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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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Dec. 31, 2021
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The audited consolidated financial statements are presented in accordance with the requirements of Form 10-K and accounting principles generally accepted in the United States and consequently include all the disclosures required in the consolidated financial statements included in the Company's annual report on Form 10-K. The accompanying consolidated financial statements include the accounts of Artesian Resources Corporation and its subsidiaries and all intercompany balances and transactions between subsidiaries have been eliminated. Utility Subsidiary Accounting The accounting records of Artesian Water Company, Inc., or Artesian Water, Artesian Wastewater Management, Inc., or Artesian Wastewater, and, effective January 14, 2022, Tidewater Environmental Services, Inc. dba Artesian Wastewater, or TESI, are maintained in accordance with the uniform system of accounts as prescribed by the Delaware Public Service Commission, or the DEPSC. The accounting records of Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, are maintained in accordance with the uniform system of accounts as prescribed by the Pennsylvania Public Utility Commission, or the PAPUC. The accounting records of Artesian Water Maryland, Inc., or Artesian Water Maryland, and Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, are maintained in accordance with the uniform system of accounts as prescribed by the Maryland Public Service Commission, or the MDPSC. All these subsidiaries follow the provisions of Financial Accounting Standards Board, or FASB, ASC Topic 980, which provides guidance for companies in regulated industries. These regulated subsidiaries account for the majority of our operating revenue. The operating revenues of our non-regulated division are presented in the Consolidated Statements of Operations. Utility Plant Utility plant is stated at original cost. Cost includes direct labor, materials, AFUDC (see description below) and indirect charges for such capitalized items as transportation, supervision, pension, medical, and other fringe benefits related to employees engaged in construction activities. When depreciable units of utility plant are retired, the historical costs of plant retired is charged to accumulated depreciation. Any cost associated with retirement, less any salvage value or proceeds received, is charged to the regulated retirement liability. Maintenance, repairs, and replacement of minor items of utility plant are charged to expense as incurred. In accordance with a rate order issued by the DEPSC, Artesian Water and Artesian Wastewater accrue an Allowance for Funds Used during Construction, or AFUDC. AFUDC, which represents the cost of funds devoted to construction projects through the date the project is placed in service, is capitalized as part of construction work in progress. The rate used for the AFUDC calculation is based on Artesian Water's and Artesian Wastewater’s weighted average cost of debt and the rate of return on equity authorized by the DEPSC. The rate used to capitalize AFUDC for Artesian Water in 2021, 2020, and 2019 was 6.7%, 7.0%, and 7.1%, respectively. The rate used to capitalize AFUDC for Artesian Wastewater in 2021, 2020, and 2019 was 6.4%, 6.3%, and 7.1%, respectively.
Utility plant comprises: |  |  |  |  |  |
In thousands |  |  |  |  |  |
|  |  |  |  | December 31, |
|  | Estimated Useful Life (In Years) |  |  | 2021 |  |  | 2020 |
Utility plant at original cost |  |  |  |  |  |  |  |  |
Utility plant in service-Water |  |  |  |  |  |  |  |  |
Intangible plant |  |  | — |  |  | $ | 140 |  |  | $ | 140 |
Source of supply plant |  |  | 45-85 |  |  |  | 25,045 |  |  |  | 23,940 |
Pumping and water treatment plant |  |  | 8-62 |  |  |  | 109,087 |  |  |  | 100,317 |
Transmission and distribution plant |  |  |  |  |  |  |  |  |  |  |  |
Mains |  |  | 81 |  |  |  | 320,767 |  |  |  | 293,643 |
Services |  |  | 39 |  |  |  | 53,210 |  |  |  | 49,937 |
Storage tanks |  |  | 76 |  |  |  | 29,972 |  |  |  | 29,946 |
Meters |  |  | 26 |  |  |  | 28,778 |  |  |  | 27,994 |
Hydrants |  |  | 60 |  |  |  | 16,789 |  |  |  | 15,895 |
General plant |  |  | 5-31 |  |  |  | 62,604 |  |  |  | 62,379 |
Utility plant in service-Wastewater |  |  |  |  |  |  |  |  |  |  |  |
