Certain statements contained in this annual report and in documents incorporated by reference constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Words such as "may," "should," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements. These forward-looking statements include certain information relating to the Company’s business strategy; statements including, but not limited to:
The forward-looking statements in this Annual Report reflect what the Company currently anticipates will happen. What actually happens could differ materially from what it currently anticipates will happen. The Company does not intend to make a public announcement when forward-looking statements in this Annual Report are no longer accurate, whether as a result of new information, what actually happens in the future or for any other reason. Important matters that may affect what will actually happen include, but are not limited to:
Notes to Financial Statements
(In thousands of dollars, except per share amounts)
1.
|
Significant Accounting Policies
|
The primary business of The York Water Company, or Company, is to impound, purify and distribute water. The Company also operates two wastewater collection and treatment systems. The Company operates within its franchised territory located in York and Adams Counties, Pennsylvania, and is subject to regulation by the Pennsylvania Public Utility Commission, or PPUC.
The following summarizes the significant accounting policies employed by The York Water Company.
Utility Plant and Depreciation
The cost of additions includes contracted cost, direct labor and fringe benefits, materials, overhead and, for certain utility plant, allowance for funds used during construction. In accordance with regulatory accounting requirements, water and wastewater systems acquired are recorded at estimated original cost of utility plant when first devoted to utility service and the applicable depreciation is recorded to accumulated depreciation. The difference between the estimated original cost less applicable accumulated depreciation, and the purchase price and acquisition costs is recorded as an acquisition adjustment within utility plant as permitted by the PPUC. At December 31, 2016 and 2015, utility plant includes a net credit acquisition adjustment of $3,667 and $3,724, respectively. For those amounts approved by the PPUC, the net acquisition adjustment is being amortized over the remaining life of the respective assets. Certain amounts are still awaiting approval from the PPUC before amortization will commence. Amortization amounted to $58 in 2016, $58 in 2015, and $54 in 2014.
Upon normal retirement of depreciable property, the estimated or actual cost of the asset is credited to the utility plant account, and such amounts, together with the cost of removal less salvage value, are charged to the reserve for depreciation. To the extent the Company recovers cost of removal or other retirement costs through rates after the retirement costs are incurred, a regulatory asset is reported. Gains or losses from abnormal retirements are reflected in income currently.
The straight-line remaining life method is used to compute depreciation on utility plant cost, exclusive of land and land rights. Annual provisions for depreciation of transportation and mechanical equipment included in utility plant are computed on a straight-line basis over the estimated service lives. Such provisions are charged to clearing accounts and apportioned therefrom to operating expenses and other accounts in accordance with the Uniform System of Accounts as prescribed by the PPUC.
The Company charges to maintenance expense the cost of repairs and replacements and renewals of minor items of property. Maintenance of transportation equipment is charged to clearing accounts and apportioned therefrom in a manner similar to depreciation. The cost of replacements, renewals and betterments of units of property is capitalized to the utility plant accounts.
The following remaining lives are used for financial reporting purposes:
|
|
December 31,
|
|
|
Approximate range
|
|
Utility Plant Asset Category
|
|
2016
|
|
|
2015
|
|
|
of remaining lives
|
|
Mains and accessories
|
|
$
|
176,068
|
|
|
$
|
170,991
|
|
|
10 – 83 years
|
|
Services, meters and hydrants
|
|
|
68,510
|
|
|
|
66,267
|
|
|
19 – 54 years
|
|
Operations structures, reservoirs and water tanks
|
|
|
46,494
|
|
|
|
44,739
|
|
|
11 – 37 years
|
|
Pumping and treatment equipment
|
|
|
29,459
|
|
|
|
27,664
|
|
|
2 – 33 years
|
|
Office, transportation and operating equipment
|
|
|
12,360
|
|
|
|
11,725
|
|
|
3 – 20 years
|
|
Land and other non-depreciable assets
|
|
|
3,172
|
|
|
|
3,172
|
|
|
|
-
|
|
Utility plant in service
|
|
|
336,063
|
|
|
|
324,558
|
|
|
|
|
|
Construction work in progress
|
|
|
7,349
|
|
|
|
4,857
|
|
|
|
-
|
|
Total Utility Plant
|
|
$
|
343,412
|
|
|
$
|
329,415
|
|
|
|
|
|
The effective rate of depreciation was 2.25% in 2016, 2.24% in 2015, and 2.26% in 2014 on average utility plant, net of customers' advances and contributions. Larger depreciation provisions resulting from allowable accelerated methods are deducted for tax purposes.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents except for those instruments earmarked to fund construction expenditures or repay long-term debt.
The Company periodically maintains cash balances in major financial institutions in excess of the federally insured limit by the Federal Deposit Insurance Corporation (FDIC). The Company has not experienced any losses and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Accounts Receivable
Accounts receivable are stated at outstanding balances, less a reserve for doubtful accounts. The reserve for doubtful accounts is established through provisions charged against income. Accounts deemed to be uncollectible are charged against the reserve and subsequent recoveries, if any, are credited to the reserve. The reserve for doubtful accounts is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management's periodic evaluation of the adequacy of the reserve is based on past experience, agings of the receivables, adverse situations that may affect a customer's ability to pay, current economic conditions, and other relevant factors. This evaluation is inherently subjective. Unpaid balances remaining after the stated payment terms are considered past due.
Revenue Recognition
Operating revenues include amounts billed to water customers on a cycle basis and unbilled amounts based on actual and estimated usage from the latest meter reading to the end of the accounting period. Operating revenues also include amounts billed to wastewater customers as either a flat monthly fee or a metered rate based on water consumption. The metered wastewater revenue includes actual and estimated usage from the latest meter reading to the end of the accounting period.
Materials and Supplies Inventories
Materials and supplies inventories are stated at cost. Costs are determined using the average cost method.
Notes Receivable
Notes receivable are recorded at cost and represent amounts due from various municipalities for construction of water mains in their particular municipality. Management, considering current information and events regarding the borrowers' ability to repay their obligations, considers a note to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the note agreement. When a note is considered to be impaired, the carrying value of the note is written down. The amount of the impairment is measured based on the present value of expected future cash flows discounted at the note's effective interest rate.
Regulatory Assets and Liabilities
The Company is subject to the provisions of generally accepted accounting principles regarding rate-regulated entities. The accounting standards provide for the recognition of regulatory assets and liabilities as allowed by regulators for costs or credits that are reflected in current customer rates or are considered probable of being included in future rates. The regulatory assets or liabilities are then relieved as the cost or credit is reflected in rates. Regulatory assets represent costs that are expected to be fully recovered from customers in future rates while regulatory liabilities represent amounts that are expected to be refunded to customers in future rates. These deferred costs have been excluded from the Company’s rate base and, therefore, no return is being earned on the unamortized balances.
Regulatory assets and liabilities are comprised of the following:
|
|
December 31,
|
|
Remaining
|
|
|
2016
|
|
|
2015
|
|
Recovery Periods
|
Assets
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
20,609
|
|
|
$
|
18,389
|
|
Various
|
Postretirement benefits
|
|
|
7,471
|
|
|
|
9,819
|
|
5 – 10 years
|
Unrealized swap losses
|
|
|
2,264
|
|
|
|
2,481
|
|
1 – 13 years
|
Utility plant retirement costs
|
|
|
2,679
|
|
|
|
2,247
|
|
5 years
|
Service life study expenses
|
|
|
4
|
|
|
|
3
|
|
1 years
|
Rate case filing expenses
|
|
|
-
|
|
|
|
57
|
|
|
|
|
|
33,027
|
|
|
|
32,996
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
IRS TPR catch-up deduction
|
|
|
3,887
|
|
|
|
3,887
|
|
Not yet known
|
Income taxes
|
|
|
753
|
|
|
|
776
|
|
1 – 50 years
|
|
|
$
|
4,640
|
|
|
$
|
4,663
|
|
|
The regulatory asset for income taxes includes (a) deferred state income taxes related primarily to differences between book and tax depreciation expense, (b) deferred income taxes related to the differences that arise between specific asset improvement costs capitalized for book purposes and deducted as a repair expense for tax purposes, and (c) deferred income taxes associated with the gross-up of revenues related to the differences. These assets are recognized for ratemaking purposes on a cash or flow-through basis and will be recovered in rates as they reverse.
Postretirement benefits include the difference between contributions and deferred pension expense and the underfunded status of the pension plans. The underfunded status represents the difference between the projected benefit obligation and the fair market value of the assets. This asset is expected to be recovered in future years as additional contributions are made or market conditions accelerate. The recovery period is dependent on contributions made to the plans, plan asset performance and the discount rate used to value the obligations. The period is estimated at between 5 and 10 years.
The Company uses regulatory accounting treatment to defer the mark-to-market unrealized gains and losses on its interest rate swap to reflect that the gain or loss is included in the ratemaking formula when the transaction actually settles. The value of the swap as of the balance sheet date is recorded as part of other deferred credits. Realized gains or losses on the swap will be recorded as interest expense in the statement of income over its remaining life of 13 years.
Utility plant retirement costs represents costs already incurred for the removal of assets, which are expected to be recovered over a five-year period in rates, through depreciation expense. Service life study expenses are deferred and amortized over their remaining life of one year. Rate case filing expenses were fully amortized in 2016.
The regulatory liability for the Internal Revenue Service, or IRS, tangible property regulations, or TPR, catch-up deduction represents the tax benefits realized on the Company’s 2014 income tax return for qualifying capital expenditures made prior to 2014. The Company will seek approval from the PPUC in its next rate filing to amortize the catch-up deduction.
The regulatory liability for income taxes relates mainly to deferred investment tax credits, and additionally to deferred taxes related to postretirement death benefits and bad debts. These liabilities will be given back to customers in rates as tax deductions occur over the next 1 to 50 years.
Regulatory liabilities are part of other accrued expenses and other deferred credits on the balance sheets.
Other Assets
Other assets consist mainly of the cash value of life insurance policies held as an investment by the Company for reimbursement of costs and benefits associated with its supplemental retirement and deferred compensation programs.
Deferred Debt Expense
Deferred debt expense is amortized on a straight-line basis over the term of the related debt and is presented on the balance sheet as a direct reduction from long-term debt.
Customers' Advances for Construction
Customer advances are cash payments from developers, municipalities, customers or builders for construction of utility plant, and are refundable upon completion of construction, as operating revenues are earned. If the Company loans funds for construction to the customer, the refund amount is credited to the note receivable rather than paid out in cash. After all refunds to which the customer is entitled are made, any remaining balance is transferred to contributions in aid of construction. From 1986 to 1996 when customer advances were taxable income to the Company, additional funds were collected from customers to cover the taxes. Those funds were recorded as a liability within Customer Advances for Construction and were amortized as deferred income over the tax life of the underlying assets. These amounts were fully amortized in 2016.
Contributions in Aid of Construction
Contributions in Aid of Construction is composed of (i) direct, non-refundable contributions from developers, customers or builders for construction of water infrastructure and (ii) customer advances that have become non-refundable. Contributions in aid of construction are deducted from the Company’s rate base, and therefore, no return is earned on property financed with contributions. The PPUC requires that contributions received remain on the Company’s balance sheets indefinitely as a long-term liability.
Interest Rate Swap Agreement
The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. The Company utilizes an interest rate swap agreement to convert its variable-rate debt to a fixed rate. Interest rate swaps are contracts in which a series of interest rate cash flows are exchanged over a prescribed period. The notional amount on which the interest payments are based is not exchanged. The Company has designated the interest rate swap agreement as a cash flow hedge, classified as a financial derivative used for non-trading activities.
The accounting standards regarding accounting for derivatives and hedging activities require companies to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheets. In accordance with the standards, the interest rate swap is recorded on the balance sheets in other deferred credits at fair value.
The Company uses regulatory accounting treatment rather than hedge accounting to defer the unrealized gains and losses on its interest rate swap. Instead of the effective portion being recorded as other comprehensive income and the ineffective portion being recognized in earnings, the entire unrealized swap value is recorded as a regulatory asset. Based on current ratemaking treatment, the Company expects the gains and losses to be recognized in rates and in interest expense as the swap settlements occur. Swap settlements are recorded in the income statement with the hedged item as interest expense. Swap settlements resulted in the reclassification from regulatory assets to interest expense of $345 in 2016, $366 in 2015, and $368 in 2014. The overall swap result was a loss of $128 in 2016, $285 in 2015, and $1,318 in 2014. During the twelve months ending December 31, 2017, the Company expects to reclassify $310 (before tax) from regulatory assets to interest expense.
The interest rate swap will expire on October 1, 2029.
Stock-Based Compensation
The Company records compensation expense in the financial statements for stock-based awards based on the grant date fair value of those awards. Stock-based compensation expense is recognized over the requisite service periods of the awards on a straight-line basis, which is generally commensurate with the vesting term. Forfeitures are recognized as they occur.
Income Taxes
Certain income and expense items are accounted for in different time periods for financial reporting than for income tax reporting purposes.
Deferred income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. To the extent such income taxes increase or decrease future rates, an offsetting regulatory asset or liability has been recorded.
Investment tax credits have been deferred and are being amortized to income over the average estimated service lives of the related assets. As of December 31, 2016 and 2015, deferred investment tax credits amounted to $657 and $696, respectively.
The Company filed for a change in accounting method under the IRS TPR effective in 2014. Under the change in accounting method, the Company is permitted to deduct the costs of certain asset improvements that were previously being capitalized and depreciated for tax purposes as an expense on its income tax return. The Company is permitted to make this deduction for prior years (the “catch-up deduction”) and each year going forward, beginning with 2014 (the “ongoing deduction”). The ongoing deduction results in a reduction in the effective income tax rate, a net reduction in income tax expense, and a reduction in the amount of income taxes currently payable. The catch-up deduction resulted in a decrease in current income taxes payable and an increase to regulatory liabilities. The Company will seek approval from the PPUC in its next rate filing to amortize the remaining catch-up deduction recorded as a regulatory liability. Both the ongoing and catch-up deductions resulted in increases to deferred tax liabilities and regulatory assets representing the appropriate book and tax basis difference on capital additions.
Allowance for Funds Used During Construction
Allowance for funds used during construction (AFUDC) represents the estimated cost of funds used for construction purposes during the period of construction. These costs are reflected as non-cash income during the construction period and as an addition to the cost of plant constructed. AFUDC includes the net cost of borrowed funds and a rate of return on other funds. The PPUC approved rate of 10.04% was applied for 2016 and 2014. The Company applied a blended rate in 2015 due to its partial use of tax-exempt financing for 2015 construction projects. The tax-exempt borrowing rates of 4.00% - 4.50% were applied to those expenditures so financed, whereas the approved 10.04% rate was applied to the remainder of 2015 expenditures. AFUDC is recovered through water and wastewater rates as utility plant is depreciated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain 2015 and 2014 amounts have been reclassified to conform to the 2016 presentation. Such reclassifications had no effect on net income, the statement of common stockholders’ equity, or the statement of cash flow category reporting.
Impact of Recent Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-15,
Statement of Cash Flows (Topic 320): Classification of Certain Cash Receipts and Cash Payments.
This ASU clarifies how certain cash receipts and payments should be presented in the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption available. The Company does not expect the adoption of this standard to have a material impact on its financial position, results of operations and cash flows.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. This ASU involves multiple aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption available. The Company adopted this ASU in 2016 upon its first issuance of share-based payments. The adoption of this ASU did not have any impact on its prior financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, which replaces the existing guidance in Accounting Standard Codification 840 – Leases. This ASU requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize a straight-line total lease expense. This ASU is effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of the standard, but it expects the adoption to have little or no effect on its financial position, results of operations and cash flows.
In November 2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
. This ASU requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. This ASU is effective for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. Early adoption is permitted, and the Company adopted this ASU in the first quarter of 2016. The Company applied the ASU retrospectively and reclassified the current deferred income tax asset of $215 to offset the noncurrent deferred income tax liability on the December 31, 2015 balance sheet. The adoption did not have a material impact on the results of operations or cash flows of the Company.
In April 2015, the FASB issued ASU No. 2015-03,
Simplifying the Presentation of Debt Issuance Costs.
This ASU clarifies the required presentation of debt issuance costs. The standard requires that debt issuance costs be presented on the balance sheet as a direct reduction from the carrying amount of the recognized debt liability, consistent with the treatment of debt discounts. Amortization of debt issuance costs is to be reported as interest expense. The recognition and measurement guidance for debt issuance costs are not affected by the standard. This ASU is effective for fiscal years beginning after December 15, 2015, and the Company adopted this ASU in the first quarter of 2016. The Company applied the ASU retrospectively and reclassified the deferred debt expense asset of $2,743 to offset long-term debt on the December 31, 2015 balance sheet. The adoption did not have a material impact on the results of operations or cash flows of the Company.
In August 2014, the FASB issued ASU No. 2014-15,
Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,
which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements. Further, an entity must provide certain disclosures if there is substantial doubt about the entity’s ability to continue as a going concern. The ASU is effective for fiscal years ending on or after December 15, 2016 and interim periods thereafter. The Company adopted this ASU in 2016. The Company is complying with these assessments, but the adoption of this ASU did not have any impact on its financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers.
This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605—Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, deferring the effective date of this amendment for public companies by one year to fiscal years beginning after December 15, 2017. Early adoption is permitted for fiscal years beginning after December 15, 2016, the original effective date. The standard permits the use of either a retrospective or cumulative effect transition method. The Company has not yet selected a transition method and is in the process of assessing the impact of the adoption of the standard on its financial position, results of operations and cash flows. Based on its evaluation of ASU 2014-09, the Company currently does not expect it to have a material impact on its results of operations or cash flows in the periods after adoption. Under ASU 2014-09, revenue is recognized as control transfers to the customer. As such, revenue for the Company’s contracts is generally from a single performance obligation that will be recognized at a point in time. This is consistent with the revenue recognition model it currently uses for its contracts. The Company will complete its assessment of the expected impact of adoption, including selecting a transition method for adoption, in 2017, and continue to evaluate ASU 2014-09 through the date of adoption.
On February 7, 2014, the Company completed the acquisition of the wastewater facilities of East Prospect Borough Authority in York County, Pennsylvania. The Company began operating the existing collection and treatment facilities on February 8, 2014. The acquisition resulted in the addition of approximately 400 wastewater customers with purchase price and acquisition costs of approximately $281, which is less than the depreciated original cost of the assets. The Company recorded a negative acquisition adjustment of approximately $667 as of December 31, 2014. In 2015, the Company paid additional acquisition costs of approximately $2 resulting in a decrease of the negative acquisition adjustment to $665. The Company will seek approval from the PPUC to amortize the negative acquisition adjustment over the remaining life of the acquired assets.
On May 30, 2014, the Company completed the acquisition of the water assets of Forest Lakes Water Association in York County, Pennsylvania. The Company began operating the existing system through an interconnection with its current distribution system on June 2, 2014. The acquisition resulted in the addition of approximately 70 new water customers with purchase price and acquisition costs of approximately $18, which is less than the depreciated original cost of the assets. The Company recorded a negative acquisition adjustment of approximately $9 as of December 31, 2014. In 2015, the Company paid additional acquisition costs of approximately $2 resulting in a decrease of the negative acquisition adjustment to $7. The Company will seek approval from the PPUC to amortize the negative acquisition adjustment over the remaining life of the acquired assets.
On November 20, 2014, the Company completed the acquisition of the water assets of Lincoln Estates Mobile Home Park in Adams County, Pennsylvania. The Company began operating the existing system as a satellite location on November 24, 2014. The acquisition resulted in the addition of approximately 200 new water customers with purchase price and acquisition costs of approximately $70, which is less than the depreciated original cost of the assets. In 2015, the Company recorded a negative acquisition adjustment of approximately $77 and will seek approval from the PPUC to amortize the negative acquisition adjustment over the remaining life of the acquired assets.
On April 9, 2015, the Company completed the acquisition of the water assets of The Meadows community in Adams County, Pennsylvania. The Company began operating the existing system as a satellite location on April 13, 2015. The acquisition resulted in the addition of approximately 90 new water customers with purchase price and acquisition costs of approximately $63, which is less than the depreciated original cost of the assets. The Company recorded a negative acquisition adjustment of approximately $159 and will seek approval from the PPUC to amortize the negative acquisition adjustment over the remaining life of the acquired assets.
On April 22, 2015, the Company completed the acquisition of the water assets of the Paradise Homes Community in York County, Pennsylvania. The Company began operating the existing system through an interconnection with its current distribution system on April 27, 2015. The acquisition resulted in the addition of approximately 90 new water customers with purchase price and acquisition costs of approximately $36, which is less than the depreciated original cost of the assets. The Company recorded a negative acquisition adjustment of approximately $28 and will seek approval from the PPUC to amortize the negative acquisition adjustment over the remaining life of the acquired assets.
On October 19, 2015, the Company completed the acquisition of the water assets of the Newberry Farms Mobile Home Park in York County, Pennsylvania. The Company began operating the existing system through an interconnection with its current distribution system on October 22, 2015. The acquisition resulted in the addition of approximately 160 new water customers with purchase price and acquisition costs of approximately $129, of which $13 was paid in 2016, which approximated the depreciated original cost of the assets. In 2016, the Company recorded an immaterial negative acquisition adjustment and will seek approval from the PPUC to expense the negative acquisition adjustment.
On November 2, 2015, the Company completed the acquisition of the water assets of the Margaretta Mobile Home Park in York County, Pennsylvania. The Company began operating the existing system through an interconnection with its current distribution system on November 3, 2015. The acquisition resulted in the addition of approximately 65 new water customers with purchase price and acquisition costs of approximately $102 after a net transfer of $31 to related construction projects in 2016, which is more than the depreciated original cost of the assets. In 2016, the Company recorded an acquisition adjustment of approximately $56 and will seek approval from the PPUC to amortize the acquisition adjustment over the remaining life of the acquired assets.
On March 10, 2016, the Company completed the acquisition of the water assets of Crestview Mobile Home Park in York County, Pennsylvania. The Company began operating the existing system through an interconnection with its current distribution system on March 15, 2016. The acquisition resulted in the addition of approximately 120 new water customers with purchase price and acquisition costs of approximately $47. The purchase price and acquisition costs were more than the depreciated original cost of the assets. The Company recorded an acquisition adjustment of approximately $19 and will seek approval from the PPUC to amortize the acquisition adjustment over the remaining life of the acquired assets. These customers were previously served by the Company through a single customer connection to the park.
On October 13, 2016, the Company completed the acquisition of the water assets of the Westwood Mobile Home Park in York County, Pennsylvania. The Company began operating the existing system through an interconnection with its current distribution system on October 17, 2016. The acquisition resulted in the addition of approximately 200 new water customers with purchase price and acquisition cost of approximately $21, which is less than the depreciated original cost of the assets. The Company recorded a negative acquisition adjustment of approximately $76 and will seek approval from the PPUC to amortize the acquisition adjustment over the remaining life of the acquired assets. These customers were previously served by the Company through a single customer connection to the park.
The provisions for income taxes consist of:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Federal current
|
|
$
|
2,681
|
|
|
$
|
1,873
|
|
|
$
|
96
|
|
State current
|
|
|
1,082
|
|
|
|
597
|
|
|
|
28
|
|
Federal deferred
|
|
|
1,683
|
|
|
|
2,131
|
|
|
|
3,757
|
|
State deferred
|
|
|
2
|
|
|
|
177
|
|
|
|
1,035
|
|
Federal investment tax credit, net of current utilization
|
|
|
(39
|
)
|
|
|
(38
|
)
|
|
|
(39
|
)
|
Total income taxes
|
|
$
|
5,409
|
|
|
$
|
4,740
|
|
|
$
|
4,877
|
|
A reconciliation of the statutory Federal tax provision (34%) to the total provision follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Statutory Federal tax provision
|
|
$
|
5,867
|
|
|
$
|
5,858
|
|
|
$
|
5,563
|
|
State income taxes, net of Federal benefit
|
|
|
715
|
|
|
|
511
|
|
|
|
702
|
|
IRS TPR ongoing deduction
|
|
|
(962
|
)
|
|
|
(1,438
|
)
|
|
|
(1,342
|
)
|
Tax-exempt interest
|
|
|
(34
|
)
|
|
|
(37
|
)
|
|
|
(37
|
)
|
Amortization of investment tax credit
|
|
|
(39
|
)
|
|
|
(38
|
)
|
|
|
(39
|
)
|
Cash value of life insurance
|
|
|
44
|
|
|
|
71
|
|
|
|
15
|
|
Domestic production deduction
|
|
|
(194
|
)
|
|
|
(190
|
)
|
|
|
-
|
|
Other, net
|
|
|
12
|
|
|
|
3
|
|
|
|
15
|
|
Total income taxes
|
|
$
|
5,409
|
|
|
$
|
4,740
|
|
|
$
|
4,877
|
|
The Company filed for a change in accounting method under the IRS TPR effective in 2014. Under the change in accounting method, the Company is permitted to deduct the costs of certain asset improvements that were previously being capitalized and depreciated for tax purposes as an expense on its income tax return. The Company was permitted to make this deduction for prior years (the “catch-up deduction”) and each year going forward, beginning with 2014 (the “ongoing deduction”). As a result of the catch-up deduction, income tax benefits of $4,314 were deferred as a regulatory liability as of December 31, 2014. The catch-up deduction resulted in a decrease in current income taxes payable and an increase to regulatory liabilities during 2014. In 2015, upon final determination of the TPR amounts for its income tax return, the Company reclassified the portion of TPR related to dispositions to deferred taxes and deferred tax liabilities in compliance with the IRS regulations. The Company will seek approval from the PPUC in its next rate filing to amortize the remaining catch-up deduction of $3,887 recorded as a regulatory liability. As a result of the ongoing deduction, the net income tax benefits of $962, $1,438 and $1,342 for the years ended December 31, 2016, 2015 and 2014, respectively, reduced income tax expense and flowed-through to net income. The ongoing deduction results in a reduction in the effective income tax rate, a net reduction in income tax expense, and a reduction in the amount of income taxes currently payable. Both the ongoing and catch-up deductions result in increases to deferred tax liabilities and regulatory assets representing the appropriate book and tax basis difference on capital additions.
