Good morning, and welcome to American Water's First Quarter 2015 Earnings Conference Call. As a reminder, this call is being recorded and is also being webcast with an accompanying slide presentation through the company's Investor Relations website. Following the earnings conference call, an audio archive of the call will be available through May 14, 2015, by dialing 1 (412) 317-0088 for U.S. and international callers. The access code for replay is 10063598. The online archive of the webcast will be available through June 8, 2015, by accessing the Investor Relations page of the company's website located at www.amwater.com. I would now like to introduce your host for today's call, Durgesh Chopra, Director of Investor Relations. Mr. Chopra, you may begin.

Thank you, Allison. Good morning, everyone, and thank you for joining us for today's call. As usual, we'll keep our call to about an hour. At the end of our prepared remarks, we'll have time for questions. Now before we begin, I'd like to remind everyone that during the course of this conference call, both in our prepared remarks and in answers to your questions, we may make statements related to future performance. Our statements represent our most reasonable estimates. However, since these estimates deal with future events, they're subject to numerous risks, uncertainties and other factors that may cause the actual performance of American Water to be materially different than the performance indicated or implied by such statements. Such risk factors are set forth in the company's SEC filings. I encourage you to read our 10-Q on file with the SEC for a more detailed analysis of our financials. We will be happy to answer any questions or provide further clarification, if needed, during our question-and-answer session. All statements in this call related to earnings per share refer to diluted earnings per share. And now I'd like to turn the call over to American Water's President and CEO, Susan Story.

Thanks, Durgesh. Good morning, everyone, and thanks for joining us. With me today are Linda Sullivan, our CFO, who will go over the first quarter financial results; and Walter Lynch, our COO and President of Regulated Operations, who will give us updates on our Regulated Business. Once again, we delivered solid results for the first quarter of 2015 despite challenging winter weather in some of our states. This is a direct result of our employees, who are out there every day working for our customers to make these financial results happen. Turning to Slide 5. Our quarter-over-quarter revenues increased 2.8% to $698 million. Earnings from continuing operations were $0.44 per diluted share. This is a 7.3% increase over the 2014 adjusted EPS of $0.41, excluding the $0.02 cost impact from the Freedom Industries chemical spill in the first quarter of 2014. Turning now to Slide 6. You see our growth triangle and highlights of the progress we're making on delivering on our strategy. Our foundational base for earnings growth continues to be the capital investments that we're making in our Regulated operation in order to provide clean, safe and reliable service to our customers. Through March 31, 2015, we've made about $167 million in infrastructure investments. We plan to invest $1.1 billion in our Regulated Business this year in order to improve our water and wastewater systems, with another $100 million budgeted for acquisitions and strategic investments. Since the start of 2015, we have received rate case approvals and infrastructure surcharges in several of our states. We also filed general rate case requests in 3 states, and we have a pending settlement in Maryland. We're able to make needed infrastructure investments that are good for our customers and which minimize their bill impact through both our continued focus on controlling…

Thanks, Susan, and good morning, everyone. As Susan mentioned, we're off to a great start in 2015, continuing our commitment to investing in our infrastructure while focusing on improved O&M efficiency to mitigate the rate impacts for our customers. Turning to Slide 10. In recognition of the investments we made to ensure clean, safe and reliable service for our customers, we received a rate order in California providing $5.2 million in incremental revenues effective January 1, 2015. This rate case outcome continues to demonstrate constructive regulation in California, allowing recovery of SAP costs, sharing of onetime proceeds from groundwater contamination litigation and a forward test year approving $126 million in new investments through 2017. Susan will be speaking in more detail later on the call about California water supply challenges, but I wanted to emphasize that we're working hard in California and our other states to balance needed investments with what customers pay for service. In West Virginia, last week, we filed a rate request for $35.6 million. The primary driver in this request is the investment of approximately $105 million in system improvements made since 2012 as well as an additional $98 million that the company plans to expend on recurring and investment projects through February 2017. These capital investments include upgrades to the water distribution system, water treatment facilities, storage tanks and pumping stations. All are necessary to maintain and improve water quality, reliability, fire protection and customer service for approximately 1/3 of the state's population served by West Virginia American Water. The request also includes a reduction in operations and maintenance expenses of $1.1 million when compared to the last rate filing. In fact, the current operations and maintenance expenses are at their lowest levels since 2010. This rate case does not include the costs incurred from…

