CONNECTICUT WATER SERVICE INC / CT, 10-Q filed on 5/9/2018
Quarterly Report
v3.8.0.1
Document and Entity Information
3 Months Ended
Mar. 31, 2018
shares
Entity Information [Line Items]  
Entity Registrant Name CONNECTICUT WATER SERVICE INC / CT
Entity Central Index Key 0000276209
Current Fiscal Year End Date --12-31
Entity Filer Category Accelerated Filer
Document Type 10-Q
Document Period End Date Mar. 31, 2018
Document Fiscal Year Focus 2018
Document Fiscal Period Focus Q1
Amendment Flag false
Entity Common Stock, Shares Outstanding 12,089,125
v3.8.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
ASSETS    
Utility Plant $ 933,072 $ 927,289
Construction Work in Progress 12,333 11,761
Gross Utility Plant 945,405 939,050
Accumulated Provision for Depreciation (245,776) (241,327)
Net Utility Plant 699,629 697,723
Other Property and Investments 11,130 10,662
Cash and Cash Equivalents 4,020 3,618
Accounts Receivable (Less Allowance, 2017 - $1,223; 2016 - $1,100) 12,777 14,965
Accrued Unbilled Revenues 8,238 8,481
Materials and Supplies 1,575 1,593
Prepayments and Other Current Assets 9,581 7,021
Total Current Assets 36,191 35,678
Unrecovered Income Taxes - Regulatory Asset 68,817 66,631
Pension Benefits - Regulatory Asset 10,799 11,339
Post-Retirement Benefits Other Than Pension - Regulatory Asset 113 116
Goodwill 67,016 67,016
Deferred Charges and Other Costs 8,269 9,618
Total Regulatory and Other Long-Term Assets 155,014 154,720
Total Assets 901,964 898,783
CAPITALIZATION AND LIABILITIES    
Common Stock Without Par Value: Authorized - 25,000,000 Shares - Issued and Outstanding: 2017 - 11,12,068,299; 2016 - 11,248,458 192,253 191,641
Retained Earnings (Accumulated Deficit) 97,586 102,417
Accumulated Other Comprehensive Loss (420) (428)
Common Stockholders' Equity 289,419 293,630
Preferred Stock 772 772
Long-Term Debt 252,194 253,367
Total Capitalization 542,385 547,769
Debt, Current 6,246 6,173
Interim Bank Loans Payable 29,197 19,281
Accounts Payable and Accrued Expenses 6,857 11,319
Accrued Interest 1,524 1,439
Customer Refund Liability, Current 0 64
Other Current Liabilities 3,248 3,262
Total Current Liabilities 47,072 41,538
Advances for Construction 20,363 20,024
Deferred Federal and State Income Taxes 33,820 33,579
Unfunded Future Income Taxes 60,375 58,384
Long-Term Compensation Arrangements 33,356 32,649
Unamortized Investment Tax Credits 1,115 1,133
Excess Accumulated Deferred Income Tax 31,086 30,937
Other Long-Term Liabilities 1,212 1,241
Total Long-Term Liabilities 181,327 177,947
Contributions in Aid of Construction 131,180 131,529
Commitments and Contingencies 0 0
Total Capitalization and Liabilities $ 901,964 $ 898,783
v3.8.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ / shares in Thousands, $ in Thousands
Mar. 31, 2018
Dec. 31, 2017
Issued 12,089,125 12,065,016
Outstanding 12,089,125 12,065,016
ASSETS    
Allowance $ 1,370 $ 1,265
Capitalization, Long-term Debt and Equity [Abstract]    
Common Stock, No Par Value $ 0 $ 0
Common Stock, Shares Authorized 25,000,000 25,000,000
v3.8.0.1
CONSOLIDATED STATEMENTS OF INCOME - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Operating Expenses    
Operation and Maintenance $ 13,020 $ 11,003
Depreciation 4,705 3,692
Income Taxes (7) (190)
Taxes Other Than Income Taxes 2,857 2,605
Total Operating Expenses 20,575 17,110
Net Operating Revenues 24,853 22,463
Net Regulated Operating Revenue 4,278 5,353
Other Utility Income, Net of Taxes 267 165
Total Utility Operating Income 4,545 5,518
Gain (Loss) on Disposition of Oil and Gas and Timber Property 0 33
Other Income (Deductions), Net of Taxes    
Non-Water Sales Earnings 396 258
Allowance for Funds Used During Construction 53 336
Business Combination, Acquisition Related Costs (3,261) (130)
Other (346) (112)
Total Other Income, Net of Taxes 3,158 385
Interest and Debt Expense    
Interest on Long-Term Debt 2,562 2,061
Interest Income (Expense), Net 1 (260)
Amortization of Debt Expense 51 34
Total Interest and Debt Expense 2,614 1,835
Net Income (1,227) 4,068
Preferred Stock Dividend Requirement 9 9
Net Income Applicable to Common Stock $ (1,236) $ 4,059
Weighted Average Common Shares Outstanding:    
Basic (in shares) 11,861,961 11,139,110
Diluted (in shares) 12,080,484 11,364,879
Earnings Per Common Share:    
Basic (in dollars per share) $ (0.10) $ 0.36
Diluted (in dollars per share) (0.10) 0.36
Dividends Per Common Share (in dollars per share) $ 0.2975 $ 0.2825
v3.8.0.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Net Income $ (1,227) $ 4,068
Other Comprehensive Income, net of tax    
Reclassification to Pension and Post-Retirement Benefits Other Than Pension, net of tax (expense) of $(31) and $(25) for the three months ended September 30, 2017 and 2016, respectively, and $(91) and $(75) for the nine months ended September 30, 2017 and 2017, respectively 34 39
Unrealized (loss) gain on investments, net of tax (expense) of $(17) and $(29) for the three months ended September 30, 2017 and 2016, respectively, and $(76) and $(21) for the nine months ended September 30, 2017 and 2017, respectively (26) 64
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent 8 103
Comprehensive Income $ (1,219) $ 4,171
v3.8.0.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Other Comprehensive Income, net of tax    
Reclassification to Pension and Post-Retirement Benefits Plans, net of tax (expense) benefit of $ (30) $ (25)
Unrealized Investment loss, net of tax expense of $ (17) $ (41)
v3.8.0.1
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Balance at Beginning of Period $ 102,417 $ 91,213
Net Income (1,227) 4,068
Retained Earnings before Dividends 101,190 95,281
Dividends Declared:    
Cumulative Preferred, Class A, $0.20 per share for the three months ended September 30, 2017 and 2016, respectively, and $0.60 per share for the nine months ended September 30, 2017 and 2016, respectively 9 9
Common Stock - $0.2975 per share and $0.2825 per share for the three months ended September 30, 2017 and 2016, respectively, and $0.8775 per share and $0.8325 per share for the nine months ended September 30, 2017 and 2016, respectively 3,595 3,265
Total Dividends Declared 3,604 3,274
Balance at End of Period 97,586 92,007
Series A Voting    
Dividends Declared:    
Cumulative Preferred, Class A, $0.20 per share for the three months ended September 30, 2017 and 2016, respectively, and $0.60 per share for the nine months ended September 30, 2017 and 2016, respectively 3 3
Cumulative Preferred Stock    
Dividends Declared:    
Cumulative Preferred, Class A, $0.20 per share for the three months ended September 30, 2017 and 2016, respectively, and $0.60 per share for the nine months ended September 30, 2017 and 2016, respectively $ 6 $ 6
v3.8.0.1
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Parenthetical) - $ / shares
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dividends Declared:    
Common Stock (in dollars per share) $ 0.2975 $ 0.2825
Cumulative Preferred Stock    
Dividends Declared:    
Preferred Stock (in dollars per share) 0.225 0.225
Series A Voting    
Dividends Declared:    
Preferred Stock (in dollars per share) $ 0.20 $ 0.20
v3.8.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Proceeds from Sale of Land Held-for-investment $ 0 $ 212
Net Additions to Utility Plant Used in Continuing Operations 6,933 10,163
Cash Acquired from Acquisition 0 1,336
Operating Activities:    
Net Income (1,227) 4,068
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:    
Deferred Revenues (103) (513)
Provision for Deferred Income Taxes and Investment Tax Credits, Net (124) (528)
Allowance for Funds Used During Construction (53) (336)
Depreciation (including $593 and $744 in 2017 and 2016, respectively, charged to other accounts) 4,938 3,963
Gain (Loss) on Sale of Properties 0 33
Change in Assets and Liabilities:    
Increase in Accounts Receivable and Accrued Unbilled Revenues 2,431 1,892
Increase in Prepayments and Other Current Assets (2,242) (1,068)
(Increase) Decrease in Other Non-Current Items 2,456 909
Increase in Accounts Payable, Accrued Expenses and Other Current Liabilities (3,873) (1,692)
Total Adjustments 3,430 2,594
Net Cash and Cash Equivalents Provided by Operating Activities 2,203 6,662
Investing Activities:    
Net Cash and Cash Equivalents Used in Investing Activities (6,933) (8,615)
Financing Activities:    
Proceeds from Interim Bank Loans 29,197 35,089
Repayment of Interim Bank Loans (19,281) (32,953)
Proceeds from the Issuance of Long-Term Debt 0 5,000
Proceeds from Issuance of Common Stock 380 339
Costs to Issue Long-Term Debt and Common Stock 0 (2)
Repayment of Long-Term Debt Including Current Portion (1,151) (808)
Advances from Others for Construction (409) (47)
Cash Dividends Paid (3,604) (3,274)
Net Cash and Cash Equivalents (Used in) Provided by Financing Activities 5,132 3,344
Net (Decrease) Increase in Cash and Cash Equivalents 402 1,391
Cash and Cash Equivalents at Beginning of Period 3,618 1,564
Cash and Cash Equivalents at End of Year 4,020 2,955
Non-Cash Investing and Financing Activities:    
Non-Cash Contributed Utility Plant 398 2,152
Cash Paid for:    
Interest 2,506 1,384
State and Federal Income Taxes $ 120 $ 190
v3.8.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:    
Depreciation charged to other accounts $ 233 $ 271
v3.8.0.1
Basis of Preparation of Financials
3 Months Ended
Mar. 31, 2018
Notes To Financial Statements [Abstract]  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
1.
Basis of Preparation of Financials

The condensed consolidated financial statements included herein have been prepared by Connecticut Water Service, Inc. (“CTWS” or the “Company”) and its wholly-owned subsidiaries, pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments that are of a normal recurring nature which are, in the opinion of management, necessary to a fair statement of the results for interim periods.  Certain information and footnote disclosures have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.  The Company’s primary operating subsidiaries are: The Connecticut Water Company (“Connecticut Water”), The Heritage Village Water Company (“HVWC”) and The Avon Water Company (“Avon Water”) in the State of Connecticut and The Maine Water Company (“Maine Water”) in the State of Maine. The Condensed Consolidated Balance Sheet at December 31, 2017 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “10-K”).

The results for interim periods are not necessarily indicative of results to be expected for the year since the consolidated earnings are subject to seasonal factors.  Effective February 27, 2017 and July 1, 2017, the Company acquired HVWC and Avon Water, respectively, discussed further in Note 12 below.  As a result, the Company’s Condensed Consolidated Statements of Net Income, Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Retained Earnings and Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 do not include Avon Water, however, they do include the approximate one month of activity related to HVWC after their acquisition on February 27, 2017.  The Condensed Consolidated Statements of Net Income, Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements Retained Earnings and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 include HVWC’s and Avon Water’s results. HVWC’s and Avon Water’s assets and liabilities are included in the Condensed Consolidated Balance Sheet as of March 31, 2018 and December 31, 2017.

As noted in Note 12 below, HVWC serves approximately 4,700 water customers in the Towns of Southbury, Middlebury, and Oxford, Connecticut and approximately 3,000 wastewater customers in the Town of Southbury, Connecticut. The results of the wastewater line of business are included in the Company’s Water Operations segment. Additionally, as noted in Note 12, Avon Water serves approximately 4,800 water customers in the Towns of Avon, Farmington, and Simsbury, Connecticut.

Proposed Merger with SJW Group

On March 14, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SJW Group, a Delaware corporation (“SJW”), and Hydro Sub, Inc., a Connecticut corporation and a direct wholly owned subsidiary of SJW (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of SJW (the “Merger”). Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each outstanding share of our common stock (other than certain cancelled shares) will be converted into the right to receive 1.1375 shares of SJW common stock.

The Board of Directors approved, adopted and declared advisable and resolved to recommend to the Company’s shareholders the approval of the Merger Agreement and the Merger following a comprehensive review of the transaction. The Merger is subject to certain customary closing conditions, including, among other things, approval of the Merger Agreement by the Company’s shareholders, approval of the issuance of SJW common stock in the Merger by SJW’s stockholders, and regulatory approvals (including the expiration or termination of the required waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “HSR Act”), and the approval of the Connecticut Public Utilities Regulatory Authority (“PURA”) and the Maine Public Utilities Commission (“MPUC”)).

On April 18, 2018, each of the Company and SJW filed its notification under the HSR Act, and the waiting period under the HSR Act was terminated on April 27, 2018. On April 25, 2018, SJW filed with the Securities and Exchange Commission a registration statement on Form S-4 that includes the preliminary joint proxy statement of the Company and SJW, which also constitutes a prospectus of SJW, related to the Merger. On May 4, 2018, the Company and SJW filed with PURA a joint application for approval of the Merger and Maine Water filed with MPUC an application for approval of the Merger. The Company and SJW expect the closing of the Merger to occur during the fourth quarter of 2018.

Regulatory Matters

The rates we charge our water and waste water customers in Connecticut and Maine are established under the jurisdiction of and are approved by PURA and the MPUC, respectively. It is our policy to seek rate relief as necessary to enable us to achieve an adequate rate of return. Connecticut Water’s allowed return on equity and return on rate base, effective March 31, 2018, were 9.75% and 7.32%, respectively. HVWC’s blended water and wastewater allowed return on equity and return on rate base, effective March 31, 2018, were 10.10% and 7.19%, respectively. Avon Water’s allowed return on equity and return on rate base, effective March 31, 2018, were 10.00% and 7.79%, respectively. Maine Water’s average allowed return on equity and return on rate base, effective March 31, 2018, were 9.50% and 7.96%, respectively. The PURA establishes rates in Connecticut on a company-wide basis while the MPUC approves Maine Water’s rates on a division-by-division basis. Each of Connecticut Water, HVWC, Avon Water and Maine Water are allowed to add surcharges to customers’ bills in order to recover certain costs associated with approved capital projects in between full rate cases, as well as approved surcharges for Water Revenue Adjustments, in Connecticut, as discussed in more detail below. HVWC has not added surcharges to customers’ bills in order to recover certain approved capital projects as of March 31, 2018, however, HVWC, as authorized by PURA, began to utilize Water Revenue Adjustments as of March 31, 2017.

On January 3, 2018, PURA filed a motion to reopen the most recent rate case decisions for the Company’s Connecticut Regulated Companies to determine what, if any, adjustments to rates are appropriate to account for revisions to tax laws, including corporate tax rates, contained in the Tax Cuts and Jobs Act (“Tax Act”). As discussed below, Connecticut Water has entered into a settlement agreement with the Connecticut Office of Consumer Counsel (“OCC”) that covers treatment of the Tax Act. On January 11, 2018, the MPUC issued a notice of investigation to determine the impact of the Tax Act on Maine Water. The investigation will allow the MPUC to determine the specific impact of the Tax Act and whether any rate adjustments are warranted. Following discovery, a technical conference was held April 19, 2018. The current schedule for the investigation anticipates a report by the Hearing Examiner in August 2018. In addition to determining the impact of the Tax Act on the justness and reasonableness of Maine Water’s rates, the MPUC will consider whether to issue an accounting order to establish a regulatory liability which defers for future flow-through to ratepayers the impact of the tax changes.

Maine Water Land Sale
On March 11, 2016, Maine Water entered into a purchase and sale agreement with the Coastal Mountains Land Trust, a Maine nonprofit corporation (the “Land Trust”) pursuant to which Maine Water agreed to sell two conservation easements to the Land Trust on approximately 1,300 acres of land located in the towns of Rockport, Camden and Hope, in Knox County, Maine valued in the aggregate at $3.1 million.  The land had a book value of approximately $600,000 at March 31, 2018 and December 31, 2017 and is included in “Utility Plant” on the Company’s Consolidated Balance Sheets. The easements and purchase prices are as follows:

1.Ragged Mountain Mirror Lake Conservation Easement: $1,875,000; and
2.Grassy Pond conservation Easement: $600,000.

On October 13, 2017, an amendment to the agreement was made to extend closing of the first transaction to June 30, 2018, from December 31, 2017. This is also expected to extend the second closing into 2020.  Maine Water will make a $200,000 contribution to the Land Trust upon completion of the closing of the first easement sale.  Maine Water also expects to claim a charitable deduction for the $600,000 in excess of the fair market value of the second easement over the $600,000 sale price.

