An old adage warns, "You get what you pay for."
Customers of "That Good York Water," whose rates have increased well above the rate of inflation over the last 10 years, might wonder if they're getting soaked.
The average York Water Co. customer's annual bill was $433 for water last year, $36.08 per month. That's up from $259 in 2001, a 67 percent increase.
Customer rates -- the price paid just for the water used -- have increased by between
81 percent and 89 percent since 2001.
Over the same 10 years, the national rate of inflation was 26.2 percent. Had water rates increased at the rate of inflation, a York customer's annual bill would have been about $100 less, or $326.
Meanwhile, the company has been reporting record revenue and earnings, with net profit more than doubling over the past decade.
During that time, the company applied for and was granted six rate increases, ranging from 4.3 percent to 17.9 percent.
Despite an increase more than twice the rate of inflation over the past decade, representatives of the water company and the state agency that reviews proposed rate increases say York Water Co.'s rates aren't out of line.
In fact, Yorkers who pay for gravity service, under which water need not go through a pumping station, from York Water Co. are paying a lower rate than customers of other comparable companies in the state, according to an analysis by The York Dispatch.
York Water customers on a re-pump plan, under which water must be sent through a pumping station, pay a lower rate than customers at all but one comparable company.
There are four comparable companies, of similar size and customer base, in Pennsylvania.
Growing: The company said rising rates aren't the only reason the company is recording record profits.
President and CEO Jeff Hines said company growth is partly responsible, because York Water averages 3 percent growth and
"That alone should mean each year we have record revenues, just because we have more customers," he said. "You're right, when you see (record gains) in the headline, it makes you wonder. But that's the reality. We're just a growing company."
But why has the company increased rates by more than twice the rate of inflation?
Because new regulations and infrastructure improvements "will always exceed the rate of inflation," Hines said.
For example, the company will spend $11 million, more than its annual profit, over the next two years to make improvements to its dams. The moves aren't meant to help the company expand, he said, but are mandates from the state's Department of Environmental Protection.
"If we didn't have new regulations to enforce and mains to replace, maybe rates could be growing at the rate of inflation," he said.
He estimated the company has spent between $80 million and $100 million on infrastructure over the past 10 years.
Approval granted: In order to increase rates, the company must get approval from the state Public Utility Commission.
After the company applies, PUC staff and experts hired by the Office of Small Business Advocate and the state's Office of Consumer Advocate review financial filings to determine if the increase is justified.
The PUC rarely grants a company's entire
York Water last applied for a rate increase last year. Under a November settlement, the company raised monthly water rates by about $3.4 million as opposed to the $6.22 million it originally requested.
Under the settlement, gravity customers saw an average increase of $28.08 per year, or 7.4 percent, from $380.28 to $408.36. Repump customers' bills increased $36.84, or 8.1 percent, from $455.28 to $492.12.
The company's net profit jumped 18.6 percent from 2009 to 2010, up from $7.5 million to $8.9 million.
For the year 2010, earnings per share were 71 cents, a 7-cent increase over 2009. The year marked the 14th consecutive year of dividend increases and the 195th consecutive year of paying dividends, giving York Water Co. the longest consecutive dividend record of any public corporation in America.
Too much? So how much profit is too much?
"In theory, there is no limit," said Denise McCracken, acting press secretary of the PUC.
But if York Water earns more than its "authorized rate of return," a number set by the commission, it would lose the ability to recover its Distribution System Improvement Charge, a fee it's allowed to pass on to customers for infrastructure replacement, she said.
Under the November settlement, York Water agreed to stop collecting the fee.
The commission determines the company's rate of return by reviewing evidence such as dividends and growth, she said.
The company can also recover money spent on new infrastructure through its base rate, a provision necessary because clean, safe water is essential to public health, said PUC Commissioner Wayne Gardner.
Last year, York Water spent about $6 million on construction projects, with most work necessary for upgrades, additions and replacement of aging infrastructure, Hines said.
Infrastructure aside, Gardner said he and the other four commissioners are charged with looking at the rate settlement terms to deem if they're prudent and in the best interest of consumers.
Customer input is also a consideration, and companies that treat their customers well are rewarded, he said.
"The only opportunity we have at the commission to hold companies responsible for customer service is that rate of return," he said. "If they're not taking customers into consideration, they're not allowed to earn in the upper fair rate of return."
The rates: The typical rate of return allowed for water companies, depending on the size and complexity of the company, is between 7 percent and 12 percent, he said.
That means a stockholder who invests $100 in York Water stock can earn between $7 and $12 per year. York Water's rate of return, which ranged from between 9.2 percent and 11.2 percent between 2001 and 2010, falls within those guidelines.
"The perceptions are probably the biggest thing we have to deal with at the commission," Hines said. "Ordinary rate payers don't have the benefit of comparing rates with other companies that are similarly situated. Asking folks, almost no one likes the rate they have to pay their utility."
He said York Water is "very well operated," and that's reflected in the rate of return.
Sonny Popowsky, Consumer Advocate of Pennsylvania, said York Water is not unusual compared to other water companies in the state. They've all had steady rate increases over the past decade, he said, and that's the result of improvements necessary to ensure the water is safe.
"Over time, the cost of infrastructure has gone up, and the need to meet state and federal water quality guidelines has increased," he said. "I think in fairness, York Water has done a good job of maintaining its system ... and the PUC has ruled in a way that I think has provided reasonable rates for customers."
-- Reach Christina Kauffman at 505-5436, firstname.lastname@example.org, or follow her on Twitter at @dispatchbizwiz.