CONNECTICUT WATER SERVICE INC / CT, 10-Q filed on 5/8/2019
Quarterly Report
v3.19.1
Document and Entity Information
3 Months Ended
Mar. 31, 2019
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 Large Accelerated Filer
Document Type 10-Q
Document Period End Date Mar. 31, 2019
Document Fiscal Year Focus 2019
Document Fiscal Period Focus Q1
Amendment Flag false
Entity Common Stock, Shares Outstanding 12,063,252
v3.19.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
ASSETS    
Utility Plant $ 992,169 $ 983,220
Construction Work in Progress 15,200 14,765
Gross Utility Plant 1,007,369 997,985
Accumulated Provision for Depreciation (262,237) (258,192)
Net Utility Plant 745,132 739,793
Other Property and Investments 12,540 11,501
Cash and Cash Equivalents 2,730 2,856
Accounts Receivable (Less Allowance, 2019 - $1,280; 2018 - $1,236) 12,645 14,169
Accrued Unbilled Revenues 9,763 10,011
Materials and Supplies 1,675 1,679
Prepayments and Other Current Assets 13,302 9,943
Total Current Assets 40,115 38,658
Restricted Cash 965 0
Unrecovered Income Taxes - Regulatory Asset 78,429 75,763
Pension Benefits - Regulatory Asset 9,025 9,337
Post-Retirement Benefits Other Than Pension - Regulatory Asset 129 133
Goodwill 66,403 66,403
Deferred Charges and Other Costs 10,898 11,755
Total Regulatory and Other Long-Term Assets 165,849 163,391
Total Assets 963,636 953,343
CAPITALIZATION AND LIABILITIES    
Common Stock Without Par Value: Authorized - 25,000,000 Shares - Issued and Outstanding: 2019 - 12,063,252; 2018 - 12,054,712 190,899 190,433
Retained Earnings (Accumulated Deficit) 102,658 104,188
Accumulated Other Comprehensive Loss (275) (485)
Common Stockholders' Equity 293,282 294,136
Long-Term Debt 257,382 257,511
Total Capitalization 550,664 551,647
Debt, Current 4,030 4,059
Interim Bank Loans Payable 65,948 54,249
Accounts Payable and Accrued Expenses 7,186 13,782
Accrued Interest 1,663 1,531
Customer Refund Liability, Current 2,548 2,331
Other Current Liabilities 3,126 3,101
Total Current Liabilities 84,501 79,053
Advances for Construction 25,154 22,654
Deferred Federal and State Income Taxes 31,466 31,593
Unfunded Future Income Taxes 70,422 67,725
Long-Term Compensation Arrangements 31,698 31,043
Unamortized Investment Tax Credits 1,038 1,057
Excess Accumulated Deferred Income Tax 29,469 29,611
Refund to Customers - Regulatory Liability 0 534
Other Long-Term Liabilities 3,418 3,345
Total Long-Term Liabilities 192,665 187,562
Contributions in Aid of Construction 135,806 135,081
Commitments and Contingencies 0 0
Total Capitalization and Liabilities $ 963,636 $ 953,343
v3.19.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ / shares in Thousands, $ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Issued 12,063,252 12,054,712
Outstanding 12,063,252 12,054,712
ASSETS    
Allowance $ 1,280 $ 1,236
Capitalization, Long-term Debt and Equity [Abstract]    
Common Stock, No Par Value $ 0 $ 0
Common Stock, Shares Authorized 25,000,000 25,000,000
v3.19.1
CONSOLIDATED STATEMENTS OF INCOME - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Operating Expenses    
Operation and Maintenance $ 12,922 $ 13,020
Depreciation 4,817 4,705
Income Taxes 212 (7)
Taxes Other Than Income Taxes 3,092 2,857
Total Operating Expenses 21,043 20,575
Net Operating Revenues 26,246 24,853
Net Regulated Operating Revenue 5,203 4,278
Other Utility Income, Net of Taxes 199 267
Total Utility Operating Income 5,402 4,545
Gain (Loss) on Disposition of Oil and Gas and Timber Property 12 0
Other Income (Deductions), Net of Taxes    
Non-Water Sales Earnings 486 396
Allowance for Funds Used During Construction 156 53
Business Combination, Acquisition Related Costs (925) (3,261)
Other 313 (346)
Total Other Income, Net of Taxes 42 (3,158)
Interest and Debt Expense    
Interest on Long-Term Debt 2,632 2,562
Interest Income (Expense), Net 507 1
Amortization of Debt Expense 67 51
Total Interest and Debt Expense 3,206 2,614
Net Income 2,238 (1,227)
Preferred Stock Dividend Requirement 0 9
Net Income Applicable to Common Stock $ 2,238 $ (1,236)
Weighted Average Common Shares Outstanding:    
Basic (in shares) 11,961,541 11,861,961
Diluted (in shares) 12,059,833 12,080,484
Earnings Per Common Share:    
Basic (in dollars per share) $ 0.19 $ (0.10)
Diluted (in dollars per share) 0.19 (0.10)
Dividends Per Common Share (in dollars per share) $ 0.3125 $ 0.2975
v3.19.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Net Income $ 2,238 $ (1,227)
Other Comprehensive Income, net of tax    
