CONNECTICUT WATER SERVICE INC / CT, 10-K filed on 2/28/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 01, 2019
Jun. 30, 2018
Document and Enity Information [Abstract]      
Entity Registrant Name CONNECTICUT WATER SERVICE INC / CT    
Entity Central Index Key 0000276209    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Large Accelerated Filer    
Entity Public Float     $ 775,510,970
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Common Stock, Shares Outstanding   12,060,120  
v3.10.0.1
CONSOLIDATED STATEMENTS OF INCOME - USD ($)
shares in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Operating Revenues $ 116,665,000 $ 107,054,000 $ 98,667,000
Operating Expenses      
Operation and Maintenance 52,006,000 47,130,000 43,155,000
Depreciation 18,692,000 16,684,000 13,905,000
Income Taxes (2,008,000) (1,993,000) 2,570,000
Taxes Other Than Income Taxes 11,874,000 10,941,000 9,796,000
Total Operating Expenses 80,564,000 72,762,000 69,426,000
Net Operating Revenues 36,101,000 34,292,000 29,241,000
Other Utility Income, Net of Taxes 1,078,000 824,000 744,000
Total Utility Operating Income 37,179,000 35,116,000 29,985,000
Other Income (Deductions), Net of Taxes      
Gain (Loss) on Real Estate Transactions 629,000 33,000 (54,000)
Non-Water Sales Earnings 1,807,000 1,167,000 1,219,000
Allowance for Funds Used During Construction 465,000 774,000 1,198,000
Merger and Acquisition Costs (10,819,000) (392,000) (302,000)
Other (1,442,000) (2,803,000) (1,743,000)
Total Other Income, Net of Taxes (9,360,000) (1,221,000) 318,000
Interest and Debt Expense      
Interest on Long-Term Debt 10,387,000 9,054,000 7,714,000
Interest Expense, Other 537,000    
Other Interest Charges   (359,000) (922,000)
Amortization of Debt Expense 200,000 146,000 124,000
Total Interest and Debt Expense 11,124,000 8,841,000 6,916,000
Net Income 16,695,000 25,054,000 23,387,000
Preferred Stock Dividend Requirement 10,000 38,000 38,000
Net Income Applicable to Common Stock $ 16,685,000 $ 25,016,000 $ 23,349,000
Weighted Average Common Shares Outstanding:      
Basic (in shares) 11,914 11,540 11,009
Diluted (in shares) 12,065 11,762 11,228
Earnings Per Common Share:      
Basic (in dollars per share) $ 1.40 $ 2.17 $ 2.12
Diluted (in dollars per share) $ 1.38 $ 2.13 $ 2.08
Adjustment to post-retirement benefit plans, net of tax benefit (expense) of $15, $(505), and $735 in 2016, 2015, and 2014, respectively $ 127,000 $ 289,000 $ (24,000)
Unrealized Investment gain (loss), net of tax (expense) benefit of $(22), $62 and $(25), in 2016, 2015, and 2014, respectively (184,000) 207,000 35,000
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent (57,000) 496,000 11,000
Comprehensive Income $ 16,638,000 $ 25,550,000 $ 23,398,000
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CONSOLIDATED STATEMETS OF INCOME (Parentheticals) - USD ($)
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Reclassification to Pension and Post-Retirement Benefits Plans, net of tax (benefit) expense of $ 80,000 $ 419,000 $ (15,000)
Unrealized Investment loss, net of tax expense (benefit) of $ (68,000) $ 13,000 $ 22,000
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CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
ASSETS    
Utility Plant $ 983,220 $ 927,289
Construction Work in Progress 14,765 11,761
Gross Utility Plant 997,985 939,050
Accumulated Provision for Depreciation (258,192) (241,327)
Net Utility Plant 739,793 697,723
Other Property and Investments 11,501 10,662
Cash and Cash Equivalents 2,856 3,618
Accounts Receivable (Less Allowance, 2017 - $1,265; 2016 - $1,100) 14,169 14,965
Accrued Unbilled Revenues 10,011 8,481
Materials and Supplies 1,679 1,593
Prepayments and Other Current Assets 9,796 7,021
Total Current Assets 38,511 35,678
Unamortized Debt Issuance Expense 4,364 4,905
Unrecovered Income Taxes - Regulatory Asset 75,763 66,631
Pension Benefits - Regulatory Asset 9,337 11,339
Post-Retirement Benefits Other Than Pension - Regulatory Asset 133 116
Goodwill 66,403 67,016
Deferred Charges and Other Costs 10,428 9,618
Total Regulatory and Other Long-Term Assets 162,064 154,720
Total Assets 951,869 898,783
CAPITALIZATION AND LIABILITIES    
Common Stock Without Par Value: Authorized - 25,000,000 Shares - Issued and Outstanding: 2017 - 12,065,016; 2016 - 11,248,458 190,433 191,641
Retained Earnings (Accumulated Deficit) 104,188 102,417
Accumulated Other Comprehensive Loss (485) (428)
Common Stockholders' Equity 294,136 293,630
Preferred Stock 0 772
Long-Term Debt 257,511 253,367
Total Capitalization 551,647 547,769
Debt, Current 4,059 6,173
Interim Bank Loans Payable 54,249 19,281
Accounts Payable and Accrued Expenses 13,782 11,319
Accrued Interest 1,531 1,439
Customer Refund Liability, Current 2,331 64
Other Current Liabilities 2,954 3,262
Total Current Liabilities 78,906 41,538
Advances for Construction 22,654 20,024
Deferred Federal and State Income Taxes 31,593 33,579
Unfunded Future Income Taxes 67,725 58,384
Long-Term Compensation Arrangements 31,043 32,649
Unamortized Investment Tax Credits 1,057 1,133
Excess Accumulated Deferred Income Tax 29,611 30,937
Customer Refund Liability, Noncurrent 534 0
Other Long-Term Liabilities 2,018 1,241
Total Long-Term Liabilities 186,235 177,947
Contributions in Aid of Construction 135,081 131,529
Commitments and Contingencies 0 0
Total Capitalization and Liabilities $ 951,869 $ 898,783
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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
Dec. 31, 2018
Dec. 31, 2017
Issued 12,054,712 12,065,016
Common Stock, Shares, Outstanding 12,054,712 12,065,016
ASSETS    
Allowance $ 1,236,000 $ 1,265,000
Capitalization, Long-term Debt and Equity [Abstract]    
Common Stock, No Par Value $ 0 $ 0
Common Stock, Shares Authorized 25,000,000 25,000,000
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Other Comprehensive Income, net of tax      
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent $ (57) $ 496 $ 11
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($)
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Other Comprehensive Income, net of tax      
Reclassification to Pension and Post-Retirement Benefits Plans, net of tax (benefit) expense of $ 80,000 $ 419,000 $ (15,000)
Unrealized Investment loss, net of tax expense (benefit) of $ (68,000) $ 13,000 $ 22,000
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CONSOLIDATED STATEMENTS OF RETAINED EARNINGS - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2016
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Balance at Beginning of Period       $ 102,417       $ 80,378 $ 102,417 $ 91,213 $ 80,378
Net Income $ (470) $ 13,663 $ 4,729 $ (1,227) $ 1,852 $ 10,716 $ 8,418 $ 4,068 16,695 25,054 23,387
Dividends Declared:                      
Cumulative Preferred, Class A, $0.20 per share                 10 38 38
Common Stock - 2012 $0.2375 per share; 2011 $0.2325 per share                 14,899 13,882 12,514
Total Dividends Declared                 14,909 13,920 12,552
Balance at End of Period $ 104,188       $ 102,417       104,188 102,417 91,213
Series A Voting                      
Dividends Declared:                      
Cumulative Preferred, Class A, $0.20 per share                 4 12 12
Cumulative Preferred Stock                      
Dividends Declared:                      
Cumulative Preferred, Class A, $0.20 per share                 $ 6 $ 26 $ 26
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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Redemption of Preferred Stock $ (787) $ 0 $ 0
Operating Activities:      
Net Income 16,695 25,054 23,387
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:      
Deferred Revenues (3,701) (3,945) (893)
Allowance for Funds Used During Construction (465) (774) (1,198)
Depreciation and Amortization (including $775 in 2017, $732 in 2016, and $27 in 2015 charged to other accounts) 20,881 17,459 13,173
Gain (Loss) on Sale of Properties (629) (33) 54
Change in Assets and Liabilities:      
Increase in Accounts Receivable and Accrued Unbilled Revenues (734) (1,053) (1,925)
Increase in Prepayments and Other Current Assets (2,880) (1,278) 338
Decrease in Other Non-Current Items 5,156 200 (2,741)
Increase in Accounts Payable, Accrued Expenses and Other Current Liabilities 2,244 (2,404) 176
Increase in Deferred Income Taxes and Investment Tax Credits, Net (3,157) 3,387 2,950
Total Adjustments 16,715 11,559 9,934
Net Cash and Cash Equivalents Provided by Operating Activities 33,410 36,613 33,321
Investing Activities:      
Net Additions to Utility Plant Used in Continuing Operations (57,030) (53,022) (66,689)
Payments to Acquire Water Systems 0 6,134 0
Proceeds from Sale of Land Held-for-investment 1,350 212 9
Cash Acquired from Acquisition 0 1,791 0
Release of restricted cash 0 0 846
Net Cash and Cash Equivalents Used in Investing Activities (55,680) (57,153) (65,834)
Financing Activities:      
Proceeds from Interim Bank Loans 54,249 19,281 32,953
Repayment of Interim Bank Loans (19,281) (35,453) (16,085)
Proceeds from Issuance of Common Stock 1,410 1,404 1,610
Proceeds from Issuance of Long-term Debt 8,000 55,000 49,930
Costs to Issue Long-Term Debt and Common Stock (5) (2) (88)
Repayment of Long-Term Debt Including Current Portion (6,170) (5,195) (22,772)
Advances from Others for Construction 2,526 1,479 350
Cash Dividends Paid (14,909) (13,920) (12,552)
Net Cash and Cash Equivalents (Used in) Provided by Financing Activities 21,508 22,594 33,346
Net Increase in Cash and Cash Equivalents (762) 2,054 833
Cash and Cash Equivalents at Beginning of Period 3,618 1,564 731
Cash and Cash Equivalents at End of Year 2,856 3,618 1,564
Non-Cash Investing and Financing Activities:      
Non-Cash Contributed Utility Plant 4,147 2,741 1,394
Cash Paid for:      
Interest 10,995 8,445 6,678
State and Federal Income Taxes 445 572 445
Purchase of Treasury Stock $ (3,525) $ 0 $ 0
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Parentheticals) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Depreciation charged to other accounts $ 2,189 $ 775 $ 732
v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Summary of Significant Accounting Policies [Abstract]  
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]
NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION – The Consolidated Financial Statements include the operations of Connecticut Water Service, Inc. (the “Company”), an investor-owned holding company and its wholly-owned subsidiaries, including:

