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Item 7. Management’s Discussion and Analysis

2024-03-18 compared with 2023-03-10 · 296 added, 329 removed, 159 unchanged (80% of the section changed)

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our profitability is primarily attributable to the sale of water and wastewater

services in our regulated utility business.

Our regulated utility segment comprised 90.7% o f total operating revenues for the year ended December 31, 2022 and 93.4%

for the year ended December 31, 2021.

Our profitability is primarily attributable

to the sale of water and wastewater services in our regulated utility business.

Our regulated utility segment comprised 93.1% o f total operating revenues for the

year ended December 31, 2023 and 90.7% for the year ended December 31, 2022.

Water sales are subject to seasonal fluctuations, particularly during summer when water demand may vary with rainfall and temperature.

In the event temperatures during the typically warmer months are cooler

than expected, or rainfall is greater than expected, the demand for water may decrease and our revenues may be adversely affected.

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

In the event temperatures during the

typically warmer months are cooler than expected or rainfall is greater than expected, the demand for water may decrease and our revenues may be adversely affected.

We believe these effects of weather are short term and do not materially affect the

execution of our strategic initiatives.

Our wastewater services provide a revenue stream that is not affected by these changes in weather patterns.

We continue to seek growth opportunities to provide wastewater services in Delaware and the surrounding areas.

Our profitability is also attributed to other non-utility business, such as

various contract operations, water, sewer and internal SLP Plans and other services we provide.

We continue to seek growth opportunities to provide wastewater services in Delaware and the

surrounding areas.

Our profitability is also attributed to other non-utility business, such as various contract operations, water, sewer and internal SLP Plans and other

services we provide.

Our contract operations, SLP Plans and other services also provide a revenue stream that is not affected by changes in weather patterns.

continue to explore and develop relationships with developers and municipalities in order to increase revenues from contract water and wastewater operations, wastewater management services, and design, construction and engineering services.

continue developing and expanding our contract operations and other services in a manner that complements our growth in water service to new customers.

Our anticipated growth in these areas is subject to changes in residential and commercial

construction, which may be affected by interest rates, inflation and general housing and economic market conditions.

We also continue to explore and develop relationships with developers and municipalities in

order to increase revenues from contract water and wastewater operations, wastewater management services, and design, construction and engineering services.

We plan to continue developing and expanding our contract operations and other services in a

manner that complements our growth in water service to new customers.

Our anticipated growth in these areas is subject to changes in residential and commercial construction, which may be affected by interest rates, inflation and general housing and

economic market conditions.

We anticipate continued growth in our non-utility subsidiaries due to our water, sewer, and internal SLP Plans.

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

cumulative effect of inflation results in significantly higher facility replacement costs which must be recovered from future cash flows.

Our ability to recover increases in investments in facilities is dependent upon future rate increases, which are

subject to approval by the applicable regulatory authority.

We can provide no assurances that any future rate increase request will be approved, and if approved, we cannot guarantee that any rate increase will be granted in a timely manner and/or will

be sufficient in amount to cover costs for which we initially sought the rate increase.

The impact of inflation could adversely affect our results of operations, financial position or cash flows.

Materials and Supplies

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 in 2021 and 2022.

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

In addition, as of December 31, 2022, we have increased our quantity of materials and supplies, at an

increased value of approximately $2.8 million, reported in Current Assets – Materials and Supplies on the Company’s Consolidated Balance Sheets.

However, there is no assurance that our future financial results or business operations will not be

negatively affected.

COVID-19 Pandemic

As of December 31, 2022, the Company’s financial results and business operations have not been materially adversely affected by the coronavirus, or COVID-19,

outbreak, which was declared a pandemic in March 2020.

However, we have experienced delays in procuring some materials and supplies as well as increased costs.

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.

cumulative effect of inflation results in significantly higher facility replacement costs as well as increased operating costs, which must be recovered from future cash flows.

Our ability to recover increases in investments in facilities and operating

costs is dependent upon future rate increases, which are subject to approval by the applicable regulatory authority.

We can provide no assurances that any future rate increase request will be approved, and if approved, we cannot guarantee that any

rate increase will be granted in a timely manner and/or will be sufficient in amount to cover costs for which we initially sought the rate increase.

The impact of inflation could adversely affect our results of operations, financial position or cash

Regulated Water Subsidiaries

Artesian Water, Artesian Water Maryland and Artesian Water Pennsylvania provide water service to residential, commercial, industrial, governmental,

municipal and utility customers.

Artesian Water, Artesian Water Maryland and Artesian Water Pennsylvania provide water service to residential, commercial, industrial, governmental, municipal

and utility customers.

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

As of December 31, 2022, the number of metered water customers in Delaware

increased approximately 3.2% compared to December 31, 2021.

As of December 31, 2023, the number of metered water customers in Delaware increased

approximately 1.3% compared to December 31, 2022.

The number of metered water customers in Maryland increased approximately 1.3% compared to December 31, 2022.

The number of metered water customers in Pennsylvania remained consistent

compared to December 31, 2021.

The number of metered water customers in Pennsylvania remained consistent compared to

December 31, 2022.

For the year ended December 31, 2023, approximately 8.7 billion gallons of water were distributed in our Delaware systems and approximately 105.5 million gallons of water were distributed in our Maryland systems.

Artesian Water filed an initial request with the DEPSC on April 28, 2023,

further supplemented with a request filed on November 30, 2023, to implement new rates to meet a requested increase in revenue of 22.66%, or approximately $16.7 million, on an annualized basis.

The actual effective increase is less than 22.66% since

Artesian Water has been permitted to recover specific investments made in infrastructure through the assessment of a 7.50% Distribution System Improvement Charge, or DSIC.

Since the DSIC rate is set to zero when temporary rates are placed into

effect, customers would experience an incremental increase of 15.16%, the net of the overall 22.66% increase less the DSIC rate of 7.50% currently in effect, if the requested increase is granted in full by the DEPSC.

Artesian Water filed an

interim rates application, which was approved, to place into effect on November 28, 2023 a temporary base rate increase of 15% of gross water sales on an annual basis and to reduce the 7.50% DSIC rate to zero, with such interim rates subject to refund,

until permanent rates are determined by the DEPSC.

This is discussed further in our Notes to Consolidated Financial Statements – Note 13 – Regulatory Proceedings.

Regulated Wastewater Subsidiaries

Artesian Wastewater owns wastewater collection and treatment infrastructure and began providing regulated wastewater services to customers in Delaware in

Artesian Wastewater Maryland was incorporated on June 3, 2008 and is able to provide regulated wastewater services to customers in Maryland.

currently providing these services in Maryland.

Our residential and commercial wastewater customers are billed a flat monthly fee, which contributes to providing a revenue

stream unaffected by weather.

The number of Artesian’s Delaware wastewater customers more than doubled compared to December 31, 2021, following the acquisition of Tidewater Environmental Services, Inc., or TESI .

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

Artesian Wastewater and TESI own wastewater collection and treatment infrastructure and provide regulated wastewater services to customers in Sussex County,

Artesian Wastewater Maryland is able to provide regulated wastewater services to customers in Maryland.

It is not currently providing these services in Maryland.

The majority of our residential and commercial wastewater customers are

billed a flat monthly fee, and our large industrial wastewater customer is billed monthly based on wastewater flow, which contributes to providing a revenue stream unaffected by weather.

As of December 31, 2023, the number of Delaware wastewater

customers increased approximately 6.3% compared to December 31, 2022.

Non-Utility Subsidiaries

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private, municipal, and governmental institutions.

Artesian Utility also offers three protection plans to customers, the WSLP Plan, the SSLP Plan, and the ISLP Plan.

Artesian Utility also offers three protection plans to customers:

the WSLP Plan, the SSLP Plan, and the ISLP Plan.

SLP Plan customers are billed a flat monthly or quarterly rate, which contributes to providing a revenue stream unaffected by weather.

There has been consistent customer growth over the years.

As of December 31, 2022, the eligible

customers enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan increased 2.4%, 0.9% and 6.4%, respectively, compared to December 31, 2021.

The non-utility customers enrolled in one of our three protections plans increased 2.5%.

As of December 31, 2023, the eligible customers

enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan increased 2.3%, 3.5% and 12.4%, respectively, compared to December 31, 2022.

The non-utility customers enrolled in one of our three protections plans decreased 3.0%.

Strategic Direction and Recent Developments

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

Delmarva Peninsula.

Our strategy is to increase customer growth, revenues, earnings and dividends by expanding our water, wastewater and

SLP Plan services across the Delmarva Peninsula.

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

Our strategy has included a focus on building strategic partnerships with county governments,

municipalities and developers.

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

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

We believe this experience presents a strong platform for

further expansion and that our success to date also produces positive relationships and credibility with regulators, municipalities, developers and customers in both existing and prospective service areas.

In our regulated water subsidiaries, our strategy is to focus on a wide spectrum of activities, which include strategic acquisitions of existing

systems, expanding certificated service area, identifying new and dependable sources of supply, developing the wells, treatment plants and delivery systems to supply water to customers and educating customers on the wise use of water.

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

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

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

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

our operations within the state.

Our strategy has included a focus on building strategic

partnerships with county governments, municipalities and developers.

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

needs simultaneously.

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

We believe this experience

presents a strong platform for further expansion and that our success to date also produces positive relationships and credibility with regulators, municipalities, developers and customers in both existing and prospective service areas.

In our regulated water subsidiaries, our strategy is to focus on a wide spectrum of activities, which include

strategic acquisitions of existing systems, expanding certificated service area, identifying new and dependable sources of supply, developing the wells, treatment plants and delivery systems to supply water to customers and educating customers on the

wise use of water.

Our strategy includes focused efforts to expand in new regions surrounding our service territory through strategic acquisitions.

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

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

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

operations within the state.

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

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

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

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

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

for new home development and retirement communities.

In the last four

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

We believe that Delaware's generally lower cost of living in the region and availability of development sites in

relatively close proximity to the Atlantic Ocean in Sussex County have resulted, and will continue to result, in increases to our customer base.

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

retirement communities.

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

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

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

The total purchase price was $5.0 million,

less the current payoff amount of secured debt or debt associated with the Clayton Water System.

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

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

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

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

In our regulated wastewater subsidiaries, we foresee significant growth

opportunities and will continue to seek strategic partnerships and relationships with developers and governmental agencies to complement existing agreements for the provision of wastewater service on the Delmarva Peninsula.

There are numerous

locations in Sussex County where Artesian Wastewater’s and Sussex County’s facilities are connected or integrated to allow for the movement and disposal of wastewater generated by one or the other’s system in a manner that most efficiently and cost

effectively manages wastewater transmission, treatment and disposal.