Connecticut Rates
Connecticut Water’s Water Infrastructure Conservation Adjustment (“WICA”) was 9.81% and 7.13% at March 31, 2018 and 2017, respectively. On February 10, 2018, Connecticut Water filed its annual WICA reconciliation, requesting a 0.38% additional surcharge, which would replace the 0.06% reconciliation filed in January 2017. On March 28, 2018, PURA approved the new 0.38% surcharge. Additionally, PURA reduced Connecticut Water’s WICA surcharge by 0.15% due to the effects of the Tax Act. As of April 1, 2018, Connecticut Water’s WICA surcharge was 9.98%. As of March 31, 2018, Avon Water’s WICA surcharge was 8.09%. As of April 1, 2018, Avon’s reconciliation adjustment reduction of 0.25% related to excess revenues in 2016 expired and a new reconciliation adjustment of 0.01% became effective. As a result of the Tax Act, Avon Water’s WICA surcharge was ultimately reduced to 7.51% effective April 1, 2018. As of March 31, 2018, HVWC has not filed for a WICA surcharge.

On February 6, 2018, Connecticut Water filed a petition with PURA to reopen Connecticut Water’s 2010 rate case (previously reopened in 2013) proceeding for the limited purpose of approving a Settlement Agreement entered into by Connecticut Water and the OCC (the “Agreement”). The Agreement proposes a change in Connecticut Water’s customer rates effective for bills rendered on and after April 1, 2018 made up of the following two components: (1) the revenue requirements associated with a $36.3 million addition to rate base to reflect necessary upgrades to Connecticut Water’s Rockville Water Treatment Plant; and (2) the folding in to base rates of the Company’s present WICA surcharges. In addition, the Agreement provides that:
1.
Upon implementation of new rates under the Agreement, until such time as new rates are adopted in a general rate case, through a temporary modification of the earnings sharing mechanism, Connecticut Water customers will receive one hundred percent of any earnings in excess of levels allowed by law rather than limiting such customer credits to 50% as contemplated by applicable law;
2.
Connecticut Water agrees it will not file for a general increase of Connecticut Water’s base rates to be effective before January 1, 2020;
3.
The pending proceeding initiated by PURA in Docket No. 09-12-11RE03, Application of The Connecticut Water Company for Amended Rates – Federal Tax Cuts and Jobs Act shall be closed; and
4.
Connecticut Water shall continue to make investments in infrastructure replacement consistent with its approved WICA plan. Connecticut Water shall be allowed to continue to pursue recovery of eligible projects through WICA.

The Agreement provides that, if PURA does not fully approve the Agreement in its entirety, it shall be deemed withdrawn.  Accordingly, the Agreement has no operative effect unless and until it is approved by PURA.  No assurance can be given that PURA will approve the Agreement and permit some or all of the terms contained in the Agreement requested by the parties.  PURA has agreed to the request to reopen the rate proceeding.  A final decision on the Settlement Agreement is anticipated to be issued by PURA no later than July 11, 2018, with rates effective soon thereafter.

Since 2013, Connecticut law has authorized a Water Revenue Adjustment (“WRA”) to reconcile actual water revenues with the revenues projected in the last general rate case and allows companies to adjust rates as necessary to recover the revenues approved by PURA in the last general rate case. The WRA removes the financial disincentive for water utilities to develop and implement effective water conservation programs. The WRA allows water companies to defer on the balance sheet, as a regulatory asset or liability, for later collection from or crediting to customers the amount by which actual revenues deviate from the revenues allowed in the most recent general rate proceedings, including WICA proceedings. Additionally, projects eligible for WICA surcharges were expanded to include energy conservation projects, improvements required to comply with streamflow regulations, and improvements to acquired systems.

Connecticut Water and HVWC’s allowed revenues for the three months ended March 31, 2018, as approved by PURA during each company’s most recent general rate case and including subsequently approved WICA surcharges, are approximately $17.8 million. Through normal billing for the three months ended March 31, 2018, revenue for Connecticut Water and HVWC would have been approximately $17.7 million had the WRA not been implemented. As a result of the implementation of the WRA, Connecticut Water and HVWC recorded $0.1 million in additional revenue for the three months ended March 31, 2018. Avon Water does not currently use the WRA mechanism. Avon Water does not currently have PURA approval to apply the WRA surcharge to their customers’ bills.

Maine Rates
In Maine, the overall, cumulative Water Infrastructure Charge (“WISC”) for all divisions was 6.9% and 6.6% as of March 31, 2018 and 2017, respectively. The WISC rates for the Biddeford and Saco division were reset to zero with the approval of the general rate increase discussed below.

On June 29, 2017, Maine Water filed for a rate increase in its Biddeford and Saco division. The rate request was for an approximate $1.6 million, or 25.1%, increase in revenues. The rate request is designed to recover higher operating expenses, depreciation and property taxes since Biddeford and Saco’s last rate increase in 2015. Maine Water and the Maine Office of the Public Advocate reached an agreement that increases annual revenue by $1.56 million. The agreement was approved by the MPUC on December 5, 2017, with new rates effective December 1, 2017.

A water revenue adjustment mechanism law in Maine became available to regulated water utilities in Maine on October 15, 2015. Maine Water is currently precluded from seeking new rates in the Biddeford and Saco division due to provisions in the settlement agreement with the MPUC. As the stay-out periods for other divisions expire, Maine Water expects to request usage of this mechanism as Maine Water file rate cases for those divisions.
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Pension and Other Post-Retirement Benefits
3 Months Ended
Mar. 31, 2018
Notes To Financial Statements [Abstract]  
Pension and Other Post-Retirement Benefits
2.
Pension and Other Post-Retirement Benefits

The following tables set forth the components of pension and other post-retirement benefit costs for the three months ended March 31, 2018 and 2017.

Pension Benefits
Components of Net Periodic Cost (in thousands):
 
Three Months
Period ended March 31,
2018
 
2017
Service Cost
$
524

 
$
514

Interest Cost
778

 
794

Expected Return on Plan Assets
(1,169
)
 
(1,101
)
Amortization of:
 

 
 

Prior Service Cost
4

 
4

Net Recognized Loss
670

 
545

Net Periodic Benefit Cost
$
807

 
$
756



The Company expects to make a total contribution of approximately $3,800,000 in 2018 for the 2017 plan year.

Post-Retirement Benefits Other Than Pension (PBOP)
Components of Net Periodic Cost (in thousands):
 
Three Months
Period ended March 31,
2018
 
2017
Service Cost
$
83

 
$
93

Interest Cost
125

 
133

Expected Return on Plan Assets
(93
)
 
(88
)
Other

 
56

Amortization of:
 

 
 

Prior Service Credit

 
(45
)
Recognized Net (Gain)
(6
)
 
(9
)
Net Periodic Benefit Cost
$
109

 
$
140

v3.8.0.1
Earnings per Share
3 Months Ended
Mar. 31, 2018
Notes To Financial Statements [Abstract]  
Earnings per Share
3.
Earnings per Share

Earnings per weighted average common share are calculated by dividing net income applicable to common stock by the weighted average number of shares of common stock outstanding during the respective periods as detailed below (diluted shares include the effect of stock awards):

Three months ended March 31,
2018
 
2017
Common Shares Outstanding End of Period
12,089,125

 
11,564,346

Weighted Average Shares Outstanding (Days Outstanding Basis):
 

 
 

Basic
11,861,961

 
11,139,110

Diluted
12,080,484

 
11,364,879

 
 
 
 
Basic (Loss) Earnings per Share
$
(0.10
)
 
$
0.36

Dilutive Effect of Stock Awards

 

Diluted (Loss) Earnings per Share
$
(0.10
)
 
