What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-05 · 165 added, 136 removed, 249 unchanged (55% of the section changed)

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Certain factors as discussed

under Item 1A -Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2021, and this Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, such as changes in weather, changes in our contractual obligations, changes

in government policies, the timing and results of our rate requests, failure to receive regulatory approval, changes in economic and market conditions generally, and other matters could cause results to differ materially from those in the

under Item 1A -Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2021, and this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, such as changes in weather, changes in our contractual obligations,

changes in government policies, the timing and results of our rate requests, failure to receive regulatory approval, changes in economic and market conditions generally, and other matters could cause results to differ materially from those in the

forward-looking statements.

Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic.

While the Company may elect to update forward-looking statements, we

specifically disclaim any obligation to do so and you should not rely on any forward-looking statement as a representation of the Company's views as of any date subsequent to the date of the filing of this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 2022

While the Company may elect to update forward-looking statements, we specifically disclaim any obligation to do so and you should not rely on any forward-looking statement as a representation of the Company's views as of

any date subsequent to the date of the filing of this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 2022

Our profitability is primarily attributable to the sale of water.

Gross water sales composed 80.2% of total operating revenues for the six months ended June

Gross water sales composed 80.7% of total operating revenues for the nine months

ended September 30, 2022.

Our profitability is also attributed to the various contract operations, water, sewer and internal SLP Plans, wastewater services and other services we provide.

Water sales are subject to seasonal fluctuations, particularly during summer

when water demand may vary with rainfall and temperature.

In the event temperatures during the typically warmer months are cooler than expected, or rainfall is greater than expected, the demand for water may decrease and our revenues may be adversely

Water sales are subject to seasonal fluctuations,

particularly during summer when water demand may vary with rainfall and temperature.

In the event temperatures during the typically warmer months are cooler than expected, or rainfall is greater than expected, the demand for water may decrease and

our revenues may be adversely affected.

We believe the effects of weather are short term and do not materially affect the execution of our strategic initiatives.

Our wastewater services, contract operations, SLP Plans and other services provide a revenue stream that is not

affected by changes in weather patterns.

Our wastewater services, contract operations, SLP Plans and other services provide a

revenue stream that is not affected by changes in weather patterns.

While water sales are our primary source of revenues, we continue to seek growth opportunities to provide wastewater services in Delaware and the

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COVID-19 Pandemic

As of June 30, 2022, the Company’s financial results and business operations have not been materially adversely

affected by the coronavirus, or COVID-19, outbreak, which was declared a pandemic in March 2020.

As of September 30, 2022, the Company’s financial results and business operations have not been materially

adversely affected by the coronavirus, or COVID-19, outbreak, which was declared a pandemic in March 2020.

However, we have experienced delays in procuring some materials and supplies.

While we have been successful in managing these delays, there is no

assurance that our future financial results or business operations will not be negatively affected.

While we have been successful in managing these delays, there

is no assurance that our future financial results or business operations will not be negatively affected.

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report.

Management is actively monitoring the situation and

impacts on its operations, suppliers, industry, and workforce.

Management is actively monitoring the situation

and impacts on its operations, suppliers, industry, and workforce.

We are affected by inflation, most notably by the continually increasing costs required to maintain, improve and expand our service

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Increases in the number of customers contribute to increases, or help to offset any intermittent decreases, in our operating revenue.

30, 2022, the number of metered water customers in Delaware increased approximately 3.3% compared to June 30, 2021.

The number of metered water customers in Maryland

increased approximately 2.0% compared to June 30, 2021 .

The number of metered water customers in Pennsylvania remained consistent compared to June 30, 2021.

For the six months ended June 30, 2022, approximately 4.0 billion gallons of water

were distributed in our Delaware systems and approximately 65.1 million gallons of water were distributed in our Maryland systems.

September 30, 2022, the number of metered water customers in Delaware increased approximately 3.4% compared to September 30, 2021.

The number of metered water customers in Maryland increased approximately 1.8% compared to September 30, 2021 .

The number of metered water customers in Pennsylvania remained consistent compared to September 30, 2021.

For the nine months ended September 30, 2022,

approximately 6.5 billion gallons of water were distributed in our Delaware systems and approximately 103.7 million gallons of water were distributed in our Maryland systems.

Wastewater Division

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stream unaffected by weather.

