YORK WATER CO (YORW) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(All dollar amounts are stated in thousands of dollars.)

Overview

The York Water Company (the “Company”) is the oldest investor-owned water utility in the United States, operated continuously since 1816. The Company also owns and
operates three wastewater collection systems and eight wastewater collection and treatment systems.  The Company is a purely regulated water and wastewater utility.  Profitability is largely dependent on water revenues.  Due to the size of the
Company and the limited geographic diversity of its service territory, weather conditions, particularly precipitation, economic, and market conditions can have an adverse effect on revenues.  The Company experienced increased revenues in 2022
compared to 2021 primarily due to an increase in the number of customers and revenues from the distribution system improvement charge, or DSIC.

The Company’s business does not require large amounts of working capital and is not dependent on any single customer or a very few customers for a material portion of
its business.  In 2022, operating revenue was derived from the following sources and in the following percentages: residential, 65%; commercial and industrial, 27%; and other, 8%, which is primarily from the provision for fire service, but includes
other water and wastewater service-related income.  The diverse customer mix helps to reduce volatility in consumption.

The Company seeks to grow revenues by increasing the volume of water sold through increases in the number of customers served, making timely and prudent investments in
infrastructure replacements, expansion and improvements, and timely filing for rate increases.  The Company continuously looks for acquisition and expansion opportunities both within and outside its current service territory as well as through
contractual services and bulk water supply.  The Company’s wastewater business provides additional opportunities to expand.

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The Company has entered into agreements with municipalities to provide billing and collection services.  The Company also has a service line protection program on a
targeted basis.  The Company continues to review and consider opportunities to expand both initiatives to further diversify the business.

In addition to increasing revenue, the Company consistently focuses on minimizing costs without sacrificing water quality or customer service.  Paperless billing,
expanding online services, negotiation of favorable electric, banking, and other costs, as well as taking advantage of the Tax Cuts and Jobs Act of 2017, or the 2017 Tax Act, and the Internal Revenue Service, or IRS, tangible property regulations,
or TPR, are examples of the Company’s recent efforts to minimize costs.

Impact of COVID-19

On March 11, 2020, the World Health Organization characterized an outbreak of a novel strain of coronavirus (“COVID-19”) as a pandemic.  The Company has taken steps,
consistent with directions from federal, state, and local authorities, to mitigate known risks with the health and safety of its employees and customers as its first priority.

The Company is an essential, life-sustaining business and has continued normal operations.  Although most restrictions have been lifted, the Company continues to
monitor guidance from federal, state, and local authorities.  Any new restrictions are not expected to materially impede the Company’s ability to complete its planned capital expenditures or acquisitions.  The Company has not experienced any
material supply chain disruptions.  The Company has been informed of longer lead times for some items, although this does not impact daily operating supplies.  The Company maintains an adequate inventory of critical repair parts which are available
as needed.  The Company continues to maintain relationships with its vendors to identify issues in a timely manner while also seeking out additional vendor relationships to diversify its supply chain.  The Company has addressed the longer lead
times by placing orders proactively with its vendors to align with current lead times.  If the delays increase materially or if certain materials and supplies become unavailable, the Company may re-prioritize some of its capital projects or
experience higher operating expenses or capital costs.  The Company believes it has sufficient liquidity and access to the capital markets if needed.

To date, there has been no material impact on the Company’s workforce, operations, financial performance, liquidity, or supply chain as a result of COVID-19.  However,
the ultimate duration and severity of the pandemic or its effects on the economy, the capital and credit markets, or the Company’s workforce, customers, and suppliers, as well as governmental and regulatory responses, are uncertain.

Performance Measures

Company management uses financial measures including operating revenues, net income, earnings per share and return on equity to evaluate its financial performance.
Additional statistical measures including number of customers, customer complaint rate, annual customer rates and the efficiency ratio are used to evaluate performance quality.  These measures are calculated on a regular basis and compared with
historical information, budget and the other publicly-traded water and wastewater companies.

The Company’s performance in 2022 was strong under the above measures.  Operating revenues increased in 2022 compared to 2021 primarily due to an increase in the
number of customers and revenues from the DSIC.  The increase in operating revenues offset the increases in operating expenses.  The Company incurred lower income taxes primarily due to a higher deduction for the tax benefit under the IRS TPR.  The
overall effect was an increase in net income in 2022 over 2021 of 15.3% and a return on year end common equity of 9.5%.  The return on year end common equity was strong but lower than the 2021 result of 11.1% and the five-year historical average of
11.0% due to an increase in common equity from an underwritten public stock offering completed in 2022.

The efficiency ratio, which is calculated as net income divided by revenues, is used by management to evaluate its ability to control expenses.  Over the five previous
years, the Company’s ratio averaged 28.8%.  In 2022, the ratio was higher than the average at 32.6% due primarily to lower income taxes than are included in the historical average.  Management is confident that its ratio will compare favorably to
that of its peers.  Management continues to look for ways to decrease expenses and increase efficiency as well as to file for rate increases promptly when needed.

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2022 Compared with 2021

Net income for 2022 was $19,580, an increase of $2,596, or 15.3%, from net income of $16,984 for 2021.  The primary contributing factors to the increase were higher
operating revenues and lower income taxes, which were partially offset by higher expenses.

Operating revenues for 2022 increased $4,942, or 9.0%, from $55,119 for 2021 to $60,061 for 2022.  The increase was primarily due to growth in the customer base and
revenues from the DSIC of $2,243.  The average number of wastewater customers served in 2022 increased as compared to 2021 by 2,284 customers, from 3,325 to 5,609 customers, primarily due to the West Manheim Township acquisition.  The average
number of water customers served in 2022 increased as compared to 2021 by 798 customers, from 69,622 to 70,420 customers.  Total per capita consumption for 2022 was approximately 1.2% higher than the same period of last year.  The Company expects
revenues for 2023 to increase due to an increase in rates effective March 1, 2023, and the continued increase in the number of water and wastewater customers from acquisitions and growth within the Company’s service territory.  Any slowdown
resulting from COVID-19 or economic factors or changes in consumption patterns could impact results.  Other regulatory actions and weather patterns could also impact results.

Operating expenses for 2022 increased $3,855, or 12.2%, from $31,723 for 2021 to $35,578 for the corresponding 2022 period.  The increase was primarily due to higher
expenses of approximately $1,280 for depreciation, $732 for wastewater treatment, $522 for wages, $499 for water treatment, $442 for distribution system maintenance, and $222 for billing and revenue collection services.  Other expenses increased by
a net of $272.  The increased expenses were partially offset by $114 for lower pension administration expenses.  In 2023, the Company expects depreciation expense to continue to rise due to additional investment in utility plant, and other expenses
to increase as costs to treat water and wastewater, and to maintain and extend the distribution system, continue to rise.

Interest on debt for 2022 increased $188 or 3.8%, from $4,926 for 2021 to $5,114 for 2022.  The increase was primarily due to an increase in interest rates and
long-term debt outstanding.  The average debt outstanding under the lines of credit was $13,428 for 2022 and $11,487 for 2021.  The weighted average interest rate on the lines of credit was 2.11% for 2022 and 1.30% for 2021.  Interest expense for
2023 is expected to be higher due to continued borrowings and expected increases in interest rates.

Allowance for funds used during construction increased $280, from $1,221 in 2021 to $1,501 in 2022 due to a higher volume of eligible construction.  Allowance for
funds used during construction in 2023 is expected to increase based on a projected increase in the amount of eligible construction.

Other income (expenses), net for 2022 reflects decreased expenses of $373 as compared to 2021.  Lower retirement expenses of approximately $660 due mostly to an
increase in the discount rate, were the primary reason for the decrease.  Lower earnings on life insurance policies of $145 and higher charitable contributions of $58 partially offset the decrease.  Other expenses increased by a net of $84.  In
2023, other income (expenses) will be largely determined by the change in market returns and discount rates for retirement programs and related assets.

Income taxes for 2022 decreased $1,105, or 98.7%, compared to 2021 primarily due to higher deductions from the IRS TPR.  The Company’s effective tax rate was 0.1% for
2022 and 6.2% for 2021.  The Company’s effective tax rate for 2023 will be largely determined by the level of eligible asset improvements expensed for tax purposes under TPR each period.

Rate Matters

See Note 10 to the Company’s financial statements included herein for a discussion of its rate matters.

Effective January 1, 2023, the Company’s tariff included a DSIC on revenues of 4.91%.  The DSIC reset to zero when new rates took effect on March 1,
2023.

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Acquisitions and Growth

See Note 2 to the Company’s financial statements included herein for a discussion of completed acquisitions included in financial results.

On November 9, 2022, the Company signed an agreement to purchase the wastewater collection and treatment assets of CMV Sewage Co., Inc. in Chanceford Township, York
County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second half of 2023 at which time the Company will add approximately 280 wastewater
customers.

On June 9, 2022, the Company signed an agreement to purchase the wastewater collection and treatment assets of MESCO, Inc. in Monaghan Township, York County,
Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second half of 2023 at which time the Company will add approximately 180 wastewater customers.

On April 28, 2022, the Company signed an agreement to purchase the water assets and wastewater collection and treatment assets of Conewago Industrial Park Water &
Sewer Company in Donegal Township, Lancaster County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second half of 2023 at which time the
Company will add approximately 30 commercial and industrial water and wastewater customers.

In total, these acquisitions are expected to be immaterial to Company results.  The Company is also pursuing other bulk water contracts and acquisitions in and around
its service territory to help offset any potential declines in per capita water consumption and to grow its business.

On May 10, 2017, the Company signed an emergency interconnect agreement with Dallastown-Yoe Water Authority.  The effectiveness of this agreement is contingent upon
receiving approval from all required regulatory authorities.  Approval is expected to be granted in 2023 at which time the Company will begin construction of a water main extension to a single point of interconnection and either supply a minimum
agreed upon amount of water to the authority, receive a payment in lieu of water, or provide water during an emergency, at current tariff rates.

Capital Expenditures

During 2022, the Company invested $50,532 in construction expenditures for routine items, armoring and replacing the spillway of the Lake Williams dam, and wastewater
treatment plant construction as well as various replacements and improvements to infrastructure.  In addition, the Company invested $3,388 in the acquisition of multiple water and wastewater systems.  The Company replaced approximately 61,000 feet
of main in 2022.  The Company was able to fund construction expenditures using internally-generated funds, line of credit borrowings, cash generated from the underwritten common stock offering, proceeds from its stock purchase plans and customer
advances and contributions from developers, municipalities, customers, or builders.  See Notes 1, 4 and 5 to the Company’s financial statements included herein.

The Company anticipates construction and acquisition expenditures for 2023 and 2024 of approximately $60,600 and $47,100, respectively, exclusive of any acquisitions
not yet approved.  In addition to routine transmission and distribution projects, a portion of the anticipated 2023 and 2024 expenditures will be for additional main extensions, armoring and replacing the spillway of the Lake Williams dam,
wastewater treatment plant construction, water treatment plant upgrades, and various replacements of infrastructure.  The Company intends to use primarily internally-generated funds for its anticipated 2023 and 2024 construction and fund the
remainder through line of credit borrowings, potential debt and equity offerings, proceeds from its stock purchase plans and customer advances and contributions (see Note 1 to the Company’s financial statements included herein).  Customer advances
and contributions are expected to account for between 5% and 10% of funding requirements in 2023 and 2024.  The Company believes it will have adequate credit facilities and access to the capital markets, if necessary, during 2023 and 2024, to fund
anticipated construction and acquisition expenditures.

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Liquidity and Capital Resources

Cash

The Company manages its cash through a cash management account that is directly connected to its line of credit.  Excess cash generated automatically pays down
outstanding borrowings under the line of credit arrangement.  If there are no outstanding borrowings, the cash is used as an earnings credit to reduce banking fees.  Likewise, if additional funds are needed beyond what is generated internally for
payroll, to pay suppliers, to fund capital expenditures, or to pay debt service, funds are automatically borrowed under the line of credit.  As of December 31, 2022, the Company borrowed $29,740 under its line of credit and incurred a cash
overdraft on its cash management account of $3,175, which was recorded in accounts payable.  The cash management facility connected to the line of credit is expected to provide the necessary liquidity and funding for the Company’s operations,
capital expenditures, and acquisitions for the foreseeable future.

Restricted Cash

At December 31, 2020, the Company held $5,000 in restricted cash which was the bid deposit for a potential acquisition which became unrestricted in the first quarter
of 2021.

Accounts Receivable

The accounts receivable balance tends to follow the change in revenues but is also affected by the timeliness of payments by customers and the level of the reserve for
doubtful accounts.  In 2022, higher revenue levels as compared to 2021 and a slight weakening in the timeliness of payments resulted in an increase in accounts receivable – customers.  A reserve is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated based on inactive accounts with outstanding balances.  Management periodically evaluates the adequacy of the reserve based on past experience, agings of the receivables, adverse situations that
may affect a customer’s ability to pay, current economic conditions, and other relevant factors.  During 2022, management’s assessment included consideration of the COVID-19 pandemic along with past trends during times of economic instability and
regulations from the PPUC regarding customer collections, including the aging of balances in payment agreements, and determined its allowance for doubtful accounts should remain elevated compared to historical norms.  If the status of these factors
deteriorates, the Company may incur additional expenses for uncollectible accounts and experience a reduction in its internally-generated funds.

Internally-generated Funds

The amount of internally-generated funds available for operations and construction depends on the Company’s ability to obtain timely and adequate rate relief, changes
in regulations, customers’ water usage, weather conditions, customer growth and controlled expenses.  In 2022, the Company generated $22,018 internally as compared to $22,959 in 2021.  The decrease from 2021 was primarily due to the increase in
accounts receivable – customers partially offset by higher net income and lower income taxes paid.

Common Stock

On April 5, 2022, the Company closed an underwritten public offering of 975,600 shares of its common stock, with an offering price of $41 per share.  On April 7, 2022,
the Company closed on the full exercise of the underwriter’s option to purchase an additional 146,340 shares of its common stock at the same price.  Janney Montgomery Scott LLC was the underwriter in the offering.  The Company received net proceeds
in the offering, after deducting offering expenses and underwriters’ discounts and commissions, of $43,970.  The net proceeds were used to repay the Company’s borrowings under its line of credit agreement incurred to fund capital expenditures and
acquisitions, and for general corporate purposes.

Common stockholders’ equity as a percent of the total capitalization was 59.3% as of December 31, 2022, compared with 50.6% as of December 31, 2021.  Based on the
equity percentage falling to fifty percent, the Company completed the underwritten common stock offering, increasing equity as a percentage of total capitalization.  The Company expects to use long-term debt for its future financing needs and allow
the debt percentage to trend upward until it approaches fifty percent before considering additional equity.  It is the Company’s general intent to target equity between fifty and fifty-five percent of total capitalization.

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The Company has the ability to issue approximately $4,000 of additional shares of its common stock or debt securities remaining under an effective
“shelf” Registration Statement on Form S-3 on file with the Securities and Exchange Commission subject to market conditions at the time of any such offering.

Credit Line

Historically, the Company has borrowed under its lines of credit before refinancing with long-term debt or equity capital.  As of December 31, 2022, the Company
maintained an unsecured line of credit in the amount of $50,000 at an interest rate of LIBOR plus 1.05% with an unused commitment fee and an interest rate floor which matures September 2024.  The Company had $29,740 in outstanding borrowings under
its line of credit as of December 31, 2022.  The interest rate on line of credit borrowings as of December 31, 2022 was 5.17%.  In the third quarter of 2022, the Company renewed its committed line of credit and extended the maturity date to
September 2024.  As part of the renewal, the interest rate changed from LIBOR plus 1.05% to a successor rate of the Secured Overnight Financing Rate, or SOFR, plus 1.17% on January 1, 2023, in advance of the likely discontinuation of LIBOR in
2023.  No other terms or conditions of the line of credit agreement were modified.  The Company expects to renew this line of credit as it matures under similar terms and conditions.

The Company has taken steps to manage the risk of reduced credit availability.  It has established a committed line of credit with a 2-year revolving maturity that
cannot be called on demand.  There is no guarantee that the Company will be able to obtain sufficient lines of credit with favorable terms in the future.  If the Company is unable to obtain sufficient lines of credit or to refinance its line of
credit borrowings with long-term debt or equity, when necessary, it may have to eliminate or postpone capital expenditures.  Management believes the Company will have adequate capacity under its current line of credit to meet financing needs
throughout 2023.

Long-term Debt

The Company’s loan agreements contain various covenants and restrictions.  Management believes it is currently in compliance with all of these restrictions.  See Note
6 to the Company’s financial statements included herein for additional information regarding these restrictions.

The 8.43% Senior Notes, Series D had a maturity date of December 18, 2022.  The Company retired the $7,500 notes using funds available under its line of credit.

The Company’s total long-term debt as a percentage of the total capitalization, defined as total common stockholders’ equity plus total long-term debt, was 40.7% as of
December 31, 2022, compared with 49.4% as of December 31, 2021.  Based on the debt percentage reaching fifty percent, the Company completed an underwritten common stock offering in April 2022 and repaid its line of credit, decreasing long-term debt
as a percentage of total capitalization.  The Company expects to use long-term debt for its future financing needs and allow the debt percentage to trend upward.  A debt to total capitalization ratio between forty-five and fifty percent has
historically been acceptable to the PPUC in rate filings.  See Note 6 to the Company’s financial statements included herein for the details of its long-term debt outstanding as of December 31, 2022.

The variable rate line of credit and the interest rate swap of the Company use the London Interbank Offering Rate (“LIBOR”) as a benchmark for establishing the rates.
The United Kingdom’s Financial Conduct Authority (UK FCA), which regulates LIBOR, has previously announced that it intends to stop encouraging or compelling banks to submit rates for the calculation of LIBOR rates after 2021.  On January 4, 2022,
the UK FCA announced that certain dollar-denominated LIBOR settings, including the 1-month setting used by the Company’s variable line of credit and interest rate swap, would be calculated through June 30, 2023. This indicates that the continuation
of LIBOR on the current basis is not guaranteed after that date and, based on the foregoing, it appears likely that LIBOR will be discontinued or modified.  As part of the renewal of its line of credit in the third quarter of 2022, the agreement
was amended to change the reference rate from LIBOR to SOFR on January 1, 2023.  In the fourth quarter of 2022, the interest rate swap agreement was amended to change the reference rate from LIBOR to SOFR effective with the discontinuance of
LIBOR.  The margin for both agreements were established at the historical spread between LIBOR and SOFR to minimize the impact on the Company’s financial position, results of operations and cash flows upon this change.  The Company is not aware of
any additional modifications that need to be made to existing agreements before the discontinuance of LIBOR.

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Income Taxes, Deferred Income Taxes and Uncertain Tax Positions

Under the Internal Revenue Service TPR, the Company is permitted to deduct the costs of certain asset improvements that were previously being capitalized and
depreciated for tax purposes as an expense on its income tax return.  This ongoing deduction results in a reduction in the effective income tax rate, a net reduction in income tax expense, and a reduction in the amount of income taxes currently
payable.  It also results in increases to deferred tax liabilities and regulatory assets representing the appropriate book and tax basis difference on capital additions.  The Company expects to continue to expense these asset improvements in the
future.

The Company’s effective tax rate will largely be determined by the level of eligible asset improvements expensed for tax purposes that would have been capitalized for
tax purposes prior to the implementation of the TPR.

On July 8, 2022, the Pennsylvania budget for the fiscal year ending June 30, 2023 was signed into law.  A provision within the tax code bill included with the budget
provides for an annual phase-down of the Pennsylvania corporate net income tax rate of one percentage point in the first year beginning January 1, 2023 from 9.99% to 8.99%, and a one-half percentage point each year thereafter until it reaches 4.99%
beginning January 1, 2031.  The Company has remeasured the state portion of the Company’s deferred income taxes.  The effect, net of the federal benefit, of $3 was recognized in income for the year ended December 31, 2022.  Deferred income taxes
for differences that are recognized for ratemaking purposes on a cash or flow-through basis were remeasured with offsetting changes to regulatory assets and liabilities on the balance sheet as of December 31, 2022.  The Company expects any savings
in its Pennsylvania current income taxes to be returned to its customers through the rate making process or as a future negative surcharge on their bills.

The Company has a substantial deferred income tax asset primarily due to the excess accumulated deferred income taxes on accelerated depreciation from the 2017 Tax Act
and the differences between the book and tax balances of the customers’ advances for construction and contributions in aid of construction and deferred compensation plans.  The Company does not believe a valuation allowance is required due to the
expected generation of future taxable income during the periods in which those temporary differences become deductible.

The Company has seen an increase in its deferred income tax liability amounts primarily as a result of the accelerated depreciation deduction available for federal tax
purposes which creates differences between book and tax depreciation expense.  The Company expects this trend to continue as it makes significant investments in capital expenditures subject to accelerated depreciation or TPR.

The Company has determined there are no uncertain tax positions that require recognition as of December 31, 2022.  See Note 14 to the Company’s financial statements
included herein for additional details regarding income taxes.

Credit Rating

On August 9, 2022, Standard & Poor’s affirmed the Company’s credit rating at A-, with a stable outlook and adequate liquidity.  The Company’s ability to maintain
its credit rating depends, among other things, on adequate and timely rate relief, which it has been successful in obtaining, its ability to fund capital expenditures in a balanced manner using both debt and equity and its ability to generate cash
flow.  In 2023, the Company’s objectives are to continue to maximize its funds provided by operations and maintain a strong capital structure in order to be able to attract capital.

Physical and Cyber Security

The Company maintains security measures at its facilities, and collaborates with federal, state, and local authorities, and industry trade associations
regarding information on possible threats and security measures for water and wastewater utility operations.  The costs incurred are expected to be recoverable in water and wastewater rates and are not expected to have a material impact on its
business, financial condition, or results of operations.

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The Company relies on information technology systems in connection with the operation of the business, especially with respect to customer service,
billing, accounting, and in some cases, the monitoring and operation of treatment, storage, and pumping facilities.  In addition, the Company relies on these systems to track utility assets and to manage maintenance and construction projects,
materials and supplies, and human resource functions.  The information technology systems may be vulnerable to damage or interruption from cyber security attacks or other cyber-related events, including, but not limited to, power loss, computer
systems failures, internet, telecommunications or data network failures, physical and electronic loss of data, computer viruses, intentional security breaches, hacking, denial of service actions, misappropriation of data, and similar events.  In
some cases, administration of certain functions may be outsourced to third-party service providers that could also be targets of cyber security attacks.  A loss of these systems, or major problems with the operation of these systems, could harm the
business, financial condition, and results of operations of the Company through the loss or compromise of customer, financial, employee, or operational data, disruption of billing, collections or normal field service activities, disruption of
electronic monitoring and control of operational systems, and delays in financial reporting and other normal management functions.

Possible impacts associated with a cyber security attack or other events may include remediation costs related to lost, stolen, or compromised data,
repairs to data processing systems, increased cyber security protection costs, adverse effects on our compliance with regulatory and environmental laws and regulation, including standards for drinking water, litigation, and reputational damage.

The Company has implemented processes, procedures, and controls to prevent or limit the effect of these possible events and maintains insurance to help
defray costs associated with cyber security attacks.  The Company has not experienced a material impact on business or operations from these attacks.  Although the Company does not believe its systems are at a materially greater risk of cyber
security attacks than other similar organizations and despite the implementation of robust security measures, the Company cannot provide assurance that the insurance will fully cover the costs of a cyber security event, and its robust security
measures do not guarantee that reputation and financial results will not be adversely affected by such an incident.

Environmental Matters

The Company was granted approval by the PPUC to modify its tariff to include the cost of the annual replacement of up to 400 lead customer-owned
service lines over nine years from the agreement.  The tariff modification allows the Company to replace customer-owned service lines at its own initial cost.  The Company will record the costs as a regulatory asset to be recovered in future base
rates to customers, over a four-year period.  The cost for the customer-owned lead service line replacements was approximately $1,518 and $1,351 through December 31, 2022 and 2021, respectively, and is included as a regulatory asset.  Based on its
experience, the Company estimates that lead customer-owned service lines replacements will cost $1,700.  This estimate is subject to adjustment as more facts become available.

Dividends

During 2022, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 56.2% and 48.5%, respectively.  During
2021, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 58.3% and 42.7%, respectively.  During the fourth quarter of 2022, the Board of Directors increased the dividend by 4.00% from
$0.1949 per share to $0.2027 per share per quarter.

The Company’s Board of Directors declared a dividend in the amount of $0.2027 per share at its February 2023 meeting.  The dividend is payable on April 14, 2023 to
shareholders of record as of February 28, 2023.  While the Company expects to maintain this dividend amount in 2023, future dividends will be dependent upon the Company’s earnings, financial condition, capital demands and other factors and will be
determined by the Company’s Board of Directors.  See Note 6 to the Company’s financial statements included herein for restrictions on dividend payments.

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Inflation

The Company is affected by inflation, most notably by the continually increasing costs incurred to maintain and expand its service capacity.  The cumulative effect of
inflation results in significantly higher facility replacement costs which must be recovered from future cash flows.  The ability of the Company to recover this increased investment in facilities is dependent upon future rate increases, which are
subject to approval by the PPUC.  The Company can provide no assurances that its rate increases will be approved by the PPUC; and, if approved, the Company cannot guarantee that these rate increases will be granted in a timely or sufficient manner
to cover the investments and expenses for which the rate increase was sought.

Critical Accounting Estimates

The methods, estimates, and judgments the Company used in applying its accounting policies have a significant impact on the results reported in its financial
statements. The Company’s accounting policies require management to make subjective judgments because of the need to make estimates of matters that are inherently uncertain.  The Company’s most critical accounting estimates include: revenue
recognition and accounting for its pension plans.

Revenue Recognition

Operating revenues include amounts billed to metered water and certain wastewater customers on a cycle basis and unbilled amounts based on both actual and estimated
usage from the latest meter reading to the end of the accounting period.  Estimates are based on average daily usage for those particular customers.  The unbilled revenue amount is recorded as a current asset on the balance sheet.  Actual results
could differ from these estimates and would result in operating revenues being adjusted in the period in which the actual usage is known.  Based on historical experience, the Company believes its estimate of unbilled revenues is reasonable.

Pension Accounting

Accounting for defined benefit pension plans requires estimates of future compensation increases, mortality, the discount rate, and expected return on plan assets as
well as other variables.  These variables are reviewed annually with the Company’s pension actuary.  The Company used compensation increases of 2.5% to 3.0% in 2021 and 2022.

The Company adopted a new mortality table in 2019, the Pri-2012, using the white collar table for the administrative and general plan and the blue collar table for the
union plan.  In 2021, the Company adopted the MP-2021 mortality improvement scale, which slightly increased the life expectancy of pension plan participants, resulting in a slight increase to the pension benefit obligation, and ultimately, a
decrease in the Company’s funded status of the plans.

The Company selected its December 31, 2022 and 2021 discount rates based on the FTSE Pension Liability Index.  This index uses spot rates for durations out to 30 years
and matches them to expected disbursements from the plan over the long term.  The Company believes this index most appropriately matches its pension obligations.  The present values of the Company’s future pension obligations were determined using
a discount rate of 5.00% at December 31, 2022 and 2.65% at December 31, 2021.

Adopting a new mortality table that represents a change in life expectancy and choosing a different discount rate normally changes the amount of pension expense and
the corresponding liability.  In the case of the Company, these items change its liability, but do not have an impact on its pension expense.  The PPUC, in a previous rate settlement, agreed to grant recovery of the Company’s contribution to the
pension plans in customer rates.  As a result, under the accounting standards regarding rate-regulated activities, expense in excess of the Company’s pension plan contribution can be deferred as a regulatory asset and expensed as contributions are
made to the plans and are recovered in customer rates.  Therefore, these changes affect regulatory assets rather than pension expense.

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The Company’s estimate of the expected return on plan assets is primarily based on the historic returns and projected future returns of the asset classes represented
in its plans.  The target allocation of pension assets is 50% to 70% equity securities, 30% to 50% fixed income securities, and 0% to 10% cash reserves.  The Company used 6.50% as its expected rate of return in 2021 and 2022.  A decrease in the
expected pension return would normally cause an increase in pension expense; however due to the aforementioned rate settlement, the Company’s expense would continue to be equal to its contributions to the plans.  The change would instead be
recorded in regulatory assets.

Lower discount rates and underperformance of assets could cause future required contributions and expense to increase substantially.  If this were to happen, the
Company would have to consider changes to its pension plan benefits and possibly request additional recovery of expenses through increased rates charged to customers.  See Note 11 to the Company’s financial statements included herein for additional
details regarding the pension plans.

Off-Balance Sheet Transactions

The Company does not use off-balance sheet transactions, arrangements or obligations that may have a material current or future effect on financial condition, results
of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.  The Company does not use securitization of receivables or unconsolidated entities. For risk management purposes, the Company uses
a derivative financial instrument, an interest rate swap agreement discussed in Note 7 to the financial statements included herein.  The Company does not engage in trading or other risk management activities, does not use other derivative financial
instruments for any purpose, has no material lease obligations, no guarantees and does not have material transactions involving related parties.

Impact of Recent Accounting Pronouncements

There are currently no recent accounting pronouncements that are expected to have a material impact to the Company’s financial statements.