Essential Utilities Inc (WTRG) 2011 Q1 法說會逐字稿

Good day, everyone, and welcome to today's Aqua America, Incorporated first-quarter 2011 earnings conference.

Just as a reminder, today's call is being recorded.

At this time, I would like to turn the conference over to your host for today, Mr.

Brian Dingerdissen, Director of Investor Relations.

Please go ahead, sir.

Thank you, Sarah.

Good morning, everyone.

Thank you for joining us for Aqua America's first-quarter 2011 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 www.AquaAmerica.com or by calling Fred Martino at 610-645-1196.

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

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

As a reminder, some of the materials discussed during this call may include forward-looking statements that involve risk, 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 risk and uncertainties.

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

A 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.

Nick?

Thank you, Brian, and good morning, everyone.

I'm very pleased with Aqua's first-quarter results, which established new records for the Company.

We had solid top-line revenue growth of approximately 7%, chiefly from our elevated capital investment program's successful rate activity, complemented by customer growth through acquisitions from the 23 acquisitions we did last year, and the 1% customer growth.

Also, our management team exhibited continuous improvement on cost control, something that we have been working on for over a decade, and that further improved our industry-leading efficiency ratio, which I will get into later.

Now, what's most important for our shareholders, Aqua reported record net income for Q1 of $30.4 million, up 41% from the $21.45 million in 2011, and will pay our normal June 1 dividend at a rate 7% higher than last June's dividend for our shareholders.

Earnings per share for the quarter were $0.22 versus $0.16.

Our earnings were positively affected by a favorable tax policy for capital-intensive industries in Pennsylvania, initiated early in 2011 by the new Corbett administration.

Basically what the policy did in Pennsylvania was couple the state tax policy with the existing federal tax policy regarding the 100% bonus depreciation, which was from September 8, the federal law was passed in October, retroactive to September 8, 2010, through December 31, 2011.

The state policy was initiated sometime in February of this year, and was retroactive to those same dates, to align it with the federal tax policy.

Our first-quarter earnings were positively affected by $4.3 million post-tax, or almost $0.03 a share, and about one-third of that $0.03 relates to the retroactivity to September 8, 2010, which was all taken in the first quarter.

This is the first time in a decade, that I can remember, that we have reported earnings supplemented by non-GAAP financial measures, so that we could be very clear for our shareholders as to what our core earnings were, and what this special tax policy at the federal and state level did for our earnings.

And I'm very proud of the strength of our core earnings, and you'll see that in the adjusted non-GAAP that they're very strong, without the tax benefit.

Matter of fact, our adjusted earnings from core were up a record 21% from 2010, $0.19 versus $0.16.

Our capital program for 2011 is expected to match 2010's record $327 million, and it's this capital program that's helping not only improve our environmental programs and rebuilding our infrastructure, but it is also having a very positive side effect of creating jobs in the economy where we operate.

And I think that's exactly what the federal and state tax incentives are trying to encourage, so I really feel this is a win-win.

The increased cash from the tax policies will strengthen an already-strong balance sheet.

Our Aqua Pennsylvania A-plus rating was reaffirmed this quarter by S&P.

For the first time in my 20 years, our cash from operations will exceed our capital budget for 2011.

We have abandoned all of our planned borrowings for 2011 therefore, except to complete a previously committed $65 million special program with the CanAm US Immigration Investor Program.

This is a special program which we found out about, applied for, and were committed to be able to borrow $65 million at 2% for 5 years.

And we felt that was a very positive program, so we have decided to move ahead with that borrowing, and I'm sure with our planned 5-year capital spending, we will have plenty of time to spend it.

We also expect our equity to capital ratio to improve about 100 basis points during '11, over plan by the way, with no equity offering planned.

EBITDA is now projected to increase to the $420 million to $425 million range, it's a healthy EBITDA, the revenue multiple, as you can see, and that raising our long-term CAGR growth, and maintaining our, really, our long-term CAGR growth of about 10%.

That's been a CAGR, at least for 10 years we've been averaging 10% a year on our EBITDA growth, and that will continue.

Cash from operations is also being helped by cost control, which I don't want to avoid.

We're growing revenues at a much faster pace than our expenses, and of course, that helps the bottom line, improving margins.

First-quarter O&M expenses were actually down, as you can see in the Q, but I wanted to make sure you understand that was helped by the sale of a water system in Texas, and how the accounting is accounted for that.

