but also we saw the biggest drop last year.

Yes.

So I think you said last year weather might have been a negative $0.3 so between Q2 and the good July or a decent July probably have made up the drag from last year and are kind of at a normal pace?

?

I would that's a good -- that's a good estimate.

I think, you know, that would give you at least 10% over last year (inaudible) you can see we're running almost 15.

Right.

Yes.

That's the next thing I want to touch on.

You talked about five to seven for the first half before on the net income growth.

Clearly you know you out paced that.

Second half you had mentioned kind of seven to ten.

Is that still valid or you think we can get above there?

I don't know -- I don't want to go out to the fourth quarter yet.

July I'm a little more confident that we will meet the upper end of that range.

Hopefully, August is solid and that would get to at least ten, maybe a little higher.

What happened in the first quarter, Dave gave that projection back in I guess it was late winter when we were at a conference.

At that point because we didn't have our rate cases in but equally we didn't have any idea that -- you know, that the I'll call it acquisition slash organic growth wasn't in the pre fall.

We weren't seeing anybody hooked up.

I'm a little more optimistic in that area.

And the other big drop was we were figuring 3% to 4% on expenses and we're running at 1%.

That really -- and bad debt being one of those and so on and so I would say the surprise on the upside in the first six months other than June a little snap back in weather was really expense control and lower interest rates.

The -- Dave, what are we borrowing at now we have $150 million at 1.2%.

In the mid 1%s.

Mid 1%s.

We didn't project that.

We thought it -- you know, remember this time last year interest rates were going up early in 2010 been they're going to go up 100 basis points and all that stuff.

That's what we had modeled and it stayed down that's why we're still borrowing so.

I would say that's the difference.

Now, the second half I think OEM interest rates because we're growing down some of those tax (inaudible) are going to be more normalized .

That's why when I wanted give you in the callor forward-looking how much those pieces will go up but we're still generating more cash than we thought.

The EBITDA is up because the expenses and OEMs are down and that's helping so we don't have portfolio are row as much because the bottom line haven't had to borrow as much.

We have the cases behind us a little bit more predictable on what that should bring in and with a good July I'm thinking consumption on the revenue side will be more of the driver in the second

Yes.

The forward-looking statements comments are always appreciated, Nick.

That's for sure.

Dave, if you don't mind talking about the equity ratio down about 100 basis points from where we were a year ago.

What's kind of the desired range right now on the consolidated basis.

Well, we've always tried to stay in that low 40s range.

We think I that's the right balance in that it keeps us in good instead with S&P but it allows us to capitalize our utilities at the appropriate rate relative to their regulator's interest.

So this has been a year for debt.

We have some more debt coming in later in the year that will draw over the next two years so we are going to sew a little bit of and imbalance from and historical range but we also see it recovering over the next two years as Nick mentioned without necessarily the need nor new equity.

So we are going to stay pretty tight to that but we will see a little imbalance and then back to the norm over the next year or two cycle.

Okay.

That's helpful.

And then just last question Nick would you call anything else nonrecurring I think you said in Q1 there was alike a $0.01 investment sale gain.

There wasn't anything similar in Q2, was there?

No.

Actually Q2 last year had a, if you want to call it, non-GAAP.

I think we sold a system last year, Bob.

Yes.

And that was a $0.005 to $0.0025.

The numbers look even better when you look at it that way.

Because see that was -- when we do a sale we are told that the accounting practices if it's not a land sale, if it's a system sale, you deduct as long as it's in material you deduct it from expenses so that made expenses look less last year by whatever that was, $600,000 or $500,000.

After tax.

After tax.

Pre-tax about a million dollars.

Yes.

So you can see the pair son would even be better on (inaudible).

Great.

That's all I have.

Thanks so much and congrats on a good quarter.

And I want to tell you I appreciate the write up I read (inaudible) on the dividend how utility dividends are being used today.

It was very helpful.

Well, we appreciate the free plug.

Thanks.

(Operator Instructions).

We will now go to William Carapucci of Luminus Management.

Hi, guys.

I have a question on the $23.6 million that you received from Pennsylvania.

Can you -- is that number after the surcharge revenue has been I guess reduced to zero or is that -- how do I think about that $23.6 million --

Sure.

Sure.

The actual -- between the last case and this case 7.5% was added on to people's bills because of the infrastructure surcharge.

So if it were a dollar in the last case for the same usage, the person would be paying $1.075 and then when we got this case effective June 15th $23.6 million was added to that or 6.6%So the average customers new bill without a surcharge now is $1.141.

Okay.

That helps.

That's in addition to the surcharge of revenue?

Well, that's absolutely, yes.

Okay.

And so what -- can you just give us an idea of -- in the two years since you got the last rate deal in Pennsylvania what the total surcharge revenue was?

Yes.

Basis.

We should have that somewhere.

If not, we'll call you back.

Okay.

That's fine.

I'm going to guess it was in the $25 million range but we'll get back to you on that.

Okay.

Perfect.

It has to have been more than the 6.6% because of the 7.5% rate, but it doesn't -- it doesn't lit the 7.5% until like the last couple months so the early stables there's one 1% and 2% it builds up.

So when you level eyes that off over a two year period probably somewhere around 5% so I'm going to guess about $30 million -- 5% of 700.

Oh, that's right.

I'm doing the whole company.

It's $300 million.

Is that about right?

We'll get you contact numbers of surcharge came in since August of 2008.

That's when we started the surcharge for the next two years and we'll add it up over those quarters and give you the exact amount that was rolled in.

Okay.

That's sounds good.

Thank you, guys.

Okay.

(Operator Instructions).

And there appear to be no further questions at this point.

Gentlemen, I will turn the call back to you for any additional or closing remarks.

Okay.

Thank you very much and thanks for your time today.

That does concludes this conference.

Thank you all for joining us.