$
0.36



Total unrecognized compensation expense for all stock awards was approximately $1.7 million as of March 31, 2018 and will be recognized over a weighted average period of 1.3 years.
v3.8.0.1
New Accounting Pronouncements
3 Months Ended
Mar. 31, 2018
Notes To Financial Statements [Abstract]  
Recently Adopted and New Accounting Pronouncements
4.
Recently Adopted and New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” (“ASU No. 2014-09”) which amended its guidance related to revenue recognition. ASU No. 2014-09 requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. ASU No. 2014-09 became effective for public companies for fiscal years, and interim periods within those years, beginning after December 15, 2016, and could be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption, however early adoption is not permitted. On April 1, 2015, the FASB voted for a one-year deferral of the effective date of ASU No. 2014-09, making ASU No. 2014-09 effective for public companies for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company engaged in a project to analyze the impact that adoption of this standard would have on our consolidated financial statements, disclosures, and internal controls. The project included identification of the Company’s revenue streams, creation of an inventory of its contracts with customers, evaluation of a representative sample of these contracts with respect to the new guidance and documentation of any required changes in reporting. The Company derives more than 90% of its revenue from regulated delivery of water and wastewater services to its retail customers, which is considered a contract with customers under ASU 2014-09, excluding revenue recognized as WRA. The majority of the remainder of the Company’s revenue is derived from contract operations and unregulated revenues generated from its Linebacker® program, also considered a contract with customers under ASU 2014-09. The Company determined that revenue generated from the attachment of telecommunications equipment to its facilities through leases with third parties is outside the scope of ASU No. 2014-09. In 2017, the American Institute of Certified Public Accountants (AICPA) power and utility entities revenue recognition task force determined that contributions in aid of construction are not in the scope of ASU No. 2014-09. The Company’s adoption of ASU No. 2014-09 on January 1, 2018 did not result in any change in the measurement and timing of recognition of its revenues. The Company used the modified retrospective approach when implementing ASU No. 2014-09. See Note 5 for more details.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, (“ASU No. 2016-02”), which will require lessees to recognize the following for all leases at the commencement date of a lease: a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Public business entities should apply the amendments in ASU No. 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact of this standard on its consolidated financial statements and footnote disclosures, but does not expect that the adoption of this guidance will materially impact our consolidated financial position.

In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU No. 2016-15”). The amendments ASU No. 2016-15 clarify the classification for eight different types of activities, including debt prepayment and extinguishment costs, proceeds from insurance claims and distributions from equity method investees. For public business entities, ASU No. 2016-15 is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company’s adoption of this guidance did not materially impact our consolidated financial position or cash flows.

In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," (“ASU 2017-07”) which amends the requirements related to the income statement presentation of the components of net periodic benefit cost for employer sponsored defined benefit pension and other postretirement benefit plans. Under ASU 2017-07, an entity must disaggregate and present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period, and only the service cost component will be eligible for capitalization. Other components of net periodic benefit cost will be presented separately from the line item that includes the service cost. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted at the beginning of an annual period in which the financial statements have not been issued. Entities must use a retrospective transition method to adopt the requirement for separate presentation of the income statement service cost and other components, and a prospective transition method to adopt the requirement to limit the capitalization of benefit cost to the service component. As a result of the adoption of ASU 2017-07 in the first quarter of 2018, the Company reclassified $233,000 out of Operation and Maintenance expense and moved it to the “Other” line item in the “Other (Deductions) Income, Net of Taxes” section of the March 31, 2017 Condensed Consolidated Statement of Income to conform with the requirements of 2017-07.

In February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, (ASU No. 2018-02) to help businesses and other organizations present some effects from the Tax Act’s reduction in the corporate tax rate in their income statements. ASU No. 2018-02 gives the option of reclassifying what are called the “stranded” tax effects within accumulated other comprehensive income to retained earnings during each fiscal year or quarter in which the effect of the lower tax rate is recorded. ASU No. 2018-02 instructs businesses and other organizations to provide a disclosure in their financial statement footnotes that describes the accounting policy they used to release the income tax effects from accumulated other comprehensive income, whether they are reclassifying the stranded income tax effects from the Tax Cut and Jobs Act, and information about the other effects on taxes from the reclassification. ASU 2018-02 is effective for all organizations for fiscal years that begin after December 15, 2018, and the quarterly and other interim periods in those years, with early adoption permissible. The Company adopted ASU No. 2018-02 effective December 31, 2017. The adoption of ASU No. 2018-02 resulted in an approximate $70,000 increase to Retained Earnings at December 31, 2017.
v3.8.0.1
Accumulated Other Comprehensive Income (Loss) (Notes)
3 Months Ended
Mar. 31, 2018
Accumulated Other Comprehensive Income (Loss) [Abstract]  
Comprehensive Income (Loss) Note [Text Block]
Accumulated Other Comprehensive Income

The changes in Accumulated Other Comprehensive Income (Loss) (“AOCI”) by component, net of tax, for the three months ended March 31, 2018 and 2017 are as follows (in thousands):
Three months ended March 31, 2018
 
Unrealized Gains on Investments
 
Defined Benefit Items
 
Total
Beginning Balance (a)
 
$
442

 
$
(870
)
 
$
(428
)
Other Comprehensive Loss Before Reclassification
 
(43
)
 

 
(43
)
Amounts Reclassified from AOCI
 
17

 
34

 
51

Net current-period Other Comprehensive (Loss) Income
 
(26
)
 
34

 
8

Ending Balance
 
$
416

 
$
(836
)
 
$
(420
)
 
 
 
 
 
 
 
Three months ended March 31, 2017
 
Unrealized Gains on Investments
 
Defined Benefit Items
 
Total
Beginning Balance (a)
 
$
235

 
$
(1,159
)
 
$
(924
)
Other Comprehensive Income Before Reclassification
 
64

 

 
64

Amounts Reclassified from AOCI
 

 
39

 
39

Net current-period Other Comprehensive Income
 
64

 
39

 
103

Ending Balance
 
$
299

 
$
(1,120
)
 
$
(821
)
 
 
 
 
 
 
 
(a) All amounts shown are net of tax. Amounts in parentheses indicate loss.

The following table sets forth the amounts reclassified from AOCI by component and the affected line item on the Condensed Consolidated Statements of Income for the three months ended March 31, 2018 and 2017 (in thousands):
Details about Other AOCI Components
 
Amounts Reclassified from AOCI Three Months Ended March 31, 2018(a)
 
Amounts Reclassified from AOCI Three Months Ended March 31, 2017(a)
 
Affected Line Items on Income Statement
Realized Gains on Investments
 
$
24

 
$

 
Other Income
Tax expense
 
(7
)
 

 
Other Income
 
 
17

 

 
 
 
 
 
 
 
 
 
Amortization of Recognized Net Gain from Defined Benefit Items
 
47

 
64

 
Other Income (b)
Tax expense
 
(13
)
 
(25
)
 
Other Income
 
 
34

 
39

 
 
 
 
 
 
 
 
 
Total Reclassifications for the period, net of tax
 
$
51

 
$
39

 
 
 
 
 
 
 
 
 
(a) Amounts in parentheses indicate loss/expense.
(b) Included in computation of net periodic pension cost (see Note 2 for additional details).
v3.8.0.1
Long-Term Debt
3 Months Ended
Mar. 31, 2018
Notes To Financial Statements [Abstract]  
Long-Term Debt
Long-Term Debt

Long-Term Debt at March 31, 2018 and December 31, 2017 consisted of the following (in thousands):
 
2018
 
2017
4.09%
 
CTWS
Term Loan Note
$
12,082

 
$
12,358

4.15%
 
CTWS
CoBank Term Note Payable, Due 2037
14,760

 
14,881

Total CTWS
26,842

 
27,239

Var.
 
Connecticut Water
2004 Series Variable Rate, Due 2029
12,500

 
12,500

Var.
 
Connecticut Water
2004 Series A, Due 2028
5,000

 
5,000

Var.
 
