Good day, and welcome to the Aqua America Incorporated fourth quarter 2008 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Dingerdissen. Please go ahead, sir.

Thank you, Brandon. Good morning, everyone. Thank you for joining us for Aqua America's fourth quarter and full year 2008 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 Fred Martino at 610-645-1196. There will also be a web cast of this event available on our site. 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 matters discussed during this call may include forward-looking statements that involve risks, uncertainties, and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements. Please refer to our most recent 10-Q, 10-K, and other SEC filings for a description of such risks and uncertainties. During the course of this call, reference may be made to 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. Good morning everyone. I'm pleased to announce a solid quarter and second half of 2008 which allowed us to meet analyst expectations with $0.73 in diluted earnings versus $0.71 for 2008 over 2007. This year we closed out our forward equity position and only had to increase our outstanding shares by 1% which is the lowest increase year over year in since I think I have been here for 17 years. Yet we did spend a record amount of capital, 267 million, to address the environmental and infrastructure programs on our properties throughout the 13 states. 2008 marked the year when the majority of our capital investment addressed our infrastructure rehabilitation program on which timing is more discretionary as most of our environmental compliance projects which were not discretionary because many are under orders from state environmental agencies are now nearing completion. The majority of our money is now in infrastructure spending and just a small percent, less than 10% of environmental compliance. Our plans now are to spend $280 million in 2009, again chiefly on our infrastructure and water quality improvement programs. But this could go higher as we intend to participate in the nation's economic stimulus program. This is made possible for a number of reasons because we have access to the capital markets. Our recently confirmed rating for Pennsylvania, which is the largest borrower, was confirmed by S&P just about a week ago as a AA- waiting and a 1+ recovery rating by S&P, which is one of the highest on the scale of one to 10. In combination with that, these ratings in combination with our increasing internal cash position in 2008, we generated 322 million in EBITDA and project this will grow in line with our and actually may see our ten-year…

Thank you. (Operator instructions). And we will take our first question from Michael Roomberg with Boenning & Scattergood. Michael Roomberg – Boenning & Scattergood: Good morning, Nick. How are you?

Fine. Hi, Mike. Michael Roomberg – Boenning & Scattergood: We’ve had lost of statistics and evidence in recent weeks that state and local budgets are tightening and pressure is being placed upon the government to find cash quickly, surely an asset sale of municipally owned water utility would seem to provide a pretty sizeable plug, a lot of the holes in these budgets, it would seem that this might be a catalyst for an acquisition strategy going forward, I just curious in getting your thoughts on whether or not that thesis would be correct, and if so have you seen that thus far and do you anticipate seeing it going forward?

Yes, I think it's more prevalent now than it has been for years. I think one validation on that is the Trenton proposal to sell their system to American in the sense that part of the rationale being used by the mayors to avoid a tax increase, to plug a budget gap. I think you are going to see that more and more. You are seeing it more now in the larger cities where there is a lot of politics involvement doing something like that and a lot more opposition; I guess there has been some opposition to anything. So but we are starting to see it and are sweet spot is going to be in what I would call small town USA, which takes a little more time because the problems aren't as acute, but they are there. And I'm optimistic that it is going to open up an aspect of the business which has been heretofore looked upon only as a chance to run a system like that versus buy it. So I think you're absolutely right. Michael Roomberg – Boenning & Scattergood: In terms of budgets insofar as they are kind of done at 12 months basis, do you see it as more of an issue or more of a catalyst in the next six months or 18 months?

