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Item 8. Financial Statements and Supplementary Data

2023-03-10 compared with 2022-03-11 · 800 added, 388 removed, 549 unchanged (68% of the section changed)

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CONSOLIDATED BALANCE SHEETS

For the Year Ended

December 31, 2022

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Total Liabilities and Stockholders’ Equity

The notes are an integral part of the consolidated financial statements .

The notes are an integral part of the consolidated financial

CONSOLIDATED STATEMENTS OF OPERATIONS

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AFUDC, equity portion

Changes in assets and liabilities:

Changes in assets and liabilities, net of acquisitions:

Accounts receivable, net of allowance for doubtful accounts

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Capital expenditures (net of AFUDC, equity portion)

Investment in acquisitions

Investment in acquisitions, net of cash acquired

Proceeds from sale of assets

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Net (repayments) borrowings under lines of credit agreements

(Decrease) increase in overdraft payable

Increase (decrease) in overdraft payable

Net advances and contributions in aid of construction

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Contractual amounts of contributions in aid of construction due from developers included in accounts receivable

Contractual amounts of contributions in aid of construction received from developers previously included in accounts receivable

Amounts included in accounts payable and accrued payables related to capital expenditures

Contractual amounts of contributions in aid of construction received from developers previously included in

accounts receivable

Change in amounts included in accounts payable and accrued

payables related to capital expenditures

Supplemental Cash Flow Information:

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Utility plant

Other deferred assets/goodwill

Total investment in acquisitions

Future contractual obligation payable to seller

Contributions in aid of construction

Cash paid for acquisitions

Cash received from acquisitions

Net cash paid for acquisitions

The notes are an integral part of the consolidated financial statements.

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Balance as of December 31, 2022

At December 31, 2021, 2020, and 2019, Class A Common Stock had 15,000,000 shares authorized.

At December 31, 2022, 2021, and 2020, Class A Common Stock had 15,000,000

shares authorized.

For the same periods, shares issued, inclusive of treasury shares, were 8,650,392 , 8,561,772 and 8,504,429 , respectively.

At December 31, 2021, 2020, and 2019, Class B Common Stock had 1,040,000 shares authorized and 882,000 shares issued.

Artesian Resources Corporation registered 200,000 shares of Class A Common Stock, subsequently adjusted for stock splits, available for purchase through the Artesian Retirement Plan and the Artesian Supplemental Retirement Plan.

Under the Equity Compensation Plan, effective December 9, 2015, Artesian Resources Corporation authorized up to 331,500 shares of Class A Common Stock for issuance of grants in forms of stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in certain circumstances as discussed in the Plan.

At December 31, 2022, 2021, and 2020, Class B Common Stock had 1,040,000

shares authorized and 882,000 shares issued.

Artesian Resources Corporation registered 200,000 shares of Class A Common Stock, subsequently adjusted for stock splits, available for purchase through the Company’s 401(k) retirement plan .

Under the Equity Compensation

Plan, effective December 9, 2015, Artesian Resources Corporation authorized up to 331,500 shares of Class A Common Stock for issuance of

grants in forms of stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in certain circumstances as discussed in the Plan.

Includes stock compensation expense for the years ended December 31, 2022, 2021, and 2020, see Note 1-Stock Compensation Plans.

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Basis of Presentation

The audited consolidated financial statements are presented in accordance with the requirements of Form 10-K and accounting principles generally accepted in the United States and consequently include all the disclosures required in the consolidated financial statements included in the Company's annual report on Form 10-K.

The accompanying consolidated financial statements include the accounts of Artesian Resources Corporation and its subsidiaries and all intercompany balances and transactions between subsidiaries have been eliminated.

Utility Subsidiary Accounting

The accounting records of Artesian Water Company, Inc., or Artesian Water, Artesian Wastewater Management, Inc., or Artesian Wastewater, and, effective January 14, 2022, Tidewater Environmental Services, Inc.

The audited consolidated financial statements are presented in accordance with the requirements of Form 10-K and accounting principles generally accepted in

the United States and consequently include all the disclosures required in the consolidated financial statements included in the Company's Annual Report on Form 10-K.

The accompanying consolidated financial statements include the accounts of Artesian

Resources Corporation and its subsidiaries and all intercompany balances and transactions between subsidiaries have been eliminated.

Regulated Utility Accounting

The accounting records of Artesian Water Company, Inc., or Artesian Water, Artesian Wastewater Management, Inc., or Artesian Wastewater, and, effective

January 14, 2022, Tidewater Environmental Services, Inc.

dba Artesian Wastewater, or TESI, are maintained in accordance with the uniform system of accounts as prescribed by the Delaware Public Service Commission, or the DEPSC.

The accounting records of Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, are maintained in accordance with the uniform system of accounts as prescribed by the Pennsylvania Public Utility Commission, or the PAPUC.

The accounting records of Artesian Water Maryland, Inc., or Artesian Water Maryland, and Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, are maintained in accordance with the uniform system of accounts as prescribed by the Maryland Public Service Commission, or the MDPSC.

The accounting records

of Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, are maintained in accordance with the uniform system of accounts as prescribed by the Pennsylvania Public Utility Commission, or the PAPUC.

The accounting records of Artesian Water

Maryland, Inc., or Artesian Water Maryland, and Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, are maintained in accordance with the uniform system of accounts as prescribed by the Maryland Public Service Commission, or the

All these subsidiaries follow the provisions of Financial Accounting Standards Board, or FASB, ASC Topic 980, which provides guidance for companies in regulated industries.

These regulated subsidiaries account for the majority of our operating revenue.

The operating revenues of our non-regulated division are presented in the Consolidated Statements of Operations.

These regulated subsidiaries account for the majority of our operating

See Note 18 to our Consolidated Financial Statements for a full description of our segment information.

Utility Plant

Utility plant is stated at original cost.

Cost includes direct labor, materials, AFUDC (see description below) and indirect charges for such capitalized items as transportation, supervision, pension, medical, and other fringe benefits related to employees engaged in construction activities.

When depreciable units of utility plant are retired, the historical costs of plant retired is charged to accumulated depreciation.

Cost includes direct labor, materials, AFUDC (see description below) and indirect charges for such capitalized

items as transportation, supervision, pension, medical, and other fringe benefits related to employees engaged in construction activities.

When depreciable units of utility plant are retired, the historical costs of plant retired is charged to

accumulated depreciation.

Any cost associated with retirement, less any salvage value or proceeds received, is charged to the regulated retirement liability.

Maintenance, repairs, and replacement of minor items of utility plant are charged to expense as incurred.

In accordance with a rate order issued by the DEPSC, Artesian Water and Artesian Wastewater accrue an Allowance for Funds Used during Construction, or AFUDC.

Maintenance, repairs, and replacement of minor items of utility plant are charged to expense

In accordance with rate filings recorded with the DEPSC, Artesian Water, Artesian Wastewater and TESI accrue an Allowance for Funds Used during Construction,

AFUDC, which represents the cost of funds devoted to construction projects through the date the project is placed in service, is capitalized as part of construction work in progress.

The rate used for the AFUDC calculation is based on Artesian Water's and Artesian Wastewater’s weighted average cost of debt and the rate of return on equity authorized by the DEPSC.

The rate used to capitalize AFUDC for Artesian Water in  

The rate used for the AFUDC calculation is based on

Artesian Water’s and Artesian Wastewater’s weighted average cost of debt and the rate of return on equity authorized by the DEPSC.

The rate used to capitalize AFUDC for Artesian Water in 2022 , 2021 , and 2020 was 6.9 % , 6.7 % , and 7.0 % , respectively.

used to capitalize AFUDC for Artesian Wastewater in 2022 ,

2021 , and 2020 was 6.9 % , 6.4 % , and 6.3 % , respectively.

The rate used to capitalize AFUDC for Artesian Wastewater in 2021 , 2020 , and 2019 was 6.4 % , 6.3 % , and 7.1 % , respectively.

Utility plant comprises :

The rate used to capitalize AFUDC for TESI in 2022 was 5.7 %.

Utility plant

Estimated Useful Life

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Depreciation and Amortization

For financial reporting purposes, depreciation is recorded using the straight-line method at rates based on estimated economic useful lives, which range from 5 to 85 years.

Composite depreciation rates for water utility plant were 2.17 % , 2.23 % and 2.27 % for 2021 , 2020 and 2019 , respectively.

In a rate order issued by the DEPSC, the Company was directed effective January 1, 1998 to begin using revised depreciation rates for utility plant.

In rate orders issued by the DEPSC, Artesian Water was directed, effective May 28, 1991 and August 25, 1992, to offset depreciation recorded on utility plant by depreciation on utility property funded by Contributions in Aid of Construction, or CIAC, and Advances for Construction, or Advances, respectively.

This reduction in depreciation expense is also applied to outstanding CIAC and Advances.

For financial reporting purposes, depreciation is recorded using the

straight-line method at rates based on estimated economic useful lives, which range from 5 to 85 years.

depreciation rates for water utility plant were 2.16 % , 2.17 % and 2.23 % for 2022 , 2021 and 2020 , respectively.

a rate order issued by the DEPSC, the Company was directed effective January 1, 1998 to begin using revised depreciation rates for utility plant.

In rate orders issued by the DEPSC, Artesian Water was directed, effective May 28, 1991 and August 25,

1992, to offset depreciation recorded on utility plant by depreciation on utility property funded by Contributions in Aid of Construction, or CIAC, and Advances for Construction, or Advances, respectively.

This reduction in depreciation expense is

also applied to outstanding CIAC and Advances.

Other deferred assets are amortized using the straight-line method over applicable lives, which range from 20 to 24 years.

Regulatory Assets

The FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency.

The FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party

regulatory agency.

Certain expenses are recoverable through rates charged to our customers, without a return on investment, and are deferred and amortized during future periods using various methods as permitted by the DEPSC, MDPSC, and PAPUC.

The deferred income taxes will be amortized over future years as the tax effects of temporary differences that previously flowed through to our customers are reversed.

The deferred income taxes will be amortized over future years as the tax effects of temporary differences that previously flowed through to our customers are

Debt related costs include debt issuance costs and other debt related expense.

The DEPSC has approved deferred regulatory accounting treatment for issuance costs associated with Artesian Water’s Series V First Mortgage bond in December 2019 that paid down outstanding lines of credit and a loan payable to Artesian Resources.

The DEPSC has approved deferred regulatory accounting treatment for issuance

costs associated with Artesian Water’s First Mortgage bonds.

Debt issuance costs and other debt related expenses are reviewed during Artesian Water’s rate applications as part of its cost of capital calculations.

For the Series V First Mortgage bond, cash was paid for the issuance costs and $ 30 million of cash was received from the proceeds of the bond.

Affiliated interest agreement deferred costs relate to the regulatory and administrative costs resulting from efforts necessary to secure water allocations

in Artesian Water Pennsylvania’s territory for the provision of service to the surrounding area and interconnection to Artesian Water Pennsylvania’s affiliate regulated water utility Artesian Water.

These costs were specifically included for cost

recovery pursuant to an Affiliated Interest Agreement between Artesian Water and Artesian Water Pennsylvania and were approved for recovery by the PAPUC and were reclassed from deferred costs to a regulatory asset in 2022.

Regulatory expenses amortized on a straight-line basis are noted below:

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(based on term of related debt)

Deferred costs affiliated interest agreement

Goodwill (resulting from acquisition of Mountain Hill Water Company in 2008)

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Debt related costs

Deferred costs affiliated interest agreement

Deferred acquisition and franchise costs

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Our long-lived assets consist primarily of utility plant in service and regulatory assets.

A review of our long-lived assets is performed in accordance with the requirements of FASB ASC Topic 360.

A review of our long-lived assets is performed in accordance with

the requirements of FASB ASC Topic 360.

In addition, the regulatory assets are reviewed for the continued application of FASB ASC Topic 980.

The review determines whether there have been changes in circumstances or events that have occurred requiring adjustments to the carrying value of these assets.

The review determines whether there have been changes in circumstances or events that have occurred requiring

adjustments to the carrying value of these assets.

FASB ASC Topic 980 stipulates that adjustments to the carrying value of these assets would be made in instances where the inclusion in the rate-making process is unlikely.

For the years ended December 31, 2021, 2020 and 2019, there was no impairment or regulatory disallowance identified in our review.

For the years ended

December 31, 2022, 2021 and 2020, there was no impairment or

regulatory disallowance identified in our review.

The Company records goodwill when the purchase price of a business combination exceeds the estimated fair value of net identified tangible and intangible

assets acquired.

At December 31, 2022, the Company had approximately $ 1.9 million of goodwill.

The $ 1.9 million goodwill arose from the January 2022 acquisition of Tidewater Environmental Services, Inc.

Artesian Wastewater operates as the parent holding company of Tidewater

Environmental Services, Inc.

dba Artesian Wastewater, or TESI.

In accordance with the accounting guidance for testing goodwill, the Company annually assesses qualitative factors to determine whether the existence of events or circumstances leads to a

determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

For 2022, the Company’s assessment of qualitative factors did not indicate that an impairment had occurred for goodwill.

the results of the qualitative testing, the Company did not perform quantitative testing on goodwill in 2022.

Other Deferred Assets

The investment in CoBank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based on the underlying long-term debt agreements.

Goodwill recorded in 2020 was a result of the acquisition of water assets from the Town of Frankford in April 2020 based on the purchase price allocation.

A regulatory adjustment was made in 2021 to account for $ 1.5 million of Delaware Drinking Water State Revolving Fund loan proceeds automatically forgiven in July 2021 with the remainder recorded as contributions in aid of construction.

Other deferred assets is related to the Mountain Hill acquisition.

The investment in CoBank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based

on the underlying long-term debt agreements.

The settlement agreement receivable is related to the long-term portion of reimbursements due in years 2024 and 2025 as further discussed in Note 1-Accounts Receivable.

Other deferred assets at December 31, net of amortization, comprise:

Investment in CoBank

Other deferred assets/goodwill

Settlement agreement receivable-long term

Other deferred assets

Advances for Construction

Cash advances to reimburse Artesian Water for its costs to construct water mains, services and hydrants are contributed to Artesian Water by real estate developers and builders in order to extend water service to their properties.

Cash advances to reimburse Artesian Water for its costs to construct water mains, services and hydrants are contributed to Artesian Water by real estate

developers and builders in order to extend water service to their properties.

The value of these contributions is recorded as Advances for Construction.

Artesian Water makes refunds on these advances over a specific period of time based on operating revenues generated by the specific plant or as new customers are connected to the mains.

Artesian Water makes refunds on these advances over a specific period of time based on operating

revenues generated by the specific plant or as new customers are connected to the mains.

After all refunds are made within the contract period, any remaining balance is transferred to CIAC.

Contributions in Aid of Construction

CIAC includes the non-refundable portion of advances for construction and direct contributions of water mains, services and hydrants, and wastewater treatment facilities and collection systems, or cash to reimburse our water and wastewater divisions for costs to construct water mains, services and hydrants, and wastewater treatment and disposal plant.

Effective with the Tax Cuts and Jobs Act, or TCJA, in 2017 CIAC was taxable and the DEPSC, MDPSC and PAPUC allowed the Company to collect additional CIAC to pay the associated tax.

In 2021, legislation was issued to amend the TCJA, which now exempts CIAC from income taxes for regulated water and wastewater utilities, effective for all of 2021 and forward.

The Company will refund developers a total of $ 3.2 million for the additional CIAC collected in 2021 to pay the associated tax.

As of December 31, 2021, this refund amount is recorded in Current Liabilities – Accounts Payable on the Company’s Consolidated Balance Sheets .

CIAC includes the non-refundable portion of advances for construction and direct contributions of water mains, services and hydrants, and wastewater

treatment facilities and collection systems, or cash to reimburse our water and wastewater subsidiaries for costs to construct water mains, services and hydrants, and wastewater treatment and disposal plants.

Effective with the Tax Cuts and Jobs Act,

or TCJA, in 2017 CIAC was taxable and the DEPSC, MDPSC and PAPUC allowed the Company to collect additional CIAC to pay the associated tax.

In 2021, legislation was enacted to amend the TCJA, which now exempts CIAC from income taxes for regulated water

and wastewater utilities, effective for all of 2021 and forward.

In 2022 the Company refunded developers a total of $ 3.6 million for the

additional CIAC collected in 2021 to pay the associated tax.

As of December 31, 2022, Artesian Water received approximately $ 2.0

million in grant funding from the State of Delaware, Delaware Department of Health and Social Services, Division of Public Health, or DPH, pursuant to grant agreements.

The grants shall be used by Artesian Water to cover the costs associated with

certain construction projects.

The grant funds received under the grant agreements are recorded in accordance with the requirements under FASB ASC Topic 980, in Net contributions in aid of construction in the Consolidated Balance Sheets.

Water is eligible to receive an additional $ 3.8 million of grant funds pursuant to the grant agreements.

Regulatory Liabilities

FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency.

FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party

regulatory agency.

Certain obligations are deferred and/or amortized as determined by the DEPSC, MDPSC, and PAPUC.

Regulatory liabilities represent excess recovery of cost or other items that have been deferred because it is probable such amounts will be returned to customers through future regulated rates.

Utility plant retirement cost obligation consists of estimated costs related to the potential removal and replacement of facilities and equipment on the Company’s water and wastewater properties.

Effective January 1, 2012, as authorized by the DEPSC, when depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received, is charged to a regulated retirement liability.

Regulatory liabilities represent excess recovery of cost or other items that have been deferred because it is probable such amounts

will be returned to customers through future regulated rates.

Utility plant retirement cost obligation consists of estimated costs related to the potential removal and replacement of facilities and equipment on the

Company’s water and wastewater properties.

regulated retirement liability.

Each year the liability is increased by an annual amount authorized by the DEPSC.

Pursuant to the enactment of the TCJA on December 22, 2017, the Company adjusted its existing deferred income tax balances to reflect the decrease in the corporate income tax rate from 34 % to 21 % (see Note 5) resulting in a decrease in the net deferred income tax liability of $ 24.3 million, of which $ 22.8 million was reclassified to a regulatory liability related to Artesian Water and Artesian Water Maryland.

The regulatory liability amount is subject to certain Internal Revenue Service normalization rules that require the benefits to customers be spread over the remaining useful life of the underlying assets giving rise to the associated deferred income taxes.

On January 31, 2019, the DEPSC approved the amortization of the regulatory liability amount of $ 22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date.

This audit is currently underway by the DEPSC, no final ruling has been made.

The MDPSC has not issued a final order on the regulatory liability amount of $ 0.6 million regarding the effects of the TCJA on Maryland customers.

Deferred settlement refunds consist of reimbursements from the Delaware Sand and Gravel Remedial Trust for Artesian Water’s past capital and operating costs,

totaling approximately $ 10.0 million, related to the treatment costs associated with the release of contaminants from the Delaware Sand &

Gravel Landfill Superfund Site in groundwater that Artesian Water uses for public potable water supply, pursuant to the Settlement Agreement.

Approximately $ 2.5

million was paid in August 2022.

The remaining $ 7.5 million is due in three equal installments no later than August of each year from 2023 through 2025.

Artesian Water received approval from the DEPSC in October 2022 to refund to its customers these

reimbursements for past capital and operating costs.

The refund for the reimbursements will be applied to current and future customer bills in annual installments.

The first refund occurred in October 2022, and future customer refunds will occur no

later than August of each year from 2023 through 2025.

The amount of the credit will be calculated by dividing the amount of the reimbursement by the number of eligible customers.

Beginning in 2022, Artesian Water will record 2022 and future recovery

of capital expenditures as Contributions in Aid of Construction and will record expense recovery as an offset to operations and maintenance expense, with the intention that those recoveries will then be available for inclusion and consideration in any

future rate applications.

For a full discussion of the Settlement Agreement, refer to Part II – Financial Statements and Supplementary Data – Item 8 – Note 17 - Legal Proceedings.

Pursuant to the enactment of the Tax Cuts and Jobs Act, or TCJA, on December 22, 2017, the Company adjusted its existing deferred income tax balances to

reflect the decrease in the corporate income tax rate from 34 % to 21 % (see Note 5) resulting in a decrease in the net deferred income tax liability of $ 24.3

million, of which $ 22.8 million was reclassified to a regulatory liability related to Artesian Water and Artesian Water Maryland.

The regulatory

liability amount is subject to certain Internal Revenue Service normalization rules that require the benefits to customers be spread over the remaining useful life of the underlying assets giving rise to the associated deferred income taxes.

January 31, 2019, the DEPSC approved the amortization of the regulatory liability amount of $ 22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date.

In May 2022, the Company received a rate order from the DEPSC instructing the

Company to continue amortizing the liability over a period of 49.5 years, subject to review in the Company’s next base rate filing.

has not issued a final order on the regulatory liability amount of $ 0.6 million regarding the effects of the TCJA on Maryland customers.

Regulatory liabilities comprise:

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Utility plant retirement cost obligation

Deferred settlement refunds

Deferred income taxes (related to TCJA)

Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse.

The Company’s rate regulated utilities recognize regulatory liabilities, to the extent considered in ratemaking, for deferred taxes provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the current statutory rate.

Such tax-related regulatory assets and liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties.

Under FASB ASC Topic 740, an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes.

Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts

at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse.

The Company’s rate regulated subsidiaries recognize regulatory

liabilities, to the extent considered in ratemaking, for deferred taxes provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the current statutory rate.

Such tax-related regulatory

assets and liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties.

Under FASB ASC Topic 740 , an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting

The Company establishes reserves for uncertain tax positions based upon management’s judgment as to the sustainability of these positions.

These accounting estimates related to the uncertain tax position reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits.

These accounting estimates related to the uncertain tax position reserve require judgments to be

made as to the sustainability of each uncertain tax position based on its technical merits.

The Company believes its tax positions comply with applicable law and that it has adequately recorded reserves as required.

However, to the extent the final tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known.

The statute of limitations for the 2017 Corporate tax returns lapsed during the fourth quarter of 2021, which resulted in the reversal of the reserve in the amount of approximately $ 26,000 .

The statute of limitations for the 2016 Corporate tax returns lapsed during the fourth quarter of 2020.

However, to the extent the final

tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known.

The statute of limitations for the 2017 tax

returns lapsed during the fourth quarter of 2021, which resulted in the reversal of the reserve in the amount of approximately $ 26,000 .

statute of limitations for the 2018 tax returns lapsed during the third quarter of 2022, which resulted in the reversal of the reserve in the amount of approximately $ 212,000 .

The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense.

The Company has accrued approximately $ 19,000 in penalties and interest for the year ended December 31, 2021.

the third quarter, the Company has reversed approximately $ 10,000 in penalties and interest for the nine months ended September 30, 2022, leaving

a zero balance.

The Company remains subject to examination by federal and state authorities for the tax years 2019 through 2022 .

Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives of the related assets.

Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives

of the related assets.

Stock Compensation Plans

On December 9, 2015, the Company's stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan.

On December 9, 2015 , the Company's stockholders approved the 2015 Equity

Compensation Plan, or the 2015 Plan.

The 2015 Plan provides that grants may be in any of the following forms:

incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based awards.

The 2015 Plan is administered and interpreted by the Compensation Committee, or the Committee, of the Board of Directors of the Company, or the Board.

The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, the type, size and terms of the grants, the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan), and deal with any other matters arising under the 2015 Plan.

The Committee presently consists of three directors, each of whom is a non-employee director of the Company.

Plan is administered and interpreted by the Compensation Committee, or the Committee, of the Board of Directors of the Company, or the Board.

The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan,

the type, size and terms of the grants, the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan), and deal with any other matters arising under the 2015 Plan.

Committee presently consists of three directors, each of whom is a non-employee director of the Company.

All of the employees of the Company and its subsidiaries and non-employee directors of the Company are eligible for grants under the 2015 Plan.

The Company accounts for stock options issued after January 1, 2006 under FASB ASC Topic 718.

Compensation expenses for restricted stock awards were $ 193,000 , $ 178,000 and $ 181,000 in 2021, 2020 and 2019, respectively.

Costs were determined based on the fair value on the dates of the awards and those costs were charged to income over the service periods associated with the awards.

Compensation expenses for restricted stock awards were $ 152,000 ,

$ 193,000 and $ 178,000 in 2022, 2021 and 2020, respectively.

Costs were determined based on the fair value on the dates of the awards and those costs were charged to income over the service

periods associated with the awards.

As of December 31, 2022, there was $ 76,000 of unrecognized expense related to non-vested awards of restricted shares granted under the 2015 Plan.

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Shares of Class A Stock have been reserved for future issuance under the 2015 Plan.

On May 4, 2021, 5,000 shares of Class A Stock were granted as restricted stock awards.

The fair value per share was $ 40.11 , the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 4, 2021.

On May 3, 2022, 5,000 shares of Class A Common

Stock, or Class A Stock, were granted as restricted stock awards.

The fair value per share was $ 45.58 , the closing price of the Class A Stock as

recorded on the Nasdaq Global Select Market on May 3, 2022.

Prior to their release date, these restricted stock awards may be subject to forfeiture in the event of the recipient’s termination of service.

On May 6, 2020, 5,000 shares of Class A Stock were granted as restricted stock awards.

The fair value per share was $ 35.01 , the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 6, 2020.

On May 4, 2021, 5,000 shares of Class A Stock were

granted as restricted stock awards.

The fair value per share was $ 40.11 , the closing price of the Class A Stock as recorded on the Nasdaq Global

Select Market on May 4, 2021.

These shares were fully vested and released one year after the grant date.

On May 8, 2019, 5,000 shares of Class A Stock were granted as restricted stock awards.

The fair value per share was $ 36.11 , the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 8, 2019.

On May 6, 2020, 5,000 shares of Class A Stock

were granted as restricted stock awards.

The fair value per share was $ 35.01 , the closing price of the Class A Stock as recorded on the Nasdaq

Global Select Market on May 6, 2020.

These shares were fully vested and released one year after the grant date.

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The Company has agreements for land easements and office equipment under operating leases.

Management makes certain estimates and assumptions regarding each lease agreement, renewal and amendment, including, but not limited to, discount rates and probable term, which can impact the escalations in payment that are taken into consideration when calculating the straight line basis.

The amount of rent expense and income reported could vary if different estimates and assumptions are used.

Management also makes certain estimates and assumptions regarding the fair value of the leased property at lease commencement and the separation of lease and nonlease components.

Management makes certain estimates and assumptions regarding each

lease agreement, renewal and amendment, including, but not limited to, discount rates and probable term, which can impact the escalations in payment that are taken into consideration when calculating the straight line basis.

The amount of rent expense

and income reported could vary if different estimates and assumptions are used.

Management also makes certain estimates and assumptions regarding the fair value of the leased property at lease commencement and the separation of lease and nonlease

See Note 3 to our Consolidated Financial Statements for a full description of our leases.

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Accounts receivable are recorded at the invoiced amounts.

An allowance for doubtful accounts is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current conditions.

As set forth in a settlement agreement, Artesian Water will receive reimbursements from the

Delaware Sand and Gravel Remedial Trust, or Trust, for Artesian Water’s past capital and operating costs, totaling approximately $ 10.0 million,

related to the treatment costs associated with the release of contaminants from the Delaware Sand & Gravel Landfill Superfund Site, or Site, in groundwater that Artesian Water uses for public potable water supply.

Approximately $ 2.5 million was paid in August 2022.

