Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	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

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

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

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

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

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

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

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

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

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

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.

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.

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.

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

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).

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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

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			35,000
Total The Connecticut Water Company			198,857			199,060
4.75%	HVWC	2011 Farmington Bank Loan, Due 2034	4,300			4,464
3.05%	Avon Water	Mortgage Note Payable, Due 2033	3,134			3,302
8.95%	Maine Water	1994 Series G, Due 2024	5,400			6,300
2.68%	Maine Water	1999 Series J, Due 2019	85			170
0.00%	Maine Water	2001 Series K, Due 2031	533			574
2.58%	Maine Water	2002 Series L, Due 2022	53			60
1.53%	Maine Water	2003 Series M, Due 2023	271			321
1.73%	Maine Water	2004 Series N, Due 2024	311			341
0.00%	Maine Water	2004 Series O, Due 2034	107			113
1.76%	Maine Water	2006 Series P, Due 2026	331			361
1.57%	Maine Water	2009 Series R, Due 2029	197			207
0.00%	Maine Water	2009 Series S, Due 2029	493			538
0.00%	Maine Water	2009 Series T, Due 2029	1,383			1,509
0.00%	Maine Water	2012 Series U, Due 2042	142			148
1.00%	Maine Water	2013 Series V, Due 2033	1,285			1,310
4.24%	Maine Water	CoBank Note Payable, Due 2024	4,500			4,500
4.18%	Maine Water	CoBank Note Payable, Due 2026	5,000			5,000
5.51%	Maine Water	CoBank Note Payable, Due 2043	8,000			—
7.72%	Maine Water	Series L, Due 2018	—			2,250
2.40%	Maine Water	Series N, Due 2022	826			1,026
1.86%	Maine Water	Series O, Due 2025	710			750
2.23%	Maine Water	Series P, Due 2028	1,233			1,264
0.01%	Maine Water	Series Q, Due 2035	1,584			1,678
1.00%	Maine Water	Series R, Due 2025	1,767			2,009
Various	Maine Water	Various Capital Leases	—			2
Total The Maine Water Company			34,211			30,431
Add: Acquisition Fair Value Adjustment			(189		)	(51		)
Less: Current Portion			(4,059		)	(6,173		)
Less: Unamortized Debt Issuance Expense			(4,364		)	(4,905		)
Total Long-Term Debt			$	257,511		$	253,367

The Company’s required principal payments for the years 2019 through 2023 are as follows:



(in thousands)
2019	$	4,059
2020	$	12,086
2021	$	26,227
2022	$	19,125
2023	$	4,318

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

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

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

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

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.

During the year ending December 31, 2018, the Company paid the following amounts related to Long-Term Debt: approximately $495,000 related to CTWS’s 2017 CoBank issuance; $1,123,000 related to CTWS’s Term Loan Note issued as part of the 2012 acquisition of Maine Water; approximately $1,970,000 in sinking funds related to Maine Water’s outstanding bonds; an additional $2,250,000 related to a CoBank loan to Maine Water that matured in 2018; approximately $164,000 related to HVWC’s mortgage loan; and $168,000 related to Avon Water’s mortgage loan.

Financial Covenants – The Company is 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 was in compliance with all covenants at December 31, 2018.

Preferred Stock

12 Months Ended

Dec. 31, 2018

Notes To Financial Statements [Abstract]

Preferred Stock

NOTE 8: PREFERRED STOCK

The Company’s Preferred Stock at December 31, consisted of the following:



(in thousands, except share data)	2018		2017
Connecticut Water Service, Inc.
Cumulative Series A Voting, $20 Par Value; Authorized, Issued and Outstanding 15,000 Shares	$	—	$	300
Cumulative Series $0.90 Non-Voting, $16 Par Value; Authorized 50,000 Shares, Issued and Outstanding 29,499	—		472
Total Preferred Stock	$	—	$	772

All or any part of any series of either class of the Company’s issued Preferred Stock may be called for redemption by the Company at any time. The per share redemption prices of the Series A and Series $0.90 Preferred Stock, if called by the Company, are $21.00 and $16.00, respectively.

The Company is authorized to issue 400,000 shares of an additional class of Preferred Stock, $25 par value, the general preferences, voting powers, restrictions and qualifications of which are similar to the Company’s existing Preferred Stock. No shares of the $25 par value Preferred Stock have been issued.

The Company is also authorized to issue 1,000,000 shares of $1 par value Preference Stock, junior to the Company’s existing Preferred Stock in rights to dividends and upon liquidation of the Company. 150,000 of such shares have been designated as “Series A Junior Participating Preference Stock”.

On May 4, 2018 (the “Redemption Date”), the Company redeemed all of the issued and outstanding shares of its cumulative Series A, $20 par value, voting preferred stock and cumulative Series $0.90, $16 par value, non-voting preferred stock. As of the Redemption Date, the Preferred Stock ceased to be outstanding, dividends thereon ceased to accrue and all rights with respect to the Preferred Stock have ceased and terminated, except for the right of the holders thereof to receive the applicable redemption price for the shares of Preferred Stock so redeemed, but without interest, upon surrender of such shares.