No. I think it is more a ten issue than a nine issue just because it takes you’re the time to negotiate it, you have to go through a very long public hearing process, and then – at the state – I am sorry at the local level because the council is just not going to approve it, and then you go through the state regulatory process and there is a lot of trips and falls along the way, but you eventually get there, but it is not a three-month or a six-month process. What I'm optimistic on – it is Michael, am I right, what I'm optimistic on is that it is starting to put – I mean when you look at our pipeline, it’s got to be a couple years long. You just can't do it week to week or even quarter to quarter, so I'm optimistic that is a whole new aspect of the pipeline is going to be out there. And I don't think it is going away because of the real crucial part and I think accounting has addressed the FASB or whatever is they're starting to now recognize that there are liabilities to the pension given the way at municipal levels. And when you start adding those in, it becomes very clear that anything that is labor-intensive like a water or a sewer plant is adding to that long-term structural deficit in some of these municipalities have. Michael Roomberg – Boenning & Scattergood: Right, okay. That is very helpful. Thank you. In terms of O&M costs and other costs, you did mention that one of the results, I believe it’s the stimulus package or another recent initiative would be accelerated depreciation schedules, can you give us a sense of how to think about that g going forward? Obviously, it has great benefits for the tax burden, but may be in the short-term end negative for shareholders?

Well, in a way it gives you a chance to do more construction and not have to raise rates, because you getting almost an interest-free loan from the government. That is the way I look at. But you will get that as those deferred assets that we call regulatory assets, which is deferred taxes, which we are not allowed to earn on until they have brought back in or brought back in over the next 20 years, 25 years, then you start earning on it. So I’ll call it the deferred earnings statement while you're putting the benefit to the ratepayer now, it is going to eventually pay back to the shareholders. It is the right thing to do, that is why we did it. I mean it is more work, you have to obviously not only do the bookkeeping, but do the work. You take the risk in the sense that you are bidding projects out and you have other things to do also, but this year we increased our capital budget by over 30 million above what we thought we were going to do and we have got that all back plus, I believe David, 35 million or so in deferred taxes in the financials. So we made that decision in April of 2008 when that was passed and we said, the right thing to do for the ratepayer is to do it and we increased our capital budget. And the shareholders didn't get hurt by it but they won't benefit immediately, they will benefiting made over the next X years, 25 years. Now having said that, I would argue that the shareholders are benefiting because if you have good service, the regulators reward you for good service, and this expenditure makes your system better and less controversial, because if you had a bad service, that is what hurts you in your regulatory climate. So in a way it is a positive for the shareholders also. Michael Roomberg – Boenning & Scattergood: Good, absolutely. Could you quantify the increased deposition expense that will be realized?

Yes, I think 40 million is a good number, is that okay? Michael Roomberg – Boenning & Scattergood: Okay. That’s helpful. And that would kick in presumably at the beginning of 2009 or at a later point?

I am going to ask David to help me with that.

Yes. And that – the number that Nick’s quoting is actually the deferred tax is that are associated with the increased tax depreciation relative to our capital budget. And that number was in fact a 2008 benefit associated with the bonus depreciation and we expect a similar benefit in 2009. Michael Roomberg – Boenning & Scattergood: Okay.

And you understand Michael it is not a P&L issue, it is the regulatory books, not the P&L books. Michael Roomberg – Boenning & Scattergood: Right, okay.

Obviously, you are not going to see an increase in depreciation of 40 million on our books, deferred earnings. Michael Roomberg – Boenning & Scattergood: Right, okay. One last question on the financial side, we have seen guys begin to work with Penn West in gaining low-interest financing, I'm wondering if you could elaborate a little bit on that and where you see that going in the months and years ahead?

Well, I take pride in Penn West because it was created when I was Secretary for the Environment in the 80s in Pennsylvania. It’s probably the most effective of all the state low-interest loan programs and we have used it quite – we meaning Aqua have used it quite extensively. As a matter of fact, if you looked at the top users of the system over the years since its inception, Aqua is number one. I was very encouraged when rather than outright earmarks or grants, the economic stimulus bill actually puts the extra 4 billion in wastewater, I think it is four and 2 billion in water, through the state revolving loan funds, which means that there is not going to be a whole new mechanism or favoritism shown in how the grants were given out. It is ready to go in good projects. We have applied for $33 million, we easily apply for five every meeting, this time we applied for 33 million in projects for the May decision meeting in Pennsylvania. So if we move some projects that were going to do in 2010 and maybe even later up so that we could do and they're ready to roll so that is what the economic stimulus plan asks for. And when you look at the rates which range from 1.5% interest to 3% interest, you almost cannot go that way for your ratepayers, and it also gives you new access to capital that’s sort of not on the normal credit markets. We are going to use it. I think I'm very pleased that the infrastructure program didn't put private sector at a disadvantage by giving earmarks and/or grants to large cities and all that and we are willing to compete with anybody else for the low-interest loan program because we think our projects warrant a recognition. Michael Roomberg – Boenning & Scattergood: Okay great. Thank you very much.