The remaining $ 7.5

million is due in three equal installments no later than August of each year from 2023 through 2025.

An allowance for doubtful accounts is

calculated as a percentage of total associated revenues based upon historical trends and adjusted for current conditions.

We mitigate our exposure to credit losses by discontinuing services in the event of non-payment;

accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant.

However, due to the coronavirus pandemic, or COVID-19, causing hardships for many utility customers, state government agencies issued executive orders in March 2020 requiring utility companies to take a number of steps to support their customers and communities, including prohibiting service disconnections for non-payment and prohibiting late fees.

The Company experienced longer receivable cycles throughout 2020 and into 2021 and made an adjustment to increase the reserve for bad debt by $ 0.5 million in 2020.

In June 2021 we made an adjustment to reduce the reserve by $0.3 million.

Account balances are written off against the allowance when it is probable the receivable will not be recovered.

accordingly, the related

allowance for doubtful accounts and associated bad debt expense has not been significant.

The allowance for doubtful accounts was $ 0.4 million and $ 0.4 million at December 31, 2022 and December 31, 2021 , respectively.

The corresponding expense, excluding the reserve adjustment noted above, for the years ended December 31, 2021 and 2020 was $ 0.1 million and $ 0.2 million, respectively.

The corresponding expense, excluding the reserve adjustment recorded in 2021, for the years ended December 31, 2022 and 2021 was $ 0.1 million and $ 0.1 million, respectively.

The following table summarizes the changes in the Company’s accounts receivable balance:

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Customer accounts receivable – wastewater

Settlement agreement receivable

Miscellaneous accounts receivable

8 unchanged sentences

Cash and Cash Equivalents

For purposes of the Consolidated Statement of Cash Flows, Artesian Resources considers all temporary cash investments with an original maturity of three months or less to be cash equivalents.Artesian Resources and its subsidiaries utilize their bank's zero balance account disbursement service to reduce the use of their lines of credit by funding checks as they are presented to the bank for payment rather than at issuance.

If the checks currently outstanding, but not yet funded, exceed the cash balance on our books, the net liability is recorded as a current liability on the Consolidated Balance Sheet in the Overdraft Payable account.

For purposes of the Consolidated Statement of Cash Flows, Artesian Resources considers all temporary cash investments with an original maturity of three months or less to be cash equivalents.

Artesian Resources and its subsidiaries utilize their bank’s zero balance account disbursement service to

reduce the use of their lines of credit by funding checks as they are presented to the bank for payment rather than at issuance.

If the checks currently outstanding, but not yet funded, exceed the cash balance on our books, the net liability is

recorded as a current liability on the Consolidated Balance Sheet in the Overdraft Payable account.

Inventories consist of materials and supplies related to water and wastewater utility plant.

These materials and supplies are used for new construction and

repairs, and are recorded at the purchase cost.

Usage costs are determined by the first-in, first-out method.

The Company adjusts inventory value based on historical usage and forecasted demand.

We are highly dependent on the availability of

essential materials and parts from our suppliers for expansion, construction and maintenance of our services.

The majority of the materials required for our water and wastewater utility business are typically under contract at fixed prices, however,

supply chain issues associated with the COVID-19 pandemic resulted in price increases and delays in procuring certain materials and equipment.

We have been successful in minimizing these delays with thorough planning and pre-ordering.

As of December

31, 2022, we have increased our quantity of materials and supplies in inventory, at an increased value of approximately $ 2.8 million, reported in

Current Assets – Materials and Supplies on the Company’s Consolidated Balance Sheets.

Use of Estimates in the Preparation of Consolidated Financial Statements

The consolidated financial statements were prepared in conformity with generally accepted accounting principles in the U.S., which require management to make estimates about the reported amounts of assets and liabilities including unbilled revenues, reserve for a portion of revenues received under temporary rates and regulatory asset recovery and contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

The consolidated financial statements were prepared in conformity with generally accepted accounting principles in the U.S., which require management to make

certain estimates and assumptions regarding the reported amounts of assets and liabilities including unbilled revenues, credit losses and reserves for bad debt, regulatory asset recovery , lease agreements, goodwill and contingent assets and

liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from management’s estimates.

The amount of rent expense and income reported could vary if different estimates and assumptions are used.

Management also makes certain estimates and assumptions regarding the fair value of the leased property at lease commencement and the separation of lease and nonlease components.

As of December 31, 2021, 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.

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.

All additions to utility plant are recorded at cost.

Business combinations pursuant to ASC Topic 805 may result in a purchase price allocation and the

acquired assets are required to be evaluated by the applicable regulatory agency.

Artesian Wastewater acquired TESI in January 2022 and Artesian Water purchased substantially all of the water operating assets from the Town of Clayton in May 2022.

As of December 31, 2022, the fair value determination for TESI and the town of Clayton is finalized.

A third-party valuation specialist assisted with the valuation of the assets acquired.

REVENUE RECOGNITION

Artesian’s operating revenues are primarily attributable to contract services based upon tariff rates approved by the Delaware Public Service Commission, or DEPSC, the Maryland Public Service Commission, or MDPSC, and the Pennsylvania Public Utility Commission, or PAPUC.

Tariff contract service revenues consist of water consumption, industrial wastewater services, fixed fees for water and wastewater services including customer and fire protection fees, service charges and Distribution System Improvement Charges, or DSIC, billed to customers at rates outlined in our tariffs that represent stand-alone selling prices.

Our non-tariff contract revenues consist of Service Line Protection Plan, or SLP Plan, fees, water and wastewater contract operations, design and installation contract services, and wastewater inspection fees.

Other operating revenue primarily consists of developer guarantee contributions for wastewater and rental income for antenna agreements, which are not considered in the scope of Accounting Standards Codification 606, Revenue from Contracts with Customers.

Artesian’s operating revenues are primarily attributable to contract services based upon regulated tariff rates approved by the Delaware Public Service

Commission, or DEPSC, the Maryland Public Service Commission, or MDPSC, and the Pennsylvania Public Utility Commission, or PAPUC.

Regulated tariff contract service revenues consist of water consumption, industrial wastewater services, fixed fees for

water and wastewater services including customer and fire protection fees, service charges and Distribution System Improvement Charges, or DSIC, billed to customers at rates outlined in our tariffs that represent stand-alone selling prices.

non-tariff contract revenues, which are primarily non-utility revenues, consist of Service Line Protection Plan, or SLP Plan, fees, water and wastewater contract operations, design and installation contract services, and wastewater inspection fees.

Other regulated operating revenue primarily consists of developer guarantee contributions for wastewater and rental income for antenna agreements, which are not considered in the scope of Accounting Standards Codification 606, Revenue from Contracts

with Customers.

Tariff Contract Revenues

Artesian generates revenue from the sale of water to customers in Delaware, Cecil County, Maryland, and Southern Chester County, Pennsylvania once a customer requests service in our territory.

We recognize water consumption revenue at tariff rates on a cycle basis for the volume of water transferred to customers based upon meter readings for actual gallons of water consumed as well as unbilled amounts for estimated usage from the date of the last meter reading to the end of the accounting period.

As actual usage amounts are known based on recurring meter readings, adjustments are made to the unbilled estimates in the next billing cycle based on the actual results.

Artesian generates revenue from the sale of water to customers in Delaware, Cecil County, Maryland, and Southern Chester County, Pennsylvania once a customer

requests service in our territory.

estimated usage from the date of the last meter reading to the end of the accounting period.

As actual usage amounts are known based on recurring meter readings, adjustments are made to the unbilled estimates in the next billing cycle based on the

actual results.

Estimates are made on an individual customer basis, based on one of three methods:

the previous year’s consumption in the same period, the previous billing period’s consumption, or averaging.

While actual usage for individual customers may differ materially from the estimate based on management judgments described above, we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption.

The majority of our water customers are billed for water consumed on a monthly basis, while the remaining customers are billed on a quarterly basis.

As a result, we record unbilled operating revenue (contract asset) for any estimated usage through the end of the accounting period that will be billed in the next monthly or quarterly billing cycle.

While actual usage for individual customers

may differ materially from the estimate based on management judgments described above, we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption.

The majority of

our water customers are billed for water consumed on a monthly basis, while the remaining customers are billed on a quarterly basis.

As a result, we record unbilled operating revenue (contract asset) for any estimated usage through the end of the

accounting period that will be billed in the next monthly or quarterly billing cycle.

Artesian generates revenue from industrial wastewater services provided to a customer in Sussex County, Delaware.

We recognize industrial wastewater service revenue at a contract rate on a monthly basis for the volume of wastewater transferred to Artesian’s wastewater facilities based upon meter readings for actual gallons of wastewater transferred.

These services are invoiced at the end of every month based on the actual meter readings for that month, and therefore there is no contract asset or liability associated with this revenue.

We recognize industrial wastewater service

revenue at a contract rate on a monthly basis for the volume of wastewater transferred to Artesian’s wastewater facilities based upon meter readings for actual gallons of wastewater transferred.

These services are invoiced at the end of every month

based on the actual meter readings for that month, and therefore there is no contract asset or liability associated with this revenue.

The contract also provides for a minimum required volume of wastewater flow to our facility.

At each year end, any shortfall of the actual volume from the required minimum volume is billed to the industrial customer and recorded as revenue.

Additionally, if during the course of the year it is probable that the actual volume will not meet the minimum required volume, estimated revenue amounts would be recorded for the pro rata minimum volume, constrained for potential flow capacity that could occur in the remainder of the year.

Pursuant to a settlement agreement, for the calendar year 2021 only, the minimum required volume was prorated on a seven month basis beginning June 1, 2021 and ending December 31, 2021.

At each year end, any

shortfall of the actual volume from the required minimum volume is billed to the industrial customer and recorded as revenue.

Additionally, if during the course of the year it is probable that the actual volume will not meet the minimum required

volume, estimated revenue amounts would be recorded for the pro rata minimum volume, constrained for potential flow capacity that could occur in the remainder of the year.

Pursuant to a settlement agreement, the minimum required volume was prorated on

a seven month basis beginning June 1, 2021 and ending December 31, 2021.

Artesian generates revenue from metered wastewater services provided to certain customers in Sussex County, Delaware.

We recognize metered wastewater

services at tariff rates on a cycle basis for the volume of wastewater transferred to Artesian’s wastewater facilities based upon meter readings for actual gallons of water transferred, as well as unbilled amounts for estimated volume from the date of

the last meter reading to the end of the accounting period.

As actual volume amounts are known based on recurring meter readings, adjustments are made to the unbilled estimates in the next billing cycle based on the actual results.

Estimates are made

on an individual customer basis, based on one of three methods:

the previous year’s volume in the same period, the previous billing period’s volume, or averaging.

While actual usage for individual customers may differ materially from the estimate based

on management judgments described above, we believe the overall total estimate of volume and revenue for the fiscal period will not differ materially from actual billed consumption.

The majority of these wastewater customers are billed for the volume

of water transferred on a quarterly basis.

As a result, we record unbilled operating revenue (contract asset) for any estimated volume through the end of the accounting period that will be billed in the next monthly cycle.

Artesian generates fixed-fee revenue for water and wastewater services provided to customers once a customer requests service in our territory.

Our wastewater territory is located in Sussex County, Delaware.

We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of the Company remaining ready to provide them water and wastewater service.

These contract services are billed in advance at tariff rates on a monthly, quarterly or semi-annual basis.

As a result, we record deferred revenue (contract liability) and accounts receivable for any amounts for which we have a right to invoice but for which services have not been provided.

wastewater territory is located in Sussex County, Delaware.

We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of the Company remaining ready to provide them

water and wastewater service.

These contract services are billed either in advance or arrears at tariff rates on a monthly, quarterly or semi-annual basis.

For contract services billed in arrears, we record unbilled operating revenue (contract asset)

for any services through the end of the accounting period that will be billed in the next monthly or quarterly cycle.

For contract services billed in advance, we record deferred revenue (contract liability) and accounts receivable for any amounts for

which we have a right to invoice but for which services have not been provided.

This deferred revenue is netted with unbilled operating revenue on the Consolidated Balance Sheet.

Artesian generates service charges primarily from non-payment fees, such as water shut-off and reconnection fees and finance charges.

These fees are billed and recognized as revenue at the point in time when our tariffs indicate the Company has the right to payment such as days past due have been reached or shut-offs and reconnections have been performed.

There is no contract asset or liability associated with these fees.

Artesian generates revenue from DSIC, which are surcharges applied to water customer tariff rates in Delaware related to specific types of water distribution system improvements.

These fees are billed

and recognized as revenue at the point in time when our tariffs indicate the Company has the right to payment such as days past due have been reached or shut-offs and reconnections have been performed.

There is no contract asset or liability

associated with these fees.

Artesian generates revenue from DSIC, which are surcharges applied to water customer tariff rates in Delaware related to specific types of water distribution

system improvements.

This rate is calculated on a semi-annual basis based on an approved projected revenue requirement over the following six-month period.

This rate is adjusted up or down at the next DSIC filing to account for any differences between actual earned revenue and the projected revenue requirement.

Since DSIC revenue is a surcharge applied to tariff rates, we recognize DSIC revenue based on the same guidelines as noted above depending on whether the surcharge was applied to consumption revenue or fixed fee revenue.

This rate is adjusted up or down at the next DSIC filing to account for any differences

between actual earned revenue and the projected revenue requirement.

Since DSIC revenue is a surcharge applied to tariff rates, we recognize DSIC revenue based on the same guidelines as noted above depending on whether the surcharge was applied to

consumption revenue or fixed-fee revenue.

Accounts receivable related to tariff contract revenues are typically due within 25 days of invoicing.

An allowance for doubtful accounts is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current conditions.

We mitigate our exposure to credit losses by discontinuing services in the event of non-payment;

mitigate our exposure to credit losses by discontinuing services in the event of non-payment;

accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant.

