Aqua America (NYSE:WTR) is a water and wastewater company that provides water to homes, offices, and industrial customers across 14 state boundaries. The state of Pennsylvania accounts for 52% of the company's revenue (the next largest region, Texas, accounts for just 8.2% of revenue). Residential customers make up more than half of Aqua America's client base. The company earned $953 million in revenue and $104 million in net income in 2009.
Over 90% of the water provided to customers is drawn directly from lakes, reservoirs, and wells in customers' home states. During times of drought, Aqua America sustains signifcant extra costs transporting water to their customers; however, they have been successful passing these costs on to their customers in the form of rate increases.
Aqua America's utility services reach 2.8 million residential customers in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, New York, Florida, Indiana, Virginia, Maine, Missouri, South Carolina, and Georgia. Though the company began in Pennsylvania and remains headquartered in Bryn Mawr, over the past 5 years the company has purchased smaller private utilities across the 13 states, gradually extending southward. Such acquisition comprises the bulk of Aqua America's stated business model. The company's water utility operations draw water from natural and manmade bodies of water like lakes, reservoirs, and wells purchasing less than 10% of water supplies from other suppliers.
The demand for water is price inelastic, particularly among residential customers, which means the need for water and wastewater services does not decline or disappear during periods of sluggish economic activity.
In the mid 2000s, severe droughts in Texas forced Aqua America's local water systems to truck water from elsewhere to meet customer needs. Over the past century, drought like this has become an increasingly common occurrence in much of the continental United States. When such drought occurs, the natural bodies of water Aqua America draws supplies from dwindle. Droughts can affect supply and scarcity of water as a resource and empirically, utilities like Aqua America have raised water prices post-drought to make up for lost revenue. Due to their random nature, droughts are difficult to predict or prepare for. In a drought, managing water resources can prove very difficult for municipalities and water companies alike.
Regulations and laws sponsored and enforced through the Environmental Protection Agency, such as the Safe Drinking Water Act and Clean Water Act, require utilities providing commercial and residential water supplies to meet federal standards of cleanliness. Such improvements come at significant cost to Aqua America Inc. as a conglomerate. 37 subsidiary water systems with smaller groundwater facilities have exceeded EPA radionuclide standards, requiring treatment. Of the approximately 53,000 municipal water companies in the U.S., over 80% have 3,000 or fewer customers.  Aqua America's primary growth strategy is the acquisition of these smaller utility companies, but in the past these acquisitions have brought their own compliance issues with them once consolidated in the Aqua America fold.
Aqua America's major competitors are other water utility conglomerates, particularly American Water Works Company (AWK) and privately held companies like United Water and Utilities Inc.