The number of Artesian’s Delaware wastewater customers more than doubled compared to June 30, 2021, following the acquisition of Tidewater Environmental Services, Inc., or TESI .

The number of Artesian’s Delaware wastewater customers more than doubled compared to September 30, 2021, following the acquisition of Tidewater Environmental Services, Inc., or TESI .

This acquisition agreement is discussed further in the “Strategic Direction” section below.

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There has been consistent customer growth over the years.

As of June 30, 2022, the eligible customers

enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan increased 3.4%, 1.3% and 14.6%, respectively, compared to June 30, 2021.

As of September 30, 2022, the eligible

customers enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan increased 3.8%, 1.4% and 13.5%, respectively, compared to September 30, 2021.

The non-utility customers enrolled in one of our three protections plans increased 2.6%.

Strategic Direction

Our strategy is to increase customer growth, revenues, earnings and dividends by expanding our water, wastewater and SLP Plan services across the Delmarva

Our strategy is to increase customer growth, revenues, earnings and dividends by expanding our water, wastewater and SLP Plan services across the

Delmarva Peninsula.

We remain focused on providing superior service to our customers and continuously seek ways to improve our efficiency and performance.

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By providing water and wastewater services, we believe we are positioned as the primary resource for developers and communities throughout the Delmarva Peninsula seeking to fill both needs simultaneously.

We believe we

have a proven ability to acquire and integrate high growth, reputable entities, through which we have captured additional service territories that will serve as a base for future revenue.

we have a proven ability to acquire and integrate high growth, reputable entities, through which we have captured additional service territories that will serve as a base for future revenue.

We believe this experience presents a strong platform for

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focused efforts to expand through strategic acquisitions and in new regions added to our Delaware service territory over the last 10 years.

We plan to expand our regulated water service area in the Cecil County designated growth corridor and to expand

our business through the design, construction, operation, management and acquisition of additional water systems.

The expansion of our exclusive franchise areas elsewhere in Maryland and the award of contracts will similarly enhance our operations

within the state.

We plan to expand our regulated water service area in the Cecil County designated growth corridor and to

expand our business through the design, construction, operation, management and acquisition of additional water systems.

The expansion of our exclusive franchise areas elsewhere in Maryland and the award of contracts will similarly enhance our

operations within the state.

Our ability to develop partnerships with various county governments, municipalities and developers has provided a number of opportunities.

In the last four

years, we completed seven acquisitions including asset purchase agreements with municipal and developer/homeowner association operated systems.

We believe that Delaware's generally lower cost of living in the region, availability of development sites in relatively close proximity to the Atlantic

Ocean in Sussex County, and attractive financing rates for construction and mortgages have resulted, and will continue to result, in increases to our customer base.

Delaware’s lower property and income tax rate make it an attractive region for new

home development and retirement communities.

four years, we completed seven acquisitions including asset purchase agreements with municipal and developer/homeowner association operated systems.

We believe that Delaware's generally lower cost of living in the region, availability of development sites in relatively close proximity to the

Atlantic Ocean in Sussex County, and attractive financing rates for construction and mortgages have resulted, and will continue to result, in increases to our customer base.

Delaware’s lower property and income tax rate make it an attractive region

for new home development and retirement communities.

Substantial portions of Delaware currently are not served by a public water system, which could also assist in an increase to our customer base as systems are added.

On May 26, 2022, Artesian Water completed its purchase of substantially all of the water operating assets from the

Town of Clayton, or Clayton, a Delaware municipality located in Kent County, Delaware, including Clayton’s exclusive franchise territory and the right to provide water service to Clayton’s existing customers, or the Clayton Water System.

purchase price was $5.0 million, less the current payoff amount of secured debt or debt associated with the Clayton Water System.

On May 26, 2022, Artesian Water completed its purchase of substantially all of the water operating assets from

the Town of Clayton, or Clayton, a Delaware municipality located in Kent County, Delaware, including Clayton’s exclusive franchise territory and the right to provide water service to Clayton’s existing customers, or the Clayton Water System.

total purchase price was $5.0 million, less the current payoff amount of secured debt or debt associated with the Clayton Water System.

This transfer of Clayton’s exclusive franchise territory was approved by the DEPSC on April 20, 2022.

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the calendar year 2021 only, the minimum required volume of wastewater was prorated on a seven-month basis beginning June 1, 2021 and ending December 31, 2021.