Thank you, Walter, and good morning, everyone. I will start on Slide 13, which is our new format intended to expand the transparency of our disclosures by showing the contribution to earnings per share by each business segment. On the left side of the page, we show our consolidated first quarter results. Adjusted EPS from continuing operations was $0.44 per share, up 7.3% over the same period last year, after adjusting for the 2014 costs associated with the Freedom Industries spill. The Regulated segment continues to be our largest contributor towards earnings in the first quarter at $0.45 per share. Our Market-Based Business contributed $0.04 per share. And our parent company drag, which is primarily interest expense on parent debt from the RWE period, was $0.05 per share. These solid results increased our consolidated adjusted return on equity for the 12 months ended March 31, 2015, by 40 basis points to 8.88%. Now let me discuss the different components of our first quarter adjusted EPS growth from continuing operations on Slide 14. Our starting point is first quarter 2014 EPS from continuing operations of $0.41 per share, which is adjusted for the Freedom Industries chemical spill. We reported first quarter 2015 results of $0.44 per share or $0.03 above 2014 adjusted EPS. The major drivers of this increase were, first, $0.02 from higher incremental regulated revenue from rate increases and infrastructure surcharges for a number of our operating companies, partially offset by decreased demand from declining usage. Next, Regulated O&M was lower by $0.02 due to lower production costs mainly from lower fuel and natural gas prices as well as the positive impacts of the California rate case settlement, which allowed recovery of certain SAP implementation costs previously incurred. Partially offsetting these decreases were higher employee-related costs due to higher…

Thanks, Linda. In closing, we're going to highlight American Water's leadership in delivering innovative solutions to address the 2 key water issues facing our nation today: water supply and aging infrastructure. These are very real issues that will affect our economy, our standard of living and other basic life functions into the future if we don't plan well and execute the right actions now. Unlike electricity, where you can build a plant to create more, if you have reduced surface water or groundwater supply and you've optimized conservation, your remaining options are pretty much desalination and water reuse. American Water is leading in all of these supply options as well as in conservation efforts. California offers us the opportunity to utilize this wide array of expertise. As many of you know, with the drought worsening, the Governor of California issued a 25% mandatory reduction of water usage. Our Monterey Peninsula Water Supply Project is a critical part of addressing the ongoing drought there while reducing our dependency on the Carmel River for supply. This project includes a total investment of about $300 million, which includes a desalination plant, which will be owned and operated by California American Water as well as 30 miles of pipeline, 2 booster stations and a reservoir. This energy can be up to 55% of the cost of operating a sea water desal plant. We will employ energy recovery devices to lower the plant's power use, and we hope to purchase half of the power needed from an adjacent landfill site. The plant will also include an innovative subsurface intake system, which uses slant well technology that draws sea water underneath the sand near the shoreline and avoids the harming of marine life posed by traditional open-ocean intakes. Lastly, we're adding 2 additional Aquifer Storage and…

[Operator Instructions] And our first question comes from Daniel Eggers from Crédit Suisse. Daniel L. Eggers - Crédit Suisse AG, Research Division: Just looking at Slide 11, you guys are showing kind of progression toward your stretch target on the efficiency ratio. Is 34% feeling like a stretch given the fact that you've got 4 years to get there? Or is that number going to keep pushing lower and you're going to surprise us again?

Well, the 34% is our stretch target. And as you know, as you get closer to that, it gets a little bit more difficult. So we still see that as achievable. But it's also a stretch target, so we're working towards that. Daniel L. Eggers - Crédit Suisse AG, Research Division: So the rate of improvement is going -- we should be assuming in our numbers the rate of improvement is kind of coming to a much slower move than what we've seen in the last few years?

Yes, I'd agree with that. Daniel L. Eggers - Crédit Suisse AG, Research Division: Okay. On the -- on Slide 33 in the back, where you guys show the acquisitions completed last year and then what's kind of in process this year. Can you just remind us how much money was spent on the acquisitions capital investment-wise in '14? And then what is the total amount that you'd be putting forth in '15 to close the deals that are ongoing?

Dan, we had about $8.4 million that we incurred in 2014 for the closed acquisitions. And then we are -- currently have approximately $100 million that we have set aside for strategic acquisitions and regulatory acquisitions for the full year this year for these acquisitions as well as other pending. Daniel L. Eggers - Crédit Suisse AG, Research Division: So Linda, you're going to have to find some more deals than what's on here to get to the $100 million dollars. Is that right?

Yes. And remember, Dan, we also have some flexibility in terms of the capital spend to deal with some timing issues there as well. Daniel L. Eggers - Crédit Suisse AG, Research Division: Okay. And then, I guess, just one last question on the nonreg side. Revenues are up fairly nicely in the quarter, but the expenses moved in step. Did you guys prefund some of the military work in the first quarter so that there'll be more profit ongoing? Or is that -- or just maybe explain why those things kind of moved at the same rate.

