XML 23 R8.htm IDEA: XBRL DOCUMENT
v3.24.1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
--- | ---
Dec. 31, 2023
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. Reclassification Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. These reclassifications had no effect on net income or stockholders’ equity. Regulated Utility 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. See Note 18 (Business Segment Information) to our Consolidated Financial Statements for a full description of our segment information. 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 certain estimates and assumptions regarding the reported amounts of assets and liabilities including unbilled revenues, credit losses and reserves for bad debt, regulatory asset recovery, lease agreements, goodwill 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. All additions to utility plant are recorded at cost. Business combinations pursuant to ASC Topic 805 may result in a purchase price allocation and the acquired assets are required to be evaluated by the applicable regulatory agency. Artesian Wastewater acquired TESI in January 2022 and Artesian Water purchased substantially all of the water operating assets from the Town of Clayton in May 2022. On December 31, 2022, the fair value determinations for TESI and the water operating assets acquired from the Town of Clayton were finalized. 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. Allowance for Funds Used during Construction, or AFUDC, is a non-cash credit to income with a corresponding charge to utility plant that represents the cost of borrowed funds or a return on equity funds devoted to plant under construction. Presented in the table below is AFUDC for the years ended December 31:
In thousands |  |  |  |  |  |  |  |
|  | 2023 |  |  | 2022 |  |  | 2021
AFUDC - Debt | $ | 759 |  | $ | 435 |  | $ | 267
AFUDC - Equity | $ | 1,243 |  | $ | 894 |  | $ | 556
Utility plant comprises: |  |  |  |  |  |
In thousands |  |  |  |  |  |
|  |  |  |  | December 31, |
|  | Estimated Useful Life (In Years) |  |  | 2023 |  |  | 2022 |
Utility plant at original cost |  |  |  |  |  |  |  |  |
Utility plant in service-Water |  |  |  |  |  |  |  |  |
Intangible plant |  |  | — |  |  | $ | 140 |  |  | $ | 140 |
Source of supply plant |  |  | 45-85 |  |  |  | 29,960 |  |  |  | 25,223 |
Pumping and water treatment plant |  |  | 8-62 |  |  |  | 130,337 |  |  |  | 116,915 |
Transmission and distribution plant |  |  |  |  |  |  |  |  |  |  |  |
Mains |  |  | 81 |  |  |  | 370,977 |  |  |  | 338,368 |
Services |  |  | 39 |  |  |  | 60,818 |  |  |  | 56,396 |
Storage tanks |  |  | 76 |  |  |  | 40,933 |  |  |  | 34,567 |
Meters |  |  | 26 |  |  |  | 30,318 |  |  |  | 29,720 |
Hydrants |  |  | 60 |  |  |  | 18,980 |  |  |  | 17,751 |
General plant |  |  | 5-31 |  |  |  | 67,317 |  |  |  | 65,632 |
Utility plant in service-Wastewater |  |  |  |  |  |  |  |  |  |  |  |
Intangible plant |  |  | — |  |  |  | 116 |  |  |  | 117 |
Treatment and disposal plant |  |  | 21-81 |  |  |  | 67,789 |  |  |  | 66,178 |
Collection mains & lift stations |  |  | 81 |  |  |  | 51,539 |  |  |  | 49,431 |
General plant |  |  | 5-31 |  |  |  | 2,478 |  |  |  | 1,845 |
Property held for future use |  |  | — |  |  |  | 4,028 |  |  |  | 4,489 |
Construction work in progress |  |  | — |  |  |  | 23,724 |  |  |  | 34,213 |
|  |  |  |  |  |  | 899,454 |  |  |  | 840,985 |
Less – accumulated depreciation |  |  |  |  |  |  | 185,170 |  |  |  | 172,954 |
|  |  |  |  |  | $ | 714,284 |  |  | $ | 668,031 |
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 2.13%, 2.16% and 2.17% for 2023, 2022 and 2021, 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 First Mortgage bonds. Debt issuance costs and other debt related expenses are reviewed during Artesian Water’s rate applications as part of its cost of capital calculations. Affiliated interest agreement deferred costs relate to the regulatory and administrative costs resulting from efforts necessary to secure water allocations in Artesian Water Pennsylvania’s territory for the provision of service to the surrounding area and interconnection to Artesian Water Pennsylvania’s affiliate regulated water utility Artesian Water. These costs were specifically included for cost recovery pursuant to an Affiliated Interest Agreement between Artesian Water and Artesian Water Pennsylvania and were approved for recovery by the PAPUC and were reclassed from deferred costs to a regulatory asset in 2022. Amortization of these deferred costs began in the fourth quarter of 2023. 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 | 3
Maryland rate proceedings | 5
Debt related costs | 15 to 30 (based on term of related debt)
Deferred costs affiliated interest agreement | 20
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, 2023 |  | December 31, 2022
Deferred contract costs and other | $ | 209 |  | $ | 227
Rate case studies |  | 136 |  |  | 57
Rate proceedings |  | 385 |  |  | —
Deferred income taxes |  | 444 |  |  | 465
Debt related costs |  | 4,322 |  |  | 4,682
Deferred costs affiliated interest agreement |  | 1,110 |  |  | 1,114
Goodwill |  | 258 |  |  | 266
Deferred acquisition and franchise costs |  | 425 |  |  | 463
