Search

The estimated net actuarial loss for our DB Plan that will be amortized in 2022 from the
regulatory assets into net periodic benefit costs is $329,000. The estimated net actuarial gain
and prior service cost for our OPEB Plans that will be amortized in 2022 from the regulatory
assets into net periodic benefit costs is $25,300.

In establishing its investment policy, the Company has considered the fact that the DB Plan is
a major retirement vehicle for its employees and the basic goal underlying the establishment
of the policy is to provide that the assets of the DB Plan are invested in accordance with the
asset allocation range targets to achieve our expected return on DB Plan assets. The
Company’s investment strategy applies to its OPEB Plans as well as the DB Plan. The expected
long-term rate of return on DB Plan and OPEB Plan assets is based on the Plans’ expected
asset allocation, expected returns on various classes of Plan assets, as well as historical
returns.

The assets of our Post-65 Plan are held in two separate Voluntary Employee Beneficiary
Association (“VEBA”) trusts. The VEBA plan assets are maintained in directed trust accounts
at a commercial bank.

The investment strategy for the Company’s DB Plan and OPEB Plans utilizes several different
asset classes with varying risk/return characteristics. The following table indicates the asset
allocation percentages of the fair value of the DB Plan and OPEB Plans’ assets for each major
type of plan asset as of December 31, 2021, as well as the targeted allocation range:

DB Plan OPEB Plans
Asset Asset
Allocation Allocation
Range Range
Equities 61% 30% - 100% 74% 30% - 100%
Fixed income 15% 20% - 70% 17% 0% - SO%
Cash and cash equivalents 24% 0% - 15% 9% 0% - 15%
Total 100% 100%

26

The following table indicates the asset allocation percentages of the fair value of the DB Plan
and OPEB Plans’ assets for each major type of plan asset as of December 31, 2020, as well as
the targeted allocation range:

DB Plan OPEB Plans
Asset Asset
Allocation Allocation
Range Range
Equities 61% 30% - 100% 69% 30% - 100%
Fixed income 39% 20% - 70% 24% 0% - 50%
Cash and cash equivalents 0% 0% - 15% 7% 0% - 15%
Total 100% 100%

Management uses its best judgment in estimating the fair value of its financial instruments.
However, there are inherent weaknesses in any estimation technique. Therefore, for substan-
tially all financial instruments, the fair value estimates herein are not necessarily indicative of
the amounts that we could realize in a sales transaction for these instruments. The estimated
fair value amounts have been measured as of year-end and have not been reevaluated or
updated for purposes of these consolidated financial statements subsequent to those
respective dates.

Investments in common stock and mutual funds are stated at fair value by reference to
quoted market prices. Money market funds are valued utilizing the net asset value per unit
based on the fair value of the underlying assets as determined by the directed trustee.

The DB Plan also holds assets under an immediate participation guarantee group annuity
contract with a life insurance company. The assets under the contract are invested in pooled
separate accounts and in a general investment account. The pooled separate accounts are
valued based on net asset value (NAV) per unit of participation in the fund. The NAV is used
as a practical expedient to estimate fair values. This practical expedient is not used when it is
determined to be probable that the fund will sell the investment for an amount different than
that reported at NAV. These accounts have no unfunded commitments or significant
redemption restrictions at year-end. The value of these units is determined by the trustee
based on the current market values of the underlying assets of the pooled separate accounts.
Therefore, the value of the pooled separate accounts is deemed to be at estimated fair value.

The general investment account is not actively traded, and significant other observable inputs

are not available. The fair value of the general investment account is calculated by discounting
the related cash flows based on current yields of similar instruments with comparable durations.

27

The methods described above may produce a fair value calculation that may not be indicative of
net realizable value or reflective of future fair values. Furthermore, while the Plan’s management
believes the valuation methodologies are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the fair value of
certain investments could result in a different fair value measurement at the reporting date.

A fair value hierarchy which prioritizes the inputs to valuation methods is used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements).

The fair value of DB Plan and OPEB Plan assets by levels within the fair value hierarchy used
as of December 31, 2021 was as follows:

(in thousands) Fair Value Level 1 Level 2 Level 3
DB Plan:
Guaranteed Interest Accounts S 6,642 S - S - S 6,642
Total Assets in the Fair Value Hierarchy 6,642 - - 6,642
investments measured at net asset value®? 20,654 - - -
DB Plan Investments, at Fair Value 27,296 - - 6,642
OPEB Plans:
Common stocks 373 373 - -
Mutual funds 138 138 - -
Fixed income funds 120 120 - -
Money market funds 63 - 63 -
Total Assets in the Fair Value Hierarchy 694 631 63 -
Investments measured at net asset value"! - - - -
OPEB Plans Investments, at Fair Value 694 631 63 -
Totals S 27,990 $ 631 5 63 S 6,642

(a) In accordance with Subtopic 820-10, certain investments that were measured at fair value using the net asset value
per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value
amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts
presented in the statements of assets available for benefits of the Plans.

28

The fair value of DB Plan and OPEB Plan assets by levels within the fair value hierarchy used
as of December 31, 2020 was as follows:

(in thousands} Fair Value Level 1 Level 2 Level 3

DB Plan:

Guaranteed Interest Accounts S$ 5,731 $ : $ - $5,731

Total Assets in the Fair Value Hierarchy 5,731 - - 5,731

Investments measured at net asset value”! 17,895 - - -
DB Plan Investments, at Fair Value 23,626 - - 5,731

OPEB Plans:

Common stocks 349 349 -

Mutual funds 124 124 .

Fixed income funds 143 143 - -

Money market funds 23 - 23 -

Total Assets in the Fair Value Hierarchy 639 616 23 -

Investments measured at net asset value”! - - -
OPEB Plans Investments, at Fair Value 639 616 _ 23 -

Totals S 24,265 S 616 S 23 S$ 5,731

(a) in accordance with Subtopic 820-10, certain investments that were measured at fair value using the net asset value
per share {or its equivalent) practical expedient have not been classified in the fair vaiue hierarchy. The fair value
amounts presented in this table are intended to permit reconciliation of the fair value hierarchy te the amounts
presented in the statements of assets available for benefits of the Plans.

Level 1: Based on quoted prices in active markets for identical assets.
Level 2: Based on significant observable inputs.
Level 3: Based on significant unobservable inputs.

The following table summarizes investments at fair value based on NAV per share as of
December 31, 2021 and 2020, respectively:

{in thousands} Fair Value

December 31, 2021
Pooled Separate Accounts:
Equities S 16,648
Fixed Income 4,006

Total Pooled Separate Accounts S 20,654

December 31, 2020
Pooled Separate Accounts:
Equities S 14,391
Fixed Income 3,504

Total Pooled Separate Accounts $ 17,895

29

The following table presents a period-end reconciliation of DB Plan assets measured and
recorded at fair value on a recurring basis, using significant unobservable inputs (Level 3):

(in thousands} 2021 2020
Balance, beginning of year S 5,731 S 5,155
Plan transfers 202 1,941
Contributions 599 373
Benefits paid - (1,844)
Return on plan assets (net of investment expenses) 110 106
Balance, end of year iS 6,642 S 5,731

In order to satisfy the minimum funding requirements of the Employee Retirement Income
Security Act of 1974, applicable to defined benefit pension plans, the Company anticipates it
will contribute approximately $0.75 million to the DB Plan in 2022.

The following maximum benefit payments, which reflect expected future service, as appro-
priate, are expected to be paid in the years indicated:

(in thousands} DB Plan OPEB Plans
2022 s 1,178 S 113
2023 1,236 119
2024 1,380 134
2025 1,500 144
2026 1,567 153
2027 and thereafter 9,803 1,001
Total $ 16,664 $ 1,664

Because the Company is subject to regulation in the state in which it operates, we are
required to maintain our accounts in accordance with the regulatory authority’s rules and
regulations. In those instances, we follow the guidance of ASC Topic 980 (“Regulated
Operations”). Based on prior regulatory practice, we recorded underfunded DB Plan and
OPEB Plan obligations as a regulatory asset, and we expect to recover those casts in rates
charged to customers.