We will now take our next question from Tim Winters with Jessup & Lamont. Tim Winters – Jessup & Lamont: Good morning Nick.

Good morning Tim. Tim Winters – Jessup & Lamont: I was wondering if you could address the sales volume growth or lack of growth this year in the fourth quarter related to the economy and the weather?

Yes. We look at that pretty carefully and we have been seeing year in, year out, a steady usage declined due to conservation, fixing pipes, and environmental ethic, whatever, smaller families, low flow shower heads, low flow toilets, of about 0.5% a year and it has been steady. So we worked that into our budgeting and then of course we hope to overcome that which more growth on the system, i.e. customer growth, unit growth, and then every once in a while, you get a good hot summer which really messed the whole usage pattern, but that is – we are in the high fixed asset businesses, that’s when you really bring money to the bottom line. If you look at our overall sales of the year versus 2007, we were down about 1%, so a little faster than what we would normally look at, and that is adjusting for customer growth. That is strictly same-store sales, if you want to call it that. And a couple were up, Texas being one of those notable exceptions. Florida, we had a drop in Florida, people using a lot more water. North Carolina, they declared a drought, so North Carolina was down. But most of it was in Maine, Pennsylvania, Illinois, and a lot of it was because we didn't have a great summer. It was a little bit wet this year, especially in the Midwest. And looking at the fourth quarter, it did accelerate, and it looks like it was about 1.8% in the fourth quarter. So I'm going to attribute that mainly to the economy more than to weather because fourth-quarter doesn't – I mean the south is affected by the weather in the fourth quarter but not necessarily the north where the bulk of our customers are. I guess…

We borrowed 22 million in 2008 at 6.5 and that was the worst part of the market but we felt we had to go out with it because we would lose the allocation. And we thought 6.5 was better than what we were seeing and who knew what would happen in 2009. As we look now, as we go out today, we think that could be as much as 100 basis points plus lower. So we think we would be in the low fives. Tim Winters – Jessup & Lamont: And you have access to 58 million at low fives?

Right. We can do that tomorrow. It has already been approved. Tim Winters – Jessup & Lamont: And that is in addition to what you can get from Penn West?

Yes. It is in addition to Penn West, in addition to running up our short line, which is strictly a strategic move because of the low interest rates. We haven’t seen less than 2% money for quite a few years. That was 6% this time last year. Tim Winters – Jessup & Lamont: Do you have any thoughts give your increasing operating cash, what you need to externally finance outside of Penn West and PEDA after the dividend? And I assume there is no need for equity?

No new need, no need for equity, no need for any other debt. But it does give us some room in case an opportunity comes up to have the capability to do something with it. Tim Winters – Jessup & Lamont: Okay. Thank you.

(Operator instructions). We will take our next question from Haika [ph] with Janney. Haika – Janney: Good morning. Haika with Janney.

Hi, Haika. How are you? Haika – Janney: Good, how are you? First question, Nick, you mentioned the pruning program, I believe it was in Illinois that you had an asset divestiture, is there anything that you have on the chopping block for 2009, how are you thinking about that going forward?