Connecticut Water
2004 Series B, Due 2028
4,550

 
4,550

5.00%
 
Connecticut Water
2011 A Series, Due 2021
22,870

 
22,920

3.16%
 
Connecticut Water
CoBank Note Payable, Due 2020
8,000

 
8,000

3.51%
 
Connecticut Water
CoBank Note Payable, Due 2022
14,795

 
14,795

4.29%
 
Connecticut Water
CoBank Note Payable, Due 2028
17,020

 
17,020

4.72%
 
Connecticut Water
CoBank Note Payable, Due 2032
14,795

 
14,795

4.75%
 
Connecticut Water
CoBank Note Payable, Due 2033
14,550

 
14,550

4.36%
 
Connecticut Water
CoBank Note Payable, Due May 2036
30,000

 
30,000

4.04%
 
Connecticut Water
CoBank Note Payable, Due July 2036
19,930

 
19,930

3.53%
 
Connecticut Water
NY Life Senior Note, Due September 2037
35,000

 
35,000

Total Connecticut Water
199,010

 
199,060

4.75%
 
HVWC
2011 Farmington Bank Loan, Due 2034
4,423

 
4,464

3.05%
 
Avon Water
Mortgage Note Payable, due 2033
3,260

 
3,302

8.95%
 
Maine Water
1994 Series G, Due 2024
6,300

 
6,300

2.68%
 
Maine Water
1999 Series J, Due 2019
85

 
170

0.00%
 
Maine Water
2001 Series K, Due 2031
533

 
574

2.58%
 
Maine Water
2002 Series L, Due 2022
53

 
60

1.53%
 
Maine Water
2003 Series M, Due 2023
271

 
321

1.73%
 
Maine Water
2004 Series N, Due 2024
341

 
341

0.00%
 
Maine Water
2004 Series O, Due 2034
107

 
113

1.76%
 
Maine Water
2006 Series P, Due 2026
331

 
361

1.57%
 
Maine Water
2009 Series R, Due 2029
197

 
207

0.00%
 
Maine Water
2009 Series S, Due 2029
516

 
538

0.00%
 
Maine Water
2009 Series T, Due 2029
1,446

 
1,509

0.00%
 
Maine Water
2012 Series U, Due 2042
142

 
148

1.00%
 
Maine Water
2013 Series V, Due 2033
1,285

 
1,310

4.24%
 
Maine Water
CoBank Note Payable, Due 2024
4,500

 
4,500

4.18%
 
Maine Water
CoBank Note Payable, Due 2026
5,000

 
5,000

7.72%
 
Maine Water
Series L, Due 2018
2,250

 
2,250

2.40%
 
Maine Water
Series N, Due 2022
826

 
1,026

1.86%
 
Maine Water
Series O, Due 2025
750

 
750

2.23%
 
Maine Water
Series P, Due 2028
1,234

 
1,264

0.01%
 
Maine Water
Series Q, Due 2035
1,584

 
1,678

1.00%
 
Maine Water
Series R, Due 2025
2,009

 
2,009

Various
 
Maine Water
Various Capital Leases

 
2

Total Maine Water
29,760

 
30,431

Add: Acquisition Fair Value Adjustment
(86
)
 
(51
)
Less: Current Portion
(6,246
)
 
(6,173
)
Less: Unamortized Debt Issuance Expense
(4,769
)
 
(4,905
)
Total Long-Term Debt
$
252,194

 
$
253,367



There are no mandatory sinking fund payments required on Connecticut Water’s outstanding bonds.  However, certain fixed rate Unsecured Water Facilities Revenue Refinancing Bonds provide for an estate redemption right whereby the estate of deceased bondholders or surviving joint owners may submit bonds to the trustee for redemption at par, subject to a $25,000 per individual holder and a 3% annual aggregate limitation.

On January 10, 2017, Maine Water executed and delivered to CoBank a new Promissory Note and Single Advance Term Loan Supplement, dated January 10, 2017 (the “Third Promissory Note”). On the terms and subject to the conditions set forth in the Third Promissory Note issued pursuant to the Agreement, CoBank agreed to make an unsecured loan (the “Loan”) to Maine Water in the principal amount of $5,000,000 at 4.18%, due December 30, 2026. The proceeds of the Loan will be used to finance new capital expenditures and refinance existing debt owed to the Company, incurred in connection with general water system improvements.

On August 28, 2017, the Company executed and delivered to CoBank a new Promissory Note and Supplement (2017 Single Advance Term Loan) (the “2017 Promissory Note”). On the terms and subject to the conditions set forth in the 2017 Promissory Note issued pursuant to the Company’s Master Loan Agreement, CoBank agreed to make a term loan (the “Loan”) to the Company in the principal amount of $15,000,000. Under the 2017 Promissory Note, the Company will pay interest on the Loan at a fixed rate of 4.15% per year through August 20, 2037, the maturity date of the Loan.

On September 28, 2017, Connecticut Water completed the issuance of $35,000,000 aggregate principal amount of its 3.53% unsecured Senior Notes due September 25, 2037 (the “Senior Notes”). The Senior Notes were issued pursuant to the Note Purchase Agreement dated as of September 28, 2017 (the “Purchase Agreement”) between and among Connecticut Water, NYL Investors, LLC (“NY Life”), as agent, and the Purchasers listed in the Purchaser Schedule attached to the Purchase Agreement, in a private placement financing exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The proceeds of the sale of the Senior Notes will be used by Connecticut Water to repay loans from the Company the proceeds of which were used for capital expenditure projects by Connecticut Water. The Senior Notes bear interest at the rate of 3.53% per annum, payable semi-annually on March 27 and September 27 of each year commencing on March 27, 2018. The principal amount of the Senior Notes, if not previously paid, shall be due on September 25, 2037. The Senior Notes are callable in whole or in part, subject to a make-whole amount.

During the first three months of 2018, the Company paid approximately $397,000 related to Connecticut Water Service’s 2017 CoBank issuance as well as Connecticut Water Service’s Term Note Payable issued as part of the 2012 acquisition of Maine Water, approximately $671,000 in sinking funds related to Maine Water’s outstanding bonds, approximately $41,000 in sinking funds related to HVWC’s bank loan and $42,000 related to Avon Water’s mortgage note payable.

Financial Covenants – The Company and its subsidiaries are required to comply with certain covenants in connection with various long term loan agreements.  The most restrictive of these covenants is to maintain a consolidated debt to capitalization ratio of not more than 60%. Additionally, Maine Water has restrictions on cash dividends paid based on restricted net assets. The Company and its subsidiaries were in compliance with all covenants at March 31, 2018.
v3.8.0.1
Fair Value Disclosures
3 Months Ended
Mar. 31, 2018
Notes To Financial Statements [Abstract]  
Fair Value Disclosures
Fair Value Disclosures

FASB Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“FASB ASC 820”) provides enhanced guidance for using fair value to measure assets and liabilities and expands disclosure with respect to fair value measurements.

FASB ASC 820 establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs).  The hierarchy consists of three broad levels, as follows:

Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are either directly or indirectly observable.
Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that the Company believes market participants would use.

The following table summarizes our financial instruments measured at fair value on a recurring basis within the fair value hierarchy as of March 31, 2018 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Asset Type:
 
 
 
 
 
 
 
Money Market Fund
$
70

 
$

 
$

 
$
70

Mutual Funds:
 

 
 

 
 

 
 

Equity Funds (1)
1,994

 

 

 
1,994

Fixed Income Funds (2)
635

 

 

 
635

Total
$
2,699

 
$

 
$

 
$
2,699


The following table summarizes our financial instruments measured at fair value on a recurring basis within the fair value hierarchy as of December 31, 2017 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Asset Type:
 
 
 
 
 
 
 
Money Market Fund
$
70

 
$

 
$

 
$
70

Mutual Funds:
 

 
 

 
 

 
 

Equity Funds (1)
2,051

 

 

 
2,051

Fixed Income Funds (2)
642

 

 

 
642

Total
$
2,763

 
$

 
$

 
$
2,763

(1)
Mutual funds consist primarily of equity securities and are presented on the Other Property and Investments line item of the Company’s Condensed Consolidated Balance Sheets.
(2)
Mutual funds consist primarily of fixed income securities and are presented on the Other Property and Investments line item of the Company’s Condensed Consolidated Balance Sheets.

The following methods and assumptions were used to estimate the fair value of each of the following financial instruments, which are not recorded at fair value on the financial statements.

Cash and cash equivalents – Cash equivalents consist of highly liquid instruments with original maturities at the time of purchase of three months or less.  The carrying amount approximates fair value.  Under the fair value hierarchy the fair value of cash and cash equivalents is classified as a Level 1 measurement.

Company Owned Life Insurance – The fair value of Company Owned Life Insurance is based on the cash surrender value of the contracts. These contracts are based principally on a referenced pool of investment funds that actively redeem shares and are observable and measurable and are presented on the “Other Property and Investments” line item of the Company’s Consolidated Balance Sheets. The value of Company Owned Life Insurance at March 31, 2018 and December 31, 2017 was $4,047,000 and $4,018,000, respectively.

Long-Term Debt – The fair value of the Company’s fixed rate long-term debt is based upon borrowing rates currently available to the Company.  As of March 31, 2018 and December 31, 2017, the estimated fair value of the Company’s long-term debt was $263,170,000 and $268,628,000, respectively, as compared to the carrying amounts of $256,963,000 and $258,272,000, respectively. The estimated fair value of long term debt was calculated using a discounted cash flow model that uses comparable interest rates and yield curve data based on the A-rated MMD (Municipal Market Data) Index which is a benchmark of current municipal bond yields. Under the fair value hierarchy, the fair value of long term debt is classified as a Level 2 measurement.

Advances for Construction – Customer advances for construction had a carrying amount of $20,363,000 and $20,024,000 at March 31, 2018 and December 31, 2017, respectively. Their relative fair values cannot be accurately estimated since future refund payments depend on several variables, including new customer connections, customer consumption levels and future rate increases.