Taking that sale out, O&M would have been up 2.5% on a same-store basis.

I think that's a relevant number, and I'm happy with that kind of limited growth in O&M, when you're growing your revenues 7%.

Our buying power really has helped keep chemical costs flat, which they ran up 2 years ago and now have flattened out a little bit, and we're buying on national basis now.

And bad debt, which is always something you should look at with a utility, our bad debt also remains well under control at less than 0.6%, that's 0.6% of write-offs.

We're looking to capital programs continuing to be ear-marked.

Since our compliance need is now well below 10%, we're using it to look for areas for environmental improvement, and to reduce purchased water expense, which is already fairly low as an industry standard.

Right now, 3.6% of our water revenue is purchased water, so you can see it's not a big part of our overall revenues already, but we have some projects where we think, by infusing capital, we can get that down further and be 100% non-dependent on outside purchases.

And of course, the solar projects, we have found they were very beneficial to our customers and the environment, and we're going to undertake at least 3 more and get them done by the end of this year, so we can take advantage of all the favorable tax policies that are inherent in these alternate energy bills passed by the states and the federal government.

We will probably be one of the largest solar users -- or solar providers, I guess you could say, in the state of Pennsylvania when this is done.

We're also expected to complete our asset swap with American Water of our Missouri properties, which is about 3,500 customers -- I'm sorry, 3,700 customers for their Texas properties, which is about 5,300 customers.

And we're projecting late Q2 early Q3, well ahead of the schedule Jeff Sterba and I projected when we agreed to this arrangement in December.

This will be a help for both companies, as we have economy of scale in Texas, they have economy of scale in Missouri, and it would be better serving those customers in those states to have a larger, more efficient company.

We will also be announcing a number of small acquisitions in Pennsylvania, Texas, North Carolina, and Virginia over the remainder of this quarter.

An expansion of water sales in the Marcellus Shale billing area of Pennsylvania, which we think we're providing a great public service to get some of these trucks off the small-town roads.

And also, we project 15 to 20 small acquisitions this year, and we'll grow our customer base over 1% in 2011.

We're still waiting for housing recovery, that's slow, and once that comes back, we'll be back a little bit better towards our norm of 1% just in organic growth.

Rate recovery remains on track with $11.5 million of estimated increases in annual revenues granted thus far this year, and we have $26 million in rate cases currently pending.

Now these rate cases are driven predominately by capital investments versus operating costs, so we're hopeful that we'll get most of our requests, because it's mainly to pay for the capital that we have already invested.

These rate activities will positively affect 2011, the rest of 2011 when they're granted, and also into 2012.

We will be filing major cases later this year, statewide cases that will affect our 2012, 2013 results.

After what I consider a very strong first quarter, I'm more confident with the current first call of $0.97 from operations, and I want to give you some idea of what the taxes will do.

Now that $0.97 does not include the $0.03 that you'll see in the $0.22, so $0.19 is what I'm counting towards that $0.97.

And going forward, about $0.01 to $0.02 per quarter for the remainder of 2011, you can calculate in, in addition to the first-call numbers that we talked about.

Just one slight caution, as we look at the second quarter, is what I'll deem April showers.

They were twice the expected rainfall in Pennsylvania, and the Midwest as you know from the national news reports, had one of their wettest Aprils, and unfortunately, there's a lot of flooding, on record, but it's a bright sunny day today, May 6, and that gives me hope that the quarter sales will normalize over the next 45 days, and it will be a normalized quarter.

That's the end of my formal remarks, if there's any questions?

(Operator Instructions) We will go first to Michael Gaugler.

Congrats on a very nice quarter.

Yes, we're very happy with it.

Listen, just 2 areas I'd like to focus on this morning.

First, you mentioned something about no borrowings for the remainder of this year.

Given your access to cheap capital that you've already highlighted, would we be anticipating interest expense going down through the course of the year?

Well, the interest -- well, if we had borrowed what we had planned in our budget, then our interest expenses would have gone up over last year.

So in that sense, less than what we had budgeted.

But the fact that we took down so much debt last year, Michael, you remember we did all those tax exempts, which we still are sitting with, because you draw on those as you do the projects, so we have about $134 million of cash on hand from those tax exempts, but they're in the interest category right now.

I wouldn't see interest expense going down from last year, but it's going to be less than what we had budgeted, and that's why I'm comfortable with the first call.

Okay.

Then just one final clean-up, bonus depreciation, obviously nice to see that coming through in Pennsylvania.

