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Item 7. Management’s Discussion and Analysis

2025-03-26 compared with 2024-03-18 · 210 added, 299 removed, 156 unchanged (77% 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 93.1% o f total operating revenues for the

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

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

services in our regulated utility business.

Our regulated utility segment comprised 93.5% o f total operating revenues for the year ended December 31, 2024 and 93.1%

for the year ended December 31, 2023.

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 initiatives.

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

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.

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

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

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 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.

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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, 2023, the number of metered water customers in Delaware increased

approximately 1.3% compared to December 31, 2022.

As of December 31, 2024, the number of metered water customers in Delaware

increased approximately 1.6% compared to December 31, 2023.

The number of metered water customers in Maryland increased approximately 2.3% compared to December 31, 2023.

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

December 31, 2022.

The number of metered water customers in Pennsylvania remained consistent

compared to December 31, 2023.

For the year ended December 31, 2024, approximately 9.4 billion gallons of water were distributed in our Delaware systems and approximately 106.7 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

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There has been consistent customer growth over the years.

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%.

As of December 31, 2024, the eligible

customers enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan increased 3.1%, 4.0% and 2.2%, respectively, compared to December 31, 2023.

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

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.

years, we have completed several 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.

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

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 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.

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, 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.

In April 2024, Artesian Wastewater received a permit from the Delaware Department of Natural Resources and Environmental Control for construction of a

625,000 gallon per day regional wastewater treatment facility, including a primary receiving headworks at its Sussex Regional Recharge Facility, or SRRF.

Under its previous permit, SRRF provided solely land disposal services for a single commercial

processing and treatment plant.

Under its new permit, SRRF will continue providing those disposal services alongside the new treatment plant.

The new treatment facility will provide service for Artesian Wastewater’s regional system comprised

primarily of residential and small commercial customers.

The construction will also include the primary receiving facility for untreated effluent, sized to allow for the expansion of the regional treatment system planned for the site.

treatment facility will utilize the existing disposal infrastructure and is expected to be completed by the third quarter of 2025.

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.

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.

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

CRITICAL ACCOUNTING ESTIMATES

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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.

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.

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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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, we believe the overall total

estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption.

We record accounts receivable at the invoiced amounts.

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 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.

The Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 980 stipulates generally accepted accounting principles

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.

While actual usage for individual customers may differ from the estimate, we believe the overall total estimate of

consumption and revenue for the fiscal period will not differ materially from actual billed consumption.

Deferred income taxes

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

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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.

We review for impairment of our long-lived assets, including

utility plant in service, in accordance with the requirements of FASB ASC Topic 360.

We review regulatory assets for the continued application of FASB ASC Topic 980.

Our review determines whether there have been changes in circumstances or events

that have occurred that require adjustments to the carrying value of these assets.

Adjustments to the carrying value of these assets would be made in instances where changes in circumstances or events indicate the carrying value of the asset may not

be recoverabl e in rates charged to customers.

The Company believes there are no impairments in the carrying amounts of its long-lived assets or regulatory assets at December

In accordance with FASB ASC Topic 350, the accounting guidance for testing goodwill , the Company assesses goodwill for impairment annually or more frequently if we encounter events or changes in circumstances that would indicate that, more

likely than not, the carrying value of goodwill has been impaired .

If the carrying value of the reporting unit exceeds its implied fair value, the Company will recognize an impairment charge for the difference up to the carrying value of the

allocated goodwill.

There was no impairment of goodwill as of December 31, 2023.

Results of Operations

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Operating Revenues

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

Revenues totaled $108.0 million for the year ended December 31, 2024, an increase of $9.1 million, or 9.2%, over the revenues for the year ended December 31,

Water sales revenue increased $8.0 million, or 10.1%, for the year ended December 31, 2024 from the corresponding period in 2023, 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.

temporary rate increase of 14.6% of gross water sales placed into effect on November 28, 2023, as permitted under Delaware law.

These temporary rates were replaced with the final approved rates pursuant to a DEPSC order that authorized a total

increase of approximately 15.2%, which went into effect on June 12, 2024.

The increase in both temporary rates and final approved customer base rates was partially offset by the Company’s DSIC rate of 7.50% resetting to zero upon implementation of the

temporary rate increase.

In addition, there was an increase in overall water consumption due to drier weather experienced during the year ended December 31, 2024 compared to the same period in 2023 and an increase in the number of customers served.

We realized 81.6% and 81.0% of our total operating revenue for the years ended December 31, 2024 and December 31, 2023, respectively, from the sale of water.

Other utility operating revenue increased approximately $0.9 million, or 7.7%, for the year ended December 31, 2024 compared to the year ended December 31,

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.

This increase is primarily due to an increase in wastewater revenue associated with an increase in the number of customers served.

Non-utility operating revenue increased approximately $0.1 million, or 1.7%, for the year ended December 31, 2024 compared to the same period in 2023,

primarily due to an increase in SLP Plan revenue, partially offset by a decrease in contract service revenue related to a contract for the design and construction of wastewater infrastructure that was mostly completed in prior years.

Percentage of Operating Revenues

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Residential water service revenues in 2024 amounted to $53.9 million, an increase of $4.4 million, or 8.8%, above the $49.6 million recorded in 2023,

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.

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

The volume of water sold to residential customers increased to 4,522 million gallons in 2024 compared to 4,340 million gallons in

2023, a 4.2% increase.

The number of residenti al customers served increased by approximately 1,500, or 1.7%, in 2024.

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.

The volume of water sold to industrial customers

increased to 10.3 million gallons in 2023 from 9.6 million gallons in 2022.

Water service revenues from commercial customers in 2024 amounted to $19.4 million,

an increase of $1.8 million, or 10.1%, above the $17.6 million in 2023, primarily due to a rate increase placed into effect on November 28, 2023.

The volume of

water sold to commercial customers increased to 2,277 million gallons in 2024 compared to 2,231 million gallons sold in 2023, an increase of 2.1%.

Government and Other

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

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%.

Government and other water service revenues in 2024 amounted to $14.7 million,

an increase of $1.9 million, or 14.8%, above the $12.8 million in 2023, primarily due to a rate increase placed into effect on November 28, 2023 and an increase in overall water consumption.

The volume of water sold to government and other customers increased to 1,320 million gallons in 2024 compared to 1,260 million gallons in 2023, an increase of 4.8%.

Other Utility Operating Revenue

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increased 7.7%, to $13.1 million in 2024, from $12.2 million in 2023.

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.

This increase is primarily due to an increase in wastewater revenue associated with an increase in the number of customers served.

Non-Utility Operating Revenue

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

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.

operations, increased by 1.7%, to $6.7 million in 2024 from $6.6 million in 2023.

This increase is primarily due to an increase in SLP Plan revenue, partially offset by a decrease in contract service revenue related to a contract for the

design and construction of wastewater infrastructure that was mostly completed in prior years .

Operating Expenses

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 $1.0 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.

Operating expenses, excluding depreciation and income taxes, increased $4.1 million, or 7.3%, for the year ended December 31, 2024 compared to the year

ended December 31, 2023.

Utility operating expenses increased $3.6 million,

The increase in utility operating expenses consists of a $1.1 million increase in supply and treatment costs, a $0.9 million increase in payroll and employee

benefits costs, a $0.5 million increase in each of transmission, distribution and collection system costs and administrative costs, a $0.3 million increase in purchased power costs and a $0.2 million increase in purchased water costs.

Non-utility operating expenses increased $0.3 million, or 7.1%, primarily due to an increase in plumbing repair costs associated with the SLP Plans and an increase in payroll and employee benefits costs.

Property and other taxes increased $0.2 million, or 3.6%, primarily due to an increase in New Castle County, Delaware tax rates on utility plant, an increase

in utility plant subject to taxation and an increase in payroll taxes.

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

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

Federal and state income tax expense increased $0.5 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.

Federal and state income tax expense increased $1.0 million, or 15.2%, primarily due to higher pre-tax income, lower state net operating loss valuation

allowance, and higher regulatory deferred income tax amortization in 2024 compared to 2023.

Other income decreased $0.4 million, primarily due to a decrease in

allowance for funds used during construction, or AFUDC, as a result of lower long-term construction activity subject to AFUDC for the twelve months ended December 31, 2024 compared to the same period in 2023.

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.

Interest charges decreased $0.4 million, primarily due to a decrease in short-term debt interest related to lower borrowing levels on the Company’s

lines of credit.

Our net income applicable to common stock increased $3.7 million, or 22.1%.

Total revenue increased $9.1 million and interest charges decreased $0.4

million, offset by a $5.4 million increase in total operating expenses and $0.4 million decrease in other income.

Part I, Item 7.

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The Company’s primary sources of liquidity for the year ended December 31, 2024

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.

were $36.8 million of cash provided by operating activities and $20.4 million in net contributions and advances from developers.

Funds from these liquidity sources were used to invest $45.9 million in capital expenditures and to pay dividends

of approximately $12.2 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 2025 will be approximately $46.4 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.

Our total obligations related to interest and

principal payments on indebtedness, rental payments, elevated storage tank agreements and water service interconnection agreements for 2025 are anticipated to be approximately $11.6 million.

Operating Activities

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for the year ended December 31, 2024 was $36.8 million provided by cash flow from operating activities, compared to $31.9 million for the year ended December 31, 2023.

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.

The increase in cash flows from operating activities is primarily due to changes

in net income, materials and supplies, and income tax receivable.

Cash flows 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.

See Note 13 – Regulatory Proceedings.