The general need for increased capital investment in our water and wastewater systems is due to a combination of population growth, more protective water

quality standards, aging infrastructure and acquisitions.

The general need for increased capital investment in our water and wastewater systems is due to a combination of population growth, more protective

water quality standards, aging infrastructure and acquisitions.

Our planned and budgeted capital improvements over the next three years include projects for water infrastructure improvements and expansion in both Delaware and Maryland and wastewater

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In our non-regulated division, we continue pursuing opportunities to expand our contract operations.

Through Artesian Utility, we

will seek to expand our contract design, engineering and construction services of water and wastewater facilities for developers, municipalities and other utilities.

Through Artesian Utility,

we will seek to expand our contract design, engineering and construction services of water and wastewater facilities for developers, municipalities and other utilities.

We also anticipate continued growth due to our water, sewer and internal SLP

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contract work related to the design, installation, maintenance and repair services associated with existing or proposed storm water management systems in Delaware and the surrounding areas.

Results of Operations – Analysis of the Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021.

Results of Operations – Analysis of the Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021.

Operating Revenues

Revenues totaled $25.0 million for the three months ended June 30, 2022, $2.5 million, or 11.3%, more than revenues for the three months ended June 30, 2021 .

Other utility operating revenue increased approximately $1.9 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

increase is primarily due to an increase in wastewater revenue associated with industrial wastewater services that started in June 2021, residential customer growth resulting from the acquisition of TESI in January 2022 and organic residential customer

Non-utility operating revenue increased approximately $1.0 million for the three months ended June 30, 2022 compared to the three months ended June 30,

This increase is primarily due to an increase in contract service revenue related to a contract for the design and construction of wastewater infrastructure and an increase in Service Line Protection Plan revenue.

Water sales revenue decreased $0.4 million, or 1.8%, for the three months ended June 30, 2022 from the corresponding period in 2021, primarily due to a

decrease in overall water consumption, partially offset by an increase in fixed fee revenue related to added customers.

We realized 78.9% and 89.4% of our total operating revenue for the three months ended June 30, 2022 and June 30, 2021,

Revenues totaled $26.6 million for the three months ended September 30, 2022, $1.7 million, or 6.7%, more than revenues for the three months ended September

Other utility operating revenue increased approximately $0.7 million for the three months ended September 30, 2022 compared to the three months ended

September 30, 2021.

This increase is primarily due to an increase in wastewater revenue associated with residential customer growth resulting from the acquisition of TESI in January 2022 and organic residential customer growth.

Non-utility operating revenue increased approximately $0.6 million for the three months ended September 30, 2022 compared to the three months ended September

This increase is primarily due to an increase in contract service revenue mostly related to a contract for the design and construction of wastewater infrastructure and an increase in Service Line Protection Plan revenue.

Water sales revenue increased $0.4 million, or 2.0%, for the three months ended September 30, 2022 from the corresponding period in 2021, primarily due to an

increase in overall water consumption revenue and an increase in fixed fee revenue related to added customers.

We realized 81.6% and 85.4% of our total operating revenue for the three months ended September 30, 2022 and September 30, 2021,

respectively, from the sale of water.

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Operating expenses, excluding depreciation and income taxes, increased $0.2

million, or 12.8%, fo r the three months ended June 30, 2022, compared to the same period in 2021.

Non-utility operating expenses increased $1.0 million, utility

operating expenses increased $0.4 million and property and other taxes increased $0.1 million.

million, or 1.4%, fo r the three months ended September 30, 2022, compared to the same period in 2021.

Non-utility operating expenses increased $0.6 million, while

utility operating expenses decreased $0.5 million.

Non-utility operating expenses increased $0.6 million primarily due to an increase in costs associated with the wastewater infrastructure design and

construction contract and an increase in plumbing services related to Service Line Protection Plan repairs.

Utility operating expenses increased $0.4 million,

or 4.2%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

The net increase is primarily related to the following.

Repair and maintenance costs increased $0.4 million, primarily related to an increase in tank painting

costs under contract, an increase in water and wastewater treatment costs, an increase in overall maintenance costs associated with the TESI acquisition and an increase in fuel costs.

Administrative costs

increased $0.3 million, primarily due to an adjustment made in June 2021 to reduce the additional bad debt reserve from 2020 associated with the COVID-19 pandemic.