Any talk of extending that through 2012?

In Pennsylvania?

Yes.

No, I think this is -- obviously they can do anything they want.

The federal government drops in 2012 from 100% to 50%, so the state -- Dave, you will have to help me.

Dave, that's normal depreciation -- they go back to normal depreciation?

Yes, the state policy has only been to accept, on the flow-through method, the 100% depreciation.

So when we revert back to 50% in 2012, there is actually no impact on Pennsylvania tax calculation.

Now, from a cash standpoint, Michael, the fact that we have spent so much capital, which is nothing more than we've been spending, the $325 million, but the effect of that will give us some NOLs going into 2012, right, Dave?

Right.

And we'll give you some numbers on that when we do a little advance after we -- this all happens in a month.

(laughter) I mean, the bill was passed and then retroactive, or the policy was set retroactive, but it didn't happen until late February, so we're still doing projections, but we can give you more information if you want to call us later.

Sure.

But the extra deferred taxes from -- in 2012, because the federal government has said they're going to continue at the 50% bonus depreciation versus normal, so there'll be another $18 million to $20 million in cash.

And the fact that we have so much in the way of deductions in 2011, and retroactive to 2010, those NOLs will carry forward to 2012.

So the cash picture has changed greatly for us, therefore your very intuitive question about, will expenses go down, is accurate, because we're not going to be borrowing as much.

We will use the cash from these special tax policies.

Okay, and if you'll allow me just 1 more follow-up that came to me while you were explaining that, Nick.

Maybe a question for Dave.

So Dave, can we assume that your rate of income tax paid on a corporate basis in 2012 will be lower than 2011?

Well, we're really not going to pay anything in 2011, and in 2012 we will pay some state income, and again, no federal.

Of course, in 2012 it all appears on the income statement, it is just deferred because of the tax policies and the NOL carryforward.

Got it.

That's what I was fishing for, Dave.

Thank you.

Very good.

We will move next to [Ted Harper].

Good morning, gentlemen.

I was hoping, Nick, you might be able to elaborate a little bit more with respect to the opportunity sets before the Company in addressing the water needs in the Marcellus, and the increase in activity up there?

Sure.

We have 50 or so water plants and wells in towns that we serve outside of southeast Pennsylvania, where there is no drilling.

The predominant finds in the Marcellus, and they're now looking at the level below that, called the Utica, the richest part of those veins are where there is very little current infrastructure for drilling.

There is drilling infrastructure in southwest PA, and that's why a lot of it's happening there, because that's where the oil industry and gas industry always were concentrated in Pennsylvania, remember, Sir Edwin Drake, 1859.

But gas has always been a predominant factor in the economy of southwestern Pennsylvania, so the infrastructure was there.

So most of the drilling started there, 2 or 3 years ago.

What they're finding is the amount of gas recovered in the north, I'll call it north central region of Pennsylvania, with the center point being in a town that we serve the water, Sayre, Pennsylvania, Towanda, Pennsylvania, you'll hear those names quite a bit more going forward.

And then in the northwest area, above Oil City, there's quite a bit of drilling starting to occur.

And so what's happening is these wells need a tremendous amount of water to inject into them that they then -- that hydraulically forces out the deposits of gas, and the gas comes up pretty clean.

So an average well may use as much as 4 million to 5 million gallons of water, and to get to these remote areas they're using trucks that carry 5,000 gallons.

So if you divide into that, it's 800 trucks per well.

And that's a lot of truck traffic, a lot of diesel fuel being used and so on.

And in order to find the water, these trucks are going into small towns and buying water from facilities like ours, right in the middle of Sayre, or right in the middle of Factoryville and places like that.

What we're doing is setting up, what I'll call gas stations, for a better word, water stations, where we will get the water right to a spot off a major highway, so they don't have to go through these small towns and rip up the roads.

Saves the truckers time, which of course, the transportation overwhelms the cost of the water, so that will get them more profitable, and we've set up 4 already, and they're being heavily used.

And I'd say it's the equivalent of maybe right now, 0.3% to 0.4% growth, just if you take the amount of extra water we're selling at these stations.

And at this point, we just came up with the idea about 3 or 4 months ago, we tested it, we have to get permits, we got permits on these 4, but I think it's going to take off a little bit.

I don't want to make this sound like we're going to be the next Exxon or something like that, with gas stations, but it's a service, and believe me, the regulators are very happy with what we're doing because it's keeping the trucks off the small roads as much as possible.

