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York Water Company (YORW-NASDAQ) |
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October 2, 2009 Issue |
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In Business Since 1816 Providing Public Water For 46 Communities In York And Adams Counties, Pennsylvania, The York Water Company Is The Oldest Investor-Owned Utility In The Nation |
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The York Water Company was founded in 1816 and
is the oldest investor-owned utility in the nation. The business of the
Company is to impound, purify and distribute water. The Company, which is
regulated by the Pennsylvania Public Utility Commission, operates entirely
within its franchised territory, which covers portions of York and Adams
Counties, Pennsylvania.
Mr. Hines is a recipient of the American Water Works Association’s Fuller Award which is given each year to a Pennsylvanian who most demonstrates sound engineering judgment and leadership in the water supply field. He has also served on numerous national, state, and local boards and committees to further advance the goals of the water supply profession. Mr. Hines also spent 17 years as a US Army Officer and served in Kuwait and Afghanistan after 9/11. |
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Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – October 2, 2009
Mr. Hines: “Although I’ve been with the company for 19 years, I have been CEO for just over a year now. We have an excellent management team and employees that truly understand our business so no major course corrections are needed.”
CEOCFO: Please tell us about The York Water Company. Mr. Hines: “The York Water Company is an investor-owned public water utility. Actually, we are the oldest investor-owned utility in the nation. We have been in business since 1816 and for the past 193 years, we have provided water for drinking and firefighting for the region. We currently serve 46 communities in York and Adams Counties, Pennsylvania.”
CEOCFO: Would you tell us about the area you cover, and any unique challenges there might be in the water delivery there? Mr. Hines: “We are in York and Adams County and along the Maryland border and we do have somewhat of a bedroom community adjacent to the growing Baltimore and D.C. corridor. Although the housing market is pretty flat now, the average housing price here earlier this year is about $130,000 versus the average price in the Baltimore area, which is double that and the DC area is even higher. This indicates that when the housing crisis settles down people will continue to look for reasonably priced, quality housing and will be attracted to our area.”
CEOCFO: What has changed or what might be new and different in the delivery of water that people might not realize? Mr. Hines: “We provide a quality product at a reasonable price 24 hours a day, 365 days a year, and we deliver it right to the point of use exactly when you need it. What continues to change is the regulatory environment. The standards for drinking water continue to increase and there can be a lot more sophisticated treatment and permitting that is involved in providing water to our customers.”
CEOCFO: Is security an issue for you? Mr. Hines: “Security is always an issue and since 9/11 even more so. Many utilities, ours included, have invested in security to deter, delay, detect, and respond to any risk to the water supplies.”
CEOCFO: Does the consumption of bottled water affect your business? Mr. Hines: “In our service area we provide and distribute about 105 gallons of water per person per day and of those 105 gallons less than one gallon is actually ingested. So unless people are taking showers and watering their lawn with bottled water, it is a very small part of what we do. It is nice to see people are becoming ‘green’ oriented and realize what the true costs of bottled water are compared to the less than 1 penny per gallon they pay for our water from the tap.”
CEOCFO: What is special about your water? Mr. Hines: “We have been in business since 1816, with a high quality supply, and a great group of employees that treat and distribute the water and respond to the needs of our customers. For the past 193 years, we’ve always planned ahead. The average daily use is about 18 million gallons a day for our 61,000 customers, but we have an available supply of about 35 million gallons per day. So we have an adequate supply for whatever drought, climate issue, or population growth that comes down the pike.”
CEOCFO: You recently acquired the Beaver Creek Village water, how have you been growing? Mr. Hines: “There are actually a couple of ways water utilities grow; one is for instance Beaver Creek, which is what we call an acquisition; actually it is a tuck-in acquisition. It is a system near ours that we purchased and are extending our water pipes out to switch their customers into our customers. It is a pretty straight forward process, and then we would abandon wells or whatever supplies they have. Another acquisition could be a satellite acquisition, where we would run a system remotely. Then the third way to grow is by organic growth within our service area and growing our infrastructure. The value of our company grows significantly just by replacing existing pipes. Some of the pipes cost a dollar a foot to put in back in the early 1990’s, but now cost $150 a foot to replace and that alone increases our infrastructure base, which grows the company.”