Defined Contribution Plan

In addition to the defined benefit plan, the Company provides and maintains a defined
contribution plan covering substantially all employees. Under this plan, the Company
matches 100% of the first 3% of each participating employee’s eligible compensation
contributed to the plan. The matching employer's contributions, recorded as operating
expenses, were approximately $294,000 and $272,000 for the years ended December 31,
2021 and 2020, respectively.

30

Commitments and Contingencies

Operating Leases

The Company’s corporate office space, as well as certain office equipment, is leased under
operating lease agreements. Total rent expense was approximately $385,300 and $389,800
for the years ended December 31, 2021 and 2020, respectively.

The remaining non-cancelable lease commitments for the corporate office space and leased
equipment as of December 31, 2021 were as follows:

{in thousands) Amount
2022 $ 364
2023 348
2024 347
2025 330
2026 363
Thereafter 3,449
Total S$ 5,201

Financial Measurement and Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of its financial instruments.
However, there are inherent weaknesses in any estimation technique. Therefore, for substan
tially all financial instruments, the fair value estimates herein are not necessarily indicative of
the amounts that we could realize in a sales transaction for these instruments. The estimated
fair value amounts have been measured as of the period end and have not been reevaluated
or updated for purposes of these consolidated financial statements subsequent to those
respective dates.

A fair value hierarchy is used, which prioritizes the inputs to valuation methods used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs {Level 3 measurements). The three levels of fair value hierarchy are as follows:

Level 1: Based on quoted prices in active markets for identical assets.
Level 2: Based on significant observable inputs.
Level 3: Based on significant unobservable inputs.

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input
that is significant to the fair value measurement.

31

For assets and liabilities measured at fair value on a recurring basis, the fair value measure-
ment by levels within the fair value hierarchy used as of December 31, 2021 and 2020 were
as follows:

December 31, 2021

(in thousands) Total Level 1 Level 2 Level 3
Liabilities:
Interest rate swap S$ (290) S$ - § (290) S$ -

December 31, 2020

(in thousands) Total Level 1 Level 2 Level 3
Liabilities:
Interest rate swap $ (460) S$ - S (460) S$ -

The carrying value of certain financial instruments included in the accompanying Consoli-
dated Balance Sheets, along with the related fair value, as of December 31, 2021 and 2020
was as follows:

2021 2020
Carrying Fair Carrying Fair
(in thousands) Value Value Value Value

Liabilities:
Interest rate swap liability $ (290) $ (290) $ (460) $ (460)

The fair market value of the interest rate swap represents the estimated cost to terminate
this agreement as of December 31, 2021 and 2020 based upon the then-current interest rates
and the related credit risk.

The carrying values of our cash and cash equivalents, restricted cash, accounts receivable and
accounts payable approximate their fair values because of their short-term maturity dates.
The carrying value of CIAC approximates its fair value because it is expected that this is the
amount that will be recovered in future rates. The carrying values of lines of credit and long-
term debt approximate fair value, as interest rates approximate market rates.

Revenue from Contracts with Customers — Non-Regulated Entities

Revenue is recognized when control of the promised goods or services is transferred to
customers, in an amount that reflects the consideration we expect to be entitled to in
exchange for those goods or services.

32

10.

Disaggregation of Revenue
For the years ended December 31, 2021 and 2020, revenue recognized for goods and services
transferred over time totaled $3,339,069 and $2,777,693, respectively.

For the year ended December 31, 2021, approximately 58% of revenues were from large-
contract customers, 25% of revenues were from small contract customers (con-ops), and 17%
of revenues were from residential maintenance and other customers. For the year ended
December 31, 2020, approximately 62% of revenues were from large-contract customers,
21% of revenues were from small contract customers (con-ops), and 17% of revenues were
from residential maintenance and other customers. In addition, substantially all of the
Company's contracts were service-related type contracts.