The Connecticut Water Company (“Connecticut Water”)
The Maine Water Company (“Maine Water”)
The Heritage Village Water Company (“HVWC”)
The Avon Water Company (“Avon Water”)
Chester Realty, Inc. (“Chester Realty”)
New England Water Utility Services, Inc. (“NEWUS”)

As of December 31, 2018, Connecticut Water, Maine Water, HVWC and Avon Water were our regulated public water utility companies (collectively the “Regulated Companies”), which together served 139,574 customers in 80 towns throughout Connecticut and Maine.

Chester Realty is a real estate company whose net profits from rental of property are included in the “Other Income (Deductions), Net of Taxes” section of the Consolidated Statements of Income in the “Non-Water Sales Earnings” category.

NEWUS is engaged in water-related services, including the Linebacker® program, emergency drinking water, and contract operations.  Its earnings are included in the “Non-Water Sales Earnings” category of the Consolidated Statements of Income.

Intercompany accounts and transactions have been eliminated.

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 16 below.  As a result, the Company’s Consolidated Statements of Net Income, Consolidated Statements of Comprehensive Income, and Consolidated Statements of Cash Flows for the year-ended December 31, 2016 do not include HVWC or Avon Water.  The Consolidated Statements of Net Income, Consolidated Statements of Comprehensive Income, and Consolidated Statements of Cash Flows for the years-ended December 31, 2018 and 2017 do include HVWC’s and Avon Water’s results for the periods the Company owned HVWC and Avon Water. HVWC’s and Avon Water’s assets and liabilities are included in the Consolidated Balance Sheet as of December 31, 2018 and 2017.

As noted in Note 16 “Acquisitions” 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 16, Avon Water serves approximately 4,800 water customers in the Towns of Avon, Farmington, and Simsbury, Connecticut.

Certain prior year amounts have been restated to conform with the current presentation.

During the preparation of the Condensed Consolidated Financial Statements for the quarter ended June 30, 2016, the Company identified two errors related to the accounting treatment of stock based performance awards granted to officers of the Company. First, the Company had mistakenly classified certain stock based performance awards as equity awards and, secondly, incorrectly marked those awards to the market price of the Company’s common stock price at the end of each reporting period. A portion of these awards should have been classified as liability awards and only those awards should have been marked-to-market based on the Company’s common stock price. During the second quarter of 2016, the Company reversed all of the incorrectly recorded mark-to-market expense as a cumulative out-of-period adjustment resulting in a one-time benefit of approximately $2.6 million on the Operation and Maintenance line item on its Condensed Consolidated Statements of Income for the three months ended June 30, 2016. Approximately $1.6 million of the out of period adjustment pertained to years prior to 2016, with the remaining $1.0 million related to the first quarter of 2016.

The Company performed various quantitative and qualitative analyses and determined that these errors were not material to the previously reported quarterly and annual results. The Company also determined that recording these entries as an out-of- period adjustment during the second quarter of 2016 was not material to the full year ended December 31, 2016 results of operations.

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. The early termination will expire and the Company and SJW will need to re-file the necessary notifications under the HSR Act if the Merger is not consummated by April 27, 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, and 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 expect that the new applications will be filed during the second quarter of 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.

PUBLIC UTILITY REGULATION – Connecticut Water, HVWC and Avon Water are subject to regulation for rates and other matters by the Connecticut Public Utility Regulatory Authority (“PURA”) and follow accounting policies prescribed by PURA.  Maine Water is subject to regulation for rates and other matters by the Maine Public Utilities Commission (“MPUC”). The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which includes the provisions of Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 980 “Regulated Operations” (“FASB ASC 980”).  FASB ASC 980 requires cost-based, rate-regulated enterprises, such as the Regulated Companies, to reflect the impact of regulatory decisions in their financial statements. The state regulators, through the rate regulation process, can create regulatory assets and liabilities that result when costs and benefits are allowed for ratemaking purposes in a period after the period in which the costs or benefits would be charged to expense by an unregulated enterprise.  The Consolidated Balance Sheets include regulatory assets and liabilities as appropriate, primarily related to income taxes, post-retirement benefit costs and deferred revenues associated with the Water Revenue Adjustment (“WRA”) used by Connecticut Water and HVWC.  In accordance with FASB ASC 980, costs which benefit future periods are amortized over the periods they benefit. The Company believes, based on current regulatory circumstances, that the regulatory assets recorded are probable to be recovered and that its use of regulatory accounting is appropriate and in accordance with the provisions of FASB ASC 980.

Regulatory assets and liabilities are comprised of the following:

(in thousands)
December 31,
 
2018
 
2017
Assets:
 
 
 
Pension Benefits and Post-Retirement Benefits Other Than Pension
$
9,470

 
$
11,455

Unrecovered Income Taxes
75,763

 
66,631

Deferred revenue (included in Prepayments and Other Current Assets and Deferred Charges and Other Costs)
10,408

 
6,813

Other (included in Prepayments and Other Current Assets and Deferred Charges and Other Costs)
4,931

 
5,202

Total regulatory assets
$
100,572

 
$
90,101

Liabilities:
 

 
 

Other (included in Other Current Liabilities)
$
1,334

 
$
1,117

Unamortized Investment Tax Credits
1,057

 
1,133

Refunds to Customers (including Current Portion of Refund to Customers)
2,865

 
64

Unfunded Future Income Taxes (including Other Long-Term Liabilities)
67,725

 
58,384

Excess Accumulated Deferred Income Tax
29,611

 
30,937

Total regulatory liabilities
$
102,592

 
$
91,635



Pension and post-retirement benefits include costs in excess of amounts funded.  The Company believes these costs will be recoverable in future years, through rates, as funding is required and has recorded regulatory assets for those costs.  The recovery period is dependent on contributions made to the plans and remaining life expectancy.

Certain items giving rise to deferred state income taxes, as well as a portion of deferred federal income taxes related primarily to differences between book and tax depreciation expense, are recognized for ratemaking purposes on a cash or flow-through basis and are recognized as unrecovered future income taxes that will be recovered in rates in future years as they reverse. In addition, basis differences resulting from the repair tax deduction adopted in 2013 contribute to the change in unfunded future income taxes.

Deferred revenue represents a portion of the rate increase granted in Connecticut Water’s 2007 rate decision.  This PURA decision required the Company to defer for future collection, beginning in 2008, a portion of the increase. Additionally, revenue recorded under the WRA, discussed below, is included in deferred revenue. At December 31, 2018 and 2017, the current portion of deferred revenue was $7,584,000 and $3,700,000, respectively.

Regulatory liabilities include deferred investment tax credits and amounts to be refunded to customers as a result of the adoption of the tangible property regulations in Connecticut and Maine.  These liabilities will be given back to customers in rates as tax deductions occur in the future.

Regulatory Matters

The rates we charge our water and wastewater customers in Connecticut and Maine are established under the jurisdiction of and are approved by PURA and 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 December 31, 2018
 
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 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 the WRA, 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 December 31, 2018, however, HVWC, as authorized by PURA, began to utilize the WRA as of May 1, 2015.

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 and HVWC recorded regulatory liabilities in the amounts of $154,000 and $89,000, respectively, in anticipation of the final decision. Additionally, PURA directed Avon 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 companies’ 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 will allow the MPUC 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 Act. In addition to determining the impact of the Tax Act, the MPUC will consider whether to issue an accounting order to establish a regulatory liability as of January 1, 2018 to account for the reduced Federal Corporate Income Tax expense and defer treatment until the divisions file their next general rate case, at which point each division will propose a method to return the regulatory liability to customers. Following discovery, technical conferences were held on April 19, 2018, July 17, 2018, and October 15, 2018. A settlement conference was held on December 6, 2018. The Company expects to reach a settlement with the MPUC in the first quarter of 2019. During the year ended December 31, 2018, Maine Water recorded a regulatory liability in the amount of $167,000, in anticipation of a settlement.

Connecticut Rates
Connecticut Water’s Water Infrastructure Conservation Adjustment (“WICA”) was 0.00%, 9.81% and 7.13% above base rates at December 31, 2018, 2017, and 2016, respectively. As of December 31, 2018 and 2017, Avon Water’s WICA surcharge was 9.31% and 8.09%. As of December 31, 2018, HVWC has not filed for a WICA surcharge. On December 27, 2018, PURA issued a final decision authorizing Connecticut Water to implement a 2.15% WICA surcharge on customers’ bills effective January 1, 2019, representing approximately $19.5 million in WICA related projects.

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 Connecticut Office of Consumer Counsel (“OCC”) (the “Agreement”). The Agreement contemplates 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 demands with the demands 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. A similar WICA reconciliation adjustment mechanism allows the Connecticut water utilities that have WICA to be made whole, and not more than whole for their allowed WICA revenues during a calendar year. 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 year ended December 31, 2018, as approved by PURA during each company’s last general rate case and including subsequently approved WICA surcharges, were approximately $88.9 million. Through normal billing for the year ended December 31, 2018 operating revenue for Connecticut Water and HVWC would have been approximately $80.7 million had the WRA not been implemented. As a result of the implementation of the WRA, Connecticut Water and HVWC recorded $8.2 million in additional revenue for the year ended December 31, 2018, which reflects increased allowed revenues, effective April 1, 2018, resulting from the application of the rate settlement approved by PURA during 2018. During the years ended December 31, 2017 and 2016, Connecticut Water recorded $4.3 million and $1.1 million, respectively, in additional revenue related to the WRA. Currently, Avon Water does not utilize the WRA.

Maine Rates
In Maine, the overall, approved cumulative Water Infrastructure Charge (“WISC”) for all of Maine Water’s divisions was 6.8%, 5.6% and 4.7% above base rates as of December 31, 2018, 2017, and 2016, respectively. The WISC rates for the Biddeford and Saco division were reset to zero with the approval of the general rate increase discussed below. In January 2019, Maine Water filed six additional WISC applications which have been approved by the MPUC. These six new filings will add approximately $369,000 in annualized revenues.

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 was 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.  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.

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 had a book value of approximately $600,000 at December 31, 2018 and December 31, 2017 and is included in “Other Property and Investments” and “Utility Plant”, respectively, 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.

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.

USE OF ESTIMATES – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

REVENUES – The Company’s accounting policies regarding revenue recognition by segment are as follows:

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 and bills are due upon receipt. 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.

Water Operations – Most of our water customers are billed quarterly, with the exception of larger commercial and industrial customers, as well as certain public and private fire protection customers who are billed monthly.  Most customers, except fire protection customers, are metered.  Revenues from metered customers are based on their water usage multiplied by approved, regulated rates and are earned when water is delivered.  Public fire protection revenues are based on the length of the water main, and number of hydrants in service and are earned on a monthly basis.  Private fire protection charges are based on the diameter of the connection to the water main.  Our Regulated Companies accrue an estimate for metered customers for the amount of revenues earned relating to water delivered but unbilled at the end of each quarter, which is reflected as “Accrued Unbilled Revenues” in the accompanying Consolidated Balance Sheets. Beginning in 2013, Connecticut Water began to record deferred revenue related to the WRA, which represent under collection from customers based upon allowed revenues as approved by PURA. On March 31, 2017, HVWC calculated its actual revenues compared to allowed revenues dating back to May 1, 2015, for collection from customers, as allowed by a PURA order. More detailed information, including revenues, costs and income taxes associated with the segment can be found in Note 15, “Segment Reporting”.

Real Estate Transactions – Revenues are recorded when a sale or other transaction has been completed and title to the real estate has been transferred. Net income from the Real Estate Transactions segment is shown net in the “Other Income (Deductions), Net of Taxes” portion of the Company’s Consolidated Statements of Income. More detailed information, including revenues, costs and income taxes associated with the segment can be found in Note 15, “Segment Reporting”.

Services and Rentals – Revenues are recorded when the Company has delivered the services called for by contractual obligation. Net income from the Services and Rentals segment is shown net in the “Other Income (Deductions), Net of Taxes” portion of the Company’s Consolidated Statements of Income. More detailed information, including revenues, costs and income taxes associated with the segment can be found in Note 15, “Segment Reporting”.

UTILITY PLANT – Utility plant is stated at the original cost of such property when first devoted to public service.  Utility plant accounts are charged with the cost of improvements and replacements of property including an Allowance for Funds Used During Construction (“AFUDC”).  Retired or disposed depreciable plant is charged to accumulated provision for depreciation together with any costs applicable to retirement, less any salvage received.  Maintenance of utility plant is charged to expense.  Accounting policies relating to other areas of utility plant are listed below:

Allowance For Funds Used During Construction – AFUDC is the cost of debt and equity funds used to finance the construction of utility plant. The amount shown on the Consolidated Statements of Income relates to the equity portion.  The debt portion is included as an offset to “Other Interest Income, Net”.  Generally, utility plant under construction is not recognized as part of rate base for ratemaking purposes until facilities are placed into service, and accordingly, AFUDC is charged to the construction cost of utility plant.  Capitalized AFUDC, which does not represent current cash income, is recovered through rates over the service lives of the assets.

Our Regulated Companies’ allowed rate of return on rate base is used to calculate AFUDC.

Customers’ Advances For Construction, Contributed Plant and Contributions In Aid Of Construction –Under the terms of construction contracts with real estate developers and others, the Regulated Companies periodically receive either advances for the costs of new main installations or title to the main after it is constructed and financed by the developer.  Refunds are made, without interest, as services are connected to the main, over periods not exceeding fifteen years and not in excess of the original advance.  Unrefunded balances, at the end of the contract period, are credited to contributions in aid of construction (“CIAC”) and are no longer refundable.

Utility Plant is added in two ways.  The majority of the Company’s plant additions occur from direct investment of Company funds that originated through operating or financings activities.  The Company manages the construction of these plant additions.  These plant additions are part of the Company’s depreciable utility plant and are generally part of rate base.  The Company’s rate base is a key component of how its regulated rates are set, and is recovered through the depreciation component of the Company’s rates.  The second way in which plant additions occur are through developer advances and contributions.  Under this scenario either the developer funds the additions through payments to the Company, who in turn manages the construction of the project, or the developer pays for the plant construction directly and contributes the asset to the Company after it is complete.  Plant additions that are financed by a developer, either directly or indirectly, are excluded from the Company’s rate base and not recovered through the rates process, and are also not depreciated.

The components that comprise net additions to Utility Plant during the last three years ending December 31 are as follows:

(in thousands)
2018
 
2017
 
2016
Additions to Utility Plant:
 
 
 
 
 
Company Financed
$
54,504

 
$
51,543

 
$
66,339

Allowance for Funds Used During Construction
465

 
774

 
1,198

Subtotal – Utility Plant Increase to Rate Base
54,969

 
52,317

 
67,537

Advances from Others for Construction
2,526

 
1,479

 
350

Net Additions to Utility Plant
$
57,495

 
$
53,796

 
$
67,887



Depreciation – Depreciation is computed on a straight-line basis at various rates as approved by the state regulators on a company by company basis.  Depreciation allows the Company to recover the investment in utility plant over its useful life.  The overall consolidated company depreciation rate, based on the average balances of depreciable property, was 2.2%, 2.0%, and 1.9% for 2018, 2017, and 2016, respectively.

INCOME TAXES – The Company provides income tax expense for its utility operations in accordance with the regulatory accounting policies of the applicable jurisdictions. The Company’s income tax provision is calculated on a separate return basis. For Connecticut Water, PURA requires the flow-through method of accounting for most state tax temporary differences as well as for certain federal temporary differences. For Avon Water , PURA requires the flow-through method of accounting for most state temporary differences and normalized accounting for most federal temporary differences. PURA has allowed the flow-through method of accounting stemming from Avon Water’s adoption of the IRS’ Repair Regulations. For HVWC, PURA requires normalized accounting for federal and state temporary differences. The MPUC requires the flow-through method of accounting for most state temporary differences and normalized accounting for most federal temporary differences. In its approvals of the stipulation agreements between Maine Water and the Office of the Public Advocate, issued in 2015, the MPUC has allowed the flow-through method of accounting stemming from Maine Water’s adoption of the IRS’ Repair Regulations in all of its divisions.

