UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 2023
OR
For the transition period from __________ to __________
THE YORK WATER COMPANY
(Exact name of registrant as specified in its charter)
130 East Market Street, York, Pennsylvania 17401
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (717) 845-3601
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, No par value YORW The NASDAQ Global Select Market
(Title of Class) (Trading Symbol) (Name of Each Exchange on Which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Each Class)
☐ Yes ⌧ No
☐ Yes ⌧ No
⌧ Yes ☐ No
⌧ Yes ☐ No
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ⌧
Smaller reporting company ☒ Emerging growth company ☐
☐
☐
☐
☐
☐ Yes ⌧ No
The aggregate market value of the Common Stock, no par value, held by nonaffiliates of the registrant on June 30, 2023 was $590,539,032.
As of March 5, 2024, there were 14,334,183 shares of Common Stock, no par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Company’s 2022 Annual Meeting of Shareholders are incorporated by reference into Part I and Part III.
TABLE OF CONTENTS
Forward-Looking Statements 3
PART I
Item 1. Business 4
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 7
Item 1C Cybersecurity 8
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Mine Safety Disclosures 11
PART II
Item 6. Reserved 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21
Item 8. Financial Statements 21
Item 9A. Controls and Procedures 52
Item 9B. Other Information 52
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 53
PART III
Item 10. Directors, Executive Officers and Corporate Governance 53
Item 11. Executive Compensation 53
Item 14. Principal Accounting Fees and Services 54
PART IV
Item 15. Exhibits and Financial Statement Schedules 55
Signatures 61
Page 2
FORWARD-LOOKING STATEMENTS
Certain statements contained in this annual report and in documents incorporated by reference constitute “forward-looking statements” within the meaning
of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Words such as “may,” “should,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “objective” and similar expressions are intended
to identify forward-looking statements. These forward-looking statements include certain information relating to the Company’s business strategy and future prospects; including, but not limited to:
• expected profitability and results of operations;
• trends;
• goals, priorities and plans for, and cost of, growth and expansion;
• strategic initiatives;
• availability of water supply;
• water usage by customers; and
• the ability to pay dividends on common stock and the rate of those dividends.
The forward-looking statements in this Annual Report reflect what the Company currently anticipates will happen. What actually happens could differ
materially from what it currently anticipates will happen and caution should be exercised against placing undue reliance upon such statements, which are based only on information currently available to the Company and speak only as of the date
hereof. The Company does not intend to make a public announcement when forward-looking statements in this Annual Report are no longer accurate, whether as a result of new information, what actually happens in the future or for any other reason.
Important matters that may affect what will actually happen include, but are not limited to:
• levels of rate relief granted;
• changes in government policies or regulations, including the tax code;
• the ability to obtain permits for expansion projects;
• changes in economic and business conditions, including interest rates;
• loss of customers;
• changes in, or unanticipated, capital requirements;
• the impact of acquisitions;
• changes in accounting pronouncements;
• the ability to obtain financing.
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THE YORK WATER COMPANY
PART I
Item 1. Business.
The York Water Company (the “Company”) is the oldest investor-owned water utility in the United States and is duly organized under the laws of the
Commonwealth of Pennsylvania. The Company has operated continuously since 1816. The primary business of the Company is to impound, purify to meet or exceed safe drinking water standards and distribute water. The Company also owns and operates
three wastewater collection systems and ten wastewater collection and treatment systems. The Company operates within its franchised water and wastewater territory, which covers portions of 56 municipalities within four counties in south-central
Pennsylvania. The Company is regulated by the Pennsylvania Public Utility Commission, or PPUC, for both water and wastewater in the areas of billing, payment procedures, dispute processing, terminations, service territory, debt and equity
financing and rate setting. The Company must obtain PPUC approval before changing any practices associated with the aforementioned areas.
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 2.2 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 December 31, 2023, the Company’s average daily
availability was 41.0 million gallons, and average daily consumption was approximately 21.8 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.
The Company's water business is somewhat dependent on weather conditions, particularly the amount and timing of precipitation. Revenues are particularly
vulnerable to weather conditions in the summer months. Prolonged periods of hot and dry weather generally cause increased water usage for watering lawns, washing cars, and keeping golf courses and sports fields irrigated. Conversely, prolonged
periods of dry weather could lead to drought restrictions from governmental authorities. Despite the Company’s adequate water supply, customers may be required to cut back water usage under such drought restrictions which would negatively impact
revenues. The Company has addressed some of this vulnerability by instituting minimum customer charges which are intended to cover fixed costs of operations under all likely weather conditions.