Income Taxes

The components of the federal and state income tax provision (benefit) as of December 31,
2021 and 2020 were as follows:

(in thousands) 2021 2020
Federal S (151) S 656
State (5) (116)
Amortization of investment tax credits (33) (33)
Total S$ (189) $ 507
Current S$ (127) $ 33
Deferred (62) 474
Total S (189) $ 507

The following is a reconciliation between the statutory federal income tax rate and the
effective income tax rate for 2021 and 2020:

2021 2020
Statutory federal rate 21.0 % 21.0 %
State tax rate, net of federal benefits 6.1 6.1
Permanent differences (23.0) (63.6)
Amortization of investment tax credits 0.9 2.2
Effective tax rate 5.0 % (34.3) %

33

The temporary items that give rise to the net deferred tax liability as of December 31, 2021
and 2020 were as follows:

(in thousands) 2021 2020
Liabilities:
Property-related, net S$ 23,417 S$ 22,496
Other 740 704
Total liabilities 24,157 23,200
Assets:
Pension accrued liability 1,817 1,659
Net operating loss carryforward 6,331 5,415
Alternative minimum tax credit 476 476
NH Business Enterprise Tax credits 1,103 957
Other 682 718
10,409 9,225
Less valuation allowance (1,102) (956)
Total assets 9,307 8,269
Net non-current deferred income tax liability $ 14,850 S 14,931

The Company has accumulated federal net operating losses. The federal tax benefit of the
cumulative net operating losses is approximately $5 million, begins to expire in 2033, and is
included in deferred income taxes in the Consolidated Balance Sheet as of December 31,
2021. Approximately 75% of the net operating losses are 100% available to be applied to
taxable income in future years and are not subject to the TCJA as they were generated prior
to the 2018 tax year. The enactment of the TCA now limits the net operating loss shelter to
80% of taxable income, for post-2017 tax year losses. The TCJA also provides for net operating
losses to be carried forward indefinitely instead of limited to 20 years, as is the case for pre-
2018 losses; however, carrybacks of these losses are no longer permitted. Approximately 25%
of the net operating losses were generated in 2019 through 2021 and therefore are subject
to the 80% limitation.

The Company has accumulated New Hampshire net operating losses. The New Hampshire tax
benefit of the cumulative net operating loss is approximately $1.6 million which begins to
expire in 2023 and is included in deferred income taxes in the Consolidated Balance Sheet as
of December 31, 2021.

34

As of December 31, 2021 and 2020, it is estimated that approximately $476,000 and
$476,000, respectively, of cumulative federal alternative minimum tax credits may be carried
forward indefinitely as a credit against our regular tax liability.

As of December 31, 2021 and 2020, the Company had New Hampshire Business Enterprise
Tax (“NHBET”) credits of approximately $1,100,000 and $960,000, respectively. NHBET
credits begin to expire in 2022. It is anticipated that these NHBET credits will not be fully
utilized before they expire; therefore, a valuation allowance has been recorded related to
these credits. The valuation allowance decreased by approximately $146,000 and $167,000
in the years ended December 31, 2021 and 2020, respectively.

Investment tax credits resulting from utility plant additions are deferred and amortized. The
unamortized investment tax credits are being amortized through the year 2033.

The Company had a regulatory liability related to income taxes of approximately $9,906,000
and $9,918,000 as of December 31, 2021 and 2020, respectively. This represents the
estimated future reduction in revenues associated with deferred taxes which were collected
at rates higher than the currently enacted rates and the amortization of deferred investment
tax credits.

A review of the portfolio of uncertain tax positions was performed. In this regard, an
uncertain tax position represents the expected treatment of a tax position taken in a filed tax
return, or as planned to be taken in a future tax return, that has not been reflected in
measuring income tax expense for financial reporting purposes. As a result of this review, it
was determined that the Company had no material uncertain tax positions, and tax planning
strategies will be used, if required and when possible, to avoid the expiration of any future
net operating loss and/or tax credits.

The Company’s practice is to recognize interest and/or penalties related to income tax
matters in “Other, Net” in the Consolidated Statements of Income. We incurred no interest
in 2021 and 2020. We incurred no penalties during the years ended December 31, 2021 and
2020.

35