And we're looking at other ideas to also deal on the water sales side of the Marcellus needs.

Fantastic, Nick.

Any sense with respect to you getting involved on the back end, in terms of the reclamation of that used water?

Yes, we have been looking at that for about a year and a half, because the environmental agencies in Pennsylvania, I'm a former regulator, they came to us about a year or a year and half ago, and asked us to do some R&D type work on what could be done with what they call the flow-back water.

At that point, the flow-back was being brought to sewer plants, basically diluted, and then put in the streams.

And Pennsylvania just about a month ago, ruled that that's no longer an acceptable practice, so it's now being stored on-site.

A lot of it is being mixed with other water that comes in, with these trucks, put back in the hole for fracking, but eventually there's always going to be some flow-back.

As long as you're drilling more wells than you're producing out of, you're always going to have a place to put the flow-back, right, Ken?

But if you -- once you hit an asymptote where you're drilling and reducing at the same point, that flow-back water, which I'd say is about 20% of the amount of water that is initially put in, has to be all the way treated, et cetera.

So we have an RFP out for a mobile-type treatment unit, and we're looking at it, but at this point the demand isn't there yet.

But we will be ready when the demand is there.

Any sense of taking that business model and bringing it to Texas as well?

We had -- the answer is, I haven't really explored it because we've been using Pennsylvania as the pilot, but there is no reason why we shouldn't do it in Texas.

As you know, we have -- we are the largest water company in Texas, and we're heavily in the Houston, Dallas-Fort Worth area, where most of the Barnett and Marcellus is being -- I don't know if they call it Marcellus, I think it's more Barnett shale drilling is, and itt's something we will absolutely look at.

Appreciate it.

Thank you.

(Operator Instructions) Moving on, from Wells Fargo we will go to Jonathan Reeder.

Just some clarification on the annual cash flow benefit from the state tax change.

Did I understand correctly that basically all your book taxes are now going to show up as deferred in the cash flow statements for 2011?

Well, on the state side, Jonathan, because the Pennsylvania policy regarding this 100% depreciation is a flow through, it actually shows up right on the income statement in a reduction of state taxes.

So it's not deferred per se, where you would see it on the balance sheet; it is right on the income statement.

Okay, that makes sense.

And then Nick, just some clarity on your comfort with the first-call estimate.

Are you including one-time gains from the system sales?

Yes, I am including about $0.01 that we got in this first quarter, but I'm glad you brought that up.

If we take the tax out, and we're one of the few companies, as you know, that have actually earmarked this and reported it accordingly, because we thought it was material, $0.03 on a $0.19 quarter.

We thought the shareholders should know where we got $0.03 from.

We took it, it is great news, it is real money, but we thought we would start with the $0.19, and that's where we're starting the first call.

Now let me express the $0.01 that we got gain out of the Texas utilities sale, which ended up in the O&M reduction under the accounting rules.

That's why I earmarked that, and said our real run rate was 2.5%, not a negative O&M.

Having said that, in the first-quarter last year, in the $0.16 was the $0.01 we picked up from our investment in Southwest Water, which was a strategic investment at the time, but then we sold our shares for about $0.01 of profit Q1 of '10.

So if you want to do it on a non-acquisition, non-investment basis, Jonathan, it was really an $0.18 versus $0.15 quarter.

Right, that's what I was going with personally.

(multiple speakers) So, with that $0.97 --?

The $0.97 I'm including that -- I'm starting with a basis of $0.19.

Okay, and are you factoring in any other system sales during the year?

Not that I'm aware of, but I can't say if one comes up, it would show up in the O&M, and obviously we're not going to sell unless we make money.

Sometimes what's happening, this one in Texas occurred because the community insisted that they wanted to buy it, and they gave us a price that we couldn't refuse.

So if something comes up like that, we will take it and (multiple speakers) --.

Sounds like the Godfather made you an offer, there?

(laughter)

Yes, right?

(laughter)

(multiple speakers) All right, last question if I could, the Marcellus efforts, when might we actually see any sort of earnings coming from that business?

I mean, it sounds like it's just getting going right now.

I mean, is that something that might show up a little bit in 2012 or 2013, as far as adding a couple pennies or --?

I think I'm going to keep expressing it in sort of like effective units, so let me give you an example.

If out of this gas station, which we would not have had -- water gas station, which we would not have had a year ago, we sold 1 million gallons.

The price is unregulated, so it will be more money than we would sell that 1 million gallons to a normal customer, because, I mean, we have costs, and we have to manage it, and it's not part of the regulated model.

Your margins on those unit sales are actually higher than under the regulated model, is what you're saying.

Yes, it has to be, because we're assuming 100% risk, whereas the rate payer assumes no risk, other than getting these trucks off their roads, they don't want, where we're serving water regular.

Now here's the example.

The average person uses, I don't know, 150 gallons per capita per day.

That's what a customer unit would use, that you would say, how many customers do you have, how much are your revenues per customer, how much are your profits per customer, right?

Yes.

So what I'm going to start expressing is reporting how much we sold.

You can divide it by 150 or 200, and see how many equivalent households that would be.

And that's why I related it to, I think it's going to amount to about 0.3% or 0.4%, in what I would call, what you would call normal acquisition growth, that would be the extra sales based on the Marcellus.

And I do think it will grow, because right now the gas companies are accumulating leases, so that they have, basically they're trying to buy up everything before somebody else does.

And once they start drilling, they have drilling permits, but they haven't done drilling in all those permits they had.

It is when they actually drill that they use the water, so I anticipate in 2012 and 2013 that the usage of water in the Marcellus area, whether they buy the water from us or not, I can't say, but will grow geometrically.

All right.

I appreciate the additional insight, Nick.

Up next, we'll go to Garik Shmois of Longbow Research.

Thank you.

I was wondering if you could talk a little bit about consumption trends that you saw in the quarter, perhaps break it down by end market.

I'm sorry, I couldn't hear you.

Oh, I'm sorry, I was wondering if you could talk about consumption trends during the quarter, units of volumes sold and perhaps break it down by end market.

Yes, consumption trends, of course, get masked by weather conditions, so we had some were up, and they were mainly in the south.

We had a cold winter.

I would say consumption was flat, at best.

Industrial-commercial was up, if that's what you're asking for segmentation-wise, and that's the economy coming back.

We track our top 10 here in the southeast, and they were all up.

But I would caution you that if you're looking at a 5-year model or something, we do not see consumption per unit going up, because of appliances and things of that sort, and since most of our customers are residential.

I think, Dave, help me, I think it's 80% is residential sales or even more now of our revenues?

A little less than that.

Certainly the majority.

Right.

So you could argue 20% of our sales are more subject to the economy, and 80% more subject to usage patterns, either through weather or through conservation.

And if conservation occurs, we re-bracket, as soon as we go in for rate case, which is normally a 2- to 3-year cycle, so the lag is not great.

It's, as I say, always masked by weather.

One hot summer will mask it for a couple of years, versus if you have a wet summer, that accentuates it because you're not selling as much.

I see it, and maybe this is my former environmental days as a regulator, I see it as a positive because that means our capital could be more directed to infrastructure versus building new plants and having excess capacity.

And I think that helps breaks, service, makes your customers happier, so overall I think if you look at it over a 5-, 10-, 20-year period, it's a positive.

Okay, that's helpful.

My last question is, a quarter ago, I believe you had some excess costs related to main breaks, so I was just wondering if you had seen that at all --?

It's funny, the main breaks, we were getting killed in January, I thought it was going to be our worst year ever.

And then they just stopped, almost on a dime, and it looked like summertime.

I mean, not that the weather changed that much.

So I think there was a cold spell that knocked out all the weak pipe that we haven't replaced yet.

Not one of our -- December/January was rough, but not one of our breaks was on a pipe that we've replaced in the last, I think, 20 years.

So it truly shows that anybody who's not keeping up with infrastructure replacement at a reasonable pace, 1%, 1.5% a year, 100-year cycle, 75-year cycle, is going to be behind the curve.

And you usually know that when the cold weather hits at a little bit more of an extreme.

This was a colder winter than normal, and I think you also recognize it if you live in any major cities.

I think you saw the cities hit a lot harder this December/January than in past years where you saw some major main breaks in some cities.

That's a very generalized comment, related to where you live.

But I think I recognize that in a couple of the big wells, here in Philadelphia, I know that was the case.

So the costs, whatever they were in 1Q, were less --?

Oh, yes, they're done.

They were all absorbed in Q1, probably, I wouldn't even say it was a $0.01 of extra cost in overtime and so on, it was probably less than $0.01.

Okay.

That's helpful, thank you very much.

Gerard Sweeney from Boenning has our next question.