Payroll and employee benefit costs increased $0.2 million, primarily related to an increase in overall

compensation.

Purchased power costs increased $0.1 million, primarily due to an increase in usage related to the

additional operational costs associated with the TESI acquisition and upgraded wastewater treatment facilities, in addition to an increase in overall water operations.

Utility operating expenses decreased $0.5 million,

or 4.2%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

The net decrease is primarily related to the following.

Purchased water costs decreased $0.8 million, related to a decrease of water purchased under a new contract, effective January 2022, in which the

minimum amount of water required to be purchased was reduced.

Property and other taxes increased $0.1 million, or 5.4%, primarily due to an increase in payroll taxes, related to increased payroll related expenses.

addition, utility plant subject to taxation increased.

Property taxes are assessed on land, buildings and certain utility plant, which include the footage and size of pipe, hydrants and wells.

Repair and maintenance costs

decreased $0.2 million, primarily due to reimbursements received from the Delaware Sand and Gravel Remedial Trust for Artesian Water’s operating costs related to certain treatment costs pursuant to a settlement agreement .

Water treatment costs

increased $0.3 million , primarily related to an increase in the cost and usage of water and wastewater treatment chemicals and an increase in water treatment testing costs.

Purchased power costs increased $0.1 million, primarily due to an increase in usage related to the

additional operational costs associated with the TESI acquisition and upgraded wastewater treatment facilities, in addition to an increase in overall water operations.

Administrative costs increased $0.1 million, primarily related to an increase in outside contract services

for wastewater treatment and station maintenance associated with the TESI acquisition.

The ratio of operating expense, excluding depreciation and income taxes, to

total revenue was 53.5% for the three months ended June 30, 2022, compared to 52.8% fo r the three months ended June 30, 2021.

Depreciation and amortization expense increased $0.1 million, or 2.7%, primarily due to continued investment in utility plant providing supply, treatment,

storage and distribution of water to customers and service to our wastewater customers.

Federal and state income tax expense increased $0.2 million, or 11.9%, primarily due to higher pre-tax income in 2022 compared to 2021.

total revenue was 50.6% for the three months ended September 30, 2022, compared to 53.2% fo r the three months ended September 30, 2021.

Depreciation and amortization expense increased $0.2 million, or 8.1%, primarily due to continued investment in utility plant providing supply,

treatment, storage and distribution of water to customers and service to our wastewater customers.

Federal and state income tax expense increased $50,000, or 2.8%, primarily due to higher pre-tax income in 2022 compared to 2021, partially offset by a

decrease related to stock options exercised.

Other Income, Net

Other income, net increased $0.2 million, primarily due to a $0.3

million increase in Allowance for funds used during construction, or AFUDC, as a result of higher long-term construction activity subject to AFUDC for the three months ended September 30, 2022 compared to the same period in 2021.

Interest Charges

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Our net income applicable to common stock increased $1.1 million, or 21.5%.

Total operating revenues increased $2.5 million, mostly offset by a $1.9 million

increase in total operating expenses and $0.2 million increase in interest charges.

Results of Operations – Analysis of the Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021.

Total operating revenues increased $1.7 million and AFUDC increased $0.3

million, partially offset by a $0.5 million increase in total operating expenses and $0.3 million increase in interest charges.

Results of Operations – Analysis of the Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021.

Operating Revenues

Revenues totaled $47.2 million for the six months ended June 30, 2022, $4.1 million, or 9.5%, more than revenues for the six months ended June 30, 2021 .

Other utility operating revenue increased approximately $3.0 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

increase is primarily due to an increase in wastewater revenue associated with residential customer growth resulting from the acquisition of TESI in January 2022, industrial wastewater services that started in June 2021, as well as organic residential

customer growth.

Non-utility operating revenue increased approximately $1.1 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Revenues totaled $73.8 million for the nine months ended September 30, 2022, $5.7 million, or 8.4%, more than revenues for the nine months ended September

Other utility operating revenue increased approximately $3.7 million for the nine months ended September 30, 2022 compared to the nine months ended September

This increase is primarily due to an increase in wastewater revenue associated with residential customer growth resulting from the acquisition of TESI in January 2022, industrial wastewater services that started in June 2021, as well as

organic residential customer growth.

Non-utility operating revenue increased approximately $1.7 million for the nine months ended September 30, 2022 compared to the nine months ended September

Water sales revenue remained consistent for the six months ended June 30, 2022 from the corresponding period in 2021.

Overall water consumption decreased,

partially offset by an increase in fixed fee revenue related to added customers.

We realized 80.2% and 87.9% of our total operating revenue for the six months ended June 30, 2022 and June 30, 2021, respectively, from the sale of water.

Water sales revenue increased approximately $0.4 million, or 0.6%, for the nine months ended September 30, 2022 from the corresponding period in 2021,

primarily due to an increase in fixed fee revenue related to added customers and a slight increase in overall water consumption revenue.

We realized 80.7% and 87.0% of our total operating revenue for the nine months ended September 30, 2022 and

September 30, 2021, respectively, from the sale of water.

Operating Expenses

Operating expenses, excluding depreciation and income taxes, increased $2.8

million, or 11.1%, fo r the six months ended June 30, 2022, compared to the same period in 2021.

Utility operating expenses increased $1.4 million, non-utility

expenses increased $1.1 million and property and other taxes increased $0.1 million.

million, or 7.6%, fo r the nine months ended September 30, 2022, compared to the same period in 2021.

Non-utility operating expenses increased $1.7 million, utility

operating expenses increased $0.9 million, and property and other taxes increased $0.2 million.

Non-utility operating expenses increased $1.7 million primarily due to an increase in costs associated with the wastewater infrastructure design and

construction contract and an increase in plumbing services related to Service Line Protection Plan repairs.

Utility operating expenses increased $0.9 million,

or 7.3%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

or 3.1%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

The net increase is primarily related to the following.

Repair and maintenance costs increased $1.0 million, related to an increase in maintenance costs primarily

associated with water treatment facilities and equipment, including an increase in water treatment filter replacements, an increase in tank painting costs under contract, an increase in wastewater treatment costs and an increase in fuel

In addition, overall maintenance costs increased related to the TESI acquisition.

Administrative costs

increased $0.6 million, primarily due to an adjustment made in June 2021 to reduce the additional bad debt reserve from 2020 associated with the COVID-19 pandemic.

In addition, outside contract services for wastewater treatment associated

with the TESI acquisition increased.

In addition, outside contract services for wastewater treatment and station

maintenance associated with the TESI acquisition increased.

Repair and maintenance costs increased $0.7 million, related to an increase in maintenance costs primarily

associated with water treatment facilities and equipment, including tank painting, water treatment filter replacements, wastewater treatment and fuel.

In addition, overall maintenance costs increased related to the TESI acquisition.

increase in repair and maintenance costs is partially offset reimbursements from the Delaware Sand and Gravel Remedial Trust for Artesian Water’s operating costs related to certain treatment costs pursuant to a settlement agreement.

Payroll and employee benefit costs increased $0.5 million, primarily related to an increase in overall

compensation.

Water treatment costs

increased $0.5 million , primarily related to an increase in the cost and usage of water and wastewater treatment chemicals and an increase water treatment testing costs.

Purchased power costs increased $0.3 million, primarily due to an increase in usage related to the

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contract, effective January 2022, in which the minimum amount of water required to be purchased was reduced.

Non-utility operating expenses increased $1.1 million primarily due to an increase in costs associated with the wastewater infrastructure design and

construction contract and an increase in plumbing services related to Service Line Protection Plan repairs.

Property and other taxes increased $0.1 million, or 5.5%, primarily due to an increase in payroll taxes, related to increased payroll related expenses.

addition, utility plant subject to taxation increased.

Property and other taxes increased $0.2 million, or 5.1%, primarily due to an increase in payroll taxes, related to increased payroll related expenses and an

increase in utility plant subject to taxation.

Property taxes are assessed on land, buildings and certain utility plant, which include the footage and size of pipe, hydrants and wells.

The ratio of operating expense, excluding depreciation and income taxes, to

total revenue was 55.8% for the six months ended June 30, 2022, compared to 55.0% fo r the six months ended June 30, 2021.

Depreciation and amortization expense increased $0.1 million, or 2.5%, primarily due to continued investment in utility plant providing supply, treatment,

storage and distribution of water to customers and service to our wastewater customers.

Federal and state income tax expense increased $0.3 million, or 8.7%, primarily due to higher pre-tax income in 2022 compared to 2021.

total revenue was 53.9% for the nine months ended September 30, 2022, compared to 54.3% fo r the nine months ended September 30, 2021.

Depreciation and amortization expense increased $0.4 million, or 4.4%, primarily due to continued investment in utility plant providing supply,

treatment, storage and distribution of water to customers and service to our wastewater customers.

Federal and state income tax expense increased $0.3 million, or 6.4%, primarily due to higher pre-tax income in 2022 compared to 2021, partially offset

by a decrease related to stock options exercised.

Other Income, Net

Other income, net increased $0.2 million, primarily due to a $0.2

million increase in AFUDC, as a result of higher long-term construction activity subject to AFUDC for the nine months ended September 30, 2022 compared to the same period in 2021.

Interest Charges

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Our net income applicable to common stock increased $1.9 million, or 13.8%.

Total operating revenues increased $4.1 million, mostly offset by a $3.1 million

increase in total operating expenses and $0.2 million increase in interest charges.

Total operating revenues increased $5.7 million and AFUDC increased $0.2

million, partially offset by a $3.5 million increase in total operating expenses and $0.5 million increase in interest charges.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sourc es of liquidity for the six months ended June 30, 2022

were $13.6 million of cash provided by operating activities, $30.0 million principal amount from a new First Mortgage Series Bond issued in April 2022, $8.0 million in

net contributions and advances from developers, and $0.9 million in net proceeds from the issuance of common stock.

Cash flow from operating activities is primarily provided by our utility operations, and is impacted by the timeliness and adequacy of

rate increases and changes in water consumption as a result of year-to-year variations in weather conditions, particularly during the summer.

A significant part of our ability to maintain and meet our financial objectives is to ensure that our

investments in utility plant and equipment are recovered in the rates charged to customers.

Our primary sourc es of liquidity for the nine months ended September 30,

2022 were $25.1 million of cash provided by operating activities, $30.0 million principal amount from a new First Mortgage Series Bond issued in April 2022, $11.6

million in net contributions and advances from developers and $1.7 million in net proceeds from the issuance of common stock.

Cash flow from operating activities is primarily provided by our utility operations, and is impacted by the timeliness and

adequacy of rate increases and changes in water consumption as a result of year-to-year variations in weather conditions, particularly during the summer.

A significant part of our ability to maintain and meet our financial objectives is to ensure that

our investments in utility plant and equipment are recovered in the rates charged to customers.

As such, from time to time, we file rate increase requests to recover increases in operating expenses and investments in utility plant and equipment.

continue to borrow on available lines of credit in order to satisfy current liquidity needs.

will continue to borrow on available lines of credit in order to satisfy current liquidity needs.

In addition, the Company has a long history of paying regular quarterly dividends as approved by our Board of Directors using net cash from operating

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Capital expenditures during

the first six months of 2022 were $29.6 million compared to $19.4 million during the same period in 2021.

During the first six months of 2022, we continue to focus our

investment through our rehabilitation program for transmission and distribution facilities by replacing aging or deteriorating mains, installation of new main, enhancing or improving existing treatment facilities and replacing aging wells and pumping

equipment to better serve our customers.

the first nine months of 2022 were $36.7 million compared to $30.4 million during the same period in 2021.

During the first nine months of 2022, we continue to focus our

tanks, and replacing aging wells and pumping equipment to better serve our customers.

In May 2022, we completed the purchase of substantially all of the water operating assets from the Town of Clayton.

We also continue to invest in wastewater projects, including the acquisition of TESI in

January 2022.

Developers contributed $3.0 million of the total investment during the first six months of 2022.

We also continue to invest in wastewater

projects, including the acquisition of TESI in January 2022.

Developers contributed $6.2 million of the total investment during the first nine months of 2022.

We depend on the availability of capital for expansion, construction and maintenance.

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Lines of Credit and Long-Term Debt

At June 30, 2022, Artesian Resources had a $40 million line of credit with

At September 30, 2022, Artesian Resources had a $40 million line of credit with

Citizens Bank, or Citizens, which is available to all subsidiaries of Artesian Resources.

As of June 30, 2022, there was $34.0 million of available funds under this line of credit.

The previous interest rate for borrowings under this line was the

London Interbank Offered Rate, or LIBOR, plus 1.00%.

As of September 30, 2022, there was $34.2 million of available funds under this line of credit.

The previous interest rate for borrowings under this line was

the London Interbank Offered Rate, or LIBOR, plus 1.00%.

It is expected that the LIBOR rate for USD currency will be discontinued after June 30, 2023.

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The Company expects to renew this line of credit.

At June 30, 2022, Artesian Water had a $20 million line of credit with CoBank,

ACB, or CoBank, that allows for the financing of operations for Artesian Water, with up to $10 million of this line available for the operations of Artesian Water Maryland.

As of June 30, 2022, there was $16.4 million of available funds under this

line of credit.

The interest rate for borrowings under this line allows the Company to select either LIBOR plus 1.50% or a weekly variable rate established by CoBank;

the Company has historically used the weekly variable interest rate.

At September 30, 2022, Artesian Water had a $20 million line of credit with

CoBank, ACB, or CoBank, that allows for the financing of operations for Artesian Water, with up to $10 million of this line available for the operations of Artesian Water Maryland.

As of September 30, 2022, there was $16.4 million of available funds

under this line of credit.

The previous interest rate for borrowings under this line allowed the Company to select either LIBOR plus 1.50% or a weekly variable rate established by CoBank;

the Company historically used the weekly variable

interest rate.

In October 2022, this line of credit was amended to replace the previous interest rate options with a daily SOFR rate plus 1.45% option or a term SOFR rate

plus 1.45% option that is locked in for either one or three months.

The term of this line of credit expires on October 29, 2023.

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transfer certain assets or change our business.

As of June 30, 2022, we were in compliance with these covenants.

As of September 30, 2022, we were in compliance with these covenants.

Long-term debt obligations reflect the maturities of certain series of our first mortgage bonds, which we intend to refinance when due if not refinanced

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Each annual installment is payable with interest an annual rate of 2.0%.

On August 12, 2022, Artesian Water entered into three Financing Agreements, or the Financing Agreements, with the Delaware Drinking

Water State Revolving Fund (the “Fund”), acting by and through the Delaware Department of Health & Social Services, Division of Public Health, a public agency of the state of Delaware, or the Department.

The Department makes loans to, and

acquires obligations of, eligible persons in Delaware to finance the costs of drinking water facilities in accordance with the Federal Safe Drinking Water Act using funds from the Fund.

Under the Financing Agreements, the Department has agreed to

advance to Artesian Water up to $966,000, $1,167,000 and $3,200,000 (collectively, the “Loans”) from the Fund to finance all or a portion of the costs to replace specific water transmission mains in service areas located in New Castle County,

Delaware (collectively, the “Projects”).

In accordance with the Financing Agreements, Artesian Water will from time to time request funds under the Loans as it incurs costs in connection with the Projects.

In connection with the Financing

Agreements, Artesian Water issued to the Department three General Obligation Notes dated as of August 12, 2022, or the Notes.

Under the Notes, borrowings under the Financing Agreements bear interest at a rate of 1.0% per annum and are further subject

to an administrative fee at a rate of 1.0% per annum (collectively, interest and the administrative fee are referred to herein as “Fee”).

The Fee shall be paid semiannually on each February 1 and August 1, beginning on February 1, 2023 (each, a

“Payment Date”).

The Notes will mature on February 1, 2043.

As of September 30, 2022, approximately $0.8 million was borrowed under the Loans.

In order to control purchased power cost, in August 2018 Artesian Water entered into an electric supply contract with MidAmerican

16 unchanged sentences

In April 2021, Artesian Water entered into a 3-year agreement with Worldwide Industries Corporation effective July 1, 2021 to paint elevated water storage

Pursuant to the agreement, the total expenditure for the three years is $1.2 million.

Pursuant to the agreement, the total expenditure for the three years was $1.2 million.

In September 2022, this agreement was amended to paint an additional elevated water storage tank and to extend the term of the agreement for an additional

Pursuant to the amended agreement, the total expenditure for the four years is $2.2 million.

Critical Accounting Assumptions, Estimates and Policies;

13 unchanged sentences

financial statements contained in this Quarterly Report on Form 10-Q .

We did not adopt any accounting policy in the first six months of 2022 that had a material impact on our financial condition, liquidity or results of operations.

We did not adopt any accounting policy in the first nine months of 2022 that had a material impact on our financial condition, liquidity or results of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis