YORK WATER CO (Form: 10-K, Received: 03/07/2017 11:06:05)

THE YORK WATER COMPANY

PART I

Item 1.

Business.

The York Water Company (the "Company") is the oldest investor-owned water utility in the United States and is duly organized under the laws of the Commonwealth of Pennsylvania. The Company has operated continuously since 1816. The primary business of the Company is to impound, purify to meet or exceed safe drinking water standards and distribute water. The Company also owns and operates three wastewater collection systems and two wastewater treatment systems. The Company operates within its franchised territory, which covers 39 municipalities within York County, Pennsylvania and nine municipalities within Adams County, Pennsylvania. The Company is regulated by the Pennsylvania Public Utility Commission, or PPUC, for both water and wastewater in the areas of billing, payment procedures, dispute processing, terminations, service territory, debt and equity financing and rate setting. The Company must obtain PPUC approval before changing any practices associated with the aforementioned areas.

Water service is supplied through the Company's own distribution system. The Company obtains the bulk of its water supply from both the South Branch and East Branch of the Codorus Creek, which together have an average daily flow of 73.0 million gallons. This combined watershed area is approximately 117 square miles. The Company has two reservoirs, Lake Williams and Lake Redman, which together hold up to approximately 2.2 billion gallons of water. The Company has a 15-mile pipeline from the Susquehanna River to Lake Redman which provides access to an additional supply of 12.0 million gallons of untreated water per day. The Company also owns seven wells which are capable of providing a safe yield of approximately 366,000 gallons per day to supply water to its customers in Carroll Valley Borough and Cumberland Township, Adams County. As of December 31, 2016, the Company's average daily availability was 35.4 million gallons, and average daily consumption was approximately 18.8 million gallons. The Company's service territory had an estimated population of 196,000 as of December 31, 2016. Industry within the Company's service territory is diversified, manufacturing such items as fixtures and furniture, electrical machinery, food products, paper, ordnance units, textile products, injectable drug delivery systems, air conditioning systems, laundry detergent, barbells and motorcycles.

The Company's water business is somewhat dependent on weather conditions, particularly the amount and timing of rainfall. Revenues are particularly vulnerable to weather conditions in the summer months. Prolonged periods of hot and dry weather generally cause increased water usage for watering lawns, washing cars, and keeping golf courses and sports fields irrigated. Conversely, prolonged periods of dry weather could lead to drought restrictions from governmental authorities. Despite the Company's adequate water supply, customers may be required to cut back water usage under such drought restrictions which would negatively impact revenues. The Company has addressed some of this vulnerability by instituting minimum customer charges which are intended to cover fixed costs of operations under all likely weather conditions.

The Company's business does not require large amounts of working capital and is not dependent on any single customer or a very few customers for a material portion of its business. Increases in revenues are generally dependent on the Company's ability to obtain rate increases from the PPUC in a timely manner and in adequate amounts and to increase volumes of water sold through increased consumption and increases in the number of customers served. The Company continuously looks for water and wastewater acquisition and expansion opportunities both within and outside its current service territory as well as additional opportunities to enter into bulk water contracts with municipalities and other entities to supply water.

The Company has agreements with several municipalities to provide sewer billing services. The Company also has a service line protection program on a targeted basis in order to further diversify its business. Under this optional program, customers pay a fixed monthly fee, and the Company will repair or replace damaged customer service lines, as needed, subject to an annual maximum dollar amount. Opportunities to expand both initiatives are being pursued.

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Competition

As a regulated utility, the Company operates within an exclusive franchised territory that is substantially free from direct competition with other public utilities, municipalities and other entities. Although the Company has been granted an exclusive franchise for each of its existing community water and wastewater systems, the ability of the Company to expand or acquire new service territories may be affected by currently unknown competitors obtaining franchises to surrounding systems by application or acquisition. These competitors may include other investor-owned utilities, nearby municipally-owned utilities and sometimes competition from strategic or financial purchasers seeking to enter or expand in the water and wastewater industry. The addition of new service territory and the acquisition of other utilities are generally subject to review and approval by the PPUC.

Water and Wastewater Quality and Environmental Regulations

Provisions of water and wastewater service are subject to regulation under the federal Safe Drinking Water Act, the Clean Water Act and related state laws, and under federal and state regulations issued under these laws. In addition, the Company is subject to federal and state laws and other regulations relating to solid waste disposal, dam safety and other aspects of its operations.

The federal Safe Drinking Water Act establishes criteria and procedures for the U.S. Environmental Protection Agency, or EPA, to develop national quality standards. Regulations issued under the Act, and its amendments, set standards on the amount of certain contaminants allowable in drinking water. Current requirements are not expected to have a material impact on the Company's operations or financial condition as it already meets or exceeds standards. In the future, the Company may be required to change its method of treating drinking water, and may incur additional capital investments if new regulations become effective.

Under the requirements of the Pennsylvania Safe Drinking Water Act, or SDWA, the Pennsylvania Department of Environmental Protection, or DEP, monitors the quality of the finished water supplied to customers. The DEP requires the Company to submit weekly reports showing the results of daily bacteriological and other chemical and physical analyses. As part of this requirement, the Company conducts over 70,000 laboratory tests annually. Management believes that the Company complies with the standards established by the agency under the SDWA. The DEP assists the Company by regulating discharges into the Company's watershed area to prevent and eliminate pollution.

The federal Groundwater Rule establishes rules for community water supplies serving between 100 and 500 customers. This rule requires additional testing of water from well sources, and under certain circumstances requires demonstration and maintenance of effective disinfection. The Company holds public water supply permits issued by the DEP, which establishes the groundwater source operating conditions for its wells, including demonstrated 4-log treatment of viruses. All of the satellite systems operated by the Company are in compliance with the federal Groundwater Rule. The Company completed modifications at one of these systems in 2016 to more reliably and consistently demonstrate 4-log treatment of viruses.

The Clean Water Act regulates discharges from water and wastewater treatment facilities into lakes, rivers, streams and groundwater. The Company complies with this Act by obtaining and maintaining all required permits and approvals for discharges from its water and wastewater facilities and by satisfying all conditions and regulatory requirements associated with the permits.

The DEP monitors the quality of wastewater discharge effluent under the provisions of the National Pollutant Discharge Elimination System, or NPDES. The Company submits monthly reports to the DEP showing the results of its daily effluent monitoring and removal of sludge and biosolids. The Company is not aware of any significant environmental remediation costs necessary from the handling and disposal of waste material from its wastewater operations.

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Lead and copper may enter drinking water primarily through plumbing materials. The Company is required to comply with the Lead and Copper Rule established by the EPA and administered by the DEP. The Company must monitor drinking water at customer taps for compliance with this rule. If lead concentrations exceed an action level, the Company must undertake a number of additional actions to control corrosion, inform the public about steps they should take to protect their health and may be required to replace lead service lines under its control. See " Management's Discussion and Analysis – Environmental Matters " for a discussion of the Company's most recently completed testing.

The DEP and the Susquehanna River Basin Commission, or SRBC, regulate the amount of water withdrawn from streams in the watershed to assure that sufficient quantities are available to meet the needs of the Company and other regulated users. Through its Division of Dam Safety, the DEP regulates the operation and maintenance of the Company's impounding dams. The Company routinely inspects its dams and prepares annual reports of their condition as required by DEP regulations. The DEP reviews these reports and inspects the Company's dams. The DEP most recently inspected the Company's dams in 2014 and noted no significant violations.

Since 1980, the DEP has required any new dam to have a spillway that is capable of passing the design flood without overtopping the dam. The design flood is either the Probable Maximum Flood, or PMF, or some fraction of it, depending on the size and location of the dam. PMF is very conservative and is calculated using the most severe combination of meteorological and hydrologic conditions reasonably possible in the watershed area of a dam.

The Company engaged a professional engineer to analyze the spillway capacities at the Lake Williams and Lake Redman dams and validate the DEP's recommended flood design for the dams. Management presented the results of the study to the DEP in December 2004, and DEP then requested that the Company submit a proposed schedule for the actions to address the spillway capacities. Thereafter, the Company retained an engineering firm to prepare preliminary designs for increasing the spillway capacities to pass the PMF through armoring the dams with roller compacted concrete. Management has met with the DEP on a regular basis to review the preliminary design and discuss scheduling, permitting, and construction requirements. The Company is currently completing preliminary work on the dams as well as the final design and the permitting process. The Company expects to finalize its plans in 2017 and begin armoring one of the dams between 2018 and 2019. The second dam is expected to be armored in a year or two following the first dam armoring. The cost to armor each dam is expected to be approximately $5.5 million.

Capital expenditures and operating costs required as a result of water quality standards and environmental requirements have been traditionally recognized by state public utility commissions as appropriate for inclusion in establishing rates. The capital expenditures currently required as a result of water quality standards and environmental requirements have been budgeted in the Company's capital program and represent less than 10% of its expected total capital expenditures over the next five years. The Company is currently in compliance with wastewater environmental standards and does not anticipate any major capital expenditures for its current wastewater business.

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Growth

During the five year period ended December 31, 2016, the Company continued to grow the number of customers and its distribution facilities.

The following table sets forth certain of the Company's summary statistical information.

(In thousands of dollars)	For the Years Ended December 31,
	2016		2015		2014		2013		2012
Revenues:
Residential	$	30,142	$	29,682	$	29,079	$	26,796	$	26,114
Commercial and industrial		13,760		13,822		13,267		12,299		12,114
Other		3,682		3,585		3,554		3,288		3,219
Total	$	47,584	$	47,089	$	45,900	$	42,383	$	41,447

Average daily water consumption (gallons per day)		18,798,000		18,507,000		18,327,000		19,094,000		18,553,000

Miles of water mains at year-end		967		958		951		945		940

Miles of wastewater mains at year-end		8		8		8		3		3

Additional water distribution mains installed/acquired (ft.)		46,368		40,873		28,523		28,051		59,653

Wastewater collection mains acquired (ft.)		-		-		28,250		-		14,820

Number of customers at year-end		67,052		66,087		65,102		64,118		63,779

Population served at year-end		196,000		194,000		192,000		190,000		189,000

Executive Officers of the Registrant

The Company presently has 105 full time employees including the officers detailed in the information set forth under the caption "Executive Officers of the Company" of the 2017 Proxy Statement incorporated herein by reference.

Available Information

The Company makes available free of charge, on or through its website ( www.yorkwater.com ), its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC.

Shareholders may request, without charge, copies of the Company's financial reports. Such requests, as well as other investor relations inquiries, should be addressed to:

Molly E. Norton	The York Water Company	(717) 718-2942
Investor Relations &	130 East Market Street	(800) 750-5561
Communications Administrator	York, PA 17401	mollyn@yorkwater.com

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Item 1A.

Risk Factors.

The rates we charge our customers are subject to regulation. If we are unable to obtain government approval of our requests for rate increases, or if approved rate increases are untimely or inadequate to cover our investments in utility plant and equipment and projected expenses, our results of operations may be adversely affected.

Our ability to maintain and meet our financial objectives is dependent upon the rates we charge our customers, which are subject to approval by the PPUC. We file rate increase requests with the PPUC, from time to time, to recover our investments in utility plant and equipment and projected expenses. Any rate increase or adjustment must first be justified through documented evidence and testimony. The PPUC determines whether the investments and expenses are recoverable, the length of time over which such costs are recoverable, or, because of changes in circumstances, whether a remaining balance of deferred investments and expenses is no longer recoverable in rates charged to customers. Once a rate increase application is filed with the PPUC, the ensuing administrative and hearing process may be lengthy and costly. 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. In addition, the amount or frequency of rate increases may be decreased or lengthened as a result of changes in income tax laws regarding tax-basis depreciation as it applies to our capital expenditures or qualifying repair tax deductible expenditures.

We can provide no assurances that future requests will be approved by the PPUC; 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 sought the rate increase. If we are unable to obtain PPUC approval of our requests for rate increases, or if approved rate increases are untimely or inadequate to cover our investments in utility plant and equipment and projected expenses, our results of operations may be adversely affected.

We are subject to federal, state and local regulation that may impose costly limitations and restrictions on the way we do business.

Various federal, state and local authorities regulate many aspects of our business. Among the most important of these regulations are those relating to the quality of water we supply our customers, water allocation rights and the quality of the effluent we discharge from our wastewater treatment facility. Government authorities continually review these regulations, particularly the drinking water quality regulations, and may propose new or more restrictive requirements in the future. We are required to perform water and wastewater quality tests that are monitored by the PPUC, the EPA, and the DEP, for the detection of certain chemicals and compounds in our water and effluent. If new or more restrictive limitations on permissible levels of substances and contaminants in our water and wastewater are imposed, we may not be able to adequately predict the costs necessary to meet regulatory standards. If we are unable to recover the cost of implementing new water and wastewater treatment procedures in response to more restrictive quality regulations through our rates that we charge our customers, or if we fail to comply with such regulations, it could have a material adverse effect on our financial condition and results of operations.

We are also subject to water allocation regulations that control the amount of water that we can draw from water sources. The SRBC and the DEP regulate the amount of water withdrawn from streams in the watershed for water supply purposes to assure that sufficient quantities are available to meet our needs and the needs of other regulated users. In addition, government drought restrictions could cause the SRBC or the DEP to temporarily reduce the amount of our allocations. If new or more restrictive water allocation regulations are implemented or our allocations are reduced due to weather conditions, it may have an adverse effect on our ability to supply the demands of our customers, and in turn, on our revenues and results of operations.