Lines of Credit	12 Months Ended
Lines of Credit	Dec. 31, 2018
Notes To Financial Statements [Abstract]
Lines of Credit	NOTE 9: BANK LINES OF CREDIT AND OTHER SHORT-TERM DEBT The Company maintains a $15.0 million line of credit agreement with CoBank, ACB, which is currently scheduled to expire on July 1, 2020. The Company maintains an additional line of credit of $45.0 million with RBS Citizens, N.A. (“Citizens”), with an expiration date of April 25, 2021. On December 14, 2018, the Company and Citizens agreed to increase the amount of the line of credit from $45.0 million to $75.0 million and to extend the maturity date of the Line of Credit until December 14, 2023. The Company has delivered to Citizens an Amended and Restated Promissory Note, dated December 14, 2018, evidencing the debt payable pursuant to the Line of Credit. 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. As of December 31, 2018 the total lines of credit available to the Company were $90.0 million. As of December 31, 2018 and 2017, the Company had $52.6 million and $19.3 million outstanding under its lines of credit, respectively. As of December 31, 2018, the Company had $37.4 million in unused lines of credit. Interest expense charged on interim bank loans will fluctuate based on market interest rates. As of December 31, 2018, the Company had $1.7 million in other short-term debt outstanding. At December 31, 2018 and 2017, the weighted average interest rates on these short-term borrowings outstanding was 4.6% and 3.4%, respectively.

Utility Plant

12 Months Ended

Dec. 31, 2018

Notes To Financial Statements [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

NOTE 10: UTILITY PLANT

The components of utility plant and equipment at December 31, were as follows:



(in thousands)	2018			2017
Land	$	14,935		$	15,120
Source of supply	51,077			38,448
Pumping	53,080			51,639
Water treatment	121,561			129,428
Transmission and distribution	646,081			605,587
General	97,798			88,492
Held for future use	304			219
Acquisition Adjustment	(1,616		)	(1,644		)
Total	$	983,220		$	927,289

The amounts of depreciable utility plant at December 31, 2018 and 2017 included in total utility plant were $865,374,000 and $830,907,000, respectively. Non-depreciable plant is primarily funded through CIAC.

Utility Plant

The components of utility plant and equipment at December 31, were as follows:



(in thousands)	2018			2017
Land	$	14,935		$	15,120
Source of supply	51,077			38,448
Pumping	53,080			51,639
Water treatment	121,561			129,428
Transmission and distribution	646,081			605,587
General	97,798			88,492
Held for future use	304			219
Acquisition Adjustment	(1,616		)	(1,644		)
Total	$	983,220		$	927,289

Taxes Other than Income Taxes

12 Months Ended

Dec. 31, 2018

Notes To Financial Statements [Abstract]

Taxes Other Than Income Taxes

NOTE 11: TAXES OTHER THAN INCOME TAXES

Taxes Other than Income Taxes consist of the following:



(in thousands)	2018		2017		2016
Municipal Property Taxes	$	10,469	$	9,580	$	8,501
Payroll Taxes	1,405		1,361		1,295
Total Taxes Other than Income Taxes	$	11,874	$	10,941	$	9,796

Pension and Other Post-Retirement Benefits

12 Months Ended

Dec. 31, 2018

Notes To Financial Statements [Abstract]

Pension and Other Post-Retirement Benefits

NOTE 12: LONG-TERM COMPENSATION ARRANGEMENTS

The Company has accrued for long-term compensation arrangements as of December 31 as follows:



(in thousands)	2018		2017
Defined Benefit Pension Plan	$	12,599	$	15,486
Post-Retirement Benefit Other than Pension	5,204		5,060
Supplemental Executive Retirement Plan	9,144		8,796
Deferred Compensation	4,096		3,289
Other Long-Term Compensation	—		18
Total Long-Term Compensation Arrangements	$	31,043	$	32,649

Investment Strategy – The Corporate Finance and Investments Committee (the “Committee”) reviews and approves the investment strategy of the investments made on behalf of various pension and post-retirement benefit plans provided by the Company and certain of its subsidiaries. The Company uses a variety of mutual funds, managed by different fund managers, to achieve its investment goals. The Committee wants to ensure that the plans establish a target mix that is expected to achieve investment objectives, by assuring a broad diversification of investment assets among investment types, while avoiding short-term changes to the target asset mix, unless unusual market conditions make such a move appropriate to reduce risk.

The targeted asset allocation ratios for those plans as set by the Committee at December 31:



	2018		2017
Equity	65	%	65	%
Fixed Income	35	%	35	%
Total	100	%	100	%

The Committee recognizes that a variation of up to 5% in either direction from its targeted asset allocation mix is acceptable due to market fluctuations.

Our expected long-term rate of return on the various benefit plan assets is based upon the plan’s expected asset allocation, expected returns on various classes of plan assets as well as historical returns. The expected long-term rate of return on the Company’s pension plan assets is 7.25%.

PENSION

Defined Benefit Plan – The Company and certain of its subsidiaries have a noncontributory defined benefit pension plan covering eligible employees (the “Retirement Plan”). In general, the Company’s funding policy is to contribute amounts as permitted by the applicable provisions of the Internal Revenue Code of 1986, as amended and the Employee Retirement Income Security Act of 1974, as amended, and as necessary on an actuarial basis to provide the Retirement Plan with assets sufficient to meet the pension benefits to be paid to the Retirement Plan’s participants; however, the contribution for any plan year is not less than the minimum required contribution nor greater than the maximum tax deductible contribution. The Company amortizes actuarial gains and losses over the average remaining service period of active participants. A contribution of $3,807,000 was made in 2018 for the 2017 plan year. The Company expects to make a contribution of approximately $4,050,000 in 2019 for the 2018 plan year.

The Retirement Plan was amended and restated effective January 1, 2015 to consolidate prior amendments and to comply with applicable legislative and regulatory developments. The amended and restated Retirement Plan was submitted to the IRS on January 29, 2016 with the Company’s application for a favorable determination letter. The Retirement Plan received a favorable determination letter from the IRS dated June 29, 2017. The January 1, 2015 amended and restated Retirement Plan was twice further amended, effective August 1, 2017 and effective December 1, 2018.

The following tables set forth the benefit obligation and fair value of the assets of the Company’s defined benefit plans at December 31, the latest valuation date:



Pension Benefits (in thousands)	2018			2017
Change in benefit obligation:
Benefit obligation, beginning of year	$	88,598		$	79,307
Service cost	1,950			1,927
Interest cost	3,110			3,201
Actuarial loss (gain)	(7,853		)	7,533
Benefits paid	(2,750		)	(3,295		)
Administrative expenses	(108		)	(75		)
Benefit obligation, end of year	$	82,947		$	88,598
Change in plan assets:
Fair value, beginning of year	$	73,112		$	62,679
Actual return on plan assets	(3,713		)	10,832
Employer contributions	3,807			2,971
Benefits paid	(2,750		)	(3,295		)
Administrative expenses	(108		)	(75		)
Fair value, end of year	$	70,348		$	73,112
Funded Status	$	(12,599	)	$	(15,486	)
Amount Recognized in Consolidated Balance Sheets Consisted of:
Non-current asset	$	—		$	—
Current liability	—			—
Non-current liability	(12,599		)	(15,486		)
Net amount recognized	$	(12,599	)	$	(15,486	)

The accumulated benefit obligation for all defined benefit pension plans was approximately $75,688,000 and $79,352,000 at December 31, 2018 and 2017, respectively.



Weighted-average assumptions used to determine benefit obligations at December 31:	2018		2017
Discount rate	4.25	%	3.60	%
Rate of compensation increase	4.00	%	4.00	%



Weighted-average assumptions used to determine net periodic cost for years ended December 31:	2018		2017		2016
Discount rate	3.60	%	4.10	%	4.30	%
Expected long-term return on plan assets	7.25	%	7.25	%	7.25	%
Rate of compensation increase	4.00	%	4.00	%	4.00	%

The Company based its discount rate assumptions the FTSE Above Median AA Curve (formerly the Citigroup Above Median AA Curve).

The following table shows the components of periodic benefit costs:



Pension Benefits (in thousands)	2018			2017			2016
Components of net periodic benefit costs
Service cost	$	1,950		$	1,927		$	1,895
Interest cost	3,110			3,201			3,212
Expected return on plan assets	(4,662		)	(4,291		)	(4,080		)
Amortization of:
Prior service cost	15			16			16
Net loss	2,598			2,064			2,049
Net Periodic Pension Benefit Costs	$	3,011		$	2,917		$	3,092

The following table shows the other changes in plan assets and benefit obligations recognized as a regulatory asset:



Pension Benefits (in thousands)	2018			2017
Change in net loss	$	560		$	1,104
Change in prior service cost	—			—
Other - regulatory action	—			—
Amortization of prior service cost	(15		)	(16		)
Amortization of net loss	(2,547		)	(2,015		)
Total recognized to Regulatory Asset	$	(2,002	)	$	(927	)

The following table shows the other changes in plan assets and benefit obligations recognized in Other Comprehensive Income (“OCI”):



Pension Benefits (in thousands)	2018			2017
Change in net (gain) loss	$	(38	)	$	(112	)
Change in prior service cost	—			—
Amortization of prior service cost	—			—
Amortization of net loss	(51		)	(49		)
Total recognized to OCI	$	(89	)	$	(161	)



Amounts Recognized as a Regulatory Asset at December 31: (in thousands)	2018		2017
Prior service cost	$	39	$	55
Net loss	9,298		11,284
Total Recognized as a Regulatory Asset	$	9,337	$	11,339



Amounts Recognized in OCI at December 31: (in thousands)	2018		2017		2016
Transition obligation	$	—	$	—	$	—
Prior service cost	—		—		—
Net loss	65		154		315
Total Recognized in Other Comprehensive Income	$	65	$	154	$	315



Estimated Net Periodic Benefit Cost Amortizations for the periods January 1 - December 31,: (in thousands)	2019
Amortization of transition obligation	$	—
Amortization of prior service cost	15
Amortization of net loss	1,572
Total Estimated Net Periodic Benefit Cost Amortizations	$	1,587

Plan Assets

The Company’s pension plan weighted-average asset allocations at December 31, 2018 and 2017 by asset category were as follows:



	2018		2017
Equity	61	%	65	%
Fixed Income	39	%	35	%
Total	100	%	100	%

See Note 6, “Fair Value of Financial Instruments”, for discussion on how fair value is determined. The fair values of the Company’s pension plan assets at December 31, 2018 and 2017 were as follows:



2018
(in thousands)	Level 1		Level 2		Level 3
Asset Type:
Money Market Fund	$	1,452	$	—	$	—
Mutual Funds:
Fixed Income Funds (1)	25,645		—		—
Equity Funds (2)	43,251		—		—
Total	$	70,348	$	—	$	—



2017
(in thousands)	Level 1		Level 2		Level 3
Asset Type:
Money Market Fund	$	1,579	$	—	$	—
Mutual Funds:
Fixed Income Funds (1)	23,752		—		—
Equity Funds (2)	47,781		—		—
Total	$	73,112	$	—	$	—


(1)	Mutual funds consisting primarily of fixed income securities.


(2)	Mutual funds consisting primarily of equity securities.

The plan’s expected future benefit payments are:



(in thousands)
2019	$	4,881
2020	5,132
2021	5,194
2022	5,129
2023	5,166
Years 2024 – 2028	27,908

POST-RETIREMENT BENEFITS OTHER THAN PENSION (“PBOP”) – In addition to providing pension benefits, Connecticut Water and Maine Water, provide certain medical, dental and life insurance benefits to retired employees partially funded by a 501(c)(9) Voluntary Employee Beneficiary Association Trust. Covered employees may become eligible for these benefits if they retire on or after age 55 with 10 years of service. The contribution for calendar years 2018 and 2017 was $11,000 and $12,000, respectively.

The Company has amended its PBOP to exclude employees hired after January 1, 2009. In addition, effective April 1, 2009, the Company will no longer provide prescription drug coverage for its retirees age 65 and over. Those retirees, who are entitled to Medicare coverage, will continue to receive the current non-prescription medical coverage.

The Company amortizes actuarial gains and losses over the average remaining service period of active participants. Connecticut Water has elected to recognize the transition obligation on a delayed basis over a period equal to the plan participants’ 21.6 years of average future service.

A former subsidiary company, Barnstable Holding, which was dissolved effective December 29, 2016, also provided certain health care benefits to eligible retired employees. These health care benefits to former employees are now the responsibility of the Company. Former employees of Barnstable Holding became eligible for these benefits if they retired on or after age 65 with at least 15 years of service. Post-65 medical coverage was provided for retired employees up to a maximum coverage of $500 per quarter. Barnstable Holding’s PBOP currently is not funded. Barnstable Holding no longer has any employees; therefore, no new participants will be entering Barnstable Holding’s PBOP. The tables below do not include Barnstable Holding’s PBOP. Barnstable Holding’s PBOP had a Benefit Obligation of $28,000 and $47,000 at December 31, 2018 and 2017, respectively. Additionally, this plan did not hold any assets as of December 31, 2018 and 2017. Barnstable Holding’s PBOP’s net periodic benefit costs were less than $1,000 in 2018 and 2017.

The following tables set forth the benefit obligation and fair value of the assets of Connecticut Water and Maine Water’s PBOP at December 31, the latest valuation date:



PBOP Benefits (in thousands)	2018			2017
Change in benefit obligation:
Benefit obligation, beginning of year	$	14,473		$	13,542
Service cost	322			335
Interest cost	504			511
Plan participant contributions	148			163
Actuarial (gain) loss	(1,196		)	384
Benefits paid	(425		)	(462		)
Benefit obligation, end of year	$	13,826		$	14,473
Change in plan assets:
Fair value, beginning of year	$	9,460		$	8,345
Actual return on plan assets	(544		)	1,402
Employer contributions	11			12
Plan participant contributions	148			163
Benefits paid	(425		)	(462		)
Fair value, end of year	$	8,650		$	9,460
Funded Status	$	(5,176	)	$	(5,013	)
Amount Recognized in Consolidated Balance Sheets Consisted of:
Non-current asset	$	—		$	—
Current liability	—			—
Non-current liability	(5,176		)	(5,013		)
Net amount recognized	$	(5,176	)	$	(5,013	)



Weighted-average assumptions used to determine benefit obligations at December 31:	2018		2017
Discount rate	4.15	%	3.50	%



Weighted-average assumptions used to determine net periodic cost for years ended December 31:	2018		2017		2016
Discount rate	3.50	%	3.95	%	4.15	%
Expected long-term return on plan assets	4.50	%	4.50	%	4.50	%

The Company based its discount rate assumptions the FTSE Above Median AA Curve (formerly the Citigroup Above Median AA Curve).

The following table shows the components of periodic benefit costs:



PBOP Benefits (in thousands)	2018			2017			2016
Components of net periodic benefit costs
Service cost	$	322		$	335		$	376
Interest cost	504			511			541
Expected return on plan assets	(372		)	(354		)	(341		)
Other	—			225			225
Amortization of:
Prior service credit	(1		)	(181		)	(400		)
Recognized net loss	(1		)	(78		)	39
Net Periodic Post Retirement Benefit Costs	$	452		$	458		$	440

The following table shows the other changes in plan assets and benefit obligations recognized as a regulatory liability:



PBOP Benefits (in thousands)	2018			2017
Change in net gain	$	(279	)	$	(664	)
Amortization of prior service cost	1			181
Amortization of net loss	1			78
Other regulatory amortization	3			(67		)
Total recognized to Regulatory Liability	$	(274	)	$	(472	)



Amounts Recognized as a Regulatory Liability at December 31: (in thousands)	2018			2017
Transition obligation	$	—		$	—
Prior service cost	—			(1		)
Net loss	(1,395		)	(1,116		)
Other regulatory asset	190			186
Total Recognized as a Regulatory Liability	$	(1,205	)	$	(931	)

The “Other regulatory amortization” and “Other regulatory asset” shown above refers to costs whose recovery was authorized by PURA and MPUC with the adoption of Statement of Financial Accounting Standard 106, “Employers’ Accounting for Post-Retirement Benefits Other than Pension”, now Topic No. 715. There were no other changes in plan assets and benefit obligations recognized as a regulatory asset.



Estimated Benefit Cost Amortizations for the periods January 1 - December 31:(in thousands)	2019
Amortization of transition obligation	$	—
Amortization of prior service credit	—
Amortization of net loss	(147		)
Total Estimated Net Periodic Benefit Cost Amortizations	$	(147	)



Assumed health care cost trend rates at December 31:	2018				2017
	Medical		Dental		Medical		Dental
Health care cost trend rate assumed for next year ⁽¹⁾	8.00	%	8.00	%	8.25	%	8.25	%
Rate to which the cost trend rate is assumed to decline	4.50	%	4.50	%	4.75	%	4.75	%
Year that the rate reaches the ultimate trend rate	2026		2026		2025		2025

⁽¹⁾ – Twenty-five basis point trend rate from 2017 to 2018.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects on Connecticut Water and Maine Water’s plan and would have no impact on the Barnstable Holding plan:



(in thousands)	1 Percentage-Point
	Increase		Decrease
Effect on total of service and interest cost components	$	40	$	(36	)
Effect on post-retirement benefit obligation	$	581	$	(550	)

Plan Assets

Connecticut Water and Maine Water’s other post-retirement benefit plan weighted-average asset allocations at December 31, 2018 and 2017 by asset category were as follows:



	2018		2017
Equity	65	%	69	%
Fixed Income	35	%	31	%
Total	100	%	100	%

See Note 6, “Fair Value of Financial Instruments”, for discussion on how fair value is determined. The fair values of the Company’s PBOP assets at December 31, 2018 and 2017 were as follows:



2018
(in thousands)	Level 1		Level 2		Level 3
Asset Type:
Money Market	$	302	$	—	$	—
Mutual Funds:
Fixed Income Funds (1)	2,758		—		—
Equity Funds (2)	5,590		—		—
Total	$	8,650	$	—	$	—



2017
(in thousands)	Level 1		Level 2		Level 3
Asset Type:
Money Market	$	139	$	—	$	—
Mutual Funds:
Fixed Income Funds (1)	2,821		—		—
Equity Funds (2)	6,500		—		—
Total	$	9,460	$	—	$	—


(1)	Mutual funds consisting primarily of fixed income securities.


(2)	Mutual funds consisting primarily of equity securities.

Cash Flows

The Company contributed $11,000 to its other post-retirement benefit plan in 2018 for plan year 2018. The Company does not expect to make a contribution in 2019 for plan year 2019.

Expected future benefit payments are:



(in thousands)
2019	$	556
2020	630
2021	703
2022	751
2023	839
Years 2024 – 2028	5,027

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (“SERP”) – The Company and certain of its subsidiaries provide additional pension benefits to senior management through supplemental executive retirement contracts. The additional pension supplement from the SERP results in participants receiving the same overall relative benefit as other eligible employees enrolled in the Company’s pension plan. At December 31, 2018 and 2017, the actuarial present values of the projected benefit obligation of these contracts were $9,087,000 and $8,718,000, respectively. Expense associated with these contracts was approximately $865,000 for 2018, $970,000 for 2017, and $1,012,000 for 2016 and is reflected in “Other Income (Deductions), Net of Taxes” in the Consolidated Statements of Income.

Included in “Other Property and Investments” at December 31, 2018 and 2017 is $6,073,000 and $6,688,000 of investments purchased by the Company to fund these obligations, primarily consisting of life insurance contracts. The remaining assets are carried at cash surrender value and are included in Note 6, “Fair Value of Financial Instruments”.

SAVINGS PLAN (“401(k)”) – The Company and certain of its subsidiaries maintain the Savings Plan of the Connecticut Water Company (the “Savings Plan”), a 401(k) employee savings plan which allows participants to contribute on a pre-tax basis between 1% and 50% of pre-tax compensation, plus for those aged 50 years and older before the end of the plan year, catch-up contributions as allowed by law. Effective January 1, 2009, the Company changed the Savings Plan to meet the requirements of a special IRC safe harbor. Under the provisions of the safe harbor Savings Plan, as amended and restated effective January 1, 2012, the Company makes an automatic contribution of 3% of eligible compensation for all eligible employees, even if the employees do not elect to make their own contributions. For employees hired on or after January 1, 2009 and ineligible to participate in the Company’s defined benefit pension plan, the Company contributes an additional 1.5% of eligible compensation. The Savings Plan was amended and restated, effective as of January 1, 2016, in order to bring all previous amendments under one, updated plan document. The Savings Plan was amended effective February 27, 2017 and July 1, 2017, to allow eligible employees of HVWC and Avon Water, respectively, to participate. The Savings Plan was amended effective May 1, 2018 to add an automatic enrollment feature, automatic escalation of salary deferrals, and a Roth contribution feature, and to reduce the service required to make elective deferrals from six months to 30 days. The Company’s Board of Directors has approved certain changes to the Savings Plan’s hardship distribution provisions, effective January 1, 2019, pursuant to the applicable provisions of the Bipartisan Budget Act of 2018, and those changes will be memorialized in a written plan amendment to be prepared by the Savings Plan’s volume submitter plan document provider. The Company contribution charged to expense in 2018, 2017, and 2016 was $786,000, $750,000, and $663,000, respectively.

Stock Based Compensation Plans

12 Months Ended

Dec. 31, 2018

Notes To Financial Statements [Abstract]

Stock Based Compensation Plans

NOTE 13: STOCK BASED COMPENSATION PLANS

The Company follows FASB ASC 718, “Compensation – Stock Compensation” (“FASB ASC 718”) to account for all share-based payments to employees.

For purposes of calculating the fair value of each option at the date of grant, the Company used the Black Scholes Option Pricing model. For other share based awards, the Company uses the market price the day before the stock grant to value awards. The Company has not issued any stock options since 2003, and does not anticipate issuing any for the foreseeable future.

The Company’s 2014 Performance Stock Program (“2014 PSP”), approved by shareholders in 2014, authorizes the issuance of up to 450,000 shares of Company Common Stock. As of December 31, 2018, there were 339,740 shares available for grant and payment of dividend equivalents on shares previously awarded under the 2014 PSP. There are five forms of awards available under the 2014 PSP: Restricted Stock, Performance Shares, Cash Units, Stock Appreciation Rights (“SAR”) and Other Awards, including Restricted Stock Units.

The Company’s 2004 Performance Stock Program (“2004 PSP”), approved by shareholders in 2004, authorized the issuance of up to 700,000 shares of Company Common Stock. As of December 31, 2018, there were 257,688 shares available for payment of dividend equivalents on shares previously awarded under the 2004 PSP.

Under the original Plan (“1994 PSP”) there were 700,000 shares authorized for issuance and 217,873 shares available for payment of dividend equivalents on shares previously awarded under the 1994 PSP as performance shares at December 31, 2018.

Under the 2014 PSP, restricted shares of Common Stock, common stock equivalents, cash units, SAR or other awards may be awarded annually to officers and key employees. Based upon the occurrence of certain events, including the achievement of goals established by the Compensation Committee, the restrictions on the stock can be removed. Amounts charged to expense on account of restricted shares of Common Stock, common stock equivalents or cash units pursuant to the 2014 PSP, 2004 PSP and 1994 PSP were $1,925,000, $1,554,000, and $948,000, for 2018, 2017, and 2016, respectively.

RESTRICTED STOCK AND COMMON STOCK EQUIVALENTS – Prior to May 2014, the Company granted restricted shares of Common Stock and Performance Shares to key members of management under the 2004 PSP. All grants made after May 2014 are being made under the 2014 PSP. These Common Stock share awards provide the grantee with the dividend rights of a shareholder, but not the right to sell or otherwise transfer the shares during the restriction period. Restricted shares also have the voting rights of a shareholder, while the Performance Shares do not. The value of these restricted shares is based on the market price of the Company’s Common Stock on the date of grant and compensation expense is recorded on a straight-line basis over the awards’ vesting periods.

Restricted Stock and Common Stock Equivalents (Performance-Based) – The following tables summarize the performance-based restricted stock amounts and activity for the years ended December 31, 2018 and 2017:



	2018				2017
	Number of Shares		Grant Date Weighted Average Fair Value		Number of Shares		Grant Date Weighted Average Fair Value
Non-vested at beginning of year	20,535		$	41.94	35,142		$	37.66
Granted	15,781		52.78		9,719		53.73
Vested	(7,586	)	48.47		(13,306	)	38.50
Forfeited	(354	)	53.73		(11,020	)	42.84
Non-vested at end of year	28,376		$	46.08	20,535		$	41.94

Upon meeting specific performance targets, approximately 5,000 shares, reduced for actual performance targets achieved in 2018, will begin vesting in the first quarter of 2019 and the remaining earned shares will vest over two years. The cost is being recognized ratably over the vesting period. The aggregate intrinsic value of performance-based restricted stock as of December 31, 2018 was $803,000.

Segment Reporting

12 Months Ended

Dec. 31, 2018

Notes To Financial Statements [Abstract]

Segment Reporting

NOTE 15: SEGMENT REPORTING

Our Company operates principally in three segments: water operations, real estate transactions, and services and rentals. The water segment is comprised of our core regulated water operations to supply water to our customers. Our real estate transactions segment involves selling or donating for income tax benefits our limited excess real estate holdings. Our services and rentals segment provides services on a contract basis and also leases certain of our properties to third parties. The accounting policies of each reportable segment are the same as those described in the summary of significant accounting policies.

Financial data for reportable segments is as follows:



(in thousands)	Revenues		Depreciation		Other Operating Expenses		Other Income (Deductions)			Interest Expense (net of AFUDC)		Income Taxes			Net Income (Loss)
For the year ended December 31, 2018
Water Operations	$	118,304	$	18,692	$	64,042	$	(13,608	)	$	10,659	$	(2,956	)	$	14,259
Real Estate Transactions	1,350		—		416		—			—		305			629
Services and Rentals	5,182		5		2,901		—			—		469			1,807
Total	$	124,836	$	18,697	$	67,359	$	(13,608	)	$	10,659	$	(2,182	)	$	16,695
For the year ended December 31, 2017
Water Operations	$	108,525	$	16,684	$	59,068	$	(1,682	)	$	8,067	$	(830	)	$	23,854
Real Estate Transactions	212		—		157		—			—		22			33
Services and Rentals	5,112		5		2,964		—			—		976			1,167
Total	$	113,849	$	16,689	$	62,189	$	(1,682	)	$	8,067	$	168		$	25,054
For the year ended December 31, 2016
Water Operations	$	100,001	$	13,905	$	54,100	$	(1,822	)	$	5,718	$	2,234		$	22,222
Real Estate Transactions	8		—		4		—			—		58			(54		)
Services and Rentals	5,307		25		3,189		—			—		874			1,219
Total	$	105,316	$	13,930	$	57,293	$	(1,822	)	$	5,718	$	3,166		$	23,387

The Revenues shown in Water Operations above consist of revenues from water and wastewater customers of $116,665,000, $107,054,000 and $98,667,000 in the years 2018, 2017, and 2016, respectively. Additionally, there were revenues associated with utility plant leased to others of $1,639,000, $1,471,000 and $1,334,000 in the years 2018, 2017, and 2016, respectively which are reflected in “Other Utility Income, Net of Taxes” on the Consolidated Statements of Income. The revenues from water and wastewater customers for the years ended December 31, 2018, 2017, and 2016 include $8,197,000, $4,286,000 and $1,132,000 in additional revenues related to the implementation of the WRA, respectively.

The table below shows assets by segment at December 31:



in thousands):	2018		2017
Total Plant and Other Investments:
Water	$	748,374	$	707,362
Non-Water	1,114		1,023
Total Plant and Other Investments	749,488		708,385
Other Assets:
Water	199,955		188,590
Non-Water	2,426		1,808
Total Other Assets	202,381		190,398
Total Assets	$	951,869	$	898,783

Commitments and Contingencies

12 Months Ended

Dec. 31, 2018

Notes To Financial Statements [Abstract]

Commitments and Contingencies

NOTE 17: COMMITMENTS AND CONTINGENCIES

Water Supply – Connecticut Water has an agreement with the South Central Connecticut Regional Water Authority (“RWA”) to purchase water from RWA. The agreement was signed in April 2006 and became effective upon the receipt of all regulatory approvals in 2008 and remains in effect for a minimum of fifty years upon the effective date. Connecticut Water will pay RWA $75,000 per year, for a total of 14 years, starting on the effective date of the agreement. In addition, Connecticut Water is able, but under no obligation, to purchase up to one million gallons of water per day at the then current wholesale rates per the agreement. Connecticut Water has an agreement with The Metropolitan District (“MDC”) to purchase water from MDC to serve the Unionville system. The agreement became effective on October 6, 2000 and has a term of fifty years beginning May 19, 2003, the date the water supply facilities related to the agreement were placed in service. Connecticut Water agrees to purchase 283 million gallons of water annually from MDC. Connecticut Water has a 99 year lease with 19 Perry Street to obtain well water for its public water supply system. The agreement became effective in 1975 and is based on current water rates in effect each year. There is no limitation on the amount of water that can be withdrawn from the leased property. Maine Water has an agreement with the Kennebec Water District for potable water service. The agreement was extended and became effective on November 7, 2015 for a new term of 5 years. Water sales to Maine Water are billed at a flat rate per gallon plus the monthly minimum tariff rate for a 4-inch metered service. During 2018, 2017, and 2016, the Company spent $1,823,000, $1,532,000 and $1,556,000, respectively, on water purchased under these agreements. The Company’s expected payments related to these agreements for the years 2019 through 2023 will be as follows:



(in thousands)
2019	$	1,867
2020	$	1,846
2021	$	1,794
2022	$	1,853
2023	$	1,913

Reviews by Taxing Authorities – 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.

Purchases of Equity Securities by the Company – In May 2005, the Company adopted a common stock repurchase program (“Share Repurchase Program”). The Share Repurchase Program allows the Company to repurchase up to 10% of its outstanding common stock, at a price or prices that are deemed appropriate. As of December 31, 2018, no shares have been repurchased. Currently, the Company has no plans to repurchase shares under the Share Repurchase Program.

Environmental and Water Quality Regulation – The Company is subject to environmental and water quality regulations. Costs to comply with environmental and water quality regulations are substantial. We are presently in compliance with current regulations, but the regulations are subject to change at any time. The costs to comply with future changes in state or federal regulations, which could require us to modify current filtration facilities and/or construct new ones, or to replace any reduction of the safe yield from any of our current sources of supply, could be substantial.

Legal Proceedings – We are involved in various legal proceedings from time to time. Although the results of legal proceedings cannot be predicted with certainty, there are no pending legal proceedings to which we, or any of our subsidiaries are a party, or to which any of our properties is subject, that presents a reasonable likelihood of a material adverse impact on the Company’s financial condition, results of operations or cash flows.

Rate Relief – 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	%

Land Dispositions – The Company and its subsidiaries own additional parcels of land in Connecticut and Maine, which may be suitable in the future for disposition or for further protection through conservation easements, through sale or by donation to municipalities, other local governments or private charitable entities such as local land trusts. In Connecticut, these additional parcels would include certain Class I and II parcels previously identified for long term conservation by the Connecticut Department of Energy and Environmental Protection (“DEEP”), which have restrictions on development and resale based on provisions of the Connecticut General Statutes. In Maine, these parcels include primarily company-owned land used for water supply protection, and a permanent conservation easement may be appropriate for some parcels to ensure the permanent protection of the watersheds, while balancing the appropriate community and recreational use of the land.

Capital Expenditures – The Company has received approval from its Board of Directors to spend $85.7 million on capital expenditures in 2019, in part to fund improvements to water treatment plants and increased spending related to infrastructure improvements.

Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2018

Notes To Financial Statements [Abstract]

Quarterly Financial Data (Unaudited)

NOTE 18: QUARTERLY FINANCIAL DATA (Unaudited)

Selected quarterly financial data for the years ended December 31, 2018 and 2017 appears below:



(in thousands, except for per share data)	First Quarter					Second Quarter				Third Quarter				Fourth Quarter
	2018			2017		2018		2017		2018		2017		2018			2017
Operating Revenues	$	24,853		$	22,463	$	29,904	$	27,902	$	36,269	$	31,797	$	25,639		$	24,892
Total Utility Operating Income	4,545			5,518		9,827		10,839		17,564		12,809		5,243			5,950
Net (Loss) Income	(1,227		)	4,068		4,729		8,418		13,663		10,716		(470		)	1,852
Basic (Loss) Earnings per Common Share	(0.10		)	0.36		0.39		0.75		1.15		0.92		(0.04		)	0.14
Diluted (Loss) Earnings per Common Share	(0.10		)	0.36		0.39		0.73		1.13		0.90		(0.04		)	0.14

Subsequent Event

12 Months Ended

Dec. 31, 2018

Notes To Financial Statements [Abstract]

Subsequent Events [Text Block]

NOTE 16: ACQUISITIONS

The Heritage Village Water Company Acquisition

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

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

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

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

The Avon Water Company Acquisition

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

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

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

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

The following table summarizes the fair value of the HVWC assets acquired on February 27, 2017 and the Avon Water assets on July 1, 2017, the dates of the acquisitions (in thousands):



	HVWC		Avon Water
Net Utility Plant	$	28,861	$	28,330
Cash and Cash Equivalents	1,336		455
Accounts Receivable, net	355		379
Prepayments and Other Current Assets	179		243
Accrued Unbilled Revenues	47		467
Materials and Supplies, at Average Cost	63		151
Goodwill	12,777		23,472
Unrecovered Income Taxes - Regulatory Asset	—		3,619
Deferred Charges and Other Costs	343		799
Total Assets Acquired	$	43,961	$	57,915

Long-Term Debt, including current portion	$	4,642	$	3,145
Accounts Payable and Accrued Expenses	149		584
Interim Bank Loans Payable	—		2,500
Other Current Liabilities	238		32
Advances for Construction	1,897		1,537
Deferred Federal and State Income Taxes	1,680		1,880
Unfunded Future Income Taxes	—		3,619
Other Long-Term Liabilities	—		314
Total Liabilities Assumed	$	8,606	$	13,611

Contributions in Aid of Construction	18,452		11,560

Net Assets Acquired	$	16,903	$	32,744

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

The following unaudited pro forma summary for the years ended December 31, 2018, 2017, and 2016 presents information as if HVWC and Avon Water had each been acquired on January 1, 2016 and assumes that there were no other changes in our operations. The following pro forma information does not necessarily reflect the actual results that would have occurred had the Company operated the businesses since January 1, 2016, nor is it necessarily indicative of the future results of operations of the combined companies (in thousands):



	2018		2017		2016
Operating Revenues	$	116,665	$	109,715	$	107,309
Other Water Activities Revenues	1,639		1,554		1,498
Real Estate Revenues	1,350		212		8
Service and Rentals Revenues	5,182		5,121		5,417
Total Revenues	$	124,836	$	116,602	$	114,232

Net Income	$	16,695	$	25,040	$	24,300

Basic Earnings per Average Share Outstanding	$	1.40	$	2.12	$	2.06
Diluted Earnings per Average Share Outstanding	$	1.38	$	2.08	$	2.02

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



	2018		2017
Operating Revenues	$	8,616	$	5,802
Other Water Activities Revenues	133		74
Real Estate Revenues	—		—
Service and Rentals Revenues	83		28
Total Revenues	$	8,832	$	5,904

Net Income	$	355	$	1,519

Basic Earnings per Average Share Outstanding	$	0.03	$	0.13
Diluted Earnings per Average Share Outstanding	$	0.03	$	0.13

Revenue from Contracts with Customers (Notes)

12 Months Ended

Dec. 31, 2018

Revenues from Contracts with Customers [Abstract]

Revenue from External Customers by Products and Services [Table Text Block]

NOTE 14: REVENUES FROM CONTRACTS WITH CUSTOMERS

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):



	2018		2017		2016
Water Operations
Residential	$	64,294	$	60,383	$	59,320
Commercial	14,131		13,176		12,144
Industrial	3,189		3,090		3,150
Public Authority	3,634		3,690		3,476
Fire Protection	20,349		19,532		18,334
Other (including non-metered accounts)	3,110		3,136		1,350
Water Operations Revenues from Contracts with Customers	108,707		103,007		97,774
Alternative Revenue Program	7,958		4,047		893
Other	1,639		1,471		1,334
Total Revenue from Water Operations	118,304		108,525		100,001
Services and Rentals
Contract Operations	2,478		2,505		2,709
Linebacker	2,532		2,481		2,516
Services and Rentals Revenues from Contracts with Customers	5,010		4,986		5,225
Other	172		126		82
Total Revenue from Services and Rentals	5,182		5,112		5,307
Total Revenue from Real Estate Transactions	1,350		212		8

Total Revenues from Contracts with Customers	113,717		107,993		102,999

Total Revenue	$	124,836	$	113,849	$	105,316

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

contracts with customers, as of December 31:



	2018		2017
Accounts Receivable
Water Operations Segment	$	11,890	$	12,885
Services and Rentals Segment	238		107
Accounts Receivable from Contracts with Customers	12,128		12,992
Other accounts receivable	2,041		1,973
Total Accounts Receivable	$	14,169	$	14,965

Accrued Unbilled Revenues from Contracts with Customers	$	10,011	$	8,481

Accounts Receivable and Accrued Unbilled Revenues: Accounts receivable are comprised of trade receivables primarily from our regulated water customers. The Company records their accounts receivable at cost, which approximates fair value. Additionally, the Company establishes an allowance for uncollectible accounts based on historical losses, management’s assessment of existing economic conditions, customer payment trends, and other factors. The Company 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 wastewater 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.

Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Summary of Significant Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

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.

Business Description and Basis of Presentation [Text Block]