The fair values shown above have been reported to meet the disclosure requirements of FASB ASC 825, “Financial Instruments” (“FASB ASC 825”) and do not purport to represent the amounts at which those obligations would be settled.
v3.8.0.1
Segment Reporting
3 Months Ended
Mar. 31, 2018
Notes To Financial Statements [Abstract]  
Segment Reporting
Segment Reporting

The Company operates principally in three business segments: Water Operations, Real Estate Transactions, and Services and Rentals. Financial data for the segments is as follows (in thousands):
Three months ended March 31, 2018
Segment
 
Revenues
 
Pre-Tax Income
 
Income Tax (Benefit) Expense
 
Net (Loss) Income
Water Operations
 
$
25,226

 
$
(1,875
)
 
$
(252
)
 
$
(1,623
)
Real Estate Transactions
 

 

 

 

Services and Rentals
 
1,205

 
546

 
150

 
396

Total
 
$
26,431

 
$
(1,329
)
 
$
(102
)
 
$
(1,227
)
Three months ended March 31, 2017
Segment
 
Revenues
 
Pre-Tax Income
 
Income Tax (Benefit) Expense
 
Net Income
Water Operations
 
$
22,786

 
$
3,495

 
$
(282
)
 
$
3,777

Real Estate Transactions
 
212

 
55

 
22

 
33

Services and Rentals
 
1,210

 
491

 
233

 
258

Total
 
$
24,208

 
$
4,041

 
$
(27
)
 
$
4,068


The revenues shown in Water Operations above consisted of revenues from water customers of $24,853,000 and $22,463,000 for the three months ended March 31, 2018 and 2017. Additionally, there were revenues associated with utility plant leased to others of $373,000 and $323,000 for the three months ended March 31, 2018 and 2017, respectively. The revenues from water and wastewater customers for the three months ended March 31, 2018 and 2017 include $61,000 and $573,000 in additional revenues related to the application of the WRA, respectively.

The Company owns various small, discrete parcels of land that are no longer required for water supply purposes.  From time to time, the Company may sell or donate these parcels, depending on various factors, including the current market for land, the amount of tax benefits received for donations and the Company’s ability to use any benefits received from donations.

Assets by segment (in thousands):
 
March 31, 2018
 
December 31, 2017
Total Plant and Other Investments:
 
 
 
Water Operations
$
709,641

 
$
707,362

Non-Water
1,118

 
1,023

 
710,759

 
708,385

Other Assets:
 
 
 
Water Operations
188,840

 
188,590

Non-Water
2,365

 
1,808

 
191,205

 
190,398

Total Assets
$
901,964

 
$
898,783

v3.8.0.1
Income Tax Expense
3 Months Ended
Mar. 31, 2018
Notes To Financial Statements [Abstract]  
Income Taxes
Income Taxes

FASB ASC 740 Income Taxes (“FASB ASC 740”) addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FASB ASC 740, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

The Company adopted the Internal Revenue Service (“IRS”) temporary tangible property regulations on the Company’s 2012 Federal tax return. Since that time, the Company has been recording a provision for any possible disallowance of a portion of the repair deduction if the deductions were unable to be sustained on audit by the IRS. While the Company believes that the deductions taken on its tax returns are appropriate, the methodology for determining the deduction has not been agreed to by the taxing authorities.  During the Company’s review of the position through the quarter ended March 31, 2017, new information caused management to reassess the previously recorded provision. This reassessment resulted in the reversal of a portion of the provision related to the Maine subsidiary, in the amount of $1,164,000 in the first quarter of 2017. Additionally, in the quarter ended March 31, 2017, the Company recorded, as required by FASB ASC 740, a provision of $310,000 for a portion of the benefit that is not being returned to customers resulting from any possible tax authority challenge. For the three months ended March 31, 2018, the Company recorded a provision of $200,000 for a portion of the benefit that is not being returned to customers resulting from any possible tax authority challenge. The Company had previously recorded a provision of $4.6 million in prior years for a cumulative total of $4.8 million.

On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. While we are able to make reasonable estimates of the impact of the reduction in corporate rate, the final impact of the Tax Act may differ from these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued by the I.R.S., and actions we may take. We are continuing to gather additional information to determine the final impact. Provisional amounts have been recorded as a Regulatory Liability to the extent that the tax savings over time will be returned to customers in utility rates, and a non-cash adjustment was recognized to record additional income tax expense to the extent revalued deferred income taxes are not believed to be recoverable in utility customer rates. Accounting for the income tax effects of the Tax Act is expected to be completed when an decision is reached by both PURA and the MPUC regarding the impact that shall be included in utility customer rates. During the first quarter of 2018, the Company performed further analysis on the impact of the enacted legislation.  Through the quarter ended March 31, 2018, the Company recorded an excess accumulated deferred tax liability of $31 million, of which $28 million relates to the Tax Act.  The additional analysis resulted in no change to the Unrecovered Income Taxes and Unfunded Future Income Taxes or income tax expense.

From time to time, the Company may be assessed interest and penalties by taxing authorities.  In those cases, the charges would appear on the Other line item within the Other Income (Deductions), Net of Taxes section of the Company’s Condensed Consolidated Statements of Income.  There were no such charges for the three months ended March 31, 2018 and 2017.  Additionally, there were no accruals relating to interest or penalties as of March 31, 2018 and December 31, 2017.  The Company remains subject to examination by federal and state tax authorities for the 2014 through 2016 tax years. On April 26, 2017, Avon Water was notified by the IRS that its stand-alone Federal tax filing for 2015 was selected to be reviewed beginning in the second quarter of 2017 and the audit has since been expanded to include the 2016 standalone tax year. On March 20, 2018, Avon Water received two notices of adjustment from the IRS related to the Federal tax audit for the tax year ended December 31, 2015. As a result, a reduction in the net operating loss carryover of $55,000 was recorded during the period ended March 31, 2018.

The Company is currently engaged in an analysis to determine the amount of expenditures related to tangible property that will be reflected on its 2018 Federal Tax Return to be filed in September 2019.  As a result, through the first quarter of 2018, the Company has estimated the portion of its infrastructure investment that will qualify as a repair deduction for 2018 and has reflected that deduction in its effective tax rate, net of any reserves.  Consistent with other differences between book and tax expenditures, the Company is required to use the flow-through method to account for any timing differences not required by the IRS to be normalized.

The Company’s effective income tax rate for the three months ended March 31, 2018 and 2017 was 7.7% and (0.7)%, respectively. The Company’s effective tax rate, excluding discrete items recorded during the three months ended March 31, 2018 and 2017, was 26.7% and 20.5%, respectively. In 2018, these discrete items include adjustments related to uncertain tax positions for the repair deduction in Connecticut, an IRS audit adjustment, and adjustments required under the Tax Act. In 2017, these discrete items include adjustments related to uncertain tax positions for the repair deduction in both Connecticut and Maine. Excluding discrete items, there was an increase in the effective tax rate year over year for the three month period of approximately 6%. The increase in the effective tax rate for this period can be attributed to higher non-deductible acquisition costs in 2018 than in 2017, offset partially by a higher estimated performance stock deduction and a higher repair deduction in 2018 than in 2017. The blended Federal and State statutory income tax rates during the periods ending March 31, 2018 and 2017 were 28% and 41%, respectively. In determining its annual estimated effective tax rate for interim periods, the Company reflects its estimated permanent and flow-through tax differences for the taxable year, including the basis difference for the adoption of the tangible property regulations.
v3.8.0.1
Lines of Credit
3 Months Ended
Mar. 31, 2018
Notes To Financial Statements [Abstract]  
Lines of Credit
Lines of Credit

As of March 31, 2018, the Company maintained a $15.0 million line of credit agreement with CoBank, that is currently scheduled to expire on July 1, 2020.  The Company maintained an additional line of credit of $45.0 million with Citizens Bank, N.A., with an expiration date of April 25, 2021.  Additionally, Avon Water maintains a $3.0 million line of credit with Northwest Community Bank, with an expiration date of September 30, 2018. As of March 31, 2018, the total lines of credit available to the Company were $63.0 million.  As of March 31, 2018 and December 31, 2017, the Company had $29.2 million and $19.3 million, respectively, of Interim Bank Loans Payable. As of March 31, 2018, the Company had $33.8 million in unused lines of credit.  Interest expense charged on lines of credit will fluctuate based on market interest rates.
v3.8.0.1
Aquisitions
3 Months Ended
Mar. 31, 2018
Business Acquisition [Line Items]  
Business Combination Disclosure [Text Block]
.    Acquisitions

The Heritage Village Water Company Acquisition
On May 10, 2016, the Company announced that it had reached an agreement to acquire HVWC, pending a vote of HVWC shareholders, approval by PURA and MPUC and the satisfaction of other various closing conditions, pursuant to the terms of Agreement and Plan of Merger dated May 10, 2016 between and among HVWC, the Company, and HAC, Inc., the Company’s wholly-owned Connecticut subsidiary (the “Merger Agreement”). HVWC serves approximately 4,700 water customers in the Towns of Southbury, Middlebury, and Oxford, Connecticut and approximately 3,000 wastewater customers in the Town of Southbury, Connecticut.

