What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-11-08 · 70 added, 90 removed, 158 unchanged (50% of the section changed)

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Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", "projects", "forecasts", "may", "should", variations of such words and similar expressions are intended to identify such forward-looking statements.

Certain factors as discussed under Item 1A - Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2023, and this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, such as changes in weather, changes in our contractual obligations, changes in government policies, the timing and results of our rate requests, failure to receive regulatory approval, changes in economic and market conditions generally, and other matters could cause results to differ materially from those in the forward-looking statements.

Certain factors as discussed under Item 1A - Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2024, and this Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, such as changes in weather, changes in our contractual obligations, changes in government policies, the timing and results of our rate requests, failure to receive regulatory approval, changes in economic and market conditions generally, and other matters could cause results to differ materially from those in the forward-looking statements.

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

RESULTS OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 2024

RESULTS OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 2025

Our profitability is primarily attributable to the sale of water and wastewater services in our regulated utility business.

Our regulated utility segment comprised 93.6% of total operating revenues for the nine months ended September 30, 2024 and 93.2% for the nine months ended September 30, 2023.

Our regulated utility segment comprised 92.7% of total operating revenues for the three months ended March 31, 2025 and 92.8% for the three months ended March 31, 2024.

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

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

As of September 30, 2024, the number of metered water customers in Delaware increased approximately 1.5% compared to September 30, 2023.

The number of metered water customers in Maryland increased approximately 2.4% compared to September 30, 2023.

The number of metered water customers in Pennsylvania remained consistent compared to September 30, 2023.

For the nine months ended September 30, 2024, approximately 7.1 billion gallons of water were distributed in our Delaware systems and approximately 83.2 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 approximately $16.7 million, on an annualized basis, or 22.7%.

Temporary rates of approximately $10.8 million, on an annualized basis, or 14.6%, that were in effect since November 28, 2023 were replaced with the final approved rates pursuant to a DEPSC order that authorized a total increase in water sales revenue of $11.2 million on an annualized basis, or approximately 15.2%, with a rate effective date of June 12, 2024.

In addition, on June 12, 2024, the DEPSC approved Artesian Water’s application to implement a DSIC rate of 0.34%, effective July 1, 2024.

The previous DSIC rate of 7.50% was reset to zero when the temporary base rate increase was placed into effect on November 28, 2023.

As of March 31, 2025, the number of metered water customers in Delaware increased approximately 1.6% compared to March 31, 2024.

The number of metered water customers in Maryland increased approximately 2.2% compared to March 31, 2024.

The number of metered water customers in Pennsylvania remained consistent compared to March 31, 2024.

For the three months ended March 31, 2025, approximately 2.2 billion gallons of water were distributed in our Delaware systems and approximately 16.4 million gallons of water were distributed in our Maryland systems.

On April 4, 2025, Artesian Water filed a request with the DEPSC to implement new rates to meet a requested increase in revenue of 12.41%, or approximately $10.8 million, on an annualized basis.

The actual effective increase is less than 12.41% since Artesian Water has been permitted to recover specific investments made in infrastructure through the assessment of a 1.66% DSIC.

Since the DSIC rate is set to zero when temporary rates are placed into effect, customers would experience an incremental increase of 10.75%, the net of the overall 12.41% increase less the DSIC rate of 1.66% currently in effect, if the requested increase is granted in full by the DEPSC.

The new proposed rates are designed to support Artesian Water’s ongoing capital improvement program and to cover increased costs of operations, including chemicals and electricity for water treatment, water quality regulation compliance, taxes, labor and benefits.

In accordance with applicable Delaware law, Artesian Water is permitted to place into effect temporary rates of up to 15% of gross water sales, or $2.5 million, whichever is lower, on an annual basis, 60 days after the application is filed, subject to refund, until permanent rates are determined by the DEPSC.

Artesian Water has petitioned the DEPSC to implement such temporary rates effective June 3, 2025.

This is discussed further in Note 13 – Regulatory Proceedings.

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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 September 30, 2024, the number of Delaware wastewater customers increased approximately 6.4% compared to September 30, 2023.

As of March 31, 2025, the number of Delaware wastewater customers increased approximately 6.3% compared to March 31, 2024.

Non-Utility Subsidiaries

Artesian Utility provides contract water and wastewater operation services to 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 September 30, 2024, customers enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan increased 3.3%, 2.4% and 1.6%, respectively, compared to September 30, 2023.

