NEWARK, DE — Artesian Resources Corporation (Nasdaq: ARTNA) this week announced third quarter and year-to-date results for 2023.
Third Quarter Results
Revenues totaled $26.6 million for both the three months ended September 30, 2023 and September 30, 2022 respectively.
Other utility operating revenue increased approximately $0.4 million, or 13.9%, primarily due to an increase in wastewater revenue associated
with additional customers served and the timing of industrial wastewater revenue.
Water sales revenue decreased $0.1 million, or 0.3%, primarily related to a decrease in overall water consumption related to above average
precipitation experienced during the summer months of 2023, partially offset by an increase in fixed fee charges related to additional
customers served.
Non-utility operating revenue decreased approximately $0.3 million, or 16.9%, primarily due to a decrease in contract service revenue
related to a contract for the design and construction of wastewater infrastructure now nearing completion, partially offset by an increase
in Service Line Protection Plan, or SLP Plan, revenue.
Operating expenses, excluding depreciation and income taxes, increased $0.8 million, or 5.6%. Utility operating expenses increased $1.2 million, or 11.1%, primarily the result of increased payroll and employee benefits costs; repair, maintenance and chemical treatment costs associated with the Company’s water and wastewater systems; as well as costs related to increases in computer system maintenance and subscription fees, and consulting fees.
Non-utility operating expenses decreased $0.5 million, or 28.5%, primarily due to a decrease in costs associated with a wastewater infrastructure design and construction contract.
Depreciation and amortization expense increased $0.2 million, or 7.3%, primarily due to continued investment in utility plant providing supply, treatment, storage and distribution of water to customers and service to the Company’s wastewater customers.
Federal and state income tax expense increased $0.4 million, or 22.7%, primarily due to adjustments related to the application of Delaware state net operating loss valuation allowances, partially offset by lower pre-tax income in 2023 compared to 2022 and a decrease in 2022 income tax expense related to stock options exercised in the third quarter of 2022, with no similar activity in 2023.
Other income increased $0.3 million, primarily due to an increase in allowance for funds used during construction, or AFUDC, as a result of higher long-term construction activity subject to AFUDC.
Net income was $5.1 million for the three months ended September 30, 2023, a $1.1 million, or 17.5%, decrease compared to net income recorded during the three months ended September 30, 2022. Diluted net income per share decreased to $0.49 compared to $0.65 for the same period in 2022.
Year-to-Date Results
Revenues totaled $74.3 million for the nine months ended September 30, 2023, $0.5 million, or 0.7%, more than revenues for the nine months ended September 30, 2022. Comprising this increase:
Other utility operating revenue increased approximately $0.8 million, or 9.7%, primarily due to an increase in wastewater revenue associated
with additional customers served and the timing of industrial wastewater revenue.
Water sales revenue increased $0.7 million, or 1.2%, primarily related to an increase in overall water consumption and an increase in fixed
fee charges related to new customers. This increase is partially offset by a one-time refund issued to customers within the Town of Frankford
for a rate change retroactive to February 2022, as approved by the DEPSC in the first quarter of 2023, in accordance with the agreement for
the purchase of Frankford’s water assets.
Non-utility operating revenue decreased approximately $1.0 million, or 16.7%, primarily due to a decrease in contract service revenue
related to a contract for the design and construction of wastewater infrastructure now nearing completion, partially offset by an increase
in SLP Plan revenue.
Operating expenses, excluding depreciation and income taxes, increased $2.6 million, or 6.4%. Utility operating expenses increased $3.5 million, or 11.3%, primarily the result of increased payroll and employee benefits costs; repair, maintenance, operating and chemical treatment costs associated with the Company’s water and wastewater system; as well as costs related to increases in computer system maintenance and subscription fees, consulting fees, legal fees, a one-time adjustment related to an acquisition in 2022, and customer billing costs. These increases are partially offset by a decrease in purchased water under a new contract, effective January 2022, in which the minimum amount of water required to be purchased was reduced.
Non-utility operating expenses decreased $1.1 million, or 24.7%, primarily due to a decrease in costs associated with a wastewater infrastructure design and construction contract.
Property and other taxes increased $0.2 million, or 3.6%, primarily due to an increase in utility plant subject to taxation and an increase in payroll taxes, related to increased payroll related expenses. Property taxes are assessed on land, buildings and certain utility plant, which include the footage and size of pipe, hydrants and wells.
Depreciation and amortization expense increased $0.5 million, or 5.7%, primarily due to continued investment in utility plant providing supply, treatment, storage and distribution of water to customers and service to the Company’s wastewater customers.
Federal and state income tax expense increased $0.2 million, or 3.6%, primarily due to adjustments related to the application of Delaware state net operating loss valuation allowances, partially offset by lower pre-tax income in 2023 compared to 2022 and a decrease in 2022 income tax expense related to stock options exercised in the first nine months of 2022, with no similar activity in 2023.
Other income increased $1.0 million, primarily due to a $0.8 million increase in AFUDC, as a result of higher long-term construction activity subject to AFUDC. Miscellaneous income increased $0.2 million primarily related to an increase in the annual patronage refund from CoBank, ACB. The primary refund calculation for both 2023 and 2022 was based on the average loan balance outstanding.
Long-term debt interest increased $0.4 million, primarily related to an increase in long-term debt interest associated with the Series W First Mortgage Bond issued on April 29, 2022. Short-term debt interest increased $0.3 million, primarily related to higher interest rates.
Net income was $13.2 million, a $2.5 million, or 15.7%, decrease compared to net income recorded during the nine months ended September 30, 2022. Diluted net income per share decreased to $1.33, compared to $1.65 for the same period in 2022.
“This past quarter’s results show a decrease in water sales, due to unusually wet weather conditions and continued increases in expenses caused by inflationary pressures,” said Nicholle Taylor, President of Artesian Water Company. “We continue to progress as anticipated with the Company’s application for an increase in water rates and the initial temporary increase will go into effect in the fourth quarter.”
Application to Increase Customer Rates
On April 28, 2023, Artesian Water filed a request with the Delaware Public Service Commission, or DEPSC, to implement new rates to meet a requested increase in revenue of 23.84%, or approximately $17.5 million, on an annualized basis. The actual effective increase is less than 23.84% since Artesian Water has been permitted to recover specific investments made in infrastructure through the assessment of a 7.50% Distribution System Improvement Charge, or DSIC. Since the DSIC rate is set to zero when temporary rates are placed into effect, customers would experience an incremental increase of 16.34%, the net of the overall 23.84% increase less the DSIC rate of 7.50% currently in effect, if the requested increase is granted in full by the DEPSC. The new rates are designed to support Artesian Water’s ongoing capital improvement program and to cover increased costs of operations, including chemicals and electricity for water treatment, water quality testing, fuel, taxes, interest, labor and benefits.
In accordance with applicable Delaware law, Artesian Water is permitted to implement a temporary base rate increase of 15% of gross water sales on an annual basis, or $2.5 million, whichever is lower, 60 days after the application is filed. Since Artesian Water had DSIC surcharges in excess of the allowable temporary increase and imposing the temporary increase would require DSIC to be reset to zero, Artesian Water elected not to request the initial temporary rate increase. However, since the application is not expected to be resolved within the seven-month statutory timeframe, Artesian Water filed an interim rates application on October 12, 2023 to place into effect on November 28, 2023 a temporary base rate increase, subject to refund, of 15% of gross water sales on an annual basis and reduce the 7.5% DSIC rate to zero until permanent rates are determined by the DEPSC. Artesian Water’s last comprehensive application for an increase in base rate charges was filed in April 2014.
Capital Expenditures
As part of Artesian’s ongoing effort to ensure high-quality reliable service to customers, $48.8 million was invested in water and wastewater infrastructure projects during the first nine months of 2023 compared to $36.7 million for the same period in 2022. These investments include the rehabilitation program for transmission and distribution facilities by replacing aging or deteriorating water mains, installation of new main, construction of water treatment facilities, enhancing or improving existing water treatment facilities, including enhancements to treat potential per- and polyfluoroalkyl substances, or PFAS, construction of new water storage tanks, replacing aging wells and pumping equipment, and enhancing or improving existing wastewater treatment and disposal facilities, to better serve the Compay’s water and wastewater customers.
“We maintain our commitment of providing reliable water service for our customers through a proactive approach to capital investments,” said Dian C. Taylor, CEO. “Our significant investments not only replace aging infrastructure, reducing the potential of costly failures and outages, but also include new infrastructure to meet our growing customer demands. Additionally, Artesian has been progressing with investments in proactive PFAS treatment to maintain water quality standards prior to the United States Environmental Protection Agency’s more stringent regulations expected early next year.”
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