Reclassification to Pension and Post-Retirement Benefits Other Than Pension, net of tax (expense) of $(13) and $(13) for the three months ended March 31, 2019 and 201, respectively 37 34
Unrealized (loss) gain on investments, net of tax (expense) benefit of $(64) and $10 for the three months ended March 30, 2019 and 2018, respectively 173 (26)
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent 210 8
Comprehensive Income $ 2,448 $ (1,219)
v3.19.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Other Comprehensive Income, net of tax    
Reclassification to Pension and Post-Retirement Benefits Plans, net of tax (expense) benefit of $ (13) $ (13)
Unrealized Investment loss, net of tax expense of $ (64) $ 10
v3.19.1
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Balance at Beginning of Period $ 104,188 $ 102,417
Net Income 2,238 (1,227)
Retained Earnings before Dividends 106,426 101,190
Dividends Declared:    
Cumulative Preferred, Class A, $0.20 per share for the three months ended March 31, 2018 0 9
Common Stock - $0.3125 per share and $0.2975 per share for the three months ended March 31, 2019 and 2018, respectively 3,768 3,595
Total Dividends Declared 3,768 3,604
Balance at End of Period 102,658 97,586
Series A Voting    
Dividends Declared:    
Cumulative Preferred, Class A, $0.20 per share for the three months ended March 31, 2018 0 3
Cumulative Preferred Stock    
Dividends Declared:    
Cumulative Preferred, Class A, $0.20 per share for the three months ended March 31, 2018 $ 0 $ 6
v3.19.1
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Parenthetical) - $ / shares
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dividends Declared:    
Common Stock (in dollars per share) $ 0.3125 $ 0.2975
Cumulative Preferred Stock    
Dividends Declared:    
Preferred Stock (in dollars per share) 0.000 0.225
Series A Voting    
Dividends Declared:    
Preferred Stock (in dollars per share) $ 0.00 $ 0.20
v3.19.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents $ 3,695 $ 4,020
Net Additions to Utility Plant Used in Continuing Operations 14,823 6,933
Operating Activities:    
Net Income 2,238 (1,227)
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:    
Deferred Revenues (871) (103)
Provision for Deferred Income Taxes and Investment Tax Credits, Net (341) (124)
Allowance for Funds Used During Construction (156) (53)
Depreciation (including $423 and $233 in 2019 and 2018, respectively, charged to other accounts) 5,240 4,938
Gain (Loss) on Sale of Properties 12 0
Change in Assets and Liabilities:    
Increase in Accounts Receivable and Accrued Unbilled Revenues 1,772 2,431
Increase in Prepayments and Other Current Assets (3,376) (2,242)
(Increase) Decrease in Other Non-Current Items 1,638 2,456
Increase in Accounts Payable, Accrued Expenses and Other Current Liabilities (554) (3,873)
Total Adjustments 3,340 3,430
Net Cash and Cash Equivalents Provided by Operating Activities 5,578 2,203
Investing Activities:    
Net Cash and Cash Equivalents Used in Investing Activities (14,823) (6,933)
Financing Activities:    
Proceeds from Interim Bank Loans 65,948 29,197
Repayment of Interim Bank Loans (54,249) (19,281)
Proceeds from the Issuance of Long-Term Debt 1,686 0
Proceeds from Issuance of Common Stock 278 380
Costs to Issue Long-Term Debt and Common Stock (17) 0
Repayment of Long-Term Debt Including Current Portion (1,224) (1,151)
Advances from Others for Construction 1,430  
Repayments of Advances for Construction   (409)
Cash Dividends Paid (3,768) (3,604)
Net Cash and Cash Equivalents (Used in) Provided by Financing Activities 10,084 5,132
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Excluding Exchange Rate Effect 839 402
Cash and Cash Equivalents at Beginning of Period 2,856  
Cash and Cash Equivalents at End of Year 2,730  
Non-Cash Investing and Financing Activities:    
Non-Cash Contributed Utility Plant 1,140 398
Short-term Investment of Bond Proceeds Held in Restricted Cash 965  
Cash Paid for:    
Interest 3,087 2,506
State and Federal Income Taxes $ 130 $ 120
v3.19.1
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:    
Depreciation charged to other accounts $ 233 $ 271
v3.19.1
Basis of Preparation of Financials
3 Months Ended
Mar. 31, 2019
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 (together, the “Regulated Companies”). The Condensed Consolidated Balance Sheet at December 31, 2018 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, 2018 (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.  

Proposed Merger with SJW Group

On August 5, 2018, the Company entered into a Second Amended and Restated Agreement and Plan of Merger (the “Revised 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 Revised Merger Agreement, at the effective time of the Merger, each outstanding share of our common stock (other than certain cancelled shares) will be automatically converted into the right to receive an amount in cash equal to $70.00 per share, payable without interest. The Revised Merger Agreement amends and restates in its entirety the Amended and Restated Agreement and Plan of Merger (the “First Amended and Restated Merger Agreement”), dated as of May 30, 2018, by and among the Company, SJW and Merger Sub, which amended and restated in its entirety the Agreement and Plan of Merger (the “Original Merger Agreement”), dated as of March 14, 2018, by and among the Company, SJW and Merger Sub.

The Board of Directors approved, adopted and declared advisable the Revised Merger Agreement and the Merger and recommended that the Company’s shareholders approve the Revised Merger Agreement following a comprehensive review of the transaction. The Revised Merger Agreement was approved by the Company’s shareholders on November 16, 2018. The Merger is subject to certain customary closing conditions, including, among other things, approval of the Revised Merger Agreement by the Company’s shareholders (which was received on November 16, 2018) and regulatory approvals (including the approval of the Connecticut Public Utilities Regulatory Authority (“PURA”) and the Maine Public Utilities Commission (“MPUC”)). The required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “HSR Act”), was terminated early on April 27, 2018, and the early termination expired on April 27, 2019. The Company and SJW re-filed the necessary notifications under the HSR Act on April 4, 2019, and the required waiting period was terminated early on April 15, 2019. On October 15, 2018, the Federal Communications Commission (“FCC”) consented to the joint application for transfer of control filed by the Company and SJW on October 4, 2018 and amended on October 12, 2018. On April 19, 2019, the FCC granted the Company and SJW’s request to extend the transfer of control deadline to October 20, 2019. No further clearance from the FCC is required.

On May 4, 2018, Maine Water filed with MPUC an application for approval of the Merger. On May 7, 2018, the Company and SJW filed with PURA a joint application for approval of the Merger. Following the start on May 31, 2018 of a 45-day go-shop process permitted by the First Amended and Restated Merger Agreement, the Company and SJW withdrew their joint PURA application on June 19, 2018, and filed a new joint application on July 18, 2018 following the end of the go-shop process. On January 9, 2019, the Company and SJW withdrew their current application before PURA and announced that they were continuing to evaluate their regulatory approach, including the possibility of submitting a new application to PURA in connection with the Merger. On January 23, 2019, Maine Water voluntarily requested to withdraw its application before MPUC, aligning the Maine regulatory process with the regulatory process in Connecticut. After a thorough review conducted by the management and boards of the Company and SJW, and with the support of their respective Connecticut regulatory counsel, the Company disclosed on February 21, 2019 that the companies decided to file new applications with PURA and MPUC which are intended to address PURA’s concerns. The Company and SJW filed a new joint application with PURA on April 3, 2019, and Maine Water filed a new application with MPUC on May 3, 2019. PURA must make a ruling on the merger within 120 days after the filing of an application, unless the Company and SJW agree to an extension of the 120-day timeframe. MPUC must make a ruling on the merger within 60 days after the filing of an application, unless it determines that the necessary investigation cannot be concluded within 60 days, in which event it can extend the review period for up to an additional 120 days.

On July 20, 2018, the California Public Utilities Commission (“CPUC”) formally issued an Order Instituting Investigation (the “Order”) providing that CPUC will investigate whether the Merger is subject to CPUC approval and the Merger’s anticipated impacts within California. CPUC held a public participation hearing on January 31, 2019 in connection with the Order. By a letter dated February 21, 2019, SJW informed CPUC that it would file a new application with PURA in connection with the Merger. On March 4, 2019, CPUC suspended the Order pending a final decision by PURA. On April 19, 2019, the City of San José submitted a request to CPUC that it resume its investigation of the Merger.

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. The Regulated Companies’ allowed returns on equity and allowed returns on rate base are as follows:

As of March 31, 2019
 
Allowed Return on Equity
 
Allowed Return on Rate Base
Connecticut Water
 
9.75
%
 
7.32
%
HVWC (blended water and wastewater rates)
 
10.10
%
 
7.19
%
Avon Water
 
10.00
%
 
7.79
%
Maine Water
 
9.50
%
 
7.96
%

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, subject to regulatory approval, 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, 2019, however, HVWC, as ordered by PURA, began to utilize Water Revenue Adjustments for water and wastewater as of March 31, 2017.

On January 3, 2018, PURA reopened 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 Federal Tax Cuts and Jobs Act (“Tax Act”). On January 23, 2019, PURA issued a decision that determined the appropriate accounting and rate treatments for the reduction in the Federal Corporate Income Tax rate from 35 to 21 percent. The reduction in the Federal Corporate Income Tax impacts two specific areas of corporate income tax that the regulated water utilities must account for: a) the income tax expense included in rates charged to customers; and b), the Excess Accumulated Deferred Income Tax (“EADIT”) liability accrued on the regulated utilities books.

PURA has directed regulated water companies, including Avon and HVWC, to create a regulatory liability as of January 1, 2018 to account for the reduced Federal Corporate Income Tax expense and defer treatment until the companies file their next general rate cases, at which point the companies will propose a method to return the regulatory liability to customers. During the year ended December 31, 2018, Avon Water and HVWC recorded regulatory liabilities in the amounts of $154,000 and $89,000, respectively. Avon Water and HVWC will continue to record additional liabilities each month until their next rate cases. For the quarter ended March 31, 2019, Avon Water and HVWC recorded an additional $37,000 and $21,000, respectively, to the regulatory liabilities. Additionally, PURA directed Avon Water and HVWC, to establish a liability account for the EADIT from January 1, 2018, going forward, which will also be returned to customers commencing with the their next rate cases. As discussed below, Connecticut Water has entered into a settlement agreement with the Connecticut Office of Consumer Counsel (“OCC”), which was approved by PURA, which 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 allowed the MPUC to determine what, if any, adjustments to rates would be appropriate to account for revisions to tax laws, including corporate tax rates contained in the Tax Act. On March 15, 2019, the MPUC issued an Order concluding the investigation, directing Maine Water to create regulatory liabilities in five of their ten operating divisions, collectively totaling $157,587 for the year ended December 31, 2018. Maine Water will continue to record additional liabilities each month until the company’s next rate case in each division. For the quarter ended March 31, 2019, Maine Water recorded an additional $39,000 to the regulatory liabilities. Further, the Order directs Maine Water to file general rate cases in the same five divisions on or before March 1, 2022. During the year ended December 31, 2018, Maine Water recorded a regulatory liability in the amount of $167,000 in anticipation of the Order.

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 1,400 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 has a book value of approximately $270,000 and is included in “Other Property and Investments” on the Company’s Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018. 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.

The first transaction regarding Mirror Lake was completed on September 27, 2018. As a result of the transaction, Maine Water has recognized $435,000 in net income in the period and has recorded a regulatory liability of $435,000 that will be refunded to customers over a one-year period, beginning January, 2019. In addition to the net income recorded as a result of the transaction, the Company recorded a $100,000 deferred income tax benefit due to the timing difference related to the cash refund to customers. The total net income benefit recorded by the Company for this transaction was $535,000 presented as $625,000 in gain on real estate transactions offset by $90,000 of donation deduction in the Other line item. Maine Water also made a $250,000 contribution to the Land Trust at the closing.

The second transaction regarding Grassy pond is scheduled to close on or before December 31, 2019. The second transaction is structured such that Maine Water will sell a conservation easement valued at $1,200,000 for $600,000. Accordingly, Maine Water expects to claim a $600,000 charitable deduction on the bargain sale. Similarly to the first transaction, net proceeds from the second transaction will be shared equally between the customers of the Camden Rockland division and Maine Water.

Connecticut Rates
Connecticut Water’s Water Infrastructure Conservation Adjustment (“WICA”) was 2.15% and 9.81% at March 31, 2019 and 2018, respectively. Connecticut Water’s WICA was reset to zero during 2018 as a result of a rate ruling on the Company’s limited reopener and settlement agreement issued by PURA, as discussed below. As of March 31, 2019 and 2018, respectively, Avon Water’s WICA surcharge was 9.31% and 8.09%. As of March 31, 2019, 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 proceeding (previously reopened in 2013) 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 unless those rates are to be effective on or after 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.

On August 15, 2018, PURA issued a final decision that accepted the conditions of a revised settlement agreement. The primary facets of the revised settlement agreement were the revenue requirements associated with the Rockville Water Treatment Plant, discussed above, and the folding of previously approved WICA surcharges into base rates, which reset Connecticut Water’s WICA to zero and resolution of the Company’s obligations related to the Tax Act. New rates were effective as of April 1, 2018.

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 certain acquired systems.

Connecticut Water’s and HVWC’s allowed revenues for the three months ended March 31, 2019, as approved by PURA during each company’s most recent general rate case and including subsequently approved WICA surcharges, are approximately $20.1 million. Through normal billing for the three months ended March 31, 2019, revenue for Connecticut Water and HVWC would have been approximately $19.2 million had the WRA not been implemented. As a result of the implementation of the WRA, Connecticut Water and HVWC recorded $0.9 million in additional revenue for the three months ended March 31, 2019. Avon Water does not currently have PURA approval to apply the WRA surcharge to its customers’ bills and, therefore, does not currently use the WRA mechanism.

Maine Rates
In Maine, the overall, cumulative Water Infrastructure Charge (“WISC”) for all divisions was 5.7% and 4.1% as a percentage of total revenues as of March 31, 2019 and 2018, respectively.

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. Maine’s rate-adjustment mechanism could provide revenue stabilization in divisions with declining water consumption and Maine Water expects to request usage of this mechanism in future rate filings when consumption trends support its use.
v3.19.1
Pension and Other Post-Retirement Benefits
3 Months Ended
Mar. 31, 2019
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, 2019 and 2018.

Pension Benefits
Components of Net Periodic Cost (in thousands):
 
Three Months
Period ended March 31,
2019
 
2018
Service Cost
$
451

 
$
524

Interest Cost
854

 
778

Expected Return on Plan Assets
(1,220
)
 
(1,169
)
Amortization of:
 

 
 

Prior Service Cost
4

 
4

Net Recognized Loss
393

 
670

Net Periodic Benefit Cost
$
482

 
$
807



The Company expects to make a total contribution of approximately $4,050,000 in 2019 for the 2018 plan year.

Post-Retirement Benefits Other Than Pension (PBOP)
Components of Net Periodic Cost (in thousands):
 
Three Months
Period ended March 31,
2019
 
2018
Service Cost
$
68

 
$
83

Interest Cost
141

 
125

Expected Return on Plan Assets
(92
)
 
(93
)
Amortization of:
 

 
 

Recognized Net Gain
(38
)
 
(6
)
Net Periodic Benefit Cost
$
79

 
$
109

v3.19.1
Earnings per Share
3 Months Ended
Mar. 31, 2019
Notes To Financial Statements [Abstract]  
Earnings per Share
3.
Earnings per Share and Common Stock

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,
2019
 
2018
Common Shares Outstanding End of Period
12,063,252

 
12,089,125

Weighted Average Shares Outstanding (Days Outstanding Basis):
 

 
 

Basic
11,961,541

 
11,861,961

Diluted
12,059,833

 
12,080,484

 
 
 
 
Basic Earnings per Share
$
0.19

 
$
(0.10
)
Dilutive Effect of Stock Awards

 

Diluted Earnings per Share
$
0.19

 
$
(0.10
)


Total unrecognized compensation expense for all stock awards was approximately $2.2 million as of March 31, 2019 and will be recognized over a weighted average period of 1.4 years.

The Company has 25,000,000 authorized shares of common stock, no par value.  A summary of the changes in the common stock accounts for the periods January 1, 2018 through March 31, 2018 and January 1, 2019 through March 31, 2019, appears below:

(in thousands, except share data)
Shares
 
Issuance Amount
 
Expense
 
Total
Balance, January 1, 2018
12,065,016

 
195,731

 
(4,090
)
 
191,641

Stock and equivalents issued through Performance Stock Program, Net of Forfeitures
16,987

 
232

 

 
232

Dividend Reinvestment Plan
7,122

 
380

 

 
380

Balance, March 31, 2018
12,089,125

 
196,343

 
(4,090
)
 
192,253

 
 
 
 
 
 
 
 
Balance January 1, 2019
12,054,712

 
194,523

 
(4,090
)
 
190,433

Stock and equivalents issued through Performance Stock Program, Net of Forfeitures and Redemptions
4,404

 
188

 

 
188

Dividend Reinvestment Plan
4,136

 
278

 

 
278

Balance, March 31, 2019
12,063,252

 
$
194,989

 
$
(4,090
)
 
$
190,899

v3.19.1
New Accounting Pronouncements
3 Months Ended
Mar. 31, 2019
Notes To Financial Statements [Abstract]  
Recently Adopted and New Accounting Pronouncements
4.
Recently Adopted and New Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)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. As required, the Company adopted ASU No. 2016-02 in January 2019 using the modified retrospective approach, see Note 12 for more details.
v3.19.1
Accumulated Other Comprehensive Income (Loss) (Notes)
3 Months Ended
Mar. 31, 2019
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, 2019 and 2018 are as follows (in thousands):
Three months ended March 31, 2019
 
Unrealized Gains on Investments
 
Defined Benefit Items
 
Total
Beginning Balance (a)
 
$
258

 
$
(743
)
 
$
(485
)
Other Comprehensive Loss Before Reclassification
 
173

 

 
173

Amounts Reclassified from AOCI
 

 
37

 
37

Net current-period Other Comprehensive (Loss) Income
 
173

 
37

 
210

Ending Balance
 
$
431

 
$
(706
)
 
$
(275
)
 
 
 
 
 
 
 
Three months ended March 31, 2018
 
Unrealized Gains on Investments
 
Defined Benefit Items
 
Total
Beginning Balance (a)
 
$
442

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

 
(43
)
Amounts Reclassified from AOCI
 
17

 
34

 
51

Net current-period Other Comprehensive Income
 
(26
)
 
34

 
8

Ending Balance
 
$
416

 
$
(836
)
 
$
(420
)
 
 
 
 
 
 
 
(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, 2019 and 2018 (in thousands):
Details about Other AOCI Components
 
Amounts Reclassified from AOCI Three Months Ended March 31, 2019 (a)
 
Amounts Reclassified from AOCI Three Months Ended March 31, 2018 (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
 
51

 
47

 
Other Income (b)
Tax expense
 
(14
)
 
(13
)
 
Other Income
 
 
37

 
34

 
 
 
 
 
 
 
 
 
Total Reclassifications for the period, net of tax
 
$
37

 
$
51

 
 
 
 
 
 
 
 
 
(a) Amounts in parentheses indicate loss/expense.
(b) Included in computation of net periodic pension cost (see Note 2 for additional details).
v3.19.1
Long-Term Debt
3 Months Ended
Mar. 31, 2019
Notes To Financial Statements [Abstract]  
Long-Term Debt
Long-Term Debt

Long-Term Debt at March 31, 2019 and December 31, 2018 consisted of the following (in thousands):
 
2019
 
2018
4.09%
 
CTWS
Term Loan Note
$
10,948

 
$
11,235

4.15%
 
CTWS
CoBank Term Note Payable, Due 2037
14,260

 
14,386

Total CTWS
25,208

 
25,621

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
22,665

 
22,717

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
198,805

 
198,857

4.75%
 
HVWC
2011 Farmington Bank Loan, Due 2034
4,256

 
4,300

3.05%
 
Avon Water
Mortgage Note Payable, due 2033
3,090

 
3,134

8.95%
 
Maine Water
1994 Series G, Due 2024
5,400

 
5,400

2.68%
 
Maine Water
1999 Series J, Due 2019

 
85

0.00%
 
Maine Water
2001 Series K, Due 2031
492

 
533

2.58%
 
Maine Water
2002 Series L, Due 2022
45

 
53

1.53%
 
Maine Water
2003 Series M, Due 2023
221

 
271

1.73%
 
Maine Water
2004 Series N, Due 2024
311

 
311

0.00%
 
Maine Water
2004 Series O, Due 2034
100

 
107

1.76%
 
Maine Water
2006 Series P, Due 2026
301

 
331

1.57%
 
Maine Water
2009 Series R, Due 2029
187

 
197

0.00%
 
Maine Water
2009 Series S, Due 2029
471

 
493

0.00%
 
Maine Water
2009 Series T, Due 2029
1,320

 
1,383

0.00%
 
Maine Water
2012 Series U, Due 2042
136

 
142

1.00%
 
Maine Water
2013 Series V, Due 2033
1,235

 
1,285

1.00%
 
Maine Water
2019 Series W, Due 2048
1,012

 