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

Demand for our water during the warmer months is generally greater than during cooler months due primarily to additional 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 will vary with temperature and rainfall levels. If temperatures during the typically warmer months are cooler than expected, or there is more rainfall than expected, the demand for our water may decrease and adversely affect our revenues.

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Weather conditions and overuse may interfere with our sources of water, demand for water services, and our ability to supply water to our customers.

We depend on an adequate water supply to meet the present and future demands of our customers and to continue our expansion efforts. Unexpected conditions may interfere with our water supply sources. Drought and overuse may limit the availability of surface and ground water. These factors might adversely affect our ability to supply water in sufficient quantities to our customers and our revenues and earnings may be adversely affected. Additionally, cool and wet weather, as well as drought restrictions and our customers' conservation efforts, may reduce consumption demands, also adversely affecting our revenue and earnings. Furthermore, freezing weather may also contribute to water transmission interruptions caused by pipe and main breakage. If we experience an interruption in our water supply, it could have a material adverse effect on our financial condition and results of operations.

Some scientific experts are predicting a worsening of weather volatility in the future, possibly created by the climate change greenhouse gases. Changing severe weather patterns could require additional expenditures to reduce the risk associated with any increasing storm, flood and drought occurrences.

The issue of climate change is receiving ever increasing attention worldwide. Many climate change predictions, if true, present several potential challenges to water and wastewater utilities, such as increased frequency and duration of droughts, increased precipitation and flooding, potential degradation of water quality, and changes in demand for services. The changes may result in lower revenue, the need for additional capital expenditures, or increased costs. Because of the uncertainty of weather volatility related to climate change, we cannot predict its potential impact on our business, financial condition, or results of operations. Although any potential expenditures and costs may be recovered in the form of higher rates, there can be no assurance that the PPUC would approve rate increases to enable us to recover such expenditures and costs. We cannot assure you that our costs of complying with any climate change related measures will not harm our business, financial condition, or results of operations.

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

A general economic downturn may lead to a number of impacts on our business that may 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 when such discretionary usage is normally at its highest; a decline in usage by industrial and commercial customers as a result of decreased business activity; an increased incidence of customers' inability to pay or delays in paying their utility bills, or an increase in customer bankruptcies, which may lead to higher bad debt expense and reduced cash flow; a lower customer growth rate due to a decline in new housing starts; and a decline in the number of active customers due to housing vacancies or abandonments. A deterioration in general economic conditions may also lead to an investment market downturn, which may result in our pension plans' asset market values suffering a decline and significant volatility. A decline in our pension plans' asset market values could increase our required cash contributions to these plans and pension expense in subsequent years.

The current concentration of our business in central and southern Pennsylvania makes us particularly susceptible to adverse developments in local economic and demographic conditions.

Our service territory presently includes 39 municipalities within York County, Pennsylvania and nine municipalities within Adams County, Pennsylvania. Our revenues and operating results are therefore especially subject to local economic and demographic conditions in the area. A change in any of these conditions could make it more costly or difficult for us to conduct our business. In addition, any such change would have a disproportionate effect on us, compared to water and wastewater utility companies that do not have such a geographic concentration.

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Contamination of our water supply may cause disruption in our services and adversely affect our revenues.

Our water supply is subject to contamination from the migration of naturally-occurring substances in groundwater and surface systems and pollution resulting from man-made sources. In the event that our water supply is contaminated, we may have to interrupt the use of that water supply until we are able to substitute the flow of water from an uncontaminated water source through our interconnected transmission and distribution facilities. In addition, we may incur significant costs in order to treat the contaminated source through expansion of our current treatment facilities or development of new treatment methods. Our inability to substitute water supply from an uncontaminated water source, or to adequately treat the contaminated water source in a cost-effective manner, may have an adverse effect on our revenues.

If our sources of water or water at customer sites become contaminated, it could subject us to reduction in usage, regulatory actions, damage to our reputation and private litigation.

As described in " Management's Discussion and Analysis – Environmental Matters ", during our recently completed triennial testing, we determined that we exceeded the action level for lead in rules issued by the EPA. The Company is operating under a consent order agreement with the DEP to address the test results, including replacing all company-owned lead service lines in the next four years. While we believe that our response has been appropriate, we may incur significant costs in responding to this incident and may not be able to recover such costs through rates or from insurers.

Our primary business is to impound, purify to meet or exceed safe drinking water standards and distribute water. Contamination of the water provided to our customers exposes us to risks, including regulatory or government action, customer exposure to contamination or hazardous substances in the water, and resulting private claims and litigation. Negative impacts to our reputation may occur even if we are not responsible for any contamination or its consequences. Pending or future claims against us and reputational damage could have a material adverse impact on our business, financial condition, and results of operations.

The necessity for increased security has and may continue to result in increased operating costs.

We have taken steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply. We have also tightened our security measures regarding the delivery and handling of certain chemicals used in our business. We have and will continue to bear increased costs for security precautions to protect our facilities, operations and supplies. We are not aware of any specific threats to our facilities, operations or supplies. However, it is possible that we would not be in a position to control the outcome of such events should they occur.

The growing dependence on digital technology has increased the risks related to cybersecurity.

Computers and the Internet have led to increased productivity and improved customer service. Unfortunately, progress in this area has brought with it cybersecurity risks. Recently, the frequency and severity of cyber-attacks on companies has increased resulting in a disruption to business operations and the corruption or misappropriation of proprietary data. We have and will continue to bear increased costs for security precautions to protect our information technology. However, if such an attack was to occur and could not be prevented, customer information could be misappropriated, our networks may be down for an extended period of time disrupting our business, and it could require costly replacement of hardware and software. We carry cyber liability insurance, however, our limits may not be sufficient to cover all losses or liabilities.

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

Our ability to continue our expansion efforts and fund our 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 or that the cost of capital will not be too high for future expansion and construction. In addition, approval from the PPUC must be obtained prior to our sale and issuance of securities. If we are unable to obtain approval from the PPUC on these matters, or to obtain approval in a timely manner, it may affect our ability to effect transactions that are beneficial to us or our shareholders. A single transaction may itself not be profitable but might still be necessary to continue providing service or to grow the business.

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The failure to maintain our existing credit rating could affect our cost of funds and related liquidity.

Standard & Poor's Ratings Services rates our outstanding debt and has given a credit rating to us. Their evaluations are based on a number of factors, which include financial strength as well as transparency with rating agencies and timeliness of financial reporting. Failure to maintain our current credit rating could adversely affect our cost of funds and related liquidity.

We may face competition from other water suppliers or wastewater service providers that may hinder our growth and reduce our profitability.

We face competition from other water suppliers for acquisitions, which may limit our growth opportunities. Furthermore, even after we have been the successful bidder in an acquisition, competing water suppliers or wastewater service providers may challenge our application for extending our franchise territory to cover the target company's market. Finally, third parties either supplying water on a contract basis to municipalities or entering into agreements to operate municipal water or wastewater systems might adversely affect our business by winning contracts that may be beneficial to us. If we are unable to compete successfully with other water suppliers and wastewater service providers for these acquisitions, franchise territories and contracts, it may impede our expansion goals and adversely affect our profitability.

An important element of our growth strategy is the acquisition of water and wastewater systems. Any pending or future acquisitions we decide to undertake will involve risks.

The acquisition and integration of water and wastewater systems is an important element in our growth strategy. This strategy depends on identifying suitable acquisition opportunities and reaching mutually agreeable terms with acquisition candidates. The negotiation of potential acquisitions as well as the integration of acquired businesses could require us to incur significant costs. Further, acquisitions may result in dilution for the owners of our common stock, our incurrence of debt and contingent liabilities and fluctuations in quarterly results. In addition, the businesses and other assets we acquire may not achieve the financial results that we expect, which could adversely affect our profitability.

We have restrictions on our dividends. There can also be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.

The terms of our debt instruments impose conditions on our ability to pay dividends. We have paid dividends on our common stock each year since our inception in 1816 and have increased the amount of dividends paid each year since 1997. Our earnings, financial condition, capital requirements, applicable regulations and other factors, including the timeliness and adequacy of rate increases, will determine both our ability to pay dividends on our common stock and the amount of those dividends. There can be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.

If we are unable to pay the principal and interest on our indebtedness as it comes due or we default under certain other provisions of our loan documents, our indebtedness could be accelerated and our results of operations and financial condition could be adversely affected.

Our ability to pay the principal and interest on our indebtedness as it comes due will depend upon our current and future performance. Our performance is affected by many factors, some of which are beyond our control. We believe that our cash generated from operations, and, if necessary, borrowings under our existing credit facilities will be sufficient to enable us to make our debt payments as they become due. If, however, we do not generate sufficient cash, we may be required to refinance our obligations or sell additional equity, which may be on terms that are not as favorable to us. No assurance can be given that any refinancing or sale of equity will be possible when needed or that we will be able to negotiate acceptable terms. In addition, our failure to comply with certain provisions contained in our trust indentures and loan agreements relating to our outstanding indebtedness could lead to a default under these documents, which could result in an acceleration of our indebtedness.

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We depend significantly on the services of the members of our senior management team, and the departure of any of those persons could cause our operating results to suffer.

Our success depends significantly on the continued individual and collective contributions of our senior management team. If we lose the services of any member of our senior management or are unable to hire and retain experienced management personnel, our operating results could suffer.

Work stoppages and other labor relations matters could adversely affect our operating results.

Approximately one-third of our workforce is unionized under a contract with a labor union. In light of rising costs for healthcare and retirement benefits, contract negotiations in the future may be difficult. We are subject to a risk of work stoppages and other labor actions as we negotiate with the union to address these issues, which could affect our business, financial condition, and results of operations. Although we believe we have a good relationship with our union workforce and have a strike contingency plan, we cannot be assured that issues with our labor force will be resolved favorably to us in the future or that we will not experience work stoppages.

There is a limited trading market for our common stock; you may not be able to resell your shares at or above the price you pay for them.

Although our common stock is listed for trading on the NASDAQ Global Select Market, the trading in our common stock has substantially less liquidity than many other companies quoted on the NASDAQ Global Select Market. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the market of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Because of the limited volume of trading in our common stock, a sale of a significant number of shares of our common stock in the open market could cause our stock price to decline.

The failure of, or the requirement to repair, upgrade or dismantle, either of our dams may adversely affect our financial condition and results of operations.

Our water system includes two impounding dams. While we maintain robust dam maintenance and inspection programs, a failure of the dams could result in injuries and damage to residential and/or commercial property downstream for which we may be responsible, in whole or in part. The failure of a dam could also adversely affect our ability to supply water in sufficient quantities to our customers and could adversely affect our financial condition and results of operations. We carry liability insurance on our dams, however, our limits may not be sufficient to cover all losses or liabilities incurred due to the failure of one of our dams. The estimated costs to maintain and upgrade our dams are included in our capital budget. Although such costs have previously been recoverable in rates, there is no guarantee that these costs will continue to be recoverable and in what magnitude they will be recoverable.

Wastewater operations entail significant risks and may impose significant costs.

Wastewater collection and treatment and septage pumping and sludge hauling involve various unique risks. If collection or treatment systems fail or do not operate properly, or if there is a spill, untreated or partially treated wastewater could discharge onto property or into nearby streams and rivers, causing various damages and injuries, including environmental damage. These risks are most acute during periods of substantial rainfall or flooding, which are the main causes of sewer overflow and system failure. Liabilities resulting from such damages and injuries could materially and adversely affect our business, financial condition, and results of operations.

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The final determination of our income tax liability may be materially different from our income tax provision.

Significant judgment is required in determining our provision for income taxes. The calculation of the provision for income taxes is subject to our interpretation of applicable business tax laws in the federal and state jurisdictions in which we file. In addition, our income tax returns are subject to periodic examination by the Internal Revenue Service, or IRS, and other taxing authorities. In December 2014, we changed our tax method of accounting to permit the expensing of qualifying asset improvement costs that were previously being capitalized and depreciated for tax purposes. Our determination of what qualifies as a capital cost versus a repair expense tax deduction is subject to subsequent adjustment and may impact the income tax benefits that have been recognized. Although we believe our income tax estimates are appropriate, there is no assurance that the final determination of our income tax liability will not be materially different, either higher or lower, from what is reflected in our income tax provision. In the event we are assessed additional income taxes, our business, financial condition, and results of operations could be adversely affected.

We are subject to market and interest rate risk on our $12,000,000 variable interest rate debt issue.

We are subject to interest rate risk in conjunction with our $12,000,000 variable interest rate debt issue. This exposure, however, has been hedged with an interest rate swap. This hedge will protect the Company from the risk of changes in the benchmark interest rates, but does not protect the Company's exposure to the changes in the difference between its own variable funding rate and the benchmark rate. A breakdown of the historical relationships between the cost of funds of the Company and the benchmark rate underlying the interest rate swap could result in higher interest rates adversely affecting our financial results.

