The York Water Company (YORW) Risk Factors

Our water system includes two impounding dams.  While we maintain active and robust dam maintenance and inspection programs, a failure of the dams could result in injuries and damage to residential and/or commercial property downstream for which we may be responsible, in whole or in part.  The failure of a dam could also adversely affect our ability to supply water in sufficient quantities to our customers and could adversely affect our financial condition and results of operations.  We carry liability insurance on our dams, however, our limits may not be sufficient to cover all losses or liabilities incurred due to the failure of one of our dams.  The estimated costs to maintain and upgrade our dams are included in our capital budget.  Although such costs have previously been recoverable in rates, there is no guarantee that these costs will continue to be recoverable and in what magnitude they will be recoverable.

Significant judgment is required in determining our provision for income taxes.  The calculation of the provision for income taxes is subject to our interpretation of applicable business tax laws in the federal and state jurisdictions in which we file.  In addition, our income tax returns are subject to periodic examination by the Internal Revenue Service, or IRS, and other taxing authorities. In December 2014, we changed our tax method of accounting to permit the expensing of qualifying asset improvement costs that were previously being capitalized and depreciated for tax purposes.  Our determination of what qualifies as a capital cost versus a repair expense tax deduction is subject to subsequent adjustment and may impact the income tax benefits that have been recognized.  Although we believe our income tax estimates are appropriate, there is no assurance that the final determination of our income tax liability will not be materially different, either higher or lower, from what is reflected in our income tax provision.  In the event we are assessed additional income taxes, our business, financial condition, and results of operations could be adversely affected. In December 2017, the Tax Cuts and Jobs Act of 2017, or 2017 Tax Act, was signed into law.  The 2017 Tax Act significantly changes how corporations are taxed.  Significant judgments are required to be made in interpreting the provisions of the 2017 Tax Act and estimates may be required to comply with the provisions of the 2017 Tax Act.  The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the 2017 Tax Act will be applied or otherwise administered that is different from our interpretation.  As additional regulatory guidance is issued by the applicable taxing authorities, as accounting treatment is clarified, as we perform additional analysis on the application of the law, and as we refine estimates in calculating the effect, our final analysis, which will be recorded in the period completed, may be different from our current provisional amounts, which could materially affect our tax obligations and effective tax rate.

We have taken steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply.  We have also tightened our security measures regarding the delivery and handling of certain chemicals used in our business.  We have and will continue to bear increased costs for security precautions to protect our facilities, operations and supplies.  We are not aware of any specific threats to our facilities, operations or supplies.  However, it is possible that we would not be in a position to control the outcome of such events should they occur.

We face competition from other water suppliers for acquisitions, which may limit our growth opportunities.  Furthermore, even after we have been the successful bidder in an acquisition, competing water suppliers or wastewater service providers may challenge our application for extending our franchise territory to cover the target company's market.  Finally, third parties either supplying water on a contract basis to municipalities or entering into agreements to operate municipal water or wastewater systems might adversely affect our business by winning contracts that may be beneficial to us.  If we are unable to compete successfully with other water suppliers and wastewater service providers for these acquisitions, franchise territories and contracts, it may impede our expansion goals and adversely affect our profitability.

Demand for our water during the warmer months is generally greater than during cooler months due primarily to additional requirements for water in connection with cooling systems, swimming pools, irrigation systems and other outside water use.  Throughout the year, and particularly during typically warmer months, demand will vary with temperature and rainfall levels.  If temperatures during the typically warmer months are cooler than expected, or there is more rainfall than expected, the demand for our water may decrease and adversely affect our revenues.

Computers and the Internet have led to increased productivity and improved customer service.  Unfortunately, progress in this area has brought with it cybersecurity risks.  Recently, the frequency and severity of cyber-attacks on companies has increased resulting in a disruption to business operations and the corruption or misappropriation of proprietary data.  We have and will continue to bear increased costs for security precautions to protect our information technology.  However, if such an attack was to occur and could not be prevented, customer information could be misappropriated, our networks may be down for an extended period of time disrupting our business, and it could require costly replacement of hardware and software.  We carry cyber liability insurance, however, our limits may not be sufficient to cover all losses or liabilities.