The Company’s business does not require large amounts of working capital and is not dependent on any single customer or a very few customers for a
material portion of its business. Increases in revenues are generally dependent on the Company’s ability to obtain rate increases from the PPUC in a timely manner and in adequate amounts and to increase volumes of water sold through increased
consumption and increases in the number of customers served. The Company continuously looks for water and wastewater acquisition and expansion opportunities both within and outside its current service territory as well as additional opportunities
to enter into bulk water contracts with municipalities and other entities to supply water.
The Company has agreements with several municipalities to provide billing and collection services. The Company also has a service line protection
program on a targeted basis in order to further diversify its business. Under this optional program, customers pay a fixed monthly fee, and the Company will repair or replace damaged customer service lines, as needed, subject to an annual maximum
dollar amount. The Company continues to review and consider opportunities to expand both initiatives.
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Competition
As a regulated utility, the Company operates within an exclusive franchised territory that is substantially free from direct competition with other
public utilities, municipalities, and other entities. Although the Company has been granted an exclusive franchise for each of its existing community water and wastewater systems, the ability of the Company to expand or acquire new service
territories may be affected by currently unknown competitors obtaining franchises to surrounding systems by application or acquisition. These competitors may include other investor-owned utilities, nearby municipally-owned utilities and sometimes
competition from strategic or financial purchasers seeking to enter or expand in the water and wastewater industry. The addition of new service territory and the acquisition of other utilities are generally subject to review and approval by the
PPUC.
Water and Wastewater Quality and Environmental Regulations
Provisions of water and wastewater service are subject to regulation under the federal Safe Drinking Water Act, the Clean Water Act and related state
laws, and under federal and state regulations issued under these laws. In addition, the Company is subject to federal and state laws and other regulations relating to solid waste disposal, dam safety and other aspects of its operations.
The federal Safe Drinking Water Act establishes criteria and procedures for the U.S. Environmental Protection Agency, or EPA, to develop national quality
standards. Regulations issued under this Act, and its amendments, set standards on the amount of certain contaminants allowable in drinking water. Current requirements are not expected to have a material impact on the Company’s operations or
financial condition as it already meets or exceeds standards. In the future, the Company may be required to change its method of treating drinking water and may incur additional capital investments if new regulations become effective.
Under the requirements of the Pennsylvania Safe Drinking Water Act, or SDWA, the Pennsylvania Department of Environmental Protection, or DEP, regulates
the quality of the finished water supplied to customers. The DEP requires the Company to submit monthly reports showing the results of daily bacteriological and other chemical and physical analyses. As part of this requirement, the Company
conducts over 70,000 laboratory tests annually. Management believes that the Company complies with the standards established by the agency under the SDWA. The DEP assists the Company by regulating discharges into the Company’s watershed area to
prevent and eliminate pollution.
The federal Groundwater Rule establishes protections against microbial pathogens in community water supplies. This rule requires additional testing of
water from well sources, and under certain circumstances requires demonstration and maintenance of effective disinfection. The Company holds public water supply permits issued by the DEP, which establishes the groundwater source operating
conditions for its wells, including demonstrated 4-log treatment of viruses. All of the groundwater satellite systems operated by the Company are in compliance with the federal Groundwater Rule.
The Clean Water Act regulates discharges from water and wastewater treatment facilities into lakes, rivers, streams, and groundwater. The Company
complies with this Act by obtaining and maintaining all required permits and approvals for discharges from its water and wastewater facilities and by satisfying all conditions and regulatory requirements associated with the permits.
The DEP monitors the quality of wastewater discharge effluent under the provisions of the National Pollutant Discharge Elimination System, or NPDES. The
Company submits monthly reports to the DEP showing the results of its daily effluent monitoring and removal of sludge and biosolids. The Company is not aware of any significant environmental remediation costs necessary from the handling and
disposal of waste material from its wastewater operations.
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Lead and copper may enter drinking water primarily through plumbing materials. The Company is required to comply with the Lead and Copper Rule
established by the EPA and administered by the DEP. The Company must monitor drinking water at customer taps for compliance with this rule. If lead concentrations exceed an action level, the Company must undertake a number of additional actions
to control corrosion, inform the public about steps they should take to protect their health and may be required to replace lead service lines under its control. The Company is currently in compliance with standards under the Lead and Copper Rule.
The EPA has published the Lead and Copper Rule Revisions, or LCRR, that includes a requirement to submit a service line inventory and a lead service line
replacement plan to the respective states or agencies by October 16, 2024, as well as provide public education and sampling at elementary schools and childcare facilities. Additionally, the EPA is developing a new regulation, the Lead and Copper
Rule Improvements, or LCRI, to better protect communities from exposure to lead in drinking water. The LCRI is expected to delay the due dates for lead service line replacement plans and result in modifications to other parts of the LCRR. The
Company is executing an implementation plan to comply with the initial LCRR requirement to complete a lead service line inventory and begin additional sampling.
The DEP and the Susquehanna River Basin Commission, or SRBC, regulate the amount of water withdrawn from streams in the watershed to assure that
sufficient quantities are available to meet the needs of the Company and other regulated users. Through its Division of Dam Safety, the DEP regulates the operation and maintenance of the Company’s impounding dams. The Company routinely inspects
its dams and prepares annual reports of their condition as required by DEP regulations. The DEP reviews these reports and inspects the Company’s dams.
Since 1980, the DEP has required any new dam to have a spillway that is capable of passing the design flood without overtopping the dam. The design
flood is either the Probable Maximum Flood, or PMF, or some fraction of it, depending on the size and location of the dam. PMF is very conservative and is calculated using the most severe combination of meteorological and hydrologic conditions
reasonably possible in the watershed area of a dam.
The Company engaged a professional engineer to analyze the spillway capacities at the Lake Williams and Lake Redman dams and validate the DEP’s
recommended flood design for the dams. Management presented the results of the study to the DEP in December 2004, and DEP then requested that the Company submit a proposed schedule for the actions to address the spillway capacities. Thereafter,
the Company retained an engineering firm to prepare preliminary designs for increasing the spillway capacities to pass the PMF through armoring the dams with roller compacted concrete. Management met with the DEP on a regular basis to review the
preliminary design and discuss scheduling, permitting, and construction requirements including their concern regarding the stability of the Lake Williams spillway in light of current design standards. The Company completed the final design and the
permitting process to armor the dam and replace the spillway of the Lake Williams dam and began construction in 2022. The Company completed the dam armoring and spillway replacement in 2023 at a total cost of approximately $40 million. Additional
capital expenditures will be incurred in 2024 to complete the sitework around the dam and reservoir. The Lake Redman dam will be reviewed following the completion of the work on the Lake Williams dam.
Capital expenditures and operating costs required as a result of water quality standards and environmental requirements have been traditionally
recognized by state public utility commissions as appropriate for inclusion in establishing rates. The capital expenditures currently required as a result of water quality standards and environmental requirements have been budgeted in the
Company’s capital program and represent less than 15% of its expected total capital expenditures over the next five years. The Company is currently in compliance with wastewater environmental standards and does not anticipate any major capital
expenditures for its current wastewater business.
Growth
(All dollar amounts are stated in thousands of dollars)
The Company continues to grow its number of customers and distribution facilities.
The growth in the number of customers is due primarily to the acquisition of water and wastewater systems and organic growth. During the year ended
December 31, 2023, the Company increased its number of customers from 76,731 to 77,893. See “Management’s Discussion and Analysis – Acquisitions and Growth” for a discussion of the Company’s recent acquisitions.
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The Company continues to grow its water distribution and wastewater collection systems to provide reliable service to its expanding franchised service
territory and the increasing population within that territory. During the year ended December 31, 2023, the Company installed an additional 41,300 feet of water distribution mains and acquired an additional 16,300 feet of water distribution mains
resulting in 1,076 miles of water mains as of December 31, 2023. During the year ended December 31, 2023, the Company acquired an additional 16,400 feet of wastewater collection mains resulting in 102 miles of wastewater mains as of December 31,
2023.
The Company’s growth in revenues is primarily a result of customer growth and increases in water and wastewater rates. During the year ended December
31, 2023, the Company recognized revenue of $71,031, an increase of $10,970, or 18.3%, as compared to $60,061 during the year ended December 31, 2022. In 2023, operating revenue was derived from the following sources and in the following
percentages: residential, 64%; commercial and industrial, 29%; and other, 7%, which is primarily from the provision for fire service but includes other water and wastewater service-related income. See “Management’s Discussion and Analysis – Rate
Matters” for a discussion of the Company’s rate case management.
Information about Our Executive Officers
The Company presently has 130 employees, all but one of which are full time employees including the officers detailed in the information set forth under
the caption “Executive Officers of the Company” of the 2024 Proxy Statement incorporated herein by reference.
Available Information
The Company makes available free of charge, on or through its website (www.yorkwater.com), its annual report on Form 10-K, its quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the Company electronically files such material with, or furnishes
it to, the SEC. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements, and other information about SEC registrants, including the Company.
Shareholders may request, without charge, copies of the Company’s financial reports. Such requests, as well as other investor relations inquiries,
should be addressed to:
Molly E. Houck The York Water Company (717) 718-2942
Communications Administrator York, PA 17401 mollyh@yorkwater.com
Item 1A. Risk Factors.
Not applicable.
Item 1B. Unresolved Staff Comments.
None.
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Item 1C. Cybersecurity.
Risk Management and Strategy
The Company recognizes the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard its information
systems and protect the confidentiality, integrity, and availability of its data.
Managing Material Risks & Integrated Overall Risk Management
The Company embraces risk management across the company, to include cybersecurity risk. This comprehensive approach ensures that cybersecurity
considerations are an integral part of its decision-making processes at every level. The Company’s risk management team works closely with its IT department to continuously evaluate and address cybersecurity risks in alignment with its business
objectives and operational needs.
Engage Third Parties on Risk Management
To address the evolving nature and complexity of cybersecurity threats, the Company engages with a range of external experts, including cybersecurity
assessors, consultants, and auditors in evaluating and testing its risk management systems. These partnerships enable the Company to leverage specialized knowledge and insights with respect to its cybersecurity strategies and processes. The
collaboration with these third parties includes regular audits, threat assessments, penetration testing, and consultation on security enhancements.
Oversee Third-party Risk
The Company recognizes that cybersecurity threats and risks are amplified with the addition of third-party digital service providers. In response, the
Company implements stringent processes to oversee and manage these risks. It conducts thorough security assessments of all third-party providers before engagement and maintains ongoing monitoring to ensure compliance with its cybersecurity
standards. This process is also intended to provide for the security and integrity of the Company’s data that may be stored on third-party systems. The monitoring includes quarterly assessments made by the contracted Chief Information Officer,
or CIO, and on an ongoing basis by its dedicated cybersecurity staff. This approach is designed to mitigate risks related to data breaches or other security incidents originating from third parties.
Identified Material Risks
To date, the Company has not encountered cybersecurity challenges, risks, or breaches that have materially impaired its business strategy, operations,
or its financial standing.
Board of Directors Oversight of Cybersecurity Material Risks – Governance
The Board of Directors, or the Board, is keenly aware of the critical nature of cybersecurity risks, particularly in its business as a public utility
providing a life sustaining product. The Board, in partnership with the Executive team, has created a robust cybersecurity program, with meaningful oversight measures and tools for tracking and managing cyber risks and threats. The Company
understands the importance of its product and services to the communities that it serves and is dedicated to maintaining high stakeholder confidence in its operations.
Board Oversight
The Audit Committee is the lead Board committee with oversight of the cybersecurity program and bears the primary responsibility for this aspect of the
business. The Audit Committee is comprised of Board members with diverse professional backgrounds, such as accounting/finance, utility security, risk management, and business performance integration. The breadth of experience in this Committee
enables it to be the most appropriate lead in oversight of cybersecurity risks and capability.
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Management Role
The Chief Administrative Officer and General Counsel has primary oversight of the IT Department and the cybersecurity program, with a direct
reporting relationship to the President and Chief Executive Officer. The Chief Administrative Officer and General Counsel also reports to the Audit Committee at least two times per calendar year and presents a report to the Board at least once
per calendar year. These briefings include both educational and program status information, including:
• Status of ongoing cybersecurity initiatives and strategies;
• Compliance report with regulatory requirements and industry standards.
In addition to scheduled presentations described above, the IT Department contracted CIO, the Chief Administrative Officer and General Counsel, and
the President and Chief Executive Officer maintain constant dialogue regarding emerging or potential cybersecurity risks and threats. The Chief Administrative Officer and General Counsel is in regular contact with the Audit Committee Chair
related to these risks so that the oversight by the Board can be both proactive and responsive. The Audit Committee has the authority to actively participate in strategic decisions related to cybersecurity and offers guidance and approval for
major initiatives. As a result, cybersecurity considerations can be integrated into the foundation of broader corporate objectives. The Audit Committee and the Board conduct an annual review of the Company’s cybersecurity risk position and
the effectiveness of its risk management strategies and measures. From this review at the Board level, the Company is able to identify areas where there exist improvement opportunities and can set goals for the following year.
