YORW

Business Context and Reporting Period

Company: The York Water Company (YORW)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2025
Business Overview: A regulated utility providing water and wastewater services to approximately 212,000 people across 57 municipalities in south-central Pennsylvania. The company operates under the jurisdiction of the Pennsylvania Public Utility Commission (PPUC).

Key Financial Metrics

Liquidity: Cash and cash equivalents were $1 (in thousands) as of June 30, 2025. The company maintains a $50,000 line of credit, with $28,539 outstanding as of the reporting date.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 3.5% ($1,277) year-over-year, driven by a 1,196 increase in water customers and $883 in Distribution System Improvement Charge (DSIC) revenues.
• Net Income Decline: Net income decreased 6.8% ($630) despite revenue growth. This was primarily due to a $1,105 decrease in the Allowance for Funds Used During Construction (AFUDC) and a $634 increase in interest expense.
• Expense Increases: Operating expenses rose 5.1% ($1,185), largely due to higher depreciation ($720), wages ($220), and water treatment costs ($190).
• Interest Expense: Interest on debt increased 14.7% ($634) due to higher interest rates and increased utilization of the line of credit (average balance $22,481 vs. $10,794 in 2024).
• Tax Impact: Income tax expense decreased significantly ($1,018) due to higher deductions under IRS Tangible Property Regulations (TPR), resulting in an effective tax rate of 1.2% compared to 10.8% in the prior year.

Outlook, Risks, and Management Commentary

• Rate Matters: The company filed a rate increase request on May 30, 2025, seeking a 28.9% increase in water rates and a 44.5% increase in wastewater rates. Approval is pending, with an effective date no later than March 1, 2026.
• Capital Expenditures: The company invested $22,182 in the first half of 2025. It anticipates spending approximately $23,800 for the remainder of the year on infrastructure, main extensions, and software upgrades.
• Acquisitions: Several acquisitions are pending regulatory approval, expected to close in late 2025 or early 2026, adding approximately 585 water and wastewater customers.
• Regulatory & Environmental: The company is replacing lead service lines under a PPUC-approved tariff, with costs recorded as regulatory assets. Drought restrictions were lifted in the service area in June and July 2025.
• Dividends: Cash dividends declared were $0.4384 per share for the six months ended June 30, 2025.
• Risks: Key risks include weather conditions affecting water usage, regulatory delays in rate approvals, cyber security threats to IT systems, and the ability to refinance debt.

Investor Verification Checklist

• Rate Case Outcome: Verify the status and final approval amount of the rate increase filed in May 2025, as this is critical for future margin recovery.
• Debt Refinancing: Monitor the company's ability to refinance the $28,539 line of credit balance into long-term debt to manage interest rate exposure.
• TPR Tax Benefits: Confirm the sustainability of the low effective tax rate (1.2%) driven by IRS Tangible Property Regulations, as management expects this rate to increase in the second half of the year.
• Acquisition Closings: Track the regulatory approval and closing dates for the four pending acquisitions to assess customer base growth.
• Capital Funding: Review the funding mix for the anticipated $23,800 in remaining capital expenditures, specifically the reliance on the line of credit versus internal cash flow.