Yes. So we do see an increase in the costs associated with the military contracts that is tracking with the revenue that we recorded. We also had some timing issues in the HOS business as we had some marketing and start-up costs with Orlando and other contracts. And then we also -- as we continue to optimize the Contract Services business, we had some onetime adjustments last year. Daniel L. Eggers - Crédit Suisse AG, Research Division: So if I were to think about normalizing out kind of the Orlando upfront and some of those contract adjustments, how much extra cost was that in the quarter? Just to try and get our variance right.

So I don't have those numbers right in front of me, Dan. But I think we can -- the way that we look at it is that we've included all of those costs in our reaffirmed earnings guidance.

Our next question comes from Shar Pourreza from Guggenheim Partners.

So the delay that I think we mentioned in the prepared remarks for the military contracts, was that more administrative? Or maybe just a little bit of color there.

It was actually more weather-driven.

Okay, got it, got it. That's helpful. On the E&P business, I think this has sort of been highlighted as a potential opportunity for some time. Are we sort of still in the early phases? Or are we kind of getting to the point where we'll see some inflection points?

Shar, this is Susan. We are -- there are a lot of changes, as you know, in the E&P space. What we have found, interestingly, is that as a lot of the E&P companies are reducing their capital, they tend to look more toward their core business. And for the ancillary services, we found that there are more who are willing to sit down and talk. The real issue becomes the ability to do a partnership that is mutually beneficial. And as we have said before, we are not going to go with a high-risk profile to get into that business. So anything we enter would have to require the -- we would have to get the return of any capital we expend in a short period of time, so we are in discussions with different groups. I think it depends on the deal. And we also want to make sure that it leverages the core competencies we have in the water business and doesn't get far outside of that. So yes, we continue conversations. In terms of are we close or not, it just depends on the deal and as we see the rest of this year unfold. One thing we do know is in our regulated side on shale, in 2015, we actually -- looks very good for us. Because as -- while they are not opening as many wells, the ones they have are much more productive. So on the regulated side, we're seeing some movement there. On the unregulated, we just have a different way of looking at it to ensure we remain disciplined.

Got it, got it. That's very helpful. And then just top level, pretty good growth in the nonregulated business. Is this sort of a refreshed viewpoint on how large you sort of want this business to be as a percentage of consolidated results?

Shar, as we've said before, currently, the revenues from the Market-Based Business is about 10% or 11%. And so our goal is for the revenues or even net income to -- really, let's talk about revenues first -- not to be over 15% to 20%. And we would only be comfortable over 15% if that was the growth in Military Services and those parts of market base that are very regulated-like because we are constantly looking at the overall company risk profile to ensure that we don't move that profile.

Our next question comes from Ryan Connors from Boenning and Scattergood.

I wanted to ask a big-picture question regarding the overall national regulatory landscape and specifically, regulated returns on equity -- awarded returns on equity, which have been kind of on a downward trend in the last several years. I wanted to get your view on the outlook for ROEs. In particular, whether you think that an improving economy and potential increase in interest rates could actually lead to a rebound in awarded returns over the next 12 months plus.

So if we look out from ROEs, they are largely driven by changes in interest rates. And so if interest rates go up, we would expect to see some increase in ROEs as well. In terms of recent decisions, we have had our cost of capital decision in California, extended at 9.99% through the end of 2016. We did have our Indiana rate case approved with an increase from 9.7% to 9.75%. So we are seeing just slight movements in the ROE.

Okay. Well, that's encouraging. And then my next question has to do with the California situation. We're kind of trying to get our arms around, conceptually, how the decoupling mechanism will be impacted by the conservation declines. And I guess, my question is, in theory, decoupling renders any consumption decline a nonevent. But obviously, the magnitude of these declines are -- exceed what the PUC might have envisioned when they designed the system. So my question is, does this or will this complicate the implementation of the decoupling mechanism over the next -- as these huge consumption declines work through the system? And I guess, specifically, could the WRAM balances get to such a -- so large that the PUC decides to extend the collection period over a longer time frame to eliminate rate shop, I guess?

Right, Ryan. And we're looking at that very carefully in California as to what would be the cash impact and the recovery period to the -- for any delays in collections under the WRAM mechanisms. The WRAM mechanisms now, with the California rate case, are in virtually all of our areas. In California, they've been now approved. This has been a mechanism that California has supported for quite some time. And it really does drive the alignment of the utility companies and the customer to conserve and to work through the drought-related issues.

And also, one thing that's interesting is there's a national discussion about the price of water. And there are those who would say that out west, where you are having the scarcity, you're starting to see more appropriate value placed on water. And so as we look at this, we compare it to where we've been in the past. It will be interesting to see where this goes in the future, though, especially as in 50 of the states in the U.S., 40 water managers say that parts of their state, they believe, will be in drought in the next 10 years. So I think the wider discussion about the value of water and what we do in terms of putting a price on water is pretty important, and we may see that in California. We already are seeing that in California.