The tax effects of temporary differences between book and tax balances that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2016 and 2015 are summarized in the following table:
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Reserve for doubtful accounts
|
|
$
|
124
|
|
|
$
|
128
|
|
Compensated absences
|
|
|
212
|
|
|
|
221
|
|
Deferred compensation
|
|
|
1,581
|
|
|
|
1,465
|
|
Customers' advances and contributions
|
|
|
-
|
|
|
|
1
|
|
Deferred taxes associated with the gross-up of revenues necessary to return, in rates, the effect of temporary differences
|
|
|
124
|
|
|
|
122
|
|
Pensions
|
|
|
2,146
|
|
|
|
3,099
|
|
Contribution carryover
|
|
|
-
|
|
|
|
147
|
|
Other costs deducted for book, not for tax
|
|
|
57
|
|
|
|
51
|
|
Total deferred tax assets
|
|
|
4,244
|
|
|
|
5,234
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accelerated depreciation
|
|
|
38,063
|
|
|
|
36,210
|
|
Basis differences from IRS TPR
|
|
|
8,339
|
|
|
|
7,196
|
|
Investment tax credit
|
|
|
390
|
|
|
|
413
|
|
Deferred taxes associated with the gross-up of revenues necessary to recover, in rates, the effect of temporary differences
|
|
|
8,183
|
|
|
|
7,271
|
|
Tax effect of pension regulatory asset
|
|
|
3,033
|
|
|
|
3,986
|
|
Other costs deducted for tax, not for book
|
|
|
405
|
|
|
|
438
|
|
Total deferred tax liabilities
|
|
|
58,413
|
|
|
|
55,514
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
54,169
|
|
|
$
|
50,280
|
|
|
|
|
|
|
|
|
|
|
In accordance with accounting standards, the net deferred tax liability is classified as a noncurrent deferred income tax liability on the balance sheets.
|
No valuation allowance was required for deferred tax assets as of December 31, 2016 and 2015. In assessing the soundness of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon expected future taxable income and the current regulatory environment, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.
The Company determined that there were no uncertain tax positions meeting the recognition and measurement test of the accounting standards recorded in the years that remain open for review by taxing authorities, which are 2013 through 2015 for both federal and state income tax returns. The Company has not yet filed tax returns for 2016, but has not taken any new position in its 2016 income tax provision.
The Company's policy is to recognize interest and penalties related to income tax matters in other expenses. There were no interest or penalties for the years ended December 31, 2016, 2015, and 2014.
4.
|
Long-Term Debt and Short-Term Borrowings
|
Long-term debt as of December 31, 2016 and 2015 is summarized in the following table:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
10.17% Senior Notes, Series A, due 2019
|
|
$
|
6,000
|
|
|
$
|
6,000
|
|
9.60% Senior Notes, Series B, due 2019
|
|
|
5,000
|
|
|
|
5,000
|
|
1.00% Pennvest Note, due 2019
|
|
|
118
|
|
|
|
162
|
|
10.05% Senior Notes, Series C, due 2020
|
|
|
6,500
|
|
|
|
6,500
|
|
8.43% Senior Notes, Series D, due 2022
|
|
|
7,500
|
|
|
|
7,500
|
|
Variable Rate Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Bonds, Series 2008A, due 2029
|
|
|
12,000
|
|
|
|
12,000
|
|
4.75% York County Industrial Development Authority Revenue Bonds, Series 2006, due 2036
|
|
|
10,500
|
|
|
|
10,500
|
|
4.50% Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Refunding Bonds, Series 2014, due 2038
|
|
|
14,870
|
|
|
|
14,880
|
|
5.00% Monthly Senior Notes, Series 2010A, due 2040
|
|
|
15,000
|
|
|
|
15,000
|
|
4.00% - 4.50% York County Industrial Development Authority Exempt Facilities Revenue Bonds, Series 2015, due 2029 - 2045
|
|
|
10,000
|
|
|
|
10,000
|
|
Total long-term debt
|
|
|
87,488
|
|
|
|
87,542
|
|
Less discount on issuance of long-term debt
|
|
|
(226
|
)
|
|
|
(237
|
)
|
Less unamortized debt issuance costs
|
|
|
(2,609
|
)
|
|
|
(2,743
|
)
|
Less current maturities
|
|
|
(44
|
)
|
|
|
(44
|
)
|
Long-term portion
|
|
$
|
84,609
|
|
|
$
|
84,518
|
|
Payments due by year as of December 31, 2016:
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
$
|
44
|
|
|
$
|
12,044
|
|
|
$
|
11,030
|
|
|
$
|
6,500
|
|
|
$
|
-
|
|
Payments due in 2018 include potential payments of $12,000 on the variable rate bonds (due 2029) which would only be payable if all of the bonds were tendered and could not be remarketed. There is currently no such indication of this happening.
Fixed Rate Long-Term Debt
On July 23, 2015, the York County Industrial Development Authority (the "YCIDA") issued and sold $10,000 aggregate principal amount of YCIDA Exempt Facilities Revenue Bonds, Series 2015 (the "Series 2015 Bonds") for the Company's benefit pursuant to the terms of a trust indenture, dated as of July 1, 2015, between the YCIDA and Manufacturers and Traders Trust Company, as trustee. The YCIDA then loaned the proceeds of the sale of the Series 2015 Bonds to the Company pursuant to a loan agreement dated as of July 1, 2015, between the Company and the YCIDA, which matches the debt service requirements on the Bonds. The Bonds, and therefore the loan, bear interest at rates ranging from 4.00% to 4.50% per annum payable semiannually. The Bonds have stated maturity dates of June 1 of the years 2029, 2032, 2035, 2038, 2042 and 2045 and are subject to optional and mandatory redemption provisions. One such provision allows the Company to redeem all or a portion of the bonds on or after June 1, 2025. Amounts outstanding under the loan agreement are direct, unsecured and unsubordinated obligations of the Company. The Company received net proceeds, after deducting original issue discount and issuance costs, of approximately $9,500. The net proceeds were used to redeem the Pennsylvania Economic Development Financing Authority, or PEDFA, Series A 2004 Bonds and to fund a portion of the Company's 2015 capital expenditures.
The PEDFA Series 2014 Bonds contain both optional and special redemption provisions. Under the optional provisions, the Company can redeem all or a portion of the bonds on or after May 1, 2019. Under the special provisions, representatives of deceased beneficial owners of the bonds have the right to request redemption prior to the stated maturity of all or part of their interest in the bonds beginning on or after May 1, 2014. The Company is not obligated to redeem any individual interest exceeding $25, or aggregate interest exceeding $300, in any annual period. In 2016, the Company retired $10 of the bonds under these provisions. In 2015, no bonds were retired under these provisions. Currently, no additional bonds that meet the special provisions have been tendered for redemption.
Variable Rate Long-Term Debt
On May 7, 2008, the PEDFA issued $12,000 aggregate principal amount of PEDFA Exempt Facilities Revenue Refunding Bonds, Series A of 2008 (the "Series A Bonds") for the Company's benefit pursuant to the terms of a trust indenture, dated as of May 1, 2008, between the PEDFA and Manufacturers and Traders Trust Company, as trustee. The PEDFA then loaned the proceeds of the offering of the Series A Bonds to the Company pursuant to a loan agreement, dated as of May 1, 2008, between the Company and the PEDFA. The loan agreement provides for a $12,000 loan with a maturity date of October 1, 2029. Amounts outstanding under the loan agreement are the Company’s direct general obligations. The proceeds of the loan were used to redeem the PEDFA Exempt Facilities Revenue Bonds, Series B of 2004 (the “2004 Series B Bonds”). The 2004 Series B Bonds were redeemed because the bonds were tendered and could not be remarketed due to the downgrade of the bond insurer’s credit rating.
Borrowings under the loan agreement bear interest at a variable rate as determined by PNC Capital Markets, as remarketing agent, on a periodic basis elected by the Company, which has currently elected that the interest rate be determined on a weekly basis. The remarketing agent determines the interest rate based on the current market conditions in order to determine the lowest interest rate which would cause the Series A Bonds to have a market value equal to the principal amount thereof plus accrued interest thereon. The variable interest rate under the loan agreement averaged 0.47% in 2016 and 0.06% in 2015. As of December 31, 2016 and 2015, the interest rate was 0.80% and 0.02%, respectively.
