ARTESIAN RESOURCES CORP 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Our profitability is primarily attributable to the sale of water and wastewater services in our regulated utility business. Our regulated utility segment comprised 93.2% of total operating revenues for the year ended December 31, 2025 and 93.5% for the year ended December 31, 2024. 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. Our wastewater services provide a revenue stream that is not affected by these changes in weather patterns. We continue to seek growth opportunities to provide wastewater services in Delaware and the surrounding areas. Our profitability is also attributed to other non-utility business, such as various contract operations, water, sewer and internal SLP Plans and other services we provide. 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 anticipate continued growth in our non-utility subsidiaries due to our water, sewer, and internal SLP Plans. Inflation We are affected by inflation, most notably by the continually increasing costs required to maintain, improve and expand our service capability. The cumulative effect of inflation results in significantly higher facility replacement costs as well as increased operating costs, which must be recovered from future cash flows. Our ability to recover increases in investments in facilities and operating costs is dependent upon future rate increases, which are subject to approval by the applicable regulatory authority. We can provide no assurances that any future rate increase request will be approved, and if approved, we cannot guarantee that any rate increase will be granted in a timely manner and/or will be sufficient in amount to cover costs for which we initially sought the rate increase. The impact of inflation could adversely affect our results of operations, financial position or cash flows. Regulated Water Subsidiaries 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, 2025, the number of metered water customers in Delaware increased approximately 1.8% compared to December 31, 2024. The number of metered water customers in Maryland increased approximately 1.8% compared to December 31, 2024. The number of metered water customers in Pennsylvania remained consistent compared to December 31, 2024. For the year ended December 31, 2025, approximately 9.4 billion gallons of water were distributed in our Delaware systems and approximately 103.7 million gallons of water were distributed in our Maryland systems. Regulated Wastewater Subsidiaries Artesian Wastewater and TESI own wastewater collection and treatment infrastructure and provide regulated wastewater services to customers in Sussex County, Delaware. Artesian Wastewater Maryland is able to provide regulated wastewater services to customers in Maryland. It is not currently providing these services in Maryland. The majority of our residential and commercial wastewater customers are billed a flat monthly fee, and our large industrial wastewater customer is billed monthly based on wastewater flow, which contributes to providing a revenue stream unaffected by weather. As of December 31, 2025, the number of Delaware wastewater customers increased approximately 6.5% compared to December 31, 2024. 21 Table of Contents Non-Utility Subsidiaries Artesian Utility provides contract water and wastewater operation services to private, municipal, and governmental institutions. Artesian Utility also offers protection plans to customers: the WSLP Plan, the SSLP Plan, and the ISLP Plan. SLP Plan customers are billed a flat monthly or quarterly rate, which contributes to providing a revenue stream unaffected by weather. There has been consistent customer growth over the years. As of December 31, 2025, the eligible customers enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan increased 4.1%, 2.0% and 5.7%, respectively, compared to December 31, 2024. The Company discontinued enrolling new customers in the ISLP Plan, effective January 2026. 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. 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 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 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. 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. 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, Artesian’s Delaware wastewater subsidiaries are the sole regional regulated wastewater utilities in Delaware, which we believe will enable us to continue to increase efficiencies in the treatment and disposal of wastewater and expand our wastewater operations. In April 2024, Artesian Wastewater received a permit from DNREC 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. The new treatment facility will utilize the existing disposal infrastructure and was completed in the first quarter of 2026. In February 2026, Artesian Wastewater received a permit from DNREC for construction of the next phase of an additional 625,000 gallon per day regional wastewater treatment facility. 22 Table of Contents 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. We also anticipate continued growth due to our water and sewer SLP Plans. Artesian 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 Management has reviewed our financial policies and determined that there are no critical accounting estimates requiring disclosure. Our accounting policies do not require management to make difficult, subjective, or complex judgments about matters that are highly uncertain, and therefore, no significant estimates are deemed critical to the portrayal of our financial condition or results of operations. Note 1 (Summary of Significant Accounting Policies) to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Results of Operations 2025 Compared to 2024 Operating Revenues Revenues totaled $112.9 million for the year ended December 31, 2025, an increase of $5.0 million, or 4.6%, over the revenues for the year ended December 31, 2024. Water sales revenue increased $2.8 million, or 3.2%, for the year ended December 31, 2025 from the corresponding period in 2024, primarily the result of two temporary rate increases as permitted under Delaware law, until permanent rates are determined by the DEPSC, as well as an increase in the number of customers served and DSIC revenue. The first temporary rate increase of 2.88% was placed into effect on June 3, 2025 at which time the DSIC rate of 1.66% was set to zero. The second temporary rate increase of 6.82% was placed into effect on November 6, 2025. A portion of the revenue from the November 6, 2025 temporary rate increase was recorded as a reserve for refund and is not reflected in income. We realized 80.5% and 81.6% of our total operating revenue for the years ended December 31, 2025 and December 31, 2024, respectively, from the sale of water. Other utility operating revenue increased approximately $1.5 million, or 11.2%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. This increase is primarily due to an increase in wastewater revenue associated with customer growth. Non-utility operating revenue increased approximately $0.7 million, or 10.2%, for the year ended December 31, 2025 compared to the same period in 2024, primarily due to an increase in SLP Plan revenue, primarily the result of an increase in rates that were placed into effect on December 1, 2024 and increase in the number of customers participating in the SLP Plans. Operating Revenues in thousands 2025 2024 2023 Water Sales Residential $ 61,821 54.8 % $ 60,390 55.9 % $ 55,062 55.8 % Non-residential 26,461 23.4 25,149 23.3 22,773 23.0 Resale 2,625 2.3 2,540 2.4 2,198 2.2 Other utility operating revenues 14,599 12.9 13,129 12.2 12,195 12.3 Non-utility operating revenues 7,435 6.6 6,744 6.2 6,633 6.7 Total $ 112,941 100.0 % $ 107,952 100.0 % $ 98,861 100.0 % 23 Table of Contents Operating Expenses Operating expenses, excluding depreciation and amortization and income taxes, increased $2.7 million, or 4.4%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. Utility operating expenses increased $2.6 million, or 5.3%. The increase in utility operating expenses consists of a $0.9 million increase in payroll and employee benefit costs, a $0.8 million increase in administrative costs, a $0.4 million increase in purchased power costs, a $0.4 million increase in supply and treatment costs, and a $0.3 million increase in transmission, distribution and collection system costs. The increase in utility operating expenses is partially offset by a $0.1 million decrease in purchased water costs. Property and other taxes in creased $0.1 million, or 1.2%, primarily due to a reassessment and tax rate changes in New Castle County, Delaware partially offset by an increase in utility plant subject to taxation. Property taxes are assessed on land, buildings and certain utility plant, which include the footage and size of pipe, and hydrants. Percentage of utility and non-utility operating expenses 2025 2024 2023 Payroll and Associated Expenses 47.0 % 47.7 % 49.5 % Administrative 17.4 16.7 16.9 Supply and Treatment 13.3 13.3 11.9 Purchased Power 6.3 5.8 5.7 Transmission, Distribution and Collection 5.3 5.1 4.6 Purchased Water 2.4 2.8 2.7 Non-utility Operating 8.3 8.6 8.7 Total 100.0 % 100.0 % 100.0 % The ratio of operating expense, excluding depreciation and amortization and income taxes, to total revenue was 56.2% for the year ended December 31, 2025, compared to 56.4% for the year ended December 31, 2024 . Depreciation and amortization expense increased $0.2 million, or 1.3%, primarily due to 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, partially offset by a decrease in depreciation expense related to an increase in utility plant funded by Contributions in Aid of Construction, or CIAC. Artesian Water offsets depreciation recorded on utility plant by depreciation on utility property funded by CIAC . Federal and state income tax expense increased $0.5 million, or 7.1%, primarily due to higher pre-tax income, partially offset by higher regulatory deferred income tax amortization in 2025 compared to 2024 . Other Income Other income increased $0.7 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. Interest Charges Interest charges decreased $0.1 million, primarily due to a decrease in long-term debt interest related to lower borrowing levels. Net Income Our net income applicable to common stock increased $2.4 million, or 11.9%. Total revenue increased $5.0 million, other income increased $0.7 million, and interest charges decreased $0.1 million, offset by a $3.4 million increase in total operating expenses. 24 Table of Contents Part I, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2024 Annual Report on Form 10-K includes a comparative discussion of the years ended December 31, 2024 and 2023 and is incorporated herein by reference. Liquidity and Capital Resources Overview The Company’s primary sources of liquidity for the year ended December 31, 2025 were $40.3 million of cash provided by operating activities and $26.1 million in net contributions and advances from developers. Funds from these liquidity sources were used to invest $58.8 million in capital expenditures and to pay dividends of approximately $12.7 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 expect that our net investments in utility plant in 2026 will be approximately $64.3 million. Our total obligations related to interest and principal payments on indebtedness, rental payments, elevated storage tank agreements and water service interconnection agreements for 2026 are anticipated to be approximately $17.9 million. Operating Activities One of our primary sources of liquidity for the year ended December 31, 2025 was $40.3 million provided by cash flow from operating activities, compared to $36.8 million for the year ended December 31, 2024. The increase in cash flows from operating activities is primarily due to changes in net income, accounts receivable, and accounts payable. 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. We will continue to borrow on available lines of credit in order to satisfy current liquidity needs. In addition, the Company has a long history of paying regular quarterly dividends as approved by our Board of Directors using net cash from operating activities. Investment Activities The primary focus of our investment in 2025 was to continue to provide high quality, reliable service to customers and to grow service territory. Capital expenditures during 2025 were $58.8 million compared to $45.9 million invested during the same period in 2024. During 2025, these investments include renewals associated with the rehabilitation of aging infrastructure, installation of new mains, construction of a new wastewater treatment plant, upgrading elevated storage tanks, upgrading and replacing our meter reading equipment, and upgrading existing pumping and treatment stations, including PFAS treatment upgrades, to better serve our customers. The following chart summarizes our investment in plant and systems over the past three fiscal years as well as our projected capital expenditures for the year 2026. In thousands Projected 2026 2025 2024 2023 Supply and treatment $ 33,000 $ 15,802 $ 12,576 $ 17,454 Transmission, distribution and collection 45,176 40,592 32,226 41,389 General plant 7,350 4,091 2,275 4,577 AFUDC, equity portion (971 ) (1,640 ) (1,135 ) (1,243 ) Gross investment in plant $ 84,555 $ 58,845 $ 45,942 $ 62,177 Net contributions in aid of construction (20,274 ) (26,087 ) (20,436 ) (22,519 ) Net investment in plant $ 64,281 $ 32,758 $ 25,506 $ 39,658 Supply and treatment includes investments to construct, upgrade, and replace infrastructure for water and wastewater treatment plants, pump stations, disposal equipment and wells. Transmission, distribution and collection includes investments to extend new infrastructure, renew aging infrastructure, and increase storage capacity to deliver water to customers and collect wastewater as well as relocate infrastructure due to government mandates. General plant includes investments for transportation, construction, communications and lab testing equipment, as well as computer hardware and software and building renovations . These investments are intended to improve efficiency, upgrade aging systems, accommodate growing populations, upgrade treatment capacity, apply advanced technologies, address environmental challenges and enhance resiliency. The actual amount and timing of our projected capital expenditures and other investments are subject to periodic review, and revision to reflect changes in economic conditions, project scheduling, continued refinement of project scope and costs and other factors. The Company believes the net investment in utility plant will continue to be recovered through rates charged to customers. 25 Table of Contents Financing Activities For the year ended December 31, 2025, cash flows provided by financing activities were $17.3 million, compared to $7.1 million for the year ended December 31, 2024. Our primary source of liquidity from financing activities was $26.1 million in net contributions and advances from developers and $5.7 million in lines of credit borrowings. Cash flows provided by financing activities increased due to higher 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. We expect to fund our activities for the next twelve months using our projected cash generated from operations, bank credit lines, contributions from developers and settlement funds, government grants 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. Our cash flows from operations are primarily derived from water sales revenues and may be materially affected by changes in water sales due to weather and the timing and extent of increases in rates approved by state public service commissions. Material Cash Requirements Lines of Credit and Long-Term Debt At December 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 December 31, 2025, there was $34.3 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 1.10%. 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 18, 2026 or any date on which Citizens demands payment. The Company expects to renew this line of credit. At December 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 December 31, 2025, 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, 2026. Artesian Water expects to renew this line of credit. The Company’s material cash requirements include the following lines of credit commitments and contractual obligations: Material Cash Requirements Payments Due by Period Less than 1-3 4-5 After 5 In thousands 1 Year Years Years Years Total First mortgage bonds (principal and interest) $ 7,843 $ 40,610 $ 12,476 $ 192,089 $ 253,018 State revolving fund loans (principal and interest) 1,065 2,130 2,130 8,597 13,922 Promissory note (principal and interest) 962 1,924 1,927 7,725 12,538 Asset purchase contractual obligation (principal and interest) 326 320 --- --- 646 Lines of credit 5,719 --- --- --- 5,719 Operating leases 29 52 42 1,337 1,460 Operating agreements 38 19 -- --- 57 Unconditional purchase obligations 1,031 114 114 198 1,457 Tank painting contractual obligation 849 1,273 --- --- 2,122 Total contractual cash obligations $ 17,862 $ 46,442 $ 16,689 $ 209,946 $ 290,939 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 December 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. One first mortgage bond is subject to redemption in a principal amount equal to $150,000 plus interest per calendar quarter. The state revolving fund loan obligation and promissory note obligation have an amortizing mortgage payment payable over a 20-year period. The first mortgage bonds, the state revolving fund loan and the promissory note have certain financial covenant provisions, the violation of which could result in default and require the obligation to be immediately repaid, including all interest. We have not experienced conditions that would result in our default under these agreements. 26 Table of Contents On March 13, 2026, Artesian Water Maryland and CoBank entered into a Master Loan Agreement, or the MLA, and supplement to the MLA, in which CoBank will make a single loan to Artesian Water Maryland in a principal amount not to exceed $10 million. Artesian Water Maryland agrees to pay interest on the unpaid principal balance of the loans at 6.14% per annum. Interest shall be calculated and paid quarterly in arrears on the thirtieth (30th) day of each of March, June, September and December. Artesian Water Maryland agrees to repay the loan in eighty consecutive quarterly installments, each due on the thirtieth (30th) day of each March, June, September, and December, with the first installment due on June 30, 2026, and the last installment due on March 13, 2046. The amount of each installment shall be the same principal amount that would be required to be repaid if the loan was scheduled to be repaid in level installments of principal and interest and such schedule was calculated utilizing 6.14% as the rate accruing on the loan; provided, however, that the last installment of the loan shall be in an amount equal to the then unpaid principal balance of the loan. Closing on the debt financing was approved by the Maryland Public Service Commission on March 2, 2026. The foregoing summary is qualified in its entirety by reference to the text of the MLA and the Supplement and the Guarantee of Payment, copies of which are filed as Exhibit 4.26 and Exhibit 4.27, respectively, hereto and are incorporated by reference. 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 balance is payable in five equal annual installments on the anniversary date of the closing date. Each annual installment is payable with interest at an annual rate of 2.0%. 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 August 2025, Artesian Water entered into a new, three-year agreement with Worldwide Industries Corporation, effective September 1, 2025, to paint elevated water storage tanks. Pursuant to the agreement, the expected total expenditure for the three years is $2.5 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 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 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. These fixed rate electric supply contracts are for normal purchases and are not derivative instruments. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS See Note 17 (Impact of Recent Accounting Pronouncements) to our Consolidated Financial Statements for a full description of the impact of recent accounting pronouncements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company’s business operations give rise to market risk exposure due to changes in interest rates and commodity prices. To manage such risks effectively, the Chief Financial Officer, with support from the Executive Officers, Audit Committee and Board of Directors, evaluates strategies to mitigate these risks by limiting variable rate exposure and by monitoring the effects of market changes in interest rates. The Company’s financial risk management evaluations are designed to protect against risk arising from extreme adverse market movements on our key exposures. The Company is subject to the risk of fluctuating interest rates in the normal course of business. Our policy is to manage interest rates through the use of fixed rate long-term debt and, to a lesser extent, short-term debt. The Company's exposure to interest rate risk related to existing fixed rate, long-term debt is due to the term of the majority of our First Mortgage Bonds and the term of the promissory note, which have final maturity dates ranging from 2028 to 2049, and interest rates ranging from 4.24% to 5.96%, which exposes the Company to interest rate risk as interest rates may drop below the existing fixed rate of the long-term debt prior to such debt’s maturity. In addition, the Company has interest rate exposure on $60 million of variable rate lines of credit with two banks. As of December 31, 2025, there was approximately $5.7 million outstanding on the lines of credit. Increases in variable interest rates result in an increase in the cost of borrowing on these variable rate lines of credit. We are also exposed to market risk associated with changes in commodity prices. Our risks associated with price increases in chemicals, electricity and other commodities are mitigated by our ability to recover our costs through rate increases to our customers. We have also sought to mitigate future significant electric price increases by signing multi-year supply contracts at fixed prices. 27 Table of Contents