Wednesday, August 05, 2009

LCRA Sells Two Water Systems to Aqua America

The Lower Colorado River Authority sold two water systems to Aqua America, a publicly traded company. The two systems are the Harper Water System in Gillespie County and London Water System in Kimble County. Combined they serve 480 people. Aqua America paid $330,000 to the LCRA. It's not clear the value of the assets acquired or the size of the revenue stream.

However, it is crystal clear that Aqua America is in it for a profit. Consider their recent earnings report:

Aqua America Chairman and CEO Nicholas DeBenedictis said, "I am pleased that the Board of Directors has confidence in the company's long-term strategy as evident by the 7.4 percent dividend increase. This is the eleventh consecutive year we have been able to increase the dividend above our stated 5 percent target."

DeBenedictis continued, "Considering the unfavorable weather and the economic slowdown, we are pleased with our ability to continue to grow earnings. The efforts of Aqua America's management team to limit expense increases, recover capital investments through rate relief, and continue to acquire new water and wastewater systems has the company on track to increase net income again year over year for the tenth consecutive year."

What was the unfavorable weather? DeBenedictis said:

"The Philadelphia area, for example, had 16 days of rain in June, which was more than twice last year's number, while for the quarter there were 45 days of rain versus just 29 days in 2008. Rainfall, especially frequent rainfall, leads to less water usage, which results in less revenue. The temperature in many of our service areas in June was also cooler than normal, resulting in less lawn watering."
The CEO best not use such language in West Central Texas. His "unfavorable weather" is a gift from the heavens. Rain happens to refresh the watershed and aquifers (from which the LCRA and now Aqua America draws water to sell).

What happens when rain squashes revenues? Aqua American asks for rate increases.

Aqua America continued to receive rate awards in the quarter and has been granted rate relief to date in 2009 designed to increase annual operating revenues by $27.2 million. These include awards in Pennsylvania, Ohio, New York, Florida, Indiana, South Carolina and North Carolina as well as infrastructure improvement surcharges in Illinois, Indiana, Ohio, and Pennsylvania. The company currently has collective rate requests pending in Pennsylvania, New York, Indiana, Maine, Missouri, Florida, and Virginia totaling $9.2 million and expects to seek additional rate relief of approximately $50 million in 2009. The timing and extent to which rate increases might be granted by the applicable regulatory agencies will vary by state.

If the profit incentive for public water systems doesn't bother you, maybe Aqua America's garnering federal stimulus money will stick in your craw. Their press releases brag about receiving millions in loans and grants from the American Recovery and Reinvestment Act of 2009. How much of Aqua America's $300 million in infrastructure program funds will come courtesy of the taxpayer?

What about the seller of the Harper and London Water Systems?

LCRA is a Texas conservation and reclamation district operating with no taxing authority.

The LCRA could be viewed as a co-op, providing a variety of needed public services. This co-op sold its small water and waste water operations to a for-profit firm. Their website offers no information on the sale. It says nothing about the costs or benefits for people in Gillespie or Kimble Counties.

This development bears watching, especially as Aqua America hopes "to grow here." It could shed light on the relationship between co-ops and their for-profit brethren, a big discussion in the health care reform debate. It's also a timely topic in the infrastructure arena.

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