The holders of the $12,000 Series A Bonds may tender their bonds at any time. When the bonds are tendered, they are subject to an annual remarketing agreement, pursuant to which a remarketing agent attempts to remarket the tendered bonds according to the terms of the indenture. In order to keep variable interest rates down and to enhance the marketability of the Series A Bonds, the Company entered into a Reimbursement, Credit and Security Agreement with PNC Bank, National Association (“the Bank”) dated as of May 1, 2008. This agreement provides for a direct pay letter of credit issued by the Bank to the trustee for the Series A Bonds. The Bank is responsible for providing the trustee with funds for the timely payment of the principal and interest on the Series A Bonds and for the purchase price of the Series A Bonds that have been tendered or deemed tendered for purchase and have not been remarketed. The Company’s responsibility is to reimburse the Bank the same day as regular interest payments are made, and within fourteen months for the purchase price of tendered bonds that have not been remarketed. The reimbursement period for the principal is immediate at maturity, upon default by the Company, or if the Bank does not renew the Letter of Credit. The current expiration date of the Letter of Credit is June 30, 2018. It is reviewed annually for a potential extension of the expiration date.
The Company may elect to have the Series A Bonds redeemed, in whole or in part, on any date that interest is payable for a redemption price equal to the principal amount thereof plus accrued interest to the date of redemption. The Series A Bonds are also subject to mandatory redemption for the same redemption price in the event that the IRS determines that the interest payable on the Series A Bonds is includable in gross income of the holders of the bonds for federal tax purposes.
Interest Rate Swap Agreement
In connection with the issuance of the PEDFA 2004 Series B Bonds, the Company entered into an interest rate swap agreement with a counterparty, in the notional principal amount of $12,000. The Company elected to retain the swap agreement for the 2008 Series A Bonds. Interest rate swap agreements derive their value from underlying interest rates. These transactions involve both credit and market risk. The notional amounts are amounts on which calculations, payments, and the value of the derivative are based. Notional amounts do not represent direct credit exposure. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Such difference, which represents the fair value of the swap, is reflected on the Company’s balance sheets. See Note 11 for additional information regarding the fair value of the swap.
The interest rate swap will terminate on the maturity date of the 2008 Series A Bonds (which is the same date as the maturity date of the loan under the loan agreement), unless sooner terminated pursuant to its terms. In the event the interest rate swap terminates prior to the maturity date of the 2008 Series A Bonds, either the Company or the swap counterparty may be required to make a termination payment to the other based on market conditions at such time. The Company is exposed to credit-related losses in the event of nonperformance by the counterparty. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect the counterparty to default on its obligations. Notwithstanding the terms of the swap agreement, the Company is ultimately obligated for all amounts due and payable under the loan agreement.
The interest rate swap agreement contains provisions that require the Company to maintain a credit rating of at least BBB- with Standard & Poor’s. On March 30, 2016, Standard & Poor’s affirmed the Company’s credit rating at A-, with a stable outlook. If the Company’s rating were to fall below this rating, it would be in violation of these provisions, and the counterparty to the derivative could request immediate payment if the derivative was in a liability position. The Company’s interest rate swap was in a liability position as of December 31, 2016. If a violation was triggered on December 31, 2016, the Company would have been required to pay the counterparty approximately $2,449.
The Company's interest rate swap agreement provides that it pay the counterparty a fixed interest rate of 3.16% on the notional amount of $12,000. In exchange, the counterparty pays the Company a floating interest rate (based on 59% of the U.S. Dollar one-month LIBOR rate) on the notional amount. The floating interest rate paid to the Company is intended, over the term of the swap, to approximate the variable interest rate on the loan agreement and the interest rate paid to bondholders, thereby managing its exposure to fluctuations in prevailing interest rates. The Company's net payment rate on the swap averaged 2.86% in 2016 and 3.06% in 2015.
As of December 31, 2016, there was a spread of 39 basis points between the variable rate paid to bondholders and the variable rate received from the swap counterparty, which equated to an overall effective rate of 3.55% (including variable interest and swap payments). As of December 31, 2015, there was a negative spread of 18 basis points which equated to an overall effective rate of 2.98% (including variable interest and swap payments).
Short-Term Borrowings
As of December 31, 2016, the Company maintained unsecured lines of credit aggregating $41,500 with four banks. The first line of credit, in the amount of $13,000, is a committed line of credit with a revolving 2-year maturity (currently May 2018), and carries an interest rate of LIBOR plus 1.20%. The second line of credit, in the amount of $11,000, is a committed line of credit, which matures in May 2018 and carries an interest rate of LIBOR plus 1.25%. The third line of credit, in the amount of $7,500, is a committed line of credit, which matures in June 2017 and carries an interest rate of LIBOR plus 1.25%. The fourth line of credit, in the amount of $10,000, is a committed line of credit, which matures in September 2017 and carries an interest rate of LIBOR plus 1.20%. The Company had no outstanding borrowings under any of its lines of credit as of December 31, 2016 and 2015.
Debt Covenants and Restrictions
The terms of the debt agreements carry certain covenants and limit in some cases the Company's ability to borrow additional funds, to prepay its borrowings and include certain restrictions with respect to declaration and payment of cash dividends and the Company's acquisition of its stock. Under the terms of the most restrictive agreements, the Company cannot borrow in excess of 60% of its utility plant, and cumulative payments for dividends and acquisition of stock since December 31, 1982 may not exceed $1,500 plus net income since that date. As of December 31, 2016, none of the earnings retained in the business are restricted under these provisions. The Company's Pennvest Loan is secured by $800 of receivables. Other than this loan, the Company's debt is unsecured.
The Company's lines of credit require it to maintain a minimum equity to total capitalization ratio (defined as the sum of equity plus funded debt) and a minimum interest coverage ratio (defined as net income plus interest expense plus income tax expense divided by interest expense). As of December 31, 2016, the Company was in compliance with these covenants.
5.
|
Common Stock and Earnings Per Share
|
Net income of $11,846 is used to calculate both basic and diluted earnings per share. Basic net income per share is based on the weighted average number of common shares outstanding. Diluted net income per share is based on the weighted average number of common shares outstanding plus potentially dilutive shares. The dilutive effect of employee stock-based compensation is included in the computation of diluted net income per share. The dilutive effect of stock-based compensation is calculated using the treasury stock method and expected proceeds upon exercise or issuance of the stock-based compensation. The following table summarizes the shares used in computing basic and diluted net income per share:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Weighted average common shares, basic
|
|
|
12,845,955
|
|
|
|
12,831,687
|
|
|
|
12,879,912
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock-based compensation
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average common shares, diluted
|
|
|
12,845,973
|
|
|
|
12,831,687
|
|
|
|
12,879,912
|
|
Under the employee stock purchase plan, all full-time employees who have been employed at least ninety consecutive days may purchase shares of the Company's common stock limited to 10% of gross compensation. The purchase price is 95% of the fair market value (as defined). Shares issued during 2016, 2015 and 2014 were 5,115, 7,417 and 7,431, respectively. As of December 31, 2016, 75,596 authorized shares remain unissued under the plan.
The Company has a Dividend Reinvestment and Direct Stock Purchase and Sale Plan (“the Plan”), which is available to both current shareholders and the general public. On October 3, 2016, the Company filed a Registration Statement on Form S-3 with the SEC to authorize an additional 331,000 shares and rollover the unissued 170,240 shares authorized under the 2013 Form S-3, for issuance under the new Prospectus for the Plan. In addition to providing more shares for the Plan, the new Prospectus identified a change in the Company’s stock transfer agent. Under the optional dividend reinvestment portion of the Plan, holders of the Company's common stock may purchase additional shares instead of receiving cash dividends. The purchase price is 95% of the fair market value (as defined). Under the direct stock purchase portion of the Plan, purchases were made weekly at 100% of the stock’s fair market value through October 19, 2016. Beginning in November 2016, purchases are made monthly at 100% of the stock’s fair market value, as defined in the new Prospectus. Other provisions of the Plan were left substantially unchanged. The Registration Statement was declared effective by the SEC on November 16, 2016. Shares issued during 2016, 2015 and 2014 under both Prospectus’ were 80,343, 95,451 and 126,379, respectively. As of December 31, 2016, 492,639 authorized shares remain unissued under the plan.
On March 11, 2013, the Board of Directors, or the Board, authorized a share repurchase program granting the Company authority to repurchase up to 1,200,000 shares of the Company’s common stock from time to time. The stock repurchase program has no specific end date and the Company may repurchase shares in the open market or through privately negotiated transactions. The Company may suspend or discontinue the repurchase program at any time. During 2016, 2015 and 2014, the Company repurchased and retired 46,771, 121,012 and 282,570 shares, respectively. As of December 31, 2016, 655,233 shares remain available for repurchase.
