Home | Business News | Browse by Publication | F | Fair Disclosure Wire

Aqua America at Bear, Stearns & Co. Inc. Commodities & Capital Goods Conference - Final.

Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE

UNIDENTIFIED PARTICIPANT: Good morning everybody. Welcome to Aqua America. This presentation is being webcast, so we will get rolling here right on time. I am delighted to have this morning with us, Nicholas DeBenedictis, Chairman and CEO of Aqua America. I have to read disclosures, and we have no disclosures for Aqua America. So without further ado, I will hand it over to you.

NICHOLAS DEBENEDICTIS, CHAIRMAN, CEO, AQUA AMERICA: Thank you and good morning. This is a commodity conference and it is kind of rare for a water utility to be invited to one of these. I tried to jot down what our product is and how -- what some of the traits are. There is no more supply available in the entire world of our product. The demand is increasing every year. The pricing is inelastic. There are no substitute materials or products. There is a high barrier to entry. We are the most capital intensive industry in the country. And we enjoy a monopoly status.

If this were a commodity stock, I should just sit down at this point. Unfortunately we're regulated. What you're going to see with a lot of -- and rightfully so, otherwise we would probably own IBM at this point. What you're going to see is a little bit of how our model works regarding -- in the regulated stature so that we produce cash, earnings, dividends in order to continue reinvesting in infrastructure, which is what our public use goals are and serve the public, and in doing so also serve our shareholders.

Forward-looking statement. I thought I would start with the water industry in general so that you can see the demographics basically of the delivery model, and then talk about our personal business model within that purview. It is a highly fragmented industry. There is very few providers of scale, as a matter of fact, a handful that are publicly traded. Most are municipal governments.

I mentioned the supply, the aspects of the product. And the other issue is that we're the only utility that is ingested, which is very significant because we're regulated more by the EPA than we are the price regulators. And there is very little opportunity for the price regulators to second-guess the expenditures you make, whereas in the electric business where I was prior, there was always a question of whether your spending should be allowed back in the recovery of rates, because did you spend the right amount on the right thing, i.e., a nuclear plant. Whereas we have never -- for 120 years that we have been in business, we have never lost a penny, as to what we have spent in our capital doesn't get rewarded back in our rates.

I'll talk a little bit about the infrastructure needs for the country, which we are of course part of. And it is going to be one of the drivers of future demand for a lot of products, including the ones we go buy, pipes, pumps and so on, but equally will be a generator of pricing for us.

This is the EPA's own estimate, self fulfilled, like we submit our twenty-year spending plan, so it is as accurate as everybody thinks they know what is going to happen in 20 years. But this is $0.250 trillion that is needed over the next 20 years to maintain our nation's infrastructure, drinking water infrastructure. You could probably double that if you want to add waste water to it. And you can see on the water side it is mostly pipes. That is transmission distribution. I think probably if we had an electric presentation here you're going to see the same thing there. That is the part that has been neglected for years. This is pay me now or pay me later. Usually though when you have a main break like that, it is usually Christmas Eve and it is probably about three degrees out, and not a great job.

These are the factoids just so you have a feel for the industry. There is 50,000 regulated water companies in the country. Obviously, most are small. 16,000 waste water. And the inefficiency comes from both lack of economy of scale, but also the fact that the larger concentration of water purveyors are municipal governments. I am making a broad leap to say they are inherently inefficient,...

View this article FREE - Now for a Limited Time, try Goliath Business News
Free for 3 Days!