YORK WATER CO

Previous wording

Water service is supplied through the Company’s own distribution system. The Company obtains the bulk of its water supply for its primary system for York and Adams Counties from both the South Branch and East Branch of the Codorus Creek, which together have an average daily flow of approximately 73.0 million gallons from a combined watershed area of approximately 117 square miles. The Company has two reservoirs on this primary system, Lake Williams and Lake Redman, which together hold up to approximately 2.5 billion gallons of water. The Company supplements these reservoirs with a 15-mile pipeline from the Susquehanna River to Lake Redman which provides access to an additional supply of 12.0 million gallons of untreated water per day. The Company obtains its water supply for its system for Franklin County from the Roxbury Dam on the Conodoguinet Creek, which has an average daily flow of approximately 26.0 million gallons from a watershed area of approximately 33 square miles. The Company has a reservoir on this system which holds up to approximately 330 million gallons of water. The Company also owns thirteen wells which are capable of providing a safe yield of approximately 808,000 gallons per day to supply water to the customers of its groundwater satellite systems in York, Adams, and Lancaster Counties. As of March 31, 2024, the Company’s average daily availability was 41.0 million gallons, and average daily consumption was approximately 20.7 million gallons. The Company’s service territory had an estimated population of 209,000 as of December 31, 2023. Industry within the Company’s service territory is diversified, manufacturing such items as fixtures and furniture, electrical machinery, food products, paper, ordnance units, textile products, air conditioning systems, laundry detergent, barbells, and motorcycles.

Current wording

Water service is supplied through the Company’s own distribution system. The Company obtains the bulk of its water supply for its primary system for York and Adams Counties from both the South Branch and East Branch of the Codorus Creek, which together have an average daily flow of approximately 73.0 million gallons from a combined watershed area of approximately 117 square miles. The Company has two reservoirs on this primary system, Lake Williams and Lake Redman, which together hold up to approximately 2.5 billion gallons of water. The Company supplements these reservoirs with a 15-mile pipeline from the Susquehanna River to Lake Redman which provides access to an additional supply of 12.0 million gallons of untreated water per day. The Company obtains its water supply for its system for Franklin County from the Roxbury Dam on the Conodoguinet Creek, which has an average daily flow of approximately 26.0 million gallons from a watershed area of approximately 33 square miles. The Company has a reservoir on this system which holds up to approximately 330 million gallons of water. The Company also owns thirteen wells which are capable of providing a safe yield of approximately 808,000 gallons per day to supply water to the customers of its groundwater satellite systems in York, Adams, and Lancaster Counties. As of June 30, 2024, the Company’s average daily availability was 41.0 million gallons, and average daily consumption was approximately 21.7 million gallons. The Company’s service territory had an estimated population of 209,000 as of December 31, 2023. Industry within the Company’s service territory is diversified, manufacturing such items as fixtures and furniture, electrical machinery, food products, paper, ordnance units, textile products, air conditioning systems, laundry detergent, barbells, and motorcycles.

Previous wording

Net income for the first quarter of 2024 was $4,327, an increase of $674, or 18.5%, from net income of $3,653 for the same period of 2023. The primary contributing factors to the increase were higher operating revenues which were partially offset by higher operating expenses.

Current wording

Net income for the first six months of 2024 was $9,320, a decrease of $857, or 8.4%, from net income of $10,177 for the same period of 2023. The primary contributing factors to the decrease were higher operating expenses and higher interest on debt which were partially offset by higher operating revenues and lower pension costs.

Previous wording

Operating revenues for the first quarter of 2024 increased $2,227, or 14.5%, from $15,401 for the three months ended March 31, 2023 to $17,628 for the corresponding 2024 period. The primary reason for the increase was a rate increase effective March 1, 2023. Growth in the customer base also added to revenues. The average number of water customers served in 2024 increased as compared to 2023 by 797 customers, from 71,151 to 71,948 customers. The average number of wastewater customers served in 2024 increased as compared to 2023 by 459 customers, from 5,895 to 6,354 customers, primarily due to acquisitions. The increased revenues were partially offset by a $271 decrease from a lower distribution system improvement charge, or DSIC, allowed by the PPUC. The DSIC reset to zero on March 1, 2023 when the rate order took effect. Total per capita consumption for 2024 was approximately 2.2% lower than the same period of last year. For the remainder of the year, the Company expects revenues to show a modest increase due to higher summer demand and an increase in the number of water and wastewater customers from acquisitions and growth within the Company’s service territory. Other regulatory actions, weather patterns, and economic conditions could impact results.