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

5.51%
 
Maine Water
CoBank Note Payable, Due 2043
8,000

 
8,000

2.40%
 
Maine Water
Series N, Due 2022
626

 
826

1.86%
 
Maine Water
Series O, Due 2025
710

 
710

2.23%
 
Maine Water
Series P, Due 2028
1,174

 
1,233

0.01%
 
Maine Water
Series Q, Due 2035
1,491

 
1,584

1.00%
 
Maine Water
Series R, Due 2025
1,767

 
1,767

Total Maine Water
34,499

 
34,211

Add: Acquisition Fair Value Adjustment
(204
)
 
(189
)
Less: Current Portion
(4,030
)
 
(4,059
)
Less: Unamortized Debt Issuance Expense
(4,242
)
 
(4,364
)
Total Long-Term Debt
$
257,382

 
$
257,511



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 December 13, 2018, Maine Water executed and delivered to CoBank a new Promissory Note and Single Advance Term Loan Supplement, dated October 30, 2018 (the “Fourth Promissory Note”). On the terms and subject to the conditions set forth in the Fourth Promissory Note issued pursuant to the Agreement, CoBank agreed to make an unsecured loan (the “Loan”) to Maine Water in the principal amount of $8,000,000 at 5.51%, due December 30, 2043. The proceeds of the above described Loan from CoBank were used to refinance existing debt and to finance certain capital expenditures.

On February 1, 2019, Maine Water secured a 30 year loan for $1,686,700 from the Maine Municipal Bond Bank and the Maine Department of Health and Human Services Drinking Water State Revolving Fund to fund a portion of the construction of a new finished water storage tank in Skowhegan, Maine (2019 Series W, Due 2048). The terms of the loan provide that up to $674,680 of the loan will be forgiven and the net amount, $1,012,020, will be repaid over a 30 year term at an interest rate no less than 1.0%.

During the first three months of 2019, the Company paid approximately $413,000 related to Connecticut Water Service’s 2017 CoBank issuance as well as the Company’s Term Note Payable issued as part of the 2012 acquisition of Maine Water, approximately $723,000 in sinking funds related to Maine Water’s outstanding bonds, approximately $44,000 in sinking funds related to HVWC’s bank loan and $44,000 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, 2019.
v3.19.1
Fair Value Disclosures
3 Months Ended
Mar. 31, 2019
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, 2019 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Asset Type:
 
 
 
 
 
 
 
Money Market Fund
$
1

 
$

 
$

 
$
1

Mutual Funds:
 

 
 

 
 

 
 

Equity Funds (1)
2,046

 

 

 
2,046

Fixed Income Funds (2)
663

 

 

 
663

Total
$
2,710

 
$

 
$

 
$
2,710


The following table summarizes our financial instruments measured at fair value on a recurring basis within the fair value hierarchy as of December 31, 2018 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Asset Type:
 
 
 
 
 
 
 
Money Market Fund
$
97

 
$

 
$

 
$
97

Mutual Funds:
 

 
 

 
 

 
 

Equity Funds (1)
1,797

 

 

 
1,797

Fixed Income Funds (2)
647

 

 

 
647

Total
$
2,541

 
$

 
$

 
$
2,541

(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, 2019 and December 31, 2018 was $4,485,000 and $4,170,000, 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, 2019 and December 31, 2018, the estimated fair value of the Company’s long-term debt was $269,768,000 and $260,829,000, respectively, as compared to the carrying amounts of $261,624,000 and $261,875,000, 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 $25,154,000 and $22,654,000 at March 31, 2019 and December 31, 2018, 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.
v3.19.1
Segment Reporting
3 Months Ended
Mar. 31, 2019
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, 2019
Segment
 
Revenues
 
Pre-Tax Income
 
Income Tax (Benefit) Expense
 
Net Income
Water Operations
 
$
26,582

 
$
1,703

 
$
(37
)
 
$
1,740

Real Estate Transactions
 

 

 
(12
)
 
12

Services and Rentals
 
1,275

 
653

 
167

 
486

Total
 
$
27,857

 
$
2,356

 
$
118

 
$
2,238

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
)

The revenues shown in Water Operations above consisted of revenues from water and wastewater customers of $26,246,000 and $24,853,000 for the three months ended March 31, 2019 and 2018. Additionally, there were revenues associated with utility plant leased to others of $336,000 and $373,000 for the three months ended March 31, 2019 and 2018, respectively. The revenues from water and wastewater customers for the three months ended March 31, 2019 and 2018 include $931,000 and $61,000 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, 2019
 
December 31, 2018
Total Plant and Other Investments:
 
 
 
Water Operations
$
756,433

 
$
748,374

Non-Water
1,239

 
1,114

 
757,672

 
749,488

Other Assets:
 
 
 
Water Operations
205,753

 
201,429

Non-Water
211

 
2,426

 
205,964

 
203,855

Total Assets
$
963,636

 
$
953,343

v3.19.1
Income Tax Expense
3 Months Ended
Mar. 31, 2019
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 Company’s Federal tax return were to be reviewed 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. For the three months ended March 31, 2019, the Company recorded a provision of $260,000 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 $3.3 million in prior years for a cumulative total of $3.6 million.

