YORK WATER CO
For the period ended Dec 31, 2024. Filed Mar 4, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 4, 2025
YORW$32.62+1.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-05.
0000108985-24-000020
Management’s Discussion and Analysis of Financial Condition and Results of OperationCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-04.
0000108985-25-000015
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 91 previous paragraphs and 86 current paragraphs.
54 unchanged; 30 reworded; 2 added; 7 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 1 previous and 1 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (2)
Current report
Other pension costs reflect decreased expense of $1,606 in 2024 due to a lower contribution to the pension plans. In 2025, other pension costs is expected to be similar to 2024.
Current report
Effective January 1, 2025, the Company’s tariff included a DSIC on revenues of 2.20%.
Removed paragraphs (7)
Previous report
On July 17, 2023, the Company signed an agreement to purchase the wastewater collection and treatment assets of York Haven Sewer Authority in York Haven Borough, York County, Pennsylvania. Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities. Closing is expected in the third quarter of 2024 at which time the Company will add approximately 230 wastewater customers.
Previous report
On June 1, 2023, the Company signed an agreement to purchase the water assets of Longstown Mobile Estates in Windsor Township, York County, Pennsylvania. Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities. Closing is expected in the first quarter of 2024 at which time the Company will add approximately 90 water customers. The water customers are currently served by the Company through a single customer connection to the mobile home park.
Previous report
On May 23, 2023, the Company signed an agreement to purchase the Brookhaven Mobile Home Park water assets of ATG Properties, LLC in Hellam Township, York 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 150 water customers.
Previous report
On May 18, 2023, the Company signed an agreement to purchase the water assets of Houston Run Community Water System, LLC in Salisbury Township, Lancaster County, Pennsylvania. Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities. Closing is expected in the second quarter of 2024 at which time the Company will add approximately 15 water customers.
Previous report
On May 10, 2017, the Company signed an emergency interconnect agreement with Dallastown-Yoe Water Authority. The effectiveness of this agreement is contingent upon receiving approval from all required regulatory authorities. Approval is expected to be granted in 2024 at which time the Company will begin construction of a water main extension to a single point of interconnection and either supply a minimum agreed upon amount of water to the authority, receive a payment in lieu of water, or provide water during an emergency, at current tariff rates.
Previous report
Revenue Recognition
Previous report
Operating revenues include amounts billed to metered water and certain wastewater customers on a cycle basis and unbilled amounts based on both actual and estimated usage from the latest meter reading to the end of the accounting period. Estimates are based on average daily usage for those particular customers. The unbilled revenue amount is recorded as a current asset on the balance sheet. Actual results could differ from these estimates and would result in operating revenues being adjusted in the period in which the actual usage is known. Based on historical experience, the Company believes its estimate of unbilled revenues is reasonable.
Reworded paragraphs (30)
Previous wording
The York Water Company (the “Company”) is the oldest investor-owned water utility in the United States, operated continuously since 1816. The Company also owns and operates three wastewater collection systems and ten wastewater collection and treatment systems. The Company is a purely regulated water and wastewater utility. Profitability is largely dependent on water revenues. Due to the size of the Company and the limited geographic diversity of its service territory, weather conditions, particularly precipitation, economic, and market conditions can have an adverse effect on revenues. The Company experienced increased revenues in 2023 compared to 2022 primarily due to a rate increase effective March 1, 2023 and an increase in the number of customers, which was partially offset by lower revenues from the distribution system improvement charge, or DSIC.
Current wording
The York Water Company (the “Company”) is the oldest investor-owned water utility in the United States, operated continuously since 1816. The Company also owns and operates three wastewater collection systems and eleven wastewater collection and treatment systems. The Company is a purely regulated water and wastewater utility. Profitability is largely dependent on water revenues. Due to the size of the Company and the limited geographic diversity of its service territory, weather conditions, particularly precipitation, economic, and market conditions can have an adverse effect on revenues. The Company experienced increased revenues in 2024 compared to 2023 primarily due to the residual effects of a rate increase effective March 1, 2023, an increase in the number of customers, and higher revenues from the distribution system improvement charge, or DSIC.
Previous wording
In addition to increasing revenue, the Company consistently focuses on minimizing costs without sacrificing water quality or customer service. Paperless billing, expanding online services, negotiation of favorable electric, banking, and other costs, as well as taking advantage of the Tax Cuts and Jobs Act of 2017, or the 2017 Tax Act, and the Internal Revenue Service, or IRS, tangible property regulations, or TPR, are examples of the Company’s recent efforts to minimize costs.
Current wording
In addition to increasing revenue, the Company consistently focuses on minimizing costs without sacrificing water quality or customer service. Paperless billing, expanding online services, negotiation of favorable electric, banking, and other costs, and reduced pension contributions are examples of the Company’s recent efforts to minimize costs.
Previous wording
The Company’s performance in 2023 was strong under the above measures. Operating revenues increased in 2023 compared to 2022 primarily due to a rate increase effective March 1, 2023 and an increase in the number of customers, which was partially offset by the lower revenues from the DSIC. The increase in operating revenues offset the increases in operating expenses. The Company incurred higher income taxes primarily due to higher income before income taxes. The overall effect was an increase in net income in 2023 over 2022 of 21.3% and a return on year end common equity of 10.7%. The return on year end common equity was strong and higher than the 2022 result of 9.5% which included an increase in common equity from an underwritten public stock offering completed in 2022. The 2023 results were in line with the five year historical average return on year end common equity of 10.7%.
Current wording
The Company’s performance in 2024 was strong under the above measures. Operating revenues increased in 2024 compared to 2023 primarily due to the residual effects of a rate increase effective March 1, 2023, an increase in the number of customers, and higher revenues from the DSIC. The increase in operating expenses offset the increase in operating revenues. The Company incurred higher interest expense and lower allowance for funds used during construction. The Company did benefit from a lower contribution to the pension plans. The overall effect was a decrease in net income in 2024 over 2023 of 14.4% and a return on year end common equity of 8.8%. The return on year end common equity was lower than the 2023 result and the five year historical average return on year end common equity of 10.7%. The Company expects to file a rate increase request in 2025 which may increase its opportunity to earn a higher return on year end common equity in the future.
Previous wording
The efficiency ratio, which is calculated as net income divided by revenues, is used by management to evaluate its ability to control expenses. Over the five previous years, the Company’s ratio averaged 30.0%. In 2023, the ratio was higher than the average at 33.4% due primarily to the increase in operating revenues and lower income taxes than are included in the historical average. Management is confident that its 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.
Current wording
The efficiency ratio, which is calculated as net income divided by revenues, is used by management to evaluate its ability to control expenses. Over the five previous years, the Company’s ratio averaged 31.1%. In 2024, the ratio was lower than the average at 27.1% due primarily to the increase in operating expenses, higher interest expense, and lower allowance for funds used during construction. Management is confident that its 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.
Previous wording
Net income for 2023 was $23,757, an increase of $4,177, or 21.3%, from net income of $19,580 for 2022. The primary contributing factors to the increase were higher operating revenues, which were partially offset by higher operating expenses and income taxes.
Current wording
Net income for 2024 was $20,325, a decrease of $3,432, or 14.4%, from net income of $23,757 for the same period of 2023. The primary contributing factors to the decrease were higher operating expenses, a lower allowance for funds used during construction, and higher interest on debt, which were partially offset by higher operating revenues and lower pension costs.
Previous wording
Operating revenues for 2023 increased $10,970, or 18.3%, from $60,061 for 2022 to $71,031 for 2023. 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 2023 increased as compared to 2022 by 996 customers, from 70,420 to 71,416 customers. The average number of wastewater customers served in 2023 increased as compared to 2022 by 390 customers, from 5,609 to 5,999 customers, primarily due to acquisitions. Total per capita consumption for 2023 was approximately 0.3% higher than last year. The increased revenues were partially offset by a $1,994 decrease from a lower DSIC allowed by the PPUC. The DSIC reset to zero on March 1, 2023 when the rate order took effect. In 2024, the Company expects revenues to show a modest increase over 2023 due to a full year at the new rates and an increase in the number of water and wastewater customers from acquisitions and growth within the Company’s service territory. Other regulatory actions, drought warnings or restrictions, weather patterns, and economic conditions could impact results.