Intangible plant |  |  | — |  |  |  | 116 |  |  |  | 116 |
Treatment and disposal plant |  |  | 21-81 |  |  |  | 43,725 |  |  |  | 41,860 |
Collection mains & lift stations |  |  | 81 |  |  |  | 33,901 |  |  |  | 32,133 |
General plant |  |  | 5-31 |  |  |  | 1,665 |  |  |  | 1,545 |
Property held for future use |  |  | — |  |  |  | 5,536 |  |  |  | 5,711 |
Construction work in progress |  |  | — |  |  |  | 18,481 |  |  |  | 21,474 |
|  |  |  |  |  |  | 749,816 |  |  |  | 707,030 |
Less – accumulated depreciation |  |  |  |  |  |  | 159,385 |  |  |  | 147,469 |
|  |  |  |  |  | $ | 590,431 |  |  | $ | 559,561 |
Depreciation and Amortization For financial reporting purposes, depreciation is recorded using the straight-line method at rates based on estimated economic useful lives, which range from 5 to 85 years. Composite depreciation rates for water utility plant were 2.17%, 2.23% and 2.27% for 2021, 2020 and 2019, respectively. In a rate order issued by the DEPSC, the Company was directed effective January 1, 1998 to begin using revised depreciation rates for utility plant. In rate orders issued by the DEPSC, Artesian Water was directed, effective May 28, 1991 and August 25, 1992, to offset depreciation recorded on utility plant by depreciation on utility property funded by Contributions in Aid of Construction, or CIAC, and Advances for Construction, or Advances, respectively. This reduction in depreciation expense is also applied to outstanding CIAC and Advances. Other deferred assets are amortized using the straight-line method over applicable lives, which range from 20 to 24 years. Regulatory Assets The FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency. Certain expenses are recoverable through rates charged to our customers, without a return on investment, and are deferred and amortized during future periods using various methods as permitted by the DEPSC, MDPSC, and PAPUC. The deferred income taxes will be amortized over future years as the tax effects of temporary differences that previously flowed through to our customers are reversed. Debt related costs include debt issuance costs and other debt related expense. The DEPSC has approved deferred regulatory accounting treatment for issuance costs associated with Artesian Water’s Series V First Mortgage bond in December 2019 that paid down outstanding lines of credit and a loan payable to Artesian Resources. Debt issuance costs and other debt related expenses are reviewed during Artesian Water’s rate applications as part of its cost of capital calculations. For the Series V First Mortgage bond, cash was paid for the issuance costs and $30 million of cash was received from the proceeds of the bond. Regulatory expenses amortized on a straight-line basis are noted below:
Expense | Years Amortized
Deferred contract costs and other | 5
Rate case studies | 5
Delaware rate proceedings | 2.5
Maryland rate proceedings | 5
Debt related costs | 15 to 30 (based on term of related debt)
Goodwill (resulting from acquisition of Mountain Hill Water Company in 2008) | 50
Deferred acquisition costs (resulting from purchase of water assets in Cecil County, Maryland in 2011 and Port Deposit, Maryland in 2010) | 20
Franchise Costs (resulting from purchase of water assets in Cecil County, Maryland in 2011) | 80
Regulatory assets, net of amortization, comprise:
(in thousands) | December 31, 2021 |  | December 31, 2020
Deferred income taxes | $ | 355 |  | $ | 370
Deferred contract costs and other |  | 288 |  |  | 46
Debt related costs |  | 4,902 |  |  | 5,233
Goodwill |  | 273 |  |  | 281
Deferred acquisition and franchise costs |  | 503 |  |  | 543
| $ | 6,321 |  | $ | 6,473
Impairment or Disposal of Long-Lived Assets Our long-lived assets consist primarily of utility plant in service and regulatory assets. A review of our long-lived assets is performed in accordance with the requirements of FASB ASC Topic 360. In addition, the regulatory assets are reviewed for the continued application of FASB ASC Topic 980. The review determines whether there have been changes in circumstances or events that have occurred requiring adjustments to the carrying value of these assets. FASB ASC Topic 980 stipulates that adjustments to the carrying value of these assets would be made in instances where the inclusion in the rate-making process is unlikely. For the years ended December 31, 2021, 2020 and 2019, there