In addition, Artesian Wastewater plans to utilize our larger regional wastewater facilities to expand

service areas to new customers while transitioning our smaller treatment facilities into regional pump stations in order to gain additional efficiencies in the treatment and disposal of wastewater.

We believe this will reduce operational costs at the

smaller treatment facilities in the future because they will be converted from treatment and disposal plants to pump stations to assist with transitioning the flow of wastewater from one regional facility to another.

In addition, since closing the

transaction with TESI noted below, Artesian’s Delaware wastewater subsidiaries are the sole regional regulated wastewater utilities in Delaware, which we believe will enable us to increase efficiencies in the treatment and disposal of wastewater and

provide additional opportunities to expand our wastewater operations.

On January 14, 2022, Artesian Wastewater acquired 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 note due from Middlesex.

This acquisition more than

doubled the number of wastewater customers served by Artesian in Sussex County, Delaware and included all residents in the Town of Milton.

Artesian Wastewater began operating its Sussex Regional Recharge Facility in late June 2021, shortly after our large industrial customer received its

process wastewater treatment operating permit.

The associated customer agreement includes a required minimum wastewater flow.

Pursuant to a settlement agreement, for the calendar year 2021 only, the minimum required volume of wastewater was

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

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

water quality standards, aging infrastructure and acquisitions.

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

infrastructure improvements and expansion in Delaware.

The DEPSC and MDPSC have generally recognized the operating and capital costs associated with these improvements in setting water and wastewater rates for current customers and capacity charges

for new customers.

In our regulated wastewater subsidiaries, we foresee significant growth opportunities and will continue to seek

strategic partnerships and relationships with developers and governmental agencies to complement existing agreements for the provision of wastewater service on the Delmarva Peninsula.

There are numerous locations in Sussex County where Artesian

Wastewater’s and Sussex County’s facilities are connected or integrated to allow for the movement and disposal of wastewater generated by one or the other’s system in a manner that most efficiently and cost effectively manages wastewater transmission,

treatment and disposal.

In addition, Artesian Wastewater plans to utilize our larger regional wastewater facilities to expand service areas to new customers while transitioning our smaller treatment facilities into regional pump stations in order to

gain additional efficiencies in the treatment and disposal of wastewater.

We believe this will reduce operational costs at the smaller treatment facilities in the future because they will be converted from treatment and disposal plants to pump stations

to assist with transitioning the flow of wastewater from one regional facility to another.

In addition, since closing the transaction with TESI noted below, Artesian’s Delaware wastewater subsidiaries are the sole regional regulated wastewater

utilities in Delaware, which we believe will enable us to increase efficiencies in the treatment and disposal of wastewater and provide additional opportunities to expand our wastewater operations.

On January 14, 2022, Artesian Wastewater acquired 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 note due from

This acquisition more than doubled the number of wastewater customers served by Artesian in Sussex County, Delaware and included all residents in the Town of Milton.

The general need for increased capital investment in our water and wastewater systems is due to a combination of

population growth, more protective water quality standards, aging infrastructure and acquisitions.

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

Delaware and Maryland and wastewater infrastructure improvements and expansion in Delaware.

The DEPSC and MDPSC have generally recognized the operating and capital costs associated with these improvements in setting water and wastewater rates for

current customers and capacity charges for new customers.

In our non-utility subsidiaries, we continue pursuing opportunities to expand our contract operations.

Through Artesian Utility, we will seek to

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

Through Artesian Utility, we will seek to expand our

contract design, engineering and construction services of water and wastewater facilities for developers, municipalities and other utilities.

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

Development owns two nine-acre parcels of land, located in Sussex County, Delaware, which will allow for construction of a water treatment facility and wastewater treatment facility.

Artesian Storm Water was formed to expand contract work related to

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies and estimates are those we believe are most important to portraying the financial condition and results of operations and also

require significant estimates, assumptions or other judgments by management.

Note 1 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

The following provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the Company.

Changes in the estimates, assumptions or other judgments included within these

accounting policies could result in a significant change to the financial statements in any quarterly or annual period.

We consider the following policies to be the most critical in understanding the judgment that is involved in preparing our

Artesian Development

owns two nine-acre parcels of land, located in Sussex County, Delaware, which will allow for construction of a water treatment facility and wastewater treatment facility.

CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates are those we believe are most important to portraying the financial condition and results of operations and also require

significant estimates, assumptions or other judgments by management.

Note 1 (Summary of Significant Accounting Policies) to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the

consolidated financial statements.

Senior management has discussed the selection and development of our critical accounting policies and estimates with the Audit Committee of the Board of Directors.

The following provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the Company.

Changes in the estimates, assumptions or other

judgments included within these accounting policies could result in a significant change to the financial statements in any quarterly or annual period.

We consider the following policies to be the most critical in understanding the judgment that is

involved in preparing our Consolidated Financial Statements.

Senior management has discussed the selection and development of our critical accounting estimates with the Audit Committee of the Board of Directors.

All additions to utility plant are recorded at cost.

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

Cost includes direct labor, materials, AFUDC (see description in Note 1-Utility Plant) and indirect charges for items such 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.

Cost includes direct labor, materials, Allowance for Funds Used during Construction, or AFUDC, (see description in Note 1-Utility Plant) and indirect charges for items

such 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

We record water service revenue, including amounts billed to customers, on a cycle basis and unbilled amounts based upon estimated usage from the date of the

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We record accounts receivable 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.

A provision for

expected credit loss 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, the Company experienced longer receivable cycles throughout 2020, and into 2021, related to temporary executive orders issued

by state governmental agencies requiring utility companies to prohibit late fees and service disconnections for non-payment, resulting in an adjustment to increase the reserve for bad debt.

During 2022, the Company experienced receivable cycles similar

to those experienced prior to 2020.

accordingly, the related provision for expected credit loss and associated bad debt expense has not been significant.

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

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for companies whose rates are established or subject to approvals by a third-party regulatory agency.

Our regulated subsidiaries record deferred regulatory assets

under FASB ASC Topic 980, which are costs that may be recovered over various lengths of time as prescribed by the DEPSC, MDPSC and PAPUC.

As the utility incurs certain costs, such as expenses related to rate case applications, a deferred regulatory

asset is created.

Adjustments to these deferred regulatory assets are made when the DEPSC, MDPSC or PAPUC determines whether the expense is recoverable in rates, the length of time over which an expense is recoverable, or, because of changes in

circumstances, whether a remaining balance of deferred expense is recoverable in rates charged to customers.

In addition, our regulated subsidiaries record deferred

and/or amortized regulatory liabilities under FASB ASC Topic 980, as determined by the DEPSC, the MDPSC, and the 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.

Adjustments to reflect changes in recoverability of certain deferred regulatory assets or certain deferred regulatory liabilities may have a significant effect on our financial results.

Our regulated subsidiaries record deferred regulatory assets under FASB ASC Topic 980, which are costs that may be recovered over various lengths of

time as prescribed by the DEPSC, MDPSC and PAPUC.

As the utility incurs certain costs, such as expenses related to rate case applications, a deferred regulatory asset is created.

Adjustments to these deferred regulatory assets are made when the

DEPSC, MDPSC or PAPUC determines whether the expense is recoverable in rates, the length of time over which an expense is recoverable, or, because of changes in circumstances, whether a remaining balance of deferred expense is recoverable in rates

charged to customers.

In addition, our regulated subsidiaries record deferred and/or amortized regulatory liabilities under FASB ASC Topic 980, as determined by the DEPSC, the MDPSC, and the 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.

Adjustments to reflect changes in recoverability of certain deferred regulatory assets or certain deferred

regulatory liabilities may have a significant effect on our financial results.

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.

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.

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

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Operating Revenues

Revenues totaled $98.9 million for the year ended December 31, 2022, $8.0 million, or 8.8%, more than revenues for the year ended December 31, 2021 .

Revenues totaled $98.9 million for each of the years ended December 31, 2023 and December 31, 2022 .

Water sales revenue increased $1.7 million, or 2.2%, for the year ended December 31, 2023 from the corresponding period in 2022, primarily as a result of a

temporary rate increase of net 7.50% of gross water sales placed into effect on November 28, 2023, as permitted under Delaware law, until permanent rates are determined by the DEPSC, and an increase in overall water consumption.

Since the DSIC rate is

set to zero when temporary rates are placed into effect, the temporary rate increase is 15.0%, less the DSIC rate of 7.50% that was previously in effect.

In addition, fixed fee revenue increased related to added customers.

We realized 81.0% and 79.2%

of our total operating revenue for the years ended December 31, 2023 and December 31, 2022, respectively, from the sale of water.

Other utility operating revenue increased approximately $0.7 million, or 6.0%, for the year ended December 31, 2023 compared to the year ended December 31,

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

residential customer growth.

Non-utility operating revenue increased approximately $3.2 million, or 55.3%, for the year ended December 31, 2022 compared to the same period in 2021.

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

Water sales revenue increased $0.5 million, or 0.6%, for the year ended December 31, 2022 from the corresponding period in 2021, primarily due to an increase

in fixed fee revenue related to added customers.

We realized 79.2% and 85.7% of our total operating revenue for the years ended December 31, 2022 and December 31, 2021, respectively, from the sale of water.

This increase is primarily due to an increase in wastewater revenue associated with customer growth and an increase in fee revenue related to inspections and service and finance charges.

Non-utility operating revenue decreased approximately $2.4 million, or 26.9%, for the year ended December 31, 2023 compared to the same period in 2022.

decrease is primarily due to a decrease in contract service revenue related to a contract for the design and construction of wastewater infrastructure now nearing completion, partially offset by an increase in Service Line Protection Plan revenue.

Percentage of Operating Revenues

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Non-utility operating revenues

Residential water service revenues in 2022 amounted to $48.1 million, a decrease of $0.1 million, or 0.2%, below the $48.2 million recorded in 2021,

primarily due to a decrease in overall water consumption.

The volume of water sold to residential customers decreased to 4,209 million gallons in 2022 compared to 4,230 million gallons in 2021, a 0.5% decrease.

Residential water service revenues in 2023 amounted to $49.6 million, an increase of $1.5 million, or 3.0%, above the $48.1 million recorded in 2022,

primarily due to an increase in overall water consumption and a temporary rate increase placed into effect on November 28, 2023.

The volume of water sold to residential customers increased to 4,340 million gallons in 2023 compared to 4,209 million

gallons in 2022, a 3.1% increase.

The number of residenti al customers served increased by approximately 1,300, or 1.4%, in 2023.

Water service revenues from commercial customers in 2022 decreased by 0.6%, to

$17.5 million in 2022 from $17.6 million in 2021, primarily due to a decrease in overall water consumption.

The volume of water sold to commercial customers

decreased to 2,232 million gallons in 2022 compared to 2,237 million gallons sold in 2021, a decrease of 0.2%.

Water service revenues from commercial customers in 2023 increased by 0.9%, to

$17.6 million in 2023 from $17.5 million in 2022, primarily due to a temporary rate increase placed into effect on November 28, 2023.

The volume of water sold to

commercial customers decreased to 2,231 million gallons in 2023 compared to 2,232 million gallons sold in 2022, a decrease of 0.1%.

Water service revenues from industrial customers increased to $84,000 in 2023 from $79,000 in 2022.

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Government and other water service revenues in 2023 increased by 0.8%, to $12.7

million in 2022 from $12.0 million in 2021, primarily due to an increase in overall water consumption.

The volume of water sold to government and other customers

increased to 1,337 million gallons in 2022 compared to 1,155 million gallons in 2021, an increase of 15.8%.

million in 2023 from $12.6 million in 2022, primarily due to a temporary rate increase placed into effect on November 28, 2023.

The volume of water sold to

government and other customers decreased to 1,250 million gallons in 2023 compared to 1,337 million gallons in 2022, a decrease of 6.5%.

Other Utility Operating Revenue

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increased 6.0%, to $12.2 million in 2023 from $11.5 million in 2022.

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

industrial wastewater services that started in June 2021, as well as organic residential customer growth.

This increase is primarily due to an increase in wastewater revenue associated with customer growth and an increase in fee revenue related to inspections and service and

finance charges.

Non-Utility Operating Revenue

Non-utility operating revenue, derived from non-regulated water and wastewater

operations, increased by 55.3%, to $9.1 million in 2022 from $5.8 million in 2021.

The increase is primarily due to an increase in contract service revenue related to a contract for the design and construction of wastewater infrastructure and

an increase in Service Line Protection Plan revenue.

operations, decreased by 26.9%, to $6.6 million in 2023 from $9.1 million in 2022.

This decrease is primarily due to a decrease in contract service revenue related to a contract for the design and construction of wastewater infrastructure

now nearing completion, partially offset by an increase in Service Line Protection Plan revenue.

Operating Expenses

Operating expenses, excluding depreciation and income taxes, increased $5.6 million, or 10.9%, for the year ended December 31, 2022 compared to the

year ended December 31, 2021.

The components of the change in operating expenses primarily include an increase in non-utility operating expenses of $2.9 million, an increase in utility operating expenses of $2.4 million and an increase in property

and other taxes of $0.3 million.

Non-utility operating expenses increased $2.9 million, or 73.8%, primarily due to an increase in costs associated with the wastewater infrastructure design and construction contract and an increase in plumbing services related to Service Line Protection Plan repairs.

Operating expenses, excluding depreciation and income taxes, increased $0.2 million, or 0.4%, for the year ended December 31, 2023 compared to the year ended

December 31, 2022.

The components of the change in operating expenses primarily include an increase in utility operating expenses of $2.4 million, a decrease in non-utility operating expenses of $2.4 million and an increase in property and other taxes

of $0.2 million.

Utility operating expenses increased $2.4 million, or 5.6%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

increase is primarily related to the following.

Payroll and employee benefit costs increased $1.6 million,

primarily related to an increase in overall compensation and an increase in medical benefit costs.

Administrative costs increased $1.2 million, primarily due to outside contract services for wastewater

treatment and station maintenance associated with the TESI acquisition and adjustments made in 2021 to reduce the additional bad debt reserve from 2020 associated with the COVID-19 pandemic.

Repair and maintenance costs increased $0.9 million, primarily related to an increase in overall

maintenance costs related to the TESI acquisition.

In addition, tank painting and fuel costs increased.

This increase in repair and maintenance costs is partially offset by reimbursements from the Delaware Sand and Gravel Remedial Trust for

Artesian Water’s operating costs related to certain treatment costs pursuant to a settlement agreement.

Water treatment costs

increased $0.6 million , primarily related to an increase in the cost and usage of water and wastewater treatment chemicals and an increase in water treatment testing costs.

Purchased power costs increased $0.5 million, primarily due to an increase in usage related to the

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

Purchased water costs decreased $2.4 million, related to a decrease of water purchased under a new

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

Property and other taxes increased $0.3 million, or 5.1%, primarily due to an increase in utility plant subject to taxation.

Property taxes are assessed on

land, buildings and certain utility plant, which include the footage and size of pipe, hydrants and wells.

Payroll and employee benefit costs increased $1.0 million, primarily related to an increase in medical premium costs, employee merit increases, and

a decrease in capitalized payroll related to a 2022 software upgrade, partially offset by a decrease in bonuses compared to 2022.

Administrative costs increased $0.7 million, primarily due to

increases in computer system maintenance costs, and customer billing costs.

Supply and treatment costs

increased $0.7 million , primarily due to an increase in the cost and volume of chemicals used, an increase in wastewater treatment costs, a one-time acquisition adjustment related to TESI in 2022 and a reimbursement from the Delaware

Sand and Gravel Remedial Trust, or DS&G Trust, in 2022 for Artesian Water’s operating costs related to certain 2021 treatment costs pursuant to a settlement agreement.

These increases are partially offset by a decrease in filter media

replacement costs related to varying replacement schedules.

Transmission, distribution and collection costs increased $0.3 million, primarily associated with tank

painting costs and maintenance and repair of transmission mains.

Purchased power costs increased $0.2 million due to an increase in usage in wastewater and water

Purchased water costs decreased $0.5 million, primarily related to a decrease of water purchased under

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

Non-utility operating expenses decreased $2.4 million, or 35.4%, primarily due

to a decrease in costs associated with a wastewater infrastructure design and construction contract.

Property and other taxes increased $0.2 million, or 3.9%, primarily due to an increase in utility plant subject to taxation and an increase in payroll taxes,

related to increased payroll related expenses.

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

Percentage of Operating and Maintenance Expenses

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Administrative

Purchased Water

Repair and Maintenance

Supply and Treatment

Purchased Power

Water Treatment

Transmission, Distribution and Collection

Purchased Water

Non-utility Operating

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

Federal and state income tax expense increased $0.1 million, or 2.5%, primarily due to higher pre-tax income in 2022 compared to 2021, partially offset

by a decrease related to stock options exercised.

Other Income, Net

Other income, net increased $0.5 million, primarily due to a $0.5

million increase in AFUDC, as a result of higher long-term construction activity subject to AFUDC for the year ended December 31, 2022 compared to the same period in 2021.

Federal and state income tax expense increased $0.5 million, or 8.2%, primarily due to the recognition of additional valuation allowances on deferred tax

assets related to state net operating losses and stock options exercised in the year of 2022, with no similar activity in 2023, partially offset by lower pre-tax income in 2023 compared to 2022.

Other income increased $0.8 million, primarily due to a $0.7 million

increase in AFUDC, as a result of higher long-term construction activity subject to AFUDC for the year ended December 31, 2023 compared to the same period in 2022.

Miscellaneous income increased $0.1 million related to an increase in the annual

patronage refund from CoBank, ACB.

Interest Charges

Long-term debt interest increased $0.9 million, primarily related to an

increase in long-term debt interest associated with the Series W First Mortgage Bond issued on April 29, 2022 .

Our net income applicable to common stock increased $1.2 million, or 7.0%.

Total operating revenues increased $8.0 million and AFUDC increased $0.5 million,

partially offset by a $6.4 million increase in total operating expenses and $0.9 million increase in interest charges.

Total interest charges increased $0.7 million, or 7.7%.

Long-term debt interest

expense increased $0.5 million, primarily related to an increase in long-term debt interest associated with the Series W First Mortgage Bond issued on April 29, 2022 and an increase in the level of State Revolving Fund Loans .

Short-term debt interest expense increased $0.1 million, primarily related to higher interest rates.

The average short-term interest rate for the twelve months ended December

31, 2023 was 6.27% compared to 3.04% for the same period in 2022.

Our net income applicable to common stock decreased $1.3 million, or 7.2%.

Water sales and other operating revenue increased $2.4 million and other income

increased $0.8 million, offset by a $2.4 million decrease in non-utility operating revenue, a $1.4 million increase in total operating expenses and $0.7 million increase in interest charges.

Part I, Item 7.

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The Company’s primary sources of liquidity for the year ended December 31, 2023

were $24.3 million of cash provided by operating activities, $16.4 million in net contributions and advances from developers, which includes $2.0 million of grant funds from the State of Delaware, $31.8 million from the issuance of long-term

debt and $2.1 million in net proceeds from the issuance of common stock.

These funds were used to invest $48.5 million in capital expenditures and $6.3 million in

acquisitions and to pay dividends of approximately $10.3 million.

were $37.1 million in net proceeds from the issuance of Class A Non-Voting Stock, $31.9 million of cash provided by operating activities and $22.5 million in net contributions and advances from developers.

Funds from these liquidity sources

were used to invest $62.2 million in capital expenditures and to pay dividends of approximately $11.2 million.

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

We rely on our sources of liquidity for investments in our

utility plant and to meet our various payment obligations.

We rely on our sources of liquidity for investments in our utility

plant and to meet our various payment obligations.

We expect that our net investments in utility plant in 2024 will be approximately $51.6 million.

Our total obligations related to interest and principal payments on indebtedness, rental

payments, elevated storage tank agreements and water service interconnection agreements for 2023 are anticipated to be approximately $31.8 million.

Our total obligations related to interest and principal payments on indebtedness, rental payments,

elevated storage tank agreements and water service interconnection agreements for 2024 are anticipated to be approximately $12.0 million.

Operating Activities

One of our primary sources of liquidity for the year ended December 31, 2022 was

$24.3 million provided by cash flow from operating activities.

Cash flow from operating activities is primarily provided by our utility operations, and is impacted by the timeliness and adequacy of rate increases and changes in water

consumption as a result of year-to-year variations in weather conditions, particularly during the summer.

A significant part of our ability to maintain and meet our financial objectives is to ensure that our investments in utility plant and equipment

are recovered in the rates charged to customers.

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

We will continue to borrow on available lines of

credit in order to satisfy current liquidity needs.

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

using net cash from operating activities.

One of our primary sources of liquidity

for the year ended December 31, 2023 was $31.9 million provided by cash flow from operating activities, compared to $24.3 million for the year ended December 31, 2022.

The increase in cash flows from operating activities primarily resulted from

lower accounts payable and accrued expenses related to increased capital investments and lower accounts receivable balances.

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

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

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

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

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

See our Notes to Consolidated Financial Statements - Note 13 – Regulatory Proceedings.

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

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

Investment Activities

The primary focus of our investment in 2022 was to continue to provide high quality, reliable service to our growing service territory.

expenditures during 2022 were $48.5 million compared to $40.8 million invested during the same period in 2021.

During 2022, we continue to focus our investment through our rehabilitation program for transmission and distribution facilities by

replacing aging or deteriorating mains, installation of new mains, enhancing or improving existing treatment facilities, construction of new water storage tanks, and replacing aging wells and pumping equipment to better serve our customers.

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

We also continue to invest in wastewater projects, including the acquisition of TESI in January 2022.

The primary focus of our investment in 2023 was to continue to provide high

quality, reliable service to our growing service territory.

Capital expenditures during 2023 were $62.2 million compared to $48.5 million invested during the same period in 2022.

During 2023, we invested in our rehabilitation program for transmission and distribution facilities by replacing aging or deteriorating mains, installation of new mains, enhancing or improving existing treatment

facilities, construction of new water storage tanks, and replacing aging wells and pumping equipment to better serve our customers.

We also continue to invest in wastewater treatment and distribution facilities.

Developers contributed $8.3 million

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Transmission and distribution

General plant and equipment

General plant

Developer financed utility plant

Wastewater facilities

Allowance for Funds Used During Construction, AFUDC

Of the $67.3 million gross investment expected in 2023, approximately $10.5 million will be for extending transmission and distribution facilities to address

service needs in growth areas of our service territory.

Approximately $16.4 million will be invested in renewals associated with the rehabilitation of aging infrastructure.

Approximately $12.0 million will be invested in upgraded PFAS treatment

equipment, an elevated storage tank, both additional and restored water treatment facilities, and equipment and wells throughout Delaware, Maryland, and Pennsylvania to identify, develop, treat, and protect sources of water supply to assure

uninterrupted service to our customers.

Approximately $9.8 million will be invested in the construction of force mains used for the transmission of wastewater to plants.

Allowance for Funds Used During Construction, AFUDC, equity portion

Of the $55.6 million gross investment expected in 2024, approximately $16.4 million will be invested in upgraded

PFAS treatment equipment, the rehabilitation and upgrading of two elevated storage tanks, booster station improvements, and equipment and wells throughout Delaware, Maryland, and Pennsylvania to identify, develop, treat, and protect sources of water

supply to assure uninterrupted service to our customers.

Approximately $8.8 million will be invested in the relocations of facilities as a result of government mandates.

Approximately $7.2 million will be invested into the ongoing construction of a

regional wastewater treatment plant along with improvements to existing wastewater treatment plants and wastewater pumping stations.

Approximately $7.5 million will be invested in general plant, which includes replacement computer hardware,

transportation and equipment upgrades, new corporate automation, and building renovations.

Approximately $2.4 million will be invested in the relocations of facilities as a result of government mandates.

Additionally, we will refund $0.8 million to

customers, real estate developers and builders related to previous advances for construction they provided to Artesian for distribution facilities on their properties.

Approximately $6.2 million will be invested in renewals associated with the rehabilitation of aging infrastructure.

Approximately $6.6 million will be invested in the construction of force mains used for the transmission of wastewater to plants.

Approximately $5.8 million will be invested in general plant, which includes vehicles and other heavy duty operations

related equipment, replacement computer hardware and software, equipment upgrades, new corporate automation, station security upgrades, radio communication upgrades and building renovations.

Approximately $4.0 million will be for extending

transmission and distribution facilities to address service needs in growth areas of our service territory.

Additionally, we will refund $0.6 million to customers, real estate developers and builders related to previous advances for construction they

provided to Artesian for distribution facilities on their properties.

Our projected capital expenditures and other investments are subject to periodic review, and revision to reflect changes in economic conditions and other

The Company’s investment for 2023 is expected to be offset by developer contributions of $7.1 million and grant funds from the State of Delaware of $3.2 million, for a net investment of $57.0 million in 2023.

The Company believes the net

investment in utility plant will continue to be recovered through rates charged to customers.

The Company's investment for 2024 is expected to be offset by developer contributions of $4.0 million for a net investment of $51.6 million in 2024.

The Company believes the net investment in utility plant will continue to be recovered

through rates charged to customers.

Financing Activities

We have several sources of liquidity to finance our investment in utility plant

and other fixed assets.

For the year ended December 31, 2023, cash flows provided by financing

activities were $31.3 million, compared to $31.7 million for the year ended December 31, 2022.

The cash flows provided by financing activities decreased due to increased repayments of lines of credit, lower issuance of long-term debt and higher

stock dividend payments, mostly offset by higher proceeds from the issuance of common stock and an increase in net advances and contributions from developers.

We have several sources of liquidity to finance our investment in utility plant and other

fixed assets.

Our primary source of liquidity from financing activities for the year ended December 31, 2023 was $37.1 million in net proceeds from the issuance of Class A Non-Voting Stock.

On May 23, 2023 and June 16, 2023, the Company

completed the sale of 695,650 shares and 67,689 shares of its Class A Non-Voting Stock, respectively.

Other sources of liquidity include $22.5 million in net contributions and advances from developers, which includes $3.8 million of grant funds from

the State of Delaware and $5.6 million from the issuance of long-term debt.

We estimate that future investments will be financed by our operations and external sources.

We expect to fund our activities for the next twelve months using our projected cash generated from operations, bank credit lines,

state revolving fund loans, government grants, and other capital market financing as needed to provide sufficient working capital to maintain normal operations, to meet our financing requirements and to expand through strategic acquisitions.

We believe that our cash on hand and future cash generated from the foregoing activities will provide adequate resources to fund our short-term and long-term capital, operating and financing needs.

However, there is no assurance that we will be able to

secure funding on terms acceptable to us, or at all.

Our cash flows from operations are primarily derived from water sales revenues and may be materially affected by changes

in water sales due to weather and the timing and extent of increases in rates approved by state public service commissions.

expect to fund our activities for the next twelve months using our projected cash generated from operations, bank credit lines, state revolving fund loans, government grants, and other capital market financing as needed to provide sufficient

working capital to maintain normal operations, to meet our financing requirements and to expand through strategic acquisitions.

We believe that our cash on hand and future cash generated from the foregoing activities will provide adequate resources to

fund our short-term and long-term capital, operating and financing needs.

However, there is no assurance that we will be able to secure funding on terms acceptable to us, or at all.

Our cash flows from operations are primarily derived from water sales revenues and may be materially affected by changes in water sales due to weather and the timing and extent of increases in rates approved by state public service

Material Cash Requirements

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

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

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%.

SOFR cannot be less than 0.00%.

The LIBOR rate for USD currency was discontinued as of 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%, which was increased to

1.10% effective August 3, 2023.

Term SOFR cannot be less than 0.00%.

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 term of this line of credit expires on the

earlier of May 20, 2024 or any date on which Citizens demands payment.

The Company expects to renew this line of credit.

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Total contractual cash obligations

Artesian’s long-term debt agreements and revolving lines of credit contain customary affirmative and negative covenants that are binding on us (which are in

some cases subject to certain exceptions), including, but not limited to, restrictions on our ability to make certain loans and investments, guarantee certain obligations, enter into, or undertake, certain mergers, consolidations or acquisitions,

Artesian’s long-term debt agreements and revolving lines of credit contain customary affirmative and negative covenants that are binding on us (which are

in some cases subject to certain exceptions), including, but not limited to, restrictions on our ability to make certain loans and investments, guarantee certain obligations, enter into, or undertake, certain mergers, consolidations or acquisitions,

transfer certain assets or change our business.

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We have not experienced conditions that would result in our default under these agreements.

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.

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 DEPSC 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 May 26, 2022, Artesian Water completed its purchase of substantially all of the water operating assets from the Town of Clayton, or

The total purchase price was $5.0 million, less the current payoff amount of secured debt or debt associated with the water operating assets.

At closing, Artesian Water paid approximately $3.4 million of the total purchase price.

remaining $1.6 million is payable in five equal annual installments on the anniversary date of the closing date.

The asset purchase contractual obligation is related to the purchase of substantially all of the water operating assets from the Town of Clayton, or

Clayton, in May 2022, by Artesian Water.

The total purchase price was $5.0 million.

At closing, Artesian Water paid approximately $3.4 million.

The remaining $1.6 million is payable in 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%.

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.

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 Projects.

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.

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

The Fee shall be paid semiannually on each June 1 and December 1, beginning on June 1, 2023.

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.

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

Services, LLC effective from September 2018 through May 2022.

In February 2021, Artesian Water entered into a new electric supply contract with MidAmerican that is effective from May 2021 to May 2025.

In order to control purchased power cost, in February 2021, Artesian Water entered into an electric supply contract with MidAmerican that is effective from

May 2021 to May 2025.

The fixed rate was lowered 5.6% starting in May 2021.

In August 2018, Artesian Water Maryland entered into an electric supply agreement with Constellation NewEnergy, Inc., effective from May 2019 through May 2022.

In February 2022, Artesian Water Maryland entered into an electric supply agreement

with Constellation NewEnergy, Inc., effective from May 2022 through November 2025.

In January 2022, following the acquisition of Tidewater Environmental Services, Inc., TESI dba Artesian Wastewater assumed an electricity supply contract with WGL

Energy that is effective through December 2024.

Payments for unconditional purchase obligations reflect minimum water purchase obligations based on rates that are subject to change under two

interconnection agreements with the 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 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.

In addition, payments for unconditional purchase obligations reflect minimum water purchase obligations based on a contract rate under our interconnection agreement with the Town of North East, which expires

June 26, 2024.

In February 2022, Artesian Water Maryland entered into an electric supply agreement with Constellation NewEnergy, Inc., effective from May 2022 through November 2025.

January 2022, following the acquisition of Tidewater Environmental Services, Inc.

dba Artesian Wastewater, or TESI, assumed an electricity supply contract with WGL Energy that is effective through December 2024.

These fixed rate electric supply

contracts are for normal purchases and are not derivative instruments.

Payments for unconditional purchase obligations reflect minimum water purchase obligations based on rates that are subject to change under an interconnection

agreement with the Chester Water Authority.

The 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.

In addition, payments for unconditional purchase obligations reflect minimum water purchase obligations based on a

contract rate under our interconnection agreement with the Town of North East, which expires June 26, 2024.

The agreement includes two automatic five-year renewal terms, unless terminated by either party.

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

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IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 19 to our Consolidated Financial Statements for a full description of the impact of recent accounting pronouncements.

See Note 19 (Impact of Recent Accounting Pronouncements) to our Consolidated Financial Statements for a full description of the impact of recent accounting

pronouncements.

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 7. Management’s Discussion and Analysis