6.
|
Stock Based Compensation
|
On May 2, 2016, the Company's stockholders approved The York Water Company Long-Term Incentive Plan, or LTIP. The LTIP was adopted to provide the incentive of long-term stock-based awards to officers, directors and key employees. The LTIP provides for the granting of nonqualified stock options, incentive stock options, stock appreciation rights, performance restricted stock grants and units, restricted stock grants and units, and unrestricted stock grants. A maximum of 100,000 shares of common stock may be issued under the LTIP over the ten-year life of the plan. The maximum number of shares of common stock subject to awards that may be granted to any participant in any one calendar year is 2,000. Shares of common stock issued under the LTIP may be treasury shares or authorized but unissued shares. The LTIP is administered by the Compensation Committee of the Board, or the full Board, provided that the full Board administers the LTIP as it relates to awards to non-employee directors of the Company. The Company filed a registration statement with the Securities and Exchange Commission on May 11, 2016 covering the offering of stock under the LTIP. The LTIP was effective on July 1, 2016.
On November 21, 2016, the Board awarded stock to non-employee directors effective November 28, 2016. This stock award vested immediately. On the same date, the Compensation Committee awarded restricted stock to officers and key employees effective November 28, 2016. This restricted stock award vests ratably over three years beginning November 28, 2016.
The restricted stock awards provide the grantee with the rights of a shareholder, including the right to receive dividends and to vote such shares, but not the right to sell or otherwise transfer the shares during the restriction period. As a result, the awards are included in common shares outstanding on the balance sheet. Restricted stock awards result in compensation expense valued at the fair market value of the stock on the date of the grant and are amortized ratably over the restriction period.
The following tables summarize the stock grant amounts and activity for the year ended December 31, 2016. No stock awards were granted previously.
|
|
Number of Shares
|
|
|
Grant Date Weighted
Average Fair Value
|
|
Nonvested at beginning of the year
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
1,231
|
|
|
$
|
37.20
|
|
Vested
|
|
|
(571
|
)
|
|
$
|
37.20
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Nonvested at end of the year
|
|
|
660
|
|
|
$
|
37.20
|
|
For the year ended December 31, 2016, the statement of income includes $22 of stock-based compensation and related recognized tax benefits of $9. The total fair value of the shares vested in the year ended December 31, 2016 was $21. Total stock based compensation related to nonvested awards not yet recognized is $24 which will be recognized over the next three years.
7.
|
Employee Benefit Plans
|
Pensions
The Company maintains a general and administrative and a union-represented defined benefit pension plan covering all of its employees hired prior to May 1, 2010. Employees hired after May 1, 2010 are eligible for an enhanced 401(k) plan rather than a defined benefit plan. The benefits under the defined benefit plans are based upon years of service and compensation near retirement. The Company amended its defined benefit pension plans in 2014, generally limiting the years of eligible service under the plans to 30 years. The Company's funding policy is to contribute annually the amount permitted by the PPUC to be collected from customers in rates, but in no case less than the minimum Employee Retirement Income Security Act (ERISA) required contribution.
The following table sets forth the plans' funded status as of December 31, 2016 and 2015. The measurement of assets and obligations of the plans is as of December 31, 2016 and 2015.
Obligations and Funded Status
At December 31
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
Pension benefit obligation beginning of year
|
|
$
|
39,469
|
|
|
$
|
40,884
|
|
Service cost
|
|
|
1,018
|
|
|
|
1,166
|
|
Interest cost
|
|
|
1,599
|
|
|
|
1,515
|
|
Actuarial gain
|
|
|
(43
|
)
|
|
|
(2,873
|
)
|
Benefit payments
|
|
|
(1,289
|
)
|
|
|
(1,223
|
)
|
Pension benefit obligation end of year
|
|
|
40,754
|
|
|
|
39,469
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets beginning of year
|
|
|
31,835
|
|
|
|
30,575
|
|
Actual return on plan assets
|
|
|
2,621
|
|
|
|
183
|
|
Employer contributions
|
|
|
2,300
|
|
|
|
2,300
|
|
Benefits paid
|
|
|
(1,289
|
)
|
|
|
(1,223
|
)
|
Fair value of plan assets end of year
|
|
|
35,467
|
|
|
|
31,835
|
|
|
|
|
|
|
|
|
|
|
Funded Status of Plans at End of Year
|
|
$
|
(5,287
|
)
|
|
$
|
(7,634
|
)
|
The accounting standards require that the funded status of defined benefit pension plans be fully recognized on the balance sheets. They also call for the unrecognized actuarial gain or loss, the unrecognized prior service cost and the unrecognized transition costs to be adjustments to shareholders’ equity (accumulated other comprehensive income). Due to a rate order granted by the PPUC, the Company is permitted under the accounting standards to defer the charges otherwise recorded in accumulated other comprehensive income as a regulatory asset. Management believes these costs will be recovered in future rates charged to customers. The liability for the funded status of the Company’s pension plans is recorded in “Deferred employee benefits” on its balance sheets.
In 2016, the plans recognized a small actuarial gain. The Company adopted the new mortality improvement scale (MP-2016), but recognized a 20 basis point decrease in the discount rate and lowered the expected long-term return on plan assets from 7.00% to 6.75%. In 2015, the plans recognized an actuarial gain due to the 40 basis point increase in the discount rate and the adoption of an adjusted RP-2014 mortality table and improvement scale (MP-2015) which lessened the impact of the RP-2014 mortality table. The Company uses the corridor method to amortize actuarial gains and losses. Gains and losses over 10% of the greater of pension benefit obligation or the market value of assets are amortized over the average future service of plan participants expected to receive benefits.
Changes in plan assets and benefit obligations recognized in regulatory assets are as follows:
|
|
2016
|
|
|
2015
|
|
Net gain arising during the period
|
|
$
|
(432
|
)
|
|
$
|
(826
|
)
|
Recognized net actuarial loss
|
|
|
(561
|
)
|
|
|
(705
|
)
|
Recognized prior service credit
|
|
|
13
|
|
|
|
13
|
|
Total changes in regulatory asset during the year
|
|
$
|
(980
|
)
|
|
$
|
(1,518
|
)
|
Amounts recognized in regulatory assets that have not yet been recognized as components of net periodic benefit cost consist of the following at December 31:
|
|
2016
|
|
|
2015
|
|
Net loss
|
|
$
|
9,454
|
|
|
$
|
10,447
|
|
Prior service credit
|
|
|
(114
|
)
|
|
|
(127
|
)
|
Regulatory asset
|
|
$
|
9,340
|
|
|
$
|
10,320
|
|
Components of net periodic benefit cost are as follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Service cost
|
|
$
|
1,018
|
|
|
$
|
1,166
|
|
|
$
|
952
|
|
Interest cost
|
|
|
1,599
|
|
|
|
1,515
|
|
|
|
1,444
|
|
Expected return on plan assets
|
|
|
(2,233
|
)
|
|
|
(2,229
|
)
|
|
|
(1,986
|
)
|
Amortization of loss
|
|
|
561
|
|
|
|
705
|
|
|
|
126
|
|
Amortization of prior service credit
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
(13
|
)
|
Rate-regulated adjustment
|
|
|
1,368
|
|
|
|
1,156
|
|
|
|
1,659
|
|
Net periodic benefit cost
|
|
$
|
2,300
|
|
|
$
|
2,300
|
|
|
$
|
2,182
|
|
The rate-regulated adjustment set forth above is required in order to reflect pension expense for the Company in accordance with the method used in establishing water rates. The Company is permitted by rate order of the PPUC to expense pension costs to the extent of contributions and defer the remaining expense to regulatory assets to be collected in rates at a later date as additional contributions are made. During 2016, the deferral decreased $1,368.
The estimated costs for the defined benefit pension plans relating to the December 31, 2016 balance sheet that will be amortized from regulatory assets into net periodic benefit cost over the next fiscal year are as follows:
Net loss
|
|
$
|
500
|
|
Net prior service credit
|
|
|
(13
|
)
|
|
|
|
487
|
|
The Company plans to contribute $2,300 to the plans in 2017.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in each of the next five years and the subsequent five years in the aggregate:
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
|
2022-2026
|
|
$
|
1,600
|
|
|
$
|
1,731
|
|
|
$
|
1,865
|
|
|
$
|
1,875
|
|
|
$
|
1,938
|
|
|
$
|
11,218
|
|
The following tables show the projected benefit obligation, the accumulated benefit obligation and the fair value of plan assets as of December 31:
|
|
2016
|
|
|
2015
|
|
Projected benefit obligation
|
|
$
|
40,754
|
|
|
$
|
39,469
|
|
Fair value of plan assets
|
|
|
35,467
|
|
|
|
31,835
|
|
|
|
2016
|
|
|
2015
|
|
Accumulated benefit obligation
|
|
$
|
37,822
|
|
|
$
|
36,302
|
|
Fair value of plan assets
|
|
|
35,467
|
|
|
|
31,835
|
|
Weighted-average assumptions used to determine benefit obligations at December 31:
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
|
4.00
|
%
|
|
|
4.20
|
%
|
Rate of compensation increase
|
|
|
2.50% - 3.00
|
%
|
|
|
2.50% - 3.00
|
%
|
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
|
4.20
|
%
|
|
|
3.80
|
%
|
|
|
4.65
|
%
|
Expected long-term return on plan assets
|
|
|
6.75
|
%
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
Rate of compensation increase
|
|
|
2.50% - 3.00
|
%
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
The selected long-term rate of return on plan assets was primarily based on the asset allocation of each of the plan's assets (approximately 50% to 70% equity securities and 30% to 50% fixed income securities). Analysis of the historic returns of these asset classes and projections of expected future returns were considered in setting the long-term rate of return.
The investment objective of the Company's defined benefit pension plans is that of Growth and Income. The weighted-average target asset allocations are 50% to 70% equity securities, 30% to 50% fixed income securities, and 0% to 10% reserves (cash and cash equivalents). Within the equity category, the Company's target allocation is approximately 60-95% large cap, 0-25% mid cap, 0-10% small cap, 0-25% International Developed Nations, and 0-10% International Emerging Nations. Within the fixed income category, its target allocation is approximately 15-55% U.S. Treasuries, 0–22% Federal Agency securities, 0-40% corporate bonds, 15-55% mortgage-backed securities, 0-20% international, and 0-20% high yield bonds. The Company's investment performance objectives over a three to five year period are to exceed the annual rate of inflation as measured by the Consumer Price Index by 3%, and to exceed the annualized total return of specified benchmarks applicable to the funds within the asset categories.
Further guidelines within equity securities include: (1) holdings in any one company cannot exceed 5% of the portfolio; (2) a minimum of 20 individual stocks must be included in the domestic stock portfolio; (3) a minimum of 30 individual stocks must be included in the international stock portfolio; (4) equity holdings in any one industry cannot exceed 20-25% of the portfolio; and (5) only U.S.-denominated currency securities are permitted.
Further guidelines for fixed income securities include: (1) fixed income holdings in a single issuer are limited to 5% of the portfolio; (2) acceptable investments include money market securities, U.S. Government and its agencies and sponsored entities' securities, mortgage-backed and asset-backed securities, corporate securities and mutual funds offering high yield bond portfolios; (3) purchases must be limited to investment grade or higher; (4) non-U.S. dollar denominated securities are not permissible; and (5) high risk derivatives are prohibited.
The fair values of the Company's pension plan assets at December 31, 2016 and 2015 by asset category and fair value hierarchy level are as follows. The majority of the valuations are based on quoted prices on active markets (Level 1), with the remaining valuations based on broker/dealer quotes, active market makers, models, and yield curves (Level 2).
|
|
Total Fair Value
|
|
|
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Asset Category
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Cash and Money Market Funds (a)
|
|
$
|
635
|
|
|
$
|
1,205
|
|
|
$
|
635
|
|
|
$
|
1,205
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Securities (b)
|
|
|
2,969
|
|
|
|
2,686
|
|
|
|
2,969
|
|
|
|
2,686
|
|
|
|
-
|
|
|
|
-
|
|
Equity Mutual Funds (c)
|
|
|
21,107
|
|
|
|
18,017
|
|
|
|
21,107
|
|
|
|
18,017
|
|
|
|
-
|
|
|
|
-
|
|
Fixed Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Obligations
|
|
|
853
|
|
|
|
833
|
|
|
|
-
|
|
|
|
-
|
|
|
|
853
|
|
|
|
833
|
|
Corporate and Foreign Bonds (d)
|
|
|
3,439
|
|
|
|
3,427
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,439
|
|
|
|
3,427
|
|
Fixed Income Mutual Funds (e)
|
|
|
6,464
|
|
|
|
5,667
|
|
|
|
6,464
|
|
|
|
5,667
|
|
|
|
-
|
|
|
|
-
|
|
Total Plan Assets
|
|
$
|
35,467
|
|
|
$
|
31,835
|
|
|
$
|
31,175
|
|
|
$
|
27,575
|
|
|
$
|
4,292
|
|
|
$
|
4,260
|
|
|
(a)
|
The portfolios are designed to keep approximately three months of distributions in immediately available funds. The Company was more heavily-weighted in cash as of December 31, 2015
due to market volatility
.
|
|
(b)
|
This category includes investments in U.S. common stocks and foreign stocks trading in the U.S. widely distributed among consumer discretionary, consumer staples, healthcare, information technology, financial services, telecommunications, industrials and energy. The individual stocks are primarily large cap stocks which track with the S&P 500.
|
|
(c)
|
This category currently includes a majority of investments in closed-end mutual funds as well as domestic equity mutual funds and international mutual funds which give the portfolio exposure to mid and large cap index funds as well as international diversified index funds.
|
|
(d)
|
This category currently includes only U.S. corporate bonds and notes widely distributed among consumer discretionary, consumer staples, healthcare, information technology and financial services.
|
|
(e)
|
This category includes fixed income investments in mutual funds which include government, corporate and mortgage securities of both the U.S. and other countries. The mortgage-backed securities and non-U.S. corporate and sovereign investments add further diversity to the fixed income portion of the portfolio.
|
Defined Contribution Plan
The Company has a savings plan pursuant to the provisions of section 401(k) of the Internal Revenue Code. For employees hired before May 1, 2010, this plan provides for elective employee contributions of up to 15% of compensation and Company matching contributions of 100% of the participant's contribution, up to a maximum annual Company contribution of $2.8 for each employee.
Employees hired after May 1, 2010 are entitled to an enhanced feature of the plan. This feature provides for elective employee contributions of up to 15% of compensation and Company matching contributions of 100% of the participant's contribution, up to a maximum of 4% of the employee's compensation. In addition, the Company will make an annual contribution of $1.2 to each employee's account whether or not they defer their own compensation. Employees eligible for this enhanced 401(k) plan feature are not eligible for the defined benefit plans. As of December 31, 2016, twenty-two employees were participating in the enhanced feature of the plan. The Company's contributions to both portions of the plan amounted to $261 in 2016, $262 in 2015, and $239 in 2014.
Deferred Compensation
The Company has non-qualified deferred compensation and supplemental retirement agreements with certain members of management. The future commitments under these arrangements are offset by corporate-owned life insurance policies. At December 31, 2016 and 2015, the present value of the future obligations was approximately $3,894 and $3,608, respectively. The insurance policies included in other assets had a total cash value of approximately $2,830 and $3,378 at December 31, 2016 and 2015, respectively. The Company's net expenses under the plans amounted to $557 in 2016, $380 in 2015 and $658 in 2014.
Other
The Company has a retiree life insurance program which pays the beneficiary of a retiree $2 upon the retiree’s death. At December 31, 2016 and 2015, the present value of the future obligations was approximately $103 and $98, respectively. There is no trust or insurance covering this future liability, instead the Company will pay these benefits out of its general assets. The Company’s net (income) expenses under the plan amounted to $9 in 2016, $(4) in 2015 and $25 in 2014.
From time to time, the Company files applications for rate increases with the PPUC and is granted rate relief as a result of such requests. The most recent rate request was filed by the Company on May 29, 2013 and sought an increase in rates designed to produce additional annual water revenues of $7,116 and additional annual wastewater revenues of $28. Effective February 28, 2014, the PPUC authorized an increase in water rates designed to produce approximately $4,972 in additional annual revenues, and an increase in wastewater rates for the Asbury Pointe subdivision to produce approximately $28 in additional annual revenues. The Company anticipates that it will file a rate increase request in 2017.
The PPUC permits water utilities to collect a distribution system improvement charge, or DSIC. The DSIC allows the Company to add a charge to customers' bills for qualified replacement costs of certain infrastructure without submitting a rate filing. This surcharge mechanism typically adjusts periodically based on additional qualified capital expenditures completed or anticipated in a future period. The DSIC is capped at 5% of base rates, and is reset to zero when new base rates that reflect the costs of those additions become effective or when a utility's earnings exceed a regulatory benchmark. The surcharge reset to zero when the new base rates took effect on February 28, 2014. Since the reset, the Company’s earnings exceeded the regulatory benchmark, preventing the collection of a DSIC. The DSIC provided no revenues in 2016 or 2015, and $283 in 2014. The DSIC is subject to audit by the PPUC.
9.
|
Notes Receivable and Customers' Advances for Construction
|
The Company entered into an agreement with a municipality to extend water service into a previously formed water district. The Company loaned funds to the municipality to cover the costs related to the project. The municipality concurrently advanced these funds back to the Company in the form of customers' advances for construction. The municipality is required by enacted ordinance to charge application fees and water revenue surcharges (fees) to customers connected to the system, which are remitted to the Company. The note principal and the related customer advance are reduced periodically as operating revenues are earned by the Company from customers connected to the system and refunds of the advance are made. There is no due date for the notes or expiration date for the advance. Two notes receivable were fully repaid in 2015.
The Company has recorded interest income of $100 in 2016, $110 in 2015 and $107 in 2014. The interest rate on the note outstanding at December 31, 2016 is 7.5%.