was no impairment or regulatory disallowance identified in our review. Other Deferred Assets The investment in CoBank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based on the underlying long-term debt agreements. Goodwill recorded in 2020 was a result of the acquisition of water assets from the Town of Frankford in April 2020 based on the purchase price allocation. A regulatory adjustment was made in 2021 to account for $1.5 million of Delaware Drinking Water State Revolving Fund loan proceeds automatically forgiven in July 2021 with the remainder recorded as contributions in aid of construction. Other deferred assets is related to the Mountain Hill acquisition. Other deferred assets at December 31, net of amortization, comprise:
In thousands | 2021 |  | 2020 |
Investment in CoBank |  | $ | 4,850 |  |  | $ | 4,374 |
Other deferred assets/goodwill |  |  | 247 |  |  |  | 935 |
|  | $ | 5,097 |  |  | $ | 5,309 |
Advances for Construction Cash advances to reimburse Artesian Water for its costs to construct water mains, services and hydrants are contributed to Artesian Water by real estate developers and builders in order to extend water service to their properties. The value of these contributions is recorded as Advances for Construction. Artesian Water makes refunds on these advances over a specific period of time based on operating revenues generated by the specific plant or as new customers are connected to the mains. After all refunds are made within the contract period, any remaining balance is transferred to CIAC. Contributions in Aid of Construction CIAC includes the non-refundable portion of advances for construction and direct contributions of water mains, services and hydrants, and wastewater treatment facilities and collection systems, or cash to reimburse our water and wastewater divisions for costs to construct water mains, services and hydrants, and wastewater treatment and disposal plant. Effective with the Tax Cuts and Jobs Act, or TCJA, in 2017 CIAC was taxable and the DEPSC, MDPSC and PAPUC allowed the Company to collect additional CIAC to pay the associated tax. In 2021, legislation was issued to amend the TCJA, which now exempts CIAC from income taxes for regulated water and wastewater utilities, effective for all of 2021 and forward. The Company will refund developers a total of $3.2 million for the additional CIAC collected in 2021 to pay the associated tax. As of December 31, 2021, this refund amount is recorded in Current Liabilities – Accounts Payable on the Company’s Consolidated Balance Sheets. Regulatory Liabilities FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency. Certain obligations are deferred and/or amortized as determined by the DEPSC, MDPSC, and PAPUC. Regulatory liabilities represent excess recovery of cost or other items that have been deferred because it is probable such amounts will be returned to customers through future regulated rates. Utility plant retirement cost obligation consists of estimated costs related to the potential removal and replacement of facilities and equipment on the Company’s water and wastewater properties. Effective January 1, 2012, as authorized by the DEPSC, when depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received, is charged to a regulated retirement liability. Each year the liability is increased by an annual amount authorized by the DEPSC. Pursuant to the enactment of the TCJA on December 22, 2017, the Company adjusted its existing deferred income tax balances to reflect the decrease in the corporate income tax rate from 34% to 21% (see Note 5) resulting in a decrease in the net deferred income tax liability of $24.3 million, of which $22.8 million was reclassified to a regulatory liability related to Artesian Water and Artesian Water Maryland. The regulatory liability amount is subject to certain Internal Revenue Service normalization rules that require the benefits to customers be spread over the remaining useful life of the underlying assets giving rise to the associated deferred income taxes. On January 31, 2019, the DEPSC approved the amortization of the regulatory liability amount of $22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date. This audit is currently underway by the DEPSC, no final ruling has been made. The MDPSC has not issued a final order on the regulatory liability amount of $0.6 million regarding the effects of the TCJA on Maryland customers.
Regulatory liabilities comprise: |
|  | (in thousands) |
|  | December 31, 2021 |  |  | December 31, 2020 |
Utility plant retirement cost obligation |  | $ | 149 |  |  | $ | 126 |
Deferred income taxes (related to TCJA) |  |  | 21,111 |  |  |  | 21,555 |
|  | $ | 21,260 |  |  | $ | 21,681 |
Income Taxes Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse. The Company’s rate regulated utilities recognize regulatory liabilities, to the extent considered in ratemaking, for deferred taxes provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the current statutory rate. Such tax-related regulatory assets and liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties. Under FASB ASC Topic 740, an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes. The Company establishes reserves for uncertain tax positions based upon management's judgment as to the sustainability of these positions. These accounting estimates related to the uncertain tax position reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits. The Company believes its tax positions comply with applicable law and that it has adequately recorded reserves as required. However, to the extent the final tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known. The statute of limitations for the 2017 Corporate tax returns lapsed during the fourth quarter of 2021, which resulted in the reversal of the reserve in the amount of approximately $26,000. The statute of limitations for the 2016 Corporate tax returns lapsed during the fourth quarter of 2020. The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense. The Company has accrued approximately $19,000 in penalties and interest for the year ended December 31, 2021. The Company remains subject to examination by federal and state authorities for the tax years 2018 through 2021. Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives of the related assets. Stock Compensation Plans On December 9, 2015, the Company's stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan. The 2015 Plan provides that grants may be in any of the following forms: incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based awards. The 2015 Plan is administered and interpreted by the Compensation Committee, or the Committee, of the Board of Directors of the Company, or the Board. The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, the type, size and terms of the grants, the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan), and deal with any other matters arising under the 2015 Plan. The Committee presently consists of three directors, each of whom is a non-employee director of the Company. All of the employees of the Company and its subsidiaries and non-employee directors of the Company are eligible for grants under the 2015 Plan. The Company accounts for stock options issued after January 1, 2006 under FASB ASC Topic 718. Compensation expenses for restricted stock awards were $193,000, $178,000 and $181,000 in 2021, 2020 and 2019, respectively. Costs were determined based on the fair value on the dates of the awards and those costs were charged to income over the service periods associated with the awards. As of December 31, 2021, there was $68,000 of unrecognized expense related to non-vested awards of restricted shares granted under the 2015 Plan. There was no stock compensation cost capitalized as part of an asset. Stock Options No options were granted in 2019, 2020 or 2021. Shares of Class A Stock have been reserved for future issuance under the 2015 Plan. Stock Awards On May 4, 2021, 5,000 shares of Class A Stock were granted as restricted stock awards. The fair value per share was $40.11, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 4, 2021. Prior to their release date, these restricted stock awards may be subject to forfeiture in the event of the recipient’s termination of service. On May 6, 2020, 5,000 shares of Class A Stock were granted as restricted stock awards. The fair value per share was $35.01, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 6, 2020. These shares were fully vested and released one year after the grant date. On May 8, 2019, 5,000 shares of Class A Stock were granted as restricted stock awards. The fair value per share was $36.11, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 8, 2019. These shares were fully vested and released one year after the grant date. Revenue Recognition and Unbilled Revenues See Note 2 to our Consolidated Financial Statements for a full description of our revenue recognition. Leases The Company has agreements for land easements and office equipment under operating leases. Management makes certain estimates and assumptions regarding each lease agreement, renewal and amendment, including, but not limited to, discount rates and probable term, which can impact the escalations in payment that are taken into consideration when calculating the straight line basis. The amount of rent expense and income reported could vary if different estimates and assumptions are used. Management also makes certain estimates and assumptions regarding the fair value of the leased property at lease commencement and the separation of lease and nonlease components. See Note 3 to our Consolidated Financial Statements for a full description of our leases. Accounts Receivable Accounts receivable are recorded at the invoiced amounts. An allowance for doubtful accounts is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current conditions. We mitigate our exposure to credit losses by discontinuing services in the event of non-payment; accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant. However, due to the coronavirus pandemic, or COVID-19, causing hardships for many utility customers, state government agencies issued executive orders in March 2020 requiring utility companies to take a number of steps to support their customers and communities, including prohibiting service disconnections for non-payment and prohibiting late fees. The Company experienced longer receivable cycles throughout 2020 and into 2021 and made an adjustment to increase the reserve for bad debt by $0.5 million in 2020. In June 2021 we made an adjustment to reduce the reserve by $0.3 million. Account balances are written off against the allowance when it is probable the receivable will not be recovered. The allowance for doubtful accounts was $0.4 million and $0.9 million at December 31, 2021 and December 31, 2020, respectively. The corresponding expense, excluding the reserve adjustment noted above, for the years ended December 31, 2021 and 2020 was $0.1 million and $0.2 million, respectively. The following table summarizes the changes in the Company’s accounts receivable balance:
|  | December 31, |
In thousands |  | 2021 |  |  | 2020 |
Customer accounts receivable – water |  | $ | 5,986 |  |  | $ | 6,707 |
Customer accounts receivable – wastewater |  |  | 1,326 |  |  |  | 1,717 |
Miscellaneous accounts receivable |  |  | 698 |  |  |  | 699 |
Developer receivable |  |  | 1,282 |  |  |  | 1,901 |
|  |  | 9,292 |  |  |  | 11,024 |
Less allowance for doubtful accounts |  |  | 429 |  |  |  | 862 |
Net accounts receivable |  | $ | 8,863 |  |  | $ | 10,162 |
The activities in the allowance for doubtful accounts are as follows:
|  | December 31, |
In thousands |  | 2021 |  |  | 2020 |
Beginning balance |  | $ | 862 |  |  | $ | 264 |
Allowance adjustments |  |  | (236 | ) |  |  | 754 |
Recoveries |  |  | 25 |  |  |  | 13 |
Write off of uncollectible accounts |  |  | (222 | ) |  |  | (169 | )
Ending balance |  | $ | 429 |  |  | $ | 862 |
Cash and Cash Equivalents For purposes of the Consolidated Statement of Cash Flows, Artesian Resources considers all temporary cash investments with an original maturity of three months or less to be cash equivalents.Artesian Resources and its subsidiaries utilize their bank's zero balance account disbursement service to reduce the use of their lines of credit by funding checks as they are presented to the bank for payment rather than at issuance. If the checks currently outstanding, but not yet funded, exceed the cash balance on our books, the net liability is recorded as a current liability on the Consolidated Balance Sheet in the Overdraft Payable account. Use of Estimates in the Preparation of Consolidated Financial Statements The consolidated financial statements were prepared in conformity with generally accepted accounting principles in the U.S., which require management to make estimates about the reported amounts of assets and liabilities including unbilled revenues, reserve for a portion of revenues received under temporary rates and regulatory asset recovery and contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management's estimates. Management makes certain estimates and assumptions regarding each lease agreement, renewal and amendment, including, but not limited to, discount rates and probable term, which can impact the escalations in payment that are taken into consideration when calculating the straight line basis. The amount of rent expense and income reported could vary if different estimates and assumptions are used. Management also makes certain estimates and assumptions regarding the fair value of the leased property at lease commencement and the separation of lease and nonlease components. As of December 31, 2021, the Company’s financial results and business operations have not been materially adversely affected by the coronavirus, or COVID-19, outbreak, which was declared a pandemic in March 2020. However, we have experienced delays in procuring some materials and supplies. While we have been successful in managing these delays, there is no assurance that our future financial results or business operations will not be negatively affected. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Management is actively monitoring the situation and impacts on its operations, suppliers, industry, and workforce.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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