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COMMITMENTS AND CONTINGENCIES | 12 Months Ended
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Dec. 31, 2011
COMMITMENTS AND CONTINGENCIES [Abstract] |
COMMITMENTS AND CONTINGENCIES | NOTE 10 COMMITMENTS AND CONTINGENCIES Leases In October 1997, Artesian Water entered into a 33-year operating lease for a parcel of land with improvements located in South Bethany, a municipality in Sussex County, Delaware. The annual lease payments increase each year by the most recent increase in the Consumer Price Index for Urban Workers, CPI-U, as published by the U.S. Department of Labor, Bureau of Labor Statistics. At each eleventh year of the lease term, the annual lease payment shall be determined based on the fair market value of the parcel of land. Rental payments for 2011, 2010 and 2009 were $15,300, $12,700, and $12,600, respectively. The future minimum rental payment as disclosed in the following table is calculated using CPI-U as of October 31, 2011 as well as any adjustments for appraisals conducted to determine the fair market value of the parcel of land. During 2003, Artesian Resources entered into a 40-year easement agreement to acquire an easement to access, operate, maintain, repair, improve, replace and connect Artesian’s water system to a well, including a parcel of land around the well. Easement payments for 2011, 2010 and 2009 were $31,200, $30,000 and $29,000, respectively. In October 2006, Artesian Water entered into a 3-year contract for office space located in Sussex County, Delaware. In October 2009 the contract term was extended for an additional year and therefore ended in October 2010. Rent payments for 2010 and 2009 were $40,000 and $48,000, respectively. Artesian Wastewater entered into a perpetual agreement for the use of approximately 460 acres of land in Sussex County, Delaware for wastewater disposal. Beginning January 2007, Artesian Wastewater is required to pay a minimum of $40,000 per year for the use of this land. Once disposal operations begin, the monthly fee will be contingent on the average number of gallons of wastewater disposed on the properties. Payments for 2011, 2010 and 2009 were $40,000 each year. The agreement can be terminated by giving 180-day notice prior to the termination date. During September 2007, Artesian Water entered into a 3-year contract for office space located in New Castle County, Delaware. The contract ended in August 2010. This location was used as general office space while the Artesian Water main office space was being renovated. Rent payments during 2010 and 2009 were $53,000 and $79,000, respectively. 58 Table of Contents Future minimum annual rental payments related to operating leases for the years subsequent to 2011 are as follows:
In thousands |  |  |
2012 |  | $ | 68 |
2013 |  |  | 49 |
2014 |  |  | 51 |
2015 |  |  | 52 |
2016 |  |  | 54 |
2017 through 2043 |  |  | 1,680 |
|  | $ | 1,954 |
Interconnections Artesian Water has one water service interconnection agreement with a neighboring utility, Chester Water Authority, which requires minimum annual purchases. Rates charged under this agreement are subject to change. Effective August 1, 1997, Artesian Water renegotiated the contract with the Chester Water Authority to, among other things, reduce the minimum purchase requirements from 1,459 million gallons to 1,095 million gallons annually, calculated as 3 mgd times the number of calendar days in a year. The agreement is extended through the year 2021. The minimum annual purchase commitments for all interconnection agreements for 2012 through 2016 and the aggregate total for the years 2017 through 2021, calculated at the noticed rates, are as follows:
In thousands |  |  |
2012 |  | $ | 3,791 |
2013 |  |  | 3,780 |
2014 |  |  | 3,780 |
2015 |  |  | 3,780 |
2016 |  |  | 3,791 |
2017 through 2021 |  |  | 18,913 |
|  | $ | 37,835 |
Expenses for purchased water were $3.8 million, $3.6 million, and $3.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. Other Commitments In 2005, Artesian Water entered into a 6-year agreement with Utility Service Co., Inc. to clean and paint tanks from 2006 to 2011 for $1.9 million. The tank painting expense for 2011, 2010 and 2009 was $344,000, $364,000, and $358,000. In 2011, Artesian Water entered into a 2-year agreement with Southern Corrosion Inc. to clean and paint tanks in 2012 and 2013. Pursuant to the 2-year agreement, the expenditure committed for the years 2012 through 2013 is $623,000. Also, in 2011, following the purchase of water assets from Cecil County, Maryland, Artesian Water Maryland assumed two agreements with Utility Service Co., Inc. to clean and paint tanks. The agreements can be renewed annually. The expenditure committed for both agreements in 2012 is $55,000. Budgeted mandatory utility plant expenditures, due to planned governmental highway projects, which require the relocation of Artesian Water's water service mains, expected to be incurred in 2012 through 2016 are as follows:
In thousands |  |  |
2012 |  | $ | 1,655 |
2013 |  |  | 950 |
2014 |  |  | 525 |
2015 |  |  | 50 |
2016 |  |  | 550 |
|  | $ | 3,730 |
The exact timing and extent of these relocation projects is controlled primarily by the Delaware Department of Transportation. 59 Table of Contents Litigation Artesian Resources and its subsidiaries are subject to legal proceedings in the ordinary course of business. Any amounts from such legal proceedings that are probable and reasonably estimable are reflected in the financial statements. Related to the ongoing litigation with Chester Water Authority discussed in Item 1A. Risk Factors of this Form 10-K, we have approximately $1.1 million and $0.4 million of accrued expenses recorded on our Consolidated Balance Sheets as of December 31, 2011 and December 31, 2010, respectively. These accrued expenses represent the disputed portion of Chester Water Authority’s rate increases and have been withheld from payments to Chester Water Authority pending the outcome of the litigation.

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