Yes. We have one that is almost completed in Texas, which we will get a gain and it is not a big – I think it is about $1.5 million, but once again it is an underperforming asset that we didn't want to be in. And I think we're looking at one in Virginia we are actively pursuing. But there are a number of the that that we are analyzing as a management team but not yet announced. But we are in the preliminary discussions most of the time with an authority or something of that sort who may be able to handle it and absorb the challenges better than we are. Haika – Janney: And do these divestitures take as long to complete as an acquisition does or do they go a little faster?

Well, we had one that we did not get done because after two years of hearings and debates and everything, the municipal authority at the end said, you know what, your rates aren’t that bad, maybe you can keep it. So I think when you deal with the government or the municipal authority, it is a little longer. If it is another private sector operation like we did with the homeowners’ association, like we did with Haven, that only took about six months. Haika – Janney: Okay. That is helpful. And you had mentioned the basis for improvement we have seen in the fourth quarter, how should we be thinking about the efficiency ratio as we look into 2009?

I'm comfortable with the old maybe down 100 basis points. Haika – Janney: Okay. And lastly I believe it is probably a question for Dave, pension expense, can you talk about where you will be coming in on 2009 relative to you’re your assumptions had been and what have already been reflected in recent rate cases?

This is one of the areas that I have stayed involved with, so let me just give you my thought process and Dave can give you the exact amounts. Having come from government, I was focused on the pension soon as I got here and we have been working on things like OPEB and we were the first company into the PUC back in the early 90s to come up with the OPEB issue. And on the pension, we started on the defined benefit pension, we started taking action on almost six, seven years ago, and as we sit now, our 1600 employees, under 50% of them, well under 50% are in the pension. So we don't have as big an issue because we stopped the inflow into the pension five, six years ago. All new employees including organized labor are now in a 401, not in a defined benefit. So what you have is people who have been here for five years or more, that are still in the pension and none of the southern employees are in the defined benefit plan. Haika – Janney: Does that mean that employees that came over from AquaSource, none of them came into your pension plan?

No, we gave them and enhanced 401(k) which I think they preferred with earnings power in the sense if they perform versus the traditional defined benefit which is favored sometimes by the organized labor. And the other thing we did on OPEB, when you talk pension, a lot of people just lump them. The biggest problem General Motors has is not the defined benefit, it is the healthcare, what is called the OPEB (Other Post Employment Benefits) but it is really the healthcare. And we actually eliminated that years ago and half the people who were still on it to a certain amount so that we have an annuity now that actually gets trued up every rate case and less rate case we actually reduce the amount, if I remember right, so actually rates went down as a result of the actions we took. So it is not as big a problem with us as some other companies because of those actions. Now having said that, we still have well in excess of 40%, like 40%. 42% of our employees are in it. So we have to make sure there is enough money there to pay them. We have capped the future growth in it in most cases but that may be the next thing we have to look at, so that it is truly an annuity that is predictable. And this year we didn't have a great like everybody else have a great investment record but were down 28% and I guess if I compare that to Harvard and the Yale which are much smarter than I am I think we did better than them. But 28% is 28%, we have to make that up. But because most of the people, 60% of the remaining people are in Pennsylvania, it is a ERISA state. I don’t know if this is getting too technical for you versus a FAS 87 state, and the risk factor in an ERISA state is much less. Now Dave can give you the actual numbers, Haika.

Right. As Nick mentioned, Pennsylvania is an ERISA state which means our rates are established based on the contribution level that goes into the plan. So if you look at our total pension costs in 2008, it was a little over 10 million, and about eight of it was in Pennsylvania based on our contribution to the plan and a little over two was in the other northern states based on FAS 87. And going forward into 2009, we expect that 10 million would be a little over 12, so it is about $2 million increase in our pension costs, plus all of that is based on the FAS 87 states and not based on the contribution level in Pennsylvania. Haika – Janney: So are benefiting from the fact that the market took a turn for the worse shortly after the Pennsylvania rate case was filed, did that help you at all? Or is it not really a benefit the two?