Please go ahead, your line is open.

Good morning, gentlemen.

Congrats on a good quarter.

A little bit more of a upper-level question.

I know Aqua is very productive in managing their regulatory relationships, educating, advocating the need for appropriate returns on investment, et cetera.

But with what I call almost a lingering economic malaise here, does this ever come up in discussions with regulators, when you're working on new rates?

I mean, unemployment is still upwards 8.8%, 9%, any concern from regulators?

Yes, I think ROEs have been pressured over the last 3 years.

And I think, what was looking like it was going to be high 10%s, low 11%s, especially for the electrics, you are seeing them come out now with mid-10%s to low-10%s.

And obviously, we're experiencing that also.

But that's all in the projections I'm giving you.

Okay.

I think once the economy comes back, which it is, it is just it hasn't related to employment yet.

And the other very subtle issue, Gerry, is the average government worker who is your regulator, right?

Yes.

They haven't had raises in a couple years, and I think they are feeling the economic downturn as much as anybody, and it hits home when you go in and discuss, you asked in your top-level discussions, I think that's part of the issue, they are experiencing it personally.

Therefore, are very, very astute at how they're handling returns, and expenses especially, which it really helps us.

If you're a high-priced brand from an operating expense, I think you're up for more scrutiny than a company like ours, where we can compare ourselves to other, absolutely the electrics and gas company, because we have very low operating costs.

But even the other water companies, and even the municipal water companies, we stand very well when we benchmark all our expenses.

That's the first thing they look at is how efficient are you, what expenses can you cut so we don't have to raise rates?

Got it.

Okay.

Thanks a lot, I appreciate the insight.

Up next from Gabelli & Company, we will hear from Jose Garza.

Nick, I was just wondering if you could give a little bit more detail on the rate cases you guys plan to file; just the major ones?

Sure.

Well, we're in statewide cases right now, in 2 of our southern states, North Carolina and Florida.

We're in the end throes of a case that was filed almost a year ago in Texas, southeast Texas, which is Houston.

And we have, we're within weeks of getting a final ruling on about 3 small wastewater cases, which is Pennsylvania, where we consolidated all our southeast operations into 1 rate case, and 2 small sewer cases in Indiana.

Going forward -- so those are very, very relevant cases still in place that we will probably be getting decisions on within, in the second quarter.

Regarding to-be-filed, which will be late 3Q, early 4Q, would be major cases in Pennsylvania, probably New Jersey, all of these, I'm qualifying it because when we work these tax issues through, we want to make sure that our earlier models are still relevant from the standpoint of need for rates.

But pretty confident with the capital we're spending, it's going to overwhelm any of the tax policies.

So Pennsylvania, New Jersey, we have 3 small cases in Maine, which should be completed well before year end.

And let's see, I'm missing one, Indiana, we will be filing something in Indiana -- now, where else, let me get my sheet out [or I can] talk from memory.

We will be filing another case for the Austin area in Texas, and possibly the Dallas-Fort Worth area, that will be a major case.

And we filed just 2 weeks ago, a statewide case in Illinois.

That would be a statewide ruling.

That won't occur probably until late this year, versus the second or third quarter, because it usually takes 10 or 11 months in Illinois.

And I think -- oh, a small case in Virginia, some currently unregulated facilities, the state regulators have asked us to bring it into the regulated domain, so we're going to file those as a group in Virginia.

Okay, and then on the depreciation side, I think you mentioned $0.01 to $0.02 effect per quarter for the rest of the year?

Did I hear that correctly?

Yes, the state -- Pennsylvania state tax benefit that would add to previously budgeted earnings, based on their ruling to do 100% bonus depreciation along with the feds, will add $0.01 to $0.02 in the second, third, and fourth quarter of 2011.

Okay.

And then that -- so that $0.03 to $0.06, you are not taking that into account in your comfort level with the first-call number?

Yes, exactly.

Okay.

(multiple speakers) Thank you very much, guys.

Nor did I take into effect the $0.03 already in the first quarter.

I only counted $0.19 towards the $0.97.

Okay, great, thanks.

Congratulations on the quarter, guys.

Okay, good.

(Operator Instructions) It appears we have no further questions at this time.

Mr.

DeBenedictis, I would like to turn the conference back over to you.

Okay.

Thank you, Sarah.

Thank you, everyone, for being on the call, and have a good summer.

And that concludes today's conference, we thank you all for joining us.