Risk Management Personnel
Primary responsibility for assessing, monitoring, and managing cybersecurity risks rests with the CIO, who has oversight over the IT Department,
including one dedicated cybersecurity staff person and select specialized contractors. This group of contractors includes a Chief Information Security Officer, Chief Technology Officer, Cybersecurity Analysts, Network Engineers, and Network
Administrators.
Monitor Cybersecurity Risks
The cybersecurity team actively monitors for cybersecurity risks by employing the use of endpoint detection and response solutions with immediate
alert notifications, vulnerability scanning solutions that proactively identify risks, and by monitoring the logs of network devices.
Reporting to the Board
The Chief Administrative Officer and General Counsel has primary responsibility to report to the President and Chief Executive Officer and to the
Board and presents with the CIO where appropriate for the content of the presentation and/or to facilitate a substantive discussion. The CIO, through the Chief Administrative Officer and General Counsel, ensures that the highest levels of the
Company remain informed about the cybersecurity posture, potential risks, events, and response if they occur. Material cybersecurity matters, and significant strategic risk management processes and decisions are elevated to the Board by the
Chief Administrative Officer and General Counsel, ensuring that the Board has effective and substantive oversight and may provide input and guidance on critical cybersecurity measures and issues.
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Item 2. Properties.
Source of Water Supply
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 owns two impounding dams on this primary system located in York and
Springfield Townships adjoining the Borough of Jacobus to the south. The lower dam, the Lake Williams Impounding Dam, creates a reservoir covering approximately 165 acres containing about 870 million gallons of water. The upper dam, the Lake
Redman Impounding Dam, creates a reservoir covering approximately 290 acres containing about 1.3 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 per day, or MGD.
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 satellite groundwater systems in York, Adams, and Lancaster Counties. The systems consist of thirteen wells capable of providing a
combined safe yield of approximately 808,000 gallons per day.
As of December 31, 2023, the Company’s present average daily availability was 41.0 million gallons, and daily consumption was approximately 21.8 million
gallons.
Pumping Stations
The Company’s main pumping station is located in Spring Garden Township, York County, on the south branch of the Codorus Creek about four miles
downstream from the Company’s lower impounding dam. The pumping station houses pumping equipment with a combined permitted capacity of 42.0 MGD. A large diesel backup generator is installed to provide power to the pumps in the event of an
emergency. The untreated water is pumped approximately two miles to the filtration plant through pipes owned by the Company.
The Susquehanna River Pumping Station is located on the western shore of the Susquehanna River in York County, several miles south of Wrightsville. The
pumping station houses pumping equipment with a combined permitted capacity of 12.0 MGD. The pumping station pumps water from the Susquehanna River approximately 15 miles through a combination of 30 inch and 36 inch ductile iron main to the
Company’s upper impounding dam, located at Lake Redman.
The Lake Redman Pumping Station is located in York Township, York County, adjacent to Lake Redman. The pumping station is designed to provide a
redundant source with permitted capacity to pump 20.0 MGD of untreated water through a company-owned 36 inch force main approximately 3.5 miles to the filtration plant, meeting the Company’s daily consumption needs.
Treatment Facilities
The Company’s primary water filtration plant is located in Spring Garden Township, York County, about one-half mile south of the City of York. Water at
this plant is filtered through twelve dual media filters having a rated capacity of 39.0 MGD, with a maximum supply of 42.0 MGD for short periods if necessary.
The Company’s sediment recycling facility is located adjacent to this water filtration plant. This state of the art facility employs cutting edge
technology to remove fine, suspended solids from untreated water. The Company estimates that through this energy-efficient, environmentally friendly process, approximately 600 tons of sediment will be removed annually, thereby improving the
quality of the Codorus Creek watershed.
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The Company also operates a water filtration plant in Greene Township, Franklin County. Water at this plant is filtered through filters having a rated
capacity of 1.16 MGD.
Based on a total average daily consumption in 2023 of approximately 21.8 million gallons, the Company believes the water pumping and filtering facilities
are adequate to meet present and anticipated demands.
The Company has ten wastewater treatment facilities located in four counties within south-central Pennsylvania. The wastewater treatment plants range
from small extended aeration package plants to three larger facilities that utilize Biological Nutrient Removal/tertiary treatment technology, and have a combined permitted flow capacity of 922,500 gallons. With a projected maximum daily demand of
389,000 gallons, the plants’ flow paths offer both capacity and operational redundancy for maintenance, high flow events, and potential growth.
Distribution and Collection
The distribution systems of the Company have approximately 1,076 miles of water main lines which range in diameter from 2 inches to 36 inches. The
distribution systems include booster stations and standpipes and reservoirs capable of storing approximately 59.7 million gallons of potable water. All booster stations are equipped with at least two pumps for protection in case of mechanical
failure. Following a deliberate study of customer demand and pumping capacity, the Company installed standby generators at all critical booster stations to provide an alternate energy source or emergency power in the event of an electric utility
interruption.
The thirteen wastewater collection systems of the Company have approximately 102 miles of gravity collection mains and pressure force mains along with
redundant sewage pumping stations.
Other Properties
The Company’s distribution center and material and supplies warehouse are located in Springettsbury Township and are composed of three one-story concrete
block buildings aggregating 30,680 square feet.
The administrative and executive offices of the Company are located in one three-story and one two-story brick and masonry buildings, containing a total
of approximately 21,861 square feet, in the City of York, Pennsylvania.
All of the Company’s properties described above are held in fee by the Company. There are no material encumbrances on such properties.
In 1976, the Company entered into a Joint Use and Park Management Agreement with York County under which the Company licensed use of certain of its lands
and waters for public park purposes for a period of 50 years. Under the agreement, York County has agreed not to erect a dam upstream on the East Branch of the Codorus Creek or otherwise obstruct the flow of the creek.
Item 3. Legal Proceedings.
There are no material legal proceedings involving the Company.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Market Information
The common stock of The York Water Company is traded on the NASDAQ Global Select Market under the symbol YORW.
Shareholders of record (excluding individual participants in securities positions listings) as of December 31, 2023 numbered approximately 1,824.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this item with respect to securities authorized for issuance under equity compensation plans is set forth in Part III, Item
12 of this Annual Report.
Purchases of Equity Securities by the Company
The Company did not repurchase any of its securities during the fourth quarter of 2023.
Item 6. Reserved.
(All dollar amounts are stated in thousands of dollars.)
Overview
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.
The Company’s business does not require large amounts of working capital and is not dependent on any single customer or a very few customers for a
material portion of its business. In 2023, operating revenue was derived from the following sources and in the following percentages: residential, 64%; commercial and industrial, 29%; and other, 7%, which is primarily from the provision for fire
service, but includes other water and wastewater service-related income. The diverse customer mix helps to reduce volatility in consumption.
The Company seeks to grow revenues by increasing the volume of water sold and wastewater service provided through increases in the number of customers,
making timely and prudent investments in infrastructure replacements, expansion and improvements, and timely filing for rate increases. The Company continuously looks for acquisition and expansion opportunities both within and outside its current
service territory as well as through contractual services and bulk water supply.
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The Company has entered into agreements with municipalities to provide billing and collection services. The Company also has a service line protection
program on a targeted basis. The Company continues to review and consider opportunities to expand both initiatives to further diversify the business.
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.
Performance Measures
Company management uses financial measures including operating revenues, net income, earnings per share and return on equity to evaluate its financial
performance. Additional statistical measures including number of customers, customer complaint rate, annual customer rates and the efficiency ratio are used to evaluate performance quality. These measures are calculated on a regular basis and
compared with historical information, budget and the other publicly-traded water and wastewater companies.
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%.
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.
2023 Compared with 2022
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.
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.
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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.
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.
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.
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.
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.
Rate Matters
See Note 10 to the Company’s financial statements included herein for a discussion of its rate matters.
The Company does not expect to file a rate increase request in 2024.
Acquisitions and Growth
See Note 2 to the Company’s financial statements included herein for a discussion of completed acquisitions included in financial results.
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.
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.
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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.
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.
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.
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.
On November 9, 2022, the Company signed an agreement to purchase the wastewater collection and treatment assets of CMV Sewage Co., Inc. in Chanceford
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 280
wastewater customers.
In total, these acquisitions are expected to be immaterial to Company results. The Company is also pursuing other bulk water contracts and acquisitions
in and around its service territory to help offset any potential declines in per capita water consumption and to grow its business.
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.
Capital Expenditures
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.
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.