However, due to the COVID-19 pandemic causing hardships for many utility customers, in March 2020, state government agencies issued executive orders requiring utility companies to take a number of steps to support their customers and communities, including prohibiting service disconnections for non-payment and prohibiting late fees.

In July 2020, the State of Delaware lifted its executive orders placing a moratorium on service disconnections for non-payment, with a provision requiring utilities to offer payment arrangements extending at least four months to customers.

After properly notifying customers, Artesian reinstated its late fee process in September 2020 and began administering service disconnections in October 2020 for its Delaware customers.

The State of Maryland and the Commonwealth of Pennsylvania lifted their executive orders placing moratoriums on service disconnections for non-payment effective November 2020.

The State of Maryland required utilities to offer payment arrangements extending twelve months.

The Company experienced longer receivable cycles throughout 2020 and into 2021 and made an adjustment to increase the reserve for bad debt by $ 0.5 million in 2020.

In June 2021 we made an adjustment to reduce the reserve by $ 0.3 million.

However, due to the COVID-19 pandemic

causing hardships for many utility customers, the Company experienced longer receivable cycles throughout 2020 and into 2021 and made an adjustment to increase the reserve for bad debt by $ 0.5 million in 2020.

In June 2021 we made an adjustment to reduce the reserve by $ 0.3

We will continue to monitor factors that affect the reserve for bad debt.

Non-tariff Contract Revenues

Artesian generates SLP Plan revenue once a customer requests service to cover all parts, materials and labor required to repair or replace leaking water service lines, leaking or clogged sewer lines, or water and wastewater lines within the customer’s residence, up to an annual limit.

We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of having service line protection services.

Artesian generates SLP Plan revenue once a customer requests service to cover all parts, materials and labor required to repair or replace leaking water

service lines, leaking or clogged sewer lines, or water and wastewater lines within the customer’s residence, up to an annual limit.

We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and

consumes all the benefits of having service line protection services.

These contract services are billed in advance on a monthly or quarterly basis.

As a result, we record deferred revenue (contract liability) and accounts receivable for any amounts for which we have a right to invoice but for which services have not been provided.

Accounts receivable from SLP Plan customers are typically due within 25 days of invoicing.

As a result, we record deferred revenue (contract liability) and accounts receivable for any amounts

for which we have a right to invoice but for which services have not been provided.

Accounts receivable from SLP Plan customers are typically due within 25

days of invoicing.

An allowance for doubtful accounts is calculated as a percentage of total SLP Plan contract revenue.

We mitigate our exposure to credit losses by discontinuing services in the event of non-payment;

accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant.

accordingly, the related

allowance for doubtful accounts and associated bad debt expense has not been significant.

Artesian generates contract operation revenue from water and wastewater operation services provided to customers.

We recognize revenue from these operation contracts, which consist primarily of monthly operation and maintenance services over time as customers receive and consume the benefits of such services performed.

These services are invoiced in advance at the beginning of every month and are typically due within 30 days, and therefore there is no contract asset or liability associated with these revenues.

An allowance for doubtful accounts is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ creditworthiness.

The related allowance for doubtful accounts and associated bad debt expense has not been significant.

Artesian generates design and installation revenue for services related to the design and construction of wastewater infrastructure for a state agency under contract.

We recognize revenue from these operation

contracts, which consist primarily of monthly operation and maintenance services, over time as customers receive and consume the benefits of such services performed.

The majority of these services are invoiced in advance at the beginning of every month

and are typically due within 30 days, and therefore there is no contract asset or liability associated with most of these revenues.

We have one operation contract that was paid in advance resulting in a contract liability for services that have not yet been provided.

An allowance for doubtful

accounts is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ creditworthiness.

The related allowance for

doubtful accounts and associated bad debt expense has not been significant.

Artesian generates design and installation revenue for services related to the design and construction of wastewater infrastructure for a state agency under

We recognize revenue from these services over time as services are performed using the percentage-of-completion method based on an input method of incurred costs (cost-to-cost).

These services are invoiced at the end of every month based on incurred costs to date.

These services are invoiced at the end of every month based on

incurred costs to date.

As of December 31, 2022, there is no associated contract asset or liability.

There is no allowance for doubtful accounts or bad debt expense associated with this revenue.

Artesian generates inspection fee revenue for inspection services related to onsite wastewater collection systems installed by developers of new communities.

Artesian generates inspection fee revenue for inspection services related to onsite wastewater collection systems installed by developers of new

These fees are paid by developers in advance when a service is requested for a new phase of a development.

Inspection fee revenue is recognized on a per lot basis once the inspection of the infrastructure that serves each lot is completed.

Inspection fee revenue is recognized on a per lot basis once the inspection of the infrastructure that serves each lot is

As a result, we record deferred revenue (contract liability) for any amounts related to infrastructure not yet inspected.

There are no accounts receivable, allowance for doubtful accounts or bad debt expense associated with inspection fee contracts.

There are no accounts receivable, allowance for doubtful accounts or bad debt expense associated with inspection fee

The majority of Artesian’s revenues are earned within the State of Delaware, where there is no sales tax.

Revenues earned in the State of Maryland and the Commonwealth of Pennsylvania are related primarily to the sale of water by a public water utility and are exempt from sales tax.

Revenues earned in the State of Maryland and the

Commonwealth of Pennsylvania are related primarily to the sale of water by a public water utility and are exempt from sales tax.

Therefore, no sales tax is collected on revenues.

7 unchanged sentences

Service charges

Metered wastewater services

Industrial wastewater services

18 unchanged sentences

Total Deferred Revenue

For the year ended December 31, 2021, the Company recognized revenue of $ 1.2 million from amounts that were included in Deferred Revenue – Tariff at the beginning of the year and revenue of $ 0.3 million from amounts that were included in Deferred Revenue – Non-Tariff at the beginning of the year.

For the year ended December 31, 2022, the

Company recognized revenue of $ 1.2 million from amounts that were included in Deferred Revenue – Tariff at the beginning of the year and revenue

of $ 0.3 million from amounts that were included in Deferred Revenue – Non-Tariff at the beginning of the year.

The increases of Contract Assets and Deferred Revenue were primarily due to normal timing differences between our performance and customer payments.

Remaining Performance Obligations

As of December 31, 2021 and December 31, 2020, Deferred Revenue – Tariff is recorded net of contract assets within Unbilled operating revenues and represents our remaining performance obligations for our fixed fee water and wastewater services, all of which are expected to be satisfied and associated revenue recognized in the next three months.

As of December 31, 2021 and December 31, 2020, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our SLP Plan services and wastewater inspections, which are expected to be satisfied and associated revenue recognized within the next three months and one year for the SLP Plan revenue and inspection fee revenue, respectively.

As of December 31, 2022 and December 31, 2021, Deferred Revenue – Tariff is recorded net of contract assets within Unbilled operating revenues and represents our remaining performance obligations

for our fixed fee water and wastewater services, all of which are expected to be satisfied and associated revenue recognized in the next three months.

As of December 31, 2022 and December 31, 2021, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our SLP Plan

services and wastewater inspections, which are expected to be satisfied and associated revenue recognized within the next three months and one year for the SLP Plan revenue and inspection fee revenue, respectively.

The Company leases land and office equipment under operating leases from non-related parties.

Our leases have remaining lease terms of 20 year to 74 years, some of which include options to automatically extend the leases for up to 66 years.

Our leases have remaining lease terms of 20 year to 74 years, some of which include

options to automatically extend the leases for up to 66 years and are included as part of the lease liability and right of use assets as we

expect to exercise the options.

Payments made under operating leases are recognized in the consolidated statement of operations on a straight-line basis over the period of the lease.

The annual lease payments for the land operating leases increase each year either by the most recent increase in the Consumer Price Index or by 3 %, as applicable based on the lease agreements.

Periodically, the annual lease payment for one operating land lease is determined based on the fair market value of the applicable parcel of land.

The annual lease payments for the land operating leases increase

each year either by the most recent increase in the Consumer Price Index or by 3 %, as applicable based on the lease agreements.

Periodically,

the annual lease payment for one operating land lease is determined based on the fair market value of the applicable parcel of land.

None of the operating leases contain contingent rent provisions.

The commencement date of all the operating leases is the earlier of the date we become legally obligated to make rent payments or the date we may exercise control over the use of the land or equipment.

The Company currently does not have any financing leases and does not have any lessor leases that require disclosure.

Management made certain assumptions related to the separation of lease and nonlease components and to the discount rate used when calculating the right of use asset and liability amounts for the operating leases.

As our leases do not provide an implicit rate, we use our incremental borrowing rates for long-term and short-term agreements and apply the rates accordingly based on the term of the lease agreements to determine the present value of lease payments.

In October 1997, Artesian Water entered into a 33 year operating lease for a parcel of land with improvements located in South Bethany, a municipality in Sussex County, Delaware.

The annual lease payments increase each year by the most recent increase in the Consumer Price Index for Urban Workers, CPI-U, as published by the U.S.

The commencement date of all the operating leases is

the earlier of the date we become legally obligated to make rent payments or the date we may exercise control over the use of the land or equipment.

The Company currently does not have any financing leases and does not have any lessor leases that

require disclosure.

Management made certain assumptions related to the separation of lease and nonlease components and to the discount rate used when calculating the right of

use asset and liability amounts for the operating leases.

As our leases do not provide an implicit rate, we use our incremental borrowing rates for long-term and short-term agreements and apply the rates accordingly based on the term of the lease

agreements to determine the present value of lease payments.

In October 1997, Artesian Water entered into a 33 -year

operating lease for a parcel of land with improvements located in South Bethany, a municipality in Sussex County, Delaware.

The annual lease payments increase each year by the most recent increase in the Consumer Price Index for Urban Workers, CPI-U,

as published by the U.S.

Department of Labor, Bureau of Labor Statistics.

At each eleven th year of the lease term, the annual lease payment shall be determined based on the fair market value of the parcel of land.

At each eleven th year of the lease term, the annual lease payment

shall be determined based on the fair market value of the parcel of land.

Rental payments for 2022, 2021 and 2020 were $ 19,000 , $ 17,000 , and $ 16,500 , respectively.

The future minimum rental payment as disclosed in the following table is calculated using CPI-U from August 2021 as well as the adjustment for an appraisal conducted in 2019 to determine the fair market value of the parcel of land.

In March 2019, Artesian Water entered into a 3 year operating lease for office equipment.

The quarterly lease payments remain fixed throughout the term of the lease.

Payments for both 2021 and 2020 were $ 19,000 .

The future minimum rental payment as disclosed in the following table is calculated using CPI-U from August 2022 as well as the adjustment for an appraisal conducted in

2019 to determine the fair market value of the parcel of land.

In March 2019, Artesian Water entered into a 3 -year

operating lease for office equipment that expired in March 2022.

The quarterly lease payments remained fixed throughout the term of the lease.

Payments pursuant to the lease agreement for 2022 and 2021 were $ 5,000 and 19,000 respectively.

We entered into an operating lease for office equipment

that will commence at a future date when the equipment is received.

Rent expense for all operating leases except those with terms of 12 months or less comprises:

30 unchanged sentences

Total lease liabilities recognized

As of December 31, 2021, we have not entered into operating or finance leases that will commence at a future date.

As of December 31, 2022, we entered into an

operating lease for office equipment that will commence at a future date when the equipment is received.

As of December 31, 2022, we have not entered into finance leases that will commence at a future date.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that

Current Assets and Liabilities

For those current assets and liabilities that are considered financial instruments, the carrying amounts approximate fair value because of the short maturity of those instruments.

For those current assets and liabilities that are considered financial instruments, the carrying amounts approximate fair value because of the short maturity

of those instruments.

Long-term Financial Liabilities

All of Artesian Resources’ outstanding long-term debt as of December 31, 2021 and December 31, 2020  

was fixed-rate.

The fair value of the Company’s long-term debt is determined by discounting their future cash flows using current market interest rates on similar instruments with comparable maturities consistent with FASB ASC 825.

All of Artesian Resources’ outstanding long-term debt as of December 31, 2022 and December 31, 2021 was fixed-rate.

The fair value of the Company’s long-term debt is

determined by discounting their future cash flows using current market interest rates on similar instruments with comparable maturities consistent with FASB ASC 825.

Under the fair value hierarchy, the fair value of the long-term debt in the table below is classified as Level 2 measurements.

Level 2 is valued using observable inputs other than quoted prices.

Level 2 is valued using

observable inputs other than quoted prices.

The fair values for long-term debt differ from the carrying values primarily due to interest rates that differ from the current market interest rates.

The carrying amount and fair value of Artesian Resources' long-term debt (including current portion) are shown below:

The carrying amount and fair value of Artesian

Resources’ long-term debt (including current portion) are shown below:

Carrying amount

Estimated fair value

The fair value of Advances for Construction cannot be reasonably estimated due to the inability to estimate accurately the timing and amounts of future refunds expected to be paid over the life of the contracts.

The fair value of Advances for Construction cannot be reasonably estimated due to the inability to estimate accurately the timing and amounts of future

refunds expected to be paid over the life of the contracts.

Refund payments are based on the water sales to new customers in the particular development constructed.

The fair value of Advances for Construction would be less than the carrying amount because these financial instruments are non-interest bearing .

Deferred income taxes reflect temporary differences between the valuation of assets and liabilities for financial and tax reporting.

Pursuant to the enactment of the Tax Cuts and Jobs Act, or TCJA, in 2017, the Company adjusted its existing deferred income tax balances to reflect the decrease in the corporate income tax rate from  

34 % to 21 %  

resulting in a decrease in the net deferred income tax liability of approximately $ 24.3 million, of which $ 22.8 million was reclassified to a regulatory liability.