As of March 31, 2025, the eligible customers enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan increased 4.2%, 3.3% and 2.2%, respectively, compared to March 31, 2024.

Strategic Direction and Recent Developments

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

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

In recent 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.

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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 and has commenced 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.

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.

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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.

The new treatment facility will utilize the existing disposal infrastructure.

The new treatment facility will utilize the existing disposal infrastructure and is expected to be completed in 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.

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On April 10, 2024, the EPA established MCLs for certain per- and polyfluoroalkyl substances, or PFAS, in drinking water.

Water utilities will be required to complete initial monitoring for PFAS by 2027 and to conduct ongoing compliance monitoring.

Under these regulations, water utilities will be required to complete initial monitoring for PFAS by 2027 and to conduct ongoing compliance monitoring.

Water utilities also will be required to meet the new MCLs by April 2029 and to notify the public of any violations of the MCLs as of and after that date.

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In addition, implementation of the revised rule is anticipated to accelerate lead service line replacements by closing existing regulatory loopholes, propelling early action, and strengthening replacement requirements.

We have filed all required Lead Service Line Inventories by the October 16, 2024 deadline and are fully compliant with the LCR Revisions.

We filed all required Lead Service Line Inventories by the October 16, 2024 deadline and are fully compliant with the LCR Revisions.

On October 8, 2024, the EPA announced the new final regulations requiring the removal of lead water lines.

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Capital investment and operating costs incurred by water utilities for customer-side pipe replacements are typically recoverable in water rates charged to customers as approved by the applicable public service commission.

Results of Operations – Analysis of the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023.

Operating Revenues

Revenues totaled $29.1 million for the three months ended September 30, 2024, $2.6 million, or 9.7%, more than revenues for the three months ended September 30, 2023 .

Water sales revenue increased $2.5 million, or 11.3%, for the three months ended September 30, 2024 from the corresponding period in 2023, primarily as a result of a 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%, with a rate effective date of 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 three months ended September 30, 2024 compared to the same period in 2023 and an increase in the number of customers served .

We realized 82.7% and 81.5% of our total operating revenue for the three months ended September 30, 2024 and September 30, 2023, respectively, from the sale of water.

Other utility operating revenue increased approximately $0.1 million, or 3.8%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

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

Operating Expenses

Operating expenses, excluding depreciation and income taxes, increased $0.7 million, or 4.9%, fo r the three months ended September 30, 2024 compared to the same period in 2023.

Utility operating expenses increased $0.5 million, or 4.6%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

The increase in utility operating expenses consist of a $0.1 million increase in each of purchased power costs, purchased water costs, supply and treatment costs, administrative costs and transmission, distribution and collection system costs.

Non-utility operating expenses increased $0.1 million, or 8.1%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2024.

This increase is primarily due to an increase in and the timing of plumbing repair costs associated with the SLP Plans.

The ratio of operating expense, excluding depreciation and income taxes, to total revenue was 51.2% for the three months ended September 30, 2024, compared to 53.5% fo r the three months ended September 30, 2023.

Depreciation and amortization expense decreased $0.2 million, or 4.5%, primarily due to revised depreciation and amortization rates in utility plant as approved in the rate case effective June 12, 2024.

The decrease was partially offset by additional depreciation from continued investment in utility plant related to providing supply, treatment, storage and distribution of water to customers and service to our wastewater customers.

Federal and state income tax expense increased $0.1 million, or 4.7%, primarily due to higher pre-tax income in 2024 compared to 2023, partially offset by adjustments in 2023 related to the application of net operating loss valuation allowances.

Property and other taxes increased $0.1 million, or 4.6%, 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.

Other income decreased $0.2 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 three months ended September 30, 2024 compared to the same period in 2023.

Our net income applicable to common stock increased $1.7 million, or 34.4%.

Total operating revenues increased $2.6 million, offset by a $0.2 million decrease in other income and a $0.7 million increase in total operating expenses.

Results of Operations – Analysis of the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023.

Results of Operations – Analysis of the Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024.

Operating Revenues

Revenues totaled $81.1 million for the nine months ended September 30, 2024, $6.8 million, or 9.1%, more than revenues for the nine months ended September 30, 2023 .

Water sales revenue increased $6.1 million, or 10.2%, for the nine months ended September 30, 2024 from the corresponding period in 2023, primarily as a result of a 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%, with a rate effective date of June 12, 2024.

In addition, there was an increase in overall water consumption due to drier weather experienced during the nine months ended September 30, 2024 compared to the same period in 2023 and an increase in the number of customers served.

We realized 81.9% and 81.1% of our total operating revenue for the nine months ended September 30, 2024 and September 30, 2023, respectively, from the sale of water.

Other utility operating revenue increased approximately $0.6 million, or 6.4%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

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 nine months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in SLP Plan revenue.

Revenues totaled $25.9 million for the three months ended March 31, 2025, $1.3 million, or 5.5%, more than revenues for the three months ended March 31, 2024 .

Water sales revenue increased $0.9 million, or 4.3%, for the three months ended March 31, 2025 from the corresponding period in 2024, primarily due to an increase in overall water consumption, DSIC revenue and customer growth.

We realized 79.9% and 80.8% of our total operating revenue for the three months ended March 31, 2025 and March 31, 2024, respectively, from the sale of water.

Other utility operating revenue increased approximately $0.3 million, or 11.4%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

This increase is primarily due to an increase in wastewater revenue associated with customer growth.

Non-utility operating revenue increased approximately $0.1 million, or 8.0%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

This increase is primarily due to an increase in Service Line Protection Plan revenue.

Operating Expenses

Operating expenses, excluding depreciation and income taxes, increased $2.1 million, or 4.9%, fo r the nine months ended September 30, 2024 compared to the same period in 2023.

Utility operating expenses increased $1.8 million, or 5.1%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

The increase in utility operating expenses consists of a $0.7 million increase in supply and treatment costs, a $0.5 million increase in payroll and employee benefits costs, a $0.2 million increase in each of purchased power costs and administrative costs, and a $0.1 million increase in each of purchased water costs and transmission, distribution and collection system costs.

Non-utility operating expenses increased $0.1 million, or 4.4%, primarily due to an increase in and the timing of plumbing repair costs associated with the SLP Plans.

The ratio of operating expense, excluding depreciation and income taxes, to total revenue was 54.8% for the nine months ended September 30, 2024, compared to 57.0% fo r the nine months ended September 30, 2023.

Depreciation and amortization expense increased $0.3 million, or 3.0%, primarily due to continued investment in utility plant providing supply, treatment, storage and distribution of water to customers and service to our wastewater customers.

Federal and state income tax expense increased $0.8 million, or 16.0%, primarily due to higher pre-tax income in 2024 compared to 2023, partially offset by adjustments in 2023 related to the application of net operating loss valuation allowances.

Property and other taxes increased $0.2 million, or 3.8%, 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.

Other income decreased $0.7 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 nine months ended September 30, 2024 compared to the same period in 2023.

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.

Operating expenses, excluding depreciation and income taxes, increased $0.5 million, or 3.1%, fo r the three months ended March 31, 2025, compared to the same period in 2024.

Utility operating expenses increased $0.4 million, or 3.1%, for the three months ended March 31, 2025 compared to the same period in 2024.

The increase in utility operating expenses consists of a $0.4 million increase in administrative costs and a $0.2 million increase in purchased power and purchased water costs.

The increase in utility operating expenses is offset by a $0.1 million decrease in each of supply and treatment costs and payroll and employee benefit costs.

The ratio of operating expense, excluding depreciation and income taxes, to total revenue was 58.5% for the three months ended March 31, 2025, compared to 59.8% fo r the three months ended March 31, 2024.

Depreciation and amortization expense decreased $0.1 million, or 3.1%, primarily due to a decrease in depreciation expense related to an increase in depreciation on utility plant funded by Contributions in Aid of Construction.

Federal and state income tax expense increased $0.2 million, or 10.1%, primarily due to higher pre-tax book income, partially offset by higher regulatory deferred income tax amortization in 2025 compared to 2024.

Other income increased $0.2 million, primarily due to an increase in allowance for funds used during construction, or AFUDC, as a result of higher long-term construction activity subject to AFUDC.

Our net income applicable to common stock increased $1.0 million, or 23.2%.

Total operating revenues increased $6.8 million and interest charges decreased $0.4 million, offset by a $3.2 million increase in total operating expenses and a $0.7 million decrease in other income.

Total operating revenues increased $1.3 million and other income increased $0.2 million, offset by a $0.5 million increase in total operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sourc es of liquidity for the nine months ended September 30, 2024 were $30.1 million of cash provided by operating activities and $14.2 million in net contributions and advances from developers.

Our primary sourc es of liquidity for the three months ended March 31, 2025 were $11.0 million of cash provided by operating activities and $5.2 million in net contributions and advances from developers.

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

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Operating Activities

One of our primary sources of liquidity for the nine months ended September 30, 2024 was $30.1 million provided by cash flow from operating activities, compared to $23.4 million for the nine months ended September 30, 2023.

The increase in cash flows from operating activities is primarily due to changes in net income, income tax receivable, and materials and supplies.

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.

One of our primary sources of liquidity for the three months ended March 31, 2025 was $11.0 million provided by cash flow from operating activities, compared to $12.6 million for the three months ended March 31, 2024.

The decrease in cash flows from operating activities is primarily from lower material and supplies, income taxes receivable and accounts receivables, offset by higher net income, income taxes payable, accounts payable and accrued expenses.

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.

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The primary focus of our investments is to continue to provide high quality reliable service to our growing service territory.

Capital expenditures during the first nine months of 2024 were $30.9 million compared to $48.8 million during the same period in 2023.

During the first nine months of 2024, these investments include relocation of facilities as a result of government mandates, renewals associated with the rehabilitation of aging infrastructure, installation of new main, purchase of new transportation equipment, upgrading and automating our meter reading equipment, construction of a new wastewater treatment plant and upgrading existing pumping stations to better serve our customers .

Developers contributed $10.1 million of these total investments during the first nine months of 2024.

Capital expenditures during the first three months of 2025 were $10.4 million compared to $8.9 million during the same period in 2024.

During the first three months of 2025, these investments include renewals associated with the rehabilitation of aging infrastructure, installation of new mains, upgrading elevated storage tanks, upgrading and replacing our meter reading equipment, construction of a new wastewater treatment plant and upgrading existing pumping stations to better serve our customers.

Financing Activities

For the nine months ended September 30, 2024, cash flows provided by financing activities were $8.4 million, compared to $30.6 million for the nine months ended September 30, 2023.

Our primary source of liquidity from financing activities for the nine months ended September 30, 2024 was $14.2 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 Stock in May 2023 and June 2023 as well as decreased contributions in aid of construction and borrowings on lines of credit.

For the three months ended March 31, 2025, cash flows provided by financing activities were $2.0 million, compared to $2.7 million for the three months ended March 31, 2024.

Our primary source of liquidity from financing activities for the three months ended March 31, 2025 was $5.2 million in net contributions and advances from developers.

The cash flows provided by financing activities decreased due to decreased issuance of long-term debt and higher stock dividend payments.

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

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Lines of Credit and Long-Term Debt

At September 30, 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 September 30, 2024, there was $40.0 million of available funds under this line of credit.

At March 31, 2025, 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 March 31, 2025, there was $40.0 million of available funds under this line of credit.

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.

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The Company expects to renew this line of credit.

At September 30, 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 September 30, 2024, there was $20.0 million of available funds under this line of credit.

At March 31, 2025, 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 March 31, 2025, there was $20.0 million of available funds under this line of credit.

The interest rate for borrowings under this line are 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.

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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.

As of September 30, 2024, we were in compliance with these covenants.

As of March 31, 2025, we were in compliance with these covenants.

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

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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 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.

In 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.

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.

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

In order to control purchased power costs and avoid fluctuations in electricity rates that happen due to the change of seasons, energy supply changes, or other outside factors, we utilize contracts with electric suppliers that provide a fixed rate.

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 April 2025, Artesian entered into an electric supply contract with Constellation NewEnergy, Inc.

that is effective from May 2025 to May 2029 for Delaware operations.

The supply rate was increased approximately 25% starting in May 2025.

The total estimated annual increase in electric supply expense beginning in May 2025 is approximately $0.5 million.

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

In April 2025, Artesian Water Maryland entered into an electric supply agreement with WGL Energy that is effective from November 2025 through November 2029 for Maryland operations.

The fixed rate was increased 5.5% starting in 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.

Critical Accounting Estimates;

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Information concerning our implementation and the impact of recent accounting pronouncements issued by the FASB is included in the notes to our 2024 consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2024 and also in the notes to our unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q .

We did not adopt any accounting policy in the first nine months of 2024 that had a material impact on our financial condition, liquidity or results of operations.

We did not adopt any accounting policy in the first three months of 2025 that had a material impact on our financial condition, liquidity or results of operations.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis