YORW

Business Context and Reporting Period

Company: The York Water Company (YORW)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 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 is regulated by the Pennsylvania Public Utility Commission (PPUC).

Key Financial Metrics

Effective Tax Rate: Negative 10.4% for Q3 2025 and negative 3.3% for 9M 2025, driven by IRS Tangible Property Regulations (TPR) deductions.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 3.3% in Q3 and 3.4% for the nine months ended September 30, 2025. Growth was driven by a larger customer base (water customers up 1,101; wastewater customers up 530) and increased Distribution System Improvement Charge (DSIC) revenues ($673 in Q3 vs $131 in Q3 2024).
• Expense Increases: Operating expenses rose 6.7% in Q3 and 5.7% for the nine months. Key drivers included higher depreciation ($271k increase in Q3), wages and benefits ($257k increase in Q3), and distribution system maintenance.
• Interest Expense: Interest on debt increased 16.6% in Q3 and 15.4% for the nine months due to higher long-term debt balances and increased utilization of the line of credit (average balance $33.3M in Q3 2025 vs $6.2M in Q3 2024).
• Net Income: Q3 net income increased 5.8% to $6.2M, while 9M net income decreased 1.9% to $14.9M. The 9M decline was due to higher expenses and interest, partially offset by revenue growth and lower tax expenses.

Guidance, Outlook, and Risks

• 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. The DSIC surcharge is currently set at 4.89% effective October 1, 2025.
• Capital Expenditures: The company invested $37.1M in the first nine months of 2025. It anticipates spending approximately $10M for the remainder of 2025, funded by internal cash flow, line of credit, and customer contributions.
• Acquisitions: Several acquisitions are pending regulatory approval, expected to close in 2026, adding approximately 585 water and wastewater customers. These are expected to be immaterial to overall results.
• Weather and Drought: A drought watch was declared for Franklin County in October 2025, calling for voluntary water use reductions. This could impact future revenues and operating expenses.
• Credit Rating: Standard & Poor's affirmed the company's credit rating at A- with a stable outlook on July 30, 2025.
• Cyber Security: The company relies heavily on IT systems for operations and billing. While robust security measures are in place, a cyber attack could disrupt operations and incur remediation costs.

Investor Verification Checklist

• Rate Case Outcome: Monitor the PPUC's decision on the pending rate increase request filed in May 2025, as it is critical for future margin recovery.
• Debt Utilization: Verify the company's ability to refinance its line of credit (currently $37.4M utilized of $50M) into long-term debt to manage interest costs.
• TPR Impact: Assess the sustainability of the negative effective tax rate, which relies on specific IRS deductions for asset improvements that may fluctuate.
• Acquisition Timeline: Track the regulatory approval status of the four pending acquisitions scheduled to close in 2026.
• Drought Severity: Monitor the duration and severity of the drought watch in Franklin County and its potential impact on water consumption volumes.