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Liquidity and Capital Resources
Cash
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.
Accounts Receivable
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 2023, higher revenue levels as compared to 2022 resulted in an increase 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.
Internally-generated Funds
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.
Common Stock
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.
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.
Credit Line
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.
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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 financing
needs throughout 2024.
Long-term Debt
The Company’s loan agreements contain various covenants and restrictions. Management believes it is currently in compliance with all of these
restrictions. See Note 6 to the Company’s financial statements included herein for additional information regarding these restrictions.
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.
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.
Income Taxes, Deferred Income Taxes and Uncertain Tax Positions
Under the IRS TPR, the Company is permitted to deduct the costs of certain asset improvements that were previously being capitalized and depreciated for
tax purposes as an expense on its income tax return. This ongoing deduction results in a reduction in the effective income tax rate, a net reduction in income tax expense, and a reduction in the amount of income taxes currently payable. It also
results in increases to deferred tax liabilities and regulatory assets representing the appropriate book and tax basis difference on capital additions. The Company expects to continue to expense these asset improvements in the future.
The Company’s effective tax rate will largely be determined by income before income taxes and the level of eligible asset improvements expensed for tax
purposes that would have been capitalized for tax purposes prior to the implementation of the TPR.
On July 8, 2022, the Pennsylvania budget for the fiscal year ending June 30, 2023 was signed into law. A provision within the tax code bill included
with the budget provides for an annual phase-down of the Pennsylvania corporate net income tax rate of one percentage point in the first year beginning January 1, 2023 from 9.99% to 8.99%, and a one-half percentage point each year thereafter until
it reaches 4.99% beginning January 1, 2031. The Company has remeasured the state portion of the Company’s deferred income taxes. The effect, net of the federal benefit recognized in income for the years ended December 31, 2023 and 2022, was
immaterial. Deferred income taxes for differences that are recognized for ratemaking purposes on a cash or flow-through basis were remeasured with offsetting changes to regulatory assets and liabilities on the balance sheet as of December 31, 2023
and 2022. The Company expects any savings in its Pennsylvania current income taxes to be returned to its customers through the rate making process or as a future negative surcharge on their bills.
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.
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The Company has seen an increase in its deferred income tax liability amounts primarily as a result of the accelerated depreciation deduction available
for federal tax purposes which creates differences between book and tax depreciation expense. The Company expects this trend to continue as it makes significant investments in capital expenditures subject to accelerated depreciation or TPR.
The Company has determined there are no uncertain tax positions that require recognition as of December 31, 2023. See Note 14 to the Company’s financial
statements included herein for additional details regarding income taxes.
Credit Rating
On July 26, 2023, Standard & Poor’s affirmed the Company’s credit rating at A-, with a stable outlook and adequate liquidity. The Company’s ability
to maintain its credit rating depends, among other things, on adequate and timely rate relief, which it has been successful in obtaining, its ability to fund capital expenditures in a balanced manner using both debt and equity and its ability to
generate cash flow. In 2024, the Company’s objectives are to continue to maximize its funds provided by operations and maintain a strong capital structure in order to be able to attract capital.
Physical and Cyber Security
The Company maintains security measures at its facilities, and collaborates with federal, state, and local authorities, and industry trade associations
regarding information on possible threats and security measures for water and wastewater utility operations. The costs incurred are expected to be recoverable in water and wastewater rates and are not expected to have a material impact on its
business, financial condition, or results of operations.
The Company relies on information technology systems in connection with the operation of the business, especially with respect to customer service,
billing, accounting, and in some cases, the monitoring and operation of treatment, storage, and pumping facilities. In addition, the Company relies on these systems to track utility assets and to manage maintenance and construction projects,
materials and supplies, and human resource functions. The information technology systems may be vulnerable to damage or interruption from cyber security attacks or other cyber-related events, including, but not limited to, power loss, computer
systems failures, internet, telecommunications or data network failures, physical and electronic loss of data, computer viruses, intentional security breaches, hacking, denial of service actions, misappropriation of data, and similar events. In
some cases, administration of certain functions may be outsourced to third-party service providers that could also be targets of cyber security attacks. A loss of these systems, or major problems with the operation of these systems, could harm the
business, financial condition, and results of operations of the Company through the loss or compromise of customer, financial, employee, or operational data, disruption of billing, collections or normal field service activities, disruption of
electronic monitoring and control of operational systems, and delays in financial reporting and other normal management functions.