Current wording

Operating revenues for the first six months of 2024 increased $2,210, or 6.5%, from $34,168 for the six months ended June 30, 2023 to $36,378 for the corresponding 2024 period. The primary reason for the increase was a rate increase effective March 1, 2023. Growth in the customer base also added to revenues. The average number of water customers served in 2024 increased as compared to 2023 by 902 customers, from 71,224 to 72,126 customers. The average number of wastewater customers served in 2024 increased as compared to 2023 by 510 customers, from 5,917 to 6,427 customers, primarily due to acquisitions. The increased revenues were partially offset by a $237 decrease from a lower distribution system improvement charge, or DSIC, allowed by the PPUC. The DSIC reset to zero on March 1, 2023 when the rate order took effect. The Company began recognizing DSIC in June 2024 for bills rendered after July 1, 2024 that included June consumption. Total per capita consumption for 2024 was approximately 2.5% lower than the same period of last year. For the remainder of the year, the Company expects revenues to show a modest increase due to the DISC, higher summer demand, and an increase in the number of water and wastewater customers from acquisitions and growth within the Company’s service territory. Other regulatory actions, weather patterns, and economic conditions could impact results.

Previous wording

Operating expenses for the first quarter of 2024 increased $1,430, or 14.3%, from $9,983 for the first quarter of 2023 to $11,413 for the corresponding 2024 period. The increase was primarily due to higher expenses of approximately $365 for distribution system maintenance, $269 for depreciation and amortization, $205 for wages, $118 for insurance, $75 for wastewater treatment, $65 for outside services, and $50 for purchased power. Other operating expenses increased by a net of $283. For the remainder of the year, the Company expects depreciation and amortization expense to continue to rise due to additional investment in utility plant, and other expenses to increase as costs to treat water and wastewater, and to maintain and extend the distribution system, continue to rise. Weather patterns could further increase operating expenses.

Current wording

Operating expenses for the first six months of 2024 increased $2,867, or 14.2%, from $20,234 for the first six months of 2023 to $23,101 for the corresponding 2024 period. The increase was primarily due to higher expenses of approximately $730 for distribution system maintenance, $517 for depreciation and amortization, $516 for wages and benefits, $300 for an increased allowance for uncollectible accounts, $295 for wastewater treatment, $118 for purchased power, $96 for outside services, and $72 for billing and revenue collection services. Other operating expenses increased by a net of $223. For the remainder of the year, the Company expects depreciation and amortization expense to continue to rise due to additional investment in utility plant, and other expenses to increase as costs to treat water and wastewater, and to maintain and extend the distribution system, continue to rise. Weather patterns could further increase operating expenses.

Previous wording

Interest on debt for the first quarter of 2024 increased $610, or 40.3%, from $1,513 for the first quarter of 2023 to $2,123 for the corresponding 2024 period. The increase was primarily due to an increase in long-term debt outstanding and higher interest rates. The average debt outstanding under the line of credit was $20,875 for the first quarter of 2024 and $20,412 for the first quarter of 2023. The weighted average interest rate on the line of credit was 4.08% for the quarter ended March 31, 2024 and 2.96% for the quarter ended March 31, 2023. Interest expense for the remainder of the year is expected to increase due to the increase in long-term debt outstanding.

Current wording

Interest on debt for the first six months of 2024 increased $1,115, or 34.9%, from $3,191 for the first six months of 2023 to $4,306 for the corresponding 2024 period. The increase was primarily due to an increase in long-term debt outstanding and higher interest rates upon issuance of the 5.67% Senior Notes. The average debt outstanding under the line of credit was $10,794 for the first six months of 2024 and $12,715 for the first six months of 2023. The weighted average interest rate on the line of credit was 4.29% for the six months ended June 30, 2024 and 4.24% for the six months ended June 30, 2023. Interest expense for the remainder of the year is expected to increase due to the increase in long-term debt outstanding.

Previous wording

Allowance for funds used during construction increased $385, from $749 in the first quarter of 2023 to $1,134 in the corresponding 2024 period due to a higher volume of eligible construction. Allowance for funds used during construction for the remainder of the year is expected to decrease based on the completion of the Lake Williams dam project and a projected decrease in the amount of eligible construction.

Current wording

Allowance for funds used during construction decreased $112, from $1,593 in the first six months of 2023 to $1,481 in the corresponding 2024 period due to a lower volume of eligible construction. Allowance for funds used during construction for the remainder of the year is expected to decrease based on the completion of the Lake Williams dam project and a projected decrease in the amount of eligible construction.

