10-K: York Water Company Reports Strong 2023 Results Driven by Rate Increases and Customer Growth

The York Water Company's 2023 annual report highlights a significant increase in net income and revenue, driven by rate increases and customer growth, alongside strategic investments in infrastructure.

Summary

• The York Water Company, the oldest investor-owned water utility in the U.S., reported a net income of $23.757 million for 2023, a 21.3% increase compared to $19.580 million in 2022.
• Operating revenues rose by 18.3% to $71.031 million in 2023, up from $60.061 million in 2022, primarily due to a rate increase effective March 1, 2023, and an increase in the customer base.
• The average number of water customers served increased by 996 to 71,416, and wastewater customers increased by 390 to 5,999.
• Operating expenses increased by 16.6% to $41.500 million, driven by higher depreciation, water and wastewater treatment costs, and wages.
• Interest on debt increased by 37.8% to $7.047 million due to higher debt levels and interest rates.
• The company invested $64.640 million in construction expenditures, including the Lake Williams dam project, and $625,000 in acquisitions.
• The company anticipates construction and acquisition expenditures of approximately $42.2 million in 2024 and $46.1 million in 2025.
• The company's average daily water availability was 41.0 million gallons, with an average daily consumption of 21.8 million gallons.
• The company's service territory had an estimated population of 209,000 as of December 31, 2023.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, strategic investments, and a focus on growth. While there are some challenges, the overall tone is optimistic and indicates a well-managed company.

Positives

• The company experienced significant growth in both revenue and net income.
• The company successfully increased its customer base in both water and wastewater services.
• The company completed a major infrastructure project, the Lake Williams dam armoring and spillway replacement.
• The company has a strong return on year end common equity of 10.7%.
• The company has a high efficiency ratio of 33.4%.
• The company has a strong credit rating of Awith a stable outlook.
• The company has a robust cybersecurity program with meaningful oversight measures.
• The company has a dividend payout ratio of 49.3% and increased the dividend by 4.00%.

Negatives

• Operating expenses increased significantly, driven by higher depreciation, treatment costs, and wages.
• Interest on debt increased due to higher debt levels and interest rates.
• The company experienced a decrease in revenue from the distribution system improvement charge (DSIC).
• The company incurred higher income taxes due to higher income before income taxes.
• The company has a substantial deferred income tax asset primarily due to the excess accumulated deferred income taxes on accelerated depreciation from the 2017 Tax Act.
• The company's common stockholders equity as a percent of total capitalization decreased from 59.3% to 54.8%.

Risks

• The company's business is somewhat dependent on weather conditions, particularly the amount and timing of precipitation.
• Prolonged periods of dry weather could lead to drought restrictions, negatively impacting revenues.
• The company's ability to obtain rate increases from the PPUC in a timely manner and in adequate amounts is crucial for revenue growth.
• The company faces potential competition from other investor-owned utilities and municipally-owned utilities.
• The company is subject to federal and state laws and regulations relating to water and wastewater quality and environmental protection.
• The company's information technology systems are vulnerable to cyber security attacks.
• The company's ability to maintain its credit rating depends on adequate and timely rate relief and its ability to fund capital expenditures.
• The company's pension plan is subject to market returns and discount rates, which could impact future contributions and expenses.
• The company is subject to the risk of reduced credit availability and may have to eliminate or postpone capital expenditures if unable to obtain sufficient lines of credit.

Future Outlook

The company expects modest revenue growth in 2024 due to a full year at new rates and an increase in customers from acquisitions and growth. Depreciation and amortization expenses are expected to continue to rise due to additional investment in utility plant. Interest expense is expected to be higher due to continued borrowings and higher interest rates. The company does not expect to file a rate increase request in 2024.

Management Comments

• Management is confident that its efficiency ratio will compare favorably to that of its peers.
• Management continues to look for ways to decrease expenses and increase efficiency as well as to file for rate increases promptly when needed.
• Management believes the Company will have adequate capacity under its current line of credit to meet financing needs throughout 2024.

Industry Context

The York Water Company operates in a regulated utility environment, where revenue growth is primarily driven by rate increases and customer expansion. The company's focus on infrastructure investment and acquisitions aligns with industry trends of maintaining and expanding service capabilities. The company's cybersecurity measures reflect the increasing importance of protecting critical infrastructure from cyber threats.

Comparison to Industry Standards

• The York Water Company's return on equity of 10.7% is strong and higher than the 2022 result of 9.5%, and in line with the five year historical average return on year end common equity of 10.7%.
• The company's efficiency ratio of 33.4% is higher than its five-year average of 30.0%, indicating strong expense control.
• The company's credit rating of Awith a stable outlook is a positive indicator of its financial health and stability, which is comparable to other well-established utilities.
• The company's focus on infrastructure investment, particularly the Lake Williams dam project, is consistent with industry standards for maintaining and upgrading water and wastewater systems.
• The company's cybersecurity program, including third-party risk management and board oversight, aligns with best practices in the utility sector.

Stakeholder Impact

• Shareholders will benefit from the increased net income and dividend payout.
• Employees will benefit from the company's continued growth and stability.
• Customers will benefit from the company's investments in infrastructure and service quality.
• The company's suppliers and creditors will benefit from the company's strong financial position.

Next Steps

• The company will continue to pursue water and wastewater acquisitions and bulk water contracts.
• The company will complete the remaining sitework around the Lake Williams dam in 2024.
• The company will review the Lake Redman dam following the completion of the work on the Lake Williams dam.
• The company will continue to implement its plan to comply with the Lead and Copper Rule Revisions.
• The company will seek approval from regulatory authorities for pending acquisitions.
• The company will begin construction of a water main extension to a single point of interconnection with Dallastown-Yoe Water Authority.

Key Dates

Keywords

water utility, wastewater, rate increase, customer growth, infrastructure, capital expenditures, net income, operating revenue, cybersecurity, pension plan, debt, acquisitions, regulatory, environmental, drought