On January 31, 2019, the DEPSC approved the amortization of the regulatory liability amount of $ 22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date.

This audit is currently underway by the DEPSC, but no final ruling has been made.

The MDPSC has not issued a final order on the regulatory liability amount of $ 0.6 million regarding the effects of the TCJA on Maryland customers.

As of December 31, 2021, the Company fully utilized all of its federal net operating loss carrybacks and carry-forwards.

As of December 31, 2021, the Company has separate company state net operating loss carry-forwards aggregating approximately $ 11.9 million.

Most of these net operating loss carry-forwards will expire if unused between 2022 and 2042 .

The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized due to the expiration of the state net operating loss carry-forwards.

The valuation allowance increased to approximately $ 546,000 in 2021 from approximately $ 493,000 in 2020.

Management believes that it is more likely than not that the Company will realize the benefit of these deferred tax assets, net of the valuation allowance.

The fair value of Advances for Construction would be less than the carrying amount

because these financial instruments are non-interest bearing .

Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts

at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse.

The Company’s rate regulated subsidiaries recognize regulatory

Such tax-related regulatory

assets and liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties.

As of December 31, 2022, the Company fully

utilized all of its federal net operating loss carrybacks and carry-forwards.

As of December 31, 2022, the Company has separate company state

net operating loss carry-forwards aggregating approximately $ 13.8 million.

Most of these net operating loss carry-forwards will expire if unused

between 2023 and 2043 .

The Company has recorded a valuation allowance to reflect the estimated amount of deferred

tax assets that may not be realized due to the expiration of the state net operating loss carry-forwards.

The valuation allowance increased to approximately $ 600,000

in 2022 from approximately $ 546,000

Management believes that it is more likely than not that the Company will realize the benefit of these deferred tax assets, net of

the valuation allowance.

Components of Income Tax Expense

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Total income tax expense and effective rate

Deferred income taxes at December 31, 2021 and 2020 were comprised of the following:

Deferred income taxes at December 31, 2022 and

2021 were comprised of the following:

For the Year Ended

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For the Year Ended December 31, 2020 Valuation allowance for deferred tax assets

Under FASB ASC Topic 740, the Company establishes reserves for uncertain tax positions based upon management’s judgment as to the sustainability of these positions.

Under FASB ASC Topic 740, the Company establishes reserves for uncertain tax positions based upon management’s judgment as to the sustainability of

these positions.

The Company reserved a liability related to the difference in the tax depreciation utilizing the half-year convention rather than the mid-quarter convention for 2018.

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The Class A Non-Voting Common Stock, or Class A Stock, of Artesian Resources trades on the Nasdaq Global Select Market under the symbol ARTNA.

The Class B Common Stock, or Class B Stock, of Artesian Resources trades on the Nasdaq's OTC Bulletin Board under the symbol ARTNB.

Common Stock, or Class B Stock, of Artesian Resources trades on the Nasdaq’s OTC Bulletin Board under the symbol ARTNB.

The rights of the holders of the Class A Stock and the Class B Stock are identical, except with respect to voting.

Under Artesian Resources' dividend reinvestment plan, which allows for reinvestment of cash dividends and optional cash payments, stockholders were issued approximately 10,000 , 11,000 and 11,000 shares at fair market value for the investment of $ 392 ,000 $ 388 ,000 and $ 400 ,000 of their monies in the years 2021 , 2020 , and 2019 , respectively.

At December 31, 2021 , Artesian Resources had a $ 40 million line of credit with Citizens Bank, or Citizens, which is available to all subsidiaries of Artesian Resources.

Under Artesian Resources’ dividend reinvestment plan, which allows for

reinvestment of cash dividends and optional cash payments, stockholders were issued approximately 7,000 , 10,000 and 11,000 shares at fair market value for the investment of $ 373 ,000, $ 392 ,000 and $ 388 ,000 of their monies in the years 2022, 2021, and 2020, respectively.

At December 31, 2022 , Artesian Resources had a $ 40 million line of credit with Citizens Bank, or Citizens, which is available to all subsidiaries of Artesian

As of December 31, 2022 , there was $ 26.9 million of available funds under this line of credit.

The interest rate for borrowings under this line is the London Interbank Offered Rate, or LIBOR , plus 1.00 % .

It is expected that the LIBOR rate will no longer be published for most currencies as of December 31, 2021, however, publication for USD currency should continue through June 30, 2023.

As a result, it is possible that, in the future, the LIBOR rate may become unavailable or may no longer be deemed an appropriate reference rate upon which to determine the interest rate on LIBOR Rate Loans.

In light of this eventuality, Citizens currently has initiatives underway to identify new or alternative reference rates to be used in place of the LIBOR rate.

This is a demand line of credit and therefore the financial institution may demand payment for any outstanding amounts at any time.

interest rate for borrowings under this line was the London Interbank Offered Rate, or LIBOR , plus 1.00 % .

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

As a result, effective May 20, 2022, this line of credit agreement was

amended to replace LIBOR with the Daily Secured Overnight Financing Rate, or SOFR .

The interest rate is a one month

SOFR plus 10 basis points, or Term SOFR, plus an

applicable margin of 0.85 % .

Term SOFR cannot be less than

This is a demand line of credit and therefore the

financial institution may demand payment for any outstanding amounts at any time.

The term of this line of credit expires on the earlier of May 21, 2023 or any date on which Citizens demands payment.

The Company expects to renew this line of credit.

At December 31, 2021, 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 December 31, 2021 , there was $ 2.0 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.

The term of this line of credit expires on July 30, 2022 .

At December 31, 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 December 31, 2022 , there was $ 12.9 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

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 .

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

Artesian Water expects to renew this line of credit.

On July 15, 2021, Artesian Water entered into a Financing Agreement, or the Financing Agreement, with the Delaware Drinking Water State Revolving 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.

Under the Financing Agreement, the Department agreed to advance to Artesian Water up to approximately $ 2.5 million, or the Loan, to finance all or a portion of the cost to acquire the Town of Frankford water system and to replace water transmission mains and renew services and hydrants in the Town of Frankford, collectively, the Project.

In accordance with the Financing Agreement, Artesian Water will from time to time request funds under the Loan as it incurs costs in connection with the Project.

Artesian Water requested an initial draw of approximately $ 1.5 million for the acquisition of the Town of Frankford water system.

Upon receipt of the initial draw, an amount equal to approximately $ 1.5 million was forgiven by the Department and is no longer considered outstanding or unpaid principal under the Financing Agreement.

The Company shall pay to the Department, on the principal amount drawn down and outstanding from the date drawn, interest at a rate of 1.0 % per annum and an administrative fee at the rate of 1.0 % per annum.

On April 28, 2020, Artesian Water entered into three financing agreements, or the Financing Agreements, with the Delaware Drinking Water State Revolving 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.

Under the Financing Agreements, the Department agreed to advance to Artesian Water up to approximately $ 1.7 million, $ 1.0 million and $ 1.3 million, collectively, the Loans, 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.

The Company shall pay to the Department, on the principal amount drawn down and outstanding from the date drawn, interest at a rate of 0.6 % per annum and an administrative fee at the rate of 0.6 % per annum.

As of December 31, 2021, the full amount that will be borrowed under the Loans is approximately $ 2.6 million.

On April 29, 2022, Artesian Water and CoBank entered into a Bond Purchase Agreement, or the Agreement, relating to

the issue and sale by Artesian Water to CoBank of a $ 30 million principal amount First Mortgage Bond, Series W, or the Bond, due April 30, 2047 , or the Maturity Date.

The Bond was issued pursuant to Artesian Water’s Indenture of Mortgage dated as of July 1, 1961, as amended and

supplemented by supplemental indentures, including the Twenty-Fifth Supplemental Indenture dated as of April 29, 2022, or the Supplemental Indenture, from Artesian Water to Wilmington Trust Company, as Trustee.

The Supplemental Indenture is a first

mortgage lien against substantially all of Artesian Water’s utility plant.

The proceeds from the sale of the Bond were used to pay down outstanding lines of credit of the Company and a loan payable to Artesian Resources, with any additional proceeds

used to fund capital investments in Artesian Water.

The Delaware Public Service Commission approved the issuance of the Bond on April 20, 2022.

The Bond carries an annual interest rate of 4.43 % through but excluding the Maturity Date.

Interest is payable on June 30th, September 30th, December 30th and March 30th in each year and on the Maturity Date, beginning June 30, 2022,

until Artesian Water’s obligation with respect to the payment of principal, premium (if any) and interest shall be discharged.

Overdue payments shall bear interest as provided in the Supplemental Indenture.

The term of the Bond also includes certain

limitations on Artesian Water’s indebtedness.

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.

The Notes will mature on February 1, 2043 .

As of December 31, 2022, approximately $ 1.8 million was borrowed

under the Loans.

On December 9, 2022, Artesian Water Company entered into three Financing Agreements, or the Financing Agreements, with the Fund, acting by and through the Department.

Under the Financing Agreements, the Department has agreed to advance to or to

reimburse Artesian Water up to $ 901,170 , $ 1,042,695

and $ 1,050,000 (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

In connection with the Financing Agreements, Artesian Water issued to the Department three General Obligation Notes dated as of December 9, 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 June 1 and December 1, beginning on June 1,

Two notes will mature on June 1, 2043 and one will mature on December 1, 2043 .

As of December 31, 2022, approximately $ 1.0 million was requested under the Loans, and funds received in January 2023.

CoBank may make an annual patronage refund.

The $ 20 million line of credit, the First Mortgage Bonds and the promissory note are with CoBank.

The $ 20 million line of credit, the First Mortgage Bonds and the promissory note are

The patronage refunds earned by Artesian in 2022 and 2021 were $ 1.3 million and $ 1.2 million, respectively.

In 2021, CoBank issued a one-time additional all-cash patronage distribution of $ 226,000 , or 0.165 %, of the average line of credit and loan volume outstanding in the prior year, which was in addition to the standard 0.80 % patronage rate.

In 2020, CoBank issued a one-time additional all-cash patronage distribution of $ 107,000 , or 0.10 %, of the average line of credit and loan volume outstanding in the prior year, which was in addition to the standard 0.80 % patronage rate.

In 2022, CoBank issued a one-time additional all-cash patronage distribution of $ 233,000 ,

or 0.16 %, of the average line of credit and loan volume outstanding in the prior year, which was in addition to the standard 0.80 % patronage rate.

In 2021, CoBank issued a

one-time additional all-cash patronage distribution of $ 226,000 , or 0.165 %, of the average line of credit and loan volume outstanding in the prior year, which was in addition to the standard 0.80 % patronage rate.

The weighted average interest rate on the lines of credit discussed above paid by the Company was 3.04 % for the year ended December 31, 2022.

These lines of credit, as well as the long-term debt obligations shown below, require us to abide by certain financial covenants and ratios.

As of December 31, 2021, we were in compliance with these financial covenants.

These lines of credit, as well as the

long-term debt obligations shown below, require us to abide by certain financial covenants and ratios.

As of December 31, 2022, we were in

compliance with these financial covenants.

Long-term debt consists of:

First mortgage bonds

Series R, 5.96 %, due December 31, 2028

Series S, 4.45 %, due December 31, 2033

Series T, 4.24 %, due December 20, 2036

Series U, 4.71 %, due January 31, 2038

Series V, 4.42 %, due October 31, 2049

Series R, 5.96 %,

due December 31, 2028

Series S, 4.45 %,

due December 31, 2033

Series T, 4.24 %,

due December 20, 2036

Series U, 4.71 %,

due January 31, 2038

Series V, 4.42 %,

due October 31, 2049

Series W, 4.43 %, due April 30, 2047

State revolving fund loans

4.48 %, due August 1, 2021

due September 1, 2023

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due November 1, 2041

2.00 %, due February 1, 2043

2.00 %, due June 1, 2043

Notes Payable

Promissory Note, 5.12 %, due December 30, 2028

Promissory Note, 5.12 %,

due December 30, 2028

Asset Purchase, 2.00 %, due May 26, 2027

current maturities (principal amount)

3 unchanged sentences

State revolving fund loans

Asset Purchase-Contractual Obligation

Promissory note

Total payments

Substantially all of Artesian Water's utility plant is pledged as security for our First Mortgage Bonds.

Substantially all of Artesian Water’s utility plant is pledged as security for

our First Mortgage Bonds.

As of December 31, 2022, no other water utility plant has been pledged as security for loans.

Two parcels of land in Artesian Wastewater are pledged as security for the promissory note.

Two parcels of

land in Artesian Wastewater are pledged as security for the promissory note.

STOCK COMPENSATION PLANS

On December 9, 2015, the Company’s stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan, that replaced the 2005 Equity Compensation Plan, or the 2005 Plan, which expired on May 24, 2015.

On December 9, 2015, the Company’s stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan, that replaced the 2005 Equity Compensation

Plan, or the 2005 Plan, which expired on May 24, 2015.

The 2015 Plan provides that grants may be in any of the following forms:

incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based awards.

incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based

The 2015 Plan is administered and interpreted by the Compensation Committee of the Board of Directors, or the Committee.

The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, determine the type, size and terms of the grants, determine the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan) and deal with any other matters arising under the 2015 Plan.

The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, determine

the type, size and terms of the grants, determine the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan) and deal with any other matters arising under the 2015

The Committee presently consists of three directors, each of whom is a non-employee director of the Company.

All of the employees of the Company and its subsidiaries are eligible for grants under the 2015 Plan.

All of the employees of the

Company and its subsidiaries are eligible for grants under the 2015 Plan.

Non-employee directors of the Company are also eligible to receive grants under the 2015 Plan.

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Options exercisable at year end

The total intrinsic value of options exercised during 2021, 2020 and 2019 were $ 736,000 , $ 620,000 and $ 334,000 , respectively.