The Company computes deferred tax liabilities for all temporary book-tax differences using the liability method prescribed in FASB ASC 740 “Income Taxes” (“FASB ASC 740”). Under the liability method, deferred income taxes are recognized at currently enacted income tax rates to reflect the tax effect of temporary differences between the financial reporting and tax bases of assets and liabilities. Such temporary differences are the result of provisions in the income tax law that either require or permit certain items to be reported on the income tax return in a different period than they are reported in the financial statements. Deferred tax liabilities that have not been reflected in tax expense due to regulatory treatment are reflected as Unfunded Future Income Taxes, and are expected to be included in future years’ rates. During the quarter ended December 31, 2017 the Company recorded provisional impacts of the Federal Tax Cuts and Jobs Act (“Tax Act”). During the year ended December 31, 2018 the Company, as allowed by Staff Accounting Bulletin No. 118 (SAB 118), finalized its analysis and accounting for the Tax Act. As a result, the Company re-measured Deferred Tax Assets and Liabilities to reflect the enacted legislation and recorded a Regulatory Liability of $27.4 million to capture the excess accumulated deferred income taxes for items included in rates that follow the normalized method of accounting. Unrecovered Income Taxes and Unfunded Future Income Taxes were written down by $32.3 million to reflect the reduced tax rate for items that follow the flow-through method of accounting. Pursuant to ASU 2018-02, the Company has elected to reclassify the stranded tax effects of the 2017 Tax Act from AOCI to Retained Earnings in the amount of approximately $70,000 for the year-ended December 31, 2017. These stranded taxes relate to post-retirement obligations of the Company. For more information on the Tax Act, please see Note 2.

The Company believes that deferred income tax assets, net of provisions, will be realized in the future. The majority of Unfunded Future Income Taxes, prior to 2013, relate to deferred state income taxes regarding book to tax depreciation differences. Beginning in 2013, basis differences resulting from the repair tax deduction contributed to the change in unfunded income taxes.

Deferred Federal and State Income Taxes include amounts that have been provided for accelerated depreciation subsequent to 1981, as required by federal income tax regulations, as well as the basis differences associated with expenditures qualifying for repair tax deductions as clarified by the IRS in regulations issued in 2013. Deferred taxes have also been provided for temporary differences in the recognition of certain expenses for tax and financial statement purposes as allowed by regulatory ratemaking policies.

MUNICIPAL TAXES – Municipal taxes are reflected as “Taxes Other Than Income Taxes” and are generally expensed over the twelve-month period beginning on July 1 following the lien date, corresponding with the period in which the municipal services are provided.

UNAMORTIZED DEBT ISSUANCE EXPENSE – The issuance costs of long-term debt, including the remaining balance of issuance costs on long-term debt issues that have been refinanced prior to maturity, and related call premiums, are amortized over the respective lives of the outstanding debt, as approved by PURA and the MPUC.

GOODWILL – As part of the purchase of regulated water companies, the Company recorded goodwill of $66.4 million and $67.0 million as of December 31, 2018 and 2017, respectively, representing the amount of the purchase price over net book value of the assets acquired.  The decrease during 2018 is related to adjustments made to deferred taxes based on the Company’s ability to utilize net operating loss carryforwards that had valuation allowances at the acquired companies. The Company accounts for goodwill in accordance with Accounting Standards Codification 350 “Intangibles – Goodwill and Other” (“FASB ASC 350”).

As part of FASB ASC 350, the Company is required to perform an annual review of goodwill for any potential impairment, which we perform as of December 31 each year. We update the assessment between the annual testing if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. As allowed under FASB ASC 350, the Company performed a qualitative analysis of its goodwill for the year ended December 31, 2018. A qualitative analysis includes a review of internal and external factors that could have an impact on a reporting unit’s fair value when compared to its carrying amount. These factors included a review of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, company specific events, changes in reporting units and a review of the Company’s stock price. Based on these factors and other factors considered in its quantitative analysis performed in 2017, discussed below, the Company believes that it is more likely than not that the fair market value is more than the carrying value of the Water Operation Segment and therefore, no goodwill impairment was recognized in 2018 and 2017.

The Company performed a quantitative analysis of impairment as of December 31, 2017, which concluded that the estimated fair value of the Water Operations reporting unit, which has goodwill recorded, exceeded the reporting unit’s carrying amount by at least 122% as of December 31, 2017.  Additionally, the Company believes that no event has occurred which would trigger impairment.

We may be required to recognize an impairment of goodwill in the future due to market conditions or other factors that are beyond our control and unrelated to our performance. Those market events could include a decline in the forecasted results in our business plan, significant adverse rate case results, changes in capital investment budgets or changes in interest rates that could permanently impair the fair value of a reporting unit. Recognition of impairments of a significant portion of goodwill would negatively impact our reported results of operation and total capitalization, the effects of which could be material and could make it more difficult to maintain our credit ratings, secure financing on favorable terms, maintain compliance with debt covenants and meet expectations of our regulators.

EARNINGS PER SHARE – The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share for the years ended December 31:

Years ended December 31,
2018
 
2017
 
2016
Numerator (in thousands)
 
 
 
 
 
Basic Net Income Applicable to Common Stock
$
16,685

 
$
25,016

 
$
23,349

Diluted Net Income Applicable to Common Stock
$
16,685

 
$
25,016

 
$
23,349

Denominator (in thousands)
 

 
 

 
 

Basic Weighted Average Shares Outstanding
11,914

 
11,540

 
11,009

Dilutive Effect of Stock Awards
151

 
222

 
219

Diluted Weighted Average Shares Outstanding
12,065

 
11,762

 
11,228

Earnings per Share
 

 
 

 
 

Basic Earnings per Share
$
1.40

 
$
2.17

 
$
2.12

Dilutive Effect of Stock Awards
0.02

 
0.04

 
0.04

Diluted Earnings per Share
$
1.38

 
$
2.13

 
$
2.08



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 amends 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 is effective for public companies for fiscal years, and interim periods within those years, beginning after December 15, 2016, and can 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 14 “Revenues From Contracts With Customers” for more information.

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. ASU No. 2016-02 became effective for the Company on January 1, 2019 and was adopted using the modified retrospective approach. The adoption did not have a material effect on 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 in 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 was effective for financial statements issued for fiscal years beginning after December 15, 2017. The adoption of ASU No. 2016-15 did not have a material impact on the Company’s Consolidated Statements of 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,” (“No. 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 No. 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 was 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 during 2018, the Company reclassified $887,000 and $1,036,000 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 Consolidated Statements of Income for the periods ending December 31, 2017 and 2016, respectively.

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.
v3.10.0.1
Income Tax Expense
12 Months Ended
Dec. 31, 2018
Notes To Financial Statements [Abstract]  
Income Taxes
NOTE 2:  INCOME TAX EXPENSE

Under ASC 740, we 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. From time to time, the Company is assessed interest and penalties by taxing authorities.  In those cases, the charges are recorded on the “Other” line item, within the “Other Income (Deductions), Net of Taxes” section of the Consolidated Statements of Income.  There were no such charges or accruals for the years ended December 31, 2018, 2017, and 2016.