It is trued up, and up or down, nobody wins, nobody loses, just it is trued up in the next case. I think what Dave’s saying is that we didn't – our expense didn't zoom as much when you look at whatever it is, 2 million you’re saying Dave over a two-year period and it is 150 million in expenses, so we are in the low 1%, 2% range on rates. It is not going to be a huge impact. Haika – Janney: Okay. Thanks for help.

We will now take our next question from Jim Lykins with Hilliard Lyons. Jim Lykins – Hilliard Lyons: Good morning everyone.

Hi, Jim. How are you? Jim Lykins – Hilliard Lyons: Good. How are you, Nick? Jim Lykins – Hilliard Lyons: Good. How are you, Nick? We have seen a couple of announcements here lately where – or at least a couple of state are going to allow some gas utilities to include infrastructure related CapEx rates right away so no regulatory lag, something that is similar to (inaudible) that you have in some of your states, I'm wondering if you guys have heard of anything similar for the water utilities and if so how that might potentially affect your CapEx outlay for 2009 and 2010?

Are you referring to North Carolina? Jim Lykins – Hilliard Lyons: No actually New Jersey and Oregon.

Okay. New Jersey, we are actively participating in a proceeding now tied into the American case. I think they got awarded the rate case but are continuing with the part that they had asked for a desk [ph] and all the water companies are supporting that and we are in hearings as we speak. New Jersey is the only major state we are in where we had infrastructure problems that doesn't have a desk. So it is very, very important I think not only for the companies but for the State of New Jersey if they are going to address that problem. I think one of the key commissioners in New Jersey has really focused on this and is conducting the hearings. So we are hopeful that there will be something similar in New Jersey someday next year, as there is in Pennsylvania and Ohio and Indiana and all the other more mature states, more industrial states. So that would help us because our next step in New Jersey if we finish up all the environmental issues is to start on the pipe. We understand that one of the southern states is considering it, and I think that would be a great thing, so we are obviously in support of it and optimistic. And the southern states have not required as much pipe work because we are still working on all the wells and a lot of the treatment devices, but potentially even though it is warmer weather, they are going to need – everything doesn't last forever. So we are going to end up having to replace all the pipes there too, so probably timing is not as crucial, but it is important. What was the third state you said? Jim Lykins – Hilliard Lyons: I just mentioned two, New Jersey and Oregon.

Yes, Oregon, I'm not aware of, we're not out in Oregon. But I think it is – people are understanding, especially now that when we start to have an infrastructure ten years ago, people used to state, could you define infrastructure, and now it is a code word. Everybody is talking about it. Jim Lykins – Hilliard Lyons: Okay. And if some of these things happen in the states you’ve mentioned, do you think you could ratchet up your 2009…

Yes. I think New Jersey we would be investing at a higher level if there was a surcharge mechanism for sure, and North Carolina same thing, because a lot of piping work that has to be fixed. Jim Lykins – Hilliard Lyons: Any idea how much you would increase your CapEx?

Well, most of our CapEx this year has gone to infrastructure. So I would say another 5%, 10% wouldn’t be out of question if there is an enhancement of the either the current programs like they're considering in Pennsylvania or initiation of a program like New Jersey. Jim Lykins – Hilliard Lyons: Okay. You mentioned you have got about 70 million to file in 2009, can you break that out by states and amount?

Sure. It is almost every state, so what we will do is after the call actually send you the cases and when we are filing things of that sort. Jim Lykins – Hilliard Lyons: Okay. That will be great. Thank you gentlemen.

It is almost every state. It is a pretty broad program. Jim Lykins – Hilliard Lyons: Okay. Thank you Nick.

(Operator instructions). We will take our next question from Ben Joseph with Rice, Voelker. Ben Joseph – Rice, Voelker: Hi, Thanks for taking the call. A quick question on Pennsylvania, you mentioned in the prepared remarks a rate case there, the docket was suspended, and now it will be a discussed litigation, was wondering if you could elaborate on that?