During 2021, we received $ 635,000 in cash from the exercise of options, with a $ 941,000 tax benefit realized for those options.

The total intrinsic value of options exercised during 2022,

2021 and 2020 were $ 2,226,000 , $ 736,000 and $ 620,000 , respectively.

During 2022, we

received $ 1,650,000 in cash from the exercise of options, with a $ 2,459,000 tax benefit realized for those options.

The following table summarizes information about employee and director stock options outstanding and exercisable at December 31, 2022:

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Aggregate Intrinsic

19.01 - 20.46

20.47 - 22.66

As of December 31, 2022, there was no unrecognized expense related to non-vested option shares granted under the 2015 Plan.

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Unvested Outstanding at end of year

On May 4, 2021, 5,000 shares of Class A Stock were granted as restricted stock awards.

The fair value per share was $ 40.11 , the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 4, 2021.

On May 3, 2022, 5,000 shares of Class A Common

Stock, or Class A Stock, were granted as restricted stock awards.

The fair value per share was $ 45.58 , the closing price of the Class A Stock as

recorded on the Nasdaq Global Select Market on May 3, 2022.

Prior to their release date, these restricted stock awards may be subject to forfeiture in the event of the recipient’s termination of service.

On May 6, 2020, 5,000 shares of Class A Stock were granted as restricted stock awards.

The fair value per share was $ 35.01 , the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 6, 2020.

These shares vested and were released one year after the grant date.

On May 8, 2019, 5,000 shares of Class A Common Stock, or Class A Stock, were granted as restricted stock awards.

The fair value per share was $ 36.11 , the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 8, 2019.

On May 4, 2021, 5,000 shares of Class A Stock

were granted as restricted stock awards.

The fair value per share was $ 40.11 , the closing price of the Class A Stock as recorded on the Nasdaq

Global Select Market on May 4, 2021.

Prior to their release date, these restricted stock awards may be subject to forfeiture in the event of the recipient’s termination of service.

On May 6, 2020, 5,000 shares of Class A Stock

were granted as restricted stock awards.

The fair value per share was $ 35.01 , the closing price of the Class A Stock as recorded on the Nasdaq

Global Select Market on May 6, 2020.

These shares vested and were released one year after the grant date.

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The cost will be recognized over 0.34 years, the remaining vesting period for the restricted stock awards.

The total intrinsic value of awards released during 2021 was approximately $ 204,900 .

The total intrinsic value of awards released during 2022

was approximately $ 233,100 .

EMPLOYEE BENEFIT PLANS

Artesian Resources has a defined contribution 401(k) Salary Reduction Plan, or the 401(k) Plan, which covers substantially all employees.

Artesian Resources has a defined contribution 401(k) Salary Reduction Plan, or

the 401(k) Plan, which covers substantially all employees.

Under the terms of the 401(k) Plan, Artesian Resources contributed 2 % of eligible salaries and wages and matched employee contributions up to 6 % of gross pay at a rate of 50 % .

Artesian Resources may, at its option, make additional contributions of up to 3 % of eligible salaries and wages.

No such additional contributions were made in  

2021 , 2020 or 2019 .

The 401(k) Plan also provides additional retirement benefits to full-time employees hired prior to April 26, 1994, allowing them to save for future retiree medical costs that will be paid by employees by providing additional cash resources to those employees upon a termination of employment or retirement to meet the cost of future medical expenses.

No such additional contributions were made in 2022 , 2021 or 2020 .

The 401(k) Plan also provides additional retirement benefits to full-time employees hired prior to April 26, 1994, allowing them to save for future retiree medical costs that

will be paid by employees by providing additional cash resources to those employees upon a termination of employment or retirement to meet the cost of future medical expenses.

These eligible employees receive an additional contribution of 6 % of eligible salaries and wages.

The 401(k) Plan expenses, which include Company contributions and administrative fees, for the years 2021 , 2020 and 2019 , were approximately $ 1.2 million, $ 1.1 million and $ 1.1 million, respectively.

The 401(k) Plan expenses, which include

Company contributions and administrative fees, for the years 2022 , 2021 and 2020 , were approximately $ 1.3 million, $ 1.2 million and $ 1.1 million, respectively.

COMMITMENTS AND CONTINGENCIES

In the first quarter of 2019, the Company adopted the new standard on leases that was issued by the FASB and has applied this standard as disclosed in Note

During 2003, Artesian Water Pennsylvania entered into a 40 year easement agreement to acquire an easement to access, operate, maintain, repair, improve, replace and connect Artesian’s water system to a well, including a parcel of land around the well.

Management made certain estimates and assumptions regarding the separation of lease and nonlease components related to this easement agreement.

During 2003, Artesian Water Pennsylvania entered into a 40

year easement agreement to acquire an easement to access, operate, maintain, repair, improve, replace and connect Artesian’s water system to a well, including a parcel of land around the well.

Management made certain estimates and assumptions regarding

the separation of lease and nonlease components related to this easement agreement.

It was determined that the majority of this easement agreement contains non-lease components.

Easement payments for 2022, 2021 and 2020 were $ 43,000 , $ 42,000 and $ 41,000 , respectively.

Artesian Wastewater entered into a perpetual agreement for the use of approximately 460 acres of land in Sussex County, Delaware for wastewater disposal.

Beginning November 2016, Artesian Wastewater was required to pay a minimum of $ 40,000 per year for the use of this land.

Once operations began in 2021, the monthly fee is based on the volume of wastewater disposed on the properties charged at a rate per one thousand gallons of wastewater, providing for a minimum monthly payment.

Payments for 2021, 2020 and 2019 were $ 65,000 , $ 44,000 , $ 44,000 , respectively.

Artesian Wastewater entered into a perpetual agreement for the use of

approximately 460 acres of land in Sussex County, Delaware for wastewater disposal.

Beginning November 2016, Artesian Wastewater was required

to pay a minimum of $ 40,000 per year for the use of this land.

Once operations began in 2021, the monthly fee is based on the volume of

wastewater disposed on the properties charged at a rate per one thousand gallons of wastewater, providing for a minimum monthly payment.

Payments for 2022,

2021 and 2020 were $ 113,000 , $ 65,000 , $ 44,000 , respectively.

The agreement can be terminated by giving 180 day notice prior to the termination date.

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Artesian Water has two water service interconnection agreements with a neighboring utility, Chester Water Authority.

One agreement, that expired on December 31, 2021, had a “take or pay” clause requiring us to purchase 3 million gallons per day.

The other agreement is effective from January 1, 2022 through December 31, 2026, includes automatic five year renewal terms, unless terminated by either party, and has a “take or pay” clause requiring us to purchase water on a step down schedule through July 5, 2022, thereafter requiring us to purchase a minimum of 0.5 million gallons per day.

agreement, that expired on December 31, 2021, had a “take or pay” clause requiring us to purchase 3 million gallons per day.

agreement is effective from January 1, 2022 through December 31, 2026, includes automatic five year renewal terms, unless terminated by either

party, and has a “take or pay” clause which required us to purchase water on a step down schedule through July 5, 2022, and now requires us to purchase a minimum of 0.5 million gallons per day.

Rates charged under this agreement are subject to change.

Artesian Water Maryland has one interconnection agreement with the Town of North East that has a “take or pay” clause requiring us to purchase a minimum of 35,000 gallons per day.

The agreement extends through June 2024.

Artesian Water Maryland has one interconnection agreement with the Town of North East that has a “take or pay” clause requiring us

to purchase a minimum of 35,000 gallons per day.

agreement extends through June 2024.

The minimum annual purchase commitments for all interconnection agreements for 2023 through 2027, calculated at the noticed rates, are as follows:

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Other Commitments

In March 2017, Artesian Water entered into a 3 -year agreement with Worldwide Industries Corporation to clean and paint tanks in 2017, 2018 and 2019.

Pursuant to the 3 -year agreement, the expenditure committed in total for the years 2017 through 2019 was $ 1.3 million.

In 2020, Artesian Water entered into a short term agreement with Worldwide Industries Corporation to clean and paint a tank in 2020.

Pursuant to the agreement, the expenditure in 2020 was $ 0.1 million.

Pursuant to the

agreement, the expenditure in 2020 was $ 0.1 million.

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

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

T ank painting expense for 2021 , 2020 and 2019 was $ 222,000 , $ 155,000 , and $ 447,000 , respectively.

Budgeted mandatory utility plant expenditures, due to planned governmental highway projects, which require the relocation of Artesian Water's water service mains, expected to be incurred in 2022 through 2024 are as follows:

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 year.

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

Tank painting expense for 2022 , 2021 and 2020 was $ 531,000 , $ 222,000 , and $ 155,000 , respectively.

Budgeted mandatory utility plant expenditures, due to planned governmental highway projects, which require the relocation of

Artesian Water’s water service mains, expected to be incurred in 2023 through 2025 are as follows:

The exact timing and extent of these relocation projects is controlled primarily by the Delaware Department of Transportation.

GEOGRAPHIC CONCENTRATION OF CUSTOMERS

Artesian Water, Artesian Water Maryland and Artesian Water Pennsylvania provide water utility service to customers within their established service territory in all three counties of Delaware and in portions of Maryland and Pennsylvania, pursuant to rates filed with and approved by the DEPSC, the MDPSC and the PAPUC.

As of December 31, 2021, Artesian Water was serving approximately 91,700 customers, Artesian Water Maryland was serving approximately 2,500 customers and Artesian Water Pennsylvania was serving approximately 40 customers.

Artesian Wastewater provides wastewater utility service to customers within its established service territory in Sussex County, Delaware pursuant to rates filed with and approved by the DEPSC.

As of December 31, 2021 , Artesian Wastewater was serving approximately 3,200 customers, including one large industrial customer.

Effective January 14, 2022, following the acquisition of TESI, the number of wastewater customers served more than doubled.

All wastewater customers are located in Sussex County, Delaware.

Artesian Water, Artesian Water Maryland and Artesian Water Pennsylvania provide regulated water utility service to customers within their established service

territory in all three counties of Delaware and in portions of Maryland and Pennsylvania, pursuant to rates filed with and approved by the

DEPSC, the MDPSC and the PAPUC.

As of December 31, 2022, Artesian Water was serving approximately 94,600 customers, Artesian Water Maryland was serving approximately 2,600

customers and Artesian Water Pennsylvania was serving approximately 40 customers.

Artesian Wastewater and TESI provide regulated wastewater utility service to customers within their established service territory in Sussex County, Delaware

pursuant to rates filed with and approved by the DEPSC.

The number of wastewater customers served more than doubled following the acquisition of TESI in January 2022.

As of December 31, 2022, Artesian Wastewater and TESI were serving approximately 7,500 customers combined including one

large industrial customer.

REGULATORY PROCEEDINGS

Our water and wastewater utilities generate operating revenue from customers based on rates that are established by state Public Service Commissions through a rate setting process that may include public hearings, evidentiary hearings and the submission of evidence and testimony in support of the requested level of rates by the Company.

Our water and wastewater utilities generate operating revenue from customers based on rates that

are established by state public service commissions through a rate-setting process that may include public hearings, evidentiary hearings and the submission of evidence and testimony in support of the Company’s requested level of rates.

We are subject to regulation by the following state regulatory commissions:

The DEPSC, regulates both Artesian Water and Artesian Wastewater.

• The DEPSC, regulates Artesian Water, Artesian Wastewater, and TESI

• The MDPSC, regulates both Artesian Water Maryland and Artesian Wastewater Maryland.

• The PAPUC, regulates Artesian Water Pennsylvania.

Our water and wastewater utility operations are also subject to regulation under the federal Safe Drinking Water Act of 1974, or Safe Drinking Water Act, the Clean Water Act of 1972, or the Clean Water Act, and related state laws, and under federal and state regulations issued under these laws.

Our water and wastewater utility operations are also subject to regulation under the federal Safe Drinking Water Act of 1974, or Safe Drinking Water Act, the

Clean Water Act of 1972, or the Clean Water Act, and related state laws, and under federal and state regulations issued under these laws.

These laws and regulations establish criteria and standards for drinking water and for wastewater discharges.

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Water and Wastewater Rates

Our regulated utilities periodically seek rate increases to cover the cost of increased operating expenses, increased financing expenses due to additional investments in utility plant and other costs of doing business.

Our regulated subsidiaries periodically seek rate increases to cover the cost of increased operating expenses, increased financing expenses due to additional investments in utility plant and other costs of doing business .

Water provided notice to the DEPSC of its intent to file a request in the second quarter of 2023 to implement new rates to support Artesian Water’s ongoing capital improvement program and to cover increased costs of operations.

In Delaware, utilities are permitted by law to place rates into effect, under bond, on a temporary basis pending completion of a rate increase proceeding.

Any DSIC rate in effect will be

reset to zero upon implementation of a temporary increase in base rates charged to customers.

The first temporary increase may be up to the lesser of $ 2.5 million on an annual basis or 15 % of gross water sales.

Should the rate case not be completed within seven months , by law, the utility may put the entire requested rate relief, up to 15 % of gross water sales, in effect under bond until a final resolution is ordered and placed into effect.

If any such rates are found to be in excess of rates the DEPSC finds to be appropriate, the utility must refund customers the portion found to be in excess with interest.

The timing of our rate increase requests is therefore dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase.

We can provide no assurances that rate increase requests will be approved by applicable regulatory agencies and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase.

If any such rates are found to be in excess of rates the DEPSC finds to be

appropriate, the utility must refund customers the portion found to be in excess with interest.

The timing of our rate increase requests is therefore dependent upon the estimated cost of the administrative process in relation to the investments and

expenses that we hope to recover through the rate increase.

We can provide no assurances that rate increase requests will be approved by applicable regulatory agencies and, if approved, we cannot guarantee that these rate increases will be granted

in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase.

