Good day everyone and welcome to the Aqua America Incorporated first quarter 2009 earnings conference call. Today's conference is being recorded. At this time, I will turn the conference over to your host, Mr. Brian Dingerdissen. Please go ahead, sir.

Thank you, Gerald. Good morning, everyone. Thank you for joining us for Aqua America's first quarter 2009 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 Web site at aquaamerica.com or call 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 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, references 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. Nick.

Thank you, Brian. And thank you everyone for joining us this morning. Pleased to report higher first quarter results and a great start to fiscal 2009 which I think should be our tenth straight year of year-over-year net income increases. And I think it’s a consistent record that I believe very few of today’s companies and today’s business climate can claim. Revenues were up a strong 11% due chiefly to rate increases. However I’d like to note that unlike many utilities and industries, our sales are still up. Customer growth is slow considerably due to the housing slowdown and the fact that we sold two franchises last year Woodhaven, Illinois and Fort Wayne north division in Indiana. And that represented almost 2% drop in our customer base eight to nine, but year-over-year our customer account is still up slightly and that's why we're still not seeing a downturn in the sale side. That customer growth help to offset slight volume drops in our commercial and industrial sales which obviously are geared right to the economy and however commercial and industrial is only 17% of our total sales volume, so it was a bigger drop on a small piece of our sales. We're hopeful that we've seen the worst in the housing downturn and therefore lack of builder or organic growth which is non-acquisition just it happens because the builder's build in our existing franchises. So, it gives you a comparison in '09, Q1 only 500 new homes were added and a normal year will be 2000 to 2500; see how far down housing has dropped. And looking at the building permit start which is best indicator the run rate in April of '04, '05 and '06 was at 2 million; it dropped to 1.5 million in '07 and in '08…

Thank you, sir. (Operator instructions). We have Jim Lykins with Hilliard Lyons. Please go ahead. Jim Lykins – Hilliard Lyons: Good morning, everyone and congrats on the quarter.

Thanks Jim. Jim Lykins – Hilliard Lyons: A couple of regulatory questions first. You mentioned that you have the consolidation of same rate structures in Florida, North Carolina and I’m wondering in those states if you now have the single tariff pricing or if there is still little bit of work to be done there?

Not yet, but getting closer. In North Carolina, there were one or two outliers whose rates were so low, they felt to put it into a consolidated rate, the timing wasn’t right. So, I think we went from many rate divisions to maybe five. Two big ones, which are Statewide Water and Statewide Wastewater. And then we have a FAS bill which is our Brookwood division which we run from two to one and that’s only water and that’s not a separate rate structure. And then there are two either water or wastewater divisions on the coast which have the seasonal aspect and they wanted to keep those as separate, but didn’t say we couldn’t try it in our next filing put it all together. James Lykins – Hilliard Lyons: Okay.

Florida, we started with 80 divisions. And I think we ended with 7 or 8. Jim Lykins – Hilliard Lyons: Well.

So I mean a big step and I think regulators understand, both for workload, you have to have different accounts for each of these divisions. The smallest of our industry which means you are overwhelming; the rate meter has separate divisions with administrative process which don’t help anybody, the company, their related customers. And the best is if the US postal service is trying to say how much it would cost to deliver a piece of mail from New York to Philadelphia versus New York to Frankfurt Kentucky, the price would definitely be different. You have different rate structures and different tariffs and it just doesn't work that way. So, if the consolidated tariff is the common theme for electric companies, postal service and I think we're getting there in all our states. Jim Lykins – Hilliard Lyons: Are there any others that are an (inaudible) to try and get the single tariff pricing?

We still have Virginia, and there were all the states that Aqua was (inaudible). They have 21. We are going to be filing a case this year. We'll hope to get it as low as two. One water, one waste water, we will see and Missouri still has separate rate structure, not a big state for us. But we tried to consolidate that last time and they denied it, so we got a reasonable rate case, but all different rate structures. That mean does consolidate rates, but most of the rest are moving towards single tariff price. Jim Lykins – Hilliard Lyons: Okay. That's good news. You also mentioned that the regulators recognize the need for continued spending on infrastructure despite the economy, but I am wondering is if you think that they are still being fair and if you may even have changed or thought about changing the timing for filing any of your rate cases?