Yes. And Ryan, to both your point on ROE as well as California, we do operate in 16 regulated states. So we do have a diversified portfolio here, and California represents just slightly less than 8% of our total revenue.

Right, right. Okay. And just a quick question. Obviously, you can't disclose what the content of this would be, but are you engaged -- or has the PUC engaged yourself and other peers and to sort of discuss these issues and start to frame the regulatory response? Or is it sort of a black hole at this point?

I wouldn't say it's a black hole. I will tell you that our team at California American is always looking for ways to work with our customers, find ways that we can work to ensure that the regulatory process is operated as they're intended to operate. And so we sit down at the table and open forums. Our President, Rob MacLean, participates in a lot of the water forums and water conferences. So we're engaged in the dialogue throughout the State of California.

Okay, great. And then just one final -- just quick one for me is, the increase in claims on the Service Line Protection, I assume that cold weather was a factor there. But was there anything else going on that we need to be aware of in that respect?

An increase in the number of contracts as well as cold weather.

[Operator Instructions] Our next question comes from Spencer Joyce from Hilliard Lyons.

Just a couple of quick ones here from me. First one, I want to ask about the New Jersey rate case. That $66.2 million of revenue asked, is that inclusive of amounts that are already being recovered via the DSIC?

No, that's outside the DSIC mechanisms. They'll be included as part of the rate case in the end. But the $66 million is for other things, investment. As you know, if you've been following closely, we reduced our costs by $19 million since the last rate case. We invested $775 million in the infrastructure, and that's more than we've ever spent in New Jersey. And so asking for 9.9%, we think, is a big win considering it was 3 years since our last rate filing.

Yes, absolutely very helpful. And also, sticking with the New Jersey DSIC, we'd gotten on a pretty good semiannual cycle there. With the rate case in progress now, is it safe to assume that we may have a bit of a stay-out from the DSIC asks? Or would those be totally separate items there?

No, we timed the DSIC with the rate case. So we filed in early January. Typically, it takes 9 to 12 months for the rate case to make its way through the BPU to get an order. We're right in line with that. And again, we timed the investment in DSIC with the timing of the rate case so that we're-- we can continue to invest up to the cap.

Okay, perfect. Separately, and from kind of a broad standpoint, have you seen, perhaps, the California drought discussion have any ripple effects across some of your other jurisdictions? And I guess, specifically, I was surprised to see residential volumes down 6% on a firm-wide consolidated basis. Is that -- perhaps more of that's California than I'm expecting, but are you seeing any other usage declines that may be outside of drought-stricken areas?

Yes, Spencer, there -- if you look at Slide 27, it shows our billed volumes for this quarter compared to last quarter. And there's a lot of noise in those billed volumes because we were implementing our customer information system in late 2013. And as a result of that implementation, we held some of our bills to ensure that we had a thorough review and we verified that they were accurate. And so we had higher bills that went in -- that went out in the first quarter of 2014, which is what's really causing that difference. If you look at the actual revenue piece of it, that's where those differences are trued up in the unbilled revenue line item. And the year-over-year declining usage was actually $3.3 million.

Okay, perfect. I did notice the revenue didn't quite decline with the volume, but that makes a lot of sense.

And Spencer, from a big-picture standpoint, people are watching California. I think Texas is the next state that would be closest to that in terms of dealing with water supply issues. But we also know that in several states, especially the Mississippi, we tend to have rainfall amounts that have been more normal. So unless -- it's pretty local. So when we're in these national conferences and we talk to folks, they're mindful of what's going on in California, but they're not really doing some of the same things. They're just kind of checking to make sure they have adequate water supplies. And it actually helps us in terms of the replacement of aging infrastructure, where in the country, overall, we lose 25% of all treated water every year through aging infrastructure, through leaks and all. So this actually helps our case on the aging infrastructure replacement because as we move into a time where they may be less water supply, we cannot afford to lose our water through leaks.

Having no further questions, this will conclude our question-and-answer session. I would now like to turn the conference back over to management for closing remarks.

Thank you so much. So before we conclude our call, I want to remind everyone that our second quarter earnings call will take place on Thursday, August 6, at 9:00 a.m. Eastern Time. We also would like for you to save the date for our 2015 Analysts Day, which will be held on December 15 in New York City. We'll provide you more information about this as we get closer. We appreciate your interest in American Water, and we commit to continue to be responsible stewards of your investment and the confidence that you place in us. We look forward to speaking with you all again soon. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.