YORK WATER CO (YORW) FY 2023 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 ten 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
2023 compared to 2022 primarily due to a rate increase effective March 1, 2023 and an increase in the number of customers, which was partially offset by lower 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 2023, operating revenue was derived from the following sources and in the following percentages: residential, 64%; commercial and industrial, 29%; and other, 7%, 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 and wastewater service provided through increases in the number of customers,
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.

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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.

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 2023 was strong under the above measures.  Operating revenues increased in 2023 compared to 2022 primarily due to a rate
increase effective March 1, 2023 and an increase in the number of customers, which was partially offset by the lower revenues from the DSIC.  The increase in operating revenues offset the increases in operating expenses.  The Company incurred
higher income taxes primarily due to higher income before income taxes.  The overall effect was an increase in net income in 2023 over 2022 of 21.3% and a return on year end common equity of 10.7%.  The return on year end common equity was strong
and higher than the 2022 result of 9.5% which included an increase in common equity from an underwritten public stock offering completed in 2022.  The 2023 results were in line with the five year historical average return on year end common equity
of 10.7%.

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 30.0%.  In 2023, the ratio was higher than the average at 33.4% due primarily to the increase in operating revenues and 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.

2023 Compared with 2022

Net income for 2023 was $23,757, an increase of $4,177, or 21.3%, from net income of $19,580 for 2022.  The primary contributing factors to the increase
were higher operating revenues, which were partially offset by higher operating expenses and income taxes.

Operating revenues for 2023 increased $10,970, or 18.3%, from $60,061 for 2022 to $71,031 for 2023.  The primary reason for the increase was a rate
increase effective March 1, 2023.  Growth in the customer base also added to revenues.  The average number of water customers served in 2023 increased as compared to 2022 by 996 customers, from 70,420 to 71,416 customers.  The average number of
wastewater customers served in 2023 increased as compared to 2022 by 390 customers, from 5,609 to 5,999 customers, primarily due to acquisitions.  Total per capita consumption for 2023 was approximately 0.3% higher than last year.  The increased
revenues were partially offset by a $1,994 decrease from a lower DSIC allowed by the PPUC.  The DSIC reset to zero on March 1, 2023 when the rate order took effect.  In 2024, the Company expects revenues to show a modest increase over 2023 due to a
full year at the new rates and an increase in the number of water and wastewater customers from acquisitions and growth within the Company’s service territory.  Other regulatory actions, drought warnings or restrictions, weather patterns, and
economic conditions could impact results.

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Operating expenses for 2023 increased $5,922, or 16.6%, from $35,578 for 2022 to $41,500 for 2023.  The increase was primarily due to higher expenses of
approximately $1,607 for depreciation and amortization, $975 for water treatment, $713 for wages, $683 for wastewater treatment as the prior year included a one-time reimbursement not repeated in the current year, $362 for insurance, $282 for
distribution system maintenance, $281 for outside services, $213 for billing and revenue collection services, $202 for fuel to pump raw water from the Susquehanna River, $189 for reduced capitalized overhead, $106 for an increased allowance for
uncollectible accounts, and $89 for source maintenance.  Other operating expenses increased by a net of $220.  In 2024, the Company expects depreciation and amortization 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.  Drought conditions and weather patterns could further increase operating expenses.

Interest on debt for 2023 increased $1,933, or 37.8%, from $5,114 for 2022 to $7,047 for 2023.  The increase was primarily due to an increase in
long-term debt outstanding and higher interest rates.  The average debt outstanding under the lines of credit was $16,316 for 2023 and $13,428 for 2022.  The weighted average interest rate on the lines of credit was 5.36% for 2023 and 2.11% for
2022.  Interest expense for 2024 is expected to be higher due to continued borrowings and continued higher interest rates.

Allowance for funds used during construction increased $2,652, from $1,501 in 2022 to $4,153 in 2023 due to a higher volume of eligible construction.
Allowance for funds used during construction in 2024 is expected to decrease based on the completion of the Lake Williams Dam project and a projected decrease in the amount of eligible construction.

Other income (expenses), net for 2023 reflects increased expenses of $521 as compared to 2022.  Higher retirement expenses of approximately $843 were the
primary reason for the increase.  Lower charitable contributions of approximately $288 partially offset the increase.  Other expenses decreased by a net of $34.
In 2024, other income (expenses) will be largely determined by the change in market returns and discount rates for retirement programs and related assets.

Income tax expense for 2023 increased $1,262 compared to 2022 primarily due to higher income before income taxes partially offset by higher deductions
from the IRS TPR.  The Company’s effective tax rate was 5.1% for 2023 and 0.1% for 2022.  The Company’s effective tax rate for 2024 will be largely determined by income before income taxes and 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.

The Company does not expect to file a rate increase request in 2024.

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 February 7, 2024, the Company signed an agreement to purchase the wastewater collection assets of Margaretta Mobile Home Park in Lower Windsor
Township, York County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in 2025 at which time the Company will add approximately 65 wastewater
customers.

On July 17, 2023, the Company signed an agreement to purchase the wastewater collection and treatment assets of York Haven Sewer Authority in York Haven
Borough, York County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the third quarter of 2024 at which time the Company will add approximately
230 wastewater customers.

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On June 1, 2023, the Company signed an agreement to purchase the water assets of Longstown Mobile Estates in Windsor Township, York County,
Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the first quarter of 2024 at which time the Company will add approximately 90 water customers.  The
water customers are currently served by the Company through a single customer connection to the mobile home park.

On May 23, 2023, the Company signed an agreement to purchase the Brookhaven Mobile Home Park water assets of ATG Properties, LLC in Hellam 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 2024 at which time the Company will add approximately 150 water
customers.

On May 18, 2023, the Company signed an agreement to purchase the water assets of Houston Run Community Water System, LLC in Salisbury Township, Lancaster
County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second quarter of 2024 at which time the Company will add approximately 15 water
customers.

On March 27, 2023, the Company signed an agreement to purchase the water assets of Pine Run Retirement Community in Hamilton Township, Adams County,
Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second half of 2024 at which time the Company will add approximately 100 water customers.

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 2024 at which time the Company will add approximately 280
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 2024 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 2023, the Company invested $64,640 in construction expenditures for armoring and replacing the spillway of the Lake Williams dam, wastewater
treatment plant construction as well as various replacements and improvements to infrastructure and routine items.  In addition, the Company invested $625 in the acquisition of water and wastewater systems.  The Company replaced approximately
50,200 feet of water main and 500 feet of wastewater main in 2023.  The Company was able to fund construction expenditures using internally-generated funds, line of credit borrowings, 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 2024 and 2025 of approximately $42,200 and $46,100, respectively, exclusive of any
acquisitions not yet approved.  In addition to routine transmission and distribution projects, a portion of the anticipated 2024 and 2025 expenditures will be for additional main extensions, completion of armoring and replacing the spillway of the
Lake Williams dam, wastewater treatment plant construction, an upgrade to the enterprise software system, and various replacements of infrastructure.  The Company intends to use primarily internally-generated funds for its anticipated 2024 and 2025
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 2024 and 2025.  The Company believes it will have adequate credit facilities and access to the capital markets, if necessary,
during 2024 and 2025, 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, 2023, the Company borrowed $30,273 under its line of credit and incurred
a cash overdraft on its cash management account of $1,547, 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.

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 2023, higher revenue levels as compared to 2022 resulted in an increase in accounts receivable – customers.  A reserve is maintained at a level considered adequate to provide for expected credit losses.
Expected credit losses are based on historical write-offs combined with an evaluation of current conditions and reasonable and supportable forecasts including inactive accounts with outstanding balances, the aging of balances in payment agreements,
adverse situations that may affect a customer’s ability to pay, economic conditions, and other relevant factors applied to the current aging of receivables.  Customer accounts are written off when collection efforts have been exhausted.  If the
status of the evaluated factors deteriorate, 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 2023, the Company generated $31,908 internally as compared to $22,018 in 2022.  The increase from 2022 was primarily due to the
increase in net income and the increase in depreciation and amortization, a non-cash expense.

Common Stock

Common stockholders’ equity as a percent of the total capitalization was 54.8% as of December 31, 2023, compared with 59.3% as of December 31, 2022.  The
ratio decreased in 2023 due to higher debt primarily from increased capital expenditures.  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.

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, 2023, the
Company maintained a $50,000, unsecured, committed line of credit at an interest rate of the Secured Overnight Financing Rate, or SOFR, plus 1.17% with an unused commitment fee and an interest rate floor.  The Company had $30,273 in outstanding
borrowings under its line of credit as of December 31, 2023.  The interest rate on line of credit borrowings as of December 31, 2023 was 6.51%.  In the third quarter of 2023, the Company renewed its committed line of credit and extended the
maturity date to September 2025.  No other terms or conditions of the line of credit agreement were modified.  On January 1, 2023, the interest rate changed from LIBOR plus 1.05% to a successor rate of the SOFR plus 1.17% in advance of the
discontinuation of LIBOR in 2023.  The Company expects to renew this line of credit as it matures under similar terms and conditions.

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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 2024.

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.

On February 24, 2023, the Company entered into a note purchase agreement with certain institutional investors relating to the private placement of
$40,000 aggregate principal amount of the Company’s senior notes.  The senior notes bear interest at 5.50% per annum payable semiannually and mature on February 24, 2053.  The senior notes are unsecured and unsubordinated obligations of the
Company.  The Company received net proceeds, after deducting issuance costs, of approximately $39,829.  The net proceeds were used to refinance line of credit borrowings incurred by the Company as interim financing for various capital projects of
the Company.

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 45.2% as of December 31, 2023, compared with 40.7% as of December 31, 2022.  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, 2023.

Income Taxes, Deferred Income Taxes and Uncertain Tax Positions

Under the IRS 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 income before income taxes and 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 recognized in income for the years ended December 31, 2023 and 2022, was
immaterial.  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, 2023
and 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.

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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, 2023.  See Note 14 to the Company’s financial
statements included herein for additional details regarding income taxes.

Credit Rating

On July 26, 2023, 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 2024, 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.

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 the Company’s 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.

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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 date of 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 $1,762 and $1,518 through December 31, 2023 and 2022, respectively, and is included as a regulatory asset.  Based on
its experience, the Company estimates that lead customer-owned service lines replacements will cost $1,900.  This estimate is subject to adjustment as more facts become available.

Drought

On January 26, 2024, Pennsylvania state officials moved York County to a drought watch, moved Lancaster County to normal status, and continued the
drought watch for Adams County and the drought warning for Franklin County.  The warning calls for a voluntary reduction in nonessential water use of 10 to 15 percent and the watch calls for a voluntary reduction in nonessential water use of 5 to
10 percent.  In addition, the Company has implemented a voluntary restriction on nonessential water use within its service territory.  These measures could potentially impact future revenues, operating expenses, and net income depending on the
length and severity of the dry conditions.

Dividends

During 2023, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 49.3% and 36.3%,
respectively.  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 the fourth quarter of 2023, the Board increased the dividend by 4.00%
from $0.2027 per share to $0.2108 per share per quarter.

The Company’s Board declared a dividend in the amount of $0.2108 per share at its January 2024 meeting.  The dividend is payable on April 15, 2024 to
shareholders of record as of February 29, 2024.  While the Company expects to maintain this dividend amount in 2024, 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.  See Note 6 to the Company’s financial statements included herein for restrictions on dividend payments.

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.

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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 2022 and 2023.

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, 2023 and 2022 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 4.75% at December 31, 2023 and 5.00% at December 31, 2022.

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.

In 2023, the Company modified its investment policy statements.  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 70% to 90% fixed income securities, 10% to 30% equity securities, and 0% to 10% cash reserves.  The Company
used 5.00% as its expected rate of return in 2023, a decrease from the 6.50% used in 2022 based on the modified investment policy statements.  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.

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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.