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

Investment Activities

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Capital expenditures during 2024 were $45.9 million compared to $62.2 million invested during the same period in 2023.

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

of the total investment during the year ended 2023.

During 2024, these investments include relocation of

facilities as a result of government mandates, renewals associated with the rehabilitation of aging infrastructure, installation of new mains, upgrading elevated storage tanks, purchase of new transportation equipment, upgrading and replacing our meter

reading equipment, construction of a new wastewater treatment plant and upgrading existing pumping stations to better serve our customers .

The following chart summarizes our investment in plant and systems over the past three fiscal years

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General plant

Developer financed utility plant

Wastewater facilities

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.

Of the $62.6 million gross investment

expected in 2025 approximately $16.2 million will be for extending transmission and distribution facilities to address service needs in growth areas of our service territory.

Approximately $14.1 million will be invested in upgraded PFAS treatment

equipment, new and rebuild water treatment facilities, equipment and wells throughout Delaware and Maryland.

Approximately $9.1 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 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.

Approximately $7.5

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 $5.8 million will be invested in the ongoing construction of a regional wastewater treatment plant along with improvements to existing wastewater treatment plants and wastewater pumping

Approximately $4.0 million will be invested in the relocation of facilities because of government mandates.

Approximately $2.7 million will be invested to upgrade elevated storage tanks.

Approximately $2.7 million will be invested in the

construction of force mains used for the transmission of wastewater to plants.

Additionally, we will refund $0.5 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 factors.

The Company's investment for 2025 is expected to be offset by contributions in aid of construction of $16.2 million for a net investment of $46.4 million in 2025.

The Company believes the net investment in utility plant will continue

to be recovered through rates charged to customers.

Financing Activities

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.

For the year ended December 31, 2024, cash flows provided by financing activities were $7.1 million, compared to $31.4 million for the year ended

December 31, 2023.

Our primary source of liquidity from financing activities was $20.4 million in net contributions and advances from developers and $0.8 million from the issuance of long-term debt.

Cash flows provided by financing activities

decreased due to the net proceeds from the issuance of Class A Non-Voting Stock in May 2023 and June 2023 as well as decreased contributions in aid of construction and borrowings on lines of credit.

We have several sources of liquidity to finance

our investment in utility plant and other fixed assets.

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

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

We expect to fund our activities for the next twelve months using our projected cash generated from

operations, bank credit lines, and 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.

public service commissions.

Material Cash Requirements

Lines of Credit and Long-Term Debt

At December 31, 2023, Artesian Resources had a $40 million line of credit with

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

At December 31, 2024, Artesian Resources had a $40 million line of credit with Citizens Bank, or Citizens, which is available to all subsidiaries of

Artesian Resources.

As of December 31, 2024, there was $40.0 million of available funds under this line of credit.

The previous interest rate for borrowings under this line was

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

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.

The interest rate is a one-month Daily Secured Overnight Financing Rate, or 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 20, 2024 or any date on which Citizens demands payment.

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

The term of this line of credit expires on the earlier of May 19, 2025 or any date on which Citizens demands payment.

The Company expects to renew this line of credit.

At December 31, 2023, 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, 2023, there was $20.0 million of available funds

under this line of credit.

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

the Company historically used the weekly variable

interest rate.

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

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

At December 31, 2024, 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, 2024, there was $20.0 million of available funds under this line of credit.

The interest rate for borrowings under this

line is either a daily SOFR rate plus 1.45% option or a term SOFR rate plus 1.45% option that is locked in for either one or three months.

The term of this line of credit expires on October 31, 2025.

Artesian Water expects to renew this line of credit.

Artesian Water expects to renew this line of

The Company’s material cash requirements include the following lines of credit commitments and contractual obligations:

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

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 asset purchase contractual obligation is related to the purchase of substantially all of the water operating assets from the Town of 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%.

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 balance is payable in five equal annual installments on the anniversary date of the closing date.

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

As previously disclosed, on December 9, 2022, Artesian Water Company entered into a Financing Agreement, or the Financing Agreement, with the Delaware

Drinking Water State Revolving Fund, or 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.

Under the Financing Agreement, the

Department agreed to advance to or to reimburse Artesian Water up to $901,170 from the Fund to finance all or a portion of the costs to replace a specific water transmission main in a service area located in New Castle County, Delaware.

2024, Artesian Water provided notice to the Department confirming that no funds will be requested for reimbursement under this Financing Agreement.

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 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

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.

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

In November 2024, TESI

entered into a short-term electric supply contract with WGL Energy effective December 2024 through May 2025.

The fixed rate was increased 44.4% starting in 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 currently requires us to purchase a minimum of 0.5 million gallons of water 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, 2029.

The agreement includes a remaining automatic five-year renewal term, 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 tanks.

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

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

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.

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

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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