Included in the accompanying balance sheets at December 31, 2016 and 2015 were the following amounts related to these projects.
|
|
2016
|
|
|
2015
|
|
Notes receivable, including interest
|
|
$
|
255
|
|
|
$
|
255
|
|
Customers' advances for construction
|
|
|
307
|
|
|
|
310
|
|
The Company has other customers' advances for construction totaling $6,795 and $7,190 at December 31, 2016 and 2015, respectively.
Based on its capital budget, the Company anticipates construction and acquisition expenditures for 2017 and 2018 of approximately $22,800 and $15,600, respectively, exclusive of any acquisitions not yet approved. The Company plans to finance ongoing capital expenditures with internally-generated funds, borrowings against the Company’s lines of credit, proceeds from the issuance of common stock under its dividend reinvestment and direct stock purchase and sale plan and ESPP, potential common stock or debt issues and customer advances and contributions.
The Company has committed a total of approximately $10,153 for an additional raw water pumping station and force main, of which $8,445 remains to be incurred as of December 31, 2016. The Company may make additional commitments for this project in 2017.
During its recently completed triennial testing, the Company determined it exceeded the action level for lead at the customer's tap as established by the Lead and Copper Rule, or LCR, issued by the U.S. Environmental Protection Agency. The rule allows the Company to have five samples of the 50 high-risk homes tested exceed the action level of 15 parts per billion, or PPB. The testing found that six properties with lead service lines, all built before 1935, exceeded the action level, and the reported exceedance amount was 1 PPB. The Company has determined that only 3% of the company-owned service lines in the system are lead. The Company will be required, per the LCR, to engage in more frequent testing for lead, to provide public education, and annually replace 7% of the remaining company-owned lead service lines in its distribution system. The Company has announced plans to perform in excess of the required actions. Specifically, the Company will provide the affected customers with a free water test and a 200 gallon per month credit to flush their line in order to reduce any lead content until their lead service line has been replaced. The cost of the water tests and flushing credits was $9 for the year ended December 31, 2016 and is expected to be approximately an additional $57 over the next four years.
In addition, the Company has entered into a consent order agreement with the Pennsylvania Department of Environmental Protection. Under the agreement, the Company has committed to exceed the LCR replacement schedule by replacing all of the remaining company-owned lead service lines within the next four years. The cost for these service line replacements was approximately $75 for the year ended December 31, 2016 and is included in utility plant. Additional replacements are expected to be approximately $2,400 over the next four years, and will be integrated into the Company's annual capital budgets.
Finally, the Company has been granted approval by the PPUC to modify its tariff to allow the replacement of lead customer-owned service lines that are discovered when the Company replaces its lead service lines over four years, and to allow the annual replacement of up to 400 lead customer-owned service lines whenever they are discovered, regardless of the material used for the Company-owned service line over nine years. The tariff modification allows the Company to replace customer-owned service lines at its own initial cost. The Company will record the costs as a regulatory asset to be recovered in future base rates to customers, over a reasonable period of at least four but not more than six years. Replacements are expected to be approximately $2,080 under the four-year tariff modification, assuming all company-owned lead service lines are connected to a customer-owned lead service line. The Company is unable to develop a total estimated cost of the nine-year tariff modification replacements as it does not know how many customer-owned lead service lines are in use.
As of December 31, 2016, approximately 34% of the Company's full time employees are under union contract. The current contract was ratified in March 2014 and expires on April 30, 2017. Management is currently preparing for negotiations with the union leadership. The Company expects to reach an operationally and fiscally responsible agreement with no interruption of service.
The Company is involved in certain legal and administrative proceedings before various courts and governmental agencies concerning water service and other matters. The Company expects that the ultimate disposition of these proceedings will not have a material effect on the Company's financial position, results of operations and cash flows.
11.
|
Fair Value of Financial Instruments
|
The accounting standards regarding fair value measurements establish a fair value hierarchy which indicates the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing the asset or liability.
The Company has recorded its interest rate swap liability at fair value in accordance with the standards. The liability is recorded under the caption “Other deferred credits” on the balance sheets. The table below illustrates the fair value of the interest rate swap as of the end of the reporting period.
Description
|
|
December 31, 2016
|
|
Fair Value Measurements
at Reporting Date Using
Significant Other Observable Inputs (Level 2)
|
Interest Rate Swap
|
|
$2,292
|
|
$2,292
|
Fair values are measured as the present value of all expected future cash flows based on the LIBOR-based swap yield curve as of the date of the valuation. These inputs to this calculation are deemed to be Level 2 inputs. The balance sheet carrying value reflects the Company's credit quality as of December 31, 2016. The rate used in discounting all prospective cash flows anticipated to be made under this swap reflects a representation of the yield to maturity for 30-year debt on utilities rated A- as of December 31, 2016. The use of the Company's credit quality resulted in a reduction in the swap liability of $157 as of December 31, 2016. The fair value of the swap reflecting the Company's credit quality as of December 31, 2015 is shown in the table below.
Description
|
|
December 31, 2015
|
|
Fair Value Measurements
at Reporting Date Using
Significant Other Observable Inputs (Level 2)
|
Interest Rate Swap
|
|
$2,511
|
|
$2,511
|
The carrying amount of current assets and liabilities that are considered financial instruments approximates fair value as of the dates presented. The Company's total long-term debt, with a carrying value of $87,488 at December 31, 2016, and $87,542 at December 31, 2015, had an estimated fair value of approximately $99,000 and $102,000, respectively. The estimated fair value of debt was calculated using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration and risk profile. These inputs to this calculation are deemed to be Level 2 inputs. The Company recognized its credit rating in determining the yield curve, and did not factor in third party credit enhancements including bond insurance on the 2006 York County Industrial Development Authority issue and the letter of credit on the 2008 PEDFA Series A issue.
Customers' advances for construction and notes receivable have carrying values at December 31, 2016 of $7,102 and $255, respectively. At December 31, 2015, customers' advances for construction and notes receivable had carrying values of $7,500 and $255, respectively. The relative fair values of these amounts cannot be accurately estimated since the timing of future payment streams is dependent upon several factors, including new customer connections, customer consumption levels and future rate increases.
12.
|
Taxes Other than Income Taxes
|
The following table provides the components of taxes other than income taxes:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Regulatory Assessment
|
|
$
|
243
|
|
|
$
|
242
|
|
|
$
|
218
|
|
Property
|
|
|
339
|
|
|
|
334
|
|
|
|
339
|
|
Payroll, net of amounts capitalized
|
|
|
530
|
|
|
|
510
|
|
|
|
494
|
|
Capital Stock
|
|
|
1
|
|
|
|
42
|
|
|
|
59
|
|
Other
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Total taxes other than income taxes
|
|
$
|
1,114
|
|
|
$
|
1,129
|
|
|
$
|
1,111
|
|
13.
|
Selected Quarterly Financial Data (Unaudited)
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Year
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
11,278
|
|
|
$
|
11,820
|
|
|
$
|
12,601
|
|
|
$
|
11,885
|
|
|
$
|
47,584
|
|
Operating income
|
|
|
5,214
|
|
|
|
5,695
|
|
|
|
6,414
|
|
|
|
5,565
|
|
|
|
22,888
|
|
Net income
|
|
|
2,486
|
|
|
|
2,847
|
|
|
|
3,571
|
|
|
|
2,942
|
|
|
|
11,846
|
|
Basic earnings per share
|
|
|
0.19
|
|
|
|
0.23
|
|
|
|
0.27
|
|
|
|
0.23
|
|
|
|
0.92
|
|
Diluted earnings per share
|
|
|
0.19
|
|
|
|
0.23
|
|
|
|
0.27
|
|
|
|
0.23
|
|
|
|
0.92
|
|
Dividends declared per share
|
|
|
0.1555
|
|
|
|
0.1555
|
|
|
|
0.1555
|
|
|
|
0.1602
|
|
|
|
0.6267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
11,209
|
|
|
$
|
11,895
|
|
|
$
|
12,368
|
|
|
$
|
11,617
|
|
|
$
|
47,089
|
|
Operating income
|
|
|
5,134
|
|
|
|
5,682
|
|
|
|
6,353
|
|
|
|
5,492
|
|
|
|
22,661
|
|
Net income
|
|
|
2,528
|
|
|
|
2,925
|
|
|
|
3,520
|
|
|
|
3,516
|
|
|
|
12,489
|
|
Basic earnings per share
|
|
|
0.20
|
|
|
|
0.22
|
|
|
|
0.28
|
|
|
|
0.27
|
|
|
|
0.97
|
|
Diluted earnings per share
|
|
|
0.20
|
|
|
|
0.22
|
|
|
|
0.28
|
|
|
|
0.27
|
|
|
|
0.97
|
|
Dividends declared per share
|
|
|
0.1495
|
|
|
|
0.1495
|
|
|
|
0.1495
|
|
|
|
0.1555
|
|
|
|
0.6040
|
|