Aqua America and American Water Exchange Subsidiaries

As a result of this transaction, Aqua will acquire approximately $98 million in additional rate base and grow its customer base in Ohio by approximately 57,280 additional customers. The transaction will allow Aqua to spread its fixed costs over more customers in Ohio, which should provide more cost efficiency to help address future rates.

 

Under the agreement, Aqua America will purchase from American Water 8 water systems and 1 wastewater system in Ohio, which serve approximately 50,730 water and approximately 6,550 wastewater connections for approximately $120 million. The systems serve parts of nine counties primarily in central and northeast Ohio. The acquisition will increase the customer base of Aqua Ohio by approximately 66 percent.

 

In a separate agreement, Aqua America has agreed to sell its 7 water systems, which serve approximately 50,520 customers in New York to American Water’s New York subsidiary for approximately $71 million, making Long Island American Water the state’s largest investor-owned water utility. Aqua America’s sale of its New York operations will conclude its regulated operations in that state.

 

“This transaction demonstrates the success of our growth-through-acquisition strategy where we continue to plan and execute our growth efforts in states like Ohio,” said Aqua America Chairman and CEO Nicholas DeBenedictis. “Being the only large water utility in Ohio will allow Aqua America to focus our efforts in a state where we already have a critical mass of customers and can also focus in an area that offers opportunities for the water-energy nexus that could have a positive impact on the future of our company.”

 

In addition to customer growth, Ohio offers other potential business and environmental opportunities for Aqua America. Speaking before the Citi Climate Change and Water Conference earlier this month, DeBenedictis said the company is prepared to take a responsible and active role in what is becoming the next energy boom in Ohio, Pennsylvania, Texas and some other states—natural gas drilling. “Shale drilling for natural gas is a very water-intensive business that can provide an economic boost well into the future if it’s done right environmentally.”

 

Aqua’s sale of its New York operations and acquisition of American Water’s Ohio operations is consistent with its strategy to consolidate its customer base in fewer states to improve its economies of scale. A priority is given to states that provide a regulatory opportunity for capital investment surcharges and consolidated rates.

 

Both companies commended this agreement as a way to strengthen operations in their respective states, creating better economies of scale and providing additional opportunities to improve customer service. The closing on each transaction is subject to the closing on the other transaction and the purchase price in each transaction is subject to certain adjustments as of their respective closing dates. The transactions are subject to certain regulatory approvals and Aqua America and American Water expect both acquisitions to close during the first quarter of 2012.

 

“This transaction makes perfect business sense for both companies as Aqua America is better suited to own and operate the American Water systems in Ohio, growing its customer base to approximately 145,000 and proactively working with local communities, towns, and environmental and economic regulators. American Water, after the purchase, will grow their operations into the largest investor-owned water utility in the state,” said DeBenedictis. “This opportunity will enable each of these professional companies to maximize their ability to deliver quality water and wastewater service to customers in both Ohio and New York.”

 

This is the second transaction of this nature between Aqua America and American Water. Last December, Aqua purchased American Water’s Texas operations and sold American Water Aqua’s Missouri operations. The move signals Aqua America’s desire to concentrate its customer portfolio in states that demonstrate a positive regulatory environment, while leveraging greater economies of scale and customer growth.