I think if you try and time the economy or regulatory philosophies, you are in trouble. We run this company as we know what we have to do. Most of our rate cases are driven by capital needs. We are doing it based on what the EPA wants as prudent. And when it's time and our lag starts occurring, I mean this didn’t happen in the south because we had to fix everything before we could go in. But I think regulators appreciated a lot more when you are in on a more normalized time period and your requests are single digit, then when you have to ask for 70% rate increases, 100% rate increases which makes it very difficult for us. So, our strategy would be to not time it around what we think is a new philosophy, but really around need working capital. Jim Lykins – Hilliard Lyons: Okay and a couple of questions about acquisitions. I know you can't comment specifically, but maybe if you can make some general comments about what you are seeing out there right now with the acquisition landscape, what kind of opportunities and also you said there's six on the pipeline right now. I am wondering if there's six more tuck-ins or if there might be one that's a little more sizeable and also what the timing might be for when you make an announcement with any of those?

The six-year tuck-in because our corporate development department we have one person for each state, their job is to get as many of these small private or public into our system where we have economy of scale. And as you know there are very few quite big ones because there's only 11 of us left, 12 of us who are publicly traded. I will answer it this way. I think municipal governments has not yet really addressed real poor deficits some of them are facing. There is a lot on stake now which were cutting and therefore they are going to cut aids to some of the local towns, cities. So they can live within their means. Those cities are using economic stimulus funds you can find in current budget. They are asking for pension, the federals which is another way of saying, can we stretch out our list of requirement a little bit and inevitably they are going to come up with some money. All those kinds of things are happening in the ‘09, ‘10 fiscal year budget that I see occurring. And I think it's going to come home to Ruston, maybe one year, maybe two years, maybe three years. At which point they'll either have to raise taxes considerably, cut cost considerably or look at asset sales or different ways of privatization to take some of their unneeded governmental services off their balance sheet and I think there will be opportunities for all the larger order companies in that sense. As you know we are not big into O&M but if the right opportunity comes across, we would do it but, we think that the smaller accounts will even be more effective percentage wise by some things like pensions and expenses of their labor versus revenues from growth and or lack up. And I think that’s the target market where I think maybe privatization in that area would be better for the town, they would just get out of the business versus staying with the assets and let somebody else run it. In the meantime we are also seeing (inaudible) long winded. In the meantime we are seeing some of the smaller companies, those who are private, who years ago wouldn’t even talk to us when we go in our normally, I call it prudent, they call it cheap offers are now revisiting some of those offers say maybe that we weren’t unfair to them we are starting to see some of that comeback. Jim Lykins – Hilliard Lyons: That’s good to hear. Alright, thanks Nick.

Thanks.

We take the question from Ryan Connors with Boenning & Scattergood. Please go ahead. Ryan Connors – Boenning & Scattergood: Good morning.

Hi, Ryan. Ryan Connors – Boenning & Scattergood: Hey Nick, the remarks have been very detailed. I don't have a whole lot of more, but I wonder if you could just continue on the issue of municipalities and this fiscal direst and whether or not that creates opportunities and to what extent you're going to participate in those things and you mentioned O&M. I guess what we will call the contract operations side. It does seem to me that that's the way that many of the municipalities appear to be going as opposed to outright asset sale, and you mentioned there that that's not something you've traditionally been real into, I think were you were; and obviously you've got the technical capability to participate there. You've great brand name behind you. What is your strategic thinking behind why that's not an area where you real interested in growing?

Well, two things. Margins in that business are very low. A lot more risk from a standpoint of you don't have the contract; you disport some cases every 30 days. On the other hand and in the case where your capital is stressed which it was 10 years ago, let say all of this we're trying to look at EPA rules and tight needs that we couldn't imagine where we would get the money and the capital to fix it. As I mentioned earlier and we'd be glad to give you much more detail on that David, I and Brain. We're seeing internal cash generation, we would have salivated over five years ago, which means that we have a little bit more chance to still do what have to do for the regulated side and have a little more opportunity to put some more capital in other areas that may be are not as high as margin but aren’t using cash up either. So one would be whether analysts still give us what they consider the right premium for a regulated company, when your O&M to revenue ratio is more like 80% right? You don’t make any more than 20% margins on a company like that, you don’t make kind of margins we are saying where it’s a capital intense business. So I think that's one of the decisions we have to make, there was no decision when you only had a dollar to invest where we were going to invest it and that was in the regulated side because that's our core business. But now that we are seeing that we are getting ahead of the curve, we are in more states; I think you are exactly right municipalities are going to look at privatization but many will not…

I don’t think so. We have always paid, with 18 years in a row, we have raised the dividend, pretty healthily too and the CAGR is probably 7%, which is pretty healthy CAGR. We are still in retail stock, 60 some percent of our stock is owned by retail investors who are very much buying whole. Really, my aunts and uncles and everybody else. So I will have to hear it at the kitchen table, we didn’t help the dividend because that's what they want. Institutional investors have been very interesting. They weren’t as much into the dividend, but recently they are supportive of a reasonable payout ratio. So, it's always stronger because some Board members feel like if you can get 10% on your money, why are you giving it way. On the other hand, we think there is some reason for shareholders to get some return annually on their investment versus just look at this as a growth stock. So, that’s our dilemma, we are not a traditional utility where you buy it as an enhanced bond and we do have a growth potential, but we have to come up with a good balance. So, I wouldn't think that our Board will probably lean towards keeping our dividend policy consistent. Ryan Connors – Boenning & Scattergood: Okay, well great. Thanks for your time and congrats to you and your staff on the solid results.

Thanks.

We take our next question from Heike Doerr with Janney. Please go ahead. Heike Doerr – Janney: Good morning.

Morning, Heike. Heike Doerr –: Nick, with the North Carolina and Florida rate case is completed, where do you think we end 2009 as far as the ROE on the Southern states? I believe it was 3% or 5% in 2008.

Nick, with the North Carolina and Florida rate case is completed, where do you think we end 2009 as far as the ROE on the Southern states? I believe it was 3% or 5% in 2008.

Yes, I’ll do it individually for you Heike because it's hard to group them all together. Indiana is known pretty good, but that was an Aquasource state, but we put that in the north. And Texas, even though it took us four years of delay, we're finally getting the rate relief and we're seeing probably in the 7% range of ROE and that should improve as we get some enhanced revenues coming in. South Carolina, it's very small, but we're in the final stages of getting our rate there and that should get it to almost full earnings. In Virginia, we've always had earnings, but with so many rate divisions as one goes up, another one goes down. We've put a lot of capital four or five times depreciation in Virginia. So it's hard to stay on top of it. We continue to put money in, but if we are successful in this rate case, that we're going to be going for this year, I think we'll move up from the mid single-digit to somewhere around five now and we'll get closer to the eight, nine. There will be some lag because we're still doing more construction going forward, but sooner or later that will peak. Just like Texas now, we're spending just a little bit more in depreciation. The biggest disappointment as you can imagine has been Florida. We needed a rate case. There hadn't been a rate case there for 15 years in some of these divisions and we had the false start in '06. So, we actually lost money. I mean, I think probably I'll give you the numbers, that's easier. In '08 we lost $3 million, '07 we lost $2 million and that's with all the lost write-offs and because of the failed rate case and…

Great, that added level of clarity was helpful and you mentioned the conception patterns of the C&I customers, what are you seeing on the residential side?

About the same, we have always seen maybe to 0.5% a year of consumption decay and that's because of smaller families, low-flow toilets being installed and whenever your plumber redoes your bathroom even in an older house, all the new houses use less water. And that ratcheting, you can do it two ways. Go in for consistent timely rate cases which means you know you are going to have lower volumes and if we need a higher price to keep your revenue requirement or you could do it like they are doing in California and trying to push it all one time when they call a RAM, a revenue adjustment. Heike Doerr –: They probably call it RAM?

They probably call it RAM?

Yes. Revenue Adjustment Mechanism. Heike Doerr – Janney Montgomery: Okay. That’s helpful.

And that’s in other way of doing it but do you want to take a look at our numbers, I think this is relevant. I think in California, two big California companies, the average usage is somewhere around 8000, 9000 gallons a month. In Pennsylvania, our biggest subsidiary and if you want to take Ohio or Indiana or any of them, its all in the low fours, 4300 to maybe 4800. The south being a little higher. So, our risk of less usage because of this constant 0.5% a year is probably very close to what would be the asset though for what the least you can use. Now you could argue, don’t take shower everyday, never water your lawn and you could drop it probably to 2500 gallons a month. But I think reasonable lifestyles in the northeast the 4000, 4200 is probably as low as its going to get. Heike Doerr –: So haven't seen current economic decline in residential consumption besides the historical trend?

So haven't seen current economic decline in residential consumption besides the historical trend?

No. Heike Doerr –: Okay. Thanks, that’s was helpful.

Okay. Thanks, that’s was helpful.

Don't forget, that’s offset because we've had more customers. If we were a city that was loosing population, then that would be elevated. There is that 0.5% is masked by the fact that we add customers. Heike Doerr –: Right.

Right.

I think that’s really where I think that Ryan's question or Jim’s was about the municipalities. They have three things going against them, many times municipal wastewater and water systems have revenue streams coming in from builders because they charge builders what they call a tap fee, kind of this revenue and incoming revenue. We counted it as contributed property but that helps subsidize the system and then of course growth needs more customers at more rate. If you stop growing then you don't have the capacity and in some cities we're starting to see a decline in population, which means you actually have to raise prices just to make up for the people who left. And I think at that point, it becomes a vicious cycle that the economy scales needed to spread out the places that are growing. And that's why I think this is not a one year trend; this is a 10 year trend. But it's inevitable. Heike Doerr –: Great. Thanks, Nick.

Great. Thanks, Nick.

Thanks.

(Operator instructions). We have a question from Jonathan Reeder with Wachovia. Please go ahead. Jonathan Reeder – Wachovia: Good morning, Nick and Dave.

Hi, Jonathan. Jonathan Reeder – Wachovia: I wanted to get a quick clarification on the $2.4 million depreciation and amortization rate case adjustment charge. Was that one time or is that due to like a change in the depreciation rates in North Carolina?

It was one time, however we had to make it all up at one time. I'll let Dave explain the intricacies of it, but that 20 whatever percent, 22%, 23% increase in the quarter-over-quarter depreciation is probably, don't model that in for the year. See I just got that sheet, I think depreciation looks like a high teen, 15, 16 for the year, even with this one time anomaly, but and then it will start going back down to the 10, 12 range. Dave, do you want to explain that?

Yes, sure Jon. It was primarily two things, it was number one the commission imposing a different depreciation methodology on the company, different than the one that the company had utilized during those early years, largely because they felt the projects weren't been closed on as timely basis as necessary. And so of the 2.4 million that was about 1.6 million and its just a one time catch up from years ago up through the current period. The remainder was again in the depreciation area due to an incorrect amortization rate or the company's contribution in aid of construction account. So that had been amortizing too quickly and of course it's contra depreciation, so to reinstate that on the book was again the other part of that one time expense. Jonathan Reeder – Wachovia: Okay. And that part would kind of be on a go in forward basis as well at pick up?

Exactly we will get that back going forward.

We now know in North Carolina what the rules are and accounting will follow them and (inaudible). Jonathan Reeder – Wachovia: Okay. So between the non-recurring, the catch up portion as well as that other O&M the 1 million write-off is kind of like one penny I guess total non-recurring items in the quarter?

I would say a penny and a half. Jonathan Reeder – Wachovia: Okay. And then if you could Nick could you give us a little more clarity I guess the 8.2 million in pending cases is that just one case that's out there or?

No there is a number of them. The ones we had in the queue as we speak, we have a County in Florida which regulates itself through the commission. Jonathan Reeder – Wachovia: That’s Sarasota?

No Citrus, in this case. Sarasota will be later this year. Darlington, Indiana a huge rate increase but not a huge rate case. We have doubled the investment of the community so they could get fire protection and reliable service and now they are paying. They will be awarded new rates Fort Wayne, we have our second phase coming in June of our rate case that was allowed last year at two phases, Pennsylvania wastewater, we have 11 cases in that we are trying to consolidate. We expect some kind of ruling this summer on that. South Carolina, which is our first case in South Carolina and we had our hearings and we are expecting some action on that this summer and then our first case with New York Water Service which is a 12% request in New York, then we will put a lot of capital in New York, good service. So, they are the ones that are moving as we speak and then of course we have 60 million more, we are going to be filing towards the end of the year with everyone being big ones, I should say in Pennsylvania, New Jersey, Ohio. Jonathan Reeder – Wachovia: Okay. On the 8.2 (inaudible), are those kind of first half timing or how should we be thinking on when those incremental revenues might be coming in?

I would gauge some of them forward to you. Fort Wayne you can gauge and we’ll give you specifics on the numbers, Q3, Q4 because that will start in June. Citrus is very small, Darlington will probably start in Q3. The wastewater we hope Q3, but maybe Q4 to be conservative. South Carolina Q3 and New York Water Service probably not till next year because there's a set time in New York that they take. Jonathan Reeder – Wachovia: Okay, and then one another comment that kind of caught my attention. In your release, you mentioned about the long-term growth rate and return to the historic earnings growth. I know 2009, somewhat of a catch-up year, but what is the new annual target for 2010 and beyond. Are we still looking at 10% EPS. I know it's getting tougher of the larger base.

A lot of it will depend on ROEs granted. We have the catch-up probably not, it won't be done just in '09, as I mentioned to Heike. There is a little bit to catch-up just to get full earnings on the capital we've already spent.

Our apologies, ladies and gentlemen. Apparently the speaker's line is disconnected. One moment while we will reestablish that.

Hello, we are on again.

All right. Thank you, gentlemen. You are back on.

We apologize. We don't know what happened here. Jonathan, we were just talking what we try to imply in the release. Obviously whether it's still dependent on regulatory release in the sense of what ROEs will be going forward? But I think the fact that most of our spending going forward will be surcharge dependent will help and a lot of its going to be what those surcharges are branded at, obviously, 10, 11 whatever and the low cost capital and not diluting earnings. If you remember back we used to grow net income, 13%, 14% net 3%, 4% dilution too. And we don't see any of that need at this point, unless we do a larger acquisition where we are going to have to really expand our shares more than 1% or less than 1% which we have seen in the last couple of quarters. Jonathan Reeder – Wachovia: Right.

Yes, I mean, I can't predict, we don't give forward guidance. I don't want to imply that, but I think we're out of the lag, I guess, that's what I was trying to say.

Mr. Reeder, any other comments or question please? Jonathan Reeder – Wachovia: No. Thank you very much.

We do have another question from Michael Gaugler with Brean Murray, Carret. Please go ahead. Michael Gaugler – Brean Murray, Carret: Good morning, everyone.

Good morning, Michael. Michael Gaugler – Brean Murray, Carret: Nick, I have been looking back to the last couple of quarters, at your interest expense line and it is staying fairly constant. Should we be thinking that that's going to maintain?

The interest will stay right around 10% of revenue. Michael Gaugler – Brean Murray, Carret: Okay.

That's a drop because it was always a little closer to 11. It is now getting closer to 10 and the reason is we are borrowing our imputed cost of 1.2 billion of debt we have borrowed is lowered now to 5.4% and even though we are borrowing more, it's keep coming at a lower rate. We have a little refi that we are going to be able to do next year, which should take some 7% to 8% debt out, assuming debt phase down and to give you an example, this is phenomenal because we are eligible for the economic stimulus plan. New Jersey, we are in for about $5 million worth of loans, half of it will be at zero and the other half will be at market rate. So let’s put 2.5% to 3% there. Pennsylvania, we just got another 3 million out of 10 million. We're still at 30 million in the Q which is somewhere between 1.5 to 3.5. And in Wayne, they actually gave us $5 million of zero-interest loans for 25 years. So it's hard to beat that rate. So that's helping on the interest rates front, the tax freeze which now are AMT eligible and that will lower that by probably 50 to 75 basis points. That’s why I said the times are good for us to be investing. Michael Gaugler – Brean Murray, Carret: All right. Thanks Nick. That's really helpful.

Gentlemen, we have no further questions in queue at this time.

Thank you everyone.

This does conclude today’s conference. Thank you for participating.