Current wording
Operating revenues for 2024 increased $3,928, or 5.5%, from $71,031 for 2023 to $74,959 for 2024. 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 999 customers, from 71,416 to 72,415 customers. The average number of wastewater customers served in 2024 increased as compared to 2023 by 522 customers, from 5,999 to 6,521 customers, primarily due to acquisitions. There was increased revenues from the DSIC allowed by the PPUC of $137. The DSIC allows the Company to add a charge to customers’ water bills for qualified replacement costs of certain infrastructure without submitting a rate filing. The DSIC reset to zero on March 1, 2023 when the new rate order took effect and began again in June 2024 for bills rendered after July 1, 2024. Total per capita consumption for 2024 was approximately 0.8% lower than the same period of last year. In 2025, the Company expects revenues to show a modest increase due to revenues from the DSIC 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 2023 increased $5,922, or 16.6%, from $35,578 for 2022 to $41,500 for 2023. The increase was primarily due to higher expenses of approximately $1,607 for depreciation and amortization, $975 for water treatment, $713 for wages, $683 for wastewater treatment as the prior year included a one-time reimbursement not repeated in the current year, $362 for insurance, $282 for distribution system maintenance, $281 for outside services, $213 for billing and revenue collection services, $202 for fuel to pump raw water from the Susquehanna River, $189 for reduced capitalized overhead, $106 for an increased allowance for uncollectible accounts, and $89 for source maintenance. Other operating expenses increased by a net of $220. In 2024, 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. Drought conditions and weather patterns could further increase operating expenses.
Current wording
Operating expenses for 2024 increased $5,418, or 13.1%, from $41,500 for 2023 to $46,918 for 2024. The increase was primarily due to higher expenses of approximately $1,216 for depreciation and amortization, $1,007 for wages and benefits, $992 for distribution system maintenance, $534 for an increased allowance for uncollectible accounts, $504 for wastewater treatment, $268 for purchased power, $226 for insurance, $200 for outside services, $163 for water treatment, and $92 for billing and revenue collection services. Other operating expenses increased by a net of $415. The increase was partially offset by reduced fuel expenses of $199 for the prior year pumping of raw water from the Susquehanna River, not repeated in 2024. In 2025, 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 2023 increased $1,933, or 37.8%, from $5,114 for 2022 to $7,047 for 2023. The increase was primarily due to an increase in long-term debt outstanding and higher interest rates. The average debt outstanding under the lines of credit was $16,316 for 2023 and $13,428 for 2022. The weighted average interest rate on the lines of credit was 5.36% for 2023 and 2.11% for 2022. Interest expense for 2024 is expected to be higher due to continued borrowings and continued higher interest rates.
Current wording
Interest on debt for 2024 increased $1,857, or 26.4%, from $7,047 for 2023 to $8,904 for 2024. 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 $10,087 in 2024 and $16,316 in 2023. The weighted average interest rate on the line of credit was 5.23% during 2024 and 5.36% during 2023. Interest expense for 2025 is expected to increase due to the increase in long-term debt outstanding.
Previous wording
Allowance for funds used during construction increased $2,652, from $1,501 in 2022 to $4,153 in 2023 due to a higher volume of eligible construction. Allowance for funds used during construction in 2024 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 $2,101, from $4,153 in 2023 to $2,052 in 2024 due to a higher volume of eligible construction in 2023. Allowance for funds used during construction in 2025 is expected to decrease based on a projected decrease in the amount of eligible construction.
Previous wording
Other income (expenses), net for 2023 reflects increased expenses of $521 as compared to 2022. Higher retirement expenses of approximately $843 were the primary reason for the increase. Lower charitable contributions of approximately $288 partially offset the increase. Other expenses decreased by a net of $34. In 2024, 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 2024 reflects decreased expenses of $483 as compared to 2023. The decrease was primarily due to lower retirement expenses of approximately $315, higher earnings on life insurance policies of approximately $113, and lower charitable contributions of approximately $112. Other expenses increased by a net of $57. In 2025, 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 2023 increased $1,262 compared to 2022 primarily due to higher income before income taxes partially offset by higher deductions from the IRS TPR. The Company’s effective tax rate was 5.1% for 2023 and 0.1% for 2022. The Company’s effective tax rate for 2024 will be largely determined by income before income taxes and the level of eligible asset improvements expensed for tax purposes under TPR each period.
Current wording
Income tax expense for 2024 increased $73 as compared to 2023 due to lower deductions for the Internal Revenue Service, or IRS, tangible property regulations, or TPR. The Company’s effective tax rate was 6.2% for 2024 and 5.1% for 2023. The Company’s effective tax rate for 2025 will be largely determined by the level of eligible asset improvements expensed for tax purposes under the IRS TPR each period.