Other Proceedings

Delaware law permits water utilities to put into effect, on a semi-annual basis, increases related to specific types of distribution system improvements through a DSIC.

Delaware law permits water utilities to put into effect, on a semi-annual basis, increases related to specific types of distribution system improvements

through a DSIC.

This charge may be implemented by water utilities between general rate increase applications that normally recognize changes in a water utility’s overall financial position.

The DSIC approval process is less costly when compared to the approval process for general rate increase requests.

The DSIC rate applied between base rate filings is capped at 7.50 % of the amount billed to customers under otherwise applicable rates and charges, and the DSIC rate increase applied cannot exceed 5.0 % within an y 12-month period.

The following table summarizes (1) Artesian Water’s applications with the DEPSC to collect DSIC rates and (2) the rates upon which eligible plant improvements are based:

The DSIC approval process is less costly when compared to the

approval process for general rate increase requests.

The DSIC rate applied between base rate filings is capped at 7.50 % of the amount billed to

customers under otherwise applicable rates and charges, and the DSIC rate increase applied cannot exceed 5.0 % within an y 12-month period.

The following table summarizes (1) Artesian Water’s applications with the DEPSC to collect DSIC rates and (2) the rates upon which eligible plant

improvements are based:

Application Date

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The rate reflects the eligible plant improvements installed through April 30, 2019.

The DSIC rate effective January 1, 2021 is still subject to audit by the DEPSC at a later date.

For the years ended December 31, 2021 , December 31, 2020 and December 31, 2019 , we earned approximately $ 5.1 million, $ 5.0 million and $ 4.3 million in DSIC revenue, respectively.

The January 1, 2021 rate currently remains in effect and is subject to

periodic audit by the DEPSC.

For the years ended December 31, 2022 , December 31, 2021 and December 31, 2020 ,

we earned approximately $ 5.1 million, $ 5.1 million and $ 5.0 million in DSIC revenue, respectively.

NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE

Basic net income per share is based on the weighted average number of common shares outstanding.

Basic net income per share is based on the weighted average number of common shares

Diluted net income per share is based on the weighted average number of common shares outstanding, the potentially dilutive effect of employee stock options and restricted stock awards.

The following table summarizes the shares used in computing basic and diluted net income per share:

The following table summarizes the shares used in

computing basic and diluted net income per share:

Ended December 31,

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Weighted average common shares outstanding during the period for Diluted computation

For the years ended 2021 and 2020  

no shares of restricted stock awards were excluded from the calculations of diluted net income per share.

For the year ended 2019 , 5,390 shares of restricted stock awards were excluded from the calculations of diluted net income per share.

For the years ended 2022, 2021 and 2020 no shares of restricted stock awards were excluded from the calculations of

diluted net income per share.

Due to unrecognized compensation costs, the hypothetical repurchase of shares exceeded the number of restricted shares expected to vest during the period, creating an anti-dilutive effect.

For the years ended 2021 , 2020 and 2019 , no stock options were excluded from the calculations of diluted net income per share.

The Company has 15,000,000 authorized shares of Class A Stock, and 1,040,000 authorized shares of Class B Stock.

For the years ended 2022, 2021 and 2020, no stock options were excluded

from the calculations of diluted net income per share.

The Company has 15,000,000 authorized shares of

Class A Stock, and 1,040,000 authorized shares of Class B Stock.

As of December 31, 2022, 8,621,415 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding.

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Equity per common share was $ 19.86 , $ 18.94 , and $ 18.16 at December 31, 2022, December 31, 2021, and December 31, 2020, respectively.

These amounts were computed by dividing common stockholders' equity by the number of weighted average shares of common stock outstanding on December 31, 2021, December 31, 2020, and December 31, 2019, respectively.

These amounts were computed by dividing common stockholders’ equity by the number of weighted average shares of common

stock outstanding on December 31, 2022, December 31, 2021, and December 31, 2020, respectively.

RELATED PARTY TRANSACTIONS

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During 2021, Mr.

Houghton was a Partner in the law firm of Morris Nichols Arsht & Tunnell, or MNAT, in Wilmington, Delaware.

In the normal course of business, the Company utilizes the services of MNAT for various regulatory, real estate and public policy matters.

Approximately $ 191,000 , $ 386,000 and $ 253,000 was paid to MNAT during the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively, for legal and director related services.

As of December 31, 2021, the Company had a $ 16,000 accounts payable balance due to MNAT.

As set forth in the Charter of the Audit Committee of the Board, the Audit Committee is responsible for reviewing and, if appropriate, approving all related party transactions between us and any officer, any director, any person known to be the beneficial owner of more than 5 % of any class of the Company's voting securities or any other related person that would potentially require disclosure.

Houghton was a Partner in the law firm of Morris, Nichols, Arsht & Tunnell LLP, or

MNAT, in Wilmington, Delaware.

Houghton retired from MNAT as a Partner, effective January 1, 2022, however, Mr.

Houghton continues to perform legal services for MNAT as an independent contractor and non-partner.

In the normal course of business,

the Company utilized the services of MNAT in 2021 for various regulatory, real estate and public policy matters.

Approximately $ 191,000 and $ 386,000 was paid to MNAT during the years ended December 31, 2021 and December 31, 2020, respectively, for legal and director related services.

As set forth in the Charter of the Audit Committee of the Board, the Audit

Committee is responsible for reviewing and, if appropriate, approving all related party transactions between us and any officer, any director, any person known to be the beneficial owner of more than 5 % of any class of the Company’s voting securities or any other related person that would potentially

require disclosure.

In its review and approval of the related party transactions with MNAT, the Audit Committee considered the nature of the related person’s interest in the transactions;

the satisfactory performance of work contracted with the related party prior to the election of Mr.

the satisfactory performance of work contracted with

the related party prior to the election of Mr.

Houghton as a director;

and the material terms of the transactions, including, without limitation, the amount and type of transactions, the importance of the transactions to the related person, the importance of the transactions to the Company and whether the transactions would impair the judgment of a director or officer to act in the best interest of the Company.

The Audit Committee approves only those related person transactions that are in, or are consistent with, the best interests of the Company and its stockholders.

and the material terms of the transactions, including, without limitation, the amount and type of transactions, the importance of the transactions to the related person, the

importance of the transactions to the Company and whether the transactions would impair the judgment of a director or officer to act in the best interest of the Company.

Audit Committee approves only those related person transactions that are in, or are consistent with, the best interests of the Company and its stockholders.

BUSINESS COMBINATIONS

As part of the Company’s growth strategy, on April 2, 2020, Artesian Water purchased substantially all of the water system operating assets from the Town of Frankford, or Frankford, a Delaware municipality located in Sussex County, Delaware, including the right to provide water service to Frankford’s existing customers, or the Frankford Water System.

The Frankford Water System serves approximately 360 customers.

The total purchase price was $ 3.6 million.

The acquisition was accounted for as a business combination under ASC Topic 805, “Business Combinations”.

The purchase price allocation is primarily attributed to utility plant assets.

The Company utilized a combination of three methods to determine the reasonableness of the purchase price:

the cost approach, market approach and income approach.

Given the majority of the assets acquired were tangible utility plant, the Company utilized the cost approach to record the fair value of the assets.

The cost approach values the underlying assets to derive market value based on the estimated current new replacement cost, less the loss in value caused by physical deterioration, and functional and economic obsolescence of the assets.

Goodwill was recognized primarily as a result of expected synergies of operations and interconnections to our existing utility plant infrastructure.

In 2021, a regulatory adjustment was made to account for $ 1.5 million of Delaware Drinking Water State Revolving Fund loan proceeds automatically forgiven in July 2021.

A portion of the adjustment offset the purchase price and recognition of goodwill, with the remainder recorded as contributions in aid of construction.

Additionally, as part of the Company’s growth strategy, on August 3, 2020, Artesian Water completed its purchase of substantially all of the water system operating assets from the City of Delaware City, or Delaware City, a Delaware municipality located in New Castle County, Delaware, including the right to provide water service to Delaware City’s existing customers, or the Delaware City Water System.

The Delaware City Water System currently serves approximately 800 customers.

The total purchase price was $ 2.1 million.

The acquisition was accounted for as a business combination under ASC Topic 805.

The purchase price allocation was finalized in early 2021 and was primarily attributed to utility plant assets.

The final purchase price allocation did not change materially compared to the preliminary allocation.

The Company utilized similar valuation methodologies to those described above.

A summary of the allocation of purchase price to the assets acquired is presented in the table below and is recorded in the accompanying Consolidated Balance Sheet.

As part of the Company’s growth strategy, on January 14, 2022 Artesian Wastewater completed its agreement to

acquire TESI, which provides regulated wastewater services in Delaware.

Artesian Wastewater purchased all of the stock of TESI from Middlesex Water Company for $ 6.4 million in cash and other consideration, including forgiveness of a $ 2.1 million

note due from Middlesex, consisting of $ 3.1 million paid at closing.

This acquisition more than doubled the number of wastewater customers served by Artesian in Sussex County, Delaware.

The acquisition is being accounted for as a business combination under ASC Topic 805, “Business Combinations.”

The purchase price allocation is primarily attributed to intangible assets and utility plant assets acquired and liabilities assumed based on their respective estimated fair values.

The acquisition method of accounting requires, among other things,

that assets acquired, and liabilities assumed in a business purchase combination be recognized at their fair values as of the acquisition date.

The Company utilized a third-party valuation firm to assist with the fair value of the assets acquired.

The fair value determination is now finalized.

A combination of methods were used to determine the reasonableness of the purchase price:

the cost approach and the comparative sales (market) approach.

Given the majority of the net assets acquired

were tangible utility plant assets and related contributions in aid of construction, the Company primarily utilized the cost approach to record the fair value of the assets as well as some of the assumed liabilities.

This approach values the

underlying assets to derive market value based on the estimated replacement cost, adjusted for depreciation.

Real property was valued using the comparative sales approach.

Goodwill was recognized primarily as a result of expected synergies of

operations and interconnections to our existing utility plant infrastructure.

Any goodwill as a result of the transaction is not expected to be deductible for tax purposes.

The TESI acquisition was approved by the DEPSC on October 27, 2021, subject to the DEPSC determining the appropriate ratemaking

treatment of the acquisition price and the assets acquired in Artesian Wastewater’s next base rate case.

The Company reflected revenue of $ 3.0 million for the year ended December 31, 2022, in its consolidated statement of operations related to the acquisition.

The pro forma revenue for the year ended December 31, 2022 is

estimated to be $ 3.0 million.

The Company anticipates the pro forma effects of revenue for the year ended December 31, 2021 to be

approximately the same given there has not been any changes in the rates.

The pro forma information is not necessarily indicative of the Company’s future results.

Any pro forma effects of earnings is not practicable, as we continue to integrate

TESI operations and adjust the operating cost structure as it relates to operating expenses reflective of synergies of the combined operations, and therefore would not present an accurate comparison.

The table below sets forth the final purchase price allocation of this acquisition as of December 31, 2022.

(In thousands)

Utility plant

Source of supply plant

Pumping and water treatment plant

Transmission and distribution plant

Other deferred assets

Purchase Price

The Frankford Water System acquisition and the Delaware City Water System acquisition were approved by the DEPSC on March 18, 2020 and July 15, 2020, respectively, subject to the DEPSC determining the appropriate ratemaking treatment of the acquisition price and the assets acquired in Artesian Water’s next base rate case.

The pro forma effects of the businesses acquired, individually and in the aggregate, are not material to the Company’s financial position or results of operations.

Liabilities and contributions in aid of construction (CIAC)

Net cash purchase price

Additionally, as part of the Company’s growth strategy, on May 26, 2022 , Artesian Water completed its purchase of substantially all of the water system 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.

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

At closing, Artesian Water paid approximately $ 3.4

million of the total purchase price.

The remaining $ 1.6

million is payable in five equal annual installments on

the anniversary date of the closing date.

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

The acquisition was accounted for as a business combination under ASC Topic 805 .

purchase price allocation is $ 7.9 million of utility plant assets offset by $ 2.9 million of CIAC.

The Company utilized similar valuation methodologies to those described above.

This transfer of Clayton’s exclusive franchise territory was approved by the

DEPSC on April 20, 2022 .

The DEPSC will determine the appropriate ratemaking treatment of the acquisition price and the assets acquired in Artesian Water’s next

base rate case.

The pro forma effects of the business acquired are not material to the Company’s financial position or results of operations based on estimated annual revenue of approximately $ 0.5 million related to customers acquired.

LEGAL PROCEEDINGS

Periodically, we are involved in other proceedings or litigation arising in the ordinary course of business.

We do not believe that the ultimate resolution of these matters will materially affect our business, financial position or results of operations.

However, we cannot assure that we will prevail in any litigation and, regardless of the outcome, may incur significant litigation expense and may have significant diversion of management attention.

We do not believe that the ultimate resolution

of these matters will materially affect our business, financial position or results of operations.

However, we cannot ensure that we will prevail in any litigation and, regardless of the outcome, may incur significant litigation expense and may have

significant diversion of management attention.

On July 19, 2022, final judgment was entered by the United States District Court, or Court, for a Consent Decree

between the Delaware Sand and Gravel Remedial Trust, or Trust, and the United States Environmental Protection Agency, or USEPA, that governs the implementation of Amendment No 2 to the USEPA’s 1988 Record of Decision for the Delaware Sand & Gravel

Landfill Superfund Site, or Site, located in New Castle County, Delaware, issued on December 12, 2017, or ROD Amendment No.

2, confirming, among other things, the terms and conditions set forth in a Settlement Agreement upon which The Chemours Company

FC, LLC, Hercules, LLC, Waste Management of Delaware, Inc., SC Holdings, Inc., Cytec Industries, Inc., Zeneca Inc., and Bayer CropScience Inc., collectively the Percentage Settlors, and the Trust, on one hand, and Artesian Water, on the other hand,

have agreed to resolve certain of Artesian Water’s claims and issues relating to releases of contaminants from the Site.