The acquisition was executed through a stock-for-stock merger transaction valued at approximately $16.9 million. Holders of HVWC common stock received shares of the Company’s common stock in a tax-free exchange. In addition, the transaction reflected a total enterprise value of HVWC of approximately $21.5 million, with the $16.9 million paid to shareholders in a stock exchange and the assumption by the Company of approximately $4.6 million of debt held by HVWC at the time of the acquisition.

The Company received regulatory approval from MPUC on September 28, 2016 and from PURA on December 5, 2016, to proceed with the transaction. The shareholders of HVWC voted to approve the acquisition at a special meeting of HVWC’s shareholders held on February 27, 2017.

On February 27, 2017, the Company completed the acquisition of HVWC by completing the merger of the Company’s wholly-owned subsidiary HAC, Inc. with and into HVWC, with HVWC as the surviving corporation, pursuant to the terms of the Merger Agreement and Connecticut corporate law. Upon the effective time of the Merger, the holders of HVWC’s 1,620 issued and outstanding shares of common stock became entitled to receive an aggregate of 300,445 shares of the Company’s common stock in a tax-free exchange, which exchange was commenced promptly by the issuance of a letter of transmittal and related materials by Connecticut Water’s exchange agent.

The Avon Water Company Acquisition
On October 12, 2016, the Company announced that it had reached an agreement to acquire Avon Water, pending a vote of Avon Water shareholders, approval by PURA and the MPUC and the satisfaction of other various closing conditions, pursuant to the terms of that certain Agreement and Plan of Merger dated October 11, 2016 as amended on March 29, 2017 between and among Avon Water, the Company, and WC-A I, Inc., the Company’s wholly-owned Connecticut subsidiary (the “Merger Agreement”). Avon Water serves approximately 4,800 customers in the Farmington Valley communities of Avon, Farmington, and Simsbury, Connecticut.

On February 10, 2017, Connecticut Water received regulatory approval from MPUC and on April 12, 2017, Connecticut Water received regulatory approval from the PURA to proceed with the transaction. The shareholders of Avon Water voted to approve the acquisition at a special meeting of Avon Water’s shareholders held on June 16, 2017.

Effective July 1, 2017, the Company completed the acquisition of Avon Water by completing the merger of Connecticut Water’s wholly-owned subsidiary WC-A I, Inc. with and into Avon Water, with Avon Water as the surviving corporation, pursuant to the terms of the Merger Agreement and Connecticut corporate law. Upon the effective time of the Merger, the holders of Avon Water’s 122,289 issued and outstanding shares of common stock became entitled to receive the following merger consideration for each share of Avon Water common stock held: (i) a cash payment of $50.11; and (ii) a stock consideration component, consisting of 3.97 shares of the Company’s common stock.

The transaction was completed through a stock-for-stock exchange where Avon Water shareholders received the Company’s common stock valued at approximately $26.9 million, in a tax-free exchange, and a cash payment of $6.1 million for a total payment to shareholders of $33.0 million. The transaction reflects a total enterprise value of approximately $39.1 million, with the $33.0 million paid to shareholders and the assumption by the Company of approximately $6.1 million of debt of Avon Water.

While the purchase price allocation of HVWC has been completed, the Company is still in the process of finalizing the purchase price allocation of Avon Water as additional information becomes available. The following table summarizes the fair value of the HVWC assets acquired on February 27, 2017 and the Avon Water assets on July 1, 2017, the dates of the acquisitions (in thousands):

 
HVWC
 
Avon Water
Net Utility Plant
$
28,861

 
$
28,330

Cash and Cash Equivalents
1,336

 
455

Accounts Receivable, net
355

 
379

Prepayments and Other Current Assets
179

 
243

Accrued Unbilled Revenues
47

 
467

Materials and Supplies, at Average Cost
63

 
151

Goodwill
12,777

 
23,812

Unrecovered Income Taxes - Regulatory Asset

 
3,619

Deferred Charges and Other Costs
343

 
799

Total Assets Acquired
$
43,961

 
$
58,255

 
 
 
 
Long-Term Debt, including current portion
$
4,642

 
$
3,145

Accounts Payable and Accrued Expenses
149

 
584

Interim Bank Loans Payable

 
2,500

Other Current Liabilities
238

 
32

Advances for Construction
1,897

 
1,537

Deferred Federal and State Income Taxes
1,680

 
1,880

Unfunded Future Income Taxes

 
3,619

Other Long-Term Liabilities

 
314

Total Liabilities Assumed
$
8,606

 
$
13,611

 
 
 
 
Contributions in Aid of Construction
18,452

 
11,560

 
 
 
 
Net Assets Acquired
$
16,903

 
$
33,084



The estimated fair values of the assets acquired and the liabilities assumed were determined based on the accounting guidance for fair value measurement under GAAP, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value analysis assumes the highest and best use of the assets by market participants. The allocation of the purchase price includes an adjustment to fair value related to the fair value of HVWC’s and Avon Water’s long term debt and any associated deferred taxes. The excess of the purchase price paid over the estimated fair value of the assets acquired and the liabilities assumed was recognized as goodwill, none of which is deductible for tax purposes. Goodwill recognized as part of the acquisitions of HVWC and Avon Water are a part of the Company’s Water Operations segment.

The following unaudited pro forma summary for the three months ended March 31, 2018 and 2017 presents information as if HVWC and Avon Water had each been acquired on January 1, 2017 and assumes that there were no other changes in our operations.  The following pro forma information does not necessarily reflect the actual results that would have occurred had the Company operated the businesses since January 1, 2017, nor is it necessarily indicative of the future results of operations of the combined companies (in thousands):

Three months ended March 31,
2018
 
2017
Operating Revenues
$
24,853

 
$
24,054

Other Water Activities Revenues
373

 
326

Real Estate Revenues

 
212

Service and Rentals Revenues
1,205

 
1,210

Total Revenues
$
26,431

 
$
25,802

 
 
 
 
Net (Loss) Income
$
(1,227
)
 
$
4,132

 
 
 
 
Basic Earnings per Average Share Outstanding
$
(0.10
)
 
$
0.35

Diluted Earnings per Average Share Outstanding
$
(0.10
)
 
$
0.34


The following table summarizes the results of HVWC and Avon Water for the three months ended March 31, 2018 and from the dates of acquisition to March 31, 2017 (from February 27, 2017 for HVWC and July 1, 2017 for Avon Water) and is included in the Consolidated Statement of Income for the period (in thousands):

Three months ended March 31, 2018
 
Operating Revenues
$
1,931

Other Water Activities Revenues
32

Real Estate Revenues

Service and Rentals Revenues

Total Revenues
$
1,963

 
 

Net Income
$
217

 
 

Basic Earnings per Average Share Outstanding
$
0.02

Diluted Earnings per Average Share Outstanding
$
0.02

 
 
Period ending March 31, 2017
 
Operating Revenues
$
336

Other Water Activities Revenues

Real Estate Revenues

Service and Rentals Revenues

Total Revenues
$
336

 
 
Net Income
$
85

 
 
Basic Earnings per Average Share Outstanding
$
0.01

Diluted Earnings per Average Share Outstanding
$
0.01

v3.8.0.1
Revenue from Contracts with Customers (Notes)
3 Months Ended
Mar. 31, 2018
Revenue from Contract with Customer [Text Block]
5.
Revenues from Contracts with Customers

Accounting Policy
Our revenues are primarily from tariff-based sales. We provide water and wastewater services to customers under these tariffs without a defined contractual term (at-will).  As the revenue from these arrangements is based upon the amount of the water and wastewater services supplied and billed in that period (including estimated billings), there was not a shift in the timing or pattern of revenue recognition for such sales when compared to our revenue recognition prior to the adoption of ASU 2014-09.  We have also completed the evaluation of our other revenue streams, including those tied to longer term contractual commitments and the Company’s Linebacker program.

Customers are primarily billed quarterly on a cycle basis. To match revenues with associated expenses, we accrue unbilled revenues for water and wastewater services delivered to customers, but not yet billed at month end, creating a contract asset.