CEOCFO: Why are people changing how they get their water? Mr. Hines: “There are a couple of forces at work here; one of them is the growing population and the second is conservation. The use of low flow plumbing fixtures is slowly making an impact in reducing per capita consumption. Therefore, people are using a little less water now because a new home has a 1.5 gallon per minute (GPM) showerhead versus an older house with a 5 GPM showerhead. Although water is generally abundant in Pennsylvania and in our area, we have also seen customers conserving water because wastewater costs are so high and they pay more per thousand gallons to get rid of the water than they do to buy the water. So that is why people curtail the usage.”
CEOCFO: You mentioned the cost of replacing pipes, are there new technologies or new ways to delivering water that you are able to take advantage of? Mr. Hines: “It is a fascinating business in that very little has changed in the past 150 years in how you deliver the product. Water is incompressible, so you have to physically move it from the source to your house and that hasn’t changed at all. Therefore, we are continuing to optimize systems that have been in place for over 100 years. However, there have been advances in how you detect leaks before they become a problem and how you re-line or replace existing pipe to minimize disruption to the customers and the motoring public. Technology continues to improve at the front of the operation where the water is filtered and purified. The increased use of supervisory control computers helps manage and optimize the treatment and flow through the pipes.”
CEOCFO: What is the financial picture like at York? Mr. Hines: “On the revenue side, customers continue to use water even in hard times. There may be some differences and small reduction in usage, maybe partially due to the economy or partially because of having a very wet year but there is always a demand for the product. People use water and will continue to use water. This is one product that won’t become obsolete and won’t move offshore. We continue to show strong earnings and income.”
CEOCFO: How have the regulatory forces been treating you? Mr. Hines: “Here in Pennsylvania we have a very well-balanced regulatory environment. We are regulated by the Public Utility Commission and they have been very reasonable. They continue to look out for the best interest of the customer, but also understand what the challenges of businesses are. So the Public Utility Commission and other regulatory parties have done a very good job balancing these demands. We are rated by the S&P as an A- company. We are stable and have maintained that rating through this economic issue.”
CEOCFO: Your revenues have been increasing! Mr. Hines: “Yes, we did have a rate increase back in late 2008 due to all this infrastructure that we are replacing. We also recently completed two acquisitions which increased our customer base and our revenues.”
CEOCFO: Is the investment community paying attention? Mr. Hines: “They are and in fact, back in October when the markets fell, water utility stocks also fell. That was more of a knee jerk reaction, but I think investors are now migrating towards high quality, low risk, transparent stocks with a long track record of performance and a solid dividend record. Not too long ago investors would chuckle at a 3% dividend. Now they look at a stock like YORW and see that it has a compelling history of a steady dividend income and the stock value continues to appreciate.”
CEOCFO: Why should potential investors be looking at York Water? Mr. Hines: “We have a great growth story; it is backed by 193 years of experience. In this regulatory climate, it is just getting too costly for smaller systems to operate efficiently. Many of our recent acquisitions were a result of supply issues, regulatory issues, costly upgrades, or personnel requirements that just became too great for these smaller systems. In addition, a lot of municipalities and water systems are now struggling with reduced tax revenue because of the drop in housing prices and perhaps increased pension costs and other costs. Frankly, selling a water system to a well-managed company like ours does two things; it takes the regulatory burden and stress off of the local elected leaders and it also gives them an infusion of capital they can use to fund their pension plan or perhaps take care of some costly wastewater upgrades or other project. In addition to the steady growth, investors should be drawn to our 193 years of consecutive dividends, which we believe is the longest dividend streak in America and we have also increased our dividend for the past 12 consecutive years.”
CEOCFO: It must feel good to be in such a great position!
Mr. Hines:
“We are very proud of our company and the communities we serve. I would not
want to be in any other profession right now. The York Water Company is just
a remarkable 193-year story of growth, community service, environmental
stewardship, and taking care of customers now and into the future.” |
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“We are very proud of our company and the communities we serve. I would not want to be in any other profession right now. The York Water Company is just a remarkable 193-year story of growth, community service, environmental stewardship, and taking care of customers now and into the future… In addition to the steady growth, investors should be drawn to our 193 years of consecutive dividends, which we believe is the longest dividend streak in America.” - Jeffrey R. Hines P.E. |
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Jeffrey
R. Hines P.E.