The holders of the $12,000,000 variable rate Pennsylvania Economic Development Financing Authority (PEDFA) Series A Bonds may tender their bonds at any time. When the bonds are tendered, they are subject to an annual remarketing agreement, pursuant to which a remarketing agent attempts to remarket the tendered bonds pursuant to the terms of the Indenture. In order to keep variable interest rates down and to enhance the marketability of the Series A Bonds, the Company entered into a Reimbursement, Credit and Security Agreement with PNC Bank, National Association ("the Bank") dated as of May 1, 2008. This agreement provides for a direct pay letter of credit issued by the Bank to the trustee for the Series A Bonds. The letter of credit expires June 30, 2018 and is reviewed annually for a potential extension of the expiration date. The Bank is responsible for providing the trustee with funds for the timely payment of the principal and interest on the Series A Bonds and for the purchase price of the Series A Bonds that have been tendered or deemed tendered for purchase and have not been remarketed. If the Bank is unable to meet its obligations, the Company would be required to buy any bonds which had been tendered.

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

Source of Water Supply

The Company owns two impounding dams located in York and Springfield Townships adjoining the Borough of Jacobus to the south. The lower dam, the Lake Williams Impounding Dam, creates a reservoir covering approximately 165 acres containing about 870 million gallons of water. The upper dam, the Lake Redman Impounding Dam, creates a reservoir covering approximately 290 acres containing about 1.3 billion gallons of water.

In addition to the two impounding dams, the Company owns a 15-mile pipeline from the Susquehanna River to Lake Redman that provides access to a supply of an additional 12.0 million gallons of water per day.

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The Company also owns three satellite water systems in Adams County, Pennsylvania. The Carroll Valley Water System consists of two groundwater wells capable of providing a safe yield of approximately 100,000 gallons per day with a current average daily consumption of 21,000 gallons per day. The Western Cumberland Water System (formerly Lincoln Estates) consists of three groundwater wells capable of providing a safe yield of 144,000 gallons per day with a current average daily consumption of 18,000 gallons per day. The Eastern Cumberland Water System (formerly The Meadows) consists of two groundwater wells capable of providing a safe yield of 122,000 gallons per day with a current average daily consumption of 23,000 gallons per day.

As of December 31, 2016, the Company's present average daily availability was 35.4 million gallons, and daily consumption was approximately 18.8 million gallons.

Pumping Stations

The Company's main pumping station is located in Spring Garden Township on the south branch of the Codorus Creek about four miles downstream from the Company's lower impounding dam. The pumping station presently houses pumping equipment consisting of three electrically driven centrifugal pumps and two diesel-engine driven centrifugal pumps with a combined pumping capacity of 68.0 million gallons per day. The pumping capacity is more than double peak requirements and is designed to provide an ample safety margin in the event of pump or power failure. A large diesel backup generator is installed to provide power to the pumps in the event of an emergency. The untreated water is pumped approximately two miles to the filtration plant through pipes owned by the Company.

The Susquehanna River Pumping Station is located on the western shore of the Susquehanna River several miles south of Wrightsville, PA. The pumping station is equipped with three Floway Vertical Turbine pumps rated at 6 million gallons per day each. The pumping station pumps water from the Susquehanna River approximately 15 miles through a combination of 30" and 36" ductile iron main to the Company's upper impounding dam, located at Lake Redman.

In 2016, the Company began the construction of a new pumping station in York Township adjacent to Lake Redman. The pumping station is designed to provide a redundant source with the capacity to pump 20 million gallons per day of untreated water through a Company owned 36-inch force main approximately 3.5 miles to the filtration plant, meeting the Company's daily consumption needs. Construction began on the new pumping station and force main in September 2016. The pumping station and force main are expected to be put into service in 2017.

Treatment Facilities

The Company's water filtration plant is located in Spring Garden Township about one-half mile south of the City of York. Water at this plant is filtered through twelve dual media filters having a rated capacity of 39.0 million gallons per day, or MGD, with a maximum supply of 42.0 MGD for short periods if necessary. Based on an average daily consumption in 2016 of approximately 18.8 million gallons, the Company believes the pumping and filtering facilities are adequate to meet present and anticipated demands. In 2007, the Company began upgrading the facility to increase capacity to meet peak demands, for operational redundancy, and for future growth. The final phase of the upgrade, replacement of the filter media, began in 2013 and was completed in 2016, allowing the Company to have its filter capacity rerated to 39.0 MGD from 31.0 MGD.

The Company's sediment recycling facility is located adjacent to its water filtration plant. This state of the art facility employs cutting edge technology to remove fine, suspended solids from untreated water. The Company estimates that through this energy-efficient, environmentally friendly process, approximately 600 tons of sediment will be removed annually, thereby improving the quality of the Codorus Creek watershed.

The Company's two wastewater treatment facilities are located in East Manchester and Lower Windsor Townships. The two wastewater treatment plants are each small, packaged, extended aeration activated sludge facilities with a combined average daily flow capacity of 167,000 gallons. With a projected maximum daily demand of 77,000 gallons, the plants' flow paths offer both capacity and operational redundancy for maintenance, high flow events, and potential growth.

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Distribution and Collection

The distribution system of the Company has approximately 967 miles of water main lines which range in diameter from 2 inches to 36 inches. The distribution system includes 31 booster stations and 33 standpipes and reservoirs capable of storing approximately 58.0 million gallons of potable water. All booster stations are equipped with at least two pumps for protection in case of mechanical failure. Following a deliberate study of customer demand and pumping capacity, the Company installed standby generators at all critical booster stations to provide an alternate energy source or emergency power in the event of an electric utility interruption.

The two wastewater collection systems of the Company have a combined approximate 38,270 feet of 6 inch and 8 inch gravity collection mains and 4,800 feet of 6" pressure force main along with 3 sewage pumping stations each rated at 80 gallons per minute.

The Company added a third wastewater collection system containing approximately 57,000 feet of primarily 8 inch gravity collection mains in early 2017.

Other Properties

The Company's distribution center and material and supplies warehouse are located in Springettsbury Township, and are composed of three one-story concrete block buildings aggregating 30,680 square feet.

The administrative and executive offices of the Company are located in one three-story and one two-story brick and masonry buildings, containing a total of approximately 21,861 square feet, in the City of York, Pennsylvania.

All of the Company's properties described above are held in fee by the Company. There are no material encumbrances on such properties.

In 1976, the Company entered into a Joint Use and Park Management Agreement with York County under which the Company licensed use of certain of its lands and waters for public park purposes for a period of 50 years. Under the agreement, York County has agreed not to erect a dam upstream on the East Branch of the Codorus Creek or otherwise obstruct the flow of the creek.

Item 3.

Legal Proceedings.

There are no material legal proceedings involving the Company.

Item 4.

Mine Safety Disclosures.

Not applicable.

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PART II

Item 5.

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for Common Stock and Dividends

The common stock of The York Water Company is traded on the NASDAQ Global Select Market (Symbol "YORW"). Quarterly price ranges and cash dividends per share for the last two years follow:

	2016						2015
	High		Low		Dividend*		High		Low		Dividend*
1 ^st Quarter	$	30.99	$	23.79	$	0.1555	$	24.97	$	21.08	$	0.1495
2 ^nd Quarter		33.40		26.54		0.1555		25.99		20.69		0.1495
3 ^rd Quarter		32.24		27.68		0.1555		22.72		19.69		0.1495
4 ^th Quarter		39.85		28.61		0.1602		26.67		20.93		0.1555

*Cash dividends per share reflect dividends declared at each dividend date.

Prices listed in the above table are sales prices as listed on the NASDAQ Global Select Market. Shareholders of record (excluding individual participants in securities positions listings) as of December 31, 2016 numbered approximately 2,052.

Dividend Policy

Dividends on the Company's common stock are declared by the Board of Directors and are normally paid in January, April, July and October. Dividends are paid based on shares outstanding as of the stated record date, which is ordinarily the last day of the calendar month immediately preceding the dividend payment.

The dividend paid on the Company's common stock on January 17, 2016 was the 584th consecutive dividend paid by the Company. The Company has paid consecutive dividends for its entire history, since 1816. The policy of the Company's Board of Directors is currently to pay cash dividends on a quarterly basis. The dividend rate has been increased annually for twenty consecutive years. The Company's Board of Directors declared dividend number 585 in the amount of $0.1602 per share at its January 2017 meeting. The dividend is payable on April 17, 2017 to shareholders of record as of February 28, 2017. Future cash dividends will be dependent upon the Company's earnings, financial condition, capital demands and other factors and will be determined by the Company's Board of Directors. See Note 4 to the Company's financial statements included herein for restrictions on dividend payments.

Purchases of Equity Securities by the Company

On March 11, 2013, the Board of Directors authorized a share repurchase program granting the Company authority to repurchase up to 1,200,000 shares of the Company's common stock from time to time. The stock repurchase program has no specific end date and under the stock repurchase program, the Company may repurchase shares in the open market or through privately negotiated transactions. The Company may suspend or discontinue the repurchase program at any time. The Company did not repurchase any shares that were not part of the publicly announced plan during the quarter ended December 31, 2016.

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The following table summarizes the Company's purchases of its common stock for the quarter ended December 31, 2016.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as a Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Oct. 1 – Oct. 31, 2016		29,922	$	28.89		29,922		655,233
Nov. 1 – Nov. 30, 2016		-	$	-		-		655,233
Dec. 1 – Dec. 31, 2016		-	$	-		-		655,233
Total		29,922	$	28.89		29,922		655,233

The Company's loan agreements contain various covenants and restrictions regarding dividends and share repurchases. As of December 31, 2016, management believes it was in compliance with all of these restrictions. See Note 4 for additional information regarding these restrictions.

The Company will fund repurchases under the share repurchase program with internally generated funds and borrowings under its credit facilities, if necessary.

Performance Graph

The following line graph presents the annual and cumulative total shareholder return for The York Water Company Common Stock over a five-year period from 2011 through 2016, based on the market price of the Common Stock and assuming reinvestment of dividends, compared with the cumulative total shareholder return of companies in the S&P 500 Index and a peer group made up of publicly traded water utilities, also assuming reinvestment of dividends. The peer group companies include: American States, American Water, Aqua America, Artesian Resources, California Water Service, Connecticut Water, Middlesex Water and San Jose Water.

	2011		2012		2013		2014		2015		2016
The York Water Company		100.00		102.60		125.70		143.19		157.89		246.79
S&P 500 Index – Total Returns		100.00		116.00		153.57		174.60		177.01		198.18
Peer Group		100.00		119.51		141.06		173.06		195.47		238.94

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Item 6.

Selected Financial Data.

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

	Summary of Operations
For the Year	2016			2015			2014			2013			2012

Operating revenues	$	47,584		$	47,089		$	45,900		$	42,383		$	41,447
Operating expenses		24,696			24,428			23,823			21,622			20,874
Operating income		22,888			22,661			22,077			20,761			20,573
Interest expense*		5,037			4,976			4,996			5,267			5,249
Gain on sale of land		36			-			316			-			-
Other income (expenses), net*		(632	)		(456	)		(1,036	)		(28	)		(415	)
Income before income taxes		17,255			17,229			16,361			15,466			14,909
Income taxes		5,409			4,740			4,877			5,812			5,606
Net income	$	11,846		$	12,489		$	11,484		$	9,654		$	9,303

Per Share of Common Stock
Book value	$	8.87		$	8.51		$	8.15		$	7.98		$	7.73
Earnings per share:
Basic		0.92			0.97			0.89			0.75			0.72
Diluted		0.92			0.97			0.89			0.75			0.72
Weighted average number of shares outstanding during the year:
Basic		12,845,955			12,831,687			12,879,912			12,928,040			12,847,160
Diluted		12,845,973			12,831,687			12,879,912			12,928,040			12,847,160
Cash dividends declared per share		0.6267			0.6040			0.5788			0.5580			0.5391

Utility Plant
Original cost, net of acquisition adjustments	$	339,745		$	325,691		$	313,003		$	298,670		$	289,579
Construction expenditures		13,158			13,844			14,139			9,852			11,543

Other
Total assets	$	320,494		$	310,533		$	300,708		$	280,123		$	279,991
Long-term debt including current portion*		84,653			84,562			82,312			82,741			82,684

*Certain prior year amounts have been reclassified to conform to the 2016 presentation.

For Management's Discussion and Analysis of Financial Condition and Results of Operations, please refer to Item 7 of this Annual Report.

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Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

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

Overview

The York Water Company (the "Company") is the oldest investor-owned water utility in the United States, operated continuously since 1816. The Company also operates two wastewater collection and treatment systems. The Company is a purely regulated water and wastewater utility. Profitability is largely dependent on water revenues. Due to the size of the Company and the limited geographic diversity of its service territory, weather conditions, particularly rainfall, economic, and market conditions can have an adverse effect on revenues. Market conditions and the economy in general have been improving, albeit slowly. While there was little organic growth in the customer base, the Company increased revenues in 2016 compared to 2015 as a result of acquisitions, and increased sewer billing and collection service revenue.

The Company's business does not require large amounts of working capital and is not dependent on any single customer or a very few customers for a material portion of its business. In 2016, operating revenue was derived from the following sources and in the following percentages: residential, 63%; commercial and industrial, 29%; and other, 8% which is primarily from the provision for fire service, but includes other water and wastewater service-related income. The customer mix helps to reduce volatility in consumption.

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

The Company has entered into agreements with several municipalities to provide sewer billing and collection services. The Company also has a service line protection program on a targeted basis. Opportunities to expand both initiatives are being pursued to further diversify the business.

In addition to increasing revenue, the Company consistently focuses on minimizing costs without sacrificing water quality or customer service. Paperless billing, expanding online services, negotiation of favorable electric, banking and other costs, as well as taking advantage of the IRS tangible property regulations are examples of some of the Company's efforts to minimize costs.

Performance Measures

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

The Company's performance in 2016 was strong under the above measures. Increases in the number of customers mostly as a result of acquisitions and higher sewer billing and collection service resulted in higher revenue and offset the higher operating and other net expenses recorded in 2016. The Company did incur higher income taxes due to a lower volume of assets improvements eligible for the tax benefit under the IRS tangible property regulations, or TPR. The overall effect was a decrease in net income in 2016 over 2015 of 5.1% and a return on year end common equity of 10.4%, lower than last year but higher than the five year historical average of 10.1%.

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The efficiency ratio, which is calculated as net income divided by revenues, is used by management to evaluate its ability to control expenses. Over the five previous years, the Company's ratio averaged 23.8%. In 2016, the ratio was higher than the average at 24.9% due primarily to lower income taxes than are included in the historical average. Management is confident that its ratio will compare favorably to that of its peers. Management continues to look for ways to decrease expenses and increase efficiency as well as to file for rate increases promptly when needed.

2016 Compared with 2015

Net income for 2016 was $11,846, a decrease of $643, or 5.1%, from net income of $12,489 for 2015. The primary contributing factor to the decrease in net income was higher income taxes.

Operating revenues for the year increased $495, or 1.1%, from $47,089 for 2015 to $47,584 for 2016. The primary reasons for the increase in revenues were an increase in customers, and higher sewer billing and collection service revenue. The average number of customers served in 2016 increased as compared to 2015 by 974 customers, from 65,667 to 66,641 customers, due primarily to recent acquisitions. Lower per capita consumption due mainly to a prior year emergency interconnection partially offset the increase. Total per capita consumption for 2016 was 1.1% lower than 2015, but just 0.2% lower excluding the prior year benefit of the emergency interconnection. The Company expects revenues for 2017 to show a modest increase over 2016 due to an increase in the number of water and wastewater customers from recently announced acquisitions and modest organic growth. Other regulatory actions and weather patterns could impact results.

Operating expenses for the year increased $268, or 1.1%, from $24,428 for 2015 to $24,696 for 2016. The increase was primarily due to higher expenses of approximately $271 for depreciation, $118 for wages, $60 for shareholder expenses and $54 for maintenance. The increased expenses were partially offset by approximately $149 for wages and benefits that were able to be capitalized, and reduced rate case expense of $80. Other expenses decreased by a net of $6. In 2017, the Company expects depreciation expense to continue to rise due to additional investment in utility plant, and other expenses to increase at a moderate rate as costs to maintain and extend the distribution system continue to rise, environmental compliance costs are added (see Note 10 to the financial statements included herein for additional information), and the costs to integrate the West York Borough wastewater collection system are incurred. Overall, increases in operating expenses are expected to outpace growth in revenue in the short-term.

Interest expense on debt for 2016 increased $83, or 1.6%, from $5,182 for 2015 to $5,265 for 2016. The increase was due to an increase in long-term debt outstanding resulting from the bond issuance in July 2015. Interest expense for 2017 is expected to be higher due to recent increases in short-term interest rates and expected line of credit borrowings.

Allowance for funds used during construction increased $22, from $206 in 2015 to $228 in 2016, due to a higher volume of eligible construction. Allowance for funds used during construction for 2017 is expected to increase based on a projected increase in the amount of eligible construction, particularly the new pumping station and force main.

A non-recurring gain on the sale of land of $36 was recorded in 2016 as a result of the sale of nonoperating property from a recent acquisition. No additional land sales are anticipated at this time.

Other income (expenses), net for 2016 reflects increased expenses of $176 as compared to the same period of 2015. Higher retirement expenses of $256 were the primary reason for the increase. The increased expenses were partially offset by higher earnings on life insurance policies of $78. Other expenses decreased by a net of approximately $2 as compared to the same period of 2015. For 2017, other income (expenses) will be largely determined by the change in market returns and discount rates for retirement programs and related assets.

Income taxes for 2016 increased $669, or 14.1%, compared to 2015 due to a lower volume of asset improvements eligible for the tax benefit of the IRS TPR. (See the Income Taxes, Deferred Income Taxes and Uncertain Tax Positions section included herein for additional details.) The Company's effective tax rate was 31.3% for 2016 and 27.5% for 2015. The Company expects the effective tax rate to be approximately 28% to 32% for 2017 due to the continued expensing of asset improvements that would have been capitalized for tax purposes prior to the implementation of the TPR. The Company's effective tax rate will vary depending on the level of eligible asset improvements that are placed in service each period.

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2015 Compared with 2014

Net income for 2015 was $12,489, an increase of $1,005, or 8.8%, from net income of $11,484 for 2014. The primary contributing factors to the increase in net income were higher operating revenues, lower retirement expenses and reduced charitable contributions. The increased income was partially offset by higher operating expenses and a non-recurring prior year gain on the sale of land.

Operating revenues for the year increased $1,189, or 2.6%, from $45,900 for 2014 to $47,089 for 2015. The primary reason for the increase was a rate increase effective February 28, 2014. Additionally, revenues increased from an interconnection with a neighboring municipality to provide water due to an emergency event and from an increase in customers. The average number of customers served in 2015 increased as compared to 2014 by 894 customers, from 64,773 to 65,667 customers, due primarily to recent acquisitions. Total per capita consumption for 2015 was just 0.1% lower than 2014 mainly due to the emergency interconnection. Without the interconnection, total per capita consumption for 2015 was 1.0% lower than 2014.

Operating expenses for the year increased $605, or 2.5%, from $23,823 for 2014 to $24,428 for 2015. The increase was primarily due to higher depreciation expense of approximately $219, increased water treatment chemical usage of approximately $131 due to weather conditions, and higher pension expense of approximately $118. Also adding to the increase were higher expenses of approximately $71 for sediment hauling and a survey of piping at the water treatment plant, $45 for insurance, $33 for information technology strategic planning and $31 for credit card fees due to increased on-line payments. The increased expenses were partially offset by a reduction of $32 for power. Other expenses decreased by a net of $11.

Interest expense on debt for 2015 decreased $24, or 0.5%, from $5,206 for 2014 to $5,182 for 2015. The decrease was due to the 2014 bond refinancing at a lower interest rate. The decrease was partially offset by an increase in interest due to additional long-term debt outstanding.

Allowance for funds used during construction decreased $4, from $210 in 2014 to $206 in 2015, due to a lower volume of eligible construction.

A non-recurring gain on the sale of land of $316 was recorded in 2014 as a result of a PennDOT realignment project which included a portion of the Company's distribution facility property.

Other income (expenses), net for 2015 reflects reduced expenses of $580 as compared to 2014. The net change was primarily due to reduced retirement expense of $443 and lower charitable contributions of $296. Other expenses aggregating approximately $6 increased as compared to 2014. The reduced expenses were partially offset by lower earnings on life insurance policies of approximately $165.

Income taxes for 2015 decreased $137, or 2.8%, compared to 2014 due to the continued tax benefit of the IRS TPR. The Company's effective tax rate was 27.5% for 2015 and 29.8% for 2014.

Rate Developments

See Note 8 to the Company's financial statements included herein for a discussion of its rate developments.

The benefit from the implementation of the IRS TPR impacts the rate matters of the Company. Earnings in excess of the regulatory benchmark prevented the collection of a distribution system improvement charge in 2016, and the Company anticipates it may do so again in 2017. It also may lengthen the amount of time between rate increase requests. When the Company does file for its next rate increase, which it expects to do in 2017, the PPUC will take into account the lower income taxes which resulted from the implementation of the IRS TPR, effectively reducing the amount of revenue required in future years and lowering the Company's rate increase request.

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Acquisitions

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

On October 8, 2013, the Company signed an agreement to purchase the wastewater assets of SYC WWTP, L.P. in Shrewsbury and Springfield Townships, York County, Pennsylvania. Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities. Closing is expected in the second half of 2017 at which time the Company will add approximately 30 commercial and industrial wastewater customers.

On January 6, 2017, the Company completed the acquisition of the water assets of Stockham's Village Mobile Home Park in Adams County, Pennsylvania. The Company began operating the existing system through an interconnection with its current distribution system on January 9, 2017. The acquisition resulted in the addition of approximately 80 new water customers.

On February 23, 2017, the Company completed the acquisition of the wastewater collection assets of West York Borough in York County, Pennsylvania. The Company began operating the existing collection facilities on February 27, 2017. The acquisition resulted in the addition of approximately 1,700 wastewater customers, representing more than 2,200 units.

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

Capital Expenditures

During 2016, the Company invested $13,158 in construction expenditures for routine items, further upgrades to its water treatment facilities, information and communication technology, and the commencement of construction on an additional raw water pumping station and force main, as well as various replacements of infrastructure. The Company replaced and relined approximately 42,000 feet of main in 2016. In addition, the Company invested $50 in the acquisition of water systems during 2016. The Company was able to fund construction expenditures and acquisitions using internally-generated funds, proceeds from its stock purchase plans, and customer advances and contributions from developers, municipalities, customers or builders. See Notes 1, 4 and 5 to the Company's financial statements included herein.

The Company anticipates construction and acquisition expenditures for 2017 and 2018 of approximately $22,800 and $15,600, respectively, exclusive of any acquisitions not yet approved. In addition to routine transmission and distribution projects, a portion of the anticipated 2017 and 2018 expenditures will be for additional main extensions, completion of an additional raw water pumping station and force main, the beginning of armoring one of the dams, and various replacements of infrastructure. The Company intends to use primarily internally-generated funds for its anticipated 2017 and 2018 construction and fund the remainder through line of credit borrowings, proceeds from its stock purchase plans and customer advances and contributions (see Note 1 to the Company's financial statements included herein). Customer advances and contributions are expected to account for between 5% and 10% of funding requirements in 2017 and 2018. Potential debt and equity offerings may be utilized if required. The Company believes it will have adequate credit facilities and access to the capital markets, if necessary, during 2017 and 2018, to fund anticipated construction and acquisition expenditures.

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Liquidity and Capital Resources

Cash

The Company manages its cash through a cash management account that is directly connected to a line of credit. Excess cash generated automatically pays down outstanding borrowings under the line of credit arrangement. If there are no outstanding borrowings, the cash is used as an earnings credit to reduce banking fees. Likewise, if additional funds are needed beyond what is generated internally for payroll, to pay suppliers, or for debt service, funds are automatically borrowed under the line of credit. The Company utilized a significant portion of its cash on hand for cash outflows, specifically a $2,300 contribution to its pension trusts and its quarterly dividend payments, but did not use its lines of credit during the year ended December 31, 2016. The Company has built its cash through internally-generated funds, accumulating a cash balance of $4,209 as of December 31, 2016. The Company expects the cash balance to be fully utilized in the first half of 2017, after which the cash management facility and the other lines of credit are expected to provide the necessary liquidity and funding for the Company's operations, capital expenditures, acquisitions and potential buybacks of stock for the foreseeable future.

Accounts Receivable

The accounts receivable balance tends to follow the change in revenues but is also affected by the timeliness of payments by customers and the level of the reserve for doubtful accounts. In 2016, the accounts receivable balance increased due to an increase in revenue and a slight decrease in percentage of prior months billings paid by customers in December 2016 as compared to December 2015. Prior to December, the Company experienced an improvement in the timeliness of payments by its customers. A reserve is maintained at a level considered adequate to provide for losses that can be reasonably anticipated based on inactive accounts with outstanding balances. Management periodically evaluates the adequacy of the reserve based on past experience, agings of the receivables, adverse situations that may affect a customer's ability to pay, current economic conditions, and other relevant factors. If the status of these factors deteriorates, the Company may incur additional expenses for uncollectible accounts and experience a reduction in its internally-generated funds. The improvement in the timeliness of payments by customers allowed the Company to reduce its allowance for doubtful accounts in 2016.

Internally-generated Funds

The amount of internally-generated funds available for operations and construction depends on the Company's ability to obtain timely and adequate rate relief, changes in regulations, customers' water usage, weather conditions, customer growth and controlled expenses. In 2016, the Company generated $19,365 internally as compared to $20,710 in 2015 and $18,766 in 2014. The decrease from 2015 was primarily due to a decrease in net income, an increase in accounts receivable and higher income taxes paid.

Credit Lines

Historically, the Company has borrowed $15,000 to $20,000 under its lines of credit before refinancing with long-term debt or equity capital. As of December 31, 2016, the Company maintained unsecured lines of credit aggregating $41,500 with four banks at interest rates ranging from LIBOR plus 1.20% to LIBOR plus 1.25%. The Company had no outstanding borrowings under any of its lines of credit as of December 31, 2016. The Company plans to renew a $5,000 line of credit that expires in June 2017 and a $10,000 line of credit that expires in September 2017 under similar terms and conditions.

The Company has taken steps to manage the risk of reduced credit availability. It has maintained committed lines of credit that cannot be called on demand and obtained a 2-year revolving maturity on its largest facilities. One of the Company's banks recently increased the available amount and reduced the interest rate on its line of credit, and a new relationship was established with another bank for a committed line of credit at an interest rate matching the lowest rate currently offered. Despite these factors, there is no guarantee that the Company will be able to obtain sufficient lines of credit with favorable terms in the future. If the Company is unable to refinance its line of credit borrowings with long-term debt or equity when necessary, it may have to eliminate or postpone capital expenditures. Management believes the Company will have adequate capacity under its current lines of credit to meet financing needs throughout 2017.

Long-term Debt

The Company's loan agreements contain various covenants and restrictions. Management believes it is currently in compliance with all of these restrictions. See Note 4 to the Company's financial statements included herein for additional information regarding these restrictions.

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The Pennsylvania Economic Development Financing Authority Series 2014 bonds contain special redemption provisions. Under these provisions, representatives of deceased beneficial owners have the right to request redemption prior to the stated maturity of all or part of their holding in the bonds. The Company is not obligated to redeem any individual holding exceeding $25, or aggregate holdings exceeding $300 in any annual period. In 2016, the Company retired $10 of the bonds under these provisions. In 2015, no bonds were retired under these provisions. Currently, no additional bonds that meet the special provisions have been tendered for redemption.

The York County Industrial Development Authority Series 2006 bonds are subject to optional redemption provisions that allow the Company to redeem all or a portion of the bonds on or after October 1, 2016. The Company may refinance these bonds prior to maturity to take advantage of lower interest rates.

The Company's total long-term debt as a percentage of the total capitalization, defined as total common stockholders' equity plus total long-term debt, was 43.4% as of December 31, 2016, compared with 44.5% as of December 31, 2015. The Company expects to allow the debt percentage to trend upward until it approaches fifty percent before considering additional equity. A debt to total capitalization ratio between forty-six and fifty percent has historically been acceptable to the PPUC in rate filings. Due to its recent ability to generate and retain more cash internally, the Company has been able to keep its ratio below fifty percent. See Note 4 to the Company's financial statements included herein for the details of its long-term debt outstanding as of December 31, 2016.

Income Taxes, Deferred Income Taxes and Uncertain Tax Positions

The Company has a substantial deferred income tax asset primarily due to the differences between the book and tax balances of the pension and deferred compensation plans. The Company does not believe a valuation allowance is required due to the expected generation of future taxable income during the periods in which those temporary differences become deductible.

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

The Company filed for a change in accounting method under the IRS TPR effective in 2014. Under the change in accounting method, the Company is permitted to deduct the costs of certain asset improvements that were previously being capitalized and depreciated for tax purposes as an expense on its income tax return. The Company was permitted to make this deduction for prior years (the "catch-up deduction") and each year going forward, beginning with 2014 (the "ongoing deduction"). As a result of the catch-up deduction, income tax benefits of $4,314 were deferred as a regulatory liability as of December 31, 2014. The catch-up deduction resulted in a decrease in current income taxes payable and an increase to regulatory liabilities during 2014. In 2015, upon final determination of the TPR amounts for its income tax return, the Company reclassified the portion of TPR related to dispositions to deferred taxes and deferred tax liabilities in compliance with the IRS regulations. The Company will seek approval from the PPUC in its next rate filing to amortize the remaining catch-up deduction of $3,887, recorded as a regulatory liability.

As a result of the ongoing deduction, the net income tax benefits of $962, $1,438 and $1,342 for the years ended December 31, 2016, 2015 and 2014, respectively, reduced income tax expense and flowed-through to net income. The ongoing deduction results in a reduction in the effective income tax rate, a net reduction in income tax expense, and a reduction in the amount of income taxes currently payable. Both the ongoing and catch-up deductions result in increases to deferred tax liabilities and regulatory assets representing the appropriate book and tax basis difference on capital additions. The Company expects to continue to expense these asset improvements in the future, resulting in an effective tax rate of 28% to 32%. The effective tax rate will vary depending on the level of eligible asset improvements that are placed in service each period.

The Company has determined there are no uncertain tax positions that require recognition as of December 31, 2016. See Note 3 to the Company's financial statements included herein for additional details regarding income taxes.

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Common Stock

Common stockholders' equity as a percent of the total capitalization was 56.6% as of December 31, 2016, compared with 55.5% as of December 31, 2015. The volume of share repurchases and line of credit borrowings, among other things, could reduce this percentage in the future. It is the Company's intent to target a ratio between fifty and fifty-four percent.

Credit Rating

On March 30, 2016, Standard & Poor's affirmed the Company's credit rating at A-, with a stable outlook. The Company's ability to maintain its credit rating depends, among other things, on adequate and timely rate relief, which it has been successful in obtaining, its ability to fund capital expenditures in a balanced manner using both debt and equity and its ability to generate cash flow. In 2017, the Company's objectives are to continue to maximize its funds provided by operations and maintain a strong capital structure in order to be able to attract capital.

Environmental Matters

During its recently completed triennial testing, the Company determined it exceeded the action level for lead at the customer's tap as established by the Lead and Copper Rule, or LCR, issued by the EPA. The rule allows the Company to have five samples of the 50 high-risk homes tested exceed the action level of 15 parts per billion, or PPB. The testing found that six properties with lead service lines, all built before 1935, exceeded the action level, and the reported exceedance amount was 1 PPB. The Company has determined that only 3% of the company-owned service lines in the system are lead. The Company will be required, per the LCR, to engage in more frequent testing for lead, to provide public education, and annually replace 7% of the remaining company-owned lead service lines in its distribution system. The Company has announced plans to perform in excess of the required actions. Specifically, the Company will provide the affected customers with a free water test and a 200 gallon per month credit to flush their line in order to reduce any lead content until their lead service line has been replaced. The cost of the water tests and flushing credits was $9 for the year ended December 31, 2016 and is expected to be approximately an additional $57 over the next four years.

In addition, the Company has entered into a consent order agreement with the DEP. Under the agreement, the Company has committed to exceed the LCR replacement schedule by replacing all of the remaining company-owned lead service lines within the next four years. The cost for these service line replacements was approximately $75 for the year ended December 31, 2016 and is included in utility plant. Additional replacements are expected to be approximately $2,400 over the next four years, and will be integrated into the Company's annual capital budgets.

Finally, the Company has been granted approval by the PPUC to modify its tariff to allow the replacement of lead customer-owned service lines that are discovered when the Company replaces its lead service lines over four years, and to allow the annual replacement of up to 400 lead customer-owned service lines whenever they are discovered, regardless of the material used for the Company-owned service line over nine years. The tariff modification allows the Company to replace customer-owned service lines at its own initial cost. The Company will record the costs as a regulatory asset to be recovered in future base rates to customers, over a reasonable period of at least four but not more than six years. Replacements are expected to be approximately $2,080 under the four-year tariff modification, assuming all company-owned lead service lines are connected to a customer-owned lead service line. The Company is unable to develop a total estimated cost of the nine-year tariff modification replacements as it does not know how many customer-owned lead service lines are in use.

Dividends

During 2016, the Company's dividend payout ratios relative to net income and net cash provided by operating activities were 68.0% and 41.1%, respectively. During 2015, the Company's dividend payout ratios relative to net income and net cash provided by operating activities were 62.0% and 37.1%, respectively. During the fourth quarter of 2016, the Board of Directors increased the dividend by 3.0% from $0.1555 per share to $0.1602 per share per quarter.

The Company's Board of Directors declared a dividend in the amount of $0.1602 per share at its January 2017 meeting. The dividend is payable on April 17, 2017 to shareholders of record as of February 28, 2017. While the Company expects to maintain this dividend amount in 2017, future dividends will be dependent upon the Company's earnings, financial condition, capital demands and other factors and will be determined by the Company's Board of Directors. See Note 4 to the Company's financial statements included herein for restrictions on dividend payments.

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Inflation

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

Contractual Obligations

The following summarizes the Company's contractual obligations by period as of December 31, 2016:

	Payments due by period
	Total		Less than 1 Year		Years 2 and 3		Years 4 and 5		More than 5 Years
Long-term debt obligations (a)	$	87,488	$	44	$	23,074	$	6,500	$	57,870

Interest on long-term debt (b)		59,496		4,720		8,438		6,440		39,898

Purchase obligations (c)		9,657		9,586		71		-		-

Defined benefit obligations (d)		2,300		2,300		-		-		-

Deferred employee benefits (e)		5,628		308		457		529		4,334

Other deferred credits (f)		2,738		313		513		433		1,479
Total	$	167,307	$	17,271	$	32,553	$	13,902	$	103,581

(a)	Represents debt maturities including current maturities. Included in the table is a potential payment of $12,000 in Year 2 on the variable rate bonds which would only be due if the bonds were unable to be remarketed. There is currently no such indication of this happening. If the bonds are successfully remarketed, they will be due in 2029.
(b)	Excludes interest on the $12,000 variable rate debt as these payments cannot be reasonably estimated. The interest rate on this issue is reset weekly by the remarketing agent based on then current market conditions. The interest rate as of December 31, 2016 was 0.80%.
(c)	Represents an approximation of open purchase orders at year end.
(d)	Represents contributions expected to be made to qualified defined benefit plans. The contribution may increase if the minimum required contribution as calculated under Employee Retirement Income Security Act (ERISA) standards is higher than this amount. The contribution is also dependent upon the amount recovered in rates charged to customers. The amount of required contributions in year 2 and thereafter is not currently determinable.
(e)	Represents the obligations under the Company's Supplemental Retirement and Deferred Compensation Plans for executives and management.
(f)	Represents the estimated settlement payments to be made under the Company's interest rate swap contract.

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In addition to these obligations, the Company makes refunds on Customers' Advances for Construction over a specific period of time based on operating revenues related to developer-installed water mains or as new customers are connected to and take service from such mains. The refund amounts are not included in the above table because the timing cannot be accurately estimated. Portions of these refund amounts are payable annually through 2027 and amounts not paid by the contract expiration dates become non-refundable and are transferred to Contributions in Aid of Construction.

See Note 10 to the Company's financial statements included herein for a discussion of its commitments.

Critical Accounting Estimates

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

Regulatory Assets and Liabilities

Generally accepted accounting principles define accounting standards for companies whose rates are established by or are subject to approval by an independent third-party regulator. In accordance with the accounting standards, the Company defers costs and credits on its balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in the rate-making process in a period different from when the costs and credits were incurred. These deferred amounts are then recognized in the statement of income in the period in which they are reflected in customer rates. If the Company later finds that these assets and liabilities cannot be included in rate-making, they are adjusted appropriately. See Note 1 for additional details regarding regulatory assets and liabilities.

Revenue Recognition

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

Pension Accounting

Accounting for defined benefit pension plans requires estimates of future compensation increases, mortality, the discount rate, and expected return on plan assets as well as other variables. These variables are reviewed annually with the Company's pension actuary. The Company used a compensation increase of 3% in 2015, and increases of 2.5% to 3.0% in 2016.

The Company adopted a new mortality table in 2014, the RP-2014, using the white collar table for the administrative and general plan and the blue collar table for the union plan. Using the new mortality table increased the life expectancy of pension plan participants, resulting in a significant increase to the pension benefit obligation, and ultimately, a decline in the Company's funded status of the plans. In 2015, the Social Security Administration released new underlying data creating an Adjusted RP-2014 mortality table. A new mortality improvement scale was released in 2015, the MP-2015, and again in 2016, the MP-2016. The Company adopted each of the improvement scales in the years they were released. These changes partially offset the increase in the pension benefit obligation realized in 2014.

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The Company selected its December 31, 2016 and 2015 discount rates based on the Citigroup Pension Liability Index. This index uses the Citigroup spot rates for durations out to 30 years and matches them to expected disbursements from the plan over the long term. The Company believes this index most appropriately matches its pension obligations. The present values of the Company's future pension obligations were determined using a discount rate of 4.00% at December 31, 2016 and 4.20% at December 31, 2015.

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

The Company's estimate of the expected return on plan assets is primarily based on the historic returns and projected future returns of the asset classes represented in its plans. The target allocation of pension assets is 50% to 70% equity securities, 30% to 50% fixed income securities, and 0% to 10% cash reserves. The Company used 7% as its estimate of expected return on assets in 2015. The Company reduced the expected return in 2016 to 6.75% as estimates of asset returns over the next several years are expected to be weaker than they have been in the past. A decrease in the expected pension return would normally cause an increase in pension expense; however due to the aforementioned rate settlement, the Company's expense would continue to be equal to its contributions to the plans. The change would instead be recorded in regulatory assets.

Lower discount rates and underperformance of assets could cause future required contributions and expense to increase substantially. If this were to happen, the Company would have to consider changes to its pension plan benefits and possibly request additional recovery of expenses through increased rates charged to customers. See Note 7 to the Company's financial statements included herein for additional details regarding the pension plans.

Income Taxes

The Company estimates the amount of income tax payable or refundable for the current year and the deferred income tax liabilities and assets that results from estimating temporary differences resulting from the treatment of certain items, such as depreciation, for tax and financial statement reporting. Generally, these differences result in the recognition of a deferred tax asset or liability on the balance sheet and require the Company to make judgments regarding the probability of the ultimate tax impact of the various transactions entered into. Based on these judgments, it may require tax reserves or valuation allowances on deferred tax assets to reflect the expected realization of future tax benefits. The Company believes its determination of what qualifies as a repair expense tax deduction versus a capital cost as it relates to the IRS TPR ongoing and catch-up deductions is consistent with the regulations. Actual income taxes could vary from these estimates and changes in these estimates could increase income tax expense in the period that these changes in estimates occur.

Other critical accounting estimates are discussed in the Significant Accounting Policies Note to the Financial Statements.