Previous wording

Other income (expenses), net for the first quarter of 2024 reflects decreased expenses of $27 as compared to the same period of 2023. Higher earnings on life insurance policies of approximately $52 were the primary reasons for the increase. Other expenses increased by a net of $25. For the remainder of the year, other income (expenses) will be largely determined by the change in market returns and discount rates for retirement programs and related assets.

Current wording

Other income (expenses), net for the first six months of 2024 reflects decreased expenses of $85 as compared to the same period of 2023. Higher earnings on life insurance policies of approximately $83 was the primary reason for the decrease. Other expenses decreased by a net of $2. For the remainder of the year, other income (expenses) will be largely determined by the change in market returns and discount rates for retirement programs and related assets.

Previous wording

Income tax expense for the first quarter of 2024 increased $59 as compared to the same period of 2023. The Company’s effective tax rate was 12.2% for the first quarter of 2024 and 12.9% for the first quarter of 2023. The Company’s effective tax rate for the remainder of 2024 will largely be determined by the level of eligible asset improvements expensed for tax purposes under Internal Revenue Service tangible property regulations, or TPR, each period. The Company expects the level to be higher in the remainder of the year than the first quarter, lowering the effective tax rate.

Current wording

Income tax expense for the first six months of 2024 decreased $133 as compared to the same period of 2023. The Company’s effective tax rate was 10.8% for the first six months of 2024 and 11.0% for the first six months of 2023. The Company’s effective tax rate for the remainder of 2024 will be largely determined by the level of eligible asset improvements expensed for tax purposes under Internal Revenue Service tangible property regulations, or TPR, each period. The Company expects the level to be higher in the remainder of the year than the first six months, lowering the effective tax rate.

Previous wording

On March 27, 2023, the Company signed an agreement to purchase the water assets of Pine Run Retirement Community in Hamilton Township, Adams County, Pennsylvania. Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities. Closing is expected in the first half of 2025 at which time the Company will add approximately 100 water customers.

Current wording

On March 27, 2023, the Company signed an agreement to purchase the water assets of Pine Run Retirement Community in Hamilton Township, Adams County, Pennsylvania. Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities. Closing is expected in the second half of 2024 at which time the Company will add approximately 100 water customers.

Previous wording

For the three months ended March 31, 2024, the Company invested $8,457 in construction expenditures forarmoring and replacing the spillway of the Lake Williams dam, wastewater treatment plant construction, as well as various replacements and improvements to infrastructure and routine items. The Company was able to fund construction expenditures using internally-generated funds, line of credit borrowings, proceeds from its stock purchase plans and customer advances and contributions from developers, municipalities, customers, or builders.

Current wording

For the six months ended June 30, 2024, the Company invested $20,867 in construction expenditures forarmoring and replacing the spillway of the Lake Williams dam, wastewater treatment plant construction, as well as various replacements and improvements to infrastructure and routine items. The Company was able to fund construction expenditures using internally-generated funds, line of credit borrowings, proceeds from its stock purchase plans and customer advances and contributions from developers, municipalities, customers, or builders.

Previous wording

The Company anticipates construction expenditures for the remainder of 2024 of approximately $33,700 exclusive of any potential acquisitions not yet approved. In addition to routine transmission and distribution projects, a portion of the anticipated expenditures will be for completion ofarmoring and replacing the spillway of the Lake Williams dam, additional main extensions, wastewater treatment plant construction, as well as various replacements and improvements to infrastructure and routine items. The Company intends to use primarily internally-generated funds for its anticipated construction and fund the remainder through line of credit borrowings, proceeds from its stock purchase plans and customer advances and contributions. Customer advances and contributions are expected to account for between 5% and 10% of funding requirements during the remainder of 2024. The Company believes it will have adequate credit facilities and access to the capital markets, if necessary, during 2024, to fund anticipated construction and acquisition expenditures.

Current wording

The Company anticipates construction expenditures for the remainder of 2024 of approximately $21,300 exclusive of any potential acquisitions not yet approved. In addition to routine transmission and distribution projects, a portion of the anticipated expenditures will be for completion ofarmoring and replacing the spillway of the Lake Williams dam, additional main extensions, wastewater treatment plant construction, as well as various replacements and improvements to infrastructure and routine items. The Company intends to use primarily internally-generated funds for its anticipated construction and fund the remainder through line of credit borrowings, proceeds from its stock purchase plans and customer advances and contributions. Customer advances and contributions are expected to account for between 5% and 10% of funding requirements during the remainder of 2024. The Company believes it will have adequate credit facilities and access to the capital markets, if necessary, during 2024 and 2025, to fund anticipated construction and acquisition expenditures.

Previous wording

The Company manages its cash through a cash management account that is directly connected to its line of credit. Excess cash generated automatically pays down outstanding borrowings under the line of credit arrangement. If there are no outstanding borrowings, the cash is used as an earnings credit to reduce banking fees. Likewise, if additional funds are needed beyond what is generated internally for payroll, to pay suppliers, to fund capital expenditures, or to pay debt service, funds are automatically borrowed under the line of credit. As of March 31, 2024, the Company had no borrowings on its line of credit and had a cash balance of $3,321. Upon completion of the debt offering in February 2024, the Company repaid its line of credit and generated a cash balance with the remaining portion of the proceeds. The Company expects the cash balance to be fully utilized in 2024, after which the cash management facility connected to the line of credit is expected to provide the necessary liquidity and funding for the Company’s operations, capital expenditures, and acquisitions for the foreseeable future.

Current wording

The Company manages its cash through a cash management account that is directly connected to its line of credit. Excess cash generated automatically pays down outstanding borrowings under the line of credit arrangement. If there are no outstanding borrowings, the cash is used as an earnings credit to reduce banking fees. Likewise, if additional funds are needed beyond what is generated internally for payroll, to pay suppliers, to fund capital expenditures, or to pay debt service, funds are automatically borrowed under the line of credit. As of June 30, 2024, the Company borrowed $1,461 on its line of credit and incurred a cash overdraft on its cash management account of $2,154. The cash management facility connected to the line of credit is expected to provide the necessary liquidity and funding for the Company’s operations, capital expenditures, and acquisitions for the foreseeable future.

Previous wording

The accounts receivable balance tends to follow the change in revenues but is also affected by the timeliness of payments by customers and the level of the reserve for doubtful accounts. In the three months ended March 31, 2024, lower revenue levels as compared to the three months ended December 31, 2023, resulted in a decrease in accounts receivable – customers. A reserve is maintained at a level considered adequate to provide for expected credit losses. Expected credit losses are based on historical write-offs combined with an evaluation of current conditions and reasonable and supportable forecasts including inactive accounts with outstanding balances, the aging of balances in payment agreements, adverse situations that may affect a customer’s ability to pay, economic conditions, and other relevant factors applied to the current aging of receivables. Customer accounts are written off when collection efforts have been exhausted. If the status of the evaluated factors deteriorate, the Company may incur additional expenses for uncollectible accounts and experience a reduction in its internally-generated funds.

Current wording

The accounts receivable balance tends to follow the change in revenues but is also affected by the timeliness of payments by customers and the level of the reserve for doubtful accounts. In the three months ended June 30, 2024, consistent revenue levels as compared to the three months ended December 31, 2023, resulted in a consistent balance in accounts receivable – customers. A reserve is maintained at a level considered adequate to provide for expected credit losses. Expected credit losses are based on historical write-offs combined with an evaluation of current conditions and reasonable and supportable forecasts including inactive accounts with outstanding balances, the aging of balances in payment agreements, adverse situations that may affect a customer’s ability to pay, economic conditions, and other relevant factors applied to the current aging of receivables. Customer accounts are written off when collection efforts have been exhausted. If the status of the evaluated factors deteriorate, the Company may incur additional expenses for uncollectible accounts and experience a reduction in its internally-generated funds.

Previous wording

The amount of internally-generated funds available for operations and construction depends on the Company’s ability to obtain timely and adequate rate relief, changes in regulations including taxes, customers’ water usage, weather conditions, customer growth and controlled expenses. During the first three months of 2024, the Company generated $6,138 internally from operations which is comparable to the $6,224 it generated during the first three months of 2023.

Current wording

The amount of internally-generated funds available for operations and construction depends on the Company’s ability to obtain timely and adequate rate relief, changes in regulations including taxes, customers’ water usage, weather conditions, customer growth and controlled expenses. During the first six months of 2024, the Company generated $12,841 internally from operations as compared to the $14,596 it generated during the first six months of 2023. The decrease was primarily due to higher interest and income taxes paid.

Previous wording

Common stockholders’ equity as a percent of the total capitalization was 53.7% as of March 31, 2024, compared with 54.8% as of December 31, 2023. The Company expects to use long-term debt for its future financing needs and allow the debt percentage to trend upward until it approaches fifty percent before considering additional equity. It is the Company’s general intent to target equity between fifty and fifty-five percent of total capitalization.

Current wording

Common stockholders’ equity as a percent of the total capitalization was 53.8% as of June 30, 2024, compared with 54.8% as of December 31, 2023. The Company expects to use long-term debt for its future financing needs and allow the debt percentage to trend upward until it approaches fifty percent before considering additional equity. It is the Company’s general intent to target equity between fifty and fifty-five percent of total capitalization.

Previous wording

Historically, the Company has borrowed under its line of credit before refinancing with long-term debt or equity capital. As of March 31, 2024, the Company maintained an unsecured line of credit in the amount of $50,000 at an interest rate of the Secured Overnight Financing Rate, or SOFR, plus 1.17% with an unused commitment fee and an interest rate floor. The Company had no outstanding borrowings under its line of credit as of March 31, 2024. Upon completion of the debt offering in February 2024, the Company repaid its line of credit. The Company expects to extend the maturity for this line of credit into 2026 under similar terms and conditions.

Current wording

Historically, the Company has borrowed under its line of credit before refinancing with long-term debt or equity capital. As of June 30, 2024, the Company maintained an unsecured line of credit in the amount of $50,000 at an interest rate of the Secured Overnight Financing Rate plus 1.17% with an unused commitment fee and an interest rate floor. The Company had $1,461 in borrowings under its line of credit as of June 30, 2024. The interest rate on the line of credit borrowing as of June 30, 2024 was 6.50%. The Company expects to extend the maturity for this line of credit into 2026 under similar terms and conditions.

Previous wording

The Company has taken steps to manage the risk of reduced credit availability. It has established a committed line of credit with a 2-year revolving maturity that cannot be called on demand. There is no guarantee that the Company will be able to obtain sufficient lines of credit with favorable terms in the future. If the Company is unable to obtain sufficient lines of credit or to refinance its line of credit borrowings with long-term debt or equity when necessary, it may have to eliminate or postpone capital expenditures. Management believes the Company will have adequate capacity under its current line of credit to meet anticipated financing needs throughout 2024.

Current wording

The Company has taken steps to manage the risk of reduced credit availability. It has established a committed line of credit with a 2-year revolving maturity that cannot be called on demand. There is no guarantee that the Company will be able to obtain sufficient lines of credit with favorable terms in the future. If the Company is unable to obtain sufficient lines of credit or to refinance its line of credit borrowings with long-term debt or equity when necessary, it may have to eliminate or postpone capital expenditures. Management believes the Company will have adequate capacity under its current line of credit to meet anticipated financing needs throughout 2024 and 2025.

Previous wording

The Company’s total long-term debt as a percentage of the total capitalization, defined as total common stockholders’ equity plus total long-term debt, was 46.3% as of March 31, 2024, compared with 45.2% as of December 31, 2023. The Company expects to use long-term debt for its future financing needs and allow the debt percentage to trend upward. A debt to total capitalization ratio between forty-five and fifty percent has historically been acceptable to the PPUC in rate filings.

Current wording

The Company’s total long-term debt as a percentage of the total capitalization, defined as total common stockholders’ equity plus total long-term debt, was 46.2% as of June 30, 2024, compared with 45.2% as of December 31, 2023. The Company expects to use long-term debt for its future financing needs and allow the debt percentage to trend upward. A debt to total capitalization ratio between forty-five and fifty percent has historically been acceptable to the PPUC in rate filings.

Previous wording

The Company was granted approval by the PPUC to modify its tariff to include the cost of the annual replacement of up to 400 lead customer-owned service lines over nine years from the date of the agreement. The tariff modification allows the Company to replace customer-owned service lines at its own initial cost. The Company will record the costs as a regulatory asset to be recovered in future base rates to customers, over a four-year period. The cost for the customer-owned lead service line replacements was approximately $1,819 and $1,762 through March 31, 2024 and December 31, 2023, respectively, and is included as a regulatory asset. Based on its experience, the Company estimates that lead customer-owned service lines replacements will cost $1,900. This estimate is subject to adjustment as more facts become available.

Current wording

The Company was granted approval by the PPUC to modify its tariff to include the cost of the annual replacement of up to 400 lead customer-owned service lines over nine years from the date of the agreement. The tariff modification allows the Company to replace customer-owned service lines at its own initial cost. The Company will record the costs as a regulatory asset to be recovered in future base rates to customers, over a four-year period. The cost for the customer-owned lead service line replacements was approximately $1,868 and $1,762 through June 30, 2024 and December 31, 2023, respectively, and is included as a regulatory asset. Based on its experience, the Company estimates that lead customer-owned service lines replacements will cost $2,000. This estimate is subject to adjustment as more facts become available.