Nature of Goods and Services
Water Operations - We currently provide retail water and wastewater services to five primary customer classes. Our largest customer class consists of residential customers, which include single private dwellings and individual apartments. Our commercial class consists primarily of main street businesses, our industrial class consists primarily of manufacturing and processing businesses that turn raw materials into products, our public authority class represents services provided primarily to municipality or other government customers, and, finally, our fire protection class consists of services related to fire suppression systems and fire hydrants. Connecticut Water’s management has determined that tariff-based receipts; except for the WRA and other deferred revenue mechanisms, which are considered alternative revenue programs; are considered revenues from contracts with customers.
The Company has performance obligations for the service of standing ready to deliver water to customers. The Company recognizes revenue at a fixed rate as it provides these services, as approved by regulators. These arrangements generally do not have fixed terms and remain in effect as long as the customer consumes the utility service. The rates are set by PURA and the MPUC through the rate-making process and represent the stand-alone selling price of Company’s service to stand ready to deliver.
The Company has performance obligations for the service of delivering the commodity of water to customers. The Company recognizes revenue at a price per unit of water delivered (gallons, cubic feet, etc.), based on the tariffs established by our regulators. These arrangements generally do not have fixed terms and remain in effect as long as the customer consumes the utility service. The rates are set by PURA and the MPUC through the rate-making process and represent the stand-alone selling price of a bundled product comprising the commodity and the service of delivering such commodity.
The Company has a performance obligation related to administrative services such as turn-on/turn-off services, assessment of late charges, etc. The Company views that these services are not distinct in the context of the contract because they are highly interdependent for the effective delivery of water service provided to consumers.

Based on the above discussion, the Company believes that the Goods and Services provided under customer contracts constitute a single performance obligation. The Company believes that this performance obligation is satisfied over time.

Services and Rentals - We provide contracted services to water utilities and other clients and also lease certain of our properties to third parties. The types of services provided include contract operations of water; Linebacker, our service line protection plan for public drinking water customers; and providing bulk deliveries of emergency drinking water to businesses and residences via tanker truck. Our lease and rental income comes primarily from the renting of residential and commercial property. The goods and services provided by Linebacker have been determined to be based on the stand ready nature of the Company to provide the goods and services and, therefore, customers simultaneously receive and consume the benefits provided by the Company. The other revenue streams in the Services and Rentals segment, including contracted services to water utilities and other clients, have performance obligations that are satisfied at a point in time, and likewise will not have a shift in the timing or pattern of revenue recognition.

Disaggregation of Revenue
The following table disaggregates our revenue by major source and customer class (in thousands):

 
 
Three Months Ended
 
 
March 31, 2018
 
March 31, 2017
Water Operations
 
 
 
 
Residential
 
$
14,409

 
$
12,796

Commercial
 
2,930

 
2,598

Industrial
 
719

 
641

Public Authority
 
747

 
679

Fire Protection
 
5,172

 
4,741

Other (including non-metered accounts)
 
874

 
496

Water Operations Revenues from Contracts with Customers
 
24,851

 
21,951

Alternative Revenue Program
 
2

 
512

Other
 
373

 
323

Total Revenue from Water Operations
 
25,226

 
22,786

Services and Rentals
 
 
 
 
Contract Operations
 
569

 
570

Linebacker
 
618

 
619

Service and Rentals Revenues from Contracts with Customers
 
1,187

 
1,189

Other
 
18

 
21

Total Revenue from Services and Rentals
 
1,205

 
1,210

Total Revenue from Real Estate Transactions
 

 
212

 
 
 
 
 
Total Revenues from Contracts with Customers
 
26,038

 
23,140

 
 
 
 
 
Total Revenue
 
$
26,431

 
$
24,208



The following table show the components of Accounts Receivable and Accrued Unbilled Revenues related to revenues from contracts with customers:

 
 
March 31, 2018
 
December 31, 2017
Accounts Receivable
 
 
 
 
Water Operations Segment
 
$
11,792

 
$
12,885

Services and Rentals Segment
 
135

 
107

Accounts Receivable from Contracts with Customers
 
11,927

 
12,992

Other accounts receivable
 
850

 
1,973

Total Accounts Receivable
 
$
12,777

 
$
14,965

 
 
 
 
 
Accrued Unbilled Revenues from Contracts with Customers
 
$
8,238

 
$
8,481



Accounts Receivable and Accrued Unbilled Revenues: Accounts receivable are comprised of trade receivables primarily from our regulated water customers. The Company records their accounts receivable at cost, which approximates fair value. Additionally, the Company establishes an allowance for uncollectible accounts based on historical losses, management’s assessment of existing economic conditions, customer payment trends, and other factors. The Company assess late payment fees on trade receivables based on contractual past-due terms established with customers and approved by PURA or the MPUC. The provision for bad debts is charged to operating expense.

The Company’s customers are primarily billed quarterly in cycles having billing dates that do not generally coincide with the end of a fiscal quarter. This results in customers having received water or waste water services that they have not been billed for as of a given period’s end. The Company estimates its unbilled revenues by applying an average billed rate to total unbilled deliveries for each customer class.
v3.8.0.1
Pension and Other Post-Retirement Benefits Pension and Post-Retirement Benefits (Tables)
3 Months Ended
Mar. 31, 2018
Pension and Other Post-Retirement Benefits [Abstract]  
Schedule of Net Benefit Costs [Table Text Block]
Pension Benefits
Components of Net Periodic Cost (in thousands):
 
Three Months
Period ended March 31,
2018
 
2017
Service Cost
$
524

 
$
514

Interest Cost
778

 
794

Expected Return on Plan Assets
(1,169
)
 
(1,101
)
Amortization of:
 

 
 

Prior Service Cost
4

 
4

Net Recognized Loss
670

 
545

Net Periodic Benefit Cost
$
807

 
$
756

schedule of post retirement benefits other than pension costs [Table Text Block]
Post-Retirement Benefits Other Than Pension (PBOP)
Components of Net Periodic Cost (in thousands):
 
Three Months
Period ended March 31,
2018
 
2017
Service Cost
$
83

 
$
93

Interest Cost
125

 
133

Expected Return on Plan Assets
(93
)
 
(88
)
Other

 
56

Amortization of:
 

 
 

Prior Service Credit

 
(45
)
Recognized Net (Gain)
(6
)
 
(9
)
Net Periodic Benefit Cost
$
109

 
$
140

v3.8.0.1
Earnings per Share Earnings per Share (Tables)
3 Months Ended
Mar. 31, 2018
Earnings Per Share [Abstract]  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
Earnings per weighted average common share are calculated by dividing net income applicable to common stock by the weighted average number of shares of common stock outstanding during the respective periods as detailed below (diluted shares include the effect of stock awards):

Three months ended March 31,
2018
 
2017
Common Shares Outstanding End of Period
12,089,125

 
11,564,346

Weighted Average Shares Outstanding (Days Outstanding Basis):
 

 
 

Basic
11,861,961

 
11,139,110

Diluted
12,080,484

 
11,364,879

 
 
 
 
Basic (Loss) Earnings per Share
$
(0.10
)
 
$
0.36

Dilutive Effect of Stock Awards

 

Diluted (Loss) Earnings per Share
$
(0.10
)
 
$
0.36

v3.8.0.1
Accumulated Other Comprehensive Income (Loss) (Tables)
3 Months Ended
Mar. 31, 2018
Accumulated Other Comprehensive Income (Loss) [Abstract]  
Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]
The changes in Accumulated Other Comprehensive Income (Loss) (“AOCI”) by component, net of tax, for the three months ended March 31, 2018 and 2017 are as follows (in thousands):
Three months ended March 31, 2018
 
Unrealized Gains on Investments
 
Defined Benefit Items
 
Total
Beginning Balance (a)
 
$
442

 
$
(870
)
 
$
(428
)
Other Comprehensive Loss Before Reclassification
 
(43
)
 

 
(43
)
Amounts Reclassified from AOCI
 
17

 
34

 
51

Net current-period Other Comprehensive (Loss) Income
 
(26
)
 
34

 
8

Ending Balance
 
$
416

 
$
(836
)
 
$
(420
)
 
 
 
 
 
 
 
Three months ended March 31, 2017
 
Unrealized Gains on Investments
 
Defined Benefit Items
 
Total
Beginning Balance (a)
 
$
235

 
$
(1,159
)
 
$
(924
)
Other Comprehensive Income Before Reclassification
 
64

 

 
64

Amounts Reclassified from AOCI