Previous wording
The Company does not expect to file a rate increase request in 2024.
Current wording
The Company expects to file a rate increase request in 2025.
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 second half of 2024 at which time the Company will add approximately 100 water customers.
Current wording
On January 24, 2025, the Company signed an agreement to purchase the water assets of Eagle View Manufactured Housing Community in Berwick 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 2025 at which time the Company will add approximately 140 water customers.
Previous wording
On February 7, 2024, the Company signed an agreement to purchase the wastewater collection assets of Margaretta Mobile Home Park in Lower Windsor Township, York County, Pennsylvania. Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities. Closing is expected in 2025 at which time the Company will add approximately 65 wastewater customers.
Current wording
On February 7, 2024, the Company signed an agreement to purchase the wastewater collection assets of Margaretta Mobile Home Park in Lower Windsor Township, York County, Pennsylvania. Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities. Closing is expected in the second half of 2025 at which time the Company will add approximately 65 wastewater customers.
Previous wording
During 2023, the Company invested $64,640 in construction expenditures for armoring 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. In addition, the Company invested $625 in the acquisition of water and wastewater systems. The Company replaced approximately 50,200 feet of water main and 500 feet of wastewater main in 2023. 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. See Notes 1, 4 and 5 to the Company’s financial statements included herein.
Current wording
During 2024, the Company invested $48,226 in construction expenditures for armoring 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. In addition, the Company invested $783 in the acquisition of water and wastewater systems. The Company replaced approximately 50,200 feet of water main in 2024. 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. See Notes 1, 4 and 5 to the Company’s financial statements included herein.
Previous wording
The Company anticipates construction and acquisition expenditures for 2024 and 2025 of approximately $42,200 and $46,100, respectively, exclusive of any acquisitions not yet approved. In addition to routine transmission and distribution projects, a portion of the anticipated 2024 and 2025 expenditures will be for additional main extensions, completion of armoring and replacing the spillway of the Lake Williams dam, wastewater treatment plant construction, an upgrade to the enterprise software system, and various replacements of infrastructure. The Company intends to use primarily internally-generated funds for its anticipated 2024 and 2025 construction and fund the remainder through line of credit borrowings, potential debt and equity offerings, proceeds from its stock purchase plans and customer advances and contributions (see Note 1 to the Company’s financial statements included herein). Customer advances and contributions are expected to account for between 5% and 10% of funding requirements in 2024 and 2025. 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.
Current wording
The Company anticipates construction and acquisition expenditures for 2025 and 2026 of approximately $46,000 and $48,500, respectively, exclusive of any acquisitions not yet approved. In addition to routine transmission and distribution projects, a portion of the anticipated 2025 and 2026 expenditures will be for additional main extensions, water tank replacement, wastewater treatment plant construction, an upgrade to the enterprise software system, and various replacements of infrastructure. The Company intends to use primarily internally-generated funds for its anticipated 2025 and 2026 construction and fund the remainder through line of credit borrowings, potential debt and equity offerings, proceeds from its stock purchase plans and customer advances and contributions (see Note 1 to the Company’s financial statements included herein). Customer advances and contributions are expected to account for between 5% and 10% of funding requirements in 2025 and 2026. The Company believes it will have adequate credit facilities and access to the capital markets, if necessary, during 2025 and 2026, 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 December 31, 2023, the Company borrowed $30,273 under its line of credit and incurred a cash overdraft on its cash management account of $1,547, which was recorded in accounts payable. 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 December 31, 2024, the Company borrowed $15,808 under its line of credit and incurred a cash overdraft on its cash management account of $2,428, which was recorded in accounts payable. 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 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, customers’ water usage, weather conditions, customer growth and controlled expenses. In 2023, the Company generated $31,908 internally as compared to $22,018 in 2022. The increase from 2022 was primarily due to the increase in net income and the increase in depreciation and amortization, a non-cash expense.
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, customers’ water usage, weather conditions, customer growth and controlled expenses. In 2024, the Company generated $30,559 internally as compared to $31,908 in 2023. The decrease from 2023 was primarily due to higher interest and income taxes paid.
Previous wording
Common stockholders’ equity as a percent of the total capitalization was 54.8% as of December 31, 2023, compared with 59.3% as of December 31, 2022. The ratio decreased in 2023 due to higher debt primarily from increased capital expenditures. 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 52.6% as of December 31, 2024, compared with 54.8% as of December 31, 2023. The ratio decreased in 2024 due to higher debt primarily from capital expenditures. 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
The Company has the ability to issue approximately $4,000 of additional shares of its common stock or debt securities remaining under an effective “shelf” Registration Statement on Form S-3 on file with the Securities and Exchange Commission subject to market conditions at the time of any such offering.
Current wording
The Company has an effective “shelf” Registration Statement on Form S-3 on file with the Securities and Exchange Commission, pursuant to which the Company may offer an aggregate remaining amount of up to $60,000 of its common stock or debt securities subject to market conditions at the time of any such offering.
Previous wording
Historically, the Company has borrowed under its lines of credit before refinancing with long-term debt or equity capital. As of December 31, 2023, the Company maintained a $50,000, unsecured, committed line of credit 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 $30,273 in outstanding borrowings under its line of credit as of December 31, 2023. The interest rate on line of credit borrowings as of December 31, 2023 was 6.51%. In the third quarter of 2023, the Company renewed its committed line of credit and extended the maturity date to September 2025. No other terms or conditions of the line of credit agreement were modified. On January 1, 2023, the interest rate changed from LIBOR plus 1.05% to a successor rate of the SOFR plus 1.17% in advance of the discontinuation of LIBOR in 2023. The Company expects to renew this line of credit as it matures under similar terms and conditions.
Current wording
Historically, the Company has borrowed under its lines of credit before refinancing with long-term debt or equity capital. As of December 31, 2024, the Company maintained a $50,000, unsecured, committed line of credit 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 $15,808 in outstanding borrowings under its line of credit as of December 31, 2024. The interest rate on line of credit borrowings as of December 31, 2024 was 5.72%. In the third quarter of 2024, the Company renewed its committed line of credit and extended the maturity date to September 2026. No other terms or conditions of the line of credit agreement were modified. On January 1, 2023, the interest rate changed from LIBOR plus 1.05% to a successor rate of the SOFR plus 1.17% in advance of the discontinuation of LIBOR in 2023. The Company expects to renew this line of credit as it matures under similar terms and conditions.
Previous wording
On February 24, 2023, the Company entered into a note purchase agreement with certain institutional investors relating to the private placement of $40,000 aggregate principal amount of the Company’s senior notes. The senior notes bear interest at 5.50% per annum payable semiannually and mature on February 24, 2053. The senior notes are unsecured and unsubordinated obligations of the Company. The Company received net proceeds, after deducting issuance costs, of approximately $39,829. The net proceeds were used to refinance line of credit borrowings incurred by the Company as interim financing for various capital projects of the Company.
Current wording
On February 27, 2024, the Company entered into a note purchase agreement with certain institutional investors relating to the private placement of $40,000 aggregate principal amount of the Company’s senior notes. The senior notes bear interest at 5.67% per annum payable semiannually and mature on February 27, 2054. The senior notes are unsecured and unsubordinated obligations of the Company. The Company received net proceeds, after deducting issuance costs, of approximately $39,833. The net proceeds were used to refinance line of credit borrowings incurred by the Company as interim financing for various capital projects of the Company.
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 45.2% as of December 31, 2023, compared with 40.7% as of December 31, 2022. 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. See Note 6 to the Company’s financial statements included herein for the details of its long-term debt outstanding as of December 31, 2023.
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 47.4% as of December 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. See Note 6 to the Company’s financial statements included herein for the details of its long-term debt outstanding as of December 31, 2024.
Previous wording
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 and the differences between the book and tax balances of the customers’ advances for construction and contributions in aid of construction and deferred compensation plans. The Company does not believe a valuation allowance is required due to the expected generation of future taxable income during the periods in which those temporary differences become deductible.
Current wording
The Company has a substantial deferred income tax asset primarily due to the excess accumulated deferred income taxes on accelerated depreciation from the Tax Cuts and Jobs Act of 2017 and the differences between the book and tax balances of the customers’ advances for construction and contributions in aid of construction, and deferred compensation plans. The Company does not believe a valuation allowance is required due to the expected generation of future taxable income during the periods in which those temporary differences become deductible.
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 $1,762 and $1,518 through December 31, 2023 and 2022, 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 $1,961 and $1,762 through December 31, 2024 and 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.
Previous wording
On January 26, 2024, Pennsylvania state officials moved York County to a drought watch, moved Lancaster County to normal status, and continued the drought watch for Adams County and the drought warning for Franklin County. The warning calls for a voluntary reduction in nonessential water use of 10 to 15 percent and the watch calls for a voluntary reduction in nonessential water use of 5 to 10 percent. In addition, the Company has implemented a voluntary restriction on nonessential water use within its service territory. These measures could potentially impact future revenues, operating expenses, and net income depending on the length and severity of the dry conditions.
Current wording
On November 1, 2024, Pennsylvania state officials declared a drought watch for 33 counties in Pennsylvania, including all four counties in the Company’s service territory. The watch calls for a voluntary reduction in nonessential water use of 5 to 10 percent. The watch conditions could potentially impact future revenues and net income depending on the length and severity of the dry conditions.
Previous wording
During 2023, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 49.3% and 36.3%, respectively. During 2022, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 56.2% and 48.5%, respectively. During the fourth quarter of 2023, the Board increased the dividend by 4.00% from $0.2027 per share to $0.2108 per share per quarter.
Current wording
During 2024, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 60.2% and 39.6%, respectively. During 2023, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 49.3% and 36.3%, respectively. During the fourth quarter of 2024, the Board increased the dividend by 4.00% from $0.2108 per share to $0.2192 per share per quarter.
Previous wording
The Company’s Board declared a dividend in the amount of $0.2108 per share at its January 2024 meeting. The dividend is payable on April 15, 2024 to shareholders of record as of February 29, 2024. While the Company expects to maintain this dividend amount in 2024, future dividends will be dependent upon the Company’s earnings, financial condition, capital demands and other factors and will be determined by the Company’s Board. See Note 6 to the Company’s financial statements included herein for restrictions on dividend payments.
Current wording
The Company’s Board declared a dividend in the amount of $0.2192 per share at its January 2025 meeting. The dividend is payable on April 15, 2025 to shareholders of record as of February 28, 2025. While the Company expects to maintain this dividend amount in 2025, future dividends will be dependent upon the Company’s earnings, financial condition, capital demands and other factors and will be determined by the Company’s Board. See Note 6 to the Company’s financial statements included herein for restrictions on dividend payments.
Previous wording
The Company selected its December 31, 2023 and 2022 discount rates based on the FTSE Pension Liability Index. This index uses spot rates for durations out to 30 years and matches them to expected disbursements from the plan over the long term. The Company believes this index most appropriately matches its pension obligations. The present values of the Company’s future pension obligations were determined using a discount rate of 4.75% at December 31, 2023 and 5.00% at December 31, 2022.
Current wording
The Company selected its December 31, 2024 and 2023 discount rates based on the FTSE Pension Liability Index. This index uses spot rates for durations out to 30 years and matches them to expected disbursements from the plan over the long term. The Company believes this index most appropriately matches its pension obligations. The present values of the Company’s future pension obligations were determined using a discount rate of 5.45% at December 31, 2024 and 4.75% at December 31, 2023.
Previous wording
In 2023, the Company modified its investment policy statements. The Company’s estimate of the expected return on plan assets is primarily based on the historic returns and projected future returns of the asset classes represented in its plans. The target allocation of pension assets is 70% to 90% fixed income securities, 10% to 30% equity securities, and 0% to 10% cash reserves. The Company used 5.00% as its expected rate of return in 2023, a decrease from the 6.50% used in 2022 based on the modified investment policy statements. A decrease in the expected pension return would normally cause an increase in pension expense; however due to the aforementioned rate settlement, the Company’s expense would continue to be equal to its contributions to the plans. The change would instead be recorded in regulatory assets.
Current wording
In 2023, the Company modified its investment policy statements. The Company’s estimate of the expected return on plan assets is primarily based on the historic returns and projected future returns of the asset classes represented in its plans. The target allocation of pension assets is 70% to 90% fixed income securities, 10% to 30% equity securities, and 0% to 10% cash reserves. The Company used 5.00% as its expected rate of return in 2023 and 2024, a decrease from the 6.50% used in 2022 based on the modified investment policy statements. A decrease in the expected pension return would normally cause an increase in pension expense; however due to the aforementioned rate settlement, the Company’s expense would continue to be equal to its contributions to the plans. The change would instead be recorded in regulatory assets.