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Off-Balance Sheet Transactions

The Company does not use off-balance sheet transactions, arrangements or obligations that may have a material current or future effect on financial condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses. The Company does not use securitization of receivables or unconsolidated entities. For risk management purposes, the Company uses a derivative financial instrument, an interest rate swap agreement discussed in Note 4 to the financial statements included herein. The Company does not engage in trading or other risk management activities, does not use other derivative financial instruments for any purpose, has no material lease obligations, no guarantees and does not have material transactions involving related parties.

Impact of Recent Accounting Pronouncements

See Note 1 to the Company's financial statements included herein for a discussion on the effect of new accounting pronouncements.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

The Company's operations are exposed to market risks primarily as a result of changes in interest rates under its lines of credit. As of February 2017, the Company has unsecured lines of credit with four banks having a combined maximum availability of $41,500. The first line of credit, in the amount of $13,000, is a committed line of credit with a revolving 2-year maturity (currently May 2018), and carries an interest rate of LIBOR plus 1.20%. The second line of credit, in the amount of $11,000, is a committed line of credit, which matures in May 2018 and carries an interest rate of LIBOR plus 1.25%. The third line of credit, in the amount of $7,500, is a committed line of credit, which matures in June 2017 and carries an interest rate of LIBOR plus 1.25%. The fourth line of credit, in the amount of $10,000, is a committed line of credit, which matures in September 2017 and carries an interest rate of LIBOR plus 1.20%. The Company had no outstanding borrowings under any of its lines of credit as of December 31, 2016. Other than lines of credit, the Company has long-term fixed rate debt obligations that are not subject to interest rate risk as discussed in Note 4 to the financial statements included herein, and a variable rate PEDFA loan agreement, which is subject to minimal market risk, described below.

In May 2008, the PEDFA issued $12,000 aggregate principal amount of PEDFA Exempt Facilities Revenue Bonds, Series A (the "Bonds"). The proceeds of this bond issue were used to refund the $12,000 PEDFA Exempt Facilities Revenue Bonds, Series B of 2004 which were refunded due to bond insurer downgrading issues. The PEDFA then loaned the proceeds to the Company pursuant to a variable interest rate loan agreement with a maturity date of October 1, 2029. In connection with the loan agreement, the Company retained its interest rate swap agreement whereby the Company exchanged its floating rate obligation for a fixed rate obligation. The purpose of the interest rate swap is to manage the Company's exposure to fluctuations in the interest rate. If the interest rate swap agreement works as intended, the receive rate on the swap should approximate the variable rate the Company pays on the PEDFA Series A Bond Issue, thereby minimizing its risk. See Note 4 to the Company's financial statements included herein.

The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates, including long-term debt obligations and the interest rate swap. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For the interest rate swap, the table presents the undiscounted net payments and weighted average interest rates by expected maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.

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	Expected Maturity Date
Liabilities	2017	2018	2019	2020	2021	Thereafter	Total	Fair Value

Long-term debt:
Fixed Rate	$44	$44	$11,030	$6,500	$0	$57,870	$75,488	$87,000
Average interest rate	1.00%	1.00%	9.89%	10.05%	0.00%	5.14%	6.25%

Variable Rate	-	$12,000	-	-	-	-	$12,000	$12,000
Interest rate	0.80%	0.80%	-	-	-	-	0.80%

	Expected Maturity Date
Interest Rate Derivatives	2017	2018	2019	2020	2021	Thereafter	Total	Fair Value

Interest Rate Swap – Notional Value $12,000								$2,292
Variable to Fixed *	$313	$273	$240	$222	$211	$1,479	$2,738
Average pay rate	3.16%	3.16%	3.16%	3.16%	3.16%	3.16%	3.16%
Average receive rate	0.55%	0.91%	1.15%	1.30%	1.40%	1.59%	1.38%

*Represents undiscounted net payments.

The variable rate portion of the liabilities section of the table includes the $12,000 variable rate loan potentially due in 2018, as the underlying bonds could be tendered at any time. If all of the bonds were tendered and could not be remarketed, the earliest that the Company would have to buy them back would be fourteen months from the date of notification. As of the date of this report, there had been no such notification. If the bonds are able to be remarketed as intended for the term of the bonds, the loan will be due in October 2029. The interest rate of 0.80% on the $12,000 variable rate loan represents the rate paid to bondholders for the PEDFA Series A issue at December 31, 2016. This rate is used for 2017 and 2018, but it may not be indicative of the actual rate.

Other than the interest rate swap, the Company has no other derivative instruments used for any purpose, no additional financial instruments with significant credit risk, and no material exposure to currency or commodity risk.

Item 8.

Financial Statements and Supplementary Data.

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

The York Water Company

We have audited the accompanying balance sheets of The York Water Company (the "Company") as of December 31, 2016 and 2015, and the related statements of income, common stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2016. In connection with our audits of the financial statements, we also have audited the financial statement schedule listed in the Index at Item 15(a) 2. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 financial statements referred to above present fairly, in all material respects, the financial position of The York Water Company as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respect, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The York Water Company's internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 7, 2017 expressed an unqualified opinion.

/s/Baker Tilly Virchow Krause, LLP

Baker Tilly Virchow Krause, LLP

York, Pennsylvania

March 7, 2017

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December 15, 1980

Amended January 12, 1981

Amended August 12, 1982

Amended November 28, 1988

Amended December 23, 1996

Amended May 27, 1997

Amended October 1, 2013

Amended February 6, 2017

THE YORK WATER COMPANY EMPLOYEES' STOCK PURCHASE PLAN

1.	PURPOSE OF THE PLAN

The purpose of the Employees' Stock Purchase Plan (the "Plan") is to provide an opportunity for eligible employees of The York Water Company (the "Company") to obtain an ownership interest in the Company through purchases of common stock by payroll deductions. It is the intention of the Company that the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code") and the Plan shall be administered in accordance with this intent. The Plan is effective as of its approval by the Board of Directors of the Company (the "Board") on September 30, 2013 (the "Effective Date") , subject to the approval of the shareholders of the Company within 12 months of the Effective Date.

Pursuant to the Plan, 350,000 shares of the Company's Common Stock, no par value, are reserved for issuance thereunder (subject to adjustment upon changes in capitalization of the Company as provided in Section 20 hereof).

2.	TERM OF THE PLAN

The operation of this Plan shall commence on the Effective Date and shall be automatically renewed from year to year unless terminated by action of the Board, provided that the Plan shall terminate automatically if it is not approved by shareholders within 12 months of the Effective Date. If less than five employees elect to participate or the participation drops to less than five employees, the Plan may be terminated.

CUSTODIAN

The Company shall be the Custodian for the Plan, unless the Company shall in its discretion select a bank or other similar type institution or organization to be the Custodian. The duties of the Custodian shall be performed in a reasonable manner, but the Custodian shall not be personally responsible for any errors in judgment or performance which are not the result of willful misconduct or gross negligence.

4.	ADMINISTRATION OF THE PLAN

Except to the extent that responsibilities may be delegated to and assumed by a Custodian other than the Company, the Board of the Company shall appoint an administrator (the "Administrator") annually to oversee the Plan's operation. The Administrator's term shall be one year, to be renewed at the discretion of the Board. The Board may remove the Administrator during his or her term, if appropriate. The Board appointed the Human Resources Director to this position. The Administrator's address is:

Human Resources Director

The York Water Company

130 East Market Street

York, Pennsylvania 17401-1219

Phone: 717-845-3601

The Company's Human Resources Director shall receive no additional compensation for serving as Administrator of the Plan.

5.	ELIGIBILITY REQUIREMENTS

Any full-time employee who has been a full-time employee continuously for ninety days shall be eligible to participate in the Plan. An eligible employee may join the Plan at any time, provided that the employee has submitted to the Administrator of the Plan a properly completed and executed Stock Purchase and Payroll Deduction Agreement (the "Purchase Agreement").

Notwithstanding any provisions of the Plan to the contrary, no employee may participate in the Plan if such employee (or any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code) owns capital stock of the Company and/or holds outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any parent or subsidiary corporation.

All employees who participate in the Plan shall have the same rights and privileges under the Plan, except for differences that may be mandated by local law and that are consistent with Section 423(b)(5) of the Code.

6.	OFFERING PERIODS

The Plan shall be implemented by consecutive three month offering periods commencing on the first day of a calendar quarter and ending on the last day of a calendar quarter (an "Offering Period"), provided that the Board may, in its sole discretion, extend or shorten any Offering Period.

7.	STOCK PURCHASE AND PAYROLL DEDUCTION AGREEMENT

Each eligible employee wishing to purchase common stock of the Company pursuant to the Plan shall complete and execute a Purchase Agreement.

An eligible employee may specify as the dollar deduction from his or her gross compensation any dollar amount up to 10% of the periodic straight time earnings or gross salary during the Offering Period, such dollar amount to be deducted from each salary check as designated by the employee; provided, however, that each payroll deduction shall be a whole dollar amount, and further provided that the minimum amount that may be deducted is $2. Any employee participating in the Plan may increase or decrease the dollar amount to be deducted from his or her compensation at any time during an Offering Period by submitting a revised Purchase Agreement. Purchase Agreement forms may be obtained from the Administrator of the Plan.

8.	PAYROLL DEDUCTIONS

In accordance with each participating employee's Purchase Agreement, payroll deductions shall be made from each of the employee's paychecks commencing with the first pay during an Offering Period after submission of a Purchase Agreement to the Plan Administrator.

The Company shall remit the amounts deducted from the paychecks issued to an interest bearing savings account within 10 days after the pay date.

9.	ADDITIONAL CONTRIBUTIONS

An employee participating in the Plan may make an additional lump sum contribution, provided that the total contributions by payroll deduction and lump sum cannot exceed 10% of straight time earnings or gross salary for any annual period.

10.	STOCK PURCHASE ACCOUNTS

The Administrator shall establish and maintain a stock purchase account in the name of each participating employee. Each amount deducted from a participant's paycheck shall be credited to such participant's stock purchase account. The effective date of each credit to any participant's account shall be the date on which the participant is issued his or her paycheck from which the deduction is made, without regard to the date on which the check is actually received. Interest will be paid on any amounts in any stock purchase accounts at the then current rate paid by the institution holding the account. The interest will be prorated to each participant's account as of the first of each calendar quarter. At the end of each Offering Period that the Plan is in effect, the Company shall prepare and transmit to the Administrator the aggregate amount in each individual account. No fees, commissions or other charges shall be deducted from the participants' accounts.

11.	GRANT OF OPTION

On the last day of an Offering Period (the "Grant Date") , each employee participating in the Plan during such Offering Period shall be granted an option to purchase on the Exercise Date (as defined in Section 12), at the applicable Purchase Price (as defined in Section 13) a number of shares of Company common stock determined by dividing the amount credited to such participant's stock purchase account on such Grant Date by the applicable Purchase Price.

Notwithstanding the foregoing, (i) no option shall be granted to a participant that entitles the participant to purchase a number of shares of Company common stock that is greater than $25,000 divided by the closing price of a share of Company common stock on the Grant Date, and (ii) no participant may accrue the right to purchase Company common stock (under this Plan and any other employee stock purchase plan of the Company and any parent or subsidiary corporation) at a rate that exceeds $25,000 of the fair market value of such stock (determined as of the applicable Grant Date) during any calendar year.

12.	EXERCISE OF OPTION

The option granted to a participant pursuant to Section 11 above shall be exercised automatically on the Exercise Date. The Exercise Date shall be the sixteenth day of the month immediately following the Grant Date (provided that if such day is not a business day, the Exercise Date shall be the first business day immediately following such day). Immediately following the Exercise Date, the funds credited to a participant's stock purchase account will be used by the Administrator to purchase from the Company the stock subject to the option and each participant will have allocated to his or her account the number of shares of Company common stock purchased pursuant to the option. The participant's account will be debited for the price of said shares. Any monies left over in a participant's account after the Exercise Date due to the application of the limits set forth in Section 11 above shall be returned to the participant.

Shares which have been allocated to the account of a participating employee shall remain in the custody of the Company or its agent, as Custodian, unless otherwise directed as provided in Section 14.

All dividends and other distributions and all voting rights with respect to shares which have been allocated to the account of a participant but not yet distributed to the participant shall belong to and be vested in such participant, except that, at the written request of the participant, such dividends, distributions and voting rights may belong to and be vested in him or her jointly with another person or persons, or in the name or names of any other person or persons, jointly or severally.

13.	DETERMINATION OF PURCHASE PRICE

The Purchase Price will be ninety-five percent (95%) of the fair market value of a share of Company common stock on the Grant Date. Such fair market value will equal the mean between the high and the low prices for the Company's common shares as quoted on Nasdaq on such date. If such price is not available, the Purchase Price will be determined by the Board based on the latest available market quotations or on such other basis as the Board shall deem lawful and appropriate.

14.	DISTRIBUTION OF SHARES

Upon written request to the Administrator, a certificate for shares shall be issued and delivered to the employee as soon as practicable. Such shares shall be registered in the name of the participating employee except that, at the written request of the employee, they may be registered jointly in his or her name and the name of another person or persons or in the name or names of any other person or persons, jointly or severally. However, all shares allocated to the participating employee must be registered in one stock account only and may not be divided into more than one stock account.

15.	WITHDRAWAL FROM THE PLAN

Any participating employee who, for any reason, ceases to be a full-time employee of the Company shall be deemed to have withdrawn from the Plan on the date employment ceases. Upon a participant's ceasing to be an employee, the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, to such participant's beneficiaries, and any unexercised option held by such participant shall be automatically terminated.

In addition, any other participating employee may voluntarily withdraw from the Plan at any time by written termination of the Purchase Agreement. The participant will receive an option on the next Grant Date, as set forth above, relating to payroll deductions and unallocated interest until the time of withdrawal, and such option will be exercised on the next Exercise Date and any remaining amount in the participant's account shall be returned to such participant .

Upon withdrawal from the Plan, an employee, subject to any allocation of shares to his or her nominee or nominees (as referred to in Sections 11 and 14 hereof), shall be entitled to receive any shares held by the Company or its agent, as Custodian, which have been allocated or credited to the employee's account.

16.

EXPENSES

The charges of a Custodian other than the Company and all costs of maintaining records and executing transfers will be borne by the Company.

17.	STATEMENT OF ACCOUNT

As soon as practicable after the each Grant Date, the Company or its agent, as Custodian, shall distribute to each participating employee, a quarterly statement of his or her account. The statement shall set forth as of the last day of each Offering Period during the year (i) the total number of shares allocated to the participating employee's account which is in the custody of the Custodian; (ii) the amount in the account at the beginning of the quarter and the amount of participant contributions for the quarter; (iii) dividend and interest income allocated to said participant's account; (iv) the amount debited to the account for the purchase of shares, the number of shares purchased for the account for the quarter and the purchase price; and (v) all other pertinent data relating to such account.

18.	GOVERNMENT REGULATIONS

The Plan and the transactions with respect to the Company's common stock pursuant thereto are subject to all applicable rules and regulations of state and federal law as may from time to time be effective and to such approval of governmental agencies as may be required.

19.	TERMINATION OR AMENDMENT OF THE PLAN

The Company may terminate or amend the Plan effective as of the first day of any quarter provided that no such termination or amendment shall impair the rights of any participating employee under the Plan, or nominee or nominees of such employee, to receive any shares which have been allocated or credited to or for his or her account, and each such employee shall receive the amount of any payroll deductions and any prorated interest or dividends which should properly be credited to his or her account but which have not been applied to the purchase of shares. Upon termination of the Plan, in the event of any cash or shares remaining in the possession of the Custodian after satisfaction of all of the rights of participating employees, the same shall belong to the Company.

20.	CHANGES IN CAPITALIZATION

Subject to any required action by the stockholders of the Company, the number of shares reserved for issuance under the Plan, as well as the price per share and the number of shares of Company common stock covered by each option under the Plan which have not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Company common stock resulting from a stock split, reverse stock split, stock dividend, extraordinary cash dividend, combination or reclassification of Company common stock, or any other increase or decrease in the number of shares of Company common stock effected without receipt of consideration by the Company. Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.

21.	TRANSFERABILITY

Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect

22.	MISCELLANEOUS

A participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, shares of Company common stock subject to an option unless and until the participant's shares of Company common stock acquired upon exercise of an option are recorded in the books of the Company (or its transfer agent).

The Plan does not constitute an employment contract. Nothing in the Plan or in the Offering shall in any way alter the at will nature of a participant's employment or be deemed to create in any way whatsoever any obligation on the part of any participant to continue in the employ of the Company, or on the part of the Company to continue the employment of a participant.

The provisions of the Plan shall be governed by the laws of the Commonwealth of Pennsylvania without resort to that state's conflicts of laws rules.

23.	TAX INFORMATION

In General : The Plan is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"), but is not intended to constitute a qualified pension, profit-sharing or stock bonus plan under Section 401(a) of the Code. The principal federal income tax consequences of the Plan under the Code as currently in effect are outlined below. It is advisable for participating employees to obtain competent professional advice regarding the precise tax consequences of participation in the Plan.

Taxation on Sale of Stock : A participating employee will not recognize income on the grant of the option or on the exercise of the option. A participant's taxation with respect to the shares purchased pursuant to the option will depend on how long the participant holds the shares. If the participant holds the shares of stock until the later of two years from the Grant Date or one year from the Exercise Date (or in the event of the participant's death), the participant will be required to recognize ordinary income upon disposition equal to the lesser of (i) the excess of the fair market value of the stock on the Grant Date over the Purchase Price and (ii) the excess of the fair market value of the stock on the date of disposition of the stock over the Purchase Price. Any additional gain or loss will be short-term or long-term capital gain or loss, as applicable.

If the participant does not hold the shares of stock for the holding period described above, the participant will be taxed upon disposition on the excess of the fair market value of a share of stock on the Exercise Date over the Purchase Price, at ordinary income rates, and the participant will be taxed on any additional realized gain at long-term or short-term capital gains rates, as applicable.

Earnings on Stock Purchase Account : The participating employee must report the amount of earnings credited to his or her stock purchase account as taxable income in the year in which that interest is accrued. The Company will report to each participant the amount of interest earned yearly on an IRS Form 1099, when required, and may require certain other information from each participant to insure that there need be no federal income tax withholding on the interest earned.

The York Water Company Employees' Stock Purchase Plan

Stock Purchase and Payroll Deduction Agreement

1.	Payroll Deduction and Purchase of Stock.

I authorize The York Water Company to change my withheld contribution for my plan account as follows:

From: $__________ Weekly Amount To: $__________ Weekly Amount

Each such dollar amount shall be deducted from my paycheck; provided, however, that each payroll deduction shall be a whole dollar amount, and further provided that the minimum amount that may be deducted is $2.00 and the maximum amount is less than or equal to 10% of my regular straight time gross salary, subject to the limits set forth in the Plan. Such payroll deductions shall continue to be made until I execute a revised Purchase Agreement, I withdraw from the Plan or the Plan terminates. Each payroll deduction shall be credited to my stock purchase account and shall be used to purchase common stock from The York Water Company pursuant to the The York Water Company Employees' Stock Purchase Plan.

2.	Ownership of Stock.

All dividends and other distributions and all voting rights with respect to shares which have been allocated to my account but not yet distributed to me or to my nominee or nominees shall belong to and be vested in me or my nominee or nominees, and upon distribution such shares shall be registered accordingly. At my written request, such dividends, distributions and voting rights may belong to and be vested in me jointly with another person or persons or in the name or names of any other person or persons, jointly or severally, and such shares shall then be registered accordingly.

3.	Rights Under The Plan.

I acknowledge receipt of a copy of the Description relating to the Plan October 1, 2013. The rights under this Purchase Agreement shall be governed by The York Water Company Employees' Stock Purchase Plan as set forth in full in the Description.

4.	Original Designation.

I hereby designate the following as the name / names in which all shares due me under the provisions of this Plan shall be registered, and such designation shall remain in full force and effect until changed by me in writing (only one such designation may be made):


(Exact name/names)
Social Security Number
Address


Effective Date

				By
Employee's Signature		Date			Administrator		Date

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
ý	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
	For the transition period from __________to____________

Commission file number 001-34245
THE YORK WATER COMPANY
(Exact name of registrant as specified in its charter)

PENNSYLVANIA				23-1242500
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

130 EAST MARKET STREET, YORK, PENNSYLVANIA				17401
(Address of principal executive offices)				(Zip Code)

Registrant's telephone number, including area code (717) 845-3601

Securities registered pursuant to Section 12(b) of the Act:
None			The NASDAQ Global Select Market
(Title of Each Class)			(Name of Each Exchange on Which Registered)

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐ YES					ý 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					ý 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.
ý 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
ý YES					☐ NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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 12b-2 of the Exchange Act (check one):
		Large accelerated filer ☐	Accelerated filer ý
		Non-accelerated filer ☐	Small Reporting Company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ YES					ý NO
The aggregate market value of the Common Stock, no par value, held by nonaffiliates of the registrant on June 30, 2016 was $412,282,264 .
As of March 7, 2017 there were 12,857,199 shares of Common Stock, no par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Company's 2017 Annual Meeting of Shareholders are incorporated by reference into Part I and Part III.

	Dec. 31, 2016			Dec. 31, 2015

ASSETS
UTILITY PLANT, at original cost	$	343,412		$	329,415
Plant acquisition adjustments		(3,667	)		(3,724	)
Accumulated depreciation		(68,838	)		(64,271	)
Net utility plant		270,907			261,420

OTHER PHYSICAL PROPERTY,
net of accumulated depreciation of $353 in 2016 and $329 in 2015		745			769

CURRENT ASSETS:
Cash and cash equivalents		4,209			2,879
Accounts receivable, net of reserves of $305 in 2016 and $315 in 2015		4,296			3,535
Unbilled revenues		2,429			2,614
Recoverable income taxes		282			1,049
Materials and supplies inventories, at cost		746			771
Prepaid expenses		658			729
Total current assets		12,620			11,577

OTHER LONG-TERM ASSETS:
Notes receivable		255			255
Deferred regulatory assets		33,027			32,996
Other assets		2,940			3,516
Total other long-term assets		36,222			36,767

Total Assets	$	320,494		$	310,533

	Dec. 31, 2016		Dec. 31, 2015

STOCKHOLDERS' EQUITY AND LIABILITIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, no par value, authorized 46,500,000 shares, issued and outstanding 12,852,295 shares in 2016 and 12,812,377 shares in 2015	$	78,513	$	77,317
Retained earnings		35,548		31,753
Total common stockholders' equity		114,061		109,070

PREFERRED STOCK, authorized 500,000 shares, no shares issued		-		-

LONG-TERM DEBT, excluding current portion		84,609		84,518

COMMITMENTS		-		-

CURRENT LIABILITIES:
Current portion of long-term debt		44		44
Accounts payable		3,669		1,772
Dividends payable		1,803		1,708
Accrued compensation and benefits		1,233		1,174
Accrued interest		921		976
Other accrued expenses		514		523
Total current liabilities		8,184		6,197

DEFERRED CREDITS:
Customers' advances for construction		7,102		7,500
Deferred income taxes		54,169		50,280
Deferred employee benefits		8,990		11,079
Other deferred credits		6,725		6,959
Total deferred credits		76,986		75,818

Contributions in aid of construction		36,654		34,930

Total Stockholders' Equity and Liabilities	$	320,494	$	310,533

	Common Stock Shares			Common Stock Amount			Retained Earnings			Total

Balance, December 31, 2013		12,979,281		$	80,545		$	22,966		$	103,511
Net income		-			-			11,484			11,484
Dividends		-			-			(7,443	)		(7,443	)
Retirement of common stock		(282,570	)		(5,692	)		-			(5,692	)
Issuance of common stock under dividend reinvestment, direct stock and employee stock purchase plans		133,810			2,703			-			2,703
Balance, December 31, 2014		12,830,521			77,556			27,007			104,563
Net income		-			-			12,489			12,489
Dividends		-			-			(7,743	)		(7,743	)
Retirement of common stock		(121,012	)		(2,546	)		-			(2,546	)
Issuance of common stock under dividend reinvestment, direct stock and employee stock purchase plans		102,868			2,307			-			2,307
Balance, December 31, 2015		12,812,377			77,317			31,753			109,070
Net income		-			-			11,846			11,846
Dividends		-			-			(8,051	)		(8,051	)
Retirement of common stock		(46,771	)		(1,339	)		-			(1,339	)
Issuance of common stock under dividend reinvestment, direct stock and employee stock purchase plans		85,458			2,513			-			2,513
Stock-based compensation		1,231			22			-			22
Balance, December 31, 2016		12,852,295		$	78,513		$	35,548		$	114,061

	Year Ended December 31,
	2016			2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	11,846		$	12,489		$	11,484
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of land		(36	)		-			(316	)
Depreciation and amortization		6,422			6,151			5,932
Stock-based compensation		22			-			-
Increase in deferred income taxes		1,646			2,270			4,753
Other		331			317			319
Changes in assets and liabilities:
Increase in accounts receivable and unbilled revenues		(867	)		(73	)		(632	)
(Increase) decrease in recoverable income taxes		767			(92	)		(957	)
Increase in materials and supplies, prepaid expenses, regulatory and other assets		(3,098	)		(3,310	)		(10,719	)
Increase in accounts payable, accrued compensation and benefits, accrued expenses, deferred employee benefits, and other deferred credits		2,387			3,009			10,663
Decrease in accrued interest and taxes		(55	)		(51	)		(1,761	)
Net cash provided by operating activities		19,365			20,710			18,766

CASH FLOWS FROM INVESTING ACTIVITIES:
Utility plant additions, including debt portion of allowance for funds used during construction of $127 in 2016, $115 in 2015 and $117 in 2014		(13,158	)		(13,844	)		(14,139	)
Acquisitions of water and wastewater systems		(50	)		(352	)		(369	)
Proceeds from sale of land		40			-			346
Decrease in notes receivable		-			11			40
Cash received from surrender of life insurance policies		642			-			-
Net cash used in investing activities		(12,526	)		(14,185	)		(14,122	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Customers' advances for construction and contributions in aid of construction		1,769			1,117			638
Repayments of customer advances		(443	)		(447	)		(419	)
Proceeds of long-term debt issues		-			14,301			14,880
Debt issuance costs		-			(298	)		(506	)
Repayments of long-term debt		(53	)		(11,886	)		(14,923	)
Repurchase of common stock		(1,339	)		(2,546	)		(5,692	)
Issuance of common stock		2,513			2,307			2,703
Dividends paid		(7,956	)		(7,682	)		(7,402	)
Net cash used in financing activities		(5,509	)		(5,134	)		(10,721	)

Net change in cash and cash equivalents		1,330			1,391			(6,077	)
Cash and cash equivalents at beginning of period		2,879			1,488			7,565
Cash and cash equivalents at end of period	$	4,209		$	2,879		$	1,488

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized	$	5,051		$	4,985		$	5,007
Income taxes		2,509			2,155			2,808

Supplemental schedule of non-cash investing and financing activities:
Accounts payable includes $2,766 in 2016, $720 in 2015 and $833 in 2014 for the construction of utility plant.

Forward-Looking Statements		3

PART I
Item 1.	Business	4
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	13
Item 2.	Properties	13
Item 3.	Legal Proceedings	15
Item 4.	Mine Safety Disclosures	15

PART II
Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Select Financial Data	18
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operation	19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 8.	Financial Statements and Supplementary Data	30
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	59
Item 9A.	Controls and Procedures	59
Item 9B.	Other Information	62

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	62
Item 11.	Executive Compensation	62
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	63
Item 13.	Certain Relationships and Related Transactions, and Director Independence	63
Item 14.	Principal Accounting Fees and Services	63

PART IV
Item 15.	Exhibits and Financial Statement Schedules	64

Signatures		66

Index to Exhibits		67

	December 31,				Approximate range
Utility Plant Asset Category	2016		2015		of remaining lives
Mains and accessories	$	176,068	$	170,991	10 – 83 years
Services, meters and hydrants		68,510		66,267	19 – 54 years
Operations structures, reservoirs and water tanks		46,494		44,739	11 – 37 years
Pumping and treatment equipment		29,459		27,664	2 – 33 years
Office, transportation and operating equipment		12,360		11,725	3 – 20 years
Land and other non-depreciable assets		3,172		3,172		-
Utility plant in service		336,063		324,558
Construction work in progress		7,349		4,857		-
Total Utility Plant	$	343,412	$	329,415

	December 31,				Remaining
	2016		2015		Recovery Periods
Assets
Income taxes	$	20,609	$	18,389	Various
Postretirement benefits		7,471		9,819	5 – 10 years
Unrealized swap losses		2,264		2,481	1 – 13 years
Utility plant retirement costs		2,679		2,247	5 years
Service life study expenses		4		3	1 years
Rate case filing expenses		-		57
		33,027		32,996
Liabilities
IRS TPR catch-up deduction		3,887		3,887	Not yet known
Income taxes		753		776	1 – 50 years
	$	4,640	$	4,663

	2016		2015
Deferred tax assets:
Reserve for doubtful accounts	$	124	$	128
Compensated absences		212		221
Deferred compensation		1,581		1,465
Customers' advances and contributions		-		1
Deferred taxes associated with the gross-up of revenues necessary to return, in rates, the effect of temporary differences		124		122
Pensions		2,146		3,099
Contribution carryover		-		147
Other costs deducted for book, not for tax		57		51
Total deferred tax assets		4,244		5,234

Deferred tax liabilities:
Accelerated depreciation		38,063		36,210
Basis differences from IRS TPR		8,339		7,196
Investment tax credit		390		413
Deferred taxes associated with the gross-up of revenues necessary to recover, in rates, the effect of temporary differences		8,183		7,271
Tax effect of pension regulatory asset		3,033		3,986
Other costs deducted for tax, not for book		405		438
Total deferred tax liabilities		58,413		55,514

Net deferred tax liability	$	54,169	$	50,280

In accordance with accounting standards, the net deferred tax liability is classified as a noncurrent deferred income tax liability on the balance sheets.

	2016			2015

10.17% Senior Notes, Series A, due 2019	$	6,000		$	6,000
9.60% Senior Notes, Series B, due 2019		5,000			5,000
1.00% Pennvest Note, due 2019		118			162
10.05% Senior Notes, Series C, due 2020		6,500			6,500
8.43% Senior Notes, Series D, due 2022		7,500			7,500
Variable Rate Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Bonds, Series 2008A, due 2029		12,000			12,000
4.75% York County Industrial Development Authority Revenue Bonds, Series 2006, due 2036		10,500			10,500
4.50% Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Refunding Bonds, Series 2014, due 2038		14,870			14,880
5.00% Monthly Senior Notes, Series 2010A, due 2040		15,000			15,000
4.00% - 4.50% York County Industrial Development Authority Exempt Facilities Revenue Bonds, Series 2015, due 2029 - 2045		10,000			10,000
Total long-term debt		87,488			87,542
Less discount on issuance of long-term debt		(226	)		(237	)
Less unamortized debt issuance costs		(2,609	)		(2,743	)
Less current maturities		(44	)		(44	)
Long-term portion	$	84,609		$	84,518

	Number of Shares			Grant Date Weighted Average Fair Value
Nonvested at beginning of the year		-			-
Granted		1,231		$	37.20
Vested		(571	)	$	37.20
Forfeited		-			-
Nonvested at end of the year		660		$	37.20

Obligations and Funded Status At December 31	2016			2015

Change in Benefit Obligation
Pension benefit obligation beginning of year	$	39,469		$	40,884
Service cost		1,018			1,166
Interest cost		1,599			1,515
Actuarial gain		(43	)		(2,873	)
Benefit payments		(1,289	)		(1,223	)
Pension benefit obligation end of year		40,754			39,469

Change in Plan Assets
Fair value of plan assets beginning of year		31,835			30,575
Actual return on plan assets		2,621			183
Employer contributions		2,300			2,300
Benefits paid		(1,289	)		(1,223	)
Fair value of plan assets end of year		35,467			31,835

Funded Status of Plans at End of Year	$	(5,287	)	$	(7,634	)

	2016			2015
Net gain arising during the period	$	(432	)	$	(826	)
Recognized net actuarial loss		(561	)		(705	)
Recognized prior service credit		13			13
Total changes in regulatory asset during the year	$	(980	)	$	(1,518	)

	2016			2015
Net loss	$	9,454		$	10,447
Prior service credit		(114	)		(127	)
Regulatory asset	$	9,340		$	10,320

	2016		2015
Projected benefit obligation	$	40,754	$	39,469
Fair value of plan assets		35,467		31,835

	2016		2015
Accumulated benefit obligation	$	37,822	$	36,302
Fair value of plan assets		35,467		31,835

	2016			2015
Discount rate		4.00	%		4.20	%
Rate of compensation increase		2.50% - 3.00	%		2.50% - 3.00	%

	Total Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)
Asset Category	2016		2015		2016		2015		2016		2015
Cash and Money Market Funds (a)	$	635	$	1,205	$	635	$	1,205	$	-	$	-
Equity Securities:
Common Equity Securities (b)		2,969		2,686		2,969		2,686		-		-
Equity Mutual Funds (c)		21,107		18,017		21,107		18,017		-		-
Fixed Income Securities:
U.S. Treasury Obligations		853		833		-		-		853		833
Corporate and Foreign Bonds (d)		3,439		3,427		-		-		3,439		3,427
Fixed Income Mutual Funds (e)		6,464		5,667		6,464		5,667		-		-
Total Plan Assets	$	35,467	$	31,835	$	31,175	$	27,575	$	4,292	$	4,260

	2016		2015
Notes receivable, including interest	$	255	$	255
Customers' advances for construction		307		310

Description		December 31, 2016		Fair Value Measurements at Reporting Date Using Significant Other Observable Inputs (Level 2)
Interest Rate Swap		$2,292		$2,292

Description		December 31, 2015		Fair Value Measurements at Reporting Date Using Significant Other Observable Inputs (Level 2)
Interest Rate Swap		$2,511		$2,511

	First		Second		Third		Fourth		Year
2016
Operating revenues	$	11,278	$	11,820	$	12,601	$	11,885	$	47,584
Operating income		5,214		5,695		6,414		5,565		22,888
Net income		2,486		2,847		3,571		2,942		11,846
Basic earnings per share		0.19		0.23		0.27		0.23		0.92
Diluted earnings per share		0.19		0.23		0.27		0.23		0.92
Dividends declared per share		0.1555		0.1555		0.1555		0.1602		0.6267

2015
Operating revenues	$	11,209	$	11,895	$	12,368	$	11,617	$	47,089
Operating income		5,134		5,682		6,353		5,492		22,661
Net income		2,528		2,925		3,520		3,516		12,489
Basic earnings per share		0.20		0.22		0.28		0.27		0.97
Diluted earnings per share		0.20		0.22		0.28		0.27		0.97
Dividends declared per share		0.1495		0.1495		0.1495		0.1555		0.6040

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders*	-	-	98,769

Equity compensation plans not approved by security holders	-	-	0

Schedule	Schedule	Page
Number	Description	Number

II	Valuation and Qualifying Accounts for the years ended December 31, 2016, 2015, and 2014	65

			Additions
Description	Balance at Beginning of Year		Charged to Cost and Expenses		Recoveries		Deductions		Balance at End of Year

FOR THE YEAR ENDED DECEMBER 31, 2016 Reserve for uncollectible accounts	$	315,000	$	291,108	$	38,976	$	340,084	$	305,000

FOR THE YEAR ENDED DECEMBER 31, 2015 Reserve for uncollectible accounts	$	325,000	$	292,248	$	40,681	$	342,929	$	315,000

FOR THE YEAR ENDED DECEMBER 31, 2014 Reserve for uncollectible accounts	$	320,000	$	322,499	$	44,071	$	361,570	$	325,000

	THE YORK WATER COMPANY
	(Registrant)


Dated: March 6, 2017	By: /s/Jeffrey R. Hines
	Jeffrey R. Hines
	President and CEO



By: /s/Jeffrey R. Hines	By: /s/Kathleen M. Miller
Jeffrey R. Hines	Kathleen M. Miller
(Principal Executive Officer and Director)	(Principal Accounting Officer and Chief Financial Officer)

Dated: March 6, 2017	Dated: March 6, 2017

Directors:	Date:

By: /s/Erin C. Casey	March 6, 2017
Erin C. Casey

By: /s/James H. Cawley	March 6, 2017
James H. Cawley

By: /s/Michael W. Gang	March 6, 2017
Michael W. Gang

By: /s/Jeffrey R. Hines	March 6, 2017
Jeffrey R. Hines

By: /s/George W. Hodges	March 6, 2017
George W. Hodges

By: /s/George Hay Kain, III	March 6, 2017
George Hay Kain, III

By: /s/Jody L. Keller	March 6, 2017
Jody L. Keller

By: _______________________	March 6, 2017
Robert P. Newcomer

By: /s/Steven R. Rasmussen	March 6, 2017
Steven R. Rasmussen

By: /s/Ernest J. Waters	March 6, 2017
Ernest J. Waters

Exhibit Number	Exhibit Description	Page Number of Incorporation By Reference

3	Amended and Restated Articles of Incorporation	Incorporated herein by reference. Filed previously with the Securities and Exchange Commission as Exhibit 3.1 to Form 8-K dated May 4, 2010.
3.1	Amended and Restated By-Laws	Incorporated herein by reference. Filed previously with the Securities and Exchange Commission as Exhibit 3.1 to Form 8-K dated January 26, 2012.
4.1	Dividend Reinvestment and Direct Stock Purchase and Sale Plan	Incorporated herein by reference. Filed previously with the Securities and Exchange Commission on Form S-3 dated October 3, 2016 (File No. 333-213942).
4.2	Indenture, dated as of October 1, 2010, by and between The York Water Company and Manufacturers and Traders Trust Company, as trustee, relative to the $15,000,000 5.0% Monthly Senior Notes	Incorporated herein by reference. Filed previously with the Securities and Exchange Commission as Exhibit 4.1 to the Company's October 8, 2010 Form 8-K.
4.3	First Supplemental Indenture, dated as of October 1, 2010, by and between The York Water Company and Manufacturers and Traders Trust Company, as trustee (which includes the form of Note)	Incorporated herein by reference. Filed previously with the Securities and Exchange Commission as Exhibit 4.2 to the Company's October 8, 2010 Form 8-K.
10.1	Articles of Agreement Between The York Water Company and Springettsbury Township relative to Extension of Water Mains dated April 17, 1985	Incorporated herein by reference. Filed previously with the Securities and Exchange Commission as Exhibit 10.1 to the Company's 1989 Form 10-K.
10.2	Note Agreement relative to the $6,000,000 10.17% Senior Notes, Series A and $5,000,000 9.60% Senior Notes, Series B dated January 2, 1989	Incorporated herein by reference. Filed previously with the Securities and Exchange Commission as Exhibit 4.5 to the Company's 1989 Form 10-K.
10.3	Note Agreement relative to the $6,500,000 10.05% Senior Notes, Series C dated August 15, 1990	Incorporated herein by reference. Filed previously with the Securities and Exchange Commission as Exhibit 4.6 to the Company's 1990 Form 10-K.

I, Jeffrey R. Hines, certify that:
1.	I have reviewed this report on Form 10-K of The York Water Company;
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 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 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 registrant's board of directors (or persons performing the equivalent function):
	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 6, 2017	/s/Jeffrey R. Hines
	Jeffrey R. Hines
	President and CEO

I, Kathleen M. Miller, certify that:
1.	I have reviewed this report on Form 10-K of The York Water Company;
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 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 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 registrant's board of directors (or persons performing the equivalent function):
	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 6, 2017	/s/Kathleen M. Miller
	Kathleen M. Miller
	Chief Financial Officer

(1)	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.