| $ | 7,289 |  | $ | 7,274
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, 2023, 2022 and 2021, there was no impairment or regulatory disallowance identified in our review. Goodwill The Company records goodwill when the purchase price of a business combination exceeds the estimated fair value of net identified tangible and intangible assets acquired. At December 31, 2023 and December 31, 2022, the Company had approximately $1.9 million of goodwill, respectively. The $1.9 million of goodwill arose from the January 2022 acquisition of Tidewater Environmental Services, Inc. Artesian Wastewater operates as the parent holding company of Tidewater Environmental Services, Inc. dba Artesian Wastewater, or TESI, and is a subsidiary of our Regulated Utility segment. In accordance with the accounting guidance for testing goodwill for impairment, the Company performs an annual assessment. In 2023, the Company used the optional qualitative assessment, "step zero", to identify and evaluate relevant events and circumstances to conclude whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill. Relevant events and circumstances assessed included macroeconomic conditions, industry and market conditions, cost factors, financial performance, management and overall strategy. After evaluating and weighing these relevant events and circumstances, it was concluded that there was no impairment of goodwill and it was not necessary to perform quantitative testing. 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. The settlement agreement receivable is related to the long-term portion of reimbursements due in years 2024 and 2025 as further discussed in Note 1 – Accounts Receivable. Other deferred assets at December 31, net of amortization, comprise:
In thousands |  | 2023 |  |  | 2022 |
Investment in CoBank |  | $ | 5,882 |  |  | $ | 5,351 |
Settlement agreement receivable-long term |  |  | 2,496 |  |  |  | 4,991 |
Other deferred assets |  |  | 126 |  |  |  | 194 |
|  | $ | 8,504 |  |  | $ | 10,536 |
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 subsidiaries for costs to construct water mains, services and hydrants, and wastewater treatment and disposal plants. 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 enacted to amend the TCJA, which now exempts CIAC from income taxes for regulated water and wastewater utilities, effective for all of 2021 and forward. In 2022 the Company refunded developers a total of $3.6 million for the additional CIAC collected in 2021 to pay the associated tax. For the years ended December 31, 2023 and December 31, 2022, Artesian Water received approximately $3.8 million and $2.0 million, respectively, in grant funding from the State of Delaware, Delaware Department of Health and Social Services, Division of Public Health, or DPH, pursuant to grant agreements. The grants were used by Artesian Water to cover the costs associated with certain construction projects. The grant funds received under the grant agreements were recorded in accordance with the requirements under FASB ASC Topic 980, in Net contributions in aid of construction in the Consolidated Balance Sheets. Pursuant to the grant agreements, Artesian Water is no longer eligible to receive grant funds under these grants. 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. Deferred settlement refunds consist of reimbursements from the Delaware Sand and Gravel Remedial Trust for Artesian Water’s past capital and operating costs, totaling approximately $10.0 million, related to the treatment costs associated with the release of contaminants from the Delaware Sand & Gravel Landfill Superfund Site in groundwater that Artesian Water uses for public potable water supply, pursuant to the Settlement Agreement. Two installments for approximately $2.5 million each were paid in August 2022 and July 2023. The remaining $5.0 million is due in two equal installments no later than July of 2024 and 2025. Artesian Water received approval from the DEPSC in October 2022 to refund to its customers these reimbursements for past capital and operating costs. The refund for the reimbursements will be applied to current and future customer bills in annual installments. The first two refunds occurred in October 2022 and August 2023. Future customer refunds will occur no later than August 2024 and August 2025. The amount of the credit will be calculated by dividing the amount of the reimbursement by the number of eligible customers. Beginning in 2022, Artesian Water began recording 2022 and future recovery of capital expenditures as Contributions in Aid of Construction and began recording expense recovery as an offset to operations and maintenance expense, with the intention that those recoveries will be available for inclusion and consideration in any future rate applications. For a full discussion of the Settlement Agreement, refer to Note 17 – Legal Proceedings. The deferred settlement refunds were $5.0 million and $7.5 million at December 31, 2023 and December 31, 2022, respectively. Pursuant to the enactment of the Tax Cuts and Jobs Act, or 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 – Income Taxes) 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. In May 2022, the Company received a rate order from the DEPSC instructing the Company to continue amortizing the liability over a period of 49.5 years, subject to review in the Company’s next base rate filing. 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. The deferred income taxes, related to TCJA, were $20.7 million and $21.2 million at December 31, 2023 and December 31, 2022, respectively. 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 subsidiaries 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 2018 tax returns lapsed during the third quarter of 2022, which resulted in the reversal of the reserve in the amount of approximately $212,000. 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. During the third quarter of 2022, the Company reversed approximately $10,000 in penalties and interest, leaving a zero balance. During 2023, the Company has accrued approximately $12,000 in penalties and interest related to positions taken on the 2022 corporate income tax return. The Company remains subject to examination by federal and state authorities for the tax years 2020 through 2023. 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 See Note 9 (Stock Compensation Plans) to our Consolidated Financial Statements for a full description of our stock compensation plans. Revenue Recognition and Unbilled Revenues See Note 2 (Revenue Recognition) 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 (Leases) to our Consolidated Financial Statements for a full description of our leases. Accounts Receivable Accounts receivable are recorded at the invoiced amounts. As set forth in a settlement agreement, Artesian Water will receive reimbursements from the Delaware Sand and Gravel Remedial Trust, or Trust, for Artesian Water’s past capital and operating costs, totaling approximately $10.0 million, related to the treatment costs associated with the release of contaminants from the Delaware Sand & Gravel Landfill Superfund Site, or Site, in groundwater that Artesian Water uses for public potable water supply. Two installments for approximately $2.5 million each were paid in August 2022 and July 2023. The remaining $5.0 million is due in two equal installments no later than July of 2024 and 2025. In addition, the Trust shall reimburse Artesian Water for documented reasonable and necessary capital and operating costs after July 1, 2021 that Artesian Water incurs to treat contaminants of concern and of emerging concern. A provision for expected credit loss is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current and reasonable projections based upon expected economic conditions. We mitigate our exposure to credit losses by discontinuing services in the event of non-payment; accordingly, the related provision for expected credit loss and associated bad debt expense has not been significant. The provision for expected credit loss was $0.3 million and $0.4 million at December 31, 2023 and December 31, 2022, respectively. The corresponding expense for the years ended December 31, 2023 and 2022 was $0.1 million and $0.1 million, respectively, reported in Operating expenses – Utility and Non-utility operating expenses on the Company’s Consolidated Statements of Operations.The following table summarizes the changes in the Company’s accounts receivable balance:
|  | December 31, |
In thousands |  | 2023 |  |  | 2022 |  |  | 2021 |
Customer accounts receivable – water |  | $ | 6,573 |  |  | $ | 5,981 |  |  | $ | 5,986 |
Customer accounts receivable – wastewater |  |  | 513 |  |  |  | 482 |  |  |  | 1,326 |
Settlement agreement receivable – short term |  |  | 2,747 |  |  |  | 2,532 |  |  |  | — |
Miscellaneous accounts receivable |  |  | 1,236 |  |  |  | 3,781 |  |  |  | 786 |
Developer receivable |  |  | 2,089 |  |  |  | 1,151 |  |  |  | 698 |
|  |  | 13,158 |  |  |  | 13,927 |  |  |  | 8,796 |
Less provision for expected credit loss |  |  | 328 |  |  |  | 416 |  |  |  | 429 |
Net accounts receivable |  | $ | 12,830 |  |  | $ | 13,511 |  |  | $ | 8,367 |
The activities in the provision for expected credit loss are as follows:
|  | December 31, |
In thousands |  | 2023 |  |  | 2022 |
Beginning balance |  | $ | 416 |  |  | $ | 429 |
Provision adjustments |  |  | 92 |  |  |  | 146 |
Recoveries |  |  | 48 |  |  |  | 28 |
Write off of uncollectible accounts |  |  | (228 | ) |  |  | (187 | )
Ending balance |  | $ | 328 |  |  | $ | 416 |
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. Inventories Inventories consist of materials and supplies related to water and wastewater utility plant. These materials and supplies are used for new construction and repairs and are recorded at the purchase cost. Usage costs are determined by the first-in, first-out method. The Company adjusts inventory value based on historical usage and forecasted demand.

X
- 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 -Topic 235 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//235/tableOfContent + Details
Name: | us-gaap_BasisOfPresentationAndSignificantAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_OrganizationConsolidationAndPresentationOfFinancialStatementsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration