10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

☒           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

OR

☐          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-18516

ARTESIAN RESOURCES CORPORATION

 (Exact name of registrant as specified in its charter)

Delaware	51-0002090
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

664 Churchmans Road, Newark, Delaware 19702

Address of principal executive offices

(302) 453 – 6900

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Class A Non-Voting Common Stock
Name of each exchange on which registered	The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:   None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes ☑ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐ Yes ☑ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

☑ Yes ☐ No

Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12(b)-2 of the Exchange Act.:

Large Accelerated Filer ☐ Accelerated Filer ☑ Non-Accelerated Filer ☐ Smaller Reporting Company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

☐ Yes ☑ No

The aggregate market value of the Class A Non-Voting Common Stock and Class B Common Stock held by non-affiliates of the registrant at June 30, 2016 was $269,178,000 and $8,328,000, respectively.  The aggregate market value of Class A Non-Voting Common Stock was computed by reference to the closing price of such class as reported on the Nasdaq Global Market on June 30, 2016, which trade date was June 30, 2016.  The aggregate market value of Class B Common Stock was computed by reference to the last reported trade of such class as reported on the OTC Bulletin Board as of June 30, 2016, which trade date was June 27, 2016.

As of March 6, 2017, 8,251,271 shares of Class A Non-Voting Common Stock and 881,452 shares of Class B Common Stock were outstanding.

ARTESIAN RESOURCES CORPORATION

TABLE OF CONTENTS

FORWARD LOOKING STATEMENTS

Exhibit 21-Subsidiaries of the Company

Exhibit 23.1-Consent of BDO USA, LLP

Exhibit 31.1-Certification of Chief Executive Officer

Exhibit 31.2-Certification of Chief Financial Officer

Exhibit 32- Certification of Chief Executive Officer and Chief Financial Officer

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in this Annual Report on Form 10-K which express our "belief," "anticipation" or "expectation," as well as other statements which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act and the Private Securities Litigation Reform Act of 1995. Statements regarding our goals, priorities, growth and expansion plans and expectation for our water and wastewater subsidiaries and non-regulated subsidiaries, customer base growth opportunities in Delaware and Cecil County, Maryland, our belief regarding our capacity to provide water services for the foreseeable future to our customers, our belief relating to our compliance and the cost to achieve compliance with relevant governmental regulations, our expectation of the timing of decisions by regulatory authorities, the impact of weather on our operations and the execution of our strategic initiatives, our expectation of the timing for construction on new projects, our expectation relating to the adoption of recent accounting pronouncements, contract operations opportunities, legal proceedings, our properties, deferred tax assets, adequacy of our available sources of financing, the expected recovery of expenses related to our long-term debt, our expectation to be in compliance with financial covenants in our debt instruments, our ability to refinance our debt as it comes due, our ability to adjust our debt level, interest rate, maturity schedule and structure, the timing and terms of renewals of our lines of credit, plans to increase our wastewater treatment operations, engineering services and other revenue streams less affected by weather, expected future contributions to our postretirement benefit plan, anticipated growth in our non-regulated division, the impact of recent acquisitions on our ability to expand and foster relationships, anticipated investments in certain of our facilities and systems and the sources of funding for such investments, sufficiency of internally generated funds and credit facilities to provide working capital and our liquidity needs are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties that could cause actual results to differ materially from those projected.  Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", "projects", "forecasts", "may", "should", variations of such words and similar expressions are intended to identify such forward-looking statements.  Certain factors as discussed under Item 1A -Risk Factors, such as changes in weather, changes in our contractual obligations, changes in government policies, the timing and results of our rate requests, changes in economic and market conditions generally, and other matters could cause results to differ materially from those in the forward-looking statements. While the Company may elect to update forward-looking statements, we specifically disclaim any obligation to do so and you should not rely on any forward-looking statement as representation of the Company's views as of any date subsequent to the date of the filing of this Annual Report on Form 10-K.

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PART I

ITEM 1. BUSINESS

General Information

Artesian Resources Corporation, a Delaware Corporation incorporated in 1927, operates as the holding company of eight wholly-owned subsidiaries offering water, wastewater and other services on the Delmarva Peninsula.  The Company's principal executive offices are located at 664 Churchmans Road, Newark, Delaware 19702.  Our principal subsidiary, Artesian Water Company, Inc., is the oldest and largest investor-owned public water utility on the Delmarva Peninsula, and has been providing superior water service since 1905. We distribute and sell water, including water for public and private fire protection, to residential, commercial, industrial, municipal and utility customers in the states of Delaware, Maryland and Pennsylvania. We provide wastewater services to customers in Delaware. In addition, we provide contract water and wastewater operations, and water, sewer and internal Service Line Protection Plans. Our Class A Non-Voting Common Stock is listed on the NASDAQ Global Select Market and trades under the symbol "ARTNA."

Artesian Resources Corporation, or Artesian Resources, operates as the parent holding company of five regulated public utilities: Artesian Water Company, Inc., or Artesian Water, Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, Artesian Water Maryland, Inc., or Artesian Water Maryland, Artesian Wastewater Management, Inc., or Artesian Wastewater, Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, and three non-regulated subsidiaries: Artesian Utility Development, Inc., or Artesian Utility, Artesian Development Corporation, or Artesian Development, and Artesian Consulting Engineers, Inc., or Artesian Consulting Engineers.  The terms "we," "our" and the "Company" as used herein refer to Artesian Resources and its subsidiaries.  The business activity conducted by each of our subsidiaries is discussed below under separate headings.

Our Market

Our current market area is the Delmarva Peninsula.  Our largest service area is in the State of Delaware, which had an estimated population of approximately 952,000 at July 1, 2016. According to the US Census Bureau, Delaware's population increased an estimated 6.0% from 2011 to 2016, as compared to the nationwide growth rate of approximately 4.7%. Substantial portions of Delaware, particularly outside of New Castle County, are not served by a public water or wastewater system and represent potential opportunities for Artesian Water and Artesian Wastewater to obtain new exclusive franchised service areas.  We continue to focus resources on developing and serving existing service territories and obtaining new territories throughout the State.

We have interconnection agreements for the sale of water with the towns of Elkton and Chesapeake City, Maryland.  The Town of Elkton is required to take a minimum of 250,000 gallons per day of water through the interconnection and may take a maximum of 1.5 million gallons per day, or mgd. Our interconnection with Chesapeake City is currently the town's sole source of water with an average daily take of 75,000 gallons.  

We hold Certificates of Public Convenience and Necessity, or CPCNs, for approximately 283 square miles of exclusive water service territory and approximately 25 square miles of wastewater service territory, most of which is in Delaware and some in Maryland and Pennsylvania.  Our largest connected regional water system, consisting of approximately 141 square miles and 74,000 metered customers, is located in northern New Castle County and portions of southern New Castle County, Delaware.  A significant portion of our exclusive service territory is in Delaware and remains undeveloped, and if and when development occurs and there is population growth in these areas, we will increase our customer base by providing water and/or wastewater service to the newly developed areas and new customers.

Subsidiaries

Artesian Water

Artesian Water, our principal subsidiary, is the oldest and largest public water utility in the State of Delaware and has been providing water service within the state since 1905.  Artesian Water distributes and sells water to residential, commercial, industrial, governmental, municipal and utility customers throughout the State of Delaware.  In addition, Artesian Water provides services to other water utilities, including operations and billing functions, and also has contract operation agreements with private and municipal water providers.  We also provide water for public and private fire protection to customers in our service territories.

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Artesian Water Maryland

Artesian Water Maryland began operations in August 2007.  Artesian Water Maryland distributes and sells water to residential, commercial, industrial and municipal customers in Cecil County, Maryland.

Artesian Water Pennsylvania

Artesian Water Pennsylvania began operations upon receiving recognition as a regulated public water utility by the Pennsylvania Public Utility Commission, or PAPUC, in 2002.  It provides water service to a residential community in Chester County.

Artesian Wastewater

Artesian Wastewater is a regulated entity that owns wastewater collection and treatment infrastructure and provides wastewater services to customers in Delaware as a regulated public wastewater service company.  As of December 31, 2016, Artesian Wastewater owned and operated four wastewater treatment facilities, which are permitted to treat approximately 500,000 gallons per day. In August 2016, Artesian Wastewater and Sussex County, a political subdivision of Delaware, entered into an agreement to provide wastewater treatment and disposal services for each other in order to address the periodic need of additional wastewater treatment and disposal capacities and facilities in Sussex County, beyond those under their own ownership and control, to assure the timely, efficient and cost effective transmission and management of wastewater.  There are numerous locations in Sussex County where Artesian Wastewater's and Sussex County's facilities are capable of being connected or integrated to allow for the movement and disposal of wastewater generated by one or the other's system. 

On September 27, 2016, Artesian Wastewater entered into a wastewater services agreement with Allen Harim Foods, LLC, or Allen Harim, for Artesian Wastewater to provide treatment and disposal services for sanitary wastewater discharged from Allen Harim's properties located in Sussex County, Delaware upon completion of a pipeline to transfer the sanitary wastewater.  The completion of the pipeline should occur during the second quarter of 2017.  On January 27, 2017, Artesian Wastewater entered into a second wastewater agreement with Allen Harim for Artesian Wastewater to provide disposal services for approximately 1.5 million gallons per day of treated industrial and/or process wastewater upon completion of an approximately eight mile pipeline that will transfer the wastewater from Allen Harim's properties to a 67 million gallon storage lagoon at Artesian's Northern Sussex Water Recycling Facility.  Artesian will use the reclaimed wastewater for spray irrigation on agricultural land in the area.  The completion of the industrial and/or process wastewater pipeline and storage lagoon should occur during the first quarter of 2018.

Artesian Wastewater Maryland

Artesian Wastewater Maryland is a regulated wastewater entity in the State of Maryland and was incorporated on June 3, 2008. Artesian Wastewater Maryland is able to provide public wastewater services to customers in the State of Maryland. It is currently not providing wastewater services in Maryland.

Artesian Utility

Artesian Utility was formed in 1996. It designs and builds water and wastewater infrastructure and provides contract water and wastewater services on the Delmarva Peninsula. Artesian Utility also evaluates land parcels, provides recommendations to developers on the size of water or wastewater facilities and the type of technology that should be used for treatment at such facilities, and operates water and wastewater facilities in Delaware for municipal and governmental organizations. Artesian Utility also may contract with developers for design and construction of wastewater facilities within the Delmarva Peninsula, using a number of different technologies for treatment of wastewater at each facility. In addition, as further discussed below, effective April 2012, Artesian Utility operates the Water Service Line Protection Plan, or WSLP Plan, and the Sewer Service Line Protection Plan, or SSLP Plan. In November 2015, a third plan was added, the Internal Service Line Protection Plan, or ISLP Plan.

We currently operate wastewater treatment facilities for the town of Middletown, Delaware, in southern New Castle County, or Middletown, under a 20-year contract that expires in July 2022. The facilities include two wastewater treatment stations with capacities of up to approximately 2.5 mgd and 250,000 gallons per day, respectively. We also operate a wastewater disposal facility in Middletown in order to support the 2.5 mgd wastewater facility. One of the wastewater treatment facilities in Middletown now provides reclaimed wastewater for use in spray irrigation on public and agricultural lands in the area.

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Artesian Utility has operated the WSLP Plan and the SSLP Plan since 2012. Artesian Resources initiated the WSLP Plan in March 2005. The WSLP Plan covers all parts, material and labor required to repair or replace participating customers' leaking water service lines up to an annual limit. The SSLP Plan was initiated in the second quarter of 2008. The SSLP Plan covers all parts, material and labor required to repair or replace participating customers' leaking or clogged sewer lines up to an annual limit. In the second quarter of 2010, the WSLP Plan and SSLP Plan were extended to include non-utility customers of Artesian Resources. The ISLP Plan was introduced in November 2015 to further enhance available coverage to include water and wastewater lines within the residence. As of December 31, 2016, approximately 19,500, or 25.0%, of our eligible water customers signed up for the WSLP Plan, approximately 15,200, or 19.5%, of our eligible customers signed up for the SSLP Plan, and approximately 3,600 signed up for the ISLP Plan.  Approximately 1,400 non-customer participants signed up for either the WSLP Plan, the SSLP Plan, or the ISLP Plan.

Artesian Development

Artesian Development is a real estate holding company that owns properties, including land zoned for office buildings, a water treatment plant and wastewater facility, as well as property for current operations, including an office facility in Sussex County, Delaware. The facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse space. This facility is leased to Artesian Water and Artesian Wastewater and allows all of our Sussex County, Delaware operations to be housed in one central location.

Artesian Consulting Engineers

Artesian Consulting Engineers no longer offers development and architectural services to outside third parties.  Artesian will continue to provide design and engineering contract services through our Artesian Utility subsidiary.

Regulatory Matters

Overview

Our water and wastewater utility operations are subject to regulation by their respective state regulatory commissions, which have broad administrative power and authority to regulate rates charged for service, determine franchise areas and conditions of service, approve acquisitions, authorize the issuance of securities and other matters.  The profitability of our utility operations is influenced, to a great extent, by the timeliness and adequacy of regulatory relief we are granted by the respective regulatory commissions or authorities in the states in which we operate.

We are subject to regulation by the following state regulatory commissions:

·The Delaware Public Service Commission, or DEPSC, regulates both Artesian Water and Artesian Wastewater.

·The Maryland Public Service Commission, or MDPSC, regulates both Artesian Water Maryland and Artesian Wastewater Maryland.

·The Pennsylvania Public Utility Commission, or PAPUC, regulates Artesian Water Pennsylvania.

Our water and wastewater utility operations are also subject to regulation under the federal Safe Drinking Water Act of 1974, or Safe Drinking Water Act, the Clean Water Act of 1972, or the Clean Water Act, and related state laws, and under federal and state regulations issued under these laws.  These laws and regulations establish criteria and standards for drinking water and for wastewater discharges.  Capital expenditures and operating costs required as a result of water quality standards and environmental requirements have been traditionally recognized by state regulatory commissions as appropriate for inclusion in establishing rates.

Water and Wastewater Rates

Our regulated utilities periodically seek rate increases to cover the cost of increased operating expenses, increased financing expenses due to additional investments in utility plant and other costs of doing business. In Delaware, utilities are permitted by law to place rates into effect, under bond, on a temporary basis pending completion of a rate increase proceeding. The first temporary increase may be up to the lesser of $2.5 million on an annual basis or 15% of gross water sales. Should the rate case not be completed within seven months, by law, the utility may put the entire requested rate relief, up to 15% of gross water sales, in effect under bond until a final resolution is ordered and placed into effect. If any such rates are found to be in excess of rates the DEPSC finds to be appropriate, the utility must refund customers the portion found to be in excess with interest. The timing of our rate increase requests are therefore dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase. We can provide no assurances that rate increase requests will be approved by applicable regulatory agencies and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase.

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On August 18, 2015, the DEPSC made a preliminary ruling in response to Artesian Water's April 2014 application to implement new rates to meet a requested increase in revenue of 15.90%, or approximately $10.0 million, on an annualized basis. The preliminary ruling recommended a permanent rate increase in revenue of approximately $6.0 million, or 9.50%, on an annualized basis, which was an incremental increase for customers of approximately 6.20% above the Distribution System Improvement Charge, or DSIC, rate previously in effect. On October 6, 2015, a DEPSC order was issued concurring with the preliminary ruling issued on August 18, 2015. On January 19, 2016, a final DEPSC order was issued related to the permanent rate increase and concurred with the October 6, 2015 order. Because the permanent rate increase was less than amounts collected under previously approved temporary increases in rates, Artesian Water was required to refund a portion of the temporary rate increases to its customers. The refund, plus interest, at the average prime rate, for the overpayment from customers was applied to current and future customer bills in October 2015. Because the final rate award was at a level not less than the amount previously reported as income, there was no material impact upon previously reported water sales revenue. The new rates are designed to allow recovery of capital investments made by Artesian Water and to cover increased costs of operations, including water quality testing, chemicals and electricity for water treatment, taxes, labor and benefits.

Service Territory Expansion

In Delaware, a Certificate of Public Convenience and Necessity, or CPCN, grants a water or wastewater company the exclusive right to serve all existing and new customers within a designated area.  The DEPSC has the authority to issue and revoke these CPCNs.  In this Form 10-K, we may refer to CPCNs as "franchises" or "service territories."

For a water company, the DEPSC may grant a CPCN under circumstances where there has been a determination that the water in the proposed service area does not meet the regulations governing drinking water standards of the State Division of Public Health for human consumption or where the supply is insufficient to meet the projected demand.  For a wastewater company, the DEPSC has jurisdiction over non-governmental wastewater utilities having fifty or more customers in the aggregate.  A CPCN for water and wastewater utilities shall be granted by the DEPSC to applicants in possession of one of the following:

Øa signed service agreement with the developer of a proposed subdivision or development, which subdivision or development has been duly approved by the respective county government;

Øa petition requesting such service signed by a majority of the landowners of the proposed territory to be served; or

Øa duly certified copy of a resolution from the governing body of a county or municipality requesting the applicant to provide service to the proposed territory to be served.

CPCNs are not transferable.  A water or wastewater utility that has a CPCN must obtain the approval of the DEPSC to abandon a service territory.  Once a CPCN is granted to a water or wastewater utility, it may not be suspended or terminated unless the DEPSC determines in accordance with its rules and regulations that good cause exists for any such suspension or termination. Although Artesian has been granted an exclusive franchise for each of its existing water and wastewater systems, its ability to expand service areas can be affected by the DEPSC awarding franchises to other regulated water or wastewater utilities with whom we compete for such franchises.

In Maryland, the Company must obtain approval from the appropriate local government authority for the ability to serve a particular area and also ensure that the acquired area is in the county's master water and sewer plan.  The authority to exercise a franchise must then be obtained from the MDPSC.  Utilities that seek to develop a franchise by constructing new facilities must obtain appropriate approvals from the Maryland Department of the Environment, the local government and the MDPSC.  The utility must also obtain approval for soil and erosion plans and easement agreements from appropriate parties.

Other Regulatory Matters

Delaware law permits water utilities to put into effect, on a semi-annual basis, increases related to specific types of distribution system improvements through DSIC. This charge may be implemented by water utilities between general rate increase applications that normally recognize changes in a water utility's overall financial position. The DSIC approval process is less costly when compared to the approval process for general rate increase requests. The DSIC rate applied between base rate filings is capped at 7.5% of the amount billed to customers under otherwise applicable rates and charges, and the DSIC rate increase applied cannot exceed 5% within any 12-month period. The following table summarizes Artesian Water's applications with the DEPSC to collect DSIC rates and the eligible plant improvements the rates are based on:

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Application Date

11/26/2014

05/28/2015

11/24/2015

05/31/2016

11/29/2016

DEPSC Approval Date

12/16/2014

06/16/2015

12/15/2015

06/28/2016

12/20/2016

Effective Date

01/01/2015

07/01/2015

01/01/2016

07/01/2016

01/01/2017

Cumulative DSIC Rate

0.34

%

1.15

%

1.57

%

2.30

%

4.71

%

Eligible Plant Improvements – Cumulative Dollars (in millions)

$

1.3

$

4.6

$

7.0

$

10.3

$

16.6

Eligible Plant Improvements – Installed Beginning Date

10/01/2014

10/01/2014

10/01/2014

10/01/2014

10/01/2014

Eligible Plant Improvements – Installed Ending Date

10/31/2014

04/30/2015

10/31/2015

4/30/2016

10/31/2016

All DEPSC approvals noted in the table above are subject to audit at a later date. For the years ended December 31, 2016, December 31, 2015 and December 31, 2014, we earned approximately $1,306,000, $520,000 and $788,000 in DSIC revenue, respectively.

Environmental Regulation

Our water and wastewater operations are subject to federal, state, and local requirements relating to environmental protection. The United States Environmental Protection Agency, or the EPA, the Delaware Department of Natural Resources and Environmental Control, or DNREC, and the Delaware Division of Public Health, or DPH, regulate the water quality of our treatment and distribution systems in Delaware, as do the EPA and the Maryland Department of the Environment, or MDE, with respect to our operations in Maryland. Chester Water Authority, which supplies water to Artesian Water through an interconnection in northern New Castle County, is regulated by the Pennsylvania Department of Environmental Protection, as well as the EPA. We believe that we are in material compliance with all current federal, state and local water quality standards, including regulations under the federal Safe Drinking Water Act. However, if new water quality regulations are too costly, or if we fail to comply with such regulations, it could have a material adverse effect on our financial condition and results of operations.

The water industry is capital intensive, with the highest capital investment in plant and equipment per dollar of revenue among all utilities. Increasingly stringent drinking water regulations to meet the requirements of the Safe Drinking Water Act have required the water industry to invest in more advanced treatment systems and processes, which require a heightened level of expertise.  Significant enhancements were made to existing facilities to effectively treat and remove compounds as required by government agencies, such as ultra violet oxidation treatment, ceramic membrane filtration and carbon filtration. We are currently in full compliance with the requirements of the Safe Drinking Water Act. Even though our water utility was founded in 1905, the majority of our investment in infrastructure occurred in the last 40 years.

Under Delaware state laws and regulations, we are required to file applications with DNREC for water allocation permits for each of our operating wells pumping greater than 50,000 gallons per day. For any wells in the Delaware River Basin, we must also file allocation permits with the Delaware River Basin Commission, or DRBC. We have 119 operating and 60 observation and monitoring wells in our Delaware systems. At December 31, 2016, we had allocation permits for 103 wells, and 16 wells that do not require a permit.

Our access to aquifers within our service territory is not exclusive. Water allocation permits control the amount of water that can be drawn from water resources and are granted with specific restrictions on water level draw down limits, annual, monthly and daily pumpage limits, and well field allocation pumpage limits. We are also subject to water allocation regulations that control the amount of water that we can draw from water sources. As a result, if new or more restrictive water allocation regulations are imposed, they could have an adverse effect on our ability to supply the demands of our customers, and in turn, our water supply revenues and results of operations. Our ability to supply the demands of our customers historically has not been affected by private usage of the aquifers by landowners or the limits imposed by the state of Delaware. Because of the extensive regulatory requirements relating to the withdrawal of any significant amounts of water from the aquifers, we believe that third party usage of the aquifers within our service territory will not interfere with our ability to meet the present and future demands of our customers.

As required by the Safe Drinking Water Act, the EPA has established maximum contaminant levels for various substances found in drinking water to ensure that the water is safe for human consumption. These limits are known as Maximum Contaminant Levels and Maximum Residual Disinfection Levels. The EPA also regulates how often public water systems monitor their water for contaminants and report the monitoring results to the individual state agencies or the EPA.  Generally, the larger the population served by a water system, the more frequent the monitoring and reporting requirements. The Safe Drinking Water Act applies to all 50 states.

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DPH has set maximum contaminant levels for certain substances that are more restrictive than the maximum contaminant levels set by the EPA.  The DPH is the EPA's agent for enforcing the Safe Drinking Water Act in Delaware and, in that capacity, monitors the activities of Artesian Water and reviews the results of water quality tests performed by Artesian Water for adherence to applicable regulations.  Artesian Water is also subject to other laws regulating substances and contaminants in water, including rules for volatile organic compounds and the Total Coliform Rule.

A normal by-product of our iron removal treatment facilities is a solid consisting of the iron removed from untreated groundwater plus residue from chemicals used in the treatment process.  The solids produced at our facilities are either disposed directly into approved wastewater facilities or removed from our facilities by a licensed third party vendor. A normal by-product of our carbon absorption filtration process is exhausted carbon media, which is disposed of by the contractor providing the media replacement. Management believes that compliance with existing federal, state or local laws and regulations regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has no material effect upon the business and affairs of the Company, but there is no assurance that such compliance will continue to not have a material effect in the future.

The MDE ensures that water quality and quantity at all public water systems in Maryland meet the needs of the public and are in compliance with federal and state regulations. The MDE also ensures that public drinking water systems provide safe and adequate water to all current and future users in Maryland, and that appropriate usage, planning, and conservation policies are implemented for Maryland's water resources. The MDE oversees the development of Source Water Assessments for water supplies, and issues water appropriation permits for public drinking water systems.  In order to appropriate water for municipal, commercial, industrial or other non-domestic uses, a Water Appropriation Permit must be obtained.  Issuance of the permit involves evaluating the needs of the user and the potential impact of the withdrawal on neighboring users and the water source in order to maximize beneficial use of the water of the State of Maryland.  Permits for large appropriations often involve conducting pump tests to measure adequacy of an aquifer and safe yield of a well, or reviewing stream flow records to determine the adequacy of a surface water source.  Regulations were finalized in 1999 that require all new community water systems to have sufficient technical, managerial and financial capacity to provide safe drinking water to their consumers prior to being issued a Construction Permit.  Also, in 2007, capacity management guidance was finalized.  Capacity limiting factors can include, source capacity, treatment capacity and appropriation permit quantity. The quantity of water withdrawn from the Port Deposit surface water intake is allocated by the Susquehanna River Basin Commission, or SRBC, and MDE. We have 12 operating wells and one surface water in-take in our Maryland systems.

The Clean Water Act has established the foundation for wastewater discharge control in the United States.  The Clean Water Act established a control program for ensuring that communities have clean water by regulating the release of contaminants into waterways.  Permits that limit the amounts of pollutants discharged are required of all wastewater dischargers under the National Pollutant Discharge Elimination System, or the NPDES permit program.  In accordance with the NPDES permit program, the implementing states set maximum discharge limits for wastewater effluents and overflows from wastewater collection systems. Discharges that exceed the limits specified under the NPDES permit program can lead to the imposition of penalties. The Clean Water Act also requires that wastewater treatment plant discharges meet a minimum of secondary treatment.  The secondary treatment process can remove up to 90% of the organic matter in wastewater.

Under the Delaware state laws and regulations, we are required to hold a permit from DNREC for the construction, operation, maintenance or repair of any on-site wastewater treatment and disposal systems with daily design flow rates of greater than or equal to 2,500 gallons. A classification on the facility is performed in accordance with Regulations Licensing Operators of Wastewater Facilities. The class of operator required for the facility is determined by the Board of Certification for Licensed Wastewater Operations in accordance with Regulations Licensing Operators of Wastewater Facilities. We operate environmentally friendly wastewater systems that meet all requirements of Federal, State and local standards.

Sources of Water

We derive about 95% of our self-supplied groundwater from wells that pump groundwater from aquifers and other formations located in the Atlantic Coastal Plain. The remaining 5% of our groundwater supply comes from wells in the Piedmont Province.  We use a variety of treatment methods, including aeration, pH adjustment, chlorination, fluoridation, ultra violet oxidation, arsenic removal, nitrate removal, radium removal, iron removal, and carbon absorption to meet federal, state and local water quality standards.  Additionally, a corrosion inhibitor is added to all of our self-supplied groundwater and most of the supply from interconnections.  We have 56 different water treatment facilities in our Delaware systems.  We have 8 separate water treatment facilities in our Maryland systems.  All water supplies that we purchase from neighboring utilities are potable.  

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To supplement our groundwater supply, we purchase treated surface water through interconnections only in the northern service area of our New Castle County, Delaware system.  The treated surface water is blended with our groundwater supply for distribution to our customers.  Nearly 84% of the overall 7.6 billion gallons of water we distributed in all of our Delaware systems during 2016came from our groundwater wells, while the remaining 15% came from interconnections with other utilities and municipalities.  The majority of the 0.1 billion gallons of water we distributed in all of our Maryland systems during 2016came from our groundwater wells, while a portion came from treated surface water.  In Delaware in 2016, we pumped an average of 17.8 mgd from our groundwater wells and obtained an average of approximately 3.1 mgd from interconnections. We have one water treatment facility that treats surface water from the Susquehanna River, located in Cecil County, Maryland.  Our peak water supply capacity currently is approximately 55.0 mgd in Delaware and approximately 2.0 mgd in Maryland. We believe that we have in place sufficient capacity to provide water service for the foreseeable future to all existing and new customers in all of our service territories.

Interconnections and Storage

Most of our New Castle County, Delaware water system is interconnected.  In the remainder of the State of Delaware, we have several satellite systems that have not yet been connected by transmission and distribution facilities. We intend to join these systems into larger integrated regional systems through the construction of a transmission and distribution network as development continues and our expansion efforts provide us with contiguous exclusive service territories.

In Delaware, we have 23 interconnections with 2 neighboring water utilities and 7 municipalities that provide us with the ability to purchase or sell water.  An interconnection agreement with the Chester Water Authority has a "take or pay" clause requiring us to purchase 1.095 billion gallons annually.  During the fiscal year ended December 31, 2016, we used the minimum draw under this agreement. The Chester Water Authority agreement, which expires December 31, 2021, provides for the right to extend the term of this agreement through and including December 31, 2047, at our option, subject to the approval of the Susquehanna River Basin Commission. All of the interconnections provide Artesian Water the ability to sell water to neighboring water utilities or municipalities. In Maryland, we have one interconnection that connects the Artesian Water system in Delaware to the Meadowview System, one interconnection with a neighboring utility, and three interconnections with the Town of Elkton. The interconnection with the Artesian Water Delaware system is capable of providing up to 3.0 mgd of water to our Maryland systems, of which 1.5 mgd is available to the Town of Elkton per our agreement with the Town. In March 2013, the interconnection to the Town of Chesapeake City was completed. The Town of Chesapeake City placed in service an interconnection and 1.57 miles of new water main to provide water to the Town of Chesapeake City from the Artesian Water Delaware system. The interconnection is currently the town's sole source of water supply, averaging approximately 75,000 gallons per day.

As of December 31, 2016, we were serving customers through approximately 1,260 miles of transmission and distribution mains. Mains range in diameter from two inches to twenty-four inches, and most of the mains are made of ductile iron or cast iron.

We have 29 storage tanks in Delaware, most of which are elevated, providing total system storage of 42 million gallons. We have developed and are using an Aquifer Storage and Recovery, or ASR, system in New Castle County, Delaware. Our ASR system provides approximately 130 million gallons of storage capacity, which can be withdrawn at an average rate of approximately 1 mgd. At some locations, we rely on hydropneumatic tanks to maintain adequate system pressures.  Where possible, we combine our smaller satellite systems with systems having elevated storage facilities.  In Cecil County, Maryland we have 7 storage tanks capable of storing approximately 2.4 million gallons.

Additional General Information

Seasonality

Substantially all of our water customers are metered, which allows us to measure and bill for our customers' water consumption.  Demand for water during the warmer months is generally greater than during cooler months primarily due to additional customer requirements for water in connection with cooling systems, swimming pools, irrigation systems and other outside water use.  Throughout the year, and particularly during typically warmer months, demand for water will vary with temperature and rainfall.  In the event that temperatures during the typically warmer months are cooler than expected, or there is more rainfall than expected, the demand for water may decrease and our revenues may be adversely affected.

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Competition

Our business in our franchised service areas is substantially free from direct competition with other public utilities, municipalities and other entities.  However, our ability to provide additional water and wastewater services is subject to competition from other public utilities, municipalities and other entities. Even though our regulated utilities have been granted an exclusive franchise for each of our existing community water and wastewater systems, our ability to expand service areas can be affected by the DEPSC, the MDPSC or the PAPUC, awarding franchises to other regulated water or wastewater utilities with whom we compete for such franchises.

Employees

The Company has no collective bargaining agreements with any of its employees, and its work force is not union organized or union represented.  As of December 31, 2016, we employed 225 full-time employees.  Of these employees, 50 were officers and managers; 116 were employed as operations personnel, including engineers, technicians, draftsman, maintenance and repair persons, meter readers and utility personnel; and 35 were employed in accounting, budgeting, information systems, human resources, customer relations and public relations.  The remaining 24 employees were administrative personnel. We believe that our employee relations are good.

Available Information

We are a Delaware corporation with our principal executive offices located at 664 Churchmans Road, Newark, Delaware, 19702. Our telephone number is (302) 453-6900 and our website address is www.artesianresources.com. We make available free of charge through our website our Code of Ethics, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K our Corporate Governance Guidelines, our Board Committee Charter and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission, or the SEC. We include our website address in this Annual Report on Form 10-K only as an inactive textual reference and do not intend it to be an active link to our website.  Information contained on our website shall not be deemed incorporated into, or to be a part of, this report.

We file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange Act electronically with the SEC.  The public may read or copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC, 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

ITEM 1A.RISK FACTORS

We are exposed to a variety of risks and uncertainties.  Most are general risks and uncertainties applicable to all water and wastewater utility companies. We describe below some of the specific known risk factors that could negatively affect our business, financial condition or results of operations.  If one or more of these risks or uncertainties materialize, actual results may vary materially from our projections.  All forward-looking statements made by us in this Annual Report to the SEC on Form 10-K, in our Annual Report to Shareholders and in our subsequently filed quarterly and current reports to the SEC, as well as in our press releases and other public communications, are qualified by the risks described below.

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Our operating revenue is primarily from water sales.  The rates that we charge our customers are subject to the regulations of the Public Service Commissions in the states in which we operate.  Additionally, our business requires significant capital expenditures on an annual basis and these expenditures are made for additions and replacement of property.  If a Public Service Commission disapproves or is unable to timely approve our requests for rate increases or approves rate increases that are inadequate to cover our investments or increased costs, our profitability may suffer.

We file rate increase requests, from time to time, to recover our investments in utility plant and expenses. Once a rate increase petition is filed with a Public Service Commission, the ensuing administrative and hearing process may be lengthy and costly.  We can provide no assurances that any future rate increase request will be approved by the DEPSC, MDPSC or PAPUC, and if approved, we cannot guarantee that these rate increases will be granted in a timely manner and/or will be sufficient in amount to cover the investments and expenses for which we initially sought the rate increase. To the extent we are able to pass through such costs to customers and a state public service commission subsequently determines that such costs should not have been paid by customers, we may be required to refund such costs, with interest, to customers. Any such costs not recovered through rates, or any such refund, could adversely affect our results of operations, financial position or cash flows.

We rely on governmental approvals in the States of Delaware, Maryland and Pennsylvania for applicable water allocation, water appropriation and water capacity permits related to additional systems that will assist in the operation of our water business. In addition, we rely on governmental approvals in the States of Delaware and Maryland for applicable wastewater collection, treatment and disposal permits that will assist in the operation of our wastewater business.

Our water and wastewater services are governed by various federal and state governmental agencies. Pursuant to these regulations, we are required to obtain various permits for any additional systems to assist in our operations.  If any of those permit approvals are not received timely or at all, the Company may risk the loss of economic opportunity and its ability to create additional systems for the effective operation of our water business in the States of Delaware, Maryland and Pennsylvania or our wastewater business in the States of Delaware and Maryland. We can provide no assurances that we will receive all necessary permits to create additional systems to assist in the operation of our water or wastewater business.

Our business is subject to seasonal fluctuations, which could affect demand for our water service and our revenues.

Demand for water during warmer months is generally greater than during cooler months primarily due to additional customer requirements in irrigation systems, swimming pools, cooling systems and other outside water use.  In the event that temperatures during typically warmer months are cooler than normal, or rainfall is more than normal, the demand for our water may decrease and adversely affect our revenues.

Drought conditions and government imposed water use restrictions may impact our ability to serve our current and future customers, and may impact our customers' use of our water, which may adversely affect our financial condition and results of operations.

We believe that we have in place sufficient capacity to provide water service for the foreseeable future to all existing and new customers in all of our service territories.  However, severe drought conditions could interfere with our sources of water supply and could adversely affect our ability to supply water in sufficient quantities to our existing and future customers. This may adversely affect our revenues and earnings.  Moreover, governmental restrictions on water usage during drought conditions may result in a decreased demand for water, which may adversely affect our revenue and earnings.

Our operating costs could be significantly increased if new or stricter regulatory standards are imposed by federal and state environmental agencies.

Our water and wastewater services are governed by various federal and state environmental protection and health and safety laws and regulations, including the federal Safe Drinking Water Act, the Clean Water Act and similar state laws. These federal and state regulations are issued by the United States Environmental Protection Agency and state environmental regulatory agencies.  Pursuant to these laws, we are required to obtain various water allocation permits and environmental permits for our operations. The water allocation permits control the amount of water that can be drawn from water resources. New or stricter water allocation regulations can adversely affect our ability to meet the demands of our customers. While we have budgeted for future capital and operating expenditures to maintain compliance with these laws and our permits, it is possible that new or stricter standards would be imposed that will raise our operating costs. Thus, we can provide no assurances that our costs of complying with, or discharging liability under current and future environmental and health and safety laws will not adversely affect our business, results of operations or financial condition.

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We are subject to risks associated with the collection, treatment and disposal of wastewater.

Wastewater collection, treatment and disposal involve various unique risks.  If collection or treatment systems fail, overflow, or do not operate properly, untreated wastewater or other contaminants could spill onto nearby properties or into nearby streams and rivers, causing damage to persons or property, injury to aquatic life and economic damages, which may not be recoverable in fees.  This risk is most acute during periods of substantial rainfall or flooding, which are common causes of sewer overflow and system failure.  Liabilities resulting from such damages and injuries could materially and adversely affect the Company's results of operations and financial condition.

Turnover in our management team could have an adverse impact on our business or the financial market's perception of our ability to continue to grow.

Our success depends significantly on the continued contribution of our management team both individually and collectively.  The loss of the services of any member of our management team or the inability to hire and retain experienced management personnel could harm our operating results.

We face competition from other water and wastewater utilities for the acquisition of new exclusive service territories.

Water and wastewater utilities competitively pursue the right to exclusively serve territories in Delaware and Maryland by entering into agreements with landowners, developers or municipalities and, under current law, then applying to the DEPSC or the MDPSC for a CPCN, which grants a water or wastewater utility the exclusive right to serve all existing and new customers of a water or wastewater utility within a designated area.  Typically, water and wastewater utilities enter into agreements with developers who have approval from county governments with respect to proposed subdivisions or developments.  Once a CPCN is granted to a water or wastewater utility, generally it may not be suspended or terminated unless the DEPSC or MDPSC determines in accordance with its rules and regulations that good cause exists for any such suspension or termination.  Therefore, we face competition from other water and wastewater utilities as we pursue the right to exclusively serve territories.  If we are unable to enter into agreements with landowners, developers or municipalities and secure CPCNs for the right to exclusively serve territories in Delaware or Maryland, our ability to expand may be significantly impeded.

We depend on the availability of capital for expansion, construction and maintenance. Weaknesses in capital and credit markets may limit our access to capital.

Our ability to continue our expansion efforts and fund our utility construction and maintenance program depends on the availability of adequate capital. There is no guarantee that we will be able to obtain sufficient capital in the future on favorable terms and conditions for expansion, construction and maintenance. In the event our lines of credit are not extended or we are unable to refinance our first mortgage bonds when due and the borrowings are called for payment, we will have to seek alternative financing sources, although there can be no assurance that these alternative financing sources will be available on terms acceptable to us.  In the event we are unable to obtain sufficient capital, our expansion efforts could be curtailed, which may affect our growth and may affect our future results of operations.

General economic conditions may materially and adversely affect our financial condition and results of operations.

The effects of adverse U.S. economic conditions may lead to a number of impacts on our business that may materially and adversely affect our financial condition and results of operations. Such impacts may include a reduction in discretionary and recreational water use by our residential water customers, particularly during the summer months; a decline in usage by industrial and commercial customers as a result of decreased business activity and commerce in our customers' businesses; an increased incidence of customers' inability, bankruptcy or delay in paying their bills which may lead to higher bad debt expense and reduced cash flow; and a lower natural customer growth rate may result as compared to what had been experienced before the economic downturn due to a decline in new housing starts and a possible slight decline in the number of active customers due to housing vacancies or abandonments.

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Any future acquisitions we undertake or other actions to further grow our water and wastewater business may involve risks.

An element of our growth strategy is the acquisition and integration of water and wastewater systems in order to broaden our current service areas, and move into new ones.  It is our intent, when practical, to integrate any businesses we acquire with our existing operations.  The negotiation of potential acquisitions as well as the integration of acquired businesses could require us to incur significant costs and cause diversion of our management's time and resources.  We may not be successful in the future in identifying businesses that meet our acquisition criteria. The failure to identify such businesses may limit the rate of our growth.  In addition, future acquisitions or expansion of our service areas by us could result in:

ØDilutive issuance of our equity securities;

ØIncurrence of debt and contingent liabilities;

ØDifficulties in integrating the operations and personnel of the acquired businesses;

ØDiversion of our management's attention from ongoing business concerns;

ØFailure to have effective internal control over financial reporting;

ØOverload of human resources; and

ØOther acquisition-related expense

Some or all of these items could have a material adverse effect on our business and our ability to finance our business and comply with regulatory requirements. The businesses we acquire in the future may not achieve sales and profitability that would justify our investment.

We also may experience risks relating to the challenges and costs of closing a transaction and the risk that an announced transaction may not close.  Completion of certain acquisition transactions are conditioned upon, among other things, the receipt of approvals, including from the certain state public utilities commissions.  Failure to complete a pending transaction would prevent us from realizing the anticipated benefits. We would also remain liable for significant transaction costs, including legal and accounting fees, whether or not the transaction is completed.

We are subject to, and could be further subject to, governmental investigations or actions by other third parties.

We are subject to various federal and state laws, including environmental laws, violations of which can involve civil or criminal sanctions.

Our operations from time to time could be parties to or targets of lawsuits, claims, investigations and proceedings, including system failure, injury, contract, environmental, health and safety and employment matters, which are handled and defended in the ordinary course of business.  The results of any future litigation or settlement of such lawsuits and claims are inherently unpredictable, but such outcomes could also materially and adversely affect our business, financial position and results of operations.

We are dependent on the continuous and reliable operation of our information technology systems.

We rely on our information technology systems to manage our operation of our business. Specifically with respect to customer service and billing, managing construction projects, managing our financial records, tracking assets, remotely monitoring some of our treatment, storage and pumping facilities and managing human resources, inventory and accounts receivable collections. Such systems require periodic modifications, upgrades and or replacement that subject us to inherent costs and risks, including substantial capital expenditures, additional administration and operating expenses, and other risks and costs of delays in transitioning to new systems or of integrating new systems into our current systems.  Our computer and communications systems and operations could be damaged or interrupted by natural disasters, telecommunications failures or acts of war or terrorism or similar events or disruptions. A loss of these systems or major problems with the operation of these systems could affect our operations and have a material adverse effect on our results of operations.

There have been an increasing number of cyber-attacks on companies around the world, which have caused operational failures or compromised sensitive corporate or customer data. These attacks have occurred over the internet, through malware, viruses or attachments to e-mails or through persons inside the organization or with access to systems inside the organization. We have implemented security measures and will continue to devote resources to address any security vulnerabilities in an effort to prevent cyber-attacks. Despite our efforts, a cyber-attack, if it occurred, could cause water or wastewater system problems, disrupt service to our customers, compromise important data or systems or result in an unintended release of customer information. We feel we have adequate cyber-security insurance coverage to mitigate the cost of any such cyber-attack, however, a possible cyber-attack could affect our operations and have a material adverse effect on our results of operations.

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Contamination of our water supply may result in disruption in our services and could lead to litigation that may adversely affect our business, operating results and financial condition.

Our water supplies are subject to contamination from naturally-occurring compounds as well as pollution resulting from man-made sources.  Even though we monitor the quality of water on an on-going basis, any possible contamination due to factors beyond our control could interrupt the use of our water supply until we are able to substitute it from an uncontaminated water source.  Additionally, treating the contaminated water source could involve significant costs and could adversely affect our business.  We could also be held liable for consequences arising out of human or environmental exposure to hazardous substances, if found, in our water supply.  This could adversely affect our business, results of operations and financial condition.

Potential terrorist attacks may disrupt our operations and adversely affect our business, operating results and financial condition.

We have taken steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply.  We also have tightened our security measures regarding delivery and handling of certain chemicals used in our business.  We have and will continue to bear any increase in costs, most of which have been recoverable under state regulatory policies, for security precautions to protect our facilities, operations and supplies.  While the costs of increases in security, including capital expenditures, may be significant, we expect these costs to continue to be recoverable in water and wastewater rates.  Despite our security measures, we may not be in a position to control the outcome of terrorist events, or other attacks on our water systems, should they occur.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our corporate headquarters are located at 664 Churchmans Road, Newark, Delaware and are owned by Artesian Water.

Artesian Development owns approximately 6 acres of land in New Castle County, Delaware zoned for office development and two nine-acre parcels of land in Sussex County, Delaware for water and wastewater treatment facilities and elevated water storage. Artesian Development also owns an office facility located in Sussex County, Delaware. The facility consists of approximately 10,000 square feet of office space along with approximately 10,000 square feet of warehouse space.

Artesian Water owns land, rights-of-way, easements, transmission and distribution mains, pump facilities, treatment plants, storage tanks, meters, vehicles and related equipment and facilities throughout Delaware, of which the majority are used for utility operations.  Artesian Water Pennsylvania owns transmission and distribution mains. Artesian Water Maryland owns land, transmission and distribution mains, pump facilities and storage tanks.  Artesian Wastewater owns land, rights-of-way, easements, treatment and disposal plants, collection mains and lift stations.  Artesian Wastewater owns a 75-acre parcel of land in Sussex County, Delaware for the operation of the wastewater facility known as the Northern Sussex Regional Water Recharge Complex.  The following table indicates our utility plant as of December 31, 2016.

Utility plant comprises:
In thousands
	Estimated Useful Life (In Years)		December 31, 2016
Utility plant at original cost
Utility plant in service-Water
Intangible plant		---	$	140
Source of supply plant		45-85		19,627
Pumping and water treatment plant		8-62		78,542
Transmission and distribution plant
Mains		81		236,261
Services		39		38,803
Storage tanks		76		24,108
Meters		26		24,710
Hydrants		60		12,870
General plant		3-31		53,417
Utility plant in service-Wastewater
Treatment and disposal plant		35-62		15,613
Collection mains and lift stations		81		8,675
General plant		3-31		931
Property held for future use		---		14,815
Construction work in progress		---		6,674
				535,186
Less – accumulated depreciation				109,684
			$	425,502

Substantially all of Artesian Water's utility plant, except the utility plant in the town of Townsend, Delaware, is pledged as security for First Mortgage Securities.  As of December 31, 2016, no other utility plant has been pledged as security for loans.

We believe that our properties are generally maintained in good condition and in accordance with current standards of good water and wastewater works industry practice. We believe that all of our existing facilities adequately meet current necessary production capacities and current levels of utilization.

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ITEM 3.LEGAL PROCEEDINGS

Periodically, we are involved in other proceedings or litigation arising in the ordinary course of business.  We do not believe that the ultimate resolution of these matters will materially affect our business, financial position or results of operations.  However, we cannot assure that we will prevail in any litigation and, regardless of the outcome, may incur significant litigation expense and may have significant diversion of management attention.

ITEM 4. MINE SAFETY DISCLOSURES

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is not applicable to our Company.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information for the Company's Common Equity

Artesian Resources' Class A Non-Voting Common Stock, or Class A Stock, is listed on NASDAQ Global Select Market and trades under the symbol "ARTNA."  On March 6, 2017, the last closing sale price as reported by the NASDAQ Global Select Market was $32.27 per share.  On March 6, 2017 there were 702 holders of record of the Class A Stock.  The following table sets forth, for the periods indicated, the high and low closing sale prices for the Class A Stock as reported by NASDAQ Global Select Market and the cash dividends declared per share.

CLASS A NON-VOTING COMMON STOCK

	High		Low		Dividend Per Share
2016
First Quarter	$	31.31	$	25.52	$	0.2216
Second Quarter		33.92		26.26		0.2249
Third Quarter		34.87		26.32		0.2249
Fourth Quarter		33.00		26.78		0.2283
2015
First Quarter	$	22.72	$	20.00	$	0.2151
Second Quarter		22.16		20.70		0.2183
Third Quarter		24.14		21.32		0.2183
Fourth Quarter		29.11		24.14		0.2216

Our Class B Voting Stock, or Class B Stock, is quoted on the OTC Bulletin Board under the symbol "ARTNB."  There has been a limited and sporadic public trading market for the Class B Stock.  As of March 6, 2017, the last reported trade of the Class B Stock on the OTC Bulletin Board was at a price of $32.77 per share on January 13, 2017.  As of March 6, 2017, we had 159 holders of record of the Class B Stock.  The Class B shares are paid the same dividend as the Class A shares noted in the table above.

Recent Sales of Unregistered Securities

During the year ended December 31, 2016, we did not issue any unregistered shares of our Class A or Class B Stock.

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Equity Compensation Plan Information

The following table provides information on the shares of our Class A Stock that may be issued upon exercise of outstanding stock options and vesting of awards as of December 31, 2016 under the Company's stockholder approved stock plans.

Equity Compensation Plan Information
Plan category	Number of securities to be issued upon exercise of outstanding options (a)		Weighted-average exercise price of outstanding options			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders		236,755		$	18.91		321,500
Equity compensation plans not approved by security holders		---			---		---
Total		236,755					321,500

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The following graph compares the percentage change in cumulative shareholder return on the Company's Class A Stock with the Standard & Poor's 500 Stock Index and a Peer Group of water utility companies having similar market capitalizations. The graph covers the period from December 2011 (assuming a $100 investment on December 31, 2011, and the reinvestment of any dividends) through December 2016:

			INDEXED RETURNS
	Base Period		Years Ending December 31
Company Name / Index	2011		2012		2013		2014		2015		2016
Artesian Resources Corporation		100		123.88		131.46		134.53		171.41		203.90
S&P 500 Index		100		116.00		153.57		174.60		177.01		198.18
Peer Group		100		119.11		140.89		173.01		195.08		239.56

The Peer Group includes American States Water Company, American Water Works Company, Inc., Aqua America, Inc., California Water Service Group, Connecticut Water Service, Inc., Middlesex Water Company, SJW Corporation and York Water Company.

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ITEM 6. SELECTED FINANCIAL DATA

The selected statement of operations and balance sheet data shown below were derived from our consolidated financial statements. The consolidated statement of operations data for the years ended December 31, 2016, 2015 and 2014 and the consolidated balance sheet data as of December 31, 2016 and 2015 have been derived from our audited financial statements included elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations data for the years ended December 31, 2013 and 2012 and the consolidated balance sheet data as of December 31, 2014, 2013 and 2012 have been derived from audited consolidated financial statements which are not included in this Annual Report on Form 10-K.  You should read this selected financial data together with our consolidated financial statements and related notes, as well as the discussion under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations."

In thousands, except per share and operating data	2016		2015		2014		2013		2012
STATEMENT OF OPERATIONS DATA
Operating revenues
Water sales	$	70,587	$	68,932	$	64,667	$	61,846	$	63,607
Other utility operating revenue		3,816		3,694		3,648		3,253		3,169
Non-utility operating revenue		4,686		4,398		4,150		3,974		3,787
Total operating revenues	$	79,089	$	77,024	$	72,465	$	69,073	$	70,563
Operating expenses
Operating and maintenance	$	38,260	$	38,453	$	37,086	$	36,630	$	36,217
Depreciation and amortization		9,188		8,837		8,673		8,251		7,930
State and federal income taxes		8,331		7,784		6,375		5,588		6,616
Property and other taxes		4,491		4,368		4,285		4,120		3,945
Total operating expenses	$	60,270	$	59,442	$	56,419	$	54,589	$	54,708
Operating income	$	18,819	$	17,582	$	16,046	$	14,484	$	15,855
Other income, net		779		721		853		872		1,036
Total income before interest charges	$	19,598	$	18,303	$	16,899	$	15,356	$	16,891
Interest charges	$	6,644	$	6,998	$	7,393	$	7,055	$	7,045
Net income	$	12,954	$	11,305	$	9,506	$	8,301	$	9,846
Dividends on preferred stock
Net income applicable to common stock	$	12,954	$	11,305	$	9,506	$	8,301	$	9,846
Net income per share of common stock:
Basic	$	1.42	$	1.26	$	1.07	$	0.95	$	1.14
Diluted	$	1.41	$	1.26	$	1.07	$	0.94	$	1.13
Average shares of common stock outstanding:
Basic		9,098		8,960		8,884		8,774		8,666
Diluted		9,161		9,005		8,926		8,836		8,717
Cash dividends per share of common stock	$	0.90	$	0.87	$	0.85	$	0.82	$	0.79

In thousands, except for operating data	2016		2015		2014		2013		2012
BALANCE SHEET DATA
Utility plant, at original cost less accumulated depreciation	$	425,502	$	405,606	$	393,793	$	378,960	$	366,563
Total assets	$	450,976	$	431,626	$	422,213	$	403,832	$	391,714
Lines of credit	$	7,130	$	10,487	$	18,491	$	10,332	$	10,717
Long-term obligations and redeemable preferred stock, including current portions	$	103,647	$	104,936	$	106,199	$	106,642	$	107,368
Stockholders' equity	$	139,023	$	132,331	$	125,605	$	121,836	$	118,180
Total capitalization	$	241,354	$	235,978	$	230,559	$	227,346	$	224,437
OPERATING DATA
Average water sales per customer	$	830	$	824	$	780	$	755	$	783
Water pumped (millions of gallons)		7,626		7,646		7,592		7,286		7,407
Number of metered customers		85,000		83,700		82,900		81,900		81,200
Miles of water main		1,260		1,218		1,201		1,182		1,162

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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. Gross water sales comprise 89.3% of total operating revenues for the year ended December 31, 2016. Our profitability is also attributed to the various contract operations, water, sewer and internal Service Line Protection Plans and other services we provide. 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 the effects of weather are short term and do not materially affect the execution of our strategic initiatives. Our contract operations, Service Line Protection Plans and other services provide a revenue stream that is not affected by changes in weather patterns.

While water sales are our primary source of revenues, we continue to seek growth opportunities to provide wastewater service in Delaware and the surrounding areas. 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, 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-regulated division due to our water, sewer and internal Service Line Protection Plans.

Water Division

Overview

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. The Town of Middletown, which is one of our municipal customers and is located in southern New Castle County, Delaware, has more than tripled in population since 2001, and population growth in this area is expected to continue for some time as a result of ongoing and future residential, commercial and industrial construction. As population growth continues in Middletown and other areas in Delaware, we believe that the demand for water will increase, thereby contributing to an increase in our operating revenues. As of December 31, 2016, we had approximately 82,700 metered water customers in Delaware, an increase of approximately 1,300 compared to December 31, 2015. The number of metered water customers in Maryland totaled 2,300 as of December 31, 2016, which remained consistent with 2015. The number of metered water customers in Pennsylvania totaled 40, which remained consistent with 2015. For the year ended December 31, 2016, approximately 7.6 billion gallons of water were distributed in our Delaware systems and approximately 158 million gallons of water were distributed in our Maryland systems.

Wastewater Division

Overview

Artesian Wastewater owns wastewater infrastructure and began providing wastewater services in Delaware in July 2005. Artesian Wastewater Maryland, which was incorporated on June 3, 2008, is able to provide regulated wastewater services in Maryland. Our wastewater customers are billed a flat monthly fee, which contributes to providing a revenue stream unaffected by weather. Artesian Wastewater entered into agreements with an industrial customer and Sussex County for wastewater services that will expand our service area and provide growth opportunities.

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Non-Regulated Division

Overview

Artesian Utility provides contract water and wastewater operation services to private, municipal and governmental institutions. Artesian Utility currently operates wastewater treatment facilities for the town of Middletown, in southern New Castle County, or Middletown, under a 20-year contract that expires in July 2022. The facilities include two wastewater treatment stations with capacities of up to approximately 2.5 mgd and 250,000 gallons per day, respectively. We also operate a wastewater disposal facility in Middletown in order to support the 2.5 mgd wastewater facility.

Artesian Utility has operated the WSLP Plan and the SSLP Plan since 2012. Artesian Resources initiated the WSLP Plan in March 2005. In November 2015, a third plan was added, the ISLP Plan.  The WSLP Plan covers all parts, material and labor required to repair or replace participating customers' leaking water service lines up to an annual limit. The SSLP Plan was initiated in the second quarter of 2008. The SSLP Plan covers all parts, material and labor required to repair or replace participating customers' leaking or clogged sewer lines up to an annual limit. In the second quarter of 2010, the WSLP Plan and SSLP Plan were extended to include non-utility customers of Artesian Resources. The ISLP Plan was introduced in November 2015 to further enhance available coverage to include water and wastewater lines within the residence. As of December 31, 2016, approximately 19,500, or 25.0%, of our eligible water customers signed up for the WSLP Plan, approximately 15,200, or 19.5%, of our eligible customers signed up for the SSLP Plan, and approximately 3,600 customers signed up under the ISLP Plan. Approximately 1,400 non-customer participants signed up for either the WSLP Plan, the SSLP Plan, or the ISLP Plan.

Artesian Development is a real estate holding company that owns properties, including land zoned for office buildings, a water treatment plant and wastewater facility, as well as property for current operations, including an office facility in Sussex County, Delaware. The facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse space. This facility allows all of our Sussex County, Delaware operations to be housed in one central location.

Artesian Consulting Engineers no longer offers development and architectural services to outside third parties.  Artesian will continue to provide design and engineering contract services through our Artesian Utility subsidiary.

Strategic Direction

Our strategy is to significantly increase customer growth, revenues, earnings and dividends by expanding our water, wastewater and Service Line Protection Plan services across the Delmarva Peninsula. We remain focused on providing superior service to our customers and continuously seeking ways to improve our efficiency and performance. By providing water and wastewater services, we believe we are positioned as the primary resource for developers and communities throughout the Delmarva Peninsula seeking to fill both needs simultaneously. We have a proven ability to acquire and integrate high growth, reputable entities, through which we have captured additional service territories that will serve as a base for future revenue. We believe this experience presents a strong platform for further expansion and that our success to date also produces positive relationships and credibility with regulators, municipalities, developers and customers in both existing and prospective service areas.

In our regulated water division, our strategy is to focus on a wide spectrum of activities, which include identifying new and dependable sources of supply, developing the wells, treatment plants and delivery systems to supply water to customers and educating customers on the wise use of water. Our strategy includes focused efforts to expand in new regions added to our Delaware service territory over the last 10 years. In addition, we believe growth will occur in the Maryland counties on the Delmarva Peninsula. 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.

On February 23, 2017, Artesian Water entered into an agreement with Fort DuPont Redevelopment and Preservation Corporation, or FDRPC, for the purchase of existing water assets and for the provision of potable water and fire suppression services.  The Fort DuPont National Historic District, or Fort DuPont, consists of 325-acres and lies between the Delaware River on the east, the Chesapeake and Delaware Canal on the south and the Delaware City Branch Canal.  The total price for the purchase of the water assets is $1.0 million.  The water assets include a water treatment plant, storage tank, mains, and other equipment used to provide potable water and fire suppression services to portions of Fort DuPont and the surrounding properties.  In connection with the planned future development of Fort DuPont, the parties intend to design, build and operate a state of the art, cost effective, safe and reliable water system that will include both new water assets as well as improvements and upgrades to the existing water assets.  The water system can be expanded to meet the needs of the planned 600 residential unit as well as new commercial customers, in addition to water service currently provided to the Governor Bacon Health Center and National Guard facilities.  The agreement may be terminated at any time prior to closing by mutual written consent of Artesian and FDRPC.

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We believe that Delaware's generally lower cost of living in the region, availability of development sites in relatively close proximity to the Atlantic Ocean in Sussex County, and attractive financing rates for construction and mortgages 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 are currently 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 division, we foresee significant growth opportunities and will continue to seek strategic partnerships and relationships with developers and municipalities to complement existing agreements for the provision of wastewater service on the Delmarva Peninsula. 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 feel this will reduce operational costs at the smaller treatment facilities in the future since 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.

Artesian Wastewater entered into agreements that will provide growth opportunities and will utilize our larger regional wastewater facilities.  In August 2016, Artesian Wastewater and Sussex County, a political subdivision of Delaware, entered into an agreement to provide wastewater treatment and disposal services for each other in order to address the periodic need of additional wastewater treatment and disposal capacities and facilities in Sussex County, beyond those under their own ownership and control, to assure the timely, efficient and cost effective transmission and management of wastewater.  There are numerous locations in Sussex County where Artesian Wastewater's and Sussex County's facilities are capable of being connected or integrated to allow for the movement and disposal of wastewater generated by one or the other's system. On September 27, 2016, Artesian Wastewater entered into a wastewater services agreement with Allen Harim Foods, LLC, or Allen Harim, for Artesian Wastewater to provide treatment and disposal services for sanitary wastewater discharged from Allen Harim's properties located in Sussex County, Delaware upon completion of a pipeline to transfer the sanitary wastewater.  The completion of the pipeline should occur during the second quarter of 2017.  On January 27, 2017, Artesian Wastewater entered into a second wastewater agreement with Allen Harim for Artesian Wastewater to provide disposal services for approximately 1.5 million gallons per day of treated industrial and/or process wastewater upon completion of an approximately eight mile pipeline that will transfer the wastewater from Allen Harim's properties to a 67 million gallon storage lagoon at Artesian's Northern Sussex Water Recycling Facility.  Artesian will use the reclaimed wastewater for spray irrigation on agricultural land in the area.  The completion of the industrial and/or process wastewater pipeline and storage lagoon should occur during the first quarter of 2018.

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 and aging infrastructure. Our capital investment plan for the next three years includes projects for water treatment plant improvements and additions in both Delaware and Maryland and wastewater treatment plant improvements and additions in Delaware. Capital improvements are planned and budgeted to meet anticipated changes in regulations and needs for increased capacity related to projected growth. The Delaware Public Service Commission and Maryland Public Service Commission 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-regulated division, 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. Artesian Development owns two nine-acre parcels of land, located in Sussex County, Delaware, which will allow for construction of a water treatment facility and wastewater treatment facility.

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 costs compared to investments made 20 to 40 years ago, which must be recovered from future cash flows.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies and estimates are those we believe are most important to portraying the financial condition and results of operations and also require significant estimates, assumptions or other judgments by management.  The following provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the Company.  Changes in the estimates, assumptions or other judgments included within these accounting policies could result in a significant change to the financial statements in any quarterly or annual period. We consider the following policies to be the most critical in understanding the judgment that is involved in preparing our Consolidated Financial Statements. Senior management has discussed the selection and development of our critical accounting policies and estimates with the Audit Committee of the Board of Directors.

All additions to plant are recorded at cost. Cost includes direct labor, materials, and indirect charges for such items as transportation, supervision, pension, medical, and other fringe benefits related to employees engaged in construction activities. When depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received, is charged to a regulated retirement liability.  Maintenance, repairs, and replacement of minor items of plant are charged to expense as incurred.

We record water service revenue, including amounts billed to customers on a cycle basis and unbilled amounts, based upon estimated usage from the date of the last meter reading to the end of the accounting period.  As actual usage amounts are received, adjustments are made to the unbilled estimates in the next billing cycle based on the actual results.  Estimates are made on an individual customer basis, based on one of three methods (the previous year's consumption in the same period, the previous billing period's consumption, or averaging) and are adjusted to reflect current changes in water demand on a system-wide basis. While actual usage for individual customers may differ materially from the estimate, we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption.

We record accounts receivable at the invoiced amounts. The reserve for bad debts is adjusted based on the provision for bad debts, which is calculated as a percentage of total water sales. The Company reviews the bad debt provision expense and the reserve for bad debts on a quarterly basis. Account balances are written off against the reserve when it is probable the receivable will not be recovered.

Our regulated utilities record deferred regulatory assets under Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 980, which are costs that may be recovered over various lengths of time as prescribed by the DEPSC, MDPSC and PAPUC. As the utility incurs certain costs, such as expenses related to rate case applications, a deferred regulatory asset is created. Adjustments to these deferred regulatory assets are made when the DEPSC, MDPSC or PAPUC determines whether the expense is recoverable in rates, the length of time over which an expense is recoverable, or, because of changes in circumstances, whether a remaining balance of deferred expense is recoverable in rates charged to customers. Adjustments to reflect changes in recoverability of certain deferred regulatory assets may have a significant effect on our financial results.

Our long-lived assets consist primarily of utility plant in service and regulatory assets. We review for impairment of our long-lived assets, including utility plant in service, in accordance with the requirements of FASB ASC Topic 360.  We review regulatory assets for the continued application of FASB ASC Topic 980. Our review determines whether there have been changes in circumstances or events that have occurred that require adjustments to the carrying value of these assets. Adjustments to the carrying value of these assets would be made in instances where changes in circumstances or events indicate the carrying value of the asset may not be recoverable.  The Company believes there are no impairments in the carrying amounts of its long-lived assets or regulatory assets at December 31, 2016.

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Results of Operations

2016 Compared to 2015

Operating Revenues

Revenues totaled $79.1 million for the year ended December 31, 2016, $2.1 million, or 2.7%, above revenues for the year ended December 31, 2015 of $77.0 million. Water sales revenues increased $1.7 million, or 2.4%, for the year ended December 31, 2016 compared to 2015. The increase in water sales revenue is primarily due to an increase in DSIC revenue of approximately $0.8 million and an increase in overall water consumption and the number of water customers. We realized 89.3% of our total operating revenue for the year ended December 31, 2016 from the sale of water as compared to 89.5% for the year ended December 31, 2015.

Other utility operating revenue increased approximately $0.1 million, or 3.3%, for the year ended December 31, 2016 compared to the year ended December 31, 2015. The increase is primarily due to an increase in wastewater revenue related to customer growth and new development inspections, partially offset by a decrease in operating subsidies due to developers satisfying their wastewater connection payments for all lots within certain communities.

Non-utility operating revenue increased approximately $0.3 million, or 6.5%, for the year ended December 31, 2016 compared to 2015. The increase is primarily due to an approximately $229,000 increase in Service Line Protection Plans, or SLP Plans, revenue and contract service revenue.

Percentage of Operating Revenues
	2016			2015		2014
Water Sales
Residential		53.5	%		54.7	%	53.6	%
Commercial		21.6			21.1		21.3
Industrial		0.1			0.1		0.1
Government and Other		14.1			13.8		14.2
Other utility operating revenues		4.8			4.7		5.0
Non-utility operating revenues		5.9			5.6		5.8
Total		100.0	%		100.0	%	100.0	%

Residential

Residential water service revenues in 2016 amounted to $42.3 million, an increase of $1.1 million, or 2.6% above the $41.2 million recorded in 2015, primarily due to an increase in DSIC revenue and an increase in overall water consumption and the number of customers. The volume of water sold to residential customers increased to 3,741 million gallons in 2016 compared to3,737 million gallons in 2015, a 0.1% increase. The number of residential customers served increased by approximately 1,300, or 1.6%, in 2016.

Commercial

Water service revenues from commercial customers in 2016 increased by 2.4%, from $16.7 million in 2015 to $17.1 million in 2016, primarily due to an increase in DSIC revenue and an increase overall water consumption.  The volume of water sold to commercial customers increased to 2,178 million gallons in 2016 compared to 2,150 million gallons sold in 2015, an increase of 1.3%.

Industrial

Water service revenues from industrial customers decreased 22.2% from $99,000 in 2015 to $77,000 in 2016. The volume of water sold to industrial customers decreased to 8,000 gallons in 2016 from 11,000 gallons in 2015, a decrease of 25.7%.

Government and Other

Government and other water service revenues in 2016 increased by 2.8%, from $10.9 million in 2015 to $11.2 million in 2016, primarily due to an increase in DSIC revenue.  The volume of water sold to government and other customers was 810,000 gallons in 2016 and 2015, respectively.

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Other Utility Operating Revenue

Other utility operating revenue, derived from contract operations, antenna leases on water tanks, finance/service charges and wastewater customer service revenues increased 3.3%, from $3.7 million in 2015 to $3.8 million in 2016. The increase is primarily due to an increase in revenue from wastewater customers compared to 2015 and an increase in inspection fee revenue related to new development, partially offset by a decrease in operating subsidies due to developers satisfying their wastewater connection payments for all lots within certain communities.

Non-Utility Operating Revenue

Non-utility operating revenue, derived from non-regulated water and wastewater operations, increased 6.5%, from $4.4 million in 2015 to $4.7 million in 2016.  The increase is primarily due to an approximately $0.3 million increase in SLP Plan revenue and contract service revenue.

Operating Expenses

Operating expenses, excluding depreciation and income taxes, decreased $70,000, or 0.2%, for the year ended December 31, 2016 compared to the year ended December 31, 2015. The components of the change in operating expenses primarily include a decrease in utility operating expenses of $0.5 million, an increase in non-utility operating expenses of $0.3 million and an increase in property and other taxes of $0.1 million.

Utility operating expenses decreased $0.5 million, or 1.4%, for the year ended December 31, 2016 compared to the year ended December 31, 2015.  The net decrease is primarily related to the following.

· Payroll and employee benefit costs decreased $0.4 million, or 1.9%, primarily as a result of a discretionary profit sharing contribution to the employee deferred contribution retirement plan of 1% that was made in 2015 and not in 2016, unfilled employee position vacancies throughout 2016 and greater capitalized pay in 2016 related to a meter replacement project.  These decreases were partially offset by 2015 and 2016 merit based pay increases.

· Purchased power expense decreased $0.1 million, or 5.2%, primarily due to the execution of a lower rate three-year supply contract effective May 2016.

· Administration expenses decreased $0.1 million, or 1.6%, primarily due to a decrease in consulting fees related to an accounting software update in 2015 and a decrease in rate case costs due to the timing of expenses related to Artesian Water's rate applications.  These decreases are partially offset by increased legal costs associated with litigation before the DEPSC pertaining to a developer dispute over Contributions in Aid of Construction. Artesian submitted a petition to the DEPSC on October 20, 2016 requesting deferred accounting treatment related to this litigation, however the request was denied by the DEPSC on December 20, 2016.

· Repair and maintenance costs increased $0.1 million, or 2.1%, primarily due to increased tank painting expenses due to the painting of more tanks in 2016 compared to 2015, partially offset by a decrease in water treatment expenses related to the installation of a new ultra violet oxidation treatment facility in 2015.

Non-utility expenses increased approximately $0.3 million, or 12.9%, primarily due to an increase in payroll and benefits costs as well as an increase in plumbing services related to the Service Line Protection Plans.

Percentage of Operating and Maintenance Expenses
	2016			2015			2014
Payroll and Associated Expenses		49.7	%		50.4	%		51.8	%
Administrative		15.6			15.8			13.4
Purchased Water		10.6			10.5			10.9
Repair and Maintenance		8.1			7.9			8.6
Purchased Power		6.0			6.2			6.0
Water Treatment		3.2			3.2			3.4
Non-utility Operating		6.8			6.0			5.9
Total		100.0	%		100.0	%		100.0	%

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Property and other taxes increased by $0.1 million, or 2.8%, compared to the same period in 2015, reflecting increases in tax rates charged for public schools in various areas where Artesian holds property and 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, hydrants and wells primarily owned by Artesian Water.

The ratio of operating expense, excluding depreciation and income taxes, to total operating revenues was 54.1% for the year ended December 31, 2016, compared to 55.6% for the year ended December 31, 2015.

Depreciation and amortization expense increased $0.4 million, or 4.0%, primarily due to continued investment in utility plant in service providing supply, treatment, storage and distribution of water.

Federal and state income tax expense increased $0.5 million, primarily due to higher pre-tax income for the year ended December 31, 2016, compared to the year ended December 31, 2015.  Our total effective income tax rate, or ETR, for 2016 and 2015 was 39.1% and 40.8%, respectively.

Other Income, Net

Allowance for funds used during construction, or AFUDC, decreased $27,000 due to decreased long-term construction activity subject to AFUDC. Miscellaneous income increased $85,000, primarily due to the timing of charitable contributions this period compared to the same period last year. 

Interest Charges

Interest expense decreased $0.4 million, primarily due to a decrease in the Series S First Mortgage Bond interest rate from 6.73% to 4.45% effective March 1, 2016 and a decrease in short-term debt outstanding.

Net Income

For the year ended December 31, 2016, our net income applicable to common stock increased $1.6 million compared to 2015. This increase in net income was primarily due to higher operating income margins in our water utility business as a result of increased water sales revenue and decreased utility operating expenses, as well as decreased interest expense.

2015 Compared to 2014

Operating Revenues

Revenues totaled $77.0 million for the year ended December 31, 2015, $4.6 million, or 6.3%, above revenues for the year ended December 31, 2014 of $72.5 million. Water sales revenues increased $4.3 million, or 6.6%, for the year ended December 31, 2015 compared to 2014, primarily as a result of temporary rate increases that were placed into effect on June 10, 2014 and November 13, 2014. Pursuant to the order issued by the DEPSC on October 6, 2015, the permanent rate increase was less than the amounts collected under previously approved temporary increases in rates. The excess amounts collected resulted in refunds to customers in the amount of $878,000 including interest. The amount was refunded in October 2015. Since the final rate award was at a level not less than the amount previously reported as income, there was no material impact upon previously reported water sales revenue. The increase in water sales revenue was partially offset by a decrease in DSIC revenue of approximately $0.3 million, as the DSIC was reset to zero upon the implementation of the first step of temporary rate increases on June 10, 2014. We realized 89.5% of our total operating revenue for the year ended December 31, 2015 from the sale of water as compared to 89.2% for the year ended December 31, 2014.

Other utility operating revenue increased approximately $46,000, or 1.3%, for the year ended December 31, 2015 compared to the year ended December 31, 2014. The increase was primarily due to an increase in wastewater rates that was fully implemented in September 2014 and an increase in the number of wastewater customers, partially offset by a decrease in operating subsidies due to developers satisfying their wastewater connection payments for all lots within certain communities.

Non-utility operating revenue increased approximately $248,000, or 6.0%, for the year ended December 31, 2015 compared to 2014. The increase was primarily due to an approximately $320,000 increase in water and wastewater Service Line Protection Plan, or SLP Plans, revenue. The SLP Plans provide coverage for all material and labor required to repair or replace participants' leaking water service or clogged sewer lines up to an annual limit. The increase in non-utility operating revenue is partially offset by a decrease in contract revenue, primarily due to a decrease in wastewater contract services.

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Residential

Residential water service revenues in 2015 amounted to $43.3 million, an increase of $4.5 million, or 11.5% above the $38.8 million recorded in 2014, primarily due to a result of temporary rate increases placed in effect on June 10, 2014 and November 13, 2014.  The volume of water sold to residential customers increased to 3,852 million gallons in 2015 compared to3,702 million gallons in 2014, a 4.0% increase. The number of residential customers served increased by approximately 900, or 1.2%, in 2015.

Commercial

Water service revenues from commercial customers in 2015 increased by 7.9%, from $15.4 million in 2014 to $16.7 million in 2015, primarily due to temporary rate increases placed in effect on June 10, 2014 and November 13, 2014.  The volume of water sold to commercial customers decreased to 2,034 million gallons in 2015 compared to 2,120 million gallons sold in 2014, a decrease of 4.1%.

Industrial

Water service revenues from industrial customers decreased 4.4% from $104,000 in 2014 to $99,000 in 2015. The volume of water sold to industrial customers decreased to 11.0 million gallons in 2015 from 12.5 million gallons in 2014, a decrease of 11.6%.

Government and Other

Government and other water service revenues in 2015 increased by 6.6%, from $10.3 million in 2014 to $10.9 million in 2015, primarily due to temporary rate increases placed in effect on June 10, 2014 and November 13, 2014. The volume of water sold to government and other customers decreased to 810 million gallons in 2015 from 857 million gallons in 2014, a decrease of 5.4%.

Other Utility Operating Revenue

Other utility operating revenue, derived from contract operations, antenna leases on water tanks, finance/service charges and wastewater customer service revenues increased 1.3%, from $3.6 million in 2014 to $3.7 million in 2015. The increase was primarily due to an increase in revenue from wastewater customers, partially offset by a decrease in contract service revenue and repair and miscellaneous income. 

Non-Utility Operating Revenue

Non-utility operating revenue, derived from non-regulated water and wastewater operations, increased 6.0%, from $4.1 million in 2014 to $4.4 million in 2015.  The increase was primarily due to an approximately $0.3 million increase in water and wastewater SLP Plans revenue. The SLP Plans provide coverage for all material and labor required to repair or replace participants' leaking water service or clogged sewer lines up to an annual limit. The increase in non-utility operating revenue was partially offset by a decrease in wastewater contract services.

Operating Expenses

Operating expenses, excluding depreciation and income taxes, increased $1.4 million, or 3.5%, from $41.4 million in 2014 to $42.8 million in 2015. The components of the change in operating expenses primarily include an increase in utility operating expenses of $1.3 million and an increase in non-utility operating expenses of $0.1 million.

The increase in utility operating expenses of $1.3 million, or 3.6%, in 2015 as compared to 2014, was primarily comprised of an increase in administration expenses, an increase in purchased power expense and an increase in payroll and employee benefit expenses.

Administration expenses increased $0.7 million, or 15.6%, primarily due to rate case expenses being amortized when the temporary rates were first put into effect, in addition to an increase in consulting fees related to an accounting software update, an increase in telephone expenses due to service upgrades, an increase in auditing expenses primarily due to the timing of services performed by the auditors this year compared to last, an increase in legal fees and an increase in employee recruitment expenses.

Payroll and employee benefit costs increased $0.5 million, or 2.8%, primarily as a result of an increase in wages and an increase in discretionary profit sharing of 1% over last year.

Purchased power expense increased $0.2 million, or 8.2%, primarily due to increased water pumpage and installation of a new ultra violet oxidation treatment facility.

Repair and maintenance costs decreased $0.2 million, or 5.0%, primarily due to decreased fuel costs related to lower gas prices.

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Non-utility expenses increased approximately $0.1 million, or 5.1%, primarily the result of an increase in SLP Plan repairs. The increased repair costs were a result of increased SLP Plan participation.

Property and other taxes increased by $0.1 million, or 1.9%, compared to the same period in 2014, reflecting increases in tax rates charged for public schools in various areas where Artesian holds property and 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, hydrants and wells primarily owned by Artesian Water.

The ratio of operating expense, excluding depreciation and income taxes, to total operating revenues was 55.6% for the year ended December 31, 2015, compared to 57.1% for the year ended December 31, 2014.

Depreciation and amortization expense increased $0.2 million, or 1.9%, primarily due to continued investment in utility plant in service providing supply, treatment, storage and distribution of water.

Federal and state income tax expense increased $1.4 million, primarily due to higher pre-tax income for the year ended December 31, 2015, compared to the year ended December 31, 2014.  Our total effective income tax rate, or ETR, for 2015 and 2014 was 40.8% and 40.1%, respectively.

Other Income, Net

Allowance for funds used during construction, or AFUDC, decreased $80,000 due to decreased long-term construction activity subject to AFUDC. Miscellaneous income decreased $52,000, primarily due to an increase in charitable contributions in 2015 compared to 2014.

Interest Charges

Interest expense decreased $0.4 million, primarily due to accrual of prejudgment interest expense in the year ended December 31, 2014, related to the litigation against Chester Water Authority in regard to the proper determination of the rate charged for water purchased under contract from Chester Water Authority.

Net Income

For the year ended December 31, 2015, our net income applicable to common stock increased $1.8 million compared to the same period a year ago. This increase in net income was primarily due to higher operating income margins in our water utility business, as a result of rate increases placed in effect during 2014, an increase in service line protection plan revenue and a decrease in interest expense. The decrease of $0.4 million in interest expense was primarily due to the accrual of interest expense in the third quarter of 2014 related to the litigation against Chester Water Authority in regard to the proper determination of the rate Chester Water Authority charged for water purchased under contract.

Liquidity and Capital Resources

Overview

The Company's sources of liquidity for the year ended December 31, 2016 were $29.8 million provided by cash flow from operating activities, $9.9 million in net contributions and advances from developers and $1.8 million in net proceeds from the issuance of common stock. These funds were used to invest $28.2 million in capital expenditures, to pay dividends of approximately $8.1 million, and to repay $3.4 million of the Company's line of credit.

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 our utility plant and systems in 2017 will be approximately $40.7 million.  Our total obligations related to interest and principal payments on indebtedness, rental payments and water service interconnection agreements for 2017 are anticipated to be approximately $11.3 million.  We expect to fund our activities for the next year using our available cash balances, bank credit lines and projected cash generated from operations. We believe that internally generated funds along with existing credit facilities will be adequate to provide sufficient working capital to maintain normal operations and to meet our financing requirements.  However, since part of our business strategy is to expand through strategic acquisitions, we may seek additional debt financing or issue additional equity securities to finance future acquisitions or for other purposes. There is no assurance that we will be able to secure funding on terms acceptable to us, or at all.

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Operating Activities

Our primary source of liquidity for the year ended December 31, 2016 was $29.8 million provided by cash flow from operating activities.  Cash flow from operating activities is primarily provided by our utility operations, and is impacted by the timeliness and adequacy of rate increases and changes in water consumption as a result of year-to-year variations in weather conditions, particularly during the summer. A significant part of our ability to maintain and meet our financial objectives is to ensure that our investments in utility plant and equipment are recovered in the rates charged to customers.  As such, from time to time, we file rate increase requests to recover increases in operating expenses and investments in utility plant and equipment.  In addition, the Company has a long history of paying regular quarterly dividends as approved by our Board of Directors using net cash from operating activities.

The primary focus of Artesian's investment in 2016 was to continue to provide high quality reliable service to our growing service territory.  We invested $28.2 million in capital expenditures during 2016 compared to $20.7 million invested during the same period in 2015. During 2016, we invested $2.3 million to enhance or improve existing treatment facilities and sources of supply and for the rehabilitation of pumping equipment to better serve our customers.  We invested $5.0 million to upgrade and automate our meter reading equipment.  We invested approximately $6.8 million for our rehabilitation program for transmission and distribution facilities by replacing aging or deteriorating mains and for new transmission and distribution facilities. We invested approximately $2.9 million in mandatory utility plant expenditures due to governmental highway projects which require the relocation of water service mains in addition to facility improvements and upgrades.  Developers financed $8.0 million for the installation of water mains and hydrants in 2016 compared to $3.8 million in 2015.  We invested $2.1 million for equipment purchases, treatment facility upgrades and computer hardware and software upgrades.   An additional $1.1 million was invested in wastewater projects in Delaware. 

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

In thousands	2016			2015			2014
Source of supply	$	302		$	584		$	945
Treatment and pumping		2,021			3,808			6,914
Transmission and distribution		14,865			8,854			10,220
General plant and equipment		2,083			2,670			2,622
Developer financed utility plant		7,996			3,849			2,784
Wastewater facilities		1,130			1,092			457
Allowance for Funds Used During Construction, AFUDC		(146	)		(163	)		(212	)
Total	$	28,251		$	20,694		$	23,730

Of the $51.5 million we expect to invest in 2017, approximately $16.1 million will be invested in transmission and distribution facilities, including the replacement of facilities, and the extension of facilities to address service needs in growth areas of our service territory.  Approximately $6.7 million will be invested in the relocations of facilities as a result of government mandates and renewals associated with the rehabilitation of aging infrastructure.  Approximately $5.5 million will be invested for new treatment facilities, facility upgrades, equipment and wells throughout Delaware and Maryland to identify, develop, treat and protect sources of water supply to assure uninterrupted service to our customers.  Approximately $1.2 million will be invested in the purchase of existing water assets and for the provision of potable water and fire suppression services in the Fort DuPont National Historic District, which includes investment in both new water assets as well as improvements and upgrades to the existing water assets.  In addition, we will refund $1.1 million to customers, real estate developers and builders related to previous advances for construction they provided to Artesian in order to extend water service to their properties.