Sure. The normal process in Pennsylvania is you file for what you think you deserve and then if the commission on any opposing party i.e. the consumer advocate, the trial staffs, small business advocates or anybody else decide that they don't agree with you, they can ask for it to be put into hearing process. And I would say 99.9% of the requests by utilities in Pennsylvania are after a month suspended and said that they are going to investigate it and they put a judge to it, and then you start the process. So this is not abnormal. The question then becomes, will they finish the case earlier than the nine months required by law, and that would be called a settlement, or does it go the whole procedure, go through hearings, testimony, and then it goes to the commission formally versus in the form of a settlement. In all our wastewater cases to date, we have been able to reach settlement in an expedited manner because we are basically not making a lot of money, we're picking up small wastewater systems that the state wants us to fix, and I think there is a feeling that we have done our part and they usually have been much more willing to settle. So I'm thinking hopeful that we're talking maybe this summer versus the extended period. Now we are only talking about – I don’t if it is 11 different cases, we are only talking about less than $1 million. So you could see these are not big cases but they are fairly large percentage increases because we had to go and rebuild the whole wastewater plants for these small towns. Ben Joseph – Rice, Voelker: Right. And so the total rate – I think mentioned 11, the total though is only 1 million for Pennsylvania of the 20 million you are seeking?

Yes, that is right. Ben Joseph – Rice, Voelker: So of the 20 million that is currently pending, I think you said the breakdown again was 7 million in North Carolina?

I'm sorry. I'm giving you – we asked for 20 million. Ben Joseph – Rice, Voelker: Okay, you asked – for Pennsylvania, you asked for 20.

We asked for 20 and I can tell you probably after the call how much we asked for North Carolina and Florida and what we think we are going to get. Obviously, they're not final yet, so it is premature to talk about them, but I want to give you a feel for the broad brush we are making on that subset of the 2008 filings that weren’t decided yet. Ben Joseph – Rice, Voelker: Okay. I thought that there is just a 20 million currently pending in three or four states.

Yes, there is. So may be 15 of that, we are going to get, may be a little more, I don't know. But we will get to you and give you a drilldown and much more granularity on it. Ben Joseph – Rice, Voelker: Okay. Thank you very much.

And we will take our final question from Michael Gaugler with Brean Murray, Carret. Michael Gaugler – Brean Murray, Carret: Hi, Nick. Hi, Dave.

Hi, Michael. Michael Gaugler – Brean Murray, Carret: Most of my questions have already been answered, but Nick perhaps you could give us some color on any potential states you are really focused in terms of customer growth this year and kind of as an extension to that, does any state outside your existing operational footprint look attractive?

I think the fast-growing states that we are not in look attractive, obviously the south-west and more in the southern part. Ironically, we saw a little bit of increased activity in Pennsylvania which is not a growth state but is our base state in the sense that we did pick up quite a few what I would call small town systems that needed help (inaudible) these are names that you may not recognize, Emlenton and so on. So what – I guess it was Michael from Boenning had asked about is happening as we speak and that was the Pennsylvania story and we have an active one in New Jersey that is going through the process now. So I'm starting to see a little bit more than we would have anticipated in the North and that’s good news. In the south, Texas, Florida and North Carolina continue to be the states we are concentrating growth in, but we did want to get our firm base on our rates to make sure we had possibility of consolidating rates, making it more achievable. Actually the single tariff pricing helps the ratepayer, because it puts less cost into the system, but it is a big jump for states who have never done it. So that is the key part of some of these cases we are doing in addition trying to get return on investment we have already made. But as soon as those cases are behind us and hopefully the economy starts coming back, they will be our key states, and then possibilities in the southwest is probably a place we can look. Michael Gaugler – Brean Murray, Carret: All right. Thanks Nick.

Thanks Michael.

And there are no further questions at this time. This does conclude today's Aqua America Incorporated fourth-quarter 2008 earnings call. We thank you for joining us today and ask that you have a wonderful day.

Okay, thank you.