On December 22, 2017 H.R. 1, originally known as 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 (SAB 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. Accounting for the income tax effects of the Tax Act was completed in December 2018. 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. These Regulatory Liabilities may be adjusted when decisions are reached by both PURA and the MPUC regarding the impact that will be reflected in utility customer rates.

As of December 31, 2017, the Company determined a reasonable estimate for remeasuring its net deferred tax assets and liabilities using the Federal Tax Rate that would apply when the amounts are expected to reverse. The Company recorded that estimate as a provisional amount. The effect of the provisional remeasurement is reflected entirely in the interim period that includes the enactment date and is allocated directly to income tax expense from continuing operations. The remeasurement of the deferred tax assets and liabilities resulted in a $1.5 million discrete tax expense which increased the effective tax rate by 6.1% in the year ended December 31, 2017. The Company remeasured deferred tax assets and liabilities to reflect the enacted legislation and recorded a regulatory liability of $27.1 million to capture the excess accumulated deferred income taxes for items included in rates that follow the normalized method of accounting. Unrecovered Income Taxes and Unfunded Future Income Taxes were written down by $32 million to reflect the reduced tax rate for items that follow the flow-through method of accounting.

As of December 31, 2018, the Company finalized its accounting for the Tax Act including remeasuring its net deferred tax assets and liabilities using the Federal Tax Rate that will apply when the amounts are expected to reverse. The effect of the adjustments to the remeasurement is reflected entirely in the measurement period as allowed by SAB 118 and is allocated directly to income tax expense from continuing operations. The completed analysis resulted in an additional remeasurement of the deferred tax assets and liabilities and resulted in a $900,000 discrete tax benefit which decreased the effective tax rate by 6.3% in the year ended December 31, 2018. In addition, the completed analysis resulted in an additional remeasurement of the deferred tax assets and liabilities to reflect the enacted legislation and the Company recorded an increase to its Regulatory Liability of $300,000 to capture the excess accumulated deferred income taxes for items included in rates that follow the normalized method of accounting. Unrecovered Income Taxes and Unfunded Future Income Taxes were written down by an additional $300,000 to reflect the reduced tax rate for items that follow the flow-through method of accounting.

Final accounting for the impacts of the Tax Act, recorded in the years ended December 31, 2018 and 2017 resulted in a remeasurement of deferred tax assets and liabilities resulting in $600,000 discrete tax expense. The Company remeasured deferred tax assets and liabilities to reflect the enacted legislation and recorded a regulatory liability of $27.4 million to capture the excess accumulated deferred income taxes for items included in rates that follow the normalized method of accounting. Unrecovered Income Taxes and Unfunded Future Income Taxes were written down by $32.3 million to reflect the reduced tax rate for items that follow the flow-through method of accounting.

On its 2012 Federal tax return, filed in September 2013, Connecticut Water filed a change in accounting method to adopt the IRS temporary tangible property regulations. On its 2013 Federal tax return, filed in September 2014, Maine Water filed the same change in accounting method. This method change allowed the Company to take a current year deduction for expenses that were previously capitalized for tax purposes. Since the filing of the 2012 tax return, the IRS has issued final regulations. While the Company maintains the belief that the deduction taken on its tax return is appropriate, the methodology for determining the deduction has not been agreed to by the taxing authorities. Provisions for uncertain tax positions were recorded to reflect the possible challenge of the Company’s methodology for determining its repair deduction as required by FASB ASC 740. During the quarter ended September 30, 2018, $1.3 million was reversed due to statute expiration. During the year ended December 31, 2018, in conjunction with its review of the impacts of the Tax Act, the Company reviewed its provision associated with the repair deduction. Should the IRS challenge the Company’s tax treatment, and ultimately disallow a portion of the repair deduction, the Company expects the net operating loss carryforwards to offset any resulting liability. During the year ended December 31, 2018, a portion of the provision in the amount of $980,000 was reversed to reflect the offset by the remeasured net operating loss deferred tax asset. In addition, as required by FASB ASC 740, during the year ended December 31, 2018, the Company recorded a provision of $1.0 million 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 the prior year for a cumulative total of $3.3 million.

The Company remains subject to examination by federal and state tax authorities for the 2015 through 2017 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. On March 20, 2018, Avon Water received a notice of adjustment from the IRS related to the Federal tax audit for the tax years ended December 31, 2015 and 2016. As a result, a reduction in net operating loss carryover of $56,000 was recorded during the year ended December 31, 2018.

Income Tax (Benefit) Expense for the years ended December 31, is comprised of the following:

(in thousands)
 
2018
 
2017
 
2016
Federal Classified as Operating (Benefit) Expense
 
$
(1,931
)
 
$
(1,277
)
 
$
1,782

Federal Classified as Other Utility Income
 
287

 
434

 
385

Federal Classified as Other Income (Deduction)
 
 

 
 

 
 

Land Sales and Donations
 
175

 
17

 
57

Non-Water Sales
 
328

 
774

 
702

Other
 
(857
)
 
503

 
(686
)
Total Federal Income Tax (Benefit) Expense
 
(1,998
)
 
451

 
2,240

State Classified as Operating (Benefit) Expense
 
(77
)
 
(716
)
 
788

State Classified as Other Utility Income
 
111

 
104

 
92

State Classified as Other Income (Expense)
 
 

 
 

 
 

Land Sales and Donations
 
130

 
5

 

Non-Water Sales
 
141

 
175

 
172

Other
 
(489
)
 
149

 
(126
)
Total State Income Tax (Benefit) Expense
 
(184
)
 
(283
)
 
926

Total Income Tax (Benefit) Expense
 
$
(2,182
)
 
$
168

 
$
3,166



The components of the Federal and State income tax provisions are:

(in thousands)
 
2018
 
2017
 
2016
Current Income Taxes
 
 
 
 
 
 
Federal
 
$
(1,119
)
 
$

 
$
(15
)
State
 
4

 
521

 
463

Total Current
 
(1,115
)
 
521

 
448

Deferred Income Taxes, Net
 
 

 
 

 
 

Federal
 
 

 
 

 
 

Investment Tax Credit
 
(76
)
 
(76
)
 
(75
)
Excess Accumulated Deferred Taxes
 
(323
)
 
(293
)
 
(110
)
Excess Accumulated Deferred Taxes - Tax Act
 
(657
)
 
1,538

 

Deferred Revenue
 
415

 
731

 
(353
)
Land Donations
 
(27
)
 

 
37

Depreciation
 
1,165

 
2,151

 
1,769

Net Operating Loss Carry-forwards
 
(600
)
 
817

 
(1,258
)
NOL Carry-forwards valuation allowance
 
613

 
(613
)
 

Provision for uncertain positions
 
(1,040
)
 
(3,876
)
 
2,487

Other
 
(349
)
 
72

 
(242
)
Total Federal
 
(879
)
 
451

 
2,255

State
 
 

 
 

 
 

Land Donations
 
126

 

 
55

Provision for uncertain positions
 
(240
)
 
(958
)
 
611

Other
 
(74
)
 
154

 
(203
)
Total State
 
(188
)
 
(804
)
 
463

Total Deferred Income Taxes
 
(1,067
)
 
(353
)
 
2,718

Total Income Tax
 
$
(2,182
)
 
$
168

 
$
3,166



Deferred income tax (assets) and liabilities are categorized as follows on the Consolidated Balance Sheets:

(in thousands)
 
2018
 
2017
Unrecovered Income Taxes - Regulatory Asset
 
$
(75,763
)
 
$
(66,631
)
Deferred Federal and State Income Taxes
 
31,593

 
33,579

Unfunded Future Income Taxes
 
67,725

 
58,384

Unamortized Investment Tax Credits - Regulatory Liability
 
1,057

 
1,133

Net Deferred Income Tax Liability
 
$
24,612

 
$
26,465



Net deferred income tax liability decreased from December 31, 2017 to December 31, 2018. The decrease was attributed to the current year tax effects of temporary differences, mostly related to the taxability of contributions in aid of construction under the Tax Act, and the releasing of provisions for uncertain tax positions.

Deferred income tax (assets) and liabilities are comprised of the following:

(in thousands)
 
2018
 
2017
Tax Credit Carry-forward (1)
 
$
(1,087
)
 
$
(1,092
)
Charitable Contribution Carry-forwards (2)
 
(291
)
 
(257
)
Valuation Allowance on Charitable Contributions
 
49

 
63

Prepaid Income Taxes on CIAC
 
(1,480
)
 
31

Net Operating Loss Carry-forwards (3)
 
(4,537
)
 
(3,806
)
Valuation Allowance on Net Operating Losses
 
1,871

 
1,671

Deferred Revenue
 
2,219

 
1,644

Other Comprehensive Income
 
(145
)
 
(158
)
Accelerated Depreciation
 
36,175

 
34,989

Provision on Repair Deductions
 
3,350

 
4,630

Long-Term Compensation Agreements
 
(3,341
)
 
(3,260
)
Unamortized Investment Tax Credits
 
1,057

 
1,133

Gross-up on Regulatory Liability - Excess Accumulated Deferred Taxes
 
(8,038
)
 
(8,247
)
Other
 
(1,190
)
 
(876
)
Net Deferred Income Tax Liability
 
$
24,612

 
$
26,465



(1)
State tax credit carry-forwards expire beginning in 2019 and ending in 2040.
(2)
Charitable Contribution carry-forwards expire beginning with the filing of the 2017 Federal and State Tax Returns in 2019 and ending in 2023.
(3)
Net operating loss carry-forwards expire beginning in 2029 and ending in 2037. Federal net operating loss carry-forwards generated after December 31, 2017 have no expiration.

The calculation of Pre-Tax Income is as follows:

(in thousands)
 
2018
 
2017
 
2016
Pre-Tax Income
 
 
 
 
 
 
Net Income
 
$
16,695

 
$
25,054

 
$
23,387

Income Taxes
 
(2,182
)
 
168

 
3,166

Total Pre-Tax Income
 
$
14,513

 
$
25,222

 
$
26,553


In accordance with required regulatory treatment, certain deferred income taxes are not provided for certain timing differences. This treatment, along with other items, causes differences between the statutory income tax rate and the effective income tax rate.  The differences between the effective income tax rate recorded by the Company and the statutory federal tax rate are as follows:

 
 
2018
 
2017
 
2016
Federal Statutory Tax Rate
 
21.0
 %
 
34.0
 %
 
34.0
 %
Tax Effect Differences:
 
 

 
 

 
 

State Income Taxes Net of Federal Benefit
 
0.3
 %
 
(0.9
)%
 
2.6
 %
Property Related Items
 
(25.8
)%
 
(19.9
)%
 
(30.4
)%
Pension Costs
 
(1.3
)%
 
(2.3
)%
 
(0.4
)%
Repair Regulatory Liability (1)
 
(0.1
)%
 
(1.2
)%
 
(3.9
)%
Change in Estimate of Prior Year Income Tax Expense
 
(2.8
)%
 
2.7
 %
 
0.3
 %
Provision for Uncertain Tax Positions (2)
 
(2.1
)%
 
(16.7
)%
 
10.2
 %
Valuation Allowance
 
3.8
 %
 
(2.3
)%
 
0.2
 %
Impact of Tax Act
 
(6.3
)%
 
6.1
 %
 
 %
Excess Deferred Tax Amortizations (3)
 
(7.0
)%
 
0.6
 %
 
(0.3
)%
Performance Shares (4)
 
(11.7
)%
 
(0.1
)%
 
(0.8
)%
Acquisition Costs (5)
 
14.7
 %
 
0.4
 %
 
0.4
 %
Other
 
2.3
 %
 
0.3
 %
 
 %
Effective Income Tax Rate
 
(15.0
)%
 
0.7
 %
 
11.9
 %

(1)
The return to customers of the repair tax benefit is reflected under Repair Regulatory Liability and was fully returned to customers in 2018.
(2)
Provisions for uncertain tax positions were recorded to reflect the possible challenge of the Company’s methodology for determining its repair deduction as required by FASB ASC 740. In 2017, the Company assessed new information in regards the previously recorded provision for uncertain tax positions and released a portion of the provision.
(3)
In the quarter ended December 31, 2017, the Company recorded provisional charges to tax expense to account for the estimated impact of the Tax Act. In the year ended December 31, 2018, accounting for the impact was finalized and excess deferred tax balance began reversing under the average rate assumption method.
(4)
Performance shares were issued to the former CEO upon his separation from the Company.
(5)
Management has estimated a portion of the transaction costs related to acquisition activity will not be deductible.
v3.10.0.1
Common Stock
12 Months Ended
Dec. 31, 2018
Notes To Financial Statements [Abstract]  
Common stock
NOTE 3:  COMMON STOCK

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 period January 1, 2016 through December 31, 2018, appears below:

(in thousands, except share data)
Shares
 
Issuance Amount
 
Expense
 
Total
Balance, January 1, 2016
11,192,882

 
$
148,624

 
$
(4,090
)
 
$
144,534

Stock and equivalents issued through Performance Stock Program, Net of Forfeitures
22,128

 
(405
)
 

 
(405
)
Dividend Reinvestment Plan
33,448

 
1,610

 

 
1,610

Balance, December 31, 2016
11,248,458

 
149,829

 
(4,090
)
 
145,739

Stock and equivalents issued through Performance Stock Program, Net of Forfeitures
5,925

 
645

 

 
645

Shares issued to acquire regulated water companies
785,814

 
43,853

 

 
43,853

Dividend Reinvestment Plan
24,819

 
1,404

 

 
1,404

Balance, December 31, 2017
12,065,016

 
195,731

 
(4,090
)
 
191,641

Stock and equivalents issued through Performance Stock Program, Net of Forfeitures and Redemptions
(32,772
)
 
(2,619
)
 

 
(2,619
)
Dividend Reinvestment Plan
22,468

 
1,411

 

 
1,411

Balance, December 31, 2018 (1)
12,054,712

 
$
194,523

 
$
(4,090
)
 
$
190,433



(1)
Includes 2,498 restricted shares and 94,360 common stock equivalent shares issued through the Performance Stock Programs through December 31, 2018.

The Company may not pay any dividends on its common stock unless full cumulative dividends to the preceding dividend date for all outstanding shares of Preferred Stock of the Company have been paid or set aside for payment.  All such Preferred Stock dividends have been paid.
v3.10.0.1
Retained Earnings
12 Months Ended
Dec. 31, 2018
Equity [Abstract]  
Retained Earnings
NOTE 4:  RETAINED EARNINGS

The summary of the changes in Retained Earnings for the period January 1, 2016 through December 31, 2018, appears below:

(in thousands, except per share data)
 
2018
 
2017
 
2016
Balance, beginning of year
 
$
102,417

 
$
91,213

 
$
80,378

Net Income
 
16,695

 
25,054

 
23,387

Sub-total
 
119,112

 
116,267

 
103,765

Premium on Redemption of Preferred Stock
 
(15
)
 

 

Impact of Tax Act on excess accumulated deferred income tax
 

 
70

 

Dividends declared:
 
 
 
 
 
 
Cumulative Preferred Stock, Series A, $0.80 per share
 
4

 
12

 
12

Cumulative Preferred Stock, Series $0.90, $0.90 per share
 
6

 
26

 
26

Common Stock:
 
 
 
 
 
 
$1.235, $1.175 and $1.115 per Common Share in 2018, 2017 and 2016, respectively
 
14,899

 
13,882

 
12,514

Total Dividends Declared
 
14,909

 
13,920

 
12,552

Balance, end of year
 
$
104,188

 
$
102,417

 
$
91,213

v3.10.0.1
Accumulated Other Comprehensive Income (Loss) (Notes)
12 Months Ended
Dec. 31, 2018
Accumulated Other Comprehensive Income (Loss) [Abstract]  
Comprehensive Income (Loss) Note [Text Block]
NOTE 5: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The changes in Accumulated Other Comprehensive Income/(Loss) (“AOCI”) by component, net of tax, for the years ended December 31, 2018, 2017, and 2016, appear below:
(in thousands)
 
Unrealized Gains on Investments
 
Defined Benefit Items
 
Total
Balance as of January 1, 2016 (a)
 
$
200

 
$
(1,135
)
 
$
(935
)
Other Comprehensive Income (Loss) Before Reclassification
 
24

 
(227
)
 
(203
)
Amounts Reclassified from AOCI
 
11

 
203

 
214

Net current-period Other Comprehensive Income (Loss)
 
35

 
(24
)
 
11

Balance as of December 31, 2016
 
$
235

 
$
(1,159
)
 
$
(924
)
Other Comprehensive (Loss) Income Before Reclassification
 
152

 
74

 
226

Amounts Reclassified from AOCI
 
55

 
215

 
270

Net current-period Other Comprehensive (Loss) Income
 
207

 
289

 
496

Balance as of December 31, 2017
 
$
442

 
$
(870
)
 
$
(428
)
Other Comprehensive Income (Loss) Before Reclassification
 
(231
)
 
(165
)
 
(396
)
Amounts Reclassified from AOCI
 
47

 
292

 
339

Net current-period Other Comprehensive Income (Loss)
 
(184
)
 
127

 
(57
)
Balance as of December 31, 2018
 
$
258

 
$
(743
)
 
$
(485
)
 
 
 
 
 
 
 
(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 Consolidated Statements of Income for the for the years ended December 31, 2018, 2017, and 2016:
Details about Other AOCI Components (in thousands)
 
Amounts Reclassified from AOCI for the Year Ended December 31, 2018(a)
 
Amounts Reclassified from AOCI for the Year Ended December 31, 2017(a)
 
Amounts Reclassified from AOCI for the Year Ended December 31, 2016(a)
 
Affected Line Items on Income Statement
Realized Gains on Investments
 
$
59

 
$
84

 
$
17

 
Other
Tax expense
 
(12
)
 
(29
)
 
(6
)
 
Other
Total Reclassified from AOCI
 
47

 
55

 
11

 
 
 
 
 
 
 
 
 
 
 
Amortization of Recognized Net Gain from Defined Benefit Items
 
370

 
325

 
308

 
Other (b)
Tax expense
 
(78
)
 
(110
)
 
(105
)
 
Other
Total Reclassified from AOCI
 
292

 
215

 
203

 
 
 
 
 
 
 
 
 
 
 
Total Reclassifications for the period, net of tax
 
$
339

 
$
270

 
$
214

 
 
 
 
 
 
 
 
 
 
 
(a) Amounts in parentheses indicate loss/expense.
(b) Included in computation of net periodic pension cost (see Note 12 “Long-Term Compensation Arrangements” for additional details).
v3.10.0.1
Fair Value Disclosures
12 Months Ended
Dec. 31, 2018
Notes To Financial Statements [Abstract]  
Fair Value Disclosures
NOTE 6:  FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB 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 tables summarize our financial instruments measured at fair value on a recurring basis within the fair value hierarchy as of December 31, 2018 and 2017.  These instruments are included in “Other Property and Investments” on the Company’s Consolidated Balance Sheets:

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


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 consisting primarily of equity securities.
(2)
Mutual funds consisting primarily of fixed income securities.

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 December 31, 2018 and 2017 was $3,532,000 and $3,925,000, 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 for similar marketable securities.  As of December 31, 2018 and 2017, the estimated fair value of the Company’s long-term debt was $260,829,000 and $268,628,000, respectively, as compared to the carrying amounts of $261,875,000 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 the 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 have a carrying amount of $22,654,000 and $20,024,000 at December 31, 2018 and 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.
v3.10.0.1
Long-Term Debt
12 Months Ended
Dec. 31, 2018
Notes To Financial Statements [Abstract]  
Long-Term Debt
NOTE 7:  LONG-TERM DEBT

Long-Term Debt at December 31, consisted of the following:
(in thousands)
2018
 
2017
4.09%
 
CTWS
Term Loan Note and Supplement A, Due 2027
$
11,235

 
$
12,358

4.15%
 
CTWS
CoBank Term Note Payable, Due 2037
14,386

 
14,881

Total CTWS
25,621

 
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
22,717

 
22,920

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

 
8,000

4.72%
 
Connecticut Water
CoBank Note Payable, Due 2022
14,795

 
14,795

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

 
17,020

3.51%
 
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