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, 2019 and 2018.  Additionally, there were no accruals relating to interest or penalties as of March 31, 2019 and December 31, 2018.  The Company remains subject to examination by federal and state tax authorities for the 2015 through 2017 tax years.

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.  In addition, the Company has estimated the portion of its infrastructure investment that will qualify as a repair deduction for 2019 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, 2019 and 2018 was 5.0% and 7.7%, respectively. The Company’s effective tax rate, excluding discrete items recorded during the three months ended March 31, 2019 and 2018, was 7.0% and 26.7%, respectively. In 2019, these discrete items include adjustments related to uncertain tax positions for the repair deduction in Connecticut, and amortizations of accumulated excess deferred taxes. In 2018, these discrete items include adjustments related to uncertain tax positions for the repair deduction in Connecticut, and an IRS audit adjustment. Excluding discrete items, there was a decrease in the effective tax rate year over year for the three month period of approximately 19.7%. The decrease in the effective tax rate for this period can be attributed to a higher performance stock deduction in 2018 than in 2019. The blended Federal and State statutory income tax rates during the three months ended March 31, 2019 and 2018 were 28%, 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.
v3.19.1
Lines of Credit
3 Months Ended
Mar. 31, 2019
Notes To Financial Statements [Abstract]  
Lines of Credit
Bank Lines of Credit and Other Short-Term Debt

As of March 31, 2019, the Company maintained a $15.0 million line of credit agreement with CoBank, which is currently scheduled to expire on July 1, 2020.  The Company maintains an additional line of credit of $75.0 million with Citizens Bank, N.A. (“Citizens”), with an expiration date of December 14, 2023.  Additionally, Avon Water maintained a $3.0 million line of credit with Northwest Community Bank, which expired on September 30, 2018, at which point it converted to other short-term debt and was paid off in full in February 2019. As of March 31, 2019, the total lines of credit available to the Company were $90.0 million.  As of March 31, 2019 and December 31, 2018, the Company had $65.9 million and $52.6 million respectively, of Interim Bank Loans Payable and Other Short-Term Debt. As of March 31, 2019, the Company had $24.1 million in unused lines of credit.  Interest expense charged on lines of credit will fluctuate based on market interest rates.
v3.19.1
Revenue from Contracts with Customers (Notes)
3 Months Ended
Mar. 31, 2019
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 No. 2014-09, “Revenue from Contracts with Customers” (“ASU No. 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, 2019
 
March 31, 2018
Water Operations
 
 
 
 
Residential
 
$
14,683

 
$
14,409

Commercial
 
3,039

 
2,930

Industrial
 
718

 
719

Public Authority
 
829

 
747

Fire Protection
 
5,343

 
5,172

Other (including non-metered accounts)
 
763

 
874

Water Operations Revenues from Contracts with Customers
 
25,375

 
24,851

Alternative Revenue Program
 
871

 
2

Other
 
336

 
373

Total Revenue from Water Operations
 
26,582

 
25,226

Services and Rentals
 
 
 
 
Contract Operations
 
577

 
569

Linebacker
 
651

 
618

Services and Rentals Revenues from Contracts with Customers
 
1,228

 
1,187

Other
 
47

 
18

Total Revenue from Services and Rentals
 
1,275

 
1,205

Total Revenue from Real Estate Transactions
 

 

 
 
 
 
 
Total Revenues from Contracts with Customers
 
26,603

 
26,038

 
 
 
 
 
Total Revenue
 
$
27,857

 
$
26,431



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

 
 
March 31, 2019
 
December 31, 2018
Accounts Receivable
 
 
 
 
Water Operations Segment
 
$
11,640

 
$
11,890

Services and Rentals Segment
 
120

 
238

Accounts Receivable from Contracts with Customers
 
11,760

 
12,128

Other accounts receivable
 
885

 
2,041

Total Accounts Receivable
 
$
12,645

 
$
14,169

 
 
 
 
 
Accrued Unbilled Revenues from Contracts with Customers
 
$
9,763

 
$
10,011



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 assesses 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.
v3.19.1
Leases (Notes)
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Lessee, Operating Leases [Text Block]
12.
Leases

During the first quarter of 2019, the Company adopted ASU No. 2016-02 by recognizing and measuring leases existing at, or entered into after, January 1, 2018. As permitted by ASU No. 2016-02, the Company elected (i) not to reevaluate land easements if they were not previously accounted for as leases, (ii) to apply hindsight when assessing lease term and impairment of the right-of-use (“ROU”) asset, (iii) not to apply the recognition requirements to short-term leases and (iv) not to separate non-lease components from associated lease components for substantially all classes of underlying assets. Upon adoption of ASU No. 2016-02, the Company recorded ROU assets and lease liabilities in connection with its operating leases. ROU assets are included in Prepayments and Other Current Assets and Deferred Charges and Other Costs and lease liabilities are included in Other Current Liabilities and Other Long-Term Liabilities on the Condensed Consolidated Balance Sheets. Operating lease expense is included in Operation and Maintenance expenses in the Condensed Consolidated Statements of Income. The impact of adopting ASU No. 2016-02 was not material to the Company’s financial statements for the periods presented.