We also plan to invest $5.0 million in general plant, which includes new corporate automation, building renovations and transportation and equipment upgrades.  Additionally, $15.9 million will be invested in Artesian Wastewater for ongoing construction of wastewater plants, of which $12.4 million will be used to construct an 8 mile pipeline and a 67 million gallon storage lagoon for spray irrigation to dispose of treated wastewater from a new industrial customer.  Our projected capital expenditures and other investments are subject to periodic review and revision to reflect changes in economic conditions and other factors.  The company's investment for 2017 is expected to be offset by developer contributions and advances of $10.8 million for a net investment of $40.7 million in 2017.

30

Financing

We expect to fund our activities for the next twelve months using our available cash balances, bank credit lines, projected cash generated from operations and financing in the capital markets as necessary.

We have several sources of liquidity to finance our investment in utility plant and other fixed assets.  We estimate that the projected investment will be financed by our operations and external sources, including a combination of capital investment as well as short-term borrowings under our revolving credit agreements discussed below.

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.

Lines of Credit

At December 31, 2016, Artesian Resources had a $40 million line of credit with Citizens Bank of Pennsylvania, or Citizens, which is available to all subsidiaries of Artesian Resources. As of December 31, 2016, there was $36.4 million of available funds under this line of credit. The interest rate for borrowings under this line is the London Interbank Offered Rate, or LIBOR, plus 1.00%. 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 26, 2017 or any date on which Citizens demands payment. The Company expects to renew this line of credit.

At December 31, 2016, 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, 2016, there was $16.5 million of available funds under this line of credit. The interest rate for borrowings under this line is LIBOR plus 1.50%. CoBank may make an annual patronage refund, which has been equal to 1.00% of the average line of credit and loan volume outstanding by Artesian during each of the years ended December 31, 2016, December 31, 2015, and December 31, 2014. The patronage refunds, associated with all debt with CoBank, earned by Artesian for the years ended December 31, 2016, December 31, 2015 and December 31, 2014 were $702,000, $689,000 and $682,000, respectively. The term of this line of credit expires on July 20, 2017. The Company expects to renew this line of credit.

Line of Credit Commitments	Commitment Due by Period
In thousands	Less than 1 Year			1-3 Years			4-5 Years			Over 5 Years
Lines of Credit		$	7,130		$	-----		$	-----		$	-----

Long-Term Debt

Artesian Water's trust indentures, which set certain criteria for the issuance of new long-term debt, limit long-term debt, including the short-term portion thereof, to 66⅔% of total capitalization. Our debt to total capitalization, including the short-term portion thereof, was 42.7% at December 31, 2016.  In addition, our revolving line of credit with CoBank contains 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, guaranty certain obligations, enter into, or undertake, certain mergers, consolidations or acquisitions, transfer certain assets, change our business or incur additional indebtedness.  In addition, this line of credit requires us to abide by certain financial covenants and ratios.  As of December 31, 2016, we were in compliance with these covenants.

Contractual Obligations	Payments Due by Period
In thousands	Less than 1 Year		1-3 Years		4-5 Years		After 5 Years		Total
First mortgage bonds (principal and interest)	$	5,955	$	33,569	$	8,325	$	110,135	$	157,984
State revolving fund loans (principal and interest)		1,002		2,005		2,005		4,975		9,987
Operating leases		76		110		115		1,394		1,695
Unconditional purchase obligations		3,824		7,649		7,659		-		19,132
Tank painting contractual obligation		426		852		-		-		1,278
Total contractual cash obligations	$	11,283	$	44,185	$	18,104	$	116,504	$	190,076

31

Long-term debt obligations reflect the maturities of certain series of our first mortgage bonds, which we intend to refinance when due.  The state revolving fund loan obligation has an amortizing mortgage payment payable over a 20-year period, and will be refinanced as future securities are issued. Both the long-term debt and the state revolving fund loan 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, and we do not anticipate any such occurrence.  Payments for unconditional purchase obligations reflect minimum water purchase obligations based on rates that are subject to change under our interconnection agreement with the Chester Water Authority, which expires December 31, 2021.

On January 18, 2017, Artesian Water and CoBank entered into a Bond Purchase Agreement relating to the issue and sale by the Company to CoBank of a $40 million principal amount First Mortgage Bond, Series T, or the Bond, due December 20, 2036 (the "Maturity Date").  The Bond was issued pursuant to the Company's Indenture of Mortgage dated as of July 1, 1961, as amended and supplemented by supplemental indentures, including the Twenty-Second Supplemental Indenture (the "Supplemental Indenture"), dated as of January 18, 2017 from the Company to Wilmington Trust Company, as Trustee.  The Indenture is a first mortgage lien against substantially all of the Company's utility plant.  The proceeds from the sale of the Bond will be use to prepay indebtedness of the Company under two existing First Mortgage Bonds: Series O, principal amount $20 million with interest rate of 8.17% and related prepayment costs of $4.5 million; and Series Q, principal amount $15.4 million with interest rate of 4.75%.  The DEPSC approved the issuance of the Bond on December 20, 2016.  The DEPSC also approved deferral of the prepayment costs associated with the First Mortgage Bond, Series O.

The Bond carries an annual interest rate of 4.24% through and including the Maturity Date. Interest is payable on June 30^th and December 31^st of each year, beginning June 30, 2017 until the Company's obligation with respect to the payment of principal, premium (if any) and interest shall be discharged.  Overdue payments shall bear interest as provided in the Supplemental Indenture. The term of the Bonds also include certain limitations on the Company's indebtedness.

In order to control purchased power costs, in October 2015 Artesian Water entered into an electric supply contract at a fixed rate that was 11.0% lower than its contract that expired in May 2016 and was less than the rate charged by the local electric supplier at the time of entering into the contract.  The new fixed price contract is effective from May 2016 through May 2019. 

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 17 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 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, which have final maturity dates ranging from 2018 to 2036, and interest rates ranging from 4.24% to 6.58%, 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, under which the interim bank loans payable at December 31, 2016 were approximately $7.1 million. An increase in interest rates will result in an increase in the cost of borrowing on this variable rate line.  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 a multi-year supply contract, at a fixed price.

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  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS

In thousands

ASSETS	December 31, 2016		December 31, 2015
Utility plant, at original cost less accumulated depreciation	$	425,502	$	405,606
Current assets
Cash and cash equivalents		226		209
Accounts receivable (less allowance for doubtful accounts 2016 - $263; 2015-$277)		7,796		6,350
Income tax receivable		150		1,428
Unbilled operating revenues		1,403		1,535
Materials and supplies		1,564		1,713
Prepaid property taxes		1,669		1,591
Prepaid expenses and other		1,827		1,618
Total current assets		14,635		14,444
Other assets
Non-utility property (less accumulated depreciation 2016-$611; 2015-$535)		3,881		3,956
Other deferred assets		3,584		4,176
Total other assets		7,465		8,132
Regulatory assets, net		3,374		3,444
	$	450,976	$	431,626
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
Common stock	$	9,127	$	9,058
Preferred stock		—		—
Additional paid-in capital		97,480		95,631
Retained earnings		32,416		27,642
Total stockholders' equity		139,023		132,331
Long-term debt, net of current portion		102,331		103,647
		241,354		235,978
Current liabilities
Lines of credit		7,130		10,487
Current portion of long-term debt		1,316		1,289
Accounts payable		5,532		4,914
Accrued expenses		1,309		1,254
Overdraft payable		32		546
Accrued interest		1,000		1,032
Customer deposits		864		704
Other		2,145		2,177
Total current liabilities	$	19,328	$	22,403
Commitments and contingencies (Note 10)		—		—
Deferred credits and other liabilities
Net advances for construction	$	8,169	$	8,752
Postretirement benefit obligation		149		230
Utility plant retirement cost obligation		873		883
Deferred investment tax credits		544		562
Deferred income taxes		68,453		62,971
Total deferred credits and other liabilities	$	78,188	$	73,398
Net contributions in aid of construction		112,106		99,847
	$	450,976	$	431,626

The notes are an integral part of the consolidated financial statements.

33

CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands, except per share amounts

	For the Year Ended December 31,
	2016		2015		2014
Operating revenues
Water sales	$	70,587	$	68,932	$	64,667
Other utility operating revenue		3,816		3,694		3,648
Non-utility operating revenue		4,686		4,398		4,150
		79,089		77,024		72,465
Operating expenses
Utility operating expenses		35,658		36,148		34,893
Non-utility operating expenses		2,602		2,305		2,193
Depreciation and amortization		9,188		8,837		8,673
Taxes
State and federal income taxes
Current		2,849		2,667		(900	)
Deferred		5,482		5,117		7,275
Property and other taxes		4,491		4,368		4,285
		60,270		59,442		56,419
Operating income		18,819		17,582		16,046
Other income, net
Allowance for funds used during construction (AFUDC)		222		249		329
Miscellaneous		557		472		524
		779		721		853
Income before interest charges		19,598		18,303		16,899
Interest charges		6,644		6,998		7,393
Net income applicable to common stock	$	12,954	$	11,305	$	9,506
Income per common share:
Basic	$	1.42	$	1.26	$	1.07
Diluted	$	1.41	$	1.26	$	1.07
Weighted average common shares outstanding:
Basic		9,098		8,960		8,884
Diluted		9,161		9,005		8,926
Cash dividends per share of common stock	$	0.8997	$	0.8733	$	0.8477

The notes are an integral part of the consolidated financial statements.

34

CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands

	For the Year Ended December 31,
	2016			2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	12,954		$	11,305		$	9,506
Adjustments to reconcile net income to net cash  provided by operating activities:
Depreciation and amortization		9,188			8,837			8,673
Deferred income taxes, net		5,464			5,097			7,255
Stock compensation		92			183			135
AFUDC, equity portion		(146	)		(163	)		(212	)
Changes in assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts		(292	)		(867	)		147
Income tax receivable		1,278			1,640			(2,613	)
Unbilled operating revenues		132			1,779			(305	)
Materials and supplies		149			177			(405	)
Prepaid property taxes		(78	)		(190	)		90
Prepaid expenses and other		(209	)		49			(390	)
Other deferred assets		(175	)		(167	)		(172	)
Regulatory assets		734			187			(187	)
Accounts payable		618			1,131			(357	)
Accrued expenses		55			(259	)		(2,197	)
Accrued interest		(32	)		(396	)		374
Customer deposits and other, net		128			102			(832	)
Postretirement benefit obligation		(81	)		(38	)		(41	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		29,779			28,407			18,469
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures (net of AFUDC, equity portion)		(28,251	)		(20,694	)		(23,730	)
Proceeds from sale of assets		96			48			35
NET CASH USED IN INVESTING ACTIVITIES		(28,155	)		(20,646	)		(23,695	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings under lines of credit agreements		(3,357	)		(8,004	)		8,159
Increase (decrease) in overdraft payable		(514	)		405			(605	)
Net advances and contributions in aid of construction		9,907			5,829			3,808
Net proceeds from issuance of common stock		1,826			3,049			1,651
Dividends paid		(8,180	)		(7,811	)		(7,523	)
Issuance of long-term debt		—			-			689
Principal repayments of long-term debt		(1,289	)		(1,263	)		(1,132	)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(1,607	)		(7,795	)		5,047
NET (DECREASE) IN CASH AND CASH EQUIVALENTS		17			(34	)		(179	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		209			243			422
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	226		$	209		$	243
Supplemental Disclosures of Cash Flow Information:
Utility plant received as construction advances and contributions	$	2,499		$	1,451		$	1,491
Contractual amounts of contributions in aid of construction due from developers included in accounts receivable	$	1,542		$	796		$	456
Contractual amounts of contributions in aid of construction received from developers previously included in accounts receivable	$	388		$	377		$	361
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	6,676		$	7,394		$	7,019
Income taxes paid	$	1,434		$	2,608		$	1,615

The notes are an integral part of the consolidated financial statements.

35

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

In thousands

	Common Shares Outstanding Class A Non-Voting (1) (3) (4)		Common Shares Outstanding Class B Voting (2)		$1 Par Value Class A Non-Voting		$1 Par Value Class B Voting		Additional Paid-in Capital		Retained Earnings			Total
Balance as of December 31, 2013		7,948		882	$	7,948	$	882	$	90,841	$	22,165		$	121,836
Net income		—		—		—		—		—		9,506			9,506
Cash dividends declared
Common stock		—		—		—		—		—		(7,523	)		(7,523	)
Issuance of common stock
Dividend reinvestment plan		21		—		21		—		438		—			459
Employee stock options and awards(4)		44		—		44		—		920		—			964
Employee Retirement Plan(3)		17		—		17		—		346		—			363
Balance as of December 31, 2014		8,030		882	$	8,030	$	882	$	92,545	$	24,148		$	125,605
Net income		—		—		—		—		—		11,305			11,305
Cash dividends declared
Common stock		—		—		—		—		—		(7,811	)		(7,811	)
Issuance of common stock
Dividend reinvestment plan		18		—		18		—		366		—			384
Employee stock options and awards(4)		111		—		111		—		2,419		—			2,530
Employee Retirement Plan(3)		17		—		17		—		301		—			318
Balance as of December 31, 2015		8,176		882	$	8,176	$	882	$	95,631	$	27,642		$	132,331
Net income		—		—		—		—		—		12,954			12,954
Cash dividends declared
Common stock		—		—		—		—		—		(8,180	)		(8,180	)
Issuance of common stock
Dividend reinvestment plan		13		—		13		—		387		—			400
Employee stock options and awards(4)		38		—		38		—		939		—			977
Employee Retirement Plan(3)		18		—		18		—		523		—			541
Balance as of December 31, 2016		8,245		882	$	8,245	$	882	$	97,480	$	32,416		$	139,023

(1) At December 31, 2016, 2015, and 2014, Class A Common Stock had 15,000,000 shares authorized.  For the same periods, shares issued, inclusive of treasury shares, were 8,275,010, 8,205,190 and 8,059,654, respectively.

(2) At December 31, 2016, 2015, and 2014, Class B Common Stock had 1,040,000 shares authorized and 882,000 shares issued.

(3) Artesian Resources Corporation registered 500,000 shares of Class A Common Stock available for purchase through the Artesian Retirement Plan and the Artesian Supplemental Retirement Plan.

(4) Under the Equity Compensation Plan, effective December 9, 2015 Artesian Resources Corporation authorized up to 331,500 shares of Class A Common Stock for issuance of grants in forms of stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in certain circumstances as discussed in the Plan.

The notes are an integral part of the consolidated financial statements.

36

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The audited consolidated financial statements are presented in accordance with the requirements of Form 10-K and accounting principles generally accepted in the United States and consequently include all the disclosures required in the consolidated financial statements included in the Company's annual report on Form 10-K. The accompanying consolidated financial statements include the accounts of Artesian Resources Corporation and its subsidiaries and all intercompany balances and transactions between subsidiaries have been eliminated.

Reclassification

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. These reclassifications had no effect on net income or stockholders' equity.

In 2016, the Company adopted amended guidance on the Presentation of Debt Issuance Costs and amended guidance on Income Taxes, both of which were issued by the Financial Accounting Standards Board, or FASB, in 2015. The amended guidance on the Presentation of Debt Issuance Costs requires entities to present debt issuance costs related to a debt liability as a direct deduction from the carrying amount of that debt liability on the balance sheet as opposed to being presented as a deferred charge. The amended guidance on Income Taxes simplified the presentation of deferred income taxes, permitting all deferred income tax liabilities be classified as noncurrent on the balance sheet.

For all periods presented in this Form 10-K for the year ended December 31, 2016, unamortized debt issuance costs related to the Company's long-term debt are reported on the Condensed Consolidated Balance Sheets within "Regulatory Assets, Net" under FASB ASC Topic 980 as this amount will be recovered in future rates charged to our customers.  Prior to adoption, the Company reported the unamortized debt issuance costs in "Other Assets" on the Condensed Consolidated Balance Sheets.  Deferred income taxes are reported as noncurrent on the Condensed Consolidated Balance Sheets.  Prior to adoption, the Company reported current and noncurrent deferred income tax liabilities as separate amounts on the Condensed Consolidated Balance Sheets.

Utility Subsidiary Accounting

The accounting records of Artesian Water Company, Inc., or Artesian Water, and Artesian Wastewater Management, Inc., or Artesian Wastewater, are maintained in accordance with the uniform system of accounts as prescribed by the Delaware Public Service Commission, or the DEPSC.  The accounting records of Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, are maintained in accordance with the uniform system of accounts as prescribed by the Pennsylvania Public Utility Commission, or the PAPUC.  The accounting records of Artesian Water Maryland, Inc., or Artesian Water Maryland, and Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, are maintained in accordance with the uniform system of accounts as prescribed by the Maryland Public Service Commission, or the MDPSC.  All five subsidiaries follow the provisions of FASB ASC Topic 980, which provides guidance for companies in regulated industries. These regulated subsidiaries account for the majority of our operating revenue. The operating revenues of our non-regulated division are presented in the Consolidated Statements of Operations.

Utility Plant

Utility plant is stated at original cost.  Cost includes direct labor, materials, AFUDC (see description below) and indirect charges for such capitalized items as transportation, supervision, pension, medical, and other fringe benefits related to employees engaged in construction activities. When depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received, is charged to the regulated retirement liability.  Maintenance, repairs, and replacement of minor items of plant are charged to expense as incurred.

In accordance with a rate order issued by the DEPSC, Artesian Water accrues an Allowance for Funds Used during Construction, or AFUDC. AFUDC, which represents the cost of funds devoted to construction projects through the date the project is placed in service, is capitalized as part of construction work in progress. The rate used for the AFUDC calculation is based on Artesian Water's weighted average cost of debt and the rate of return on equity authorized by the DEPSC. The rate used to capitalize AFUDC in 2016, 2015, and 2014 was 8.1%, 8.1%, and 8.2% respectively.

37

Utility plant comprises:
In thousands
			December 31,
	Estimated Useful Life (In Years)		2016		2015
Utility plant at original cost
Utility plant in service-Water
Intangible plant		—	$	140	$	140
Source of supply plant		45-85		19,627		19,313
Pumping and water treatment plant		8-62		78,542		77,221
Transmission and distribution plant
Mains		81		236,261		224,104
Services		39		38,803		36,060
Storage tanks		76		24,108		23,992
Meters		26		24,710		24,150
Hydrants		60		12,870		12,037
General plant		3-31		53,417		52,434
Utility plant in service-Wastewater
Treatment and disposal plant		35-62		15,613		14,012
Collection mains & lift stations		81		8,675		7,833
General plant		3-31		931		906
Property held for future use		—		14,815		14,345
Construction work in progress		—		6,674		3,809
				535,186		510,356
Less – accumulated depreciation				109,684		104,750
			$	425,502	$	405,606

Depreciation and Amortization

For financial reporting purposes, depreciation is recorded using the straight-line method at rates based on estimated economic useful lives, which range from 3 to 85 years. Composite depreciation rates for water utility plant were 2.25%, 2.29% and 2.30% for 2016, 2015 and 2014, respectively. In a rate order issued by the DEPSC, the Company was directed effective January 1, 1998 to begin using revised depreciation rates for utility plant. In rate orders issued by the DEPSC, Artesian Water was directed, effective May 28, 1991 and August 25, 1992, to offset depreciation recorded on utility plant by depreciation on utility property funded by Contributions in Aid of Construction, or CIAC, and Advances for Construction, or Advances, respectively.  This reduction in depreciation expense is also applied to outstanding CIAC and Advances.  Other deferred assets are amortized using the straight-line method over applicable lives, which range from 2 to 40 years.

Utility Plant Retirement Cost Obligation

The utility plant retirement cost obligation consists of estimated costs related to the potential removal and replacement of facilities and equipment on the Company's water and wastewater properties.  Effective January 1, 2012, as authorized by the DEPSC, when depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received is charged to a regulated retirement liability.  Each year the liability is increased by an annual amount authorized by the DEPSC.  Previously, when depreciable units of utility plant were retired, the cost of retired property, together with any cost associated with retirement less any salvage value or proceeds received, was charged to accumulated depreciation.  Maintenance, repairs, and replacement of minor items of plant are charged to expense as incurred.

Regulatory Assets

FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency. Certain expenses are recoverable through rates charged to our customers, without a return on investment, and are deferred and amortized during future periods using various methods as permitted by the Delaware Public Service Commission, or DEPSC, the Maryland Public Service Commission, or MDPSC, and the Pennsylvania Public Utility Commission, or PAPUC.

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The postretirement benefit obligation is the recognition of an offsetting regulatory asset as it relates to the accrual of the expected cost of providing postretirement health care and life insurance benefits to retired employees when they render the services necessary to earn the benefits.  Artesian Water contributed $81,000 to its postretirement benefit plan in 2016. These contributions consist of insurance premium payments for medical, dental and life insurance benefits made on behalf of the Company's eligible retired employees.

The deferred income taxes will be amortized over future years as the tax effects of temporary differences that previously flowed through to our customers are reversed.

Other regulatory expenses are amortized on a straight-line basis as noted below:

Expense	Years Amortized
Depreciation and salary studies	5
Delaware rate proceedings	2.5
Maryland rate proceedings	5
Debt issuance costs (as of December 31, 2016)	10 to 30 (based on term of related debt)
Debt issuance costs (after First Mortgage Bond Purchase in January 2017)	15 to 25 (based on term of related debt)
Goodwill (resulting from acquisition of Mountain Hill Water Company in 2008)	50
Deferred acquisition costs (resulting from purchase of water assets in Cecil County, Maryland in 2011 and Port Deposit, Maryland in 2010)	20
Franchise Costs (resulting from purchase of water assets in Cecil County, Maryland in 2011)	80

Regulatory assets, net of amortization, comprise:

(in thousands)	December 31, 2016		December 31, 2015
Postretirement benefit obligation	$	186	$	329
Deferred income taxes		431		446
Expense of rate and regulatory proceedings		116		616
Debt issuance costs		1,648		1,747
Goodwill		310		318
Deferred acquisition and franchise costs		683		720
	$	3,374	$	4,176

Impairment or Disposal of Long-Lived Assets

Our long-lived assets consist primarily of utility plant in service and regulatory assets.  A review of our long-lived assets is performed in accordance with the requirements of FASB ASC Topic 360. In addition, the regulatory assets are reviewed for the continued application of FASB ASC Topic 980.  The review determines whether there have been changes in circumstances or events that have occurred requiring adjustments to the carrying value of these assets.  FASB ASC Topic 980 stipulates that adjustments to the carrying value of these assets would be made in instances where the inclusion in the rate-making process is unlikely.

Other Deferred Assets

The investment in Co-Bank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based on the underlying long term debt agreements.  A large portion of the remaining other deferred assets, approximately $0.3 million, is in relation to the Mountain Hill acquisition.

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Other deferred assets at December 31, net of amortization, comprise:

In thousands	2016			2015
Investment in CoBank		$	3,198		$	3,023
Other			386			421
		$	3,584		$	3,444

Advances for Construction

Cash advances to reimburse Artesian Water for its costs to construct water mains, services and hydrants are contributed to Artesian Water by real estate developers and builders in order to extend water service to their properties. The Company only accepts advances related to new phases of existing developments that are grandfathered into the refundable arrangement through pre-existing contracts.  The value of these contributions is recorded as Advances for Construction. Artesian Water makes refunds on these advances over a specific period of time based on operating revenues generated by the specific plant or as new customers are connected to the mains. After all refunds are made within the contract period, any remaining balance is transferred to CIAC.

Contributions in Aid of Construction

CIAC includes the non-refundable portion of advances for construction and direct contributions of water mains, services and hydrants, and wastewater treatment facilities and collection systems, or cash to reimburse our water and wastewater divisions for costs to construct water mains, services and hydrants, and wastewater treatment and disposal plant.

Income Taxes

Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse. Under FASB ASC Topic 740, an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes. In 2014, the Company changed its tax method of accounting for qualifying utility system repairs effective with the tax year ended December 31, 2014 and for prior tax years. The tax accounting method was changed to permit the expensing of qualifying utility asset improvement costs that were previously being capitalized and depreciated for book and tax purposes.

The Company establishes reserves for uncertain tax positions based upon management's judgment as to the sustainability of these positions. These accounting estimates related to the uncertain tax position reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits. The Company believes its tax positions comply with applicable law and that it has adequately recorded reserves as required. However, to the extent the final tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known. The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense. The Company remains subject to examination by federal authorities for the tax year 2015 and state authorities for the tax years 2013 through 2015.  The Company was under federal audit by the Internal Revenue Service for tax years 2012 through 2014 during 2016.  The audit was concluded during the year resulting in no change to the tax liability.

The Tax Reform Act of 1986 mandated that Advances and CIAC received subsequent to December 31, 1986, generally are taxable income.  The 1996 Tax Act provided an exclusion from taxable income for CIAC and Advances received after June 12, 1996 except for certain contributions for large services that are not included in rate base for rate-making purposes.

Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives of the related assets.

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Stock Compensation Plans

On December 9, 2015, the Company's stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan. The 2015 Plan replaced the 2005 Equity Compensation Plan, or the 2005 Plan, which expired on May 24, 2015. The 2015 Plan authorizes an aggregate number of shares of our Class A common stock that may be issued or transferred under the Plan equal to the sum of:  331,500 shares, plus the number of shares of Class A common stock subject to outstanding grants under the 2005 Plan as of December 9, 2015 that terminate, expire or are cancelled, forfeited, exchanged or surrendered without having been exercised, vested or paid under the 2005 Plan. The Company accounts for stock options issued after January 1, 2006 under FASB ASC Topic 718. Compensation costs for restricted stock grants and options were $92,000, $183,000 and $135,000 in 2016, 2015 and 2014, respectively. Cost for options and restricted stock grants were determined based on the fair value at the grant dates and those costs were charged to income over the associated service periods. The $135,000 in 2014 was the amount amortized for stock options awarded in 2014 and 2013.  The $183,000 in 2015 was the amount amortized for restricted stock  awarded in 2015 and stock options awarded in 2014. The $92,000 in 2016 was the amount amortized for restricted stock awarded in 2016. As of December 31, 2016 there is $47,000 unrecognized expense related to non-vested awards of restricted shares granted under the 2015 Plan.

There was no stock compensation cost capitalized as part of an asset.

Stock Options

The fair value of each option grant is estimated using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions used for grants issued in 2014 under the 2005 Equity Compensation Plan (See Note 8 "Stock Compensation Plans"). No options were granted in 2015 or 2016.

	2014
Expected Dividend Yield		3.88%
Expected Stock Price Volatility		26.50%
Weighted Average Risk Free Interest Rate		2.24%
Weighted Average Expected Life of Options (in years)		7.52

The expected dividend yield was based on a 12 month rolling average of the Company's current dividend yield. The expected volatility is the standard deviation of the change in the natural logarithm of the stock price (expressed as an annual rate) for the expected term shown above. The expected term was based on historic exercise patterns for similar grants. The risk free interest rate for the 2014 options is the weighted average of the 7-year and 10-year US Treasury Yield rates.

Shares of Class A Stock have been reserved for future issuance under the 2015 Equity Compensation Plan.

Stock Awards

On May 4, 2016, 5,000 shares of Class A common stock were granted as restricted stock awards.  The fair market value per share was $27.70, the closing price of the Class A common stock as recorded on the Nasdaq Global Market on May 4, 2016.  The restricted shares vest one year from the date of grant.  A total of $92,000 was recorded as compensation cost for the awards granted in May 2016.

On December 18, 2015 5,000 shares of Class A common stock were issued as fully vested unrestricted stock awards. The fair market value per share was $27.38, the closing price of the Class A common stock as recorded on the Nasdaq Global market on December 18, 2015. A total of $137,000 was recorded as compensation cost for the stock awards granted in December 2015.

Revenue Recognition and Unbilled Revenues

Water service revenue for financial statement purposes includes amounts billed to Delaware customers on a monthly basis, amounts billed to Maryland customers on a quarterly or monthly cycle basis, depending on water system, and amounts billed to Pennsylvania customers on a quarterly basis.  Water service revenues also include unbilled amounts based upon estimated usage from the date of the last meter reading to the end of the accounting period. As actual usage amounts are received, adjustments are made to the unbilled estimates in the next billing cycle based on an accrual basis.

Other utility operating revenue includes wastewater service revenue derived from monthly fixed fees billed to customers, and is recognized on an accrual basis.  

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Non-utility operating revenue is primarily derived from Service Line Protection Plans and from the design, construction and operation of contract water and wastewater projects.  The Company recognizes non-utility operating revenue ratably over the service period with markup for overhead and profit.  The Company records contract monthly fees for non-utility operating revenue when billed to the customer. Service line protection plan revenues are recognized on an accrual basis.

Accounts Receivable

Accounts receivable are recorded at the invoiced amounts. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in our existing accounts receivable. The Company reviews the allowance for doubtful accounts on a quarterly basis. Account balances are written off against the allowance when it is probable the receivable will not be recovered. The allowance for doubtful accounts was $0.3 million and $0.3 million at December 31, 2016 and December 31, 2015 respectively.  The corresponding expense for the year ended December 31, 2016 and 2015 was $0.2 million and $0.2 million, respectively. The following table summarizes the changes in the Company's accounts receivable balance:

	December 31,
In thousands	2016			2015			2014
Customer accounts receivable – water		$	5,437		$	5,017		$	4,020
Contractual amounts due from developers and other			2,622			1,610			1,295
			8,059			6,627			5,315
Less allowance for doubtful accounts			263			277			250
Net accounts receivable		$	7,796		$	6,350		$	5,065

The activities in the allowance for doubtful accounts are as follows:

	December 31,
In thousands	2016				2015				2014
Beginning balance		$	277			$	250			$	221
Allowance adjustments			195				205				194
Recoveries			64				53				64
Write off of uncollectible accounts			(273	)			(231	)			(229	)
Ending balance		$	263			$	277			$	250

Cash and Cash Equivalents

For purposes of the Consolidated Statement of Cash Flows, Artesian Resources considers all temporary cash investments with an original maturity of three months or less to be cash equivalents. Artesian Resources and its subsidiaries utilize their bank's zero balance account disbursement service to reduce the use of their lines of credit by funding checks as they are presented to the bank for payment rather than at issuance. If the checks currently outstanding, but not yet funded, exceed the cash balance on our books, the net liability is recorded as a current liability on the Consolidated Balance Sheet in the Overdraft Payable account.

Use of Estimates in the Preparation of Consolidated Financial Statements

The consolidated financial statements were prepared in conformity with generally accepted accounting principles in the U.S., which require management to make estimates about the reported amounts of assets and liabilities including unbilled revenues, reserve for a portion of revenues received under temporary rates and regulatory asset recovery and contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from management's estimate.

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NOTE 2

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Current Assets and Liabilities

For those current assets and liabilities that are considered financial instruments, the carrying amounts approximate fair value because of the short maturity of those instruments.

Long-term Financial Liabilities

All of Artesian Resources' outstanding long-term debt as of December 31, 2016 and December 31, 2015 was fixed-rate. The fair value of the Company's long-term debt is determined by discounting their future cash flows using current market interest rates on similar instruments with comparable maturities consistent with FASB ASC 825.  Under the fair value hierarchy, the fair value of the long-term debt in the table below is classified as Level 2 measurements. The fair values for long-term debt differ from the carrying values primarily due to interest rates that differ from the current market interest rates. The carrying amount and fair value of Artesian Resources' long-term debt are shown below:

In thousands	December 31,
	2016			2015
Carrying amount		$	103,647		$	104,936
Estimated fair value			111,864			120,243

The fair value of Advances for Construction cannot be reasonably estimated due to the inability to accurately estimate the timing and amounts of future refunds expected to be paid over the life of the contracts. Refund payments are based on the water sales to new customers in the particular development constructed. The fair value of Advances for Construction would be less than the carrying amount because these financial instruments are non-interest bearing.

NOTE 3

INCOME TAXES

Deferred income taxes reflect temporary differences between the valuation of assets and liabilities for financial and tax reporting.

As of December 31, 2016, Artesian Resources had fully utilized all of its federal net operating loss carrybacks and carry-forwards. As of December 31, 2016, Artesian Resources has separate company state net operating loss carry-forwards aggregating approximately $13.4 million. These net operating loss carry-forwards will expire if unused between 2019 and 2037. Artesian Resources has recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized due to the expiration of the state net operating loss carry-forwards. The valuation allowance increased to approximately $286,000 in 2016 from approximately $182,000 in 2015. Management believes that it is more likely than not that the Company will realize the benefits of these net deferred tax assets.

At December 31, 2016, for federal income tax purposes, there were alternative minimum tax credit carry-forwards aggregating $2.5 million resulting from the payment of alternative minimum tax in prior years.  These alternative minimum tax credit carry-forwards may be carried forward indefinitely to offset future regular federal income taxes. The Company remains subject to examination by federal authorities for the tax year 2015 and state authorities for the tax years 2013 through 2015.

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Components of Income Tax Expense
In thousands	For the Year Ended December 31,
State income taxes	2016			2015		2014
Current		$	1,050	$	499	$	173
Deferred			860		1,299		1,231
Total state income tax expense		$	1,910	$	1,798	$	1,404
	For the Year Ended December 31,
Federal income taxes			2016		2015		2014
Current		$	1,799	$	2,168	$	(1,073	)
Deferred			4,622		3,818		6,044
Total federal income tax expense		$	6,421	$	5,986	$	4,971

Reconciliation of effective tax rate:
	For the Year Ended December 31,
In thousands	2016				2016			2015			2015			2014			2014
	Amount				Percent			Amount			Percent			Amount			Percent
Reconciliation of effective tax rate
Income before federal and state income taxes		$	21,285			100.0	%		$	19,088		100.0	%		$	15,881		100.0	%
Amount computed at statutory rate			7,237			34.0	%			6,490		34.0	%			5,400		34.0	%
Reconciling items
State income tax-net of federal tax benefit			1,327			6.2	%			1,214		6.4	%			918		5.8	%
Other			(233	)		(1.1	)%			80		0.4	%			57		0.4	%
Total income tax expense and effective rate		$	8,331			39.1	%		$	7,784		40.8	%		$	6,375		40.2	%

Deferred income taxes at December 31, 2016, 2015, and 2014 were comprised of the following:

	For the Year Ended December 31,
In thousands	2016			2015			2014
Deferred tax assets related to:
Federal alternative minimum tax credit carry-forwards	$	2,474		$	3,971		$	5,459
Federal and state operating loss carry-forwards		752			675			1,045
Bad debt allowance		104			110			99
Valuation allowance		(286	)		(182	)		(65	)
Stock options		452			415			397
Other		320			291			269
Total deferred tax assets	$	3,816		$	5,280		$	7,204
Deferred tax liabilities related to:
Property plant and equipment basis differences	$	(70,711	)	$	(66,508	)	$	(63,427	)
Uncertain tax position		(80	)		(247	)		(179	)
Expenses of rate proceedings		(19	)		(213	)		(214	)
Property taxes		(663	)		(527	)		(505	)
Other		(796	)		(756	)		(734	)
Total deferred tax liabilities	$	(72,269	)	$	(68,251	)	$	(65,059	)
Net deferred tax liability	$	(68,453	)	$	(62,971	)	$	(57,855	)

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Schedule of Valuation Allowance
	Balance at Beginning of Period			Additions Charged to Costs and Expenses			Deductions		Balance at End of Period
In thousands
Classification
For the Year Ended December 31, 2016 Valuation allowance for deferred tax assets		$	182		$	104		—		$	286
For the Year Ended December 31, 2015 Valuation allowance for deferred tax assets		$	65		$	117		—		$	182
For the Year Ended December 31, 2014 Valuation allowance for deferred tax assets		$	61		$	4		—		$	65

Under FASB ASC Topic 740, an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes. In 2014, the Company changed its tax method of accounting for qualifying utility system repairs effective with the tax year ended December 31, 2014 and for prior tax years. The tax accounting method was changed to permit the expensing of qualifying utility asset improvement costs that were previously being capitalized and depreciated for book and tax purposes. The Company will recognize a tax deduction on its 2016 Federal tax return when filed of $2.7 million for qualifying capital expenditures made during the year.

The Company establishes reserves for uncertain tax positions based upon management's judgment as to the sustainability of these positions. These accounting estimates related to the uncertain tax position reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits. The Company believes its tax positions comply with applicable law and that it has adequately recorded reserves as required. However, to the extent the final tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known. The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense.

In December 2015, the Company was notified by the IRS that its Federal tax filing for 2014 would be reviewed along with the effects of the net operating loss generated in 2014 and carryback to the 2012 and 2013 tax years.  This review, which began in the first quarter of 2016 and was completed in the second quarter of 2016, resulted in no change to the tax liability.  Since the Company had previously recorded a provision for the possible disallowance of a portion of the repair deduction in prior periods, the completion of the audit resulted in the reversal of the reserves, including interest and penalties, in the amount of approximately $201,000.  While the Company maintains the belief that the deduction taken on its tax return is appropriate, the methodology for determining the deduction has not been agreed to by the tax authorities.  Therefore, as required by FASB ASC 740, the Company has accrued approximately $4,800 in penalties and interest as of December 31, 2016 for any disallowance pertaining to the 2015 tax filing. The Company had previously accrued $22,000 in penalties and interest pertaining to the 2014 tax filing.  This amount was reversed during the second quarter of 2016. The Company remains subject to examination by federal authorities for the tax year 2015 and state authorities for the tax years 2013 through 2015.

The following table provides the changes in the Company's uncertain tax position:

	For the years ended December 31,
In thousands	2016			2015
Balance at beginning of year	$	247		$	179
Additions based on tax positions related to the current year		23			51
Additions based on tax positions related to prior years		11			17
Reductions for tax positions of prior years		(201	)		-
Settlements		-			-
Lapses in Statutes of Limitations		-			-
Balance at end of year	$	80		$	247

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NOTE 4

PREFERRED STOCK

As of December 31, 2016 and 2015, Artesian Resources had no preferred stock outstanding.  Artesian Resources has 100,000 shares of $1.00 par value Series Preferred stock authorized but unissued.

NOTE 5

COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

The Class A Non-Voting Common Stock, or Class A Stock, of Artesian Resources trades on the NASDAQ Global Select Market under the symbol ARTNA.  The Class B Common Stock, or Class B Stock, of Artesian Resources trades on the NASDAQ's OTC Bulletin Board under the symbol ARTNB.  The rights of the holders of the Class A Stock and the Class B Stock are identical, except with respect to voting.

Under Artesian Resources' dividend reinvestment plan, which allows for reinvestment of cash dividends and optional cash payments, stockholders were issued 13,600, 17,500 and 21,000 shares at fair market value for the investment of $400,000, $384,000, and $459,000 of their monies in the years 2016, 2015, and 2014, respectively.

NOTE 6

DEBT

At December 31, 2016, Artesian Resources had a $40 million line of credit with Citizens Bank of Pennsylvania, or Citizens, which is available to all subsidiaries of Artesian Resources. As of December 31, 2016, there was $36.4 million of available funds under this line of credit. The interest rate for borrowings under this line is the London Interbank Offered Rate, or LIBOR, plus 1.00%. 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 26, 2017 or any date on which Citizens demands payment.

At December 31, 2016, 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 $10.0 million of this line available for the operations of Artesian Water Maryland. As of December 31, 2016, there was $16.5 million of available funds under this line of credit. The interest rate for borrowings under this line is LIBOR plus 1.50%.  CoBank may make an annual patronage refund, which has been equal to 1.00% of the average loan volume outstanding by Artesian during each of the years ended December 31, 2016, December 31, 2015 and December 31, 2014. The patronage refunds, associated with all debt at CoBank, earned by Artesian for the years ended December 31, 2016, December 31, 2015 and December 31, 2014 were $702,000, $689,000 and $682,000, respectively. The term of this line of credit expires on July 20, 2017.

The weighted average interest rate on the lines of credit above paid by the Company was 1.67% for the year ended December 31, 2016. These lines of credit, as well as both the long-term debt and the state revolving fund loans shown below, require us to abide by certain financial covenants and ratios. As of December 31, 2016, we were in compliance with these covenants.

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Long-term debt consists of:

	December 31,
In thousands	2016		2015
First mortgage bonds
Series O, 8.17%, due December 29, 2020	$	20,000	$	20,000
Series P, 6.58%, due January 31, 2018		25,000		25,000
Series Q, 4.75%, due December 1, 2043		15,400		15,400
Series R, 5.96%, due December 31, 2028		25,000		25,000
Series S, 6.73%, due December 31, 2033		10,200		10,800
		95,600		96,200
State revolving fund loans
4.48%, due August 1, 2021		1,456		1,711
3.57%, due September 1, 2023		640		719
3.64%, due May 1, 2025		1,142		1,255
3.41%, due February 1, 2031		2,448		2,576
3.40%, due July 1, 2032		2,361		2,475
		8,047		8,736
Sub-total		103,647		104,936
Less: current maturities (principal amount)		1,316		1,289
Total long-term debt	$	102,331	$	103,647

Payments of principal amounts due during the next five years and thereafter:

In thousands	2017		2018		2019		2020		2021		Thereafter
First Mortgage bonds	$	600	$	25,600	$	600	$	20,600	$	600	$	47,600
State revolving fund loans		716		742		771		801		832		4,185
Total payments	$	1,316	$	26,342	$	1,371	$	21,401	$	1,432	$	51,785

The table above is not reflective of the purchase of the $40 million principal amount First Mortgage Bond, Series T, or the Bond, due December 20, 2036, which was completed in January 2017.  The proceeds from the sale of the Bond were used to prepay indebtedness of the Company under two existing First Mortgage Bonds listed above: Series O and related prepayment costs and Series Q.

