Growth in annual revenue accelerated for U.S. water utilities over the last year while leverage declined, according to Fitch Ratings in a new report.
According to Fitch, revenue increased almost 5 percent in the current median cycle with most of the growth again coming from rate adjustments. However, revenues did get a slight bump from increased water sales, which were up about 2 percent compared to flat sales during the past several years. Sewer flows were also marginally higher, by almost 1 percent. Conversely, leverage fell 5 percent for the year after rising 8 percent with 2018 medians.
“Added debt is expected to represent a manageable 36 percent of capital resources for water utilities over the next five years, which should limit growth in some key debt metrics,” said Managing Director Doug Scott.
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Operating expenses jumped more than 5 percent with the 2019 medians and rose faster than operating revenues. However, water utilities have mitigated that potential risk by keeping debt carrying costs in check to just 18 percent of revenues (compared with 20 percent with the 2018 medians). Days cash on hand also reached a new high of 561 days of operating expenses.
“Liquidity at this level will give water utilities a significant amount of flexibility in meeting their capital funding needs and managing fluctuations in operations,” said Scott.
One area worth a closer look will be aging facilities, which rose to a new peak of 16 years this past period. Capital spending has been in line with 2018 medians at 142 percent of annual depreciation, but additional spending may be necessary to maintain infrastructure performance.
Fitch’s 2019 Water and Sewer Medians is available at fitchratings.com.