Possible impacts associated with a cyber security attack or other events may include remediation costs related to lost, stolen, or compromised data,
repairs to data processing systems, increased cyber security protection costs, adverse effects on the Company’s compliance with regulatory and environmental laws and regulation, including standards for drinking water, litigation, and reputational
damage.
The Company has implemented processes, procedures, and controls to prevent or limit the effect of these possible events and maintains insurance to help
defray costs associated with cyber security attacks. The Company has not experienced a material impact on business or operations from these attacks. Although the Company does not believe its systems are at a materially greater risk of cyber
security attacks than other similar organizations and despite the implementation of robust security measures, the Company cannot provide assurance that the insurance will fully cover the costs of a cyber security event, and its robust security
measures do not guarantee that reputation and financial results will not be adversely affected by such an incident.
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Environmental Matters
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.
Drought
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.
Dividends
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.
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.
Inflation
The Company is affected by inflation, most notably by the continually increasing costs incurred to maintain and expand its service capacity. The
cumulative effect of inflation results in significantly higher facility replacement costs which must be recovered from future cash flows. The ability of the Company to recover this increased investment in facilities is dependent upon future rate
increases, which are subject to approval by the PPUC. The Company can provide no assurances that its rate increases will be approved by the PPUC; and, if approved, the Company cannot guarantee that these rate increases will be granted in a timely
or sufficient manner to cover the investments and expenses for which the rate increase was sought.
Critical Accounting Estimates
The methods, estimates, and judgments the Company used in applying its accounting policies have a significant impact on the results reported in its
financial statements. The Company’s accounting policies require management to make subjective judgments because of the need to make estimates of matters that are inherently uncertain. The Company’s most critical accounting estimates include:
revenue recognition and accounting for its pension plans.
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Revenue Recognition
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.
Pension Accounting
Accounting for defined benefit pension plans requires estimates of future compensation increases, mortality, the discount rate, and expected return on
plan assets as well as other variables. These variables are reviewed annually with the Company’s pension actuary. The Company used compensation increases of 2.5% to 3.0% in 2022 and 2023.
The Company adopted a new mortality table in 2019, the Pri-2012, using the white collar table for the administrative and general plan and the blue collar
table for the union plan. In 2021, the Company adopted the MP-2021 mortality improvement scale, which slightly increased the life expectancy of pension plan participants, resulting in a slight increase to the pension benefit obligation, and
ultimately, a decrease in the Company’s funded status of the plans.
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.
Adopting a new mortality table that represents a change in life expectancy and choosing a different discount rate normally changes the amount of pension
expense and the corresponding liability. In the case of the Company, these items change its liability, but do not have an impact on its pension expense. The PPUC, in a previous rate settlement, agreed to grant recovery of the Company’s
contribution to the pension plans in customer rates. As a result, under the accounting standards regarding rate-regulated activities, expense in excess of the Company’s pension plan contribution can be deferred as a regulatory asset and expensed
as contributions are made to the plans and are recovered in customer rates. Therefore, these changes affect regulatory assets rather than pension expense.
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.
Lower discount rates and underperformance of assets could cause future required contributions and expense to increase substantially. If this were to
happen, the Company would have to consider changes to its pension plan benefits and possibly request additional recovery of expenses through increased rates charged to customers. See Note 11 to the Company’s financial statements included herein
for additional details regarding the pension plans.
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Off-Balance Sheet Transactions
The Company does not use off-balance sheet transactions, arrangements or obligations that may have a material current or future effect on financial
condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses. The Company does not use securitization of receivables or unconsolidated entities. For risk management
purposes, the Company uses a derivative financial instrument, an interest rate swap agreement discussed in Note 7 to the financial statements included herein. The Company does not engage in trading or other risk management activities, does not use
other derivative financial instruments for any purpose, has no material lease obligations, no guarantees and does not have material transactions involving related parties.
Impact of Recent Accounting Pronouncements
There are currently no recent accounting pronouncements that are expected to have a material impact to the Company’s financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements.
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 23) 22
Balance Sheets 23
Statements of Income 25
Statements of Common Stockholders’ Equity 26
Statements of Cash Flows 27
Notes to Financial Statements 28
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
The York Water Company
Opinion on the Financial Statements
We have audited the accompanying balance sheets of The York Water Company (the "Company") as of December 31, 2023 and 2022, the related statements of
income, common stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in Item 15(a)2 (collectively referred to as the "financial
statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error