Aqua America's first-quarter earnings included some bonuses for shareholders and Pennsylvania water customers, but not for the tax collector.
The Bryn Mawr water utility reported Thursday that its effective tax rate plunged from 39 percent to 14.6 percent, thanks to an accounting change it announced last year.
Aqua's first quarter net income was $46.6 million, up 23 percent from $37.9 million in 2012. Income from continuing operations was 29 cents per share, up 53 percent from 19 cents a year ago.
The company boosted earnings even though its Pennsylvania customers got a 2.8 percent rate cut on Jan. 1, it sold less water due to the cool winter, and its venture to supply water to Marcellus Shale hydraulic fracturing operations underperformed because of a slowdown in natural gas drilling.
But Aqua's quarterly income tax bill declined dramatically, from $17.5 million to $7 million, thanks to the accounting change. And it's an ongoing benefit, not a one-time event.
The company last year adopted a change that allows its Pennsylvania subsidiary, which makes up more than half its business, to deduct a significant amount of expenses immediately rather than book them as capital expenses that are depreciated over a long period of time.
The IRS changed its rules in 2011 allowing companies to book some infrastructure investments as repairs rather than improvements.
Repairs, which Chief Financial Officer David Smeltzer said amounted to $87 million in Pennsylvania in 2012, can be deducted immediately from taxes. Improvements typically are depreciated over 25 years, stretching the tax benefit out.
The Pennsylvania Public Utility Commission encouraged the utility to adopt "repair tax accounting" last year as long as Aqua agreed to delay a rate increase request it would have filed at the end of 2013. Aqua also suspended an infrastructure surcharge on customer bills that resulted in the 2.8 percent cut this year.
"The ongoing tax accounting change allows Aqua Pennsylvania to continue its infrastructure improvement program without increasing customer rates in 2013 and still maintain the opportunity for the company to continue its strong financial performance," the company said Thursday.
Aqua may adopt repair tax accounting in other states, but the impact is more significant in Pennsylvania because of its tax laws.