The Company has operating leases primarily related to buildings, office equipment and land use agreements that convey use of the land during the arrangement for certain of its source water wells. Operating leases primarily have fixed payments with expiration dates ranging from 2019 to 2074, some of which include options to extend the leases from 1 to 10 years and some have options to terminate at the Company’s discretion. At December 31, 2018 and March 31, 2019, the Company’s ROU assets and lease liabilities for operating leases totaled approximately $1.5 million for each period. The Company’s lease liabilities at December 31, 2018 and March 31, 2019 were calculated using a rate indicative of what the Company believes would be secured for incremental long-term debt. These rates were 4.11% and 4.32% as of March 31, 2019 and December 31, 2018, respectively.

At December 31, 2018, expected lease payments over the remaining terms of the leases were approximately $3.4 million with the expected lease payments for no one year being material. Operating leases did not have an impact to the Company’s Condensed Consolidated Statements of Income or Condensed Consolidated Statements of Cash Flows.
v3.19.1
Pension and Other Post-Retirement Benefits Pension and Post-Retirement Benefits (Tables)
3 Months Ended
Mar. 31, 2019
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,
2019
 
2018
Service Cost
$
451

 
$
524

Interest Cost
854

 
778

Expected Return on Plan Assets
(1,220
)
 
(1,169
)
Amortization of:
 

 
 

Prior Service Cost
4

 
4

Net Recognized Loss
393

 
670

Net Periodic Benefit Cost
$
482

 
$
807

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,
2019
 
2018
Service Cost
$
68

 
$
83

Interest Cost
141

 
125

Expected Return on Plan Assets
(92
)
 
(93
)
Amortization of:
 

 
 

Recognized Net Gain
(38
)
 
(6
)
Net Periodic Benefit Cost
$
79

 
$
109

v3.19.1
Earnings per Share Earnings per Share (Tables)
3 Months Ended
Mar. 31, 2019
Schedule of Capitalization, Equity [Line Items]  
Schedule of Stockholders Equity [Table Text Block]
The Company has 25,000,000 authorized shares of common stock, no par value.  A summary of the changes in the common stock accounts for the periods January 1, 2018 through March 31, 2018 and January 1, 2019 through March 31, 2019, appears below:

(in thousands, except share data)
Shares
 
Issuance Amount
 
Expense
 
Total
Balance, January 1, 2018
12,065,016

 
195,731

 
(4,090
)
 
191,641

Stock and equivalents issued through Performance Stock Program, Net of Forfeitures
16,987

 
232

 

 
232

Dividend Reinvestment Plan
7,122

 
380

 

 
380

Balance, March 31, 2018
12,089,125

 
196,343

 
(4,090
)
 
192,253

 
 
 
 
 
 
 
 
Balance January 1, 2019
12,054,712

 
194,523

 
(4,090
)
 
190,433

Stock and equivalents issued through Performance Stock Program, Net of Forfeitures and Redemptions
4,404

 
188

 

 
188

Dividend Reinvestment Plan
4,136

 
278

 

 
278

Balance, March 31, 2019
12,063,252

 
$
194,989

 
$
(4,090
)
 
$
190,899

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,
2019
 
2018
Common Shares Outstanding End of Period
12,063,252

 
12,089,125

Weighted Average Shares Outstanding (Days Outstanding Basis):
 

 
 

Basic
11,961,541

 
11,861,961

Diluted
12,059,833

 
12,080,484

 
 
 
 
Basic Earnings per Share
$
0.19

 
$
(0.10
)
Dilutive Effect of Stock Awards

 

Diluted Earnings per Share
$
0.19

 
$
(0.10
)
v3.19.1
Accumulated Other Comprehensive Income (Loss) (Tables)
3 Months Ended
Mar. 31, 2019
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, 2019 and 2018 are as follows (in thousands):
Three months ended March 31, 2019
 
Unrealized Gains on Investments
 
Defined Benefit Items
 
Total
Beginning Balance (a)
 
$
258

 
$
(743
)
 
$
(485
)
Other Comprehensive Loss Before Reclassification
 
173

 

 
173

Amounts Reclassified from AOCI
 

 
37

 
37

Net current-period Other Comprehensive (Loss) Income
 
173

 
37

 
210

Ending Balance
 
$
431

 
$
(706
)
 
$
(275
)
 
 
 
 
 
 
 
Three months ended March 31, 2018
 
Unrealized Gains on Investments
 
Defined Benefit Items
 
Total
Beginning Balance (a)
 
$
442

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

 
(43
)
Amounts Reclassified from AOCI
 
17

 
34

 
51

Net current-period Other Comprehensive Income
 
(26
)
 
34

 
8

Ending Balance
 
$
416

 
$
(836
)
 
$
(420
)
 
 
 
 
 
 
 
(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, 2019 and 2018 (in thousands):
Details about Other AOCI Components
 
Amounts Reclassified from AOCI Three Months Ended March 31, 2019 (a)
 
Amounts Reclassified from AOCI Three Months Ended March 31, 2018 (a)
 
Affected Line Items on Income Statement
Realized Gains on Investments
 
$

 
$
24

 
Other Income
Tax expense
 

 
(7
)
 
Other Income