ROD Amendment No.

2 sets forth the remedy for the contamination existing at and emanating from the Site, or the

Remedy, to address a release of contaminants of concern and of emerging concern, or COC’s, from the Site into groundwater.

Artesian Water has found in groundwater that Artesian Water uses for public potable water supply certain COC’s that the Remedy

is designed to address, as a result of which Artesian has incurred, and potentially will incur additional, capital and operating costs to treat the groundwater to meet applicable drinking water standards.

The Remedy includes requirements that are

directly linked to Artesian’s continued operation of the treatment plant associated with groundwater around the Site.

As set forth in the Settlement Agreement, Artesian Water shall have access to financial assurances that the Percentage Settlors have provided, or will

provide, to the USEPA in connection with the Consent Decree governing the implementation of the Remedy.

In addition, the Trust shall reimburse Artesian Water for past capital and operating costs, totaling approximately $ 10.0 million.

Approximately $ 2.5 million was paid

in August 2022, and the remaining $ 7.5 million will be payable in three equal installments annually on the anniversary date of the Court’s approval of the Consent Decree.

In addition, the Trust shall reimburse Artesian Water for documented reasonable and

necessary capital and operating costs after July 1, 2021 that Artesian Water incurs to treat Site-related COC’s.

As of December 31, 2022, Artesian Water received approximately $ 0.4 million of reimbursements from the Trust.

Any reimbursements Artesian Water receives from the Trust shall be subject to final determination by the DEPSC as to the appropriate regulatory

rate-making treatment.

Artesian Water received approval from the DEPSC in October 2022 to refund the reimbursements for past capital and operating costs to its customers.

The refund for the reimbursements will be applied to current and future

customer bills in annual installments.

The first refund occurred in October 2022, and future customer refunds occurring no later than August of each year from 2023 through 2025.

The amount of the credit is calculated by dividing the amount of the

reimbursement by the number of eligible customers.

Artesian Water will record 2022 and future recovery of capital expenditures as Contributions in Aid of Construction and will record expense recovery as an offset to operations and maintenance expense,

with the intention that those recoveries will then be available for inclusion and consideration in any future rate applications.

The Trust’s reimbursement of such costs shall end if and when, based upon testing information from the Trust’s Remedy

facilities and Artesian Water’s facilities, treatment of Site-related COC’s is no longer necessary for Artesian Water to meet the treatment levels that Artesian Water chooses to not exceed in water it distributes to the general public throughout its

service territory to provide a margin of safety in complying with applicable drinking water standards.

BUSINESS SEGMENT INFORMATION

The Company’s operating segments are comprised of its businesses which generate revenues and incur expenses, for which separate operational financial

information is available and is regularly evaluated by management for the purpose of making operating decisions, assessing performance, and allocating resources.

The Company operates its businesses primarily through one reportable segment, the Regulated Utility segment.

The Regulated Utility segment is the largest component of the Company’s business and includes an

aggregation of our five regulated utility subsidiaries that are in the business of providing regulated water and wastewater services on the

Delmarva Peninsula.

Our regulated water utility services include treating, distributing, and selling water to residential, commercial, industrial, governmental, municipal and utility customers throughout the State of Delaware and in Cecil County,

Maryland and to a residential community in Chester County, Pennsylvania.

Our regulated wastewater utility services include the treatment and disposal of wastewater for customers in Sussex County, Delaware.

The Company is subject to regulations as to its rates, services, and other matters by the states of Delaware, Maryland and Pennsylvania with respect to utility service within these states.

The Company also operates other non-utility businesses, primarily comprised of:

Service Line Protection Plan services for water, sewer and internal plumbing;

design, construction and engineering services;

and contract services for the operation and maintenance of water and wastewater systems in Delaware and Maryland.

These non-utility businesses do not individually or in the aggregate meet the criteria for

disclosure of a reportable segment in accordance with generally accepted accounting principles and are collectively presented throughout this Annual Report on Form 10-K within “Other” or “Non-utility”, which is consistent with how management assesses

the results of these businesses.

The accounting policies of the operating segments are the same as those described in Note 1-Summary of Significant Accounting Policies.

Regulated Utility segment includes inter-segment costs related to leased office space provided by one non-utility business, calculated on the

lower of cost or market method, which are eliminated to reconcile to the Consolidated Statements of Operations.

The Regulated Utility segment also allocates certain corporate costs to the non-utility businesses.

The measurement of depreciation,

interest, and capital expenditures are predominately related to our Regulated Utility segment.

These amounts in our non-utility business are negligible and account for approximately less than 1% of consolidated amounts as of December 31, 2022,

December 31, 2021, and December 31, 2020.

Years Ended December 31,

Regulated Utility

Other (non-utility)

Inter-segment elimination

Consolidated Revenues

Operating Income:

Regulated Utility

Other (non-utility)

Consolidated Operating Income

Income Taxes:

Regulated Utility

Other (non-utility)

Consolidated Income Taxes

Regulated Utility

Other (non-utility)

Consolidated Assets

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In March 2020, the FASB issued new guidance that provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as the market transitions from reference rates that are expected to be discontinued, such as the London Inter-bank Offered Rate, or LIBOR.

The guidance was effective upon issuance and may be applied prospectively to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued, evaluated on or before December 31, 2022, beginning during the reporting period in which the guidance has been elected.

It is expected that the LIBOR rate will no longer be published for most currencies as of December 31, 2021, however, publication for USD currency should continue through June 30, 2023.

LIBOR is expected to be phased out completely by June 30, 2023.

The guidance is optional and may be elected over time as reference rate reform activities occur.

In light of this eventuality, one of the banks with which we have a line of credit arrangement, currently has initiatives underway to identify new or alternative reference rates to be used in place of the LIBOR rate.

The Company is evaluating the impact of the new guidance on our financial position, results of operations and cash flows.

In November 2021, the FASB issued new guidance to increase transparency in financial reporting by requiring business entities to disclose, in notes to their financial statements, information about certain types of government assistance they receive.

The amendments are effective for financial statements issued for annual periods beginning after December 15, 2021.

Management does not anticipate a material impact on our notes to financial statements related to possible government assistance received in future reporting periods.

SUBSEQUENT EVENTS

On January 14, 2022, Artesian Wastewater Management completed its agreement to acquire Tidewater Environmental Services, Inc., or TESI, a wholly-owned subsidiary of Middlesex Water Company, or Middlesex, that provides regulated wastewater services in Delaware.

Artesian Wastewater purchased all of the stock of TESI from Middlesex for $ 6.4 million in cash and other consideration, including forgiveness of a $ 2.1 million intercompany note due from Middlesex.

This acquisition more than doubled the number of wastewater customers served in Sussex County, Delaware.

The Delaware Public Service Commission approved this transaction with TESI on October 27, 2021.

The Company is still gathering information related to this acquisition and will record the preliminary purchase price allocation in the first quarter of 2022 and finalize the allocation by the end of 2022, once the valuation of assets acquired has been completed.

On February 7, 2022, Artesian Water Company entered into an interest rate lock agreement, or the Agreement, with CoBank, ACB, or CoBank.

The Company is seeking to finance a $ 30 million principal amount First Mortgage Bond, or the Bond.

The Agreement allows for a maturity period of 25 years and a fixed interest rate of 4.43 % per annum, or the Fixed Rate, for the Bond.

The Agreement is effective through May 7, 2022, or the Settlement Date.

Pursuant to the Agreement, the Bond is not subject to redemption based on mortgage style amortization.

Interest on the outstanding principal balance will be payable quarterly on the 30th day of January, April, July and October each year.

The proceeds from the sale of the Bond shall be used to pay down outstanding lines of credit of Artesian Water, with any additional proceeds used to fund future capital investments in Artesian Water.

Closing on the debt financing is subject to approval by the DEPSC.

Also pursuant to the Agreement, the Company agrees to pay to CoBank, on demand, a broken funding charge if the Company does not, for any reason whatsoever, borrow the entire $ 30 million principal amount on or before the Settlement Date.

The broken funding charge shall be in an amount equal to the present value of the sum of all losses and expenses incurred by CoBank in retiring, liquidating, or reallocating any debt, obligation, or cost incurred or allocated by CoBank to fund or hedge the Fixed Rate.

On February 16, 2022, Artesian Water Company signed an agreement, or the Asset Purchase Agreement, to purchase from the Town of Clayton, a Delaware municipality, or Clayton, substantially all of the operating assets of Clayton’s water system, including Clayton’s exclusive franchise territory and the right to provide water service to Clayton’s existing customers, or the Water System.

Pursuant to the terms of the Asset Purchase Agreement, Clayton shall transfer to Artesian Water all of Clayton’s right, title and interest in and to substantially all of the municipal water utility, plant and equipment, associated real property, contracts, easements and permits possessed by Clayton at closing related to the Water System.

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

Closing on this transaction is pending due diligence and approval by the Delaware Public Service Commission related to the transfer of exclusive franchise territory.

The Asset Purchase Agreement contains customary representations, warranties, covenants and closing conditions for agreements of like type.

There was no new guidance issued by the FASB during the year ended December 31, 2022 that is applicable to the

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Stockholders and Board of Directors

Artesian Resources Corporation

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Artesian Resources Corporation (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, cash flows and changes in stockholders’ equity, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 , in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Artesian Resources Corporation (the “Company”) as of December 31, 2022 and 2021, the related

consolidated statements of operations, cash flows and changes in stockholders’ equity, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021 and the results of its operations and its cash flows for each of the three years in the

period ended December 31, 2022 , in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

Our responsibility is to express an opinion on the Company’s

consolidated financial statements based on our audits.

with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or

fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audits also included evaluating the

accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Tangible Assets in Business Combinations

As described in Notes 1 and 16 to the consolidated financial statements, the Company acquired the municipal water system of Delaware City.

As of December 31, 2020, the accounting for the transaction was preliminary.

The Company finalized the purchase price accounting during 2021, allocating the total consideration of $2.1 million to identifiable tangible utility plant assets.

Management estimated fair value of the tangible assets acquired using the cost method with assistance from third-party valuation specialists.

We identified the valuation of the tangible utility plant assets as a critical audit matter.

Management’s determination of fair value of the tangible assets acquired using the cost method required management to make significant estimates and assumptions related to economic lives of the assets, replacement costs, and physical characteristics of the tangible assets acquired.

Auditing these elements involved a high degree of subjectivity, auditor judgment and an increased extent of effort when performing audit procedures, including the use of our valuation specialists.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were

communicated or required to be communicated to the audit committee and that:

(i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on

the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Tangible Assets in TESI Acquisition

As described in Note 16 to the consolidated financial statements, the Company acquired all of the stock of TESI from Middlesex Water Company on January 14,

Management allocated the total purchase price of $3.1 million to the net identifiable assets, based on estimated fair values.

Management allocated $25.4 m illion to

utility plant assets, the majority of which were tangible assets valued using the cost method with assistance from a third-party valuation firm.

We identified the valuation of the utility plant tangible assets in the TESI acquisition as a critical audit matter.

Management’s determination of fair value

of the utility plant tangible assets acquired using the cost method required management to make significant estimates and assumptions related to the useful lives and replacement costs of these tangible assets.

Auditing these elements was complex

because it involved especially subjective auditor judgment, including the extent of specialized skills and knowledge needed.

The primary procedures we performed to address this critical audit matter included:

Assessing the reasonableness of significant underlying assumptions used to calculate the fair value through (i) validating the existence of acquired assets and the reasonableness of attributes such as length and age based on external data, (ii) independently recalculating replacement costs using recent actual costs for similar assets and construction quotes, and (iii) performing procedures to evaluate the appropriateness of the useful lives assigned to the newly acquired assets.

Utilizing personnel with specialized knowledge and skill in valuation to assist in the evaluation of the assumptions and methodologies used in the preparation of the fair value measurements for the utility plant assets.

Utilizing personnel with specialized knowledge and skills in valuation who assisted in evaluating the appropriateness of useful lives and cost

trend assumptions used in estimating replacement costs by comparing them to published third-party sources.

Assessing the appropriateness of useful lives used in estimating replacement costs by comparing to peer company data.

Valuation of Tangible Assets in the Town of Clayton Acquisition

Additionally, as described in Note 16 to the consolidated financial statements, the Company acquired substantially all the water system operating assets from

the Town of Clayton (Clayton) on May 26, 2022.

Management allocated the total purchase price of $5.0 million to the net identifiable assets, based on estimated fair values.

Management allocated $7.9 million to utility plant assets, the majority of

which were tangible assets valued using the cost method with assistance from a third-party valuation firm.

We identified the valuation of the utility plant tangible assets in the Clayton acquisition as a critical audit matter.

Management’s determination of fair

value of the utility plant tangible assets acquired using the cost method required management to make significant estimates and assumptions related to useful lives, replacement costs, and physical characteristics of these tangible assets.

these elements was complex because it involved especially subjective auditor judgment, including the extent of specialized skills and knowledge needed.

The primary procedures we performed to address this critical audit matter included:

Utilizing personnel with specialized knowledge and skills in valuation who assisted in evaluating the appropriateness of useful lives, cost trend

assumptions, and certain physical characteristics of the utility plant tangible assets used in estimating replacement costs by comparing them to third party sources, and independently recalculating the replacement costs.

Assessing the appropriateness of:

The useful lives used in estimating replacement costs by comparing to peer company data,

Certain physical characteristics of the utility plant tangible assets by comparing them to independent external data, and

The replacement costs of certain utility plant tangible assets by comparing to recent actual costs or construction quotes for similar utility plant

tangible assets.

/ s/ BDO USA, LLP

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March 10, 2023

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURES

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-K

Item 8. Financial Statements and Supplementary Data