NOTE 7

NON-UTILITY OPERATING REVENUE AND EXPENSES

Non-utility operating revenue consisted of $4.7 million, $4.4 million, and $4.1 million recognized by Artesian Utility in 2016, 2015 and 2014, respectively. Non-utility operating expenses consisted of $2.6 million, $2.3 million and $2.2 million primarily recognized by Artesian Utility in 2016, 2015 and 2014, respectively.  Artesian Utility operates the water, wastewater and internal Service Line Protection Plans, or SLP Plans. The SLP Plans provide coverage for all material and labor required to repair or replace participants' leaking water service, clogged sewer lines or water and wastewater lines within the residence up to an annual limit.

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NOTE 8

STOCK COMPENSATION PLANS

On December 9, 2015, the Company's stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan, that replaced the 2005 Equity Compensation Plan, or the 2005 Plan, which expired on May 24, 2015. The 2015 Plan provides that grants may be in any of the following forms: incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based awards. The 2015 Plan is administered and interpreted by the Compensation Committee of the Board of Directors, or the Committee.  The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, determine the type, size and terms of the grants, determine the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan) and deal with any other matters arising under the 2015 Plan. The Committee presently consists of three directors, each of whom is a non-employee director of the Company. All of the employees of the Company and its subsidiaries are eligible for grants under the 2015 Plan. Non-employee directors of the Company are also eligible to receive grants under the 2015 Plan.

The following summary reflects changes in the shares of Class A Stock under option:

	2016 Shares			2016 Weighted Average Exercise Price		2015 Shares			2015 Weighted Average Exercise Price		2014 Shares			2014 Weighted Average Exercise Price
Plan options
Outstanding at beginning of year		270,000		$	19.34		376,250		$	19.52		387,000		$	18.96
Granted		—			—		-			-		33,750			21.86
Exercised		(38,245	)		19.50		(106,250	)		19.97		(44,500	)		16.45
Expired		—			—		—			—		—			—
Outstanding at end of year		231,755		$	19.32		270,000		$	19.34		376,250		$	19.52
Options exercisable at year end		231,755		$	19.32		270,000		$	19.34		342,500		$	19.29

The fair value per share of options granted during 2014 were $3.95, as estimated using the Black-Scholes Merton option pricing model. The total intrinsic value of options exercised during 2016, 2015 and 2014 were $351,000, $379,000 and $247,000, respectively. During 2016, we received $746,000 in cash from the exercise of options, with a $351,000 tax benefit realized for those options.

48

The following tables summarize information about employee and director stock options outstanding at December 31, 2016:

Options Outstanding
Range of Exercise Price			Shares Outstanding at December 31, 2016		Weighted Average Remaining Life	Weighted Average Exercise Price			Aggregate Intrinsic Value
	$	15.26 - $19.04		123,755	3.28 Years		$	17.77		$	1,753,268
	$	19.05 - $22.66		108,000	5.67 Years		$	21.09		$	1,171,678
Options Exercisable
Range of Exercise Price			Shares Exercisable at December 31, 2016		Weighted Average Remaining Life	Weighted Average Exercise Price			Aggregate Intrinsic Value
	$	15.26 - $19.04		123,755	3.28 Years		$	17.77		$	1,753,268
	$	19.05 - $22.66		108,000	5.67 Years		$	21.09		$	1,171,678

As of December 31, 2016, there was no unrecognized expense related to non-vested option shares granted under the Plan.  

On May 4, 2016, 5,000 shares of Class A common stock were granted as restricted stock awards.  The fair market value per share was $27.70, the closing price of the Class A common stock as recorded on the Nasdaq Global Market on May 4, 2016.  The restricted shares vest one year from the date of grant.

On December 18, 2015, 5,000 shares of Class A common stock were issued as fully vested unrestricted stock awards. The fair market value per share was $27.38, the closing price of the Class A common stock as recorded on the Nasdaq Global Market on December 18, 2015.

NOTE 9

EMPLOYEE BENEFIT PLANS

401(k) Plan

Artesian Resources has a defined contribution 401(k) Salary Deduction Plan, or the 401(k) Plan, which covers substantially all employees.  Under the terms of the 401(k) Plan, Artesian Resources contributed 2% of eligible salaries and wages and matched employee contributions up to 6% of gross pay at a rate of 50%.  Artesian Resources may, at its option, make additional contributions of up to 3% of eligible salaries and wages. In 2015, an additional 1% of eligible salaries and wages was contributed under 401(k) Plan. No such additional contributions were made in 2014 or 2016. The 401(k) Plan expenses, which include Company contributions and administrative fees, for the years 2016, 2015 and 2014, were approximately $850,000, $1.0 million, and $808,000, respectively.

49

Supplemental Pension Plan

Effective October 1, 1994, Artesian Water established a Supplemental Pension Plan, or the Supplemental Plan, to provide additional retirement benefits to full-time employees hired prior to April 26, 1994. The Supplemental Plan is a defined contribution plan that enables employees to save for future retiree medical costs, which will be paid by employees. The Supplemental Plan accomplishes this objective by providing additional cash resources to employees upon a termination of employment or retirement, to meet the cost of future medical expenses. Artesian Water has established a contribution based upon each employee's years of service ranging from 2% to 6% of eligible salaries and wages. Artesian Water also provides additional benefits to individuals who were over age 50 as of January 1, 1994. These individuals are referred to as the Transition Group. Effective November 1, 1994, individuals eligible for the Transition Group had the opportunity to defer compensation to the Supplemental Plan, and to receive a transition matching contribution for 5 years. Each one-dollar of eligible salaries and wages deferred by the Transition Group was matched with three, four, or five dollars by Artesian Water based on the employee's years of service subject to certain limitations under the federal tax rules. Plan expenses, which include Company contributions and administrative fees, for the years 2016, 2015 and 2014, were approximately $227,000, $243,000, and $244,000, respectively.

Postretirement Benefit Plan

Artesian Water has a Postretirement Benefit Plan, or the Benefit Plan, which provides medical and life insurance benefits to certain retired employees. Prior to the amendment of the Benefit Plan, substantially all employees could become eligible for these benefits if they reached retirement age while still working for Artesian Water. The amendment excludes any current employees from becoming eligible for these benefits upon retirement.

FASB ASC Topic 715 stipulates that Artesian Water accrue the expected cost of providing postretirement health care and life insurance benefits as employees render the services necessary to earn the benefits. Artesian Water recognizes an offsetting regulatory asset with respect to its post retirement liability. This asset is recorded based on the DEPSC order, which permits Artesian Water to continue recovery of postretirement health care and life insurance expense on a pay-as-you-go basis for the remaining eligible employees. Further, expense recovery as a percentage of rates is expected to remain generally constant over the initial years, and then decline until the obligation is liquidated. The amounts recognized in consolidated financial statements are determined based on an actuarial basis, which uses assumptions about inflation, mortality, medical trend rates and discount rates. A change in these assumptions could cause actual results to differ from those reported. Amounts charged to expense were $80,000, $113,000, and $121,000 for 2016, 2015 and 2014, respectively.

The Company uses December 31 as the measurement date to determine the postretirement benefit obligation. There were three remaining eligible retirees as of December 31, 2016.  The estimated post retirement liability recorded at December 31, 2016 and December 31, 2015 was $186,000 and $329,000 respectively. The Company anticipates contributing $37,000 towards postretirement benefits in 2017.  There was no other comprehensive income impact because a regulatory asset is recorded as provided by FASB ASC Topic 980.

NOTE 10

COMMITMENTS AND CONTINGENCIES

Leases

In October 1997, Artesian Water entered into a 33 year operating lease for a parcel of land with improvements located in South Bethany, a municipality in Sussex County, Delaware. The annual lease payments increase each year by the most recent increase in the Consumer Price Index for Urban Workers, CPI-U, as published by the U.S. Department of Labor, Bureau of Labor Statistics. At each eleventh year of the lease term, the annual lease payment shall be determined based on the fair market value of the parcel of land. Rental payments for 2016, 2015 and 2014 were $16,000, $16,000, and $15,900, respectively. Since the CPI-U in 2016 was less than the CPI-U in 2015, the future minimum rental payment as disclosed in the following table is calculated using CPI-U as of October 31, 2015 as well as any adjustments for appraisals conducted to determine the fair market value of the parcel of land.

During 2003, Artesian Resources entered into a 40 year easement agreement to acquire an easement to access, operate, maintain, repair, improve, replace and connect Artesian's water system to a well, including a parcel of land around the well. Easement payments for 2016, 2015 and 2014 were $36,000, $35,000 and $34,000, respectively.

50

Artesian Wastewater entered into a perpetual agreement for the use of approximately 460 acres of land in Sussex County, Delaware for wastewater disposal.  Beginning January 2007, Artesian Wastewater is required to pay a minimum of $40,000 per year for the use of this land.  Beginning January 2012, and on each anniversary thereof until January 2027, the fee shall be adjusted upwards by an adjustment factor of two percent.  Once disposal operations begin, the monthly fee will be contingent on the average number of gallons of wastewater disposed on the properties.  Payments for 2016, 2015 and 2014 were $44,000, $43,000 and $43,000, respectively.  The agreement can be terminated by giving 180 day notice prior to the termination date.

Future minimum annual rental payments related to non-cancellable operating leases for the years subsequent to 2016 are as follows:

In thousands
2017	$	76
2018		54
2019		56
2020		57
2021		58
2022 through 2043		1,394
	$	1,695

Interconnections

Artesian Water has one water service interconnection agreement with a neighboring utility, Chester Water Authority, which requires minimum annual purchases.  Rates charged under this agreement are subject to change.  Effective August 1, 1997, Artesian Water renegotiated the contract with the Chester Water Authority to, among other things, reduce the minimum purchase requirements from 1,459 million gallons to 1,095 million gallons annually, calculated as 3 million gallons per day times the number of calendar days in a year. The agreement is extended through the year 2021.

The minimum annual purchase commitments for all interconnection agreements for 2017 through 2021, calculated at the noticed rates, are as follows:

In thousands
2017		3,824
2018		3,824
2019		3,825
2020		3,834
2021		3,825
	$	19,132

Expenses for purchased water were $4.0 million for each of the years ended December 31, 2016, 2015 and 2014.

Other Commitments

In 2013, Artesian Water entered into a 3-year agreement with Worldwide Industries Corporation to clean and paint tanks in 2014, 2015 and 2016. Pursuant to the 3-year agreement, the expenditure committed in total for the years 2014 through 2016 is $804,000. In 2014, the 3-year agreement with Worldwide Industries Corporation was amended to include an additional $113,000 in expenditures related to cleaning and painting tanks. In March 2017, Artesian Water entered in a 3-year agreement with Worldwide Industries Corporation to clean and paint tanks in 2017, 2018 and 2019.  Pursuant to the 3-year agreement, the expenditure committed in total for the years 2017 through 2019 is $1.3 million. The tank painting expense for 2016, 2015 and 2014 was $528,000, $329,000, and $342,000.

51

Budgeted mandatory utility plant expenditures, due to planned governmental highway projects, which require the relocation of Artesian Water's water service mains, expected to be incurred in 2017 through 2019 are as follows:

In thousands
2017	$	4,735
2018		2,165
2019		1,130
	$	8,030

The exact timing and extent of these relocation projects is controlled primarily by the Delaware Department of Transportation.

Litigation

Artesian Resources and its subsidiaries are subject to legal proceedings in the ordinary course of business.  Any amounts from such legal proceedings that are probable and reasonably estimable are reflected in the financial statements.

NOTE 11

GEOGRAPHIC CONCENTRATION OF CUSTOMERS

Artesian Water, Artesian Water Maryland and Artesian Water Pennsylvania provide water utility service to customers within their established service territory in all three counties of Delaware and in portions of Maryland and Pennsylvania, pursuant to rates filed with and approved by the DEPSC, the MDPSC and the PAPUC. As of December 31, 2016, Artesian Water was serving approximately 82,700 customers, Artesian Water Maryland was serving approximately 2,300 customers and Artesian Water Pennsylvania was serving approximately 40 customers.

Artesian Wastewater began providing wastewater services to a community in Sussex County, Delaware in July 2005. Artesian Wastewater provides wastewater utility service to customers within their established service territory in Sussex County, Delaware pursuant to rates filed with and approved by the DEPSC. As of December 31, 2016, Artesian Wastewater was serving approximately 1,600 customers, all of which are located in Sussex County, Delaware.

NOTE 12

REGULATORY PROCEEDINGS

Our water and wastewater utilities generate operating revenue from customers based on rates that are established by state Public Service Commissions through a rate setting process that may include public hearings, evidentiary hearings and the submission of evidence and testimony in support of the requested level of rates by the Company.

We are subject to regulation by the following state regulatory commissions:

·The Delaware Public Service Commission, or DEPSC, regulates both Artesian Water and Artesian Wastewater.

·The Maryland Public Service Commission, or MDPSC, regulates both Artesian Water Maryland and Artesian Wastewater Maryland.

·The Pennsylvania Public Utility Commission, or PAPUC, regulates Artesian Water Pennsylvania.

Rate Proceedings

Our regulated utilities periodically seek rate increases to cover the cost of increased operating expenses, increased financing expenses due to additional investments in utility plant and other costs of doing business.  In Delaware, utilities are permitted by law to place rates into effect, under bond, on a temporary basis pending completion of a rate increase proceeding. The first temporary increase may be up to the lesser of $2.5 million on an annual basis or 15% of gross water sales.  Should the rate case not be completed within seven months, by law, the utility may put the entire requested rate relief, up to 15% of gross water sales, in effect under bond until a final resolution is ordered and placed into effect. If any such rates are found to be in excess of rates the DEPSC finds to be appropriate, the utility must refund customers the portion found to be in excess with interest.  The timing of our rate increase requests are therefore dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase.  We can provide no assurances that rate increase requests will be approved by applicable regulatory agencies and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase.

52

On August 18, 2015, the DEPSC made a preliminary ruling in response to Artesian Water's April 2014 application to implement new rates to meet a requested increase in revenue of 15.90%, or approximately $10.0 million, on an annualized basis. The preliminary ruling recommended a permanent rate increase in revenue of approximately $6.0 million, or 9.50%, on an annualized basis, which was an incremental increase for customers of approximately 6.20% above the Distribution System Improvement Charge, or DSIC, rate previously in effect. On October 6, 2015, a DEPSC order was issued concurring with the preliminary ruling issued on August 18, 2015. On January 19, 2016, a final DEPSC order was issued related to the permanent rate increase and concurred with the October 6, 2015 order. Because the permanent rate increase was less than amounts collected under previously approved temporary increases in rates, Artesian Water was required to refund a portion of the temporary rate increases to its customers. The refund, plus interest, at the average prime rate, for the overpayment from customers was applied to current and future customer bills in October 2015. Because the final rate award was at a level not less than the amount previously reported as income, there was no material impact upon previously reported water sales revenue. The new rates are designed to allow recovery of capital investments made by Artesian Water and to cover increased costs of operations, including water quality testing, chemicals and electricity for water treatment, taxes, labor and benefits.

Other Proceedings

Delaware law permits water utilities to put into effect, on a semi-annual basis, increases related to specific types of distribution system improvements through a Distribution System Improvement Charge, or DSIC. This charge may be implemented by water utilities between general rate increase applications that normally recognize changes in a water utility's overall financial position. The DSIC approval process is less costly when compared to the approval process for general rate increase requests. The DSIC rate applied between base rate filings is capped at 7.50% of the amount billed to customers under otherwise applicable rates and charges, and the DSIC rate increase applied cannot exceed 5.0% within any 12-month period.

The following table summarizes Artesian Water's applications with the DEPSC to collect DSIC rates and the eligible plant improvements the rates are based on:

Application Date

11/26/2014

05/28/2015

11/24/2015

05/31/2016

11/29/2016

Effective Date

01/01/2015

07/01/2015

01/01/2016

07/01/2016

01/01/2017

DEPSC Approval Date

12/16/2014

06/16/2015

12/15/2015

06/28/2016

12/20/2016

Cumulative DSIC Rate

0.34

%

1.15

%

1.57

%

2.30

%

4.71

%

Eligible Plant Improvements – Cumulative Dollars (in millions)

$

1.3

$

4.6

$

7.0

$

10.3

$

16.6

Eligible Plant Improvements – Installed Beginning Date

10/01/2014

10/01/2014

10/01/2014

10/01/2014

10/01/2014

Eligible Plant Improvements – Installed Ending Date

10/31/2014

04/30/2015

10/31/2015

04/30/2016

10/31/2016

All DEPSC approvals noted in the table above are subject to audit at a later date.  For the years ended December 31, 2016, December 31, 2015 and December 31, 2014, we earned approximately $1,306,000, $520,000 and $788,000 in DSIC revenue, respectively.

NOTE 13

NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE

Basic net income per share is based on the weighted average number of common shares outstanding. Diluted net income per share is based on the weighted average number of common shares outstanding, the potentially dilutive effect of employee stock options and restricted stock awards. The following table summarizes the shares used in computing basic and diluted net income per share:

	For the Year
	Ended December 31,
	2016		2015		2014
	(in thousands)
Weighted average common shares outstanding during the period for Basic computation		9,098		8,960		8,884
Dilutive effect of employee stock options		63		45		42
Weighted average common shares outstanding during the period for Diluted computation		9,161		9,005		8,926

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For the years ended December 31, 2016 and December 31, 2015, no shares of common stock were excluded from the calculations of diluted net income per share, respectively. For the year ended December 31, 2014, employee stock options to purchase 67,500 shares of common stock were excluded from the calculations of diluted net income per share, as the calculated proceeds from the options' exercise were greater than the average market price of the Company's common stock during this period.

The Company has 15,000,000 authorized shares of Class A Stock, and 1,040,000 shares of Class B Stock. As of December 31, 2016, 8,246,033 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. As of December 31, 2015, 8,176,213 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. As of December 31, 2014, 8,030,677 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. The par value for both classes is $1.00 per share.  For the years ended December 31, 2016, December 31, 2015, and December 31, 2014, the Company issued 69,820, 145,536, and 82,108 shares of Class A Stock, respectively.

Equity per common share was $15.28, $14.77, and $14.14 at December 31, 2016, December 31, 2015, and December 31, 2014, respectively.  These amounts were computed by dividing common stockholders' equity by the number of weighted average shares of common stock outstanding on December 31, 2016, December 31, 2015, and December 31, 2014, respectively.

NOTE 14

SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table is derived from quarterly unaudited consolidated statements of operations for the years ended December 31, 2016 and 2015.  Quarterly basic and diluted per share amounts do not add to the full year total due to rounding.

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
In thousands (except per share data)	2016		2015		2016		2015		2016		2015		2016		2015
Operating revenues	$	18,449	$	17,962	$	19,395	$	19,536	$	21,828	$	20,776	$	19,417	$	18,750
Operating income	$	3,853	$	3,672	$	4,669	$	4,985	$	5,945	$	5,394	$	4,352	$	3,531
Net income applicable to common stock	$	2,830	$	2,538	$	3,041	$	3,233	$	4,360	$	3,699	$	2,723	$	1,835
Income per common share
Basic	$	0.31	$	0.28	$	0.33	$	0.36	$	0.48	$	0.41	$	0.30	$	0.21
Diluted	$	0.31	$	0.28	$	0.33	$	0.36	$	0.48	$	0.41	$	0.30	$	0.21

NOTE 15

RELATED PARTY TRANSACTIONS

In July 2016, Artesian Water entered into a contract in the normal course of business with W.F. Construction, Inc., a related party, for $131,000 in work associated with building modifications to a water treatment plant.  In May 2015, Artesian Water entered into an approximately $48,000 agreement in the normal course of business with W.F. Construction, Inc. for structural improvements at a water treatment plant.  The owner of W.F. Construction, Inc. is the husband of Mrs. Jennifer Finch, Vice President and Assistant Treasurer of Artesian Resources. Approximately $137,000 was paid to W.F. Construction, Inc. during the year ended December 31, 2016.  Approximately $48,000 was paid to W.F. Construction, Inc. for the year ended December 31, 2015. As of December 31, 2016 and December 31, 2015, the Company had no accounts payable balance due to W. F. Construction, Inc., respectively. As set forth in the Charter of the Audit Committee of the Board of Directors of Artesian Resources, the Audit Committee is responsible for reviewing and, if appropriate, approving all related party transactions between us and any officer, director, any person known to be the beneficial owner of more than 5% of any class of the Company's voting securities or any other related person that would potentially require disclosure. In its review and approval of the 2016 related party transaction with W.F. Construction, Inc., the Audit Committee considered the nature of the related person's interest in the transaction; the satisfactory performance of work contracted with the related party prior to our employment of Mrs. Finch; and the material terms of the transaction, including, without limitation, the amount and type of transaction, the importance of the transaction to the related person, the importance of the transaction to the Company and whether the transaction would impair the judgment of a director or officer to act in the best interest of the Company. The Audit Committee approves only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders.

54

NOTE 16

LEGAL PROCEEDINGS

Periodically, we are involved in other proceedings or litigation arising in the ordinary course of business. We do not believe that the ultimate resolution of these matters will materially affect our business, financial position or results of operations. However, we cannot assure that we will prevail in any litigation and, regardless of the outcome, may incur significant litigation expense and may have significant diversion of management attention.

NOTE 17

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued amended guidance for reporting revenue from contracts with customers.  This guidance affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts).  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows arising from contracts with customers.  The majority of the Company's revenue should not be affected by this new standard.  Water and wastewater revenue is based on service provided to customers at rates subject to approval by regulatory commissions without a defined contract.  The Company continues to evaluate the impact of adoption of this new standard if contributions in aid of construction are determined to be in scope and thus considered to be revenue.

In February 2016, the FASB issued new guidance on Leases to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Management is currently evaluating the impact of our pending adoption of the new standard, which includes compiling a list of all contracts that meet the definitions of a lease under the new standard and determine the proper classification and accounting treatment to determine the ultimate impact the new standard will have on our consolidated financial statements.

In March 2016, FASB issued amended guidance on Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. Some of the areas apply only to nonpublic companies allowing simplification. For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Management does not expect a material impact on the Company's financial statements due to the adoption of this guidance.

In August 2016, FASB issued amended guidance to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The amendments provide guidance on the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.  For public companies, the amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  The amendments should be applied using a retrospective transition method to each period presented.

55

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Artesian Resources Corporation

Newark, Delaware

We have audited the accompanying consolidated balance sheets of Artesian Resources Corporation as of December 31, 2016 and 2015 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Artesian Resources Corporation at December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Artesian Resources Corporation's internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 10, 2017 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

Wilmington, Delaware

March 10, 2017

56

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in providing reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (2) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.  In addition, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective to achieve the foregoing objectives. A control system cannot provide absolute assurance, however, that the objectives of the control system are met and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b)  Management's Annual Report on Internal Control Over Financial Reporting

The Management of Artesian Resources Corporation is responsible for establishing and maintaining adequate internal control over its financial reporting.  Artesian Resources Corporation's internal control over financial reporting is a process designed under the supervision of the Corporation's chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

Artesian Resources Corporation's Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2016 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in "Internal Control Integrated Framework (2013)."  Based on this assessment, Management determined that at December 31, 2016, the Corporation's internal control over financial reporting was effective.

(c)  Attestation Report of the Registered Public Accounting Firm

The effectiveness of Artesian's internal control over financial reporting as of December 31, 2016 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

(d)  Change in Internal Control over Financial Reporting

No change in the Company's internal control over financial reporting, occurred during the fiscal quarter ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Date: March 10, 2017

CHIEF EXECUTIVE OFFICER:	CHIEF FINANCIAL OFFICER:
/s/ DIAN C. TAYLOR	/s/ DAVID B. SPACHT
Dian C. Taylor	David B. Spacht

ITEM 9B. OTHER INFORMATION

None.

57

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Artesian Resources Corporation

Newark, Delaware

We have audited Artesian Resources Corporation's internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Artesian Resources Corporation's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying, "Item 9A, Management's Report on Internal Control Over Financial Reporting". Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Artesian Resources Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Artesian Resources Corporation as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2016 and our report dated March 10, 2017 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

Wilmington, Delaware

March 10, 2017

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PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Name	Age	Position
Dian C. Taylor	71	Biography: Director since 1991 - Chair of the Board since July 1993, and Chief Executive Officer and President of Artesian Resources Corporation and its subsidiaries since September 1992. Ms. Taylor has been employed by the Company since August 1991. She was formerly a consultant to the Small Business Development Center at the University of Delaware from February 1991 to August 1991 and Owner and President of Achievement Resources Inc. from 1977 to 1991. Achievement Resources, Inc. specialized in strategic planning, marketing, entrepreneurial and human resources development consulting. Ms. Taylor was a marketing director for SMI, Inc. from 1982 to 1985. Ms. Taylor is the aunt of John R. Eisenbrey, Jr. and Nicholle R. Taylor. She serves on the Executive and Strategic Planning, Budget and Finance Committees. Qualifications:  Ms. Dian Taylor has over 25 years of experience as Chief Executive Officer and President of the Company, during which the Company has continuously expanded its service area. Ms. Taylor has extensive knowledge of the complex issues facing smaller companies and prior strategic planning expertise. Ms. Taylor has served as President of the National Association of Water Companies, a trade organization of the investor-owned water utility industry. Ms. Taylor also has served on the Delaware Economic and Financial Advisory Council, on the Board of Directors of the Delaware State Chamber of Commerce, the American Heart Association, the Committee of 100 and the Delaware Council on Economic Education, as a Regional Advisory Board Member for Citizens Bank, a Trustee of the Delaware Grand Opera and the Christiana Care Hospital and as a Commissioner for the Delaware River and Bay Authority. The Board views Ms. Taylor's experience with various aspects of the utility industry and her demonstrated leadership roles in business and community activities as important qualifications, skills and experiences for the Board of Directors' conclusion that Ms. Taylor should serve as a director of the Company.

Kenneth R. Biederman	73	Biography:  Director since 1991 – Currently retired and former Professor of Finance at the Lerner College of Business and Economics of the University of Delaware, from May 1996 to May 2011. Interim Dean of the College of Business and Economics of the University of Delaware from February 1999 to June 2000. Dean of the College of Business and Economics of the University of Delaware from 1990 to 1996. Former Director of the Mid-Atlantic Farm Credit Association from 2006 to 2010. Director of Chase Manhattan Bank USA from 1993 to 1996. Formerly a financial and banking consultant from 1989 to 1990 and President of Gibraltar Bank from 1987 to 1989. Previously Chief Executive Officer and Chairman of the Board of West Chester Savings Bank; Economist and former Treasurer of the State of New Jersey and Staff Economist for the United States Senate Budget Committee. He serves on the Executive; Audit; Strategic Planning, Budget and Finance; Governance and Nominating; and Compensation Committees. Qualifications:  Mr. Biederman's experience as a former State Treasurer of New Jersey and the former Dean of the College of Business and Economics at the University of Delaware gives him a substantial amount of business, economic and financial reporting knowledge. The Board of Directors has determined that Mr. Biederman's knowledge of economic principles and experience in treasury and financial reporting matters provide for valuable insight and input and serve as important qualifications and skills in his service as a director.
John R. Eisenbrey, Jr.	61	Biography:  Director since 1993 – Small Business Executive.  For more than 30 years, Owner and President of Bear Industries, Inc., a contracting firm providing building fire sprinkler protection installations for businesses throughout the Delmarva Peninsula. Mr. Eisenbrey is the nephew of Dian C. Taylor and the cousin of Nicholle R. Taylor. He serves on the Audit; Governance and Nominating; and Compensation Committees. Qualifications:  The Board of Directors has determined that Mr. Eisenbrey's hands-on experience as a business owner in one of our primary geographic regions qualifies him to be a member of the Board. For more than 30 years, Mr. Eisenbrey has been the Owner and President of a privately held contracting firm providing fire sprinkler protection installations for businesses throughout the Delmarva Peninsula. Mr. Eisenbrey is a past President of the Delaware Contractors Association. Mr. Eisenbrey's operating business background provides hands-on experience with operational, technical and regulatory matters also applicable to our water business.

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Nicholle R. Taylor	49	Biography:  Director since 2007 – Senior Vice President of Artesian Resources Corporation and its subsidiaries since May 9, 2012. She was Vice President of Artesian Resources Corporation and its subsidiaries since May 2004. Ms. Taylor has been employed by the Company since 1991 and has held various management level and operational positions within the Company. She serves on the Strategic Planning, Budget and Finance Committee. Ms. Taylor is the niece of Dian C. Taylor and the cousin of John R. Eisenbrey, Jr. Qualifications:  Ms. Nicholle Taylor has over twenty-five years of experience with the Company in a variety of field, office and managerial positions. The Board of Directors has determined that the range of her experience across various company functions gives her a clear perception of how the Company operates, thus enhancing the Board's ability to know the Company's current capabilities and limitations, and qualifies her to serve as a director. Ms. Taylor serves on the Board of Directors of the National Association of Water Companies, a trade organization of the investor-owned water utility industry. Ms. Taylor also currently serves on the Board of Directors of the Committee of 100, which is a business organization that promotes responsible economic development in the state of Delaware.
William C. Wyer	70	Biography:  Director since 1991 - Business Consultant with Wyer Group, Inc. since September 2005. Previously, Mr. Wyer served as Managing Director of Wilmington Renaissance Corporation (formerly Wilmington 2000) from January 1998 to August 2005. Wilmington Renaissance Corporation was a private organization seeking to revitalize the City of Wilmington, Delaware. Mr. Wyer served as a Director and member of the Audit Committee of GMAC Bank and its' successor National Motors Bank, FBS from August 2001 through 2008, President of All Nation Life Insurance, Senior Vice President of Blue Cross/Blue Shield of Delaware from September 1995 to January 1998, Managing Director of Wilmington 2000 from May 1993 to September 1995 and President of Wyer Group, Inc. from 1991 to 1993 and Commerce Enterprise Group from 1989 to 1991, both of which are management-consulting firms specializing in operations reviews designed to increase productivity, cut overhead and increase competitiveness, and President of the Delaware State Chamber of Commerce from 1978 to 1989. He serves on the Executive; Audit; Strategic Planning, Budget and Finance; Governance and Nominating; and Compensation Committees. Qualifications:  Mr. Wyer has extensive management experience with both local and national organizations that facilitates the Company's growth from a local to a regional provider of water and wastewater services. Mr. Wyer's extensive experience in economic development efforts and as President of the Delaware State Chamber of Commerce and his associated skills in public, media and governmental communications were determined by the Board of Directors to qualify him to serve as a director.
Joseph A. DiNunzio, CPA, CGMA	54	Executive Vice President and Corporate Secretary of Artesian Resources Corporation and its subsidiaries since May 2007. Mr. DiNunzio previously served as Senior Vice President and Corporate Secretary of Artesian Resources Corporation and its subsidiaries since March 2000 and as Vice President and Secretary of Artesian Resources Corporation and its subsidiaries since January 1995. Mr. DiNunzio has been employed by the Company since 1989 and has held various executive and management level positions within the Company. Prior to joining Artesian, Mr. DiNunzio was employed by PriceWaterhouseCoopers LLP from 1984 to 1989.

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Jennifer L. Finch, CPA	48	Vice President and Assistant Treasurer since February 2010. Ms. Finch previously served as Chief Accounting Director for the Company and its subsidiaries since August 2008. She currently serves as Chief Financial Officer of Artesian Consulting Engineers, Inc., one of the Company's eight wholly owned subsidiaries. Prior to joining the Company, Ms. Finch served as Chief Financial Officer of Handler Corporation, a home builder company located in Wilmington, Delaware. Ms. Finch was employed by the Handler Corporation from 1994 through 2008. During that time she held various accounting positions.
David B. Spacht	57	Chief Financial Officer and Treasurer of Artesian Resources Corporation and its subsidiaries since January 1995, except that he has not been Chief Financial Officer of the wholly owned subsidiary Artesian Consulting Engineers, Inc. since May 2009. The Company has employed Mr. Spacht since 1980 and he has held various executive and management level positions within the Company.
John M. Thaeder	59	Senior Vice President of Operations since May 2007. Mr. Thaeder previously served as Vice President of Operations since February 1998. He currently serves as an officer of Artesian Water Company, Inc., Artesian Wastewater Management, Inc., Artesian Water Maryland, Inc., Artesian Water Pennsylvania, Inc. and Artesian Utility Development, Inc. Prior to joining the Company, Mr. Thaeder was employed by Hydro Group, Inc. from 1996 to 1998 as Southeastern District Manager of Sales and Operations from Maryland to Florida. During 1995 and 1996, Mr. Thaeder was Hydro Group's Sales Manager of the Northeast Division with sales responsibilities from Maine to Florida.  From 1988 to 1995, he served as District Manager of the Layne Well and Pump Division of Hydro Group.
Pierre A. Anderson	38	Vice President of Information Technologies of Artesian Resources Corporation and its subsidiaries since May 2012. Mr. Anderson previously served as Director of Information Technologies since December 2006. Prior to joining the Company, Mr. Anderson was employed by the Christina School District as Manager, Project & Support Services.  From 2000-2005, while with MBNA (now Bank of America), he served in several information technology positions.

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Corporate Governance

The executive officers are elected or approved by our Board, or the Board of our appropriate subsidiary, to serve until his or her successor is appointed or shall have been qualified or until earlier death, resignation or removal.

In accordance with the provisions of the Company's By-laws, the Board is divided into three classes. Members of each class serve for three years and one class is elected each year to serve a term until his or her successor shall have been elected and qualified or until earlier resignation or removal. Dian C. Taylor and John R. Eisenbrey, Jr. have been nominated for election to the Board of Directors at the shareholders Annual Meeting to be held May 4, 2017.

The Board, which met ten times in 2016, has established five standing committees: the Executive Committee, the Audit Committee, the Compensation Committee, the Strategic Planning, Budget and Finance Committee, and the Governance and Nominating Committee. Information with respect to these committees is set forth below. In addition, the charter for each of the five standing committees of the Board is available on our website, www.artesianwater.com.

Dian C. Taylor, the Company's Chief Executive Officer, also serves as Chair of the Board. The Board, after considering the size of the Company and the composition of the Board (five members, three of which are independent), has determined that the combined structure is appropriate. The Board has determined that having one person serving as Chair of the Board and Chief Executive Officer ensures a unified leadership of the Board and management and provides potential efficiency in the execution of the strategies and visions of the Board and management. The Board believes that Ms. Taylor's experience and operational knowledge of the business enables her to effectively perform both roles. Given the limited number of Board members and the practice of open communication with the entire Board, the Company does not have a lead independent director. The Board meets as often as needed and at least twice a year in executive session without any management or non-independent directors present. The Board believes this is an appropriate structure for the Company which provides the appropriate independent oversight. In addition, the Audit Committee and the Compensation Committee regularly consult with the Company's General Counsel to review the various types of risk that affect the Company and to consult on strategies to anticipate such risks. The Board believes this structure has been effective. The Board meets with management on a regular basis to review operational reports, financial updates, strategic development and other matters. Monthly meetings help to promote and ensure open communication with the management team. All Board members are engaged and remain actively involved in their oversight roles. The Board is responsible for oversight of the Company's risk management process. The senior management team is responsible for identifying risks, managing risks and reporting and communicating risks back to the Board.

Director Compensation

In May 2016, each independent director received an annual retainer fee of $27,000 paid in advance. Dian C. Taylor and Nicholle R. Taylor received annual retainer fees of $26,000. The chair of the Audit Committee received an additional annual retainer of $8,000.  The chair of the Corporate Governance and Nominating Committee received an additional annual retainer of $8,000. The chair of the Compensation Committee received an additional annual retainer of $6,000. The members of the Strategic Planning, Budget and Finance Committee each received additional annual retainers of $2,500.  The members of the Executive Committee each received additional annual retainers of $1,000. Each director received $2,000 for each Board meeting attended, $1,500 for each committee meeting attended on the day of a regular board meeting and $2,000 for each committee meeting attended on any other day.  Each director received $500 per diem for workshops.

In 2016, our directors, other than Dian C. Taylor and Nicholle R. Taylor, whose fees as director are included in the Summary Compensation Table, received the following compensation:

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Director Compensation Table – 2016

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)(1)	All other Compensation ($)(2)	Total ($)
Kenneth R. Biederman	79,000	27,700	---	106,700
John R. Eisenbrey, Jr.	78,000	27,700	---	105,700
William C. Wyer	77,000	27,700	18,819	123,519

(1) On May 4, 2016, each Director received a restricted Stock Award of 1,000 shares of Class A Stock. The fair market value per share was $27.70, the closing price of the Class A common stock as recorded on the Nasdaq Global Market on May 4, 2016.  The restricted shares vest one year from the date of grant.  The aggregate number of stock options and restricted shares outstanding at December 31, 2016 for each Director is:

	Option Shares Outstanding at December 31, 2016	Restricted Shares Outstanding at December 31, 2016
Kenneth R. Biederman	47,250	1,000
John R. Eisenbrey, Jr.	40,500	1,000
William C. Wyer	42,755	1,000

(2) $17,039 was for medical insurance premiums for Mr. Wyer and his spouse, $1,750 was for a physical for Mr. Wyer and $30 was for life insurance premiums for Mr. Wyer.

Compensation Committee Interlocks and Insider Participation

During the year ended December 31, 2016, the members of our Compensation Committee were Kenneth R. Biederman, John R. Eisenbrey, Jr. and William C. Wyer. None of our executive officers serves as a director or as a member of the compensation committee, or any other committee serving an equivalent function, of any entity that has one or more of its executive officers serving as members of our Compensation Committee or as a director of our Board.  No member of our Compensation Committee has ever been our employee. Our independent directors are Kenneth R. Biederman, John R. Eisenbrey, Jr. and William C. Wyer.

Independence

In 2016, the Board of Directors determined that Messrs. Biederman, Eisenbrey and Wyer, a majority of the Board of Directors, met the independence requirements prescribed by the listing standards of the NASDAQ Global Select Market. 

Audit Committee

The Audit Committee reviews the procedures and policies relating to the internal accounting procedures and controls of the Company, and provides general oversight with respect to the accounting principles employed in the Company's financial reporting. As part of its activities, the Audit Committee meets with representatives of the Company's management and independent accountants. The Audit Committee has considered the extent and scope of non-audit services provided to the Company by its outside accountants and has determined that such services are compatible with maintaining the independence of the outside accountants. The Audit Committee appoints and retains the Company's independent accountants. The Audit Committee consists of Kenneth R. Biederman, John R. Eisenbrey, Jr. and William C. Wyer. The Board of Directors has also determined that each member of the Audit Committee meets the independence requirements prescribed by the listing standards of the NASDAQ Global Select Market and the rules and regulations of the Securities and Exchange Commission. The Board of Directors has further determined that Mr. Biederman, a member of the Audit Committee, is an "audit committee financial expert" as such term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated by the SEC. During 2016, the Audit Committee met seven times.

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Compensation Committee

The Compensation Committee reviews the compensation and benefits provided to key management employees, officers and directors and makes recommendations as appropriate to the Board. The Committee also determines whether and what amounts should be granted under the 2015 Equity Compensation Plan and may make recommendations for amendments to the Plan. The Compensation Committee is comprised of Kenneth R. Biederman, John R. Eisenbrey, Jr. and William C. Wyer, three independent directors. The Board of Directors has also determined that each member of the Compensation Committee meets the independence requirements prescribed by the listing standards of the NASDAQ Global Select Market and the rules and regulations of the Securities and Exchange Commission. During 2016, the Compensation Committee met two times.

Consideration of Director Candidates

The Governance and Nominating Committee is comprised of three independent directors, Kenneth R. Biederman, John R. Eisenbrey, Jr. and William C. Wyer. As part of the formalized nominating procedures, the committee makes recommendations for Director nominations to the full Board. Director candidates nominated by stockholders are considered in the same manner, provided the nominations are submitted to the Secretary and copied to the Chairman of the committee on a timely basis and in accordance with the Company's By-laws. Nominations for the election of directors for the 2017 Annual Stockholders' Meeting were approved by the Governance and Nominating Committee on January 11, 2017.

The Governance and Nominating Committee has determined that no one single criterion should be given more weight than any other criteria when it considers the qualifications of a potential nominee to the Board. Instead, it believes that it should consider the total "skills set" of an individual. In evaluating an individual's skills set, the Corporate Governance and Nominating Committee considers a variety of factors, including, but not limited to, the potential nominee's background and education, his or her general business experience, and whether or not he or she has any experience in positions with a high degree of responsibility. In addition, although the Corporate Governance and Nominating Committee does not have a policy with regard to the consideration of diversity in identifying director nominees, its charter includes in the Corporate Governance and Nominating Committee's duties and responsibilities that it seek members from diverse backgrounds so that the Board consists of members with a broad spectrum of experience and expertise.

Code of Ethics

The Company has adopted a code of ethics applicable to its chief executive officer, chief financial officer, controller or principal accounting officer, and any person who performs a similar function, which is a "code of ethics" as defined by applicable rules of the Securities and Exchange Commission. This code is publicly available on the Company's website at www.artesianresources.com. If the Company makes any amendments to this code other than technical, administrative, or other non-substantive amendments, or grants any waivers, including implicit waivers, from a provision of this code to the Company's chief executive officer, chief financial officer, controller or principal accounting officer, and any person who performs a similar function, the Company will disclose the nature of the amendment or waiver, its effective date and to whom it applies on its website. The information on the website listed above is not and should not be considered part of this Annual Report on Form 10-K and is intended to be an inactive textual reference only.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under Section 16(a) of the Securities Exchange Act of 1934, as amended, directors, officers and certain beneficial owners of the Company's equity securities are required to file reports of their transactions in the Company's equity securities with the Securities and Exchange Commission on specified due dates. With respect to the fiscal year 2016, reports of transactions by all directors, officers and such beneficial holders were timely filed, with the exception of Form 4's filed for Kenneth R. Biederman, John R. Eisenbrey, Jr., Dian C. Taylor, Nicholle R. Taylor and William C. Wyer reporting the grant for each of 1,000 restricted stock awards of Class A Non-Voting Common Stock on May 4, 2016. In making this statement, the Company has relied on the written representations of its directors, officers and holders of more than ten percent (10%) of either class of our outstanding common stock and copies of the reports that they filed with the Securities and Exchange Commission.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

This discussion describes the Company's compensation program for its named executive officers listed in the Summary Compensation Table that immediately follows this discussion.  The named executive officers are: Dian C. Taylor, Chair, President & Chief Executive Officer; David B. Spacht, Chief Financial Officer & Treasurer; Joseph A. DiNunzio, Executive Vice President & Secretary; Nicholle R. Taylor, Senior Vice President and John M. Thaeder, Senior Vice President.

Objectives of the Company's Compensation Program

The Compensation Committee believes that the compensation for the Company's executives should serve to attract, motivate and retain seasoned and talented executives responsible for successfully guiding and implementing the Company's strategy.  Our strategy is to increase our customer base, revenues, earnings and dividends by expanding our services across the Delmarva Peninsula, thereby providing our shareholders with a long-term, satisfactory return on their investment.

To implement our strategy, it is critical that our executives remain focused on:

· ensuring superior customer service;

· continuously improving our efficiency and performance;

· managing risk appropriately;

· expanding our franchised service territory and customer base at a consistent and sustainable rate - including by acquisitions - where growth is strong and demand is increasing;

· identifying and developing dependable sources of supply;

· constructing and maintaining reliable treatment facilities and water delivery and wastewater collection systems;

· developing and continuing positive relationships with regulators, municipalities, developers and customers in both existing and prospective service areas; and

· developing a skilled and motivated work force that is adaptive to change.

To accomplish our strategy, our compensation program's objectives are to:

· provide compensation levels that are competitive with those provided by other companies with which we may compete for executive talent;

· motivate and reward contributions and performance aligned with the Company's objectives;

· attract and retain qualified, seasoned executives; and

· ensure the Company maintains a pay-for-performance executive compensation program.

The compensation program rewards overall qualitative contributions and performance of each individual towards the Company's strategy.  In reviewing the Company's overall compensation program in the context of the risks identified in the Company's risk management processes, the Compensation Committee does not believe that the risks the Company faces are correlated with the Company's compensation programs. Therefore, the Compensation Committee believes that there is an appropriate level of risk in the Company's compensation program design and does not believe that its approach to the design and administration of its incentive programs needs to change in order to mitigate compensation risk.

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Elements of the Company's Compensation Program

The elements of the Company's compensation program include:

· Base Salary

· Cash Bonus Award

· Equity Compensation as may be awarded under the 2015 Equity Compensation Plan

· Employee Benefits

The Company's executive compensation program does not provide for:

· Severance or post-termination agreements

· Post-retirement benefits

· Defined benefit pension benefits or any supplemental executive retirement plan benefits

· Non-qualified deferred compensation

· Change-in-Control agreements

Compensation Process

The Compensation Committee relies on various factors, including an executive officer's individual performance and contributions to the Company's strategic objectives, recommendations of the Company's Chief Executive Officer and internal pay equity in determining executive compensation.  The Compensation Committee generally exercises broad discretion in setting the compensation of the Chief Executive Officer and other executives and primarily considers the performance of the management team as a group, the Chief Executive Officer's assessment of other executive's performance and the Chief Executive Officer's compensation recommendations with respect to the other executive officers as part of its process.

The Compensation Committee engaged Pearl Meyer & Partners as a compensation consultant in 2013 to provide it with independent advice on executive compensation matters.  In connection with the engagement, Pearl Meyer & Partners conducted a competitive compensation analysis.  They conducted an internal analysis and an external marketplace review.  They did not develop a public company peer group as part of their compensation benchmarking exercise, as they found few similarly-sized, publicly traded water utilities.  They used data available from the peer group of water utility companies identified in Part II, Item 5 of the Company's 2012 Form 10-K to review incentive plan market practices and to establish industry practices, but did not use the pay data from these organizations given that the size of many are substantially larger than the Company.  This peer group was determined by the Company and is used to compare the percentage change in cumulative shareholder returns.  The peer group includes: American States Water Company; American Water Works Company, Inc.; Aqua America, Inc.; California Water Service Group; Connecticut Water Service, Inc.; Middlesex Water Company; SJW Corporation and The York Water Company.

Pearl Meyer & Partners met with the Compensation Committee several times during the course of their analysis and obtained Company data as needed from the Director of Human Resources.  They provided the Compensation Committee with a report of their findings, conclusions and recommendations.  The Compensation Committee considered this information when it determined executive compensation in 2014, 2015 and 2016. 

The Compensation Committee evaluated the independence of Pearl Meyer & Partners and did not identify any conflict of interest.  This evaluation took into consideration the factors set forth in Exchange Act Rule 10C-1 and the NASDAQ listing standards.  During 2013, Pearl Meyer & Partners also was engaged by the Company to conduct a compensation survey for non-executive employees.  Pearl Meyer & Partners has also provided and presented to the Compensation Committee a summary review of long-term incentives that could be incorporated in executive compensation.  No other services have been provided to the Company by Pearl Meyer & Partners.  Prior to the engagement of Pearl Meyer & Partners, the Company last retained a compensation consultant, Astron Solutions, in 2008.

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Base Salary

Base salaries for Company executives are set at levels considered appropriate to attract and retain seasoned and talented personnel.  In September 2016, the Compensation Committee increased the base salary of each of the named executive officers by 3%.  The Compensation Committee determines actual base salaries for each executive other than the Chief Executive Officer based upon:

· recommendations provided by the Chief Executive Officer;

· internal equity with other executives and Company personnel;

· individual executive performance; and

· individual contributions to the Company's strategic objectives.

The Compensation Committee considers the same factors in determining the base salary of the Chief Executive Officer, without any recommendation by the Chief Executive Officer.  The Chief Executive Officer was not present during deliberations on her compensation.

Cash Bonus and Equity Compensation Awards

Annually, the Compensation Committee determines whether any Cash Bonus and/or Equity Compensation Award should be granted to any of the executives.  The Cash Bonus and Equity Compensation Awards are intended to reward executives for their contributions towards meeting the Company's strategic objectives.  Cash Bonus and Equity Compensation Awards are entirely discretionary and are based upon a qualitative assessment conducted by the Compensation Committee in the case of the Chief Executive Officer and by the Compensation Committee and the Chief Executive Officer in the case of other executives.  Recognizing both the executive team's and each individual named executive officer's contributions toward meeting the Company's strategic objectives, cash bonuses were awarded to the Chief Executive Officer and named executive officers in September 2016, September 2015 and May 2014. 

Equity compensation may be awarded by the Board under the Company's 2015 Equity Compensation Plan, or the Plan, which provides for the grants of stock options, stock units, stock awards, dividend equivalents and other stock-based awards.  The Plan is meant to encourage recipients of such grants to contribute materially to the growth of the Company, for the benefit of the Company's shareholders, and to align the economic interests of the recipients with those of shareholders. No such grants were made in the past three years.

Other Compensation

Both Dian C. Taylor and Nicholle R. Taylor received compensation for their services as Directors, which compensation was equivalent to that provided to all other directors for Board and Committee meeting fees and less for retainers.  See "Director Compensation."

Company's named executive officers are eligible to participate in the same employee benefit plans and on the same basis as other Company employees, with the exception that executive officers are reimbursed for eligible medical expenses not otherwise covered by the Company's medical insurance plan under the Officer's Medical Reimbursement Plan.  Amounts reimbursed are included in the "All Other Compensation" column in the Summary Compensation Table that follows this discussion.

The Role of Management in the Executive Compensation Process

Our Director of Human Resources typically assists the Compensation Committee by preparing and providing information showing:

· current executive compensation levels;

· executive compensation recommendations made by the Chief Executive Officer;

· salary grade minimum, midpoint and maximums for each executive as provided by the Company's compensation consultant retained in 2013;

· actual base salary, cash bonus and equity compensation for each of the prior three years for each executive;

Our Chief Executive Officer meets with the Compensation Committee and provides input regarding the contributions of each executive towards the Company's strategic objectives and each executive's overall performance that formed the basis for her recommendations to the Compensation Committee.  The final decisions regarding compensation for each executive are made by the Compensation Committee.

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Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on the review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company's Annual Report on Form 10-K.

The Compensation Committee,

William C. Wyer, Chairman

Kenneth R. Biederman

John R. Eisenbrey, Jr.

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The following table sets forth a summary of the compensation earned by our named executive officers, the Chief Executive Officer, Chief Financial Officer and the next three highest paid executive officers for the fiscal year 2016.

Summary Compensation Table for 2016:

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)(1)	Option Awards ($)(1)	All Other Compensation ($)(2),(3),(4)	Total ($)
Dian C. Taylor, Chair, Chief Executive	2016	479,394	152,500	27,700	N/A	142,229	801,823
Officer & President	2015	460,736	175,000	27,380	N/A	178,353	841,469
	2014	423,370	151,000	N/A	26,631	157,889	758,890
David B. Spacht, Chief Financial	2016	292,675	70,850	N/A	N/A	24,774	388,299
Officer & Treasurer	2015	276,037	83,650	N/A	N/A	32,747	392,434
	2014	253,062	52,125	N/A	N/A	29,711	334,898
Joseph A. DiNunzio, Executive Vice	2016	322,958	70,000	N/A	N/A	29,922	422,880
President & Secretary	2015	316,356	100,000	N/A	N/A	34,556	450,912
	2014	293,258	83,500	N/A	N/A	31,178	407,936
Nicholle R. Taylor, Senior Vice	2016	252,299	72,500	27,700	N/A	80,859	433,358
President	2015	235,321	65,000	27,380	N/A	73,119	400,820
	2014	214,575	61,000	N/A	26,631	70,819	373,025
John M. Thaeder, Senior Vice	2016	286,163	70,000	N/A	N/A	18,495	374,658
President of Operations	2015	288,417	65,450	N/A	N/A	19,776	373,643
	2014	272,516	66,300	N/A	N/A	15,082	353,898

(1) On May 4, 2016, Dian Taylor and Nicholle Taylor each received a restricted stock award of 1,000 shares of Class A common stock.  The award was valued at the fair market value on the date of the award (last reported sale price on the date of award) or $27.70 per share. The restricted shares vest one year from the date of grant.  On December 18, 2015, each received an unrestricted Stock Award of 1,000 shares of Class A Stock. The award was valued at the fair market value on the date of the award or $27.38 per share. On May 7, 2014 Dian Taylor and Nicholle Taylor received option grants of 6,750 shares of Class A Stock at exercise prices equal to fair market value on the date of grant, exercisable one year from the date of grant and with a term of ten years. The fair value, computed in accordance with ASC 718, based upon the assumptions made in the valuation as described in Note 1 of the 2016 Financial Statements, is reflected in the "Option Awards" column in the table above.

(2) Under the Company's defined contribution 401(k) Plan, the Company contributes two percent of an eligible employee's gross earnings. The Company also matches fifty percent of the first six percent of the employee's gross earnings that the employee contributes to the 401(k) Plan. In addition, all employees hired before April 26, 1994 and under the age of sixty at that date are eligible for additional contributions to the 401(k) Plan. Employees over the age of sixty at that date receive Company paid medical, dental and life insurance benefits upon retirement. The Company will not provide such benefits to any other current or future employees. In 2016, Company contributions to the 401(k) Plan under terms available to all other employees based upon their years of service and plan eligibility were made in the amounts of:

Dian C. Taylor	$	29,150
David B. Spacht	$	21,758
Joseph A. DiNunzio	$	29,150
Nicholle R. Taylor	$	27,753
John M. Thaeder	$	13,250

(3) Executive officers are reimbursed for eligible medical expenses not otherwise covered by the Company's medical insurance plan under the Officer's Medical Reimbursement Plan. Amounts reimbursed are included in the "All Other Compensation" column in the table above. Dian C. Taylor received reimbursements of $33,928 in 2016.

(4) Also included in the "All Other Compensation" column in the table above are amounts received by Dian C. Taylor as compensation for attendance at meetings of the Board and its committees in 2016 totaling $52,000, security provided at her personal residence, country club dues and personal use of a company-owned vehicle. Also included in the "All Other Compensation" column in the table above are amounts received by Nicholle R. Taylor as compensation for attendance at meetings of the Board and its committees in 2016 totaling $51,000.

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Grants of Plan-Based Awards Table – 2016

Name	Grant Date	Vest Date	All Other Stock Awards: Number of Shares of Stock or Units (#)	All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/share)	Grant Date Fair Value of Stock & Option Awards ($)
Dian C. Taylor	5/04/2016	5/04/2017	1,000	-	-	27,700
Nicholle R. Taylor	5/04/2016	5/04/2017	1,000	-	-	27,700

On May 4, 2016, Dian Taylor and Nicholle Taylor each received a Restricted Stock Award of 1,000 shares of Class A Stock, as noted in the table above. The awards were valued at the fair market value on the date of the award (last reported sale price on the date of award) or $27.70 per share. The restricted shares vest one year from the date of grant.

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Outstanding Equity Awards at Fiscal Year-End Table – 2016

	Option Awards
Name	Number of Securities Underlying Unexercised Options(#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price($)		Option Expiration Date
Dian C. Taylor		6,750		0		19.56	5/16/2017
		6,750		0		18.43	5/14/2018
		6,750		0		15.26	5/19/2019
		6,750		0		18.61	5/18/2020
		6,750		0		19.06	5/17/2021
		6,750		0		19.01	5/09/2022
		6,750		0		22.66	5/08/2023
		6,750		0		21.86	5/07/2024
Nicholle R. Taylor		6,750		0		18.43	5/14/2018
		6,750		0		15.26	5/19/2019
		6,750		0		18.61	5/18/2020
		6,750		0		19.06	5/17/2021
		6,750		0		19.01	5/09/2022
		6,750		0		22.66	5/08/2023
		6,750		0		21.86	5/07/2024

Option Exercises and Stock Vested Table – 2016

	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)	Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)
Dian C. Taylor	6,750	30,422	-	-

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ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the beneficial ownership of the equity securities of the Company, as of March 6, 2017 for each director, each named executive officer, each beneficial owner of more than five percent (5%) of the outstanding shares of any class of the Company's voting securities and all directors and executive officers as a group, based in each case on information furnished to the Company. Addresses are provided for each beneficial owner of more than five percent (5%) of the Company's voting securities.

	Class A Non-Voting Common Stock(1)		Class B Common Stock(1)
	Shares	Percent(2)	Shares	Percent(2)
Dian C. Taylor (3) 664 Churchmans Road Newark, Delaware 19702	173,251	2.1	159,509	18.1
Kenneth R. Biederman (3)(4)	68,125	*	---	---
John R. Eisenbrey, Jr. (3)(5)(6) 15 Albe Drive Newark, Delaware 19702	88,251	1.1	45,707	5.2
Nicholle R. Taylor (3)(7) 20 Brendle Lane Wilmington, Delaware 19807	51,841	*	279,963	31.8
William C. Wyer (3)	58,255	*	---	---
Joseph A. DiNunzio	14,961	*	203	*
David B. Spacht	503	*	189	*
John M. Thaeder	32,486	*	1,350	*
Louisa Taylor Welcher 219 Laurel Avenue Newark, DE  19711	75,133	*	135,862	15.4
Directors and Executive Officers as a Group (10 Individuals)(3)	491,064	5.8	486,921	55.2
* less than 1%

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(1) The nature of ownership consists of sole voting and investment power unless otherwise indicated.  The amount also includes all shares issuable to such person or group upon the exercise of options or vesting of restricted shares held by such person or group to the extent such options are exercisable or restricted shares vest within 60 days after March 6, 2017.

(2) The percentage of the total number of shares of the class outstanding is shown where that percentage is one percent or greater.  Percentages for each person are based on the aggregate number of shares of the applicable class outstanding as of March 6, 2017, and all shares issuable to such person upon the exercise of options or vesting of restricted shares held by such person to the extent such options are exercisable or restricted shares vest within 60 days of that date.

(3) Includes vesting of restricted shares and options to purchase shares of the Company's Class A Stock, as follows: Ms. D. Taylor (55,000 shares); Mr. Biederman (48,250 shares); Mr. Eisenbrey, Jr. (41,500 shares); Ms. N. Taylor (48,250 shares); Mr. Wyer (43,755 shares).

(4) 16,875 shares were pledged as collateral for Mr. Biederman's margin account.

(5) 89,123 shares were pledged by Mr. Eisenbrey, Jr. as collateral for a loan.

(6) Includes 780 shares of the Class B Stock owned by a trust, of which Mr. Eisenbrey, Jr. is a trustee and has a beneficial ownership interest, and 1,555 shares of the Class B Stock held in custodial accounts for Mr. Eisenbrey, Jr.'s daughters.

(7) Includes 23 shares of the Class A Stock and 45 shares of the Class B stock held in custodial accounts for Ms. N. Taylor's daughter.

Securities Authorized for Issuance under Equity Compensation Plans

Information relating to securities authorized for issuance under equity compensation plans is included under the caption "Equity Compensation Plan Information" in Item 5 of this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

We have three directors who are considered independent under the NASDAQ listing standards:  Kenneth R. Biederman, William C. Wyer, and John R. Eisenbrey, Jr.

Review and Approval of Transactions with Related Persons

As set forth in the Company's Audit Committee Charter, the Audit Committee is responsible for reviewing and, if appropriate, approving all related-party transactions between us and any officer, director, any person known to be the beneficial owner of more than 5% of any class of the Company's voting securities or any other related person that would potentially require disclosure. We expect that any transactions in which related persons have a direct or indirect interest will be presented to the Audit Committee for review and approval.  While neither the Audit Committee nor the Board have adopted a written policy regarding related-party transactions, the Audit Committee considers such information as it deems important to determine whether the transaction is on reasonable and competitive terms and is fair to the Company.  In addition, the Audit Committee makes inquiries to our management and our auditors when reviewing such transactions.

Related person transactions include any transaction in which (1) the Company is a participant, (2) any related person has a direct or indirect material interest and (3) the amount involved exceeds $120,000, but excludes certain type of transactions where the related person is deemed not to have a material interest.  A related person means: (a) any person who is, or at any time since the beginning of the Company's last fiscal year was, a director, an executive officer or a director nominee; (b) any person known to be the beneficial owner of more than 5% of any class of the Company's voting securities; (c) any immediate family member of a person identified in items (a) or (b) above, meaning such person's spouse, parent, stepparent, child, stepchild, sibling, mother- or father-in-law, son- or daughter-in-law, brother- or sister-in-law or any other individual (other than a tenant or employee) who shares the person's household; or (d) any entity that employs any person identified in (a), (b) or (c) or in which any person identified in (a), (b) or (c) directly or indirectly owns or otherwise has a material interest.

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In its review and approval or ratification of related person transactions (including its determination as to whether the related person has a material interest in a transaction), the Audit Committee will consider, among other factors:

Ø              the nature of the related person's interest in the transaction;

Ø              the material terms of the transaction, including, without limitation, the amount and type of transaction;

Ø              the importance of the transaction to the related person;

Ø              the importance of the transaction to the Company;

Ø              whether the transaction would impair the judgment of a director or executive officer to act in the best interest of the Company; and

Ø              any other matters the Audit Committee deems important or appropriate.

The Audit Committee intends to approve only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders.

Related Party Transactions

In July 2016, Artesian Water entered into a contract in the normal course of business with W.F. Construction, Inc., a related party, for $131,000 in work associated with building modifications to a water treatment plant.  In May 2015, Artesian Water entered into an approximately $48,000 agreement in the normal course of business with W.F. Construction, Inc. for structural improvements at a water treatment plant.  The owner of W.F. Construction, Inc. is the husband of Mrs. Jennifer Finch, Vice President and Assistant Treasurer of Artesian Resources. Approximately $137,000 was paid to W.F. Construction, Inc. during the year ended December 31, 2016.  Approximately $48,000 was paid to W.F. Construction, Inc. for the year ended December 31, 2015. As of December 31, 2016 and December 31, 2015, the Company had no accounts payable balance due to W. F. Construction, Inc., respectively. As set forth in the Charter of the Audit Committee of the Board of Directors of Artesian Resources, the Audit Committee is responsible for reviewing and, if appropriate, approving all related party transactions between us and any officer, director, any person known to be the beneficial owner of more than 5% of any class of the Company's voting securities or any other related person that would potentially require disclosure. In its review and approval of the 2016 related party transaction with W.F. Construction, Inc., the Audit Committee considered the nature of the related person's interest in the transaction; the satisfactory performance of work contracted with the related party prior to our employment of Mrs. Finch; and the material terms of the transaction, including, without limitation, the amount and type of transaction, the importance of the transaction to the related person, the importance of the transaction to the Company and whether the transaction would impair the judgment of a director or officer to act in the best interest of the Company. The Audit Committee approves only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees Billed by Independent Registered Public Accounting Firm

The following table sets forth the aggregate fees billed to the Company for the fiscal year 2016 and 2015 by the independent registered public accounting firm, BDO USA, LLP. Certain amounts for current year fees are estimated and adjusted to reflect actuals once received, prior year fees have been updated to reflect actuals. 

(In thousands)	2016		2015
Audit Fees	$	400	$	396
Audit-Related Fees		12		12
Tax Fees		---		---
All Other Fees		--		---
Total Fees	$	412	$	408

Audit Fees: consist primarily of fees for the audits of our financial statements included in our Annual Report on Form 10-K; the reviews of the financial statements included in our Quarterly Reports on Form 10-Q; and the audits of internal control over financial reporting, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and fees billed for assurance, services related to registration statements and other documents issued in connection with securities and related services that are reasonably related to the performance of the audit or review of the registrant's consolidated financial statements.

Audit-Related Fees: consist of fees for services related to the audit of the Company's 401(k) Plan. The fees billed to the Company for the 401(k) Plan's audit were $12,000 and $12,000 for 2016 and 2015 respectively.

Tax Fees: consist of fees for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance, return preparation and tax audits.  The independent registered public accounting firm did not provide any tax services to the Company in 2016 and 2015.

All Other Fees: consist of fees for services other than described above. The independent registered public accounting firm did not provide any other services to the Company in 2016 and 2015.

Pursuant to policy, the Audit Committee pre-approves audit and tax services for the year as well as non-audit services to be provided by the independent registered public accounting firm. Any changes in the amounts quoted are also subject to pre-approval by the committee. Any audit related fees and tax fees paid are pre-approved by the committee.

The Audit Committee of the Company's Board of Directors has considered whether BDO's provision of the services described above for the fiscal year ended December 31, 2016, is compatible with maintaining its independence.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

	The following documents are filed as part of this report:	Page(s)*
(1)	Financial Statements:
	Reports of Independent Registered Public Accountants	56
	Consolidated Balance Sheets at December 31, 2016 and 2015	33
	Consolidated Statements of Operations for the three years ended December 31, 2016	34
	Consolidated Statements of Cash Flows for the three years ended December 31, 2016	35
	Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 2016	36
	Notes to Consolidated Financial Statements	37-55
(2)	Exhibits:  see the exhibit list below	76-78
	* Page number shown refers to page number in this Report on Form 10-K

ITEM 16. FORM 10-K SUMMARY

Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16.  The Company has elected not to include such summary information in this Annual Report.

75

ARTESIAN RESOURCES CORPORATION

FORM 10-K ANNUAL REPORT

YEAR ENDED DECEMBER 31, 2016

	EXHIBIT LIST
Exhibit Number	Description
3.1	Restated Certificate of Incorporation of the Company effective April 28, 2004 incorporated by reference to Exhibit 3.1 filed with the Company's Form 10-Q for the quarterly period ended March 31, 2004.
3.2	By-laws of the Company effective March 26, 2004 incorporated by reference to Exhibit 3.3 filed with the Company's Form 10-Q for the quarterly period ended March 31, 2004.
4.1	Twenty-Second Supplemental Indenture dated as of January 18, 2017, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee.  Incorporated by reference to Exhibit 4.1 filed with the Company's Form 8-K filed on January 20, 2017.
4.2	Twentieth Supplemental Indenture dated as of December 1, 2008, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee.  Incorporated by reference to Exhibit 4.1 filed with the Company's Form 8-K filed on December 4, 2008.
4.3	Eighteenth Supplemental Indenture dated as of August 1, 2005, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee.  Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
4.4	Seventeenth supplemental Indenture dated as of December 1, 2003 between Artesian Water Company, Inc., subsidiary of the Company, and the Wilmington Trust Company, as Trustee.  Incorporated by reference to Exhibit 4.1 filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2003.
4.5	Sixteenth supplemental Indenture dated as of January 31, 2003 between Artesian Water Company, Inc., subsidiary of the Company, and the Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit 4.2 filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2003.
4.6	Fifteenth supplemental Indenture dated as of December 1, 2000 between Artesian Water Company, Inc., subsidiary of the Company, and the Wilmington Trust Company, as Trustee.  Incorporated by reference to Exhibit 4.1 filed with the Company's Form 10-Q for the quarterly period ended March 31, 2002.
4.7	Bond Purchase Agreement, dated January 18, 2017 by and between Artesian Water Company, Inc., subsidiary of the Company, and CoBank, ACB.  Incorporated by reference to Exhibit 4.2 filed with the Company's Form 8-K filed on January 20, 2017.
4.8	Bond Purchase Agreement, dated December 1, 2008 by and between Artesian Water Company, Inc., subsidiary of the Company, and CoBank, ACB.  Incorporated by reference to Exhibit 4.2 filed with the Company's Form 8-K filed on December 4, 2008.
4.9	Letter Agreement, dated as of September 15, 2015, by and between Artesian Water Company, Inc. and CoBank ACB. Incorporated by reference to Exhibit 4.1 filed with the Company's Form 8-K filed on September 18, 2015.
4.10	Artesian Resources Corporation 2015 Equity Compensation Plan. Incorporated by reference to Exhibit 4.1 filed with the Company's Registration Statement on Form S-8 filed December 16, 2015.
10.1	First Extension of Stock Repurchase Agreement, dated as of August 31, 2012, between Wilmington Savings Fund Society, FSB, and Artesian Resources Corporation.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on August 31, 2012.
10.2	Stock Repurchase Agreement, dated as of August 31, 2011, between Wilmington Savings Fund Society, FSB, and Artesian Resources Corporation.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on September 6, 2011.

76

10.3	General Obligation Note (New Castle County Water Main Transmission Replacements Projects), Series 2011-SRF, dated as of July 15, 2011, issued by Artesian Water Company, Inc. in favor of Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health.  Incorporated by reference to Exhibit 10.2 filed with the Company's Form 8-K filed on July 19, 2011.
10.4	Financing Agreement, dated as of July 15, 2011, between Artesian Water Company, Inc. and Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on July 19, 2011.
10.5	Amendment to Agreement for Purchase of Water Assets of the Town of Port Deposit and for the provision of Potable Water Services, dated November 1, 2010 by and among Artesian Water Maryland, Inc., a Delaware Corporation, Artesian Resources Corporation, a Delaware Corporation and the Mayor and Town Council of Port Deposit, Maryland, a body corporate and politic organized under the laws of the State of Maryland. Incorporated by reference to Exhibit 10.2 filed with the Company's Form 8-K filed on November 4, 2010.
10.6	Financing Agreement and General Obligation Note dated February 12, 2010 between Artesian Water Company, Inc. and Delaware Drinking Water State Revolving Fund Delaware Department of Health and Social Services, Division of Public Health.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on February 17, 2010.
10.7	Revolving Credit Agreement dated January 19, 2010 between Artesian Water Company, Inc. and CoBank, ACB.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on January 25, 2010.
10.8	Demand Line of Credit Agreement dated January 19, 2010 between Artesian Resources Corporation and each of its subsidiaries and Citizens Bank of Pennsylvania.  Incorporated by reference to Exhibit 10.2 filed with the Company's Form 8-K filed on January 25, 2010.
10.9	Water Asset Purchase Agreement, dated December 1, 2009 by and among Artesian Water Maryland, Inc., a Delaware Corporation, Artesian Resources Corporation, a Delaware Corporation and the Mayor and Town Council of Port Deposit, Maryland, a body corporate and politic organized under the laws of the State of Maryland.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on December 2, 2009.
10.10	Asset Purchase Agreement between Artesian Water Maryland, Inc., subsidiary of the Company, and Cecil County, Maryland, dated October 7, 2008.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on October 10, 2008.
10.11	Asset Purchase Agreement between Artesian Wastewater Maryland, Inc., subsidiary of the Company, and Cecil County, Maryland, dated October 7, 2008.  Incorporated by reference to Exhibit 10.2 filed with the Company's Form 8-K filed on October 10, 2008.
10.12	Asset Purchase Agreement between Artesian Wastewater Maryland, Inc., subsidiary of the Company, and Cecil County, Maryland, dated October 7, 2008.  Incorporated by reference to Exhibit 10.3 filed with the Company's Form 8-K filed on October 10, 2008.
10.13	Limited Liability Interest Purchase Agreement between Artesian Water Maryland, Inc., subsidiary of the Company, and Mountain Hill Water Company, LLC, dated May 5, 2008.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on May 9, 2008.

77

10.14	Wastewater Services Agreement between Artesian Utility Development, Inc., subsidiary of the Company, and Northern Sussex Regional Water Recharge Complex, LLC, dated June 30, 2008.  This exhibit is subject to an order granting confidential treatment issued by the SEC and therefore certain confidential portions have been omitted as indicated by the bracketed language [CONFIDENTIAL PORTION DELETED].  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 10-Q for the quarter ended June 30, 2008.
10.15	Artesian Resources Corporation 2005 Equity Compensation Plan.  Incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. ***
10.16	Amended and Restated Artesian Resources Corporation 1992 Non-Qualified Stock Option Plan, as amended.  Incorporated by reference to Exhibit 10.4 filed with the Company's Form 10-Q for the quarterly period ended June 30, 2003.***
10.17	Artesian Resources Corporation Incentive Stock Option Plan.  Incorporated by reference to Exhibit 10(e) filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1995.***
10.18	Officer's Medical Reimbursement Plan dated May 27, 1992.  Incorporated by reference to Exhibit 10.6 filed with the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001.***
21	Subsidiaries of the Company as of December 31, 2016. *
23.1	Consent of BDO USA, LLP *
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
101	The following financial statements from Artesian Resources Corporation's Annual Report on Form 10-K for the year ended December 31, 2016 formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Cash Flows; (iv) the Consolidated Statements of Changes in Stockholders' Equity and (v) the Notes to the Consolidated Financial Statements.*

*	Filed herewith.
**	Furnished herewith.
***	Compensation plan or arrangement required to be filed or incorporated as an exhibit.

78

SIGNATURES

ARTESIAN RESOURCES CORPORATION

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date March 10, 2017	By: /s/ DAVID B. SPACHT
	David B. Spacht
	Chief Financial Officer and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
Principal Executive Officer:
/s/ DIAN C. TAYLOR
Dian C. Taylor	President and Chief Executive Officer	March 10, 2017
Principal Financial and Accounting Officer:
/s/ DAVID B. SPACHT
David B. Spacht	Chief Financial Officer and Treasurer	March 10, 2017
Directors:
/s/ DIAN C. TAYLOR
Dian C. Taylor	Director	March 10, 2017
/s/ KENNETH R. BIEDERMAN
Kenneth R. Biederman	Director	March 10, 2017
/s/ WILLIAM C. WYER
William C. Wyer	Director	March 10, 2017
/s/ JOHN R. EISENBREY, JR.
John R. Eisenbrey, Jr.	Director	March 10, 2017
/s/ NICHOLLE R. TAYLOR
Nicholle R. Taylor	Director	March 10, 2017

79

ARTESIAN RESOURCES CORPORATION

FORM 10-K ANNUAL REPORT

YEAR ENDED DECEMBER 31, 2016

	EXHIBIT LIST
Exhibit Number	Description
3.1	Restated Certificate of Incorporation of the Company effective April 28, 2004 incorporated by reference to Exhibit 3.1 filed with the Company's Form 10-Q for the quarterly period ended March 31, 2004.
3.2	By-laws of the Company effective March 26, 2004 incorporated by reference to Exhibit 3.3 filed with the Company's Form 10-Q for the quarterly period ended March 31, 2004.
4.1	Twenty-Second Supplemental Indenture dated as of January 18, 2017, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee.  Incorporated by reference to Exhibit 4.1 filed with the Company's Form 8-K filed on January 20, 2017.
4.2	Twentieth Supplemental Indenture dated as of December 1, 2008, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee.  Incorporated by reference to Exhibit 4.1 filed with the Company's Form 8-K filed on December 4, 2008.
4.3	Eighteenth Supplemental Indenture dated as of August 1, 2005, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee.  Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
4.4	Seventeenth supplemental Indenture dated as of December 1, 2003 between Artesian Water Company, Inc., subsidiary of the Company, and the Wilmington Trust Company, as Trustee.  Incorporated by reference to Exhibit 4.1 filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2003.
4.5	Sixteenth supplemental Indenture dated as of January 31, 2003 between Artesian Water Company, Inc., subsidiary of the Company, and the Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit 4.2 filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2003.
4.6	Fifteenth supplemental Indenture dated as of December 1, 2000 between Artesian Water Company, Inc., subsidiary of the Company, and the Wilmington Trust Company, as Trustee.  Incorporated by reference to Exhibit 4.1 filed with the Company's Form 10-Q for the quarterly period ended March 31, 2002.
4.7	Bond Purchase Agreement, dated January 18, 2017 by and between Artesian Water Company, Inc., subsidiary of the Company, and CoBank, ACB.  Incorporated by reference to Exhibit 4.2 filed with the Company's Form 8-K filed on January 20, 2017.
4.8	Bond Purchase Agreement, dated December 1, 2008 by and between Artesian Water Company, Inc., subsidiary of the Company, and CoBank, ACB.  Incorporated by reference to Exhibit 4.2 filed with the Company's Form 8-K filed on December 4, 2008.
4.9	Letter Agreement, dated as of September 15, 2015, by and between Artesian Water Company, Inc. and CoBank ACB. Incorporated by reference to Exhibit 4.1 filed with the Company's Form 8-K filed on September 18, 2015.
4.10	Artesian Resources Corporation 2015 Equity Compensation Plan. Incorporated by reference to Exhibit 4.1 filed with the Company's Registration Statement on Form S-8 filed December 16, 2015.
10.1	First Extension of Stock Repurchase Agreement, dated as of August 31, 2012, between Wilmington Savings Fund Society, FSB, and Artesian Resources Corporation.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on August 31, 2012.
10.2	Stock Repurchase Agreement, dated as of August 31, 2011, between Wilmington Savings Fund Society, FSB, and Artesian Resources Corporation.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on September 6, 2011.

80

10.3	General Obligation Note (New Castle County Water Main Transmission Replacements Projects), Series 2011-SRF, dated as of July 15, 2011, issued by Artesian Water Company, Inc. in favor of Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health.  Incorporated by reference to Exhibit 10.2 filed with the Company's Form 8-K filed on July 19, 2011.
10.4	Financing Agreement, dated as of July 15, 2011, between Artesian Water Company, Inc. and Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on July 19, 2011.
10.5	Amendment to Agreement for Purchase of Water Assets of the Town of Port Deposit and for the provision of Potable Water Services, dated November 1, 2010 by and among Artesian Water Maryland, Inc., a Delaware Corporation, Artesian Resources Corporation, a Delaware Corporation and the Mayor and Town Council of Port Deposit, Maryland, a body corporate and politic organized under the laws of the State of Maryland. Incorporated by reference to Exhibit 10.2 filed with the Company's Form 8-K filed on November 4, 2010.
10.6	Financing Agreement and General Obligation Note dated February 12, 2010 between Artesian Water Company, Inc. and Delaware Drinking Water State Revolving Fund Delaware Department of Health and Social Services, Division of Public Health.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on February 17, 2010.
10.7	Revolving Credit Agreement dated January 19, 2010 between Artesian Water Company, Inc. and CoBank, ACB.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on January 25, 2010.
10.8	Demand Line of Credit Agreement dated January 19, 2010 between Artesian Resources Corporation and each of its subsidiaries and Citizens Bank of Pennsylvania.  Incorporated by reference to Exhibit 10.2 filed with the Company's Form 8-K filed on January 25, 2010.
10.9	Water Asset Purchase Agreement, dated December 1, 2009 by and among Artesian Water Maryland, Inc., a Delaware Corporation, Artesian Resources Corporation, a Delaware Corporation and the Mayor and Town Council of Port Deposit, Maryland, a body corporate and politic organized under the laws of the State of Maryland.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on December 2, 2009.
10.10	Asset Purchase Agreement between Artesian Water Maryland, Inc., subsidiary of the Company, and Cecil County, Maryland, dated October 7, 2008.  Incorporated by reference to Exhibit 10.1 filed with the Company's form 8-K filed on October 10, 2008.
10.11	Asset Purchase Agreement between Artesian Wastewater Maryland, Inc., subsidiary of the Company, and Cecil County, Maryland, dated October 7, 2008.  Incorporated by reference to Exhibit 10.2 filed with the Company's Form 8-K filed on October 10, 2008.
10.12	Asset Purchase Agreement between Artesian Wastewater Maryland, Inc., subsidiary of the Company, and Cecil County, Maryland, dated October 7, 2008.  Incorporated by reference to Exhibit 10.3 filed with the Company's Form 8-K filed on October 10, 2008.
10.13	Limited Liability Interest Purchase Agreement between Artesian Water Maryland, Inc., subsidiary of the Company, and Mountain Hill Water Company, LLC, dated May 5, 2008.  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K filed on May 9, 2008.

81

10.14	Wastewater Services Agreement between Artesian Utility Development, Inc., subsidiary of the Company, and Northern Sussex Regional Water Recharge Complex, LLC, dated June 30, 2008.  This exhibit is subject to an order granting confidential treatment issued by the SEC and therefore certain confidential portions have been omitted as indicated by the bracketed language [CONFIDENTIAL PORTION DELETED].  Incorporated by reference to Exhibit 10.1 filed with the Company's Form 10-Q for the quarter ended June 30, 2008.
10.15	Artesian Resources Corporation 2005 Equity Compensation Plan.  Incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. ***
10.16	Amended and Restated Artesian Resources Corporation 1992 Non-Qualified Stock Option Plan, as amended.  Incorporated by reference to Exhibit 10.4 filed with the Company's Form 10-Q for the quarterly period ended June 30, 2003.***
10.17	Artesian Resources Corporation Incentive Stock Option Plan.  Incorporated by reference to Exhibit 10(e) filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1995.***
10.18	Officer's Medical Reimbursement Plan dated May 27, 1992.  Incorporated by reference to Exhibit 10.6 filed with the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001.***
21	Subsidiaries of the Company as of December 31, 2016. *
23.1	Consent of BDO USA, LLP *
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
101	The following financial statements from Artesian Resources Corporation's Annual Report on Form 10-K for the year ended December 31, 2016 formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Cash Flows; (iv) the Consolidated Statements of Changes in Stockholders' Equity and (v) the Notes to the Consolidated Financial Statements.*

*	Filed herewith.
**	Furnished herewith.
***	Compensation plan or arrangement required to be filed or incorporated as an exhibit.

82

 

EX-21

EXHIBIT 21

ARTESIAN RESOURCES CORPORATION AND SUBSIDIARY COMPANIES

Subsidiaries of Registrant

The following list includes the Registrant and all of its subsidiaries as of December 31, 2016. The voting equity interests of each company shown is owned, to the extent indicated by the percentage, by the company immediately above, which is not indented to the same degree. All subsidiaries of the Registrant appearing in the following table are included in the consolidated financial statements of the Registrant and its subsidiaries.

Name of Company	State of Incorporation	Percentage of Voting Equity Interests Owned
Artesian Resources Corporation	Delaware
Artesian Water Company, Inc.	Delaware	100
Artesian Water Pennsylvania, Inc.	Pennsylvania	100
Artesian Water Maryland, Inc.	Delaware	100
Artesian Development Corporation	Delaware	100
Artesian Wastewater Management, Inc.	Delaware	100
Artesian Wastewater Maryland, Inc.	Delaware	100
Artesian Utility Development, Inc.	Delaware	100
Artesian Consulting Engineers, Inc.	Delaware	100

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

Artesian Resources Corporation

Newark, Delaware

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-88531) and Form S-8 (No. 333-05255, 333-31209, 333-78043, 333-126910 and 333-208582) of Artesian Resources Corporation of our reports dated March 10, 2017, relating to the consolidated financial statements, and the effectiveness of Artesian Resources Corporation's internal control over financial reporting, which appear in this Form 10-K.

/s/BDO USA, LLP

Wilmington, Delaware

March 10, 2017

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer of Artesian Resources Corporation, required

by Rule 13a – 14(a) as adopted under the Securities and Exchange Act of 1934

I, Dian C. Taylor, certify that:

1. I have reviewed this annual report on Form 10-K for the period ended December 31, 2016 of Artesian Resources Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 10, 2017	/s/ Dian C. Taylor
	Dian C. Taylor
	Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer of Artesian Resources Corporation, required

by Rule 13a – 14(a) as adopted under the Securities and Exchange Act of 1934

I, David B. Spacht, certify that:

1. I have reviewed this annual report on Form 10-K for the period ended December 31, 2016 of Artesian Resources Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 10, 2017	/s/ David B. Spacht
	David B. Spacht
	Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32

EXHIBIT 32

Certification of Chief Executive Officer and Chief Financial Officer

pursuant to 18 U.S.C. Section 1350

I, Dian C. Taylor, Chief Executive Officer, and David B. Spacht, Chief Financial Officer, of Artesian Resources Corporation, a Delaware corporation (the "Company"), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on our knowledge:

1. The Company's Annual Report on Form 10-K for the period ended December 31, 2016 (the " Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 USC Section 78m(a) or Section 78o(d)), as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and results of operations of the Company for the period covered by the Report.

Date: March 10, 2017

Chief Executive Officer:	Chief Financial Officer:
/s/ Dian C. Taylor	/s/ David B. Spacht
Dian C. Taylor	David B. Spacht

     These certifications accompany the Report to which they relate, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Mar. 06, 2017	Jun. 30, 2016
Entity Information [Line Items]
Entity Registrant Name	Artesian Resources Corporation
Entity Central Index Key	0000863110
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2016
Class A Stock [Member]
Entity Information [Line Items]
Entity Public Float			$ 269,178,000
Entity Common Stock, Shares Outstanding		8,251,271
Class B Stock [Member]
Entity Information [Line Items]
Entity Public Float			$ 8,328,000
Entity Common Stock, Shares Outstanding		881,452

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
ASSETS
Utility plant, at original cost (less accumulated depreciation 2016-$109,684; 2015-$109,309)	$ 425,502	$ 405,606
Current assets
Cash and cash equivalents	226	209
Accounts receivable (less allowance for doubtful accounts 2016 - $263; 2015-$277)	7,796	6,350
Income tax receivable	150	1,428
Unbilled operating revenues	1,403	1,535
Materials and supplies	1,564	1,713
Prepaid property taxes	1,669	1,591
Prepaid expenses and other	1,827	1,618
Total current assets	14,635	14,444
Other assets
Non utility property (less accumulated depreciation 2016-$611; 2015-$535)	3,881	3,956
Other deferred assets	3,584	3,444
Total other assets	7,465	7,400
Regulatory assets, net	3,374	4,176
Total assets	450,976	431,626
Stockholders' equity
Common stock	9,127	9,058
Preferred stock	0	0
Additional paid-in capital	97,480	95,631
Retained earnings	32,416	27,642
Total stockholders' equity	139,023	132,331
Long-term debt, net of current portion	102,331	103,647
Total stockholders' equity and long-term debt	241,354	235,978
Current liabilities
Lines of credit	7,130	10,487
Current portion of long-term debt	1,316	1,289
Accounts payable	5,532	4,914
Accrued expenses	1,309	1,254
Overdraft payable	32	546
Accrued interest	1,000	1,032
Customer deposits	864	704
Other	2,145	2,177
Total current liabilities	19,328	22,403
Commitments and contingencies ( Note 10 )
Deferred credits and other liabilities
Net advances for construction	8,169	8,752
Postretirement benefit obligation	149	230
Deferred investment tax credits	544	562
Utility plant retirement cost obligation	873	883
Deferred income taxes	68,453	62,971
Total deferred credits and other liabilities	78,188	73,398
Net contributions in aid of construction	112,106	99,847
Liabilities and stockholders' equity	$ 450,976	$ 431,626

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
ASSETS
Less - accumulated depreciation	$ 109,684	$ 104,750
Current assets
Less allowance for doubtful accounts	263	277
Other assets
Non utility property (accumulated depreciation)	$ 611	$ 535

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Operating revenues
Water sales	$ 70,587	$ 68,932	$ 64,667
Other utility operating revenue	3,816	3,694	3,648
Non-utility operating revenue	4,686	4,398	4,150
Total operating revenues	79,089	77,024	72,465
Operating expenses
Utility operating expenses	35,658	36,148	34,893
Non-utility operating expenses	2,602	2,305	2,193
Depreciation and amortization	9,188	8,837	8,673
State and federal income taxes
Current	2,849	2,667	(900)
Deferred	5,482	5,117	7,275
Property and other taxes	4,491	4,368	4,285
Total operating expenses	60,270	59,442	56,419
Operating income	18,819	17,582	16,046
Other income, net
Allowance for funds used during construction (AFUDC)	222	249	329
Miscellaneous	557	472	524
Total other income	779	721	853
Income before interest charges	19,598	18,303	16,899
Interest charges	6,644	6,998	7,393
Net income applicable to common stock	$ 12,954	$ 11,305	$ 9,506
Income per common share:
Basic (in dollars per share)	$ 1.42	$ 1.26	$ 1.07
Diluted (in dollars per share)	$ 1.41	$ 1.26	$ 1.07
Weighted average common shares outstanding:
Basic (in shares)	9,098	8,960	8,884
Diluted (in shares)	9,161	9,005	8,926
Cash dividends paid per share of common stock (in dollars per share)	$ 0.8997	$ 0.8733	$ 0.8477

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 12,954	$ 11,305	$ 9,506
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,188	8,837	8,673
Deferred income taxes, net	5,464	5,097	7,255
Stock compensation	92	183	135
AFUDC, equity portion	(146)	(163)	(212)
Changes in assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts	(292)	(867)	147
Income taxes receivable	1,278	1,640	(2,613)
Unbilled operating revenues	132	1,779	(305)
Materials and supplies	149	177	(405)
Prepaid property taxes	(78)	(190)	90
Prepaid expenses and other	(209)	49	(390)
Other deferred assets	(175)	(167)	(172)
Regulatory assets	734	187	(187)
Accounts payable	618	1,131	(357)
Accrued expenses	55	(259)	(2,197)
Accrued interest	(32)	(396)	374
Customer deposits and other, net	128	102	(832)
Postretirement benefit obligation	(81)	(38)	(41)
NET CASH PROVIDED BY OPERATING ACTIVITIES	29,779	28,407	18,469
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (net of AFUDC, equity portion)	(28,251)	(20,694)	(23,730)
Proceeds from sale of assets	96	48	35
NET CASH USED IN INVESTING ACTIVITIES	(28,155)	(20,646)	(23,695)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings under lines of credit agreements	(3,357)	(8,004)	8,159
Increase in overdraft payable	(514)	405	(605)
Net advances and contributions in aid of construction	9,907	5,829	3,808
Net proceeds from issuance of common stock	1,826	3,049	1,651
Dividends paid	(8,180)	(7,811)	(7,523)
Issuance of long-term debt	0	0	689
Principal repayments of long-term debt	(1,289)	(1,263)	(1,132)
NET CASH USED IN FINANCING ACTIVITIES	(1,607)	(7,795)	5,047
NET (DECREASE) IN CASH AND CASH EQUIVALENTS	17	(34)	(179)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	209	243	422
CASH AND CASH EQUIVALENTS AT END OF YEAR	226	209	243
Supplemental Disclosures of Cash Flow Information:
Utility plant received as construction advances and contributions	2,499	1,451	1,491
Contractual amounts of contributions in aid of construction due from developers included in accounts receivable	1,542	796	456
Contractual amounts of contributions in aid of construction received from developers previously included in accounts receivable	388	377	361
Supplemental Disclosures of Cash Flow Information:
Interest paid	6,676	7,394	7,019
Income taxes paid	$ 1,434	$ 2,608	$ 1,615

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)		Common Stock [Member] Common Shares Class A Non-Voting [Member]		Common Stock [Member] Common Shares Class B Voting [Member]		Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance at Dec. 31, 2013		$ 7,948,000		$ 882,000		$ 90,841,000	$ 22,165,000	$ 121,836,000
Balance (in shares) at Dec. 31, 2013		7,948,000	[1],[2],[3]	882,000	[4]
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income							9,506,000	9,506,000
Cash dividends declared
Common stock							(7,523,000)	(7,523,000)
Issuance of common stock
Dividend reinvestment plan		$ 21,000				438,000		$ 459,000
Dividends reinvestment plan (in shares)		21,000	[1],[2],[3]					21,000
Employee stock options and awards		$ 44,000				920,000		$ 964,000
Employee stock options and awards (in shares)	[1],[2],[3]	44,000
Employee Retirement Plan	[1]	$ 17,000				346,000		363,000
Employee Retirement Plan (in shares)	[1],[2],[3]	17,000
Balance at Dec. 31, 2014		$ 8,030,000		$ 882,000		92,545,000	24,148,000	125,605,000
Balance (in shares) at Dec. 31, 2014		8,030,000	[1],[2],[3]	882,000	[4]
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income							11,305,000	11,305,000
Cash dividends declared
Common stock							(7,811,000)	(7,811,000)
Issuance of common stock
Dividend reinvestment plan		$ 18,000				366,000		$ 384,000
Dividends reinvestment plan (in shares)		18,000	[1],[2],[3]					17,500
Employee stock options and awards		$ 111,000				2,419,000		$ 2,530,000
Employee stock options and awards (in shares)	[1],[2],[3]	111,000
Employee Retirement Plan	[1]	$ 17,000				301,000		318,000
Employee Retirement Plan (in shares)	[1],[2],[3]	17,000
Balance at Dec. 31, 2015		$ 8,176,000		$ 882,000		95,631,000	27,642,000	132,331,000
Balance (in shares) at Dec. 31, 2015		8,176,000	[1],[2],[3]	882,000	[4]
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income							12,954,000	12,954,000
Cash dividends declared
Common stock							(8,180,000)	(8,180,000)
Issuance of common stock
Dividend reinvestment plan		$ 13,000				387,000		$ 400,000
Dividends reinvestment plan (in shares)		13,000	[1],[2],[3]					13,600
Employee stock options and awards		$ 38,000				939,000		$ 977,000
Employee stock options and awards (in shares)	[1],[2],[3]	38,000
Employee Retirement Plan	[1]	$ 18,000				523,000		541,000
Employee Retirement Plan (in shares)	[1],[2],[3]	18,000
Balance at Dec. 31, 2016		$ 8,245,000		$ 882,000		$ 97,480,000	$ 32,416,000	$ 139,023,000
Balance (in shares) at Dec. 31, 2016		8,245,000	[1],[2],[3]	882,000	[4]

[1] Artesian Resources Corporation registered 500,000 shares of Class A Common Stock available for purchase through the Artesian Retirement Plan and the Artesian Supplemental Retirement Plan.

[2] At December 31, 2015, 2014, and 2013, Class A Common Stock had 15,000,000 shares authorized. For the same periods, shares issued, inclusive of treasury shares, were 8,205,190, 8,059,654 and 7,977,546, respectively.

[3] Under the Equity Compensation Plan, effective December 9, 2015 Artesian Resources Corporation authorized up to 331,500 shares of Class A Common Stock for issuance of grants in forms of stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in certain circumstances as discussed in the Plan.

[4] At December 31, 2015, 2014, and 2013, Class B Common Stock had 1,040,000 shares authorized and 882,000 shares issued.

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	Dec. 31, 2016	Dec. 31, 2015	Dec. 09, 2015	Dec. 31, 2014
Shares authorized for issuance of grants under equity compensation plan (in shares)			331,500
Common Stock [Member] | Common Shares Class A Non-Voting [Member]
Common stock, par value (in dollars per share)	$ 1.00
Common stock, shares authorized (in shares)	15,000,000	15,000,000		15,000,000
Common Stock Shares Issued	8,275,010	8,205,190		8,059,654
Shares available for purchase through retirement plans (in shares)	500,000
Shares authorized for issuance of grants under equity compensation plan (in shares)			331,500
Common Stock [Member] | Common Shares Class B Voting [Member]
Common stock, par value (in dollars per share)	$ 1.00
Common stock, shares authorized (in shares)	1,040,000	1,040,000		1,040,000
Common Stock Shares Issued	882,000	882,000		882,000

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2016

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The audited consolidated financial statements are presented in accordance with the requirements of Form 10-K and accounting principles generally accepted in the United States and consequently include all the disclosures required in the consolidated financial statements included in the Company's annual report on Form 10-K. The accompanying consolidated financial statements include the accounts of Artesian Resources Corporation and its subsidiaries and all intercompany balances and transactions between subsidiaries have been eliminated.

Reclassification

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. These reclassifications had no effect on net income or stockholders' equity.

In 2016, the Company adopted amended guidance on the Presentation of Debt Issuance Costs and amended guidance on Income Taxes, both of which were issued by the Financial Accounting Standards Board, or FASB, in 2015. The amended guidance on the Presentation of Debt Issuance Costs requires entities to present debt issuance costs related to a debt liability as a direct deduction from the carrying amount of that debt liability on the balance sheet as opposed to being presented as a deferred charge. The amended guidance on Income Taxes simplified the presentation of deferred income taxes, permitting all deferred income tax liabilities be classified as noncurrent on the balance sheet.

For all periods presented in this Form 10-K for the year ended December 31, 2016, unamortized debt issuance costs related to the Company's long-term debt are reported on the Condensed Consolidated Balance Sheets within "Regulatory Assets, Net" under FASB ASC Topic 980 as this amount will be recovered in future rates charged to our customers.  Prior to adoption, the Company reported the unamortized debt issuance costs in "Other Assets" on the Condensed Consolidated Balance Sheets.  Deferred income taxes are reported as noncurrent on the Condensed Consolidated Balance Sheets.  Prior to adoption, the Company reported current and noncurrent deferred income tax liabilities as separate amounts on the Condensed Consolidated Balance Sheets.

Utility Subsidiary Accounting

The accounting records of Artesian Water Company, Inc., or Artesian Water, and Artesian Wastewater Management, Inc., or Artesian Wastewater, are maintained in accordance with the uniform system of accounts as prescribed by the Delaware Public Service Commission, or the DEPSC.  The accounting records of Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, are maintained in accordance with the uniform system of accounts as prescribed by the Pennsylvania Public Utility Commission, or the PAPUC.  The accounting records of Artesian Water Maryland, Inc., or Artesian Water Maryland, and Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, are maintained in accordance with the uniform system of accounts as prescribed by the Maryland Public Service Commission, or the MDPSC.  All five subsidiaries follow the provisions of FASB ASC Topic 980, which provides guidance for companies in regulated industries. These regulated subsidiaries account for the majority of our operating revenue. The operating revenues of our non-regulated division are presented in the Consolidated Statements of Operations.

Utility Plant

Utility plant is stated at original cost.  Cost includes direct labor, materials, AFUDC (see description below) and indirect charges for such capitalized items as transportation, supervision, pension, medical, and other fringe benefits related to employees engaged in construction activities. When depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received, is charged to the regulated retirement liability.  Maintenance, repairs, and replacement of minor items of plant are charged to expense as incurred.

In accordance with a rate order issued by the DEPSC, Artesian Water accrues an Allowance for Funds Used during Construction, or AFUDC. AFUDC, which represents the cost of funds devoted to construction projects through the date the project is placed in service, is capitalized as part of construction work in progress. The rate used for the AFUDC calculation is based on Artesian Water's weighted average cost of debt and the rate of return on equity authorized by the DEPSC. The rate used to capitalize AFUDC in 2016, 2015, and 2014 was 8.1%, 8.1%, and 8.2% respectively.

Utility plant comprises:
In thousands
			December 31,
	Estimated Useful Life (In Years)		2016		2015
Utility plant at original cost
Utility plant in service-Water
Intangible plant		—	$	140	$	140
Source of supply plant		45-85		19,627		19,313
Pumping and water treatment plant		8-62		78,542		77,221
Transmission and distribution plant
Mains		81		236,261		224,104
Services		39		38,803		36,060
Storage tanks		76		24,108		23,992
Meters		26		24,710		24,150
Hydrants		60		12,870		12,037
General plant		3-31		53,417		52,434
Utility plant in service-Wastewater
Treatment and disposal plant		35-62		15,613		14,012
Collection mains & lift stations		81		8,675		7,833
General plant		3-31		931		906
Property held for future use		—		14,815		14,345
Construction work in progress		—		6,674		3,809
				535,186		510,356
Less – accumulated depreciation				109,684		104,750
			$	425,502	$	405,606

Depreciation and Amortization

For financial reporting purposes, depreciation is recorded using the straight-line method at rates based on estimated economic useful lives, which range from 3 to 85 years. Composite depreciation rates for water utility plant were 2.25%, 2.29% and 2.30% for 2016, 2015 and 2014, respectively. In a rate order issued by the DEPSC, the Company was directed effective January 1, 1998 to begin using revised depreciation rates for utility plant. In rate orders issued by the DEPSC, Artesian Water was directed, effective May 28, 1991 and August 25, 1992, to offset depreciation recorded on utility plant by depreciation on utility property funded by Contributions in Aid of Construction, or CIAC, and Advances for Construction, or Advances, respectively.  This reduction in depreciation expense is also applied to outstanding CIAC and Advances.  Other deferred assets are amortized using the straight-line method over applicable lives, which range from 2 to 40 years.

Utility Plant Retirement Cost Obligation

The utility plant retirement cost obligation consists of estimated costs related to the potential removal and replacement of facilities and equipment on the Company's water and wastewater properties.  Effective January 1, 2012, as authorized by the DEPSC, when depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received is charged to a regulated retirement liability.  Each year the liability is increased by an annual amount authorized by the DEPSC.  Previously, when depreciable units of utility plant were retired, the cost of retired property, together with any cost associated with retirement less any salvage value or proceeds received, was charged to accumulated depreciation.  Maintenance, repairs, and replacement of minor items of plant are charged to expense as incurred.

Regulatory Assets

FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency. Certain expenses are recoverable through rates charged to our customers, without a return on investment, and are deferred and amortized during future periods using various methods as permitted by the Delaware Public Service Commission, or DEPSC, the Maryland Public Service Commission, or MDPSC, and the Pennsylvania Public Utility Commission, or PAPUC.

The postretirement benefit obligation is the recognition of an offsetting regulatory asset as it relates to the accrual of the expected cost of providing postretirement health care and life insurance benefits to retired employees when they render the services necessary to earn the benefits.  Artesian Water contributed $81,000 to its postretirement benefit plan in 2016. These contributions consist of insurance premium payments for medical, dental and life insurance benefits made on behalf of the Company's eligible retired employees.

The deferred income taxes will be amortized over future years as the tax effects of temporary differences that previously flowed through to our customers are reversed.

Other regulatory expenses are amortized on a straight-line basis as noted below:

Expense	Years Amortized
Depreciation and salary studies	5
Delaware rate proceedings	2.5
Maryland rate proceedings	5
Debt issuance costs (as of December 31, 2016)	10 to 30 (based on term of related debt)
Debt issuance costs (after First Mortgage Bond Purchase in January 2017)	15 to 25 (based on term of related debt)
Goodwill (resulting from acquisition of Mountain Hill Water Company in 2008)	50
Deferred acquisition costs (resulting from purchase of water assets in Cecil County, Maryland in 2011 and Port Deposit, Maryland in 2010)	20
Franchise Costs (resulting from purchase of water assets in Cecil County, Maryland in 2011)	80

Regulatory assets, net of amortization, comprise:

(in thousands)	December 31, 2016		December 31, 2015
Postretirement benefit obligation	$	186	$	329
Deferred income taxes		431		446
Expense of rate and regulatory proceedings		116		616
Debt issuance costs		1,648		1,747
Goodwill		310		318
Deferred acquisition and franchise costs		683		720
	$	3,374	$	4,176

Impairment or Disposal of Long-Lived Assets

Our long-lived assets consist primarily of utility plant in service and regulatory assets.  A review of our long-lived assets is performed in accordance with the requirements of FASB ASC Topic 360. In addition, the regulatory assets are reviewed for the continued application of FASB ASC Topic 980.  The review determines whether there have been changes in circumstances or events that have occurred requiring adjustments to the carrying value of these assets.  FASB ASC Topic 980 stipulates that adjustments to the carrying value of these assets would be made in instances where the inclusion in the rate-making process is unlikely.

Other Deferred Assets

The investment in Co-Bank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based on the underlying long term debt agreements.  A large portion of the remaining other deferred assets, approximately $0.3 million, is in relation to the Mountain Hill acquisition.

Other deferred assets at December 31, net of amortization, comprise:

In thousands	2016			2015
Investment in CoBank		$	3,198		$	3,023
Other			386			421
		$	3,584		$	3,444

Advances for Construction

Cash advances to reimburse Artesian Water for its costs to construct water mains, services and hydrants are contributed to Artesian Water by real estate developers and builders in order to extend water service to their properties. The Company only accepts advances related to new phases of existing developments that are grandfathered into the refundable arrangement through pre-existing contracts.  The value of these contributions is recorded as Advances for Construction. Artesian Water makes refunds on these advances over a specific period of time based on operating revenues generated by the specific plant or as new customers are connected to the mains. After all refunds are made within the contract period, any remaining balance is transferred to CIAC.

Contributions in Aid of Construction

CIAC includes the non-refundable portion of advances for construction and direct contributions of water mains, services and hydrants, and wastewater treatment facilities and collection systems, or cash to reimburse our water and wastewater divisions for costs to construct water mains, services and hydrants, and wastewater treatment and disposal plant.

Income Taxes

Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse. Under FASB ASC Topic 740, an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes. In 2014, the Company changed its tax method of accounting for qualifying utility system repairs effective with the tax year ended December 31, 2014 and for prior tax years. The tax accounting method was changed to permit the expensing of qualifying utility asset improvement costs that were previously being capitalized and depreciated for book and tax purposes.

The Company establishes reserves for uncertain tax positions based upon management's judgment as to the sustainability of these positions. These accounting estimates related to the uncertain tax position reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits. The Company believes its tax positions comply with applicable law and that it has adequately recorded reserves as required. However, to the extent the final tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known. The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense. The Company remains subject to examination by federal authorities for the tax year 2015 and state authorities for the tax years 2013 through 2015.  The Company was under federal audit by the Internal Revenue Service for tax years 2012 through 2014 during 2016.  The audit was concluded during the year resulting in no change to the tax liability.

The Tax Reform Act of 1986 mandated that Advances and CIAC received subsequent to December 31, 1986, generally are taxable income.  The 1996 Tax Act provided an exclusion from taxable income for CIAC and Advances received after June 12, 1996 except for certain contributions for large services that are not included in rate base for rate-making purposes.

Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives of the related assets.

Stock Compensation Plans

On December 9, 2015, the Company's stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan. The 2015 Plan replaced the 2005 Equity Compensation Plan, or the 2005 Plan, which expired on May 24, 2015. The 2015 Plan authorizes an aggregate number of shares of our Class A common stock that may be issued or transferred under the Plan equal to the sum of:  331,500 shares, plus the number of shares of Class A common stock subject to outstanding grants under the 2005 Plan as of December 9, 2015 that terminate, expire or are cancelled, forfeited, exchanged or surrendered without having been exercised, vested or paid under the 2005 Plan. The Company accounts for stock options issued after January 1, 2006 under FASB ASC Topic 718. Compensation costs for restricted stock grants and options were $92,000, $183,000 and $135,000 in 2016, 2015 and 2014, respectively. Cost for options and restricted stock grants were determined based on the fair value at the grant dates and those costs were charged to income over the associated service periods. The $135,000 in 2014 was the amount amortized for stock options awarded in 2014 and 2013.  The $183,000 in 2015 was the amount amortized for restricted stock  awarded in 2015 and stock options awarded in 2014. The $92,000 in 2016 was the amount amortized for restricted stock awarded in 2016. As of December 31, 2016 there is $47,000 unrecognized expense related to non-vested awards of restricted shares granted under the 2015 Plan.

There was no stock compensation cost capitalized as part of an asset.

Stock Options

The fair value of each option grant is estimated using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions used for grants issued in 2014 under the 2005 Equity Compensation Plan (See Note 8 "Stock Compensation Plans"). No options were granted in 2015 or 2016.

	2014
Expected Dividend Yield		3.88%
Expected Stock Price Volatility		26.50%
Weighted Average Risk Free Interest Rate		2.24%
Weighted Average Expected Life of Options (in years)		7.52

The expected dividend yield was based on a 12 month rolling average of the Company's current dividend yield. The expected volatility is the standard deviation of the change in the natural logarithm of the stock price (expressed as an annual rate) for the expected term shown above. The expected term was based on historic exercise patterns for similar grants. The risk free interest rate for the 2014 options is the weighted average of the 7-year and 10-year US Treasury Yield rates.

Shares of Class A Stock have been reserved for future issuance under the 2015 Equity Compensation Plan.

Stock Awards

On May 4, 2016, 5,000 shares of Class A common stock were granted as restricted stock awards.  The fair market value per share was $27.70, the closing price of the Class A common stock as recorded on the Nasdaq Global Market on May 4, 2016.  The restricted shares vest one year from the date of grant.  A total of $92,000 was recorded as compensation cost for the awards granted in May 2016.

On December 18, 2015 5,000 shares of Class A common stock were issued as fully vested unrestricted stock awards. The fair market value per share was $27.38, the closing price of the Class A common stock as recorded on the Nasdaq Global market on December 18, 2015. A total of $137,000 was recorded as compensation cost for the stock awards granted in December 2015.

Revenue Recognition and Unbilled Revenues

Water service revenue for financial statement purposes includes amounts billed to Delaware customers on a monthly basis, amounts billed to Maryland customers on a quarterly or monthly cycle basis, depending on water system, and amounts billed to Pennsylvania customers on a quarterly basis.  Water service revenues also include unbilled amounts based upon estimated usage from the date of the last meter reading to the end of the accounting period. As actual usage amounts are received, adjustments are made to the unbilled estimates in the next billing cycle based on an accrual basis.

Other utility operating revenue includes wastewater service revenue derived from monthly fixed fees billed to customers, and is recognized on an accrual basis.  

Non-utility operating revenue is primarily derived from Service Line Protection Plans and from the design, construction and operation of contract water and wastewater projects.  The Company recognizes non-utility operating revenue ratably over the service period with markup for overhead and profit.  The Company records contract monthly fees for non-utility operating revenue when billed to the customer. Service line protection plan revenues are recognized on an accrual basis.

Accounts Receivable

Accounts receivable are recorded at the invoiced amounts. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in our existing accounts receivable. The Company reviews the allowance for doubtful accounts on a quarterly basis. Account balances are written off against the allowance when it is probable the receivable will not be recovered. The allowance for doubtful accounts was $0.3 million and $0.3 million at December 31, 2016 and December 31, 2015 respectively.  The corresponding expense for the year ended December 31, 2016 and 2015 was $0.2 million and $0.2 million, respectively. The following table summarizes the changes in the Company's accounts receivable balance:

	December 31,
In thousands	2016			2015			2014
Customer accounts receivable – water		$	5,437		$	5,017		$	4,020
Contractual amounts due from developers and other			2,622			1,610			1,295
			8,059			6,627			5,315
Less allowance for doubtful accounts			263			277			250
Net accounts receivable		$	7,796		$	6,350		$	5,065

The activities in the allowance for doubtful accounts are as follows:

	December 31,
In thousands	2016				2015				2014
Beginning balance		$	277			$	250			$	221
Allowance adjustments			195				205				194
Recoveries			64				53				64
Write off of uncollectible accounts			(273	)			(231	)			(229	)
Ending balance		$	263			$	277			$	250

Cash and Cash Equivalents

For purposes of the Consolidated Statement of Cash Flows, Artesian Resources considers all temporary cash investments with an original maturity of three months or less to be cash equivalents. Artesian Resources and its subsidiaries utilize their bank's zero balance account disbursement service to reduce the use of their lines of credit by funding checks as they are presented to the bank for payment rather than at issuance. If the checks currently outstanding, but not yet funded, exceed the cash balance on our books, the net liability is recorded as a current liability on the Consolidated Balance Sheet in the Overdraft Payable account.

Use of Estimates in the Preparation of Consolidated Financial Statements

The consolidated financial statements were prepared in conformity with generally accepted accounting principles in the U.S., which require management to make estimates about the reported amounts of assets and liabilities including unbilled revenues, reserve for a portion of revenues received under temporary rates and regulatory asset recovery and contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from management's estimate.

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FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2016

FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 2

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Current Assets and Liabilities

For those current assets and liabilities that are considered financial instruments, the carrying amounts approximate fair value because of the short maturity of those instruments.

Long-term Financial Liabilities

All of Artesian Resources' outstanding long-term debt as of December 31, 2016 and December 31, 2015 was fixed-rate. The fair value of the Company's long-term debt is determined by discounting their future cash flows using current market interest rates on similar instruments with comparable maturities consistent with FASB ASC 825.  Under the fair value hierarchy, the fair value of the long-term debt in the table below is classified as Level 2 measurements. The fair values for long-term debt differ from the carrying values primarily due to interest rates that differ from the current market interest rates. The carrying amount and fair value of Artesian Resources' long-term debt are shown below:

In thousands	December 31,
	2016			2015
Carrying amount		$	103,647		$	104,936
Estimated fair value			111,864			120,243

The fair value of Advances for Construction cannot be reasonably estimated due to the inability to accurately estimate the timing and amounts of future refunds expected to be paid over the life of the contracts. Refund payments are based on the water sales to new customers in the particular development constructed. The fair value of Advances for Construction would be less than the carrying amount because these financial instruments are non-interest bearing.

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INCOME TAXES

12 Months Ended

Dec. 31, 2016

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 3

INCOME TAXES

Deferred income taxes reflect temporary differences between the valuation of assets and liabilities for financial and tax reporting.

As of December 31, 2016, Artesian Resources had fully utilized all of its federal net operating loss carrybacks and carry-forwards. As of December 31, 2016, Artesian Resources has separate company state net operating loss carry-forwards aggregating approximately $13.4 million. These net operating loss carry-forwards will expire if unused between 2019 and 2037. Artesian Resources has recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized due to the expiration of the state net operating loss carry-forwards. The valuation allowance increased to approximately $286,000 in 2016 from approximately $182,000 in 2015. Management believes that it is more likely than not that the Company will realize the benefits of these net deferred tax assets.

At December 31, 2016, for federal income tax purposes, there were alternative minimum tax credit carry-forwards aggregating $2.5 million resulting from the payment of alternative minimum tax in prior years.  These alternative minimum tax credit carry-forwards may be carried forward indefinitely to offset future regular federal income taxes. The Company remains subject to examination by federal authorities for the tax year 2015 and state authorities for the tax years 2013 through 2015.

Components of Income Tax Expense
In thousands	For the Year Ended December 31,
State income taxes	2016			2015		2014
Current		$	1,050	$	499	$	173
Deferred			860		1,299		1,231
Total state income tax expense		$	1,910	$	1,798	$	1,404
	For the Year Ended December 31,
Federal income taxes			2016		2015		2014
Current		$	1,799	$	2,168	$	(1,073	)
Deferred			4,622		3,818		6,044
Total federal income tax expense		$	6,421	$	5,986	$	4,971

Reconciliation of effective tax rate:
	For the Year Ended December 31,
In thousands	2016				2016			2015			2015			2014			2014
	Amount				Percent			Amount			Percent			Amount			Percent
Reconciliation of effective tax rate
Income before federal and state income taxes		$	21,285			100.0	%		$	19,088		100.0	%		$	15,881		100.0	%
Amount computed at statutory rate			7,237			34.0	%			6,490		34.0	%			5,400		34.0	%
Reconciling items
State income tax-net of federal tax benefit			1,327			6.2	%			1,214		6.4	%			918		5.8	%
Other			(233	)		(1.1	)%			80		0.4	%			57		0.4	%
Total income tax expense and effective rate		$	8,331			39.1	%		$	7,784		40.8	%		$	6,375		40.2	%

Deferred income taxes at December 31, 2016, 2015, and 2014 were comprised of the following:

	For the Year Ended December 31,
In thousands	2016			2015			2014
Deferred tax assets related to:
Federal alternative minimum tax credit carry-forwards	$	2,474		$	3,971		$	5,459
Federal and state operating loss carry-forwards		752			675			1,045
Bad debt allowance		104			110			99
Valuation allowance		(286	)		(182	)		(65	)
Stock options		452			415			397
Other		320			291			269
Total deferred tax assets	$	3,816		$	5,280		$	7,204
Deferred tax liabilities related to:
Property plant and equipment basis differences	$	(70,711	)	$	(66,508	)	$	(63,427	)
Uncertain tax position		(80	)		(247	)		(179	)
Expenses of rate proceedings		(19	)		(213	)		(214	)
Property taxes		(663	)		(527	)		(505	)
Other		(796	)		(756	)		(734	)
Total deferred tax liabilities	$	(72,269	)	$	(68,251	)	$	(65,059	)
Net deferred tax liability	$	(68,453	)	$	(62,971	)	$	(57,855	)

Schedule of Valuation Allowance
	Balance at Beginning of Period			Additions Charged to Costs and Expenses			Deductions		Balance at End of Period
In thousands
Classification
For the Year Ended December 31, 2016 Valuation allowance for deferred tax assets		$	182		$	104		—		$	286
For the Year Ended December 31, 2015 Valuation allowance for deferred tax assets		$	65		$	117		—		$	182
For the Year Ended December 31, 2014 Valuation allowance for deferred tax assets		$	61		$	4		—		$	65

Under FASB ASC Topic 740, an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes. In 2014, the Company changed its tax method of accounting for qualifying utility system repairs effective with the tax year ended December 31, 2014 and for prior tax years. The tax accounting method was changed to permit the expensing of qualifying utility asset improvement costs that were previously being capitalized and depreciated for book and tax purposes. The Company will recognize a tax deduction on its 2016 Federal tax return when filed of $2.7 million for qualifying capital expenditures made during the year.

The Company establishes reserves for uncertain tax positions based upon management's judgment as to the sustainability of these positions. These accounting estimates related to the uncertain tax position reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits. The Company believes its tax positions comply with applicable law and that it has adequately recorded reserves as required. However, to the extent the final tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known. The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense.

In December 2015, the Company was notified by the IRS that its Federal tax filing for 2014 would be reviewed along with the effects of the net operating loss generated in 2014 and carryback to the 2012 and 2013 tax years.  This review, which began in the first quarter of 2016 and was completed in the second quarter of 2016, resulted in no change to the tax liability.  Since the Company had previously recorded a provision for the possible disallowance of a portion of the repair deduction in prior periods, the completion of the audit resulted in the reversal of the reserves, including interest and penalties, in the amount of approximately $201,000.  While the Company maintains the belief that the deduction taken on its tax return is appropriate, the methodology for determining the deduction has not been agreed to by the tax authorities.  Therefore, as required by FASB ASC 740, the Company has accrued approximately $4,800 in penalties and interest as of December 31, 2016 for any disallowance pertaining to the 2015 tax filing. The Company had previously accrued $22,000 in penalties and interest pertaining to the 2014 tax filing.  This amount was reversed during the second quarter of 2016. The Company remains subject to examination by federal authorities for the tax year 2015 and state authorities for the tax years 2013 through 2015.

The following table provides the changes in the Company's uncertain tax position:

	For the years ended December 31,
In thousands	2016			2015
Balance at beginning of year	$	247		$	179
Additions based on tax positions related to the current year		23			51
Additions based on tax positions related to prior years		11			17
Reductions for tax positions of prior years		(201	)		-
Settlements		-			-
Lapses in Statutes of Limitations		-			-
Balance at end of year	$	80		$	247

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PREFERRED STOCK

12 Months Ended

Dec. 31, 2016

PREFERRED STOCK [Abstract]

PREFERRED STOCK

NOTE 4

PREFERRED STOCK

As of December 31, 2016 and 2015, Artesian Resources had no preferred stock outstanding.  Artesian Resources has 100,000 shares of $1.00 par value Series Preferred stock authorized but unissued.

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COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

12 Months Ended

Dec. 31, 2016

COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL [Abstract]

COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

NOTE 5

COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

The Class A Non-Voting Common Stock, or Class A Stock, of Artesian Resources trades on the NASDAQ Global Select Market under the symbol ARTNA.  The Class B Common Stock, or Class B Stock, of Artesian Resources trades on the NASDAQ's OTC Bulletin Board under the symbol ARTNB.  The rights of the holders of the Class A Stock and the Class B Stock are identical, except with respect to voting.

Under Artesian Resources' dividend reinvestment plan, which allows for reinvestment of cash dividends and optional cash payments, stockholders were issued 13,600, 17,500 and 21,000 shares at fair market value for the investment of $400,000, $384,000, and $459,000 of their monies in the years 2016, 2015, and 2014, respectively.

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DEBT

12 Months Ended

Dec. 31, 2016

DEBT [Abstract]

DEBT

NOTE 6

DEBT

At December 31, 2016, Artesian Resources had a $40 million line of credit with Citizens Bank of Pennsylvania, or Citizens, which is available to all subsidiaries of Artesian Resources. As of December 31, 2016, there was $36.4 million of available funds under this line of credit. The interest rate for borrowings under this line is the London Interbank Offered Rate, or LIBOR, plus 1.00%. 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 26, 2017 or any date on which Citizens demands payment.

At December 31, 2016, 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 $10.0 million of this line available for the operations of Artesian Water Maryland. As of December 31, 2016, there was $16.5 million of available funds under this line of credit. The interest rate for borrowings under this line is LIBOR plus 1.50%.  CoBank may make an annual patronage refund, which has been equal to 1.00% of the average loan volume outstanding by Artesian during each of the years ended December 31, 2016, December 31, 2015 and December 31, 2014. The patronage refunds, associated with all debt at CoBank, earned by Artesian for the years ended December 31, 2016, December 31, 2015 and December 31, 2014 were $702,000, $689,000 and $682,000, respectively. The term of this line of credit expires on July 20, 2017.

The weighted average interest rate on the lines of credit above paid by the Company was 1.67% for the year ended December 31, 2016. These lines of credit, as well as both the long-term debt and the state revolving fund loans shown below, require us to abide by certain financial covenants and ratios. As of December 31, 2016, we were in compliance with these covenants.

Long-term debt consists of:

	December 31,
In thousands	2016		2015
First mortgage bonds
Series O, 8.17%, due December 29, 2020	$	20,000	$	20,000
Series P, 6.58%, due January 31, 2018		25,000		25,000
Series Q, 4.75%, due December 1, 2043		15,400		15,400
Series R, 5.96%, due December 31, 2028		25,000		25,000
Series S, 6.73%, due December 31, 2033		10,200		10,800
		95,600		96,200
State revolving fund loans
4.48%, due August 1, 2021		1,456		1,711
3.57%, due September 1, 2023		640		719
3.64%, due May 1, 2025		1,142		1,255
3.41%, due February 1, 2031		2,448		2,576
3.40%, due July 1, 2032		2,361		2,475
		8,047		8,736
Sub-total		103,647		104,936
Less: current maturities (principal amount)		1,316		1,289
Total long-term debt	$	102,331	$	103,647

Payments of principal amounts due during the next five years and thereafter:

In thousands	2017		2018		2019		2020		2021		Thereafter
First Mortgage bonds	$	600	$	25,600	$	600	$	20,600	$	600	$	47,600
State revolving fund loans		716		742		771		801		832		4,185
Total payments	$	1,316	$	26,342	$	1,371	$	21,401	$	1,432	$	51,785

The table above is not reflective of the purchase of the $40 million principal amount First Mortgage Bond, Series T, or the Bond, due December 20, 2036, which was completed in January 2017.  The proceeds from the sale of the Bond were used to prepay indebtedness of the Company under two existing First Mortgage Bonds listed above: Series O and related prepayment costs and Series Q.

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NON-UTILITY OPERATING REVENUE AND EXPENSES

12 Months Ended

Dec. 31, 2016

NON UTILITY OPERATING REVENUE AND EXPENSES [Abstract]

NON-UTILITY OPERATING REVENUE AND EXPENSES

NOTE 7

NON-UTILITY OPERATING REVENUE AND EXPENSES

Non-utility operating revenue consisted of $4.7 million, $4.4 million, and $4.1 million recognized by Artesian Utility in 2016, 2015 and 2014, respectively. Non-utility operating expenses consisted of $2.6 million, $2.3 million and $2.2 million primarily recognized by Artesian Utility in 2016, 2015 and 2014, respectively.  Artesian Utility operates the water, wastewater and internal Service Line Protection Plans, or SLP Plans. The SLP Plans provide coverage for all material and labor required to repair or replace participants' leaking water service, clogged sewer lines or water and wastewater lines within the residence up to an annual limit.

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STOCK COMPENSATION PLANS

12 Months Ended

Dec. 31, 2016

STOCK COMPENSATION PLANS [Abstract]

STOCK COMPENSATION PLANS

NOTE 8

STOCK COMPENSATION PLANS

On December 9, 2015, the Company's stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan, that replaced the 2005 Equity Compensation Plan, or the 2005 Plan, which expired on May 24, 2015. The 2015 Plan provides that grants may be in any of the following forms: incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based awards. The 2015 Plan is administered and interpreted by the Compensation Committee of the Board of Directors, or the Committee.  The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, determine the type, size and terms of the grants, determine the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan) and deal with any other matters arising under the 2015 Plan. The Committee presently consists of three directors, each of whom is a non-employee director of the Company. All of the employees of the Company and its subsidiaries are eligible for grants under the 2015 Plan. Non-employee directors of the Company are also eligible to receive grants under the 2015 Plan.

The following summary reflects changes in the shares of Class A Stock under option:

	2016 Shares			2016 Weighted Average Exercise Price		2015 Shares			2015 Weighted Average Exercise Price		2014 Shares			2014 Weighted Average Exercise Price
Plan options
Outstanding at beginning of year		270,000		$	19.34		376,250		$	19.52		387,000		$	18.96
Granted		—			—		-			-		33,750			21.86
Exercised		(38,245	)		19.50		(106,250	)		19.97		(44,500	)		16.45
Expired		—			—		—			—		—			—
Outstanding at end of year		231,755		$	19.32		270,000		$	19.34		376,250		$	19.52
Options exercisable at year end		231,755		$	19.32		270,000		$	19.34		342,500		$	19.29

The fair value per share of options granted during 2014 were $3.95, as estimated using the Black-Scholes Merton option pricing model. The total intrinsic value of options exercised during 2016, 2015 and 2014 were $351,000, $379,000 and $247,000, respectively. During 2016, we received $746,000 in cash from the exercise of options, with a $351,000 tax benefit realized for those options.

The following tables summarize information about employee and director stock options outstanding at December 31, 2016:

Options Outstanding
Range of Exercise Price			Shares Outstanding at December 31, 2016		Weighted Average Remaining Life	Weighted Average Exercise Price			Aggregate Intrinsic Value
	$	15.26 - $19.04		123,755	3.28 Years		$	17.77		$	1,753,268
	$	19.05 - $22.66		108,000	5.67 Years		$	21.09		$	1,171,678
Options Exercisable
Range of Exercise Price			Shares Exercisable at December 31, 2016		Weighted Average Remaining Life	Weighted Average Exercise Price			Aggregate Intrinsic Value
	$	15.26 - $19.04		123,755	3.28 Years		$	17.77		$	1,753,268
	$	19.05 - $22.66		108,000	5.67 Years		$	21.09		$	1,171,678

As of December 31, 2016, there was no unrecognized expense related to non-vested option shares granted under the Plan.  

On May 4, 2016, 5,000 shares of Class A common stock were granted as restricted stock awards.  The fair market value per share was $27.70, the closing price of the Class A common stock as recorded on the Nasdaq Global Market on May 4, 2016.  The restricted shares vest one year from the date of grant.

On December 18, 2015, 5,000 shares of Class A common stock were issued as fully vested unrestricted stock awards. The fair market value per share was $27.38, the closing price of the Class A common stock as recorded on the Nasdaq Global Market on December 18, 2015.

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EMPLOYEE BENEFIT PLANS

12 Months Ended

Dec. 31, 2016

EMPLOYEE BENEFIT PLANS [Abstract]

EMPLOYEE BENEFIT PLANS

NOTE 9

EMPLOYEE BENEFIT PLANS

401(k) Plan

Artesian Resources has a defined contribution 401(k) Salary Deduction Plan, or the 401(k) Plan, which covers substantially all employees.  Under the terms of the 401(k) Plan, Artesian Resources contributed 2% of eligible salaries and wages and matched employee contributions up to 6% of gross pay at a rate of 50%.  Artesian Resources may, at its option, make additional contributions of up to 3% of eligible salaries and wages. In 2015, an additional 1% of eligible salaries and wages was contributed under 401(k) Plan. No such additional contributions were made in 2014 or 2016. The 401(k) Plan expenses, which include Company contributions and administrative fees, for the years 2016, 2015 and 2014, were approximately $850,000, $1.0 million, and $808,000, respectively.

Supplemental Pension Plan

Effective October 1, 1994, Artesian Water established a Supplemental Pension Plan, or the Supplemental Plan, to provide additional retirement benefits to full-time employees hired prior to April 26, 1994. The Supplemental Plan is a defined contribution plan that enables employees to save for future retiree medical costs, which will be paid by employees. The Supplemental Plan accomplishes this objective by providing additional cash resources to employees upon a termination of employment or retirement, to meet the cost of future medical expenses. Artesian Water has established a contribution based upon each employee's years of service ranging from 2% to 6% of eligible salaries and wages. Artesian Water also provides additional benefits to individuals who were over age 50 as of January 1, 1994. These individuals are referred to as the Transition Group. Effective November 1, 1994, individuals eligible for the Transition Group had the opportunity to defer compensation to the Supplemental Plan, and to receive a transition matching contribution for 5 years. Each one-dollar of eligible salaries and wages deferred by the Transition Group was matched with three, four, or five dollars by Artesian Water based on the employee's years of service subject to certain limitations under the federal tax rules. Plan expenses, which include Company contributions and administrative fees, for the years 2016, 2015 and 2014, were approximately $227,000, $243,000, and $244,000, respectively.

Postretirement Benefit Plan

Artesian Water has a Postretirement Benefit Plan, or the Benefit Plan, which provides medical and life insurance benefits to certain retired employees. Prior to the amendment of the Benefit Plan, substantially all employees could become eligible for these benefits if they reached retirement age while still working for Artesian Water. The amendment excludes any current employees from becoming eligible for these benefits upon retirement.

FASB ASC Topic 715 stipulates that Artesian Water accrue the expected cost of providing postretirement health care and life insurance benefits as employees render the services necessary to earn the benefits. Artesian Water recognizes an offsetting regulatory asset with respect to its post retirement liability. This asset is recorded based on the DEPSC order, which permits Artesian Water to continue recovery of postretirement health care and life insurance expense on a pay-as-you-go basis for the remaining eligible employees. Further, expense recovery as a percentage of rates is expected to remain generally constant over the initial years, and then decline until the obligation is liquidated. The amounts recognized in consolidated financial statements are determined based on an actuarial basis, which uses assumptions about inflation, mortality, medical trend rates and discount rates. A change in these assumptions could cause actual results to differ from those reported. Amounts charged to expense were $80,000, $113,000, and $121,000 for 2016, 2015 and 2014, respectively.

The Company uses December 31 as the measurement date to determine the postretirement benefit obligation. There were three remaining eligible retirees as of December 31, 2016.  The estimated post retirement liability recorded at December 31, 2016 and December 31, 2015 was $186,000 and $329,000 respectively. The Company anticipates contributing $37,000 towards postretirement benefits in 2017.  There was no other comprehensive income impact because a regulatory asset is recorded as provided by FASB ASC Topic 980.

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2016

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 10

COMMITMENTS AND CONTINGENCIES

Leases

In October 1997, Artesian Water entered into a 33 year operating lease for a parcel of land with improvements located in South Bethany, a municipality in Sussex County, Delaware. The annual lease payments increase each year by the most recent increase in the Consumer Price Index for Urban Workers, CPI-U, as published by the U.S. Department of Labor, Bureau of Labor Statistics. At each eleventh year of the lease term, the annual lease payment shall be determined based on the fair market value of the parcel of land. Rental payments for 2016, 2015 and 2014 were $16,000, $16,000, and $15,900, respectively. Since the CPI-U in 2016 was less than the CPI-U in 2015, the future minimum rental payment as disclosed in the following table is calculated using CPI-U as of October 31, 2015 as well as any adjustments for appraisals conducted to determine the fair market value of the parcel of land.

During 2003, Artesian Resources entered into a 40 year easement agreement to acquire an easement to access, operate, maintain, repair, improve, replace and connect Artesian's water system to a well, including a parcel of land around the well. Easement payments for 2016, 2015 and 2014 were $36,000, $35,000 and $34,000, respectively.

Artesian Wastewater entered into a perpetual agreement for the use of approximately 460 acres of land in Sussex County, Delaware for wastewater disposal.  Beginning January 2007, Artesian Wastewater is required to pay a minimum of $40,000 per year for the use of this land.  Beginning January 2012, and on each anniversary thereof until January 2027, the fee shall be adjusted upwards by an adjustment factor of two percent.  Once disposal operations begin, the monthly fee will be contingent on the average number of gallons of wastewater disposed on the properties.  Payments for 2016, 2015 and 2014 were $44,000, $43,000 and $43,000, respectively.  The agreement can be terminated by giving 180 day notice prior to the termination date.

Future minimum annual rental payments related to non-cancellable operating leases for the years subsequent to 2016 are as follows:

In thousands
2017	$	76
2018		54
2019		56
2020		57
2021		58
2022 through 2043		1,394
	$	1,695

Interconnections

Artesian Water has one water service interconnection agreement with a neighboring utility, Chester Water Authority, which requires minimum annual purchases.  Rates charged under this agreement are subject to change.  Effective August 1, 1997, Artesian Water renegotiated the contract with the Chester Water Authority to, among other things, reduce the minimum purchase requirements from 1,459 million gallons to 1,095 million gallons annually, calculated as 3 million gallons per day times the number of calendar days in a year. The agreement is extended through the year 2021.

The minimum annual purchase commitments for all interconnection agreements for 2017 through 2021, calculated at the noticed rates, are as follows:

In thousands
2017		3,824
2018		3,824
2019		3,825
2020		3,834
2021		3,825
	$	19,132

Expenses for purchased water were $4.0 million for each of the years ended December 31, 2016, 2015 and 2014.

Other Commitments

In 2013, Artesian Water entered into a 3-year agreement with Worldwide Industries Corporation to clean and paint tanks in 2014, 2015 and 2016. Pursuant to the 3-year agreement, the expenditure committed in total for the years 2014 through 2016 is $804,000. In 2014, the 3-year agreement with Worldwide Industries Corporation was amended to include an additional $113,000 in expenditures related to cleaning and painting tanks. In March 2017, Artesian Water entered in a 3-year agreement with Worldwide Industries Corporation to clean and paint tanks in 2017, 2018 and 2019.  Pursuant to the 3-year agreement, the expenditure committed in total for the years 2017 through 2019 is $1.3 million. The tank painting expense for 2016, 2015 and 2014 was $528,000, $329,000, and $342,000.

Budgeted mandatory utility plant expenditures, due to planned governmental highway projects, which require the relocation of Artesian Water's water service mains, expected to be incurred in 2017 through 2019 are as follows:

In thousands
2017	$	4,735
2018		2,165
2019		1,130
	$	8,030

The exact timing and extent of these relocation projects is controlled primarily by the Delaware Department of Transportation.

Litigation

Artesian Resources and its subsidiaries are subject to legal proceedings in the ordinary course of business.  Any amounts from such legal proceedings that are probable and reasonably estimable are reflected in the financial statements.

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GEOGRAPHIC CONCENTRATION OF CUSTOMERS

12 Months Ended

Dec. 31, 2016

GEOGRAPHIC CONCENTRATION OF CUSTOMERS [Abstract]

GEOGRAPHIC CONCENTRATION OF CUSTOMERS

NOTE 11

GEOGRAPHIC CONCENTRATION OF CUSTOMERS

Artesian Water, Artesian Water Maryland and Artesian Water Pennsylvania provide water utility service to customers within their established service territory in all three counties of Delaware and in portions of Maryland and Pennsylvania, pursuant to rates filed with and approved by the DEPSC, the MDPSC and the PAPUC. As of December 31, 2016, Artesian Water was serving approximately 82,700 customers, Artesian Water Maryland was serving approximately 2,300 customers and Artesian Water Pennsylvania was serving approximately 40 customers.

Artesian Wastewater began providing wastewater services to a community in Sussex County, Delaware in July 2005. Artesian Wastewater provides wastewater utility service to customers within their established service territory in Sussex County, Delaware pursuant to rates filed with and approved by the DEPSC. As of December 31, 2016, Artesian Wastewater was serving approximately 1,600 customers, all of which are located in Sussex County, Delaware.

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REGULATORY PROCEEDINGS

12 Months Ended

Dec. 31, 2016

REGULATORY PROCEEDINGS [Abstract]

REGULATORY PROCEEDINGS

NOTE 12

REGULATORY PROCEEDINGS

Our water and wastewater utilities generate operating revenue from customers based on rates that are established by state Public Service Commissions through a rate setting process that may include public hearings, evidentiary hearings and the submission of evidence and testimony in support of the requested level of rates by the Company.

We are subject to regulation by the following state regulatory commissions:

·The Delaware Public Service Commission, or DEPSC, regulates both Artesian Water and Artesian Wastewater.

·The Maryland Public Service Commission, or MDPSC, regulates both Artesian Water Maryland and Artesian Wastewater Maryland.

·The Pennsylvania Public Utility Commission, or PAPUC, regulates Artesian Water Pennsylvania.

Rate Proceedings

Our regulated utilities periodically seek rate increases to cover the cost of increased operating expenses, increased financing expenses due to additional investments in utility plant and other costs of doing business.  In Delaware, utilities are permitted by law to place rates into effect, under bond, on a temporary basis pending completion of a rate increase proceeding. The first temporary increase may be up to the lesser of $2.5 million on an annual basis or 15% of gross water sales.  Should the rate case not be completed within seven months, by law, the utility may put the entire requested rate relief, up to 15% of gross water sales, in effect under bond until a final resolution is ordered and placed into effect. If any such rates are found to be in excess of rates the DEPSC finds to be appropriate, the utility must refund customers the portion found to be in excess with interest.  The timing of our rate increase requests are therefore dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase.  We can provide no assurances that rate increase requests will be approved by applicable regulatory agencies and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase.

On August 18, 2015, the DEPSC made a preliminary ruling in response to Artesian Water's April 2014 application to implement new rates to meet a requested increase in revenue of 15.90%, or approximately $10.0 million, on an annualized basis. The preliminary ruling recommended a permanent rate increase in revenue of approximately $6.0 million, or 9.50%, on an annualized basis, which was an incremental increase for customers of approximately 6.20% above the Distribution System Improvement Charge, or DSIC, rate previously in effect. On October 6, 2015, a DEPSC order was issued concurring with the preliminary ruling issued on August 18, 2015. On January 19, 2016, a final DEPSC order was issued related to the permanent rate increase and concurred with the October 6, 2015 order. Because the permanent rate increase was less than amounts collected under previously approved temporary increases in rates, Artesian Water was required to refund a portion of the temporary rate increases to its customers. The refund, plus interest, at the average prime rate, for the overpayment from customers was applied to current and future customer bills in October 2015. Because the final rate award was at a level not less than the amount previously reported as income, there was no material impact upon previously reported water sales revenue. The new rates are designed to allow recovery of capital investments made by Artesian Water and to cover increased costs of operations, including water quality testing, chemicals and electricity for water treatment, taxes, labor and benefits.

Other Proceedings

Delaware law permits water utilities to put into effect, on a semi-annual basis, increases related to specific types of distribution system improvements through a Distribution System Improvement Charge, or DSIC. This charge may be implemented by water utilities between general rate increase applications that normally recognize changes in a water utility's overall financial position. The DSIC approval process is less costly when compared to the approval process for general rate increase requests. The DSIC rate applied between base rate filings is capped at 7.50% of the amount billed to customers under otherwise applicable rates and charges, and the DSIC rate increase applied cannot exceed 5.0% within any 12-month period.

The following table summarizes Artesian Water's applications with the DEPSC to collect DSIC rates and the eligible plant improvements the rates are based on:

Application Date

11/26/2014

05/28/2015

11/24/2015

05/31/2016

11/29/2016

Effective Date

01/01/2015

07/01/2015

01/01/2016

07/01/2016

01/01/2017

DEPSC Approval Date

12/16/2014

06/16/2015

12/15/2015

06/28/2016

12/20/2016

Cumulative DSIC Rate

0.34

%

1.15

%

1.57

%

2.30

%

4.71

%

Eligible Plant Improvements – Cumulative Dollars (in millions)

$

1.3

$

4.6

$

7.0

$

10.3

$

16.6

Eligible Plant Improvements – Installed Beginning Date

10/01/2014

10/01/2014

10/01/2014

10/01/2014

10/01/2014

Eligible Plant Improvements – Installed Ending Date

10/31/2014

04/30/2015

10/31/2015

04/30/2016

10/31/2016

All DEPSC approvals noted in the table above are subject to audit at a later date.  For the years ended December 31, 2016, December 31, 2015 and December 31, 2014, we earned approximately $1,306,000, $520,000 and $788,000 in DSIC revenue, respectively.

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NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE

12 Months Ended

Dec. 31, 2016

NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE [Abstract]

NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE

NOTE 13

NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE

Basic net income per share is based on the weighted average number of common shares outstanding. Diluted net income per share is based on the weighted average number of common shares outstanding, the potentially dilutive effect of employee stock options and restricted stock awards. The following table summarizes the shares used in computing basic and diluted net income per share:

	For the Year
	Ended December 31,
	2016		2015		2014
	(in thousands)
Weighted average common shares outstanding during the period for Basic computation		9,098		8,960		8,884
Dilutive effect of employee stock options		63		45		42
Weighted average common shares outstanding during the period for Diluted computation		9,161		9,005		8,926

For the years ended December 31, 2016 and December 31, 2015, no shares of common stock were excluded from the calculations of diluted net income per share, respectively. For the year ended December 31, 2014, employee stock options to purchase 67,500 shares of common stock were excluded from the calculations of diluted net income per share, as the calculated proceeds from the options' exercise were greater than the average market price of the Company's common stock during this period.

The Company has 15,000,000 authorized shares of Class A Stock, and 1,040,000 shares of Class B Stock. As of December 31, 2016, 8,246,033 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. As of December 31, 2015, 8,176,213 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. As of December 31, 2014, 8,030,677 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. The par value for both classes is $1.00 per share.  For the years ended December 31, 2016, December 31, 2015, and December 31, 2014, the Company issued 69,820, 145,536, and 82,108 shares of Class A Stock, respectively.

Equity per common share was $15.28, $14.77, and $14.14 at December 31, 2016, December 31, 2015, and December 31, 2014, respectively.  These amounts were computed by dividing common stockholders' equity by the number of weighted average shares of common stock outstanding on December 31, 2016, December 31, 2015, and December 31, 2014, respectively.

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SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

12 Months Ended

Dec. 31, 2016

SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) [Abstract]

SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

NOTE 14

SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table is derived from quarterly unaudited consolidated statements of operations for the years ended December 31, 2016 and 2015.  Quarterly basic and diluted per share amounts do not add to the full year total due to rounding.

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
In thousands (except per share data)	2016		2015		2016		2015		2016		2015		2016		2015
Operating revenues	$	18,449	$	17,962	$	19,395	$	19,536	$	21,828	$	20,776	$	19,417	$	18,750
Operating income	$	3,853	$	3,672	$	4,669	$	4,985	$	5,945	$	5,394	$	4,352	$	3,531
Net income applicable to common stock	$	2,830	$	2,538	$	3,041	$	3,233	$	4,360	$	3,699	$	2,723	$	1,835
Income per common share
Basic	$	0.31	$	0.28	$	0.33	$	0.36	$	0.48	$	0.41	$	0.30	$	0.21
Diluted	$	0.31	$	0.28	$	0.33	$	0.36	$	0.48	$	0.41	$	0.30	$	0.21

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2016

RELATED PARTY TRANSACTIONS [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 15

RELATED PARTY TRANSACTIONS

In July 2016, Artesian Water entered into a contract in the normal course of business with W.F. Construction, Inc., a related party, for $131,000 in work associated with building modifications to a water treatment plant.  In May 2015, Artesian Water entered into an approximately $48,000 agreement in the normal course of business with W.F. Construction, Inc. for structural improvements at a water treatment plant.  The owner of W.F. Construction, Inc. is the husband of Mrs. Jennifer Finch, Vice President and Assistant Treasurer of Artesian Resources. Approximately $137,000 was paid to W.F. Construction, Inc. during the year ended December 31, 2016.  Approximately $48,000 was paid to W.F. Construction, Inc. for the year ended December 31, 2015. As of December 31, 2016 and December 31, 2015, the Company had no accounts payable balance due to W. F. Construction, Inc., respectively. As set forth in the Charter of the Audit Committee of the Board of Directors of Artesian Resources, the Audit Committee is responsible for reviewing and, if appropriate, approving all related party transactions between us and any officer, director, any person known to be the beneficial owner of more than 5% of any class of the Company's voting securities or any other related person that would potentially require disclosure. In its review and approval of the 2016 related party transaction with W.F. Construction, Inc., the Audit Committee considered the nature of the related person's interest in the transaction; the satisfactory performance of work contracted with the related party prior to our employment of Mrs. Finch; and the material terms of the transaction, including, without limitation, the amount and type of transaction, the importance of the transaction to the related person, the importance of the transaction to the Company and whether the transaction would impair the judgment of a director or officer to act in the best interest of the Company. The Audit Committee approves only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders.

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LEGAL PROCEEDINGS

12 Months Ended

Dec. 31, 2016

Legal Proceedings [Abstract]

LEGAL PROCEEDINGS

NOTE 16

LEGAL PROCEEDINGS

Periodically, we are involved in other proceedings or litigation arising in the ordinary course of business. We do not believe that the ultimate resolution of these matters will materially affect our business, financial position or results of operations. However, we cannot assure that we will prevail in any litigation and, regardless of the outcome, may incur significant litigation expense and may have significant diversion of management attention.

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IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

12 Months Ended

Dec. 31, 2016

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS [Abstract]

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

NOTE 17

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued amended guidance for reporting revenue from contracts with customers.  This guidance affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts).  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows arising from contracts with customers.  The majority of the Company's revenue should not be affected by this new standard.  Water and wastewater revenue is based on service provided to customers at rates subject to approval by regulatory commissions without a defined contract.  The Company continues to evaluate the impact of adoption of this new standard if contributions in aid of construction are determined to be in scope and thus considered to be revenue.

In February 2016, the FASB issued new guidance on Leases to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Management is currently evaluating the impact of our pending adoption of the new standard, which includes compiling a list of all contracts that meet the definitions of a lease under the new standard and determine the proper classification and accounting treatment to determine the ultimate impact the new standard will have on our consolidated financial statements.

In March 2016, FASB issued amended guidance on Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. Some of the areas apply only to nonpublic companies allowing simplification. For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Management does not expect a material impact on the Company's financial statements due to the adoption of this guidance.

In August 2016, FASB issued amended guidance to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The amendments provide guidance on the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.  For public companies, the amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  The amendments should be applied using a retrospective transition method to each period presented.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2016

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Basis of Presentation

Basis of Presentation

The audited consolidated financial statements are presented in accordance with the requirements of Form 10-K and accounting principles generally accepted in the United States and consequently include all the disclosures required in the consolidated financial statements included in the Company's annual report on Form 10-K. The accompanying consolidated financial statements include the accounts of Artesian Resources Corporation and its subsidiaries and all intercompany balances and transactions between subsidiaries have been eliminated.

Reclassification

Reclassification

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. These reclassifications had no effect on net income or stockholders' equity.

In 2016, the Company adopted amended guidance on the Presentation of Debt Issuance Costs and amended guidance on Income Taxes, both of which were issued by the Financial Accounting Standards Board, or FASB, in 2015. The amended guidance on the Presentation of Debt Issuance Costs requires entities to present debt issuance costs related to a debt liability as a direct deduction from the carrying amount of that debt liability on the balance sheet as opposed to being presented as a deferred charge. The amended guidance on Income Taxes simplified the presentation of deferred income taxes, permitting all deferred income tax liabilities be classified as noncurrent on the balance sheet.

For all periods presented in this Form 10-K for the year ended December 31, 2016, unamortized debt issuance costs related to the Company's long-term debt are reported on the Condensed Consolidated Balance Sheets within "Regulatory Assets, Net" under FASB ASC Topic 980 as this amount will be recovered in future rates charged to our customers.  Prior to adoption, the Company reported the unamortized debt issuance costs in "Other Assets" on the Condensed Consolidated Balance Sheets.  Deferred income taxes are reported as noncurrent on the Condensed Consolidated Balance Sheets.  Prior to adoption, the Company reported current and noncurrent deferred income tax liabilities as separate amounts on the Condensed Consolidated Balance Sheets.

Utility Subsidiary Accounting

Utility Subsidiary Accounting

The accounting records of Artesian Water Company, Inc., or Artesian Water, and Artesian Wastewater Management, Inc., or Artesian Wastewater, are maintained in accordance with the uniform system of accounts as prescribed by the Delaware Public Service Commission, or the DEPSC.  The accounting records of Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, are maintained in accordance with the uniform system of accounts as prescribed by the Pennsylvania Public Utility Commission, or the PAPUC.  The accounting records of Artesian Water Maryland, Inc., or Artesian Water Maryland, and Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, are maintained in accordance with the uniform system of accounts as prescribed by the Maryland Public Service Commission, or the MDPSC.  All five subsidiaries follow the provisions of FASB ASC Topic 980, which provides guidance for companies in regulated industries. These regulated subsidiaries account for the majority of our operating revenue. The operating revenues of our non-regulated division are presented in the Consolidated Statements of Operations.

Utility Plant

Utility Plant

Utility plant is stated at original cost.  Cost includes direct labor, materials, AFUDC (see description below) and indirect charges for such capitalized items as transportation, supervision, pension, medical, and other fringe benefits related to employees engaged in construction activities. When depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received, is charged to the regulated retirement liability.  Maintenance, repairs, and replacement of minor items of plant are charged to expense as incurred.

In accordance with a rate order issued by the DEPSC, Artesian Water accrues an Allowance for Funds Used during Construction, or AFUDC. AFUDC, which represents the cost of funds devoted to construction projects through the date the project is placed in service, is capitalized as part of construction work in progress. The rate used for the AFUDC calculation is based on Artesian Water's weighted average cost of debt and the rate of return on equity authorized by the DEPSC. The rate used to capitalize AFUDC in 2016, 2015, and 2014 was 8.1%, 8.1%, and 8.2% respectively.

Utility plant comprises:
In thousands
			December 31,
	Estimated Useful Life (In Years)		2016		2015
Utility plant at original cost
Utility plant in service-Water
Intangible plant		—	$	140	$	140
Source of supply plant		45-85		19,627		19,313
Pumping and water treatment plant		8-62		78,542		77,221
Transmission and distribution plant
Mains		81		236,261		224,104
Services		39		38,803		36,060
Storage tanks		76		24,108		23,992
Meters		26		24,710		24,150
Hydrants		60		12,870		12,037
General plant		3-31		53,417		52,434
Utility plant in service-Wastewater
Treatment and disposal plant		35-62		15,613		14,012
Collection mains & lift stations		81		8,675		7,833
General plant		3-31		931		906
Property held for future use		—		14,815		14,345
Construction work in progress		—		6,674		3,809
				535,186		510,356
Less – accumulated depreciation				109,684		104,750
			$	425,502	$	405,606

Depreciation and Amortization

Depreciation and Amortization

For financial reporting purposes, depreciation is recorded using the straight-line method at rates based on estimated economic useful lives, which range from 3 to 85 years. Composite depreciation rates for water utility plant were 2.25%, 2.29% and 2.30% for 2016, 2015 and 2014, respectively. In a rate order issued by the DEPSC, the Company was directed effective January 1, 1998 to begin using revised depreciation rates for utility plant. In rate orders issued by the DEPSC, Artesian Water was directed, effective May 28, 1991 and August 25, 1992, to offset depreciation recorded on utility plant by depreciation on utility property funded by Contributions in Aid of Construction, or CIAC, and Advances for Construction, or Advances, respectively.  This reduction in depreciation expense is also applied to outstanding CIAC and Advances.  Other deferred assets are amortized using the straight-line method over applicable lives, which range from 2 to 40 years.

Utility Plant Retirement Cost Obligation

Utility Plant Retirement Cost Obligation

The utility plant retirement cost obligation consists of estimated costs related to the potential removal and replacement of facilities and equipment on the Company's water and wastewater properties.  Effective January 1, 2012, as authorized by the DEPSC, when depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received is charged to a regulated retirement liability.  Each year the liability is increased by an annual amount authorized by the DEPSC.  Previously, when depreciable units of utility plant were retired, the cost of retired property, together with any cost associated with retirement less any salvage value or proceeds received, was charged to accumulated depreciation.  Maintenance, repairs, and replacement of minor items of plant are charged to expense as incurred.

Regulatory Assets

Regulatory Assets

FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency. Certain expenses are recoverable through rates charged to our customers, without a return on investment, and are deferred and amortized during future periods using various methods as permitted by the Delaware Public Service Commission, or DEPSC, the Maryland Public Service Commission, or MDPSC, and the Pennsylvania Public Utility Commission, or PAPUC.

The postretirement benefit obligation is the recognition of an offsetting regulatory asset as it relates to the accrual of the expected cost of providing postretirement health care and life insurance benefits to retired employees when they render the services necessary to earn the benefits.  Artesian Water contributed $81,000 to its postretirement benefit plan in 2016. These contributions consist of insurance premium payments for medical, dental and life insurance benefits made on behalf of the Company's eligible retired employees.

The deferred income taxes will be amortized over future years as the tax effects of temporary differences that previously flowed through to our customers are reversed.

Other regulatory expenses are amortized on a straight-line basis as noted below:

Expense	Years Amortized
Depreciation and salary studies	5
Delaware rate proceedings	2.5
Maryland rate proceedings	5
Debt issuance costs (as of December 31, 2016)	10 to 30 (based on term of related debt)
Debt issuance costs (after First Mortgage Bond Purchase in January 2017)	15 to 25 (based on term of related debt)
Goodwill (resulting from acquisition of Mountain Hill Water Company in 2008)	50
Deferred acquisition costs (resulting from purchase of water assets in Cecil County, Maryland in 2011 and Port Deposit, Maryland in 2010)	20
Franchise Costs (resulting from purchase of water assets in Cecil County, Maryland in 2011)	80

Regulatory assets, net of amortization, comprise:

(in thousands)	December 31, 2016		December 31, 2015
Postretirement benefit obligation	$	186	$	329
Deferred income taxes		431		446
Expense of rate and regulatory proceedings		116		616
Debt issuance costs		1,648		1,747
Goodwill		310		318
Deferred acquisition and franchise costs		683		720
	$	3,374	$	4,176

Impairment or Disposal of Long-Lived Assets

Impairment or Disposal of Long-Lived Assets

Our long-lived assets consist primarily of utility plant in service and regulatory assets.  A review of our long-lived assets is performed in accordance with the requirements of FASB ASC Topic 360. In addition, the regulatory assets are reviewed for the continued application of FASB ASC Topic 980.  The review determines whether there have been changes in circumstances or events that have occurred requiring adjustments to the carrying value of these assets.  FASB ASC Topic 980 stipulates that adjustments to the carrying value of these assets would be made in instances where the inclusion in the rate-making process is unlikely.

Other Deferred Assets

Other Deferred Assets

The investment in Co-Bank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based on the underlying long term debt agreements.  A large portion of the remaining other deferred assets, approximately $0.3 million, is in relation to the Mountain Hill acquisition.

Other deferred assets at December 31, net of amortization, comprise:

In thousands	2016			2015
Investment in CoBank		$	3,198		$	3,023
Other			386			421
		$	3,584		$	3,444

Advances for Construction

Advances for Construction

Cash advances to reimburse Artesian Water for its costs to construct water mains, services and hydrants are contributed to Artesian Water by real estate developers and builders in order to extend water service to their properties. The Company only accepts advances related to new phases of existing developments that are grandfathered into the refundable arrangement through pre-existing contracts.  The value of these contributions is recorded as Advances for Construction. Artesian Water makes refunds on these advances over a specific period of time based on operating revenues generated by the specific plant or as new customers are connected to the mains. After all refunds are made within the contract period, any remaining balance is transferred to CIAC.

Contributions in Aid of Construction

Contributions in Aid of Construction

CIAC includes the non-refundable portion of advances for construction and direct contributions of water mains, services and hydrants, and wastewater treatment facilities and collection systems, or cash to reimburse our water and wastewater divisions for costs to construct water mains, services and hydrants, and wastewater treatment and disposal plant.

Income Taxes

Income Taxes

Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse. Under FASB ASC Topic 740, an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes. In 2014, the Company changed its tax method of accounting for qualifying utility system repairs effective with the tax year ended December 31, 2014 and for prior tax years. The tax accounting method was changed to permit the expensing of qualifying utility asset improvement costs that were previously being capitalized and depreciated for book and tax purposes.

The Company establishes reserves for uncertain tax positions based upon management's judgment as to the sustainability of these positions. These accounting estimates related to the uncertain tax position reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits. The Company believes its tax positions comply with applicable law and that it has adequately recorded reserves as required. However, to the extent the final tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known. The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense. The Company remains subject to examination by federal authorities for the tax year 2015 and state authorities for the tax years 2013 through 2015.  The Company was under federal audit by the Internal Revenue Service for tax years 2012 through 2014 during 2016.  The audit was concluded during the year resulting in no change to the tax liability.

The Tax Reform Act of 1986 mandated that Advances and CIAC received subsequent to December 31, 1986, generally are taxable income.  The 1996 Tax Act provided an exclusion from taxable income for CIAC and Advances received after June 12, 1996 except for certain contributions for large services that are not included in rate base for rate-making purposes.

Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives of the related assets.

Stock Compensation Plans

Stock Compensation Plans

On December 9, 2015, the Company's stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan. The 2015 Plan replaced the 2005 Equity Compensation Plan, or the 2005 Plan, which expired on May 24, 2015. The 2015 Plan authorizes an aggregate number of shares of our Class A common stock that may be issued or transferred under the Plan equal to the sum of:  331,500 shares, plus the number of shares of Class A common stock subject to outstanding grants under the 2005 Plan as of December 9, 2015 that terminate, expire or are cancelled, forfeited, exchanged or surrendered without having been exercised, vested or paid under the 2005 Plan. The Company accounts for stock options issued after January 1, 2006 under FASB ASC Topic 718. Compensation costs for restricted stock grants and options were $92,000, $183,000 and $135,000 in 2016, 2015 and 2014, respectively. Cost for options and restricted stock grants were determined based on the fair value at the grant dates and those costs were charged to income over the associated service periods. The $135,000 in 2014 was the amount amortized for stock options awarded in 2014 and 2013.  The $183,000 in 2015 was the amount amortized for restricted stock  awarded in 2015 and stock options awarded in 2014. The $92,000 in 2016 was the amount amortized for restricted stock awarded in 2016. As of December 31, 2016 there is $47,000 unrecognized expense related to non-vested awards of restricted shares granted under the 2015 Plan.

There was no stock compensation cost capitalized as part of an asset.

Stock Options

The fair value of each option grant is estimated using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions used for grants issued in 2014 under the 2005 Equity Compensation Plan (See Note 8 "Stock Compensation Plans"). No options were granted in 2015 or 2016.

	2014
Expected Dividend Yield		3.88%
Expected Stock Price Volatility		26.50%
Weighted Average Risk Free Interest Rate		2.24%
Weighted Average Expected Life of Options (in years)		7.52

The expected dividend yield was based on a 12 month rolling average of the Company's current dividend yield. The expected volatility is the standard deviation of the change in the natural logarithm of the stock price (expressed as an annual rate) for the expected term shown above. The expected term was based on historic exercise patterns for similar grants. The risk free interest rate for the 2014 options is the weighted average of the 7-year and 10-year US Treasury Yield rates.

Shares of Class A Stock have been reserved for future issuance under the 2015 Equity Compensation Plan.

Stock Awards

On May 4, 2016, 5,000 shares of Class A common stock were granted as restricted stock awards.  The fair market value per share was $27.70, the closing price of the Class A common stock as recorded on the Nasdaq Global Market on May 4, 2016.  The restricted shares vest one year from the date of grant.  A total of $92,000 was recorded as compensation cost for the awards granted in May 2016.

On December 18, 2015 5,000 shares of Class A common stock were issued as fully vested unrestricted stock awards. The fair market value per share was $27.38, the closing price of the Class A common stock as recorded on the Nasdaq Global market on December 18, 2015. A total of $137,000 was recorded as compensation cost for the stock awards granted in December 2015.

Revenue Recognition and Unbilled Revenues

Revenue Recognition and Unbilled Revenues

Water service revenue for financial statement purposes includes amounts billed to Delaware customers on a monthly basis, amounts billed to Maryland customers on a quarterly or monthly cycle basis, depending on water system, and amounts billed to Pennsylvania customers on a quarterly basis.  Water service revenues also include unbilled amounts based upon estimated usage from the date of the last meter reading to the end of the accounting period. As actual usage amounts are received, adjustments are made to the unbilled estimates in the next billing cycle based on an accrual basis.

Other utility operating revenue includes wastewater service revenue derived from monthly fixed fees billed to customers, and is recognized on an accrual basis.  

Non-utility operating revenue is primarily derived from Service Line Protection Plans and from the design, construction and operation of contract water and wastewater projects.  The Company recognizes non-utility operating revenue ratably over the service period with markup for overhead and profit.  The Company records contract monthly fees for non-utility operating revenue when billed to the customer. Service line protection plan revenues are recognized on an accrual basis.

Accounts Receivable

Accounts Receivable

Accounts receivable are recorded at the invoiced amounts. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in our existing accounts receivable. The Company reviews the allowance for doubtful accounts on a quarterly basis. Account balances are written off against the allowance when it is probable the receivable will not be recovered. The allowance for doubtful accounts was $0.3 million and $0.3 million at December 31, 2016 and December 31, 2015 respectively.  The corresponding expense for the year ended December 31, 2016 and 2015 was $0.2 million and $0.2 million, respectively. The following table summarizes the changes in the Company's accounts receivable balance:

	December 31,
In thousands	2016			2015			2014
Customer accounts receivable – water		$	5,437		$	5,017		$	4,020
Contractual amounts due from developers and other			2,622			1,610			1,295
			8,059			6,627			5,315
Less allowance for doubtful accounts			263			277			250
Net accounts receivable		$	7,796		$	6,350		$	5,065

The activities in the allowance for doubtful accounts are as follows:

	December 31,
In thousands	2016				2015				2014
Beginning balance		$	277			$	250			$	221
Allowance adjustments			195				205				194
Recoveries			64				53				64
Write off of uncollectible accounts			(273	)			(231	)			(229	)
Ending balance		$	263			$	277			$	250

Cash and Cash Equivalents

Cash and Cash Equivalents

For purposes of the Consolidated Statement of Cash Flows, Artesian Resources considers all temporary cash investments with an original maturity of three months or less to be cash equivalents. Artesian Resources and its subsidiaries utilize their bank's zero balance account disbursement service to reduce the use of their lines of credit by funding checks as they are presented to the bank for payment rather than at issuance. If the checks currently outstanding, but not yet funded, exceed the cash balance on our books, the net liability is recorded as a current liability on the Consolidated Balance Sheet in the Overdraft Payable account.

Use of Estimates in the Preparation of Consolidated Financial Statements

Use of Estimates in the Preparation of Consolidated Financial Statements

The consolidated financial statements were prepared in conformity with generally accepted accounting principles in the U.S., which require management to make estimates about the reported amounts of assets and liabilities including unbilled revenues, reserve for a portion of revenues received under temporary rates and regulatory asset recovery and contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from management's estimate.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2016

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Schedule of Utility Plant

Utility plant comprises:
In thousands
			December 31,
	Estimated Useful Life (In Years)		2016		2015
Utility plant at original cost
Utility plant in service-Water
Intangible plant		—	$	140	$	140
Source of supply plant		45-85		19,627		19,313
Pumping and water treatment plant		8-62		78,542		77,221
Transmission and distribution plant
Mains		81		236,261		224,104
Services		39		38,803		36,060
Storage tanks		76		24,108		23,992
Meters		26		24,710		24,150
Hydrants		60		12,870		12,037
General plant		3-31		53,417		52,434
Utility plant in service-Wastewater
Treatment and disposal plant		35-62		15,613		14,012
Collection mains & lift stations		81		8,675		7,833
General plant		3-31		931		906
Property held for future use		—		14,815		14,345
Construction work in progress		—		6,674		3,809
				535,186		510,356
Less – accumulated depreciation				109,684		104,750
			$	425,502	$	405,606

Amortization Period of Other Regulatory Expense

Other regulatory expenses are amortized on a straight-line basis as noted below:

Expense	Years Amortized
Depreciation and salary studies	5
Delaware rate proceedings	2.5
Maryland rate proceedings	5
Debt issuance costs (as of December 31, 2016)	10 to 30 (based on term of related debt)
Debt issuance costs (after First Mortgage Bond Purchase in January 2017)	15 to 25 (based on term of related debt)
Goodwill (resulting from acquisition of Mountain Hill Water Company in 2008)	50
Deferred acquisition costs (resulting from purchase of water assets in Cecil County, Maryland in 2011 and Port Deposit, Maryland in 2010)	20
Franchise Costs (resulting from purchase of water assets in Cecil County, Maryland in 2011)	80

Regulatory Assets, Net of Amortization

Regulatory assets, net of amortization, comprise:

(in thousands)	December 31, 2016		December 31, 2015
Postretirement benefit obligation	$	186	$	329
Deferred income taxes		431		446
Expense of rate and regulatory proceedings		116		616
Debt issuance costs		1,648		1,747
Goodwill		310		318
Deferred acquisition and franchise costs		683		720
	$	3,374	$	4,176

Other Deferred Assets, Net of Amortization

Other deferred assets at December 31, net of amortization, comprise:

In thousands	2016			2015
Investment in CoBank		$	3,198		$	3,023
Other			386			421
		$	3,584		$	3,444

Weighted-average Assumptions Used for Grants Issued

	2014
Expected Dividend Yield		3.88%
Expected Stock Price Volatility		26.50%
Weighted Average Risk Free Interest Rate		2.24%
Weighted Average Expected Life of Options (in years)		7.52

Changes in Accounts Receivable

	December 31,
In thousands	2016			2015			2014
Customer accounts receivable – water		$	5,437		$	5,017		$	4,020
Contractual amounts due from developers and other			2,622			1,610			1,295
			8,059			6,627			5,315
Less allowance for doubtful accounts			263			277			250
Net accounts receivable		$	7,796		$	6,350		$	5,065

Allowance for Doubtful Accounts

The activities in the allowance for doubtful accounts are as follows:

	December 31,
In thousands	2016				2015				2014
Beginning balance		$	277			$	250			$	221
Allowance adjustments			195				205				194
Recoveries			64				53				64
Write off of uncollectible accounts			(273	)			(231	)			(229	)
Ending balance		$	263			$	277			$	250

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2016

FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]

Fair value of long-term debt

In thousands	December 31,
	2016			2015
Carrying amount		$	103,647		$	104,936
Estimated fair value			111,864			120,243

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2016

INCOME TAXES [Abstract]

Components of Income Tax Expense

Components of Income Tax Expense
In thousands	For the Year Ended December 31,
State income taxes	2016			2015		2014
Current		$	1,050	$	499	$	173
Deferred			860		1,299		1,231
Total state income tax expense		$	1,910	$	1,798	$	1,404
	For the Year Ended December 31,
Federal income taxes			2016		2015		2014
Current		$	1,799	$	2,168	$	(1,073	)
Deferred			4,622		3,818		6,044
Total federal income tax expense		$	6,421	$	5,986	$	4,971

Reconciliation of Effective Tax Rate

Reconciliation of effective tax rate:
	For the Year Ended December 31,
In thousands	2016				2016			2015			2015			2014			2014
	Amount				Percent			Amount			Percent			Amount			Percent
Reconciliation of effective tax rate
Income before federal and state income taxes		$	21,285			100.0	%		$	19,088		100.0	%		$	15,881		100.0	%
Amount computed at statutory rate			7,237			34.0	%			6,490		34.0	%			5,400		34.0	%
Reconciling items
State income tax-net of federal tax benefit			1,327			6.2	%			1,214		6.4	%			918		5.8	%
Other			(233	)		(1.1	)%			80		0.4	%			57		0.4	%
Total income tax expense and effective rate		$	8,331			39.1	%		$	7,784		40.8	%		$	6,375		40.2	%

Deferred Income Taxes

Deferred income taxes at December 31, 2016, 2015, and 2014 were comprised of the following:

	For the Year Ended December 31,
In thousands	2016			2015			2014
Deferred tax assets related to:
Federal alternative minimum tax credit carry-forwards	$	2,474		$	3,971		$	5,459
Federal and state operating loss carry-forwards		752			675			1,045
Bad debt allowance		104			110			99
Valuation allowance		(286	)		(182	)		(65	)
Stock options		452			415			397
Other		320			291			269
Total deferred tax assets	$	3,816		$	5,280		$	7,204
Deferred tax liabilities related to:
Property plant and equipment basis differences	$	(70,711	)	$	(66,508	)	$	(63,427	)
Uncertain tax position		(80	)		(247	)		(179	)
Expenses of rate proceedings		(19	)		(213	)		(214	)
Property taxes		(663	)		(527	)		(505	)
Other		(796	)		(756	)		(734	)
Total deferred tax liabilities	$	(72,269	)	$	(68,251	)	$	(65,059	)
Net deferred tax liability	$	(68,453	)	$	(62,971	)	$	(57,855	)

Schedule of Valuation Allowance

Schedule of Valuation Allowance
	Balance at Beginning of Period			Additions Charged to Costs and Expenses			Deductions		Balance at End of Period
In thousands
Classification
For the Year Ended December 31, 2016 Valuation allowance for deferred tax assets		$	182		$	104		—		$	286
For the Year Ended December 31, 2015 Valuation allowance for deferred tax assets		$	65		$	117		—		$	182
For the Year Ended December 31, 2014 Valuation allowance for deferred tax assets		$	61		$	4		—		$	65

Schedule of Unrecognized Tax Benefits Roll Forward

The following table provides the changes in the Company's uncertain tax position:

	For the years ended December 31,
In thousands	2016			2015
Balance at beginning of year	$	247		$	179
Additions based on tax positions related to the current year		23			51
Additions based on tax positions related to prior years		11			17
Reductions for tax positions of prior years		(201	)		-
Settlements		-			-
Lapses in Statutes of Limitations		-			-
Balance at end of year	$	80		$	247

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DEBT (Tables)

12 Months Ended

Dec. 31, 2016

DEBT [Abstract]

Schedule of Long-term debt

Long-term debt consists of:

	December 31,
In thousands	2016		2015
First mortgage bonds
Series O, 8.17%, due December 29, 2020	$	20,000	$	20,000
Series P, 6.58%, due January 31, 2018		25,000		25,000
Series Q, 4.75%, due December 1, 2043		15,400		15,400
Series R, 5.96%, due December 31, 2028		25,000		25,000
Series S, 6.73%, due December 31, 2033		10,200		10,800
		95,600		96,200
State revolving fund loans
4.48%, due August 1, 2021		1,456		1,711
3.57%, due September 1, 2023		640		719
3.64%, due May 1, 2025		1,142		1,255
3.41%, due February 1, 2031		2,448		2,576
3.40%, due July 1, 2032		2,361		2,475
		8,047		8,736
Sub-total		103,647		104,936
Less: current maturities (principal amount)		1,316		1,289
Total long-term debt	$	102,331	$	103,647

Future Minimum Payments

Payments of principal amounts due during the next five years and thereafter:

In thousands	2017		2018		2019		2020		2021		Thereafter
First Mortgage bonds	$	600	$	25,600	$	600	$	20,600	$	600	$	47,600
State revolving fund loans		716		742		771		801		832		4,185
Total payments	$	1,316	$	26,342	$	1,371	$	21,401	$	1,432	$	51,785

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STOCK COMPENSATION PLANS (Tables)

12 Months Ended

Dec. 31, 2016

STOCK COMPENSATION PLANS [Abstract]

Changes in Share of Class A Stock

The following summary reflects changes in the shares of Class A Stock under option:

	2016 Shares			2016 Weighted Average Exercise Price		2015 Shares			2015 Weighted Average Exercise Price		2014 Shares			2014 Weighted Average Exercise Price
Plan options
Outstanding at beginning of year		270,000		$	19.34		376,250		$	19.52		387,000		$	18.96
Granted		—			—		-			-		33,750			21.86
Exercised		(38,245	)		19.50		(106,250	)		19.97		(44,500	)		16.45
Expired		—			—		—			—		—			—
Outstanding at end of year		231,755		$	19.32		270,000		$	19.34		376,250		$	19.52
Options exercisable at year end		231,755		$	19.32		270,000		$	19.34		342,500		$	19.29

Employee and Director Stock Options

The following tables summarize information about employee and director stock options outstanding at December 31, 2016:

Options Outstanding
Range of Exercise Price			Shares Outstanding at December 31, 2016		Weighted Average Remaining Life	Weighted Average Exercise Price			Aggregate Intrinsic Value
	$	15.26 - $19.04		123,755	3.28 Years		$	17.77		$	1,753,268
	$	19.05 - $22.66		108,000	5.67 Years		$	21.09		$	1,171,678
Options Exercisable
Range of Exercise Price			Shares Exercisable at December 31, 2016		Weighted Average Remaining Life	Weighted Average Exercise Price			Aggregate Intrinsic Value
	$	15.26 - $19.04		123,755	3.28 Years		$	17.77		$	1,753,268
	$	19.05 - $22.66		108,000	5.67 Years		$	21.09		$	1,171,678

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COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2016

COMMITMENTS AND CONTINGENCIES [Abstract]

Future Minimum Rental Payments

Future minimum annual rental payments related to non-cancellable operating leases for the years subsequent to 2016 are as follows:

In thousands
2017	$	76
2018		54
2019		56
2020		57
2021		58
2022 through 2043		1,394
	$	1,695

Minimum Annual Purchase Commitments

The minimum annual purchase commitments for all interconnection agreements for 2017 through 2021, calculated at the noticed rates, are as follows:

In thousands
2017		3,824
2018		3,824
2019		3,825
2020		3,834
2021		3,825
	$	19,132

Budgeted Mandatory Utility Plant Expenditures

Budgeted mandatory utility plant expenditures, due to planned governmental highway projects, which require the relocation of Artesian Water's water service mains, expected to be incurred in 2017 through 2019 are as follows:

In thousands
2017	$	4,735
2018		2,165
2019		1,130
	$	8,030

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REGULATORY PROCEEDINGS (Tables)

12 Months Ended

Dec. 31, 2016

REGULATORY PROCEEDINGS [Abstract]

Eligible Plant Improvements

The following table summarizes Artesian Water's applications with the DEPSC to collect DSIC rates and the eligible plant improvements the rates are based on:

Application Date

11/26/2014

05/28/2015

11/24/2015

05/31/2016

11/29/2016

Effective Date

01/01/2015

07/01/2015

01/01/2016

07/01/2016

01/01/2017

DEPSC Approval Date

12/16/2014

06/16/2015

12/15/2015

06/28/2016

12/20/2016

Cumulative DSIC Rate

0.34

%

1.15

%

1.57

%

2.30

%

4.71

%

Eligible Plant Improvements – Cumulative Dollars (in millions)

$

1.3

$

4.6

$

7.0

$

10.3

$

16.6

Eligible Plant Improvements – Installed Beginning Date

10/01/2014

10/01/2014

10/01/2014

10/01/2014

10/01/2014

Eligible Plant Improvements – Installed Ending Date

10/31/2014

04/30/2015

10/31/2015

04/30/2016

10/31/2016

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NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE (Tables)

12 Months Ended

Dec. 31, 2016

NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE [Abstract]

Shares Used in Computing Basic and Diluted Net Income per Share

Basic net income per share is based on the weighted average number of common shares outstanding. Diluted net income per share is based on the weighted average number of common shares outstanding, the potentially dilutive effect of employee stock options and restricted stock awards. The following table summarizes the shares used in computing basic and diluted net income per share:

	For the Year
	Ended December 31,
	2016		2015		2014
	(in thousands)
Weighted average common shares outstanding during the period for Basic computation		9,098		8,960		8,884
Dilutive effect of employee stock options		63		45		42
Weighted average common shares outstanding during the period for Diluted computation		9,161		9,005		8,926

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SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) (Tables)

12 Months Ended

Dec. 31, 2016

SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) [Abstract]

Quarterly Unaudited Consolidated Statements of Operations

The following table is derived from quarterly unaudited consolidated statements of operations for the years ended December 31, 2016 and 2015.  Quarterly basic and diluted per share amounts do not add to the full year total due to rounding.

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
In thousands (except per share data)	2016		2015		2016		2015		2016		2015		2016		2015
Operating revenues	$	18,449	$	17,962	$	19,395	$	19,536	$	21,828	$	20,776	$	19,417	$	18,750
Operating income	$	3,853	$	3,672	$	4,669	$	4,985	$	5,945	$	5,394	$	4,352	$	3,531
Net income applicable to common stock	$	2,830	$	2,538	$	3,041	$	3,233	$	4,360	$	3,699	$	2,723	$	1,835
Income per common share
Basic	$	0.31	$	0.28	$	0.33	$	0.36	$	0.48	$	0.41	$	0.30	$	0.21
Diluted	$	0.31	$	0.28	$	0.33	$	0.36	$	0.48	$	0.41	$	0.30	$	0.21

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($) Subsidiary	Dec. 31, 2015 USD ($)	Dec. 31, 2014
Utility Subsidiary Accounting [Abstract]
Number of wholly owned subsidiaries | Subsidiary	5
Utility Plant [Abstract]
Capitalized rate of AFUDC	8.10%	8.10%	8.20%
Summary of utility plant comprises [Abstract]
Utility plant, gross	$ 535,186	$ 510,356
Less - accumulated depreciation	109,684	104,750
Utility plant, net	$ 425,502	$ 405,606
Depreciation and Amortization [Abstract]
Depreciation rates of water utility plant	2.25%	2.29%	2.30%
Minimum [Member]
Depreciation and Amortization [Abstract]
Amortization period of other deferred assets	2 years
Maximum [Member]
Depreciation and Amortization [Abstract]
Amortization period of other deferred assets	40 years
Property Held for Future Use [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	0 years
Utility plant, gross	$ 14,815	$ 14,345
Construction in Progress [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	0 years
Utility plant, gross	$ 6,674	3,809
Utility plant in service-Water [Member] | Mains [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	81 years
Utility plant, gross	$ 236,261	224,104
Utility plant in service-Water [Member] | Services [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	39 years
Utility plant, gross	$ 38,803	36,060
Utility plant in service-Water [Member] | Storage Tanks [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	76 years
Utility plant, gross	$ 24,108	23,992
Utility plant in service-Water [Member] | Meters [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	26 years
Utility plant, gross	$ 24,710	24,150
Utility plant in service-Water [Member] | Hydrants [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	60 years
Utility plant, gross	$ 12,870	12,037
Utility plant in service-Water [Member] | Intangible plant [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	0 years
Utility plant, gross	$ 140	140
Utility plant in service-Water [Member] | Source of supply plant [Member]
Summary of utility plant comprises [Abstract]
Utility plant, gross	$ 19,627	19,313
Utility plant in service-Water [Member] | Source of supply plant [Member] | Minimum [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	45 years
Utility plant in service-Water [Member] | Source of supply plant [Member] | Maximum [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	85 years
Utility plant in service-Water [Member] | Pumping and water treatment plant [Member]
Summary of utility plant comprises [Abstract]
Utility plant, gross	$ 78,542	77,221
Utility plant in service-Water [Member] | Pumping and water treatment plant [Member] | Minimum [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	8 years
Utility plant in service-Water [Member] | Pumping and water treatment plant [Member] | Maximum [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	62 years
Utility plant in service-Water [Member] | General plant [Member]
Summary of utility plant comprises [Abstract]
Utility plant, gross	$ 53,417	52,434
Utility plant in service-Water [Member] | General plant [Member] | Minimum [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	3 years
Utility plant in service-Water [Member] | General plant [Member] | Maximum [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	31 years
Utility plant in service-Wastewater [Member] | General plant [Member]
Summary of utility plant comprises [Abstract]
Utility plant, gross	$ 931	906
Utility plant in service-Wastewater [Member] | General plant [Member] | Minimum [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	3 years
Utility plant in service-Wastewater [Member] | General plant [Member] | Maximum [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	31 years
Utility plant in service-Wastewater [Member] | Treatment and Disposal Plant [Member]
Summary of utility plant comprises [Abstract]
Utility plant, gross	$ 15,613	14,012
Utility plant in service-Wastewater [Member] | Treatment and Disposal Plant [Member] | Minimum [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	35 years
Utility plant in service-Wastewater [Member] | Treatment and Disposal Plant [Member] | Maximum [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	62 years
Utility plant in service-Wastewater [Member] | Collection Mains & Lift Stations [Member]
Summary of utility plant comprises [Abstract]
Estimated useful life	81 years
Utility plant, gross	$ 8,675	$ 7,833

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Regulatory Assets (Details) - USD ($)			1 Months Ended	12 Months Ended
	May 04, 2016	Dec. 18, 2015	Jan. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 09, 2015
Amortization period of other regulatory expense [Abstract]
Depreciation and salary studies				5 years
Goodwill				50 years
Deferred acquisition costs				20 years
Franchise costs				80 years
Summary of regulatory assets net of amortization, comprise [Abstract]
Regulatory assets, net				$ 3,374,000	$ 4,176,000
Summary of other deferred assets net of amortization [Abstract]
Investment in Co Bank				3,198,000	3,023,000
Other				386,000	421,000
Other deferred assets				3,584,000	3,444,000
Stock Compensation Plans [Abstract]
Number of share authorize under equity compensation plan (in shares)							331,500
Compensation costs	$ 92,000	$ 137,000		92,000	183,000	$ 135,000
Unrecognized expense related to non-vested awards of restricted shares granted				$ 47,000
Summary of fair value of each option grant is estimated using the Black-Scholes-Merton option pricing model [Abstract]
Expected Dividend Yield						3.88%
Expected Stock Price Volatility						26.50%
Weighted Average Risk-Free Interest Rate						2.24%
Weighted Average Expected Life of Options						7 years 6 months 7 days
Base period for calculation of expected dividend yield				12 months
Shares granted as restricted stock awards	5,000
Shares issued as fully vested unrestricted stock awards		5,000
Fair market value (in dollars per share)	$ 27.70	$ 27.38
Award vesting period	1 year
Accounts Receivable [Abstract]
Expense related to allowance for doubtful accounts				$ 200,000	200,000
Summary of changes in entity's accounts receivable [Abstract]
Gross accounts receivable				8,059,000	6,627,000	$ 5,315,000
Less allowance for doubtful accounts				263,000	277,000	250,000
Net accounts receivable				7,796,000	6,350,000	5,065,000
Summary of allowance for doubtful accounts [Abstract]
Beginning balance			$ 263,000	277,000	250,000	221,000
Allowance adjustments				195,000	205,000	194,000
Recoveries				64,000	53,000	64,000
Write off of uncollectible accounts				(273,000)	(231,000)	(229,000)
Ending balance				$ 263,000	277,000	250,000
Cash and Cash Equivalents [Abstract]
Maximum maturity period of temporary cash investments considered as cash equivalents				3 months
Minimum [Member]
Amortization period of other regulatory expense [Abstract]
Amortization period of debt issuance cost				10 years
Summary of fair value of each option grant is estimated using the Black-Scholes-Merton option pricing model [Abstract]
Period for risk free interest rate base on treasury constant maturity rate				7 years
Minimum [Member] | Subsequent Event [Member]
Amortization period of other regulatory expense [Abstract]
Amortization period of debt issuance cost			15 years
Maximum [Member]
Amortization period of other regulatory expense [Abstract]
Amortization period of debt issuance cost				30 years
Summary of fair value of each option grant is estimated using the Black-Scholes-Merton option pricing model [Abstract]
Period for risk free interest rate base on treasury constant maturity rate				10 years
Maximum [Member] | Subsequent Event [Member]
Amortization period of other regulatory expense [Abstract]
Amortization period of debt issuance cost			25 years
Maryland [Member]
Amortization period of other regulatory expense [Abstract]
Regulatory rate proceedings				5 years
Delaware [Member]
Amortization period of other regulatory expense [Abstract]
Regulatory rate proceedings				2 years 6 months
Artesian Water [Member]
Regulatory Assets [Abstract]
Contributions to postretirement benefit plan				$ 81,000
Mountain Hill [Member]
Summary of other deferred assets net of amortization [Abstract]
Other				300,000
Postretirement Benefit Obligation [Member]
Summary of regulatory assets net of amortization, comprise [Abstract]
Regulatory assets, net				186,000	329,000
Deferred Income Taxes [Member]
Summary of regulatory assets net of amortization, comprise [Abstract]
Regulatory assets, net				431,000	446,000
Expense of Rate and Regulatory Proceedings [Member]
Summary of regulatory assets net of amortization, comprise [Abstract]
Regulatory assets, net				116,000	616,000
Debt Issuance Costs [Member]
Summary of regulatory assets net of amortization, comprise [Abstract]
Regulatory assets, net				1,648,000	1,747,000
Goodwill [Member]
Summary of regulatory assets net of amortization, comprise [Abstract]
Regulatory assets, net				310,000	318,000
Deferred Acquisition and Franchise Costs [Member]
Summary of regulatory assets net of amortization, comprise [Abstract]
Regulatory assets, net				683,000	720,000
Regulatory Assets, Net [Member]
Summary of regulatory assets net of amortization, comprise [Abstract]
Regulatory assets, net					4,176,000
CIAC and Other [Member]
Summary of changes in entity's accounts receivable [Abstract]
Contractual Amounts of Contributions In Aid of Construction Due from Developers And Other				2,622,000	1,610,000	1,295,000
Customer accounts receivable - water [Member]
Summary of changes in entity's accounts receivable [Abstract]
Gross accounts receivable				$ 5,437,000	$ 5,017,000	$ 4,020,000
Federal [Member]
Income Tax Contingency [Line Items]
Open tax year				2015
Federal [Member] | Internal Revenue Service (IRS) [Member] | Minimum [Member]
Income Tax Contingency [Line Items]
Open tax year				2012
Federal [Member] | Internal Revenue Service (IRS) [Member] | Maximum [Member]
Income Tax Contingency [Line Items]
Open tax year				2014
State [Member] | Minimum [Member]
Income Tax Contingency [Line Items]
Open tax year				2013
State [Member] | Maximum [Member]
Income Tax Contingency [Line Items]
Open tax year				2015

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Carrying Amount [Member]
Long-term Financial Liabilities [Abstract]
Long-term debt	$ 103,647	$ 104,936
Estimated Fair Value [Member]
Long-term Financial Liabilities [Abstract]
Long-term debt	$ 111,864	$ 120,243

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INCOME TAXES (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Tax Examination [Line Items]
Net operating income (loss)	$ 4,352,000	$ 5,945,000	$ 4,669,000	$ 3,853,000	$ 3,531,000	$ 5,394,000	$ 4,985,000	$ 3,672,000	$ 18,819,000	$ 17,582,000	$ 16,046,000
Income tax receivable	150,000				1,428,000				150,000	1,428,000
Federal alternative minimum tax credit carry-forwards	2,474,000				3,971,000				2,474,000	3,971,000	5,459,000
Accrued penalties and interest	4,800				22,000				4,800	22,000
Valuation allowance	286,000				182,000				286,000	182,000	65,000
State income taxes [Abstract]
Current									1,050,000	499,000	173,000
Deferred									860,000	1,299,000	1,231,000
Total state income tax expense									1,910,000	1,798,000	1,404,000
Federal income taxes [Abstract]
Current									1,799,000	2,168,000	(1,073,000)
Deferred									4,622,000	3,818,000	6,044,000
Total federal income tax expense									6,421,000	5,986,000	4,971,000
Reconciliation of effective tax rate [Abstract]
Income before federal and state income taxes									$ 21,285,000	$ 19,088,000	$ 15,881,000
Income before federal and state income taxes									100.00%	100.00%	100.00%
Amount computed at statutory rate									$ 7,237,000	$ 6,490,000	$ 5,400,000
Amount computed at statutory rate									34.00%	34.00%	34.00%
Reconciling Items [Abstract]
State income tax-net of federal tax benefit									$ 1,327,000	$ 1,214,000	$ 918,000
State income tax-net of federal tax benefit									6.20%	6.40%	5.80%
Other									$ (233,000)	$ 80,000	$ 57,000
Other									(1.10%)	0.40%	0.40%
Total income tax expense									$ 8,331,000	$ 7,784,000	$ 6,375,000
Total effective income tax rate									39.10%	40.80%	40.20%
Deferred tax assets related to [Abstract]
Federal alternative minimum tax credit carry-forwards	2,474,000				3,971,000				$ 2,474,000	$ 3,971,000	$ 5,459,000
Federal and state operating loss carry-forwards	752,000				675,000				752,000	675,000	1,045,000
Bad debt allowance	104,000				110,000				104,000	110,000	99,000
Valuation allowance	(286,000)				(182,000)				(286,000)	(182,000)	(65,000)
Stock options	452,000				415,000				452,000	415,000	397,000
Other	320,000				291,000				320,000	291,000	269,000
Total deferred tax assets	3,816,000				5,280,000				3,816,000	5,280,000	7,204,000
Deferred tax liabilities related to [Abstract]
Property plant and equipment basis differences	(70,711,000)				(66,508,000)				(70,711,000)	(66,508,000)	(63,427,000)
Uncertain tax position	(80,000)				(247,000)				(80,000)	(247,000)	(179,000)
Expenses of rate proceedings	(19,000)				(213,000)				(19,000)	(213,000)	(214,000)
Property taxes	(663,000)				(527,000)				(663,000)	(527,000)	(505,000)
Other	(796,000)				(756,000)				(796,000)	(756,000)	(734,000)
Total deferred tax liabilities	(72,269,000)				(68,251,000)				(72,269,000)	(68,251,000)	(65,059,000)
Net deferred tax liability	(68,453,000)				(62,971,000)				(68,453,000)	(62,971,000)	(57,855,000)
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at Beginning Of Period				182,000				65,000	182,000	65,000	61,000
Additions Charged to Costs and Expenses									104,000	117,000	4,000
Deductions									0	0	0
Balance at End of Period	286,000				182,000				286,000	182,000	65,000
Unrecognized Tax Benefits, Income Tax Penalties and Interest Expense [Abstract]
Balance at beginning of year				$ 247,000				$ 179,000	247,000	179,000
Additions based on tax positions related to the current year									23,000	51,000
Additions based on tax positions related to prior years									11,000	17,000
Reductions for tax positions of prior years									(201,000)	0
Settlements									0	0
Lapses in Statutes of Limitations									0	0
Balance at end of year	80,000				$ 247,000				$ 80,000	$ 247,000	$ 179,000
Minimum [Member]
Income Tax Examination [Line Items]
Operating Loss Carryforwards Expiration Period									2019
Maximum [Member]
Income Tax Examination [Line Items]
Operating Loss Carryforwards Expiration Period									2037
Federal Authorities [Member]
Income Tax Examination [Line Items]
Federal alternative minimum tax credit carry-forwards	2,500,000								$ 2,500,000
Tax deduction for qualifying capital expenditures									$ 2,700,000
Income tax examination description									for the tax year 2015
Deferred tax assets related to [Abstract]
Federal alternative minimum tax credit carry-forwards	2,500,000								$ 2,500,000
State Authorities [Member]
Income Tax Examination [Line Items]
Net operating loss carry-forwards	$ 13,400,000								$ 13,400,000
Income tax examination description									for the tax years 2013 through 2015
State Authorities [Member] | Minimum [Member]
Income Tax Examination [Line Items]
Open tax year									2013
State Authorities [Member] | Maximum [Member]
Income Tax Examination [Line Items]
Open tax year									2015

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PREFERRED STOCK (Details) - $ / shares	Dec. 31, 2016	Dec. 31, 2015
PREFERRED STOCK [Abstract]
Preferred stock outstanding (in shares)	0	0
Preferred stock authorized (in shares)	100,000	100,000
Preferred stock, par value (in dollars per share)	$ 1.00	$ 1.00

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COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL [Abstract]
Dividends reinvestment plan (in shares)	13,600	17,500	21,000
Dividend reinvestment plan	$ 400,000	$ 384,000	$ 459,000

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DEBT (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Jan. 31, 2017
Long-term debt consists of [Abstract]
Sub-total of long-term debt	$ 103,647,000	$ 104,936,000
Less: current maturities (principal amount)	1,316,000	1,289,000
Total long-term debt	102,331,000	103,647,000
Payments of principal amounts due during the next five years and thereafter [Abstract]
2017	1,316,000
2018	26,342,000
2019	1,371,000
2020	21,401,000
2021	1,432,000
Thereafter	$ 51,785,000
Artesian Water [Member]
Line of Credit Facility [Line Items]
Weighted average interest rate paid on the lines of credit	1.67%
First mortgage bonds [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt	$ 95,600,000	96,200,000
Payments of principal amounts due during the next five years and thereafter [Abstract]
2017	600,000
2018	25,600,000
2019	600,000
2020	20,600,000
2021	600,000
Thereafter	47,600,000
First mortgage bonds [Member] | Series O, 8.17%, due 12/29/2020 [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt	20,000,000	20,000,000
First mortgage bonds [Member] | Series P, 6.58%, due 01/31/2018 [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt	25,000,000	25,000,000
First mortgage bonds [Member] | Series Q, 4.75%, due 12/01/2043 [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt	15,400,000	15,400,000
First mortgage bonds [Member] | Series R, 5.96%, due 12/31/2028 [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt	25,000,000	25,000,000
First mortgage bonds [Member] | Series S, 6.73%, due 12/31/2033 [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt	10,200,000	10,800,000
First mortgage bonds [Member] | Series T, due 12/20/2036 [Member] | Subsequent Event [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt				$ 40,000,000
State revolving fund loans [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt	8,047,000	8,736,000
Payments of principal amounts due during the next five years and thereafter [Abstract]
2017	716,000
2018	742,000
2019	771,000
2020	801,000
2021	832,000
Thereafter	4,185,000
State revolving fund loans [Member] | 4.48%, due 08/01/2021 [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt	1,456,000	1,711,000
State revolving fund loans [Member] | 3.57%, due 09/01/2023 [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt	640,000	719,000
State revolving fund loans [Member] | 3.64%, due 05/01/2025 [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt	1,142,000	1,255,000
State revolving fund loans [Member] | 3.41%, due 02/01/2031 [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt	2,448,000	2,576,000
State revolving fund loans [Member] | 3.40%, due 07/01/2032 [Member]
Long-term debt consists of [Abstract]
Sub-total of long-term debt	2,361,000	2,475,000
Citizens Bank [Member] | Artesian Resources [Member]
Line of Credit Facility [Line Items]
Line of credit	40,000,000
Available funds under this line of credit	$ 36,400,000
Expiration date of line of credit	May 26, 2017
Citizens Bank [Member] | LIBOR [Member] | Artesian Resources [Member]
Line of Credit Facility [Line Items]
Variable rate for credit facility	LIBOR
Variable rate of credit facility	1.00%
CoBank [Member] | Artesian Resources [Member]
Line of Credit Facility [Line Items]
Line of credit	$ 20,000,000
Available funds under this line of credit	$ 16,500,000
CoBank [Member] | Artesian Water [Member]
Line of Credit Facility [Line Items]
Expiration date of line of credit	Jul. 20, 2017
Patronage refunds	$ 702,000	$ 689,000	$ 682,000
Annual patronage refund rate	1.00%
CoBank [Member] | Artesian Water Maryland [Member]
Line of Credit Facility [Line Items]
Line of credit	$ 10,000,000
CoBank [Member] | LIBOR [Member] | Artesian Water [Member]
Line of Credit Facility [Line Items]
Variable rate for credit facility	LIBOR
Variable rate of credit facility	1.50%

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NON-UTILITY OPERATING REVENUE AND EXPENSES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Public Utility, Property, Plant and Equipment [Line Items]
Non-utility operating revenue	$ 4,686	$ 4,398	$ 4,150
Non-utility operating expenses	2,602	2,305	2,193
Artesian Utility [Member]
Public Utility, Property, Plant and Equipment [Line Items]
Non-utility operating revenue	4,700	4,400	4,100
Non-utility operating expenses	$ 2,600	$ 2,300	$ 2,200

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STOCK COMPENSATION PLANS (Details)			12 Months Ended
	May 04, 2016 $ / shares shares	Dec. 18, 2015 $ / shares shares	Dec. 31, 2016 USD ($) Director $ / shares shares	Dec. 31, 2015 USD ($) $ / shares shares	Dec. 31, 2014 USD ($) $ / shares shares	Dec. 09, 2015 shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorizes under the plan (in shares) | shares						331,500
Shares granted as restricted stock awards | shares	5,000
Shares issued as fully vested unrestricted stock awards | shares		5,000
Fair market value (in dollars per share)	$ 27.70	$ 27.38
Award vesting period	1 year
Number of directors in committee | Director			3
Weighted Average Exercise [Abstract]
Granted, weighted average grant-date fair value per option (in dollars per share)					$ 3.95
Exercised/ vested and released, aggregate intrinsic value | $			$ 351,000	$ 379,000	$ 247,000
Received cash from the exercise of options | $			746,000
Tax benefit realized during the period | $			$ 351,000
$15.26 - $19.04 [Member] | Employee and director [Member]
Options Outstanding [Abstract]
Range of Exercise Price, Minimum (in dollars per shares)			$ 15.26
Range of Exercise Price, Maximum (in dollars per shares)			$ 19.04
Shares Outstanding (in shares) | shares			123,755
Weighted Average Remaining Life			3 years 3 months 11 days
Weighted Average Exercise Price (in dollars per shares)			$ 17.77
Aggregate Intrinsic Value | $			$ 1,753,268
Options Exercisable [Abstract]
Range of Exercise Price, Minimum (in dollars per shares)			$ 15.26
Range of Exercise Price, Maximum (in dollars per shares)			$ 19.04
Shares Exercisable (in shares) | shares			123,755
Weighted Average Remaining Life			3 years 3 months 11 days
Weighted Average Exercise Price (in dollars per shares)			$ 17.77
Aggregate Intrinsic Value | $			$ 1,753,268
$19.05 - $22.66 [Member] | Employee and director [Member]
Options Outstanding [Abstract]
Range of Exercise Price, Minimum (in dollars per shares)			$ 19.05
Range of Exercise Price, Maximum (in dollars per shares)			$ 22.66
Shares Outstanding (in shares) | shares			108,000
Weighted Average Remaining Life			5 years 8 months 1 day
Weighted Average Exercise Price (in dollars per shares)			$ 21.09
Aggregate Intrinsic Value | $			$ 1,171,678
Options Exercisable [Abstract]
Range of Exercise Price, Minimum (in dollars per shares)			$ 19.05
Range of Exercise Price, Maximum (in dollars per shares)			$ 22.66
Shares Exercisable (in shares) | shares			108,000
Weighted Average Remaining Life			5 years 8 months 1 day
Weighted Average Exercise Price (in dollars per shares)			$ 21.09
Aggregate Intrinsic Value | $			$ 1,171,678
Class A Stock [Member] | Stock Options [Member]
Shares [Abstract]
Outstanding at beginning of year (in shares) | shares			270,000	376,250	387,000
Granted (in shares) | shares			0	0	33,750
Exercised/vested and released, option shares (in shares) | shares			(38,245)	(106,250)	(44,500)
Expired (in shares) | shares			0	0	0
Outstanding at end of year (in shares) | shares			231,755	270,000	376,250
Exercisable/vested at end of period, option share (in shares) | shares			231,755	270,000	342,500
Weighted Average Exercise [Abstract]
Outstanding at beginning of year (in dollars per shares)			$ 19.34	$ 19.52	$ 18.96
Granted, weighted average exercise price (in dollars per share)			0	0	21.86
Exercised/vested and released, weighted average exercise price (in dollars per shares)			19.50	19.97	16.45
Expired/cancelled, weighted average exercise price (in dollars per share)			0	0	0
Outstanding at end of year (in dollars per shares)			19.32	19.34	19.52
Exercisable/vested at end of period, weighted average exercise price (in dollars per shares)			$ 19.32	$ 19.34	$ 19.29

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EMPLOYEE BENEFIT PLANS (Details)	12 Months Ended
	Dec. 31, 2016 USD ($) Age Retiree	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Supplemental Pension Plan [Abstract]
Minimum age required for additional benefits to individuals | Age	50
Term of matching contribution	5 years
401(k) Plan [Member] | Artesian Resources [Member]
Defined Benefit Plan Disclosure [Line Items]
Percentages of contribution of eligible salaries and wages by Artesian Resources	2.00%
Percentages of matched employee contributions	6.00%
Entity contributions and administrative fees	$ 850,000	$ 1,000,000	$ 808,000
401(k) Plan [Abstract]
Gross pay rate of matched employee contributions	50.00%
Percentages of additional contribution of eligible salaries and wages by Artesian Resources	3.00%	1.00%
Supplemental Pension Plan [Member] | Artesian Water [Member]
Defined Benefit Plan Disclosure [Line Items]
Percentages of contribution of eligible salaries and wages by Artesian Resources	2.00%
Percentages of matched employee contributions	6.00%
Entity contributions and administrative fees	$ 227,000	$ 243,000	244,000
Supplemental Pension Plan [Member] | Artesian Water [Member] | Employee Period of Service 1 [Member]
Supplemental Pension Plan [Abstract]
Contribution per dollar deferred	3
Supplemental Pension Plan [Member] | Artesian Water [Member] | Employee Service Period 2 [Member]
Supplemental Pension Plan [Abstract]
Contribution per dollar deferred	4
Supplemental Pension Plan [Member] | Artesian Water [Member] | Employee Service Period 3 [Member]
Supplemental Pension Plan [Abstract]
Contribution per dollar deferred	5
Postretirement Benefit Plan [Member] | Artesian Water [Member]
Postretirement Benefit Plan [Abstract]
Expense incurred under the plan	$ 80,000	113,000	$ 121,000
Number of eligible retirees | Retiree	3
Estimated post retirement liability	$ 186,000	$ 329,000
Expected contributions in next fiscal year by employer	$ 37,000

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COMMITMENTS AND CONTINGENCIES (Details) gal in Millions	1 Months Ended		12 Months Ended
	Mar. 31, 2017 USD ($)	Oct. 31, 1997	Dec. 31, 2016 USD ($) a gal	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Dec. 31, 2003
Leases [Abstract]
Easement payments			$ 36,000	$ 35,000	$ 34,000
Summary of minimum annual rental payments related to operating leases [Abstract]
2017			76,000
2018			54,000
2019			56,000
2020			57,000
2021			58,000
2022 through 2043			1,394,000
Total			1,695,000
Summary of minimum annual purchase commitments for all interconnection agreements [Abstract]
2017			3,824,000
2018			3,824,000
2019			3,825,000
2020			3,834,000
2021			3,825,000
Total			19,132,000
Expenses for purchased water			4,000,000	4,000,000	4,000,000
Other Commitments [Abstract]
Tank painting expense			528,000	329,000	342,000
Artesian Water [Member]
Leases [Abstract]
Operating lease period		33 years
Rental payments			$ 16,000	16,000	15,900
Interconnections [Abstract]
Multiplier to estimate minimum purchase requirements for the year | gal			3
Minimum purchase requirements of water | gal			1,459
Minimum reduced purchase requirements of water | gal			1,095
Other Commitments [Abstract]
Agreement period			3 years			3 years
Commitment amount			$ 113,000			$ 804,000
Summary of other commitment [Abstract]
2017			4,735,000
2018			2,165,000
2019			1,130,000
Total			8,030,000
Artesian Water [Member] | Subsequent Event [Member]
Other Commitments [Abstract]
Agreement period	3 years
Commitment amount	$ 1,300,000
Artesian Resources [Member]
Leases [Abstract]
Easement agreement period							40 years
Artesian Wastewater [Member]
Leases [Abstract]
Rental payments			$ 44,000	$ 43,000	$ 43,000
Adjustment Factor			2.00%
Area of land use as per perpetual agreement (in acres) | a			460
Minimum rentals payment per year			$ 40,000
Termination Period			180 days

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GEOGRAPHIC CONCENTRATION OF CUSTOMERS (Details)	12 Months Ended
	Dec. 31, 2016 County Customer
Concentration Risk [Line Items]
Number of counties in which water utility service provided | County	3
Artesian Water [Member]
Concentration Risk [Line Items]
Number of customers	82,700
Artesian Water Maryland [Member]
Concentration Risk [Line Items]
Number of customers	2,300
Artesian Water Pennsylvania [Member]
Concentration Risk [Line Items]
Number of customers	40
Artesian Wastewater [Member]
Concentration Risk [Line Items]
Number of customers	1,600

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REGULATORY PROCEEDINGS (Details) - USD ($)							12 Months Ended
	Nov. 29, 2016	May 31, 2016	Nov. 24, 2015	Aug. 18, 2015	May 28, 2015	Nov. 26, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Other Proceedings [Abstract]
Percentage of Distribution System Improvement Charges annual rate increase application filed by company to regulatory	4.71%	2.30%	1.57%		1.15%	0.34%
Increase Amount Based On Eligible Plant Improvements Since Last Rate Increase	$ 16,600,000	$ 10,300,000	$ 7,000,000		$ 4,600,000	$ 1,300,000
Delaware [Member]
Rate Proceedings [Abstract]
Temporary annual rate increase subject to 15% gross water sales limitation							$ 2,500,000
Percentage of gross water sales							15.00%
Period to complete rate case by law							7 months
Percentage of rate relief allowed should a rate case not complete							15.00%
Other Proceedings [Abstract]
Distribution System Improvement Charge rate increase applied between base rate filings							7.50%
Distribution System Improvement Charge rate increase within a 12-month period							5.00%
Artesian Water [Member]
Rate Proceedings [Abstract]
Percentage of revenue increase requested for new rates				15.90%
Increase in annual revenue expected from rate increase application approval				$ 10,000,000
Permanent rate increase in revenue				$ 6,000,000
Percentage of Permanent Rate Increases on an annualized basis (in hundredths)				9.50%
An incremental increase to customers above the DSIC rate previously in effect				6.20%
Other Proceedings [Abstract]
Revenue earned in DSIC rate increases							$ 1,306,000	$ 520,000	$ 788,000

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NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE (Details) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Shares used in computing basic and diluted net income per share [Abstract]
Weighted average common shares outstanding during the period for Basic computation (in shares)	9,098,000	8,960,000	8,884,000
Dilutive effect of employee stock options (in shares)	63,000	45,000	42,000
Weighted average common shares outstanding during the period for Diluted computation (in shares)	9,161,000	9,005,000	8,926,000
Common stock excluded from calculations of diluted net income per share (in shares)	0	0	67,500
Class of Stock [Line Items]
Equity per common share (in dollars per share)	$ 15.28	$ 14.77	$ 14.14
Common Stock [Member] | Class A Stock [Member]
Class of Stock [Line Items]
Common stock, shares authorized (in shares)	15,000,000	15,000,000	15,000,000
Common stock, shares issued (in shares)	8,246,033	8,176,213	8,030,677
Common stock, shares outstanding (in shares)	8,246,033	8,176,213	8,030,677
Common stock, par value (in dollars per share)	$ 1.00
Common stock, shares issued during period (in shares)	69,820	145,536	82,108
Common Stock [Member] | Class B Stock [Member]
Class of Stock [Line Items]
Common stock, shares authorized (in shares)	1,040,000	1,040,000	1,040,000
Common stock, shares issued (in shares)	881,452	881,452	881,452
Common stock, shares outstanding (in shares)	881,452	881,452	881,452
Common stock, par value (in dollars per share)	$ 1.00

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SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Summary of quarterly unaudited consolidated statements of operations information [Abstract]
Operating revenues	$ 19,417	$ 21,828	$ 19,395	$ 18,449	$ 18,750	$ 20,776	$ 19,536	$ 17,962	$ 79,089	$ 77,024	$ 72,465
Operating income	4,352	5,945	4,669	3,853	3,531	5,394	4,985	3,672	18,819	17,582	16,046
Net income applicable to common stock	$ 2,723	$ 4,360	$ 3,041	$ 2,830	$ 1,835	$ 3,699	$ 3,233	$ 2,538	$ 12,954	$ 11,305	$ 9,506
Income per common share [Abstract]
Basic (in dollars per share)	$ 0.30	$ 0.48	$ 0.33	$ 0.31	$ 0.21	$ 0.41	$ 0.36	$ 0.28	$ 1.42	$ 1.26	$ 1.07
Diluted (in dollars per share)	$ 0.30	$ 0.48	$ 0.33	$ 0.31	$ 0.21	$ 0.41	$ 0.36	$ 0.28	$ 1.41	$ 1.26	$ 1.07

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RELATED PARTY TRANSACTIONS (Details) - USD ($)		1 Months Ended	12 Months Ended
	May 31, 2015	Jul. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Related Party Transaction [Line Items]
Stock ownership required to be disclosed, minimum			5.00%
W.F. Construction [Member]
Related Party Transaction [Line Items]
Contract to repair water treatment plant	$ 48,000	$ 131,000
Amounts paid			$ 137,000	$ 48,000
Accounts payable balance due			$ 0	$ 0