Water is a valuable public asset which should be available to all, not sold to the highest bidder to exploit for profits.
Pennsylvania
Is Important To Big Water
As the following charts show, Pennsylvania represents the largest customer base for both Essential Utilities (Aqua PA) and American Water (Pennsylvania American Water, PAWC). In fact, for Essential Utilities, Aqua PA is nearly half their business. Combined, they serve over 1.25 million customers in Pennsylvania.
Aqua PA Is Almost Half Of Essential's Customer Base
American Is More Diversified But PA Is Still Their Largest State
Profitability
There is a good reason they have a strong presence in Pennsylvania – PROFITS. Pennsylvania is a lucrative place for them to do business. The following charts are Pennsylvania specific. When Big Water companies file with the PUC to increase their rates, they have to provide a lot of financial data. The data for these two charts are from the latest rate increase filings made by Aqua and American. They pretty clearly show how profitable their businesses are.
Aqua Pennsylvania
Pennsylvania American Water
Combined American and Aqua are collecting over $1.5 billion/yr from Pennsylvania ratepayers. Of that revenue, over $660 million/yr is profit – 42% of their total revenue.
Think about that, for every dollar a customer pays for water or sewer service 42 cents goes to their profits!
Profitability In Pennsylvania Vs Other States
We have concerns about Big Water’s profitability in Pennsylvania being significantly higher than in other states. This raises the question of whether Pennsylvania is rewarding Big Water with excessive profits. Apparently those other states provide enough profit to draw and keep their business.
The basis for this concern stems from Essential Utilities annual reports from 2014 through 2019. In those reports, Essential highlighted the financial performance of Aqua Pennsylvania. They reported both percent of revenue and percent of net earnings for Aqua Pennsylvania. With that data, you can calculate and compare the financial performance for Aqua Pennsylvania versus the other seven states where Essential does business. The following chart plots the comparison.
The Net Margin (net earnings/revenue) for Aqua Pennsylvania is dramatically higher than the average for the other seven states – 37% versus 15%, that is almost 2 1/2 times higher. Something does not seem right about that big of a difference.
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Return On Equity (ROE) is a key parameter that determines profitability. Could Pennsylvania be awarding a much higher ROE? The answer to that is "No". American Water's August-2023 investor presentation on page 39 compared ROE for the ten states where they operate. The range is narrow, 9.5% - 10.0%. Pennsylvania is at the top of the list, but that does not explain the difference. We cannot explain the difference at this time.
Ratepayer Cost
Another measure of this disparity is the typical cost for a customer in different states. We gathered rate data from most of the states where Essential Utilities and American Water do business. The two charts that follow plot the annual cost for a customer using 4,000 gallons/month.
Clearly, Pennsylvania stands out as being higher than the other states – substantially higher in most cases. And, both Essential and American share the lead in Pennsylvania – they are “essentially” neck and neck.
Does Big Water like Pennsylvania?
Apparently. At least they are aggressively gobbling up Pennsylvania municipal water and sewer systems to grow their profits.
Since the passing of Act 12 (LINK), Big Water has invested almost $900 million to complete 18 different acquisitions. There are another nine either proposed or in progress totaling over $1.1 billion. Since their profits are a direct percentage of their investment, that makes for very attractive profit growth. And, the regulatory process, makes that investment essentially risk free. A sweet deal if you know how to get it.
Why The Disparity
The above charts make it pretty clear that Big Water profits are significantly higher in Pennsylvania. And, Big Water's customers are paying for their profits.
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Why is this? We wish we knew, but, we do not. We find the disparity eye popping. We would really like more insight on this issue. If anyone reading this has knowledge about the difference, we would really like to hear from you. You can use our Contact Page here: (LINK)
One obvious possibility is that other states limit their utilities to a lower rate of return. But, some very limited data indicates they all do about the same thing. So, we are left scratching our heads. We would appreciate any help you might provide.