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The provision for depreciation is computed on the straight-line method over the estimated
useful lives of the assets, which range from 3 to 91 years. The weighted average composite
depreciation rate was 2.56% and 2.54% in 2017 and 2016, respectively.

Note 3 — Accounts Receivable

Accounts receivable consisted of the following at December 31, 2017 and 2016:

(in thousands) 2017 2016
Accounts receivable - billed $ 3,457 $ 4,188
Less allowance for doubtful accounts (37) (51)
Accounts Receivable - billed, net $ 3,420 $ 4,137
Accounts receivable - unbilled $ 2,265 $ 1,921

Less allowance for doubtful accounts - -

Accounts Receivable - unbilled, net $ 2,265 $ 1,921

Note 4 — Deferred Charges and Other Assets

Deferred charges and other assets as of December 31, 2017 and 2016 consisted of the
following:

Recovery
Period
(in thousands) 2017 2016 (in years)
Regulatory assets:
Source development charges $ 952 $1,041 5 ~25
Miscellaneous studies 980 854 2 - 25
Unrecovered pension and post-retirement
benefits expense 8,244 7,457 a
Total regulatory assets 10,176 9,352
Supplemental executive retirement plan asset 735 706
Total deferred charges and other assets $ 10,911 $ 10,058

We expect to recover these amounts consistent with the anticipated expense recognition of these assets.

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Note 5 — Post-retirement Benefit Plans
Pension Plan and Other Post-retirement Benefits

The Company has a non-contributory, defined benefit pension plan (the “DB Plan”) that
covers substantially all employees. The benefits are based on years of service and participant
compensation levels. The Company’s funding policy is to contribute annual amounts that
meet the requirements for funding under the U.S. Department of Labor’s Pension Protection
Act. Contributions are intended to provide not only for benefits attributed to service to date,
but also for those expected to be earned in the future.

Post-retirement medical benefits are provided for eligible retired employees through one of
two plans (collectively referred to as our “OPEB Plans”). For employees who retire on or
after the normal retirement age of 65, benefits are provided through a post-retirement plan
(the “Post-65 Plan”). For eligible non-union employees who retire prior to their normal
retirement age and who have met certain age and service requirements, benefits are provided
through a post-employment medical plan (the “Post-employment Plan”). Future benefits
under the Post-65 Plan increase annually based on the actual percentage of wage and salary
increases earned from the plan inception date to the normal retirement date. The benefits
under the Post-employment Plan allow for the continuity of medical benefits coverage at
group tates from the employee’s retirement date until the employee becomes eligible for
Medicare, which are fully funded by the retiree. The liability related to the Post-65 Plan will
be funded from the general assets of our Company.

Upon retirement, if a qualifying employee elects to receive medical benefits under our
Post-65 Plan, we pay up to a maximum monthly benefit of $341 based on years of service.

The following table sets forth information regarding our DB Plan and our OPEB Plans as of
December 31, 2017 and for the year then ended:

(in thousands) DB Plan OPEB Plans
Projected benefit obligations $ 27,558 $ 3,660
Employer contribution inee It
Benefits paid, excluding expenses (643) (52)
Fair value of plan assets 17,766 612
Accumulated benefit obligation 24,760 -
Funded status (9,792) (3,047)
Net periodic benefit cost 1,368 218

Amount of the funded status recognized in the
Consolidated Balance Sheet consisted of:

Current liability - -
Non-current liability (9,792) (3,047)
Total $ (9,792) $ (3,047)

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The following table sets forth information regarding our DB Plan and our OPEB Plans as of
December 31, 2016 and for the year then ended:

(in thousands) DB Plan OPEB Plans
Projected benefit obligations $ 23,899 $ 3,165
Employer contribution 970 10
Benefits paid, excluding expenses (1,056) (47)
Fair value of plan assets 14,889 586
Accumulated benefit obligation 21,547 -
Funded status (9,010) (2,578)
Net periodic benefit cost 1,284 194

Amount of the funded status recognized in the
Consolidated Balance Sheet consisted of:

Current liability - -
Non-current liability (9,010) (2,578)
Total $ (9,010) $ (2,578)

Changes in plan assets and benefit obligations recognized in regulatory assets, for the year
ended December 31, 2017, were as follows:

(in thousands) DB Plan OPEB Plans
Regulatory asset balance, beginning of period $ 7,067 $ 390
Net actuarial loss incurred during the period 871 259
Prior service cost incurred during the period - 16
Recognized net actuarial (gain)/loss (345) (14)
Regulatory asset balance, end of period $ 7,593 $ 651

Changes in plan assets and benefit obligations recognized in regulatory assets, for the year
ended December 31, 2016, were as follows:

(in thousands) DB Plan OPEB Plans
Regulatory asset balance, beginning of period $ 6,658 § 237
Net actuarial gain incurred during the period 737 145
Prior service cost incurred during the period - 17
Recognized net actuarial (gain)/loss (328) (9)
Regulatory asset balance, end of period $ 7,067 $ 390

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Amounts recognized in regulatory assets for the DB and OPEB Plans that have not yet been
recognized as components of net periodic benefit cost of the following as of December 31,

2017:

(in thousands) DB Plan OPEB Plans
Net actuarial loss $ 7,593 $ 815
Prior service cost - (164)
Regulatory asset $ 7,593 $ 651

Amounts recognized in regulatory assets for the DB and OPEB Plans that have not yet been
recognized as components of net periodic benefit cost of the following as of December 31,

2016:

(in thousands) DB Plan OPEB Plans
Net actuarial loss $ 7,067 $ 570
Prior service cost - (180)
Regulatory asset $ 7,067 $ 390

The key assumptions used to value benefit obligations and calculate net periodic benefit cost
for our DB and OPEB Plans include the following:

2017 2016
Discount rate for net periodic benefit cost, beginning of year 4.02% 4.21%
Discount rate for benefit obligations, end of year @) 3.50% 4.02%
Expected return on plan assets for the period (net of investment expenses) 7.00% 7.00%
Rate of compensation increase, beginning of year 3.00% 3.00%
Healthcare cost trend rate (applicable only to OPEB Plans) 7.50% 8.00%

® An increase or decrease in the discount rate of 0.5% would result in a change in the funded status as of December 31, 2017, for
the DB Plan and the OPEB Plans of approximately $2.1 million and $324 thousand, respectively.

The estimated net actuarial loss for our DB Plan that will be amortized in 2018 from the
regulatory assets into net periodic benefit costs is $361,000. The estimated net actuarial gain
and prior service cost for our OPEB Plans that will be amortized in 2018 from the regulatory
assets into net periodic benefit costs is $13,000.

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.

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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, 2017, as well as the targeted allocation
range:

DB Plan OPEB Plans
Asset Asset
Allocation Allocation
Range Range
Equities 63% 30% - 100% 69% 30% - 100%
Fixed income 37% 20% - 70% 29% 0% - 50%
Cash and cash equivalents 0% 0% - 15% 2% 0% - 15%
Total 100% 100%

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, 2016, as well
as the targeted allocation range:

DB Plan OPEB Plans
Asset Asset
Allocation Allocation
Range Range
Equities 64% 30% - 100% 68% 30% - 100%
Fixed income 36% 20% - 70% 30% 0% - 50%
Cash and cash equivalents 0% 0% - 15% 2% 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 ail 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.

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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.

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, 2017 was as follows:

(in thousands) Fair Value Level 1 Level 2 Level 3
DB Plan:
Guaranteed Interest Accounts $ 3,215 $ - $ - $ 3,215
Total Assets in the Fair Value Hierarchy 3,215 - - 3,215
Investments measured at net asset value” 14,551 - - -
DB Plan Investments, at Fair Value 17,766 - - 3,215
(continued)

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(continued)

(in thousands) Fair Value Level 1 Level 2 Level 3
OPEB Plans:
Common stocks 310 310 - -
Mutual funds 111 111 - 7
Fixed income funds 180 180 - -
Money market funds 11 - 11 -
Total Assets in the Fair Value Hierarchy 612 601 11 -
Investments measured at net asset value!” : - - “
OPEB Plans Investments, at Fair Value 612 601 11 -

Totals $ 18,378 $ 601 $ li $ 3,215

{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.

The fair value of DB Plan and OPEB Plan assets by levels within the fair value hierarchy
used as of December 31, 2016 was as follows:

(in thousands) Fair Value Level t Level 2 Level 3
DB Plan:
Guaranteed Interest Accounts $ 2,264 § - $ - $ 2,264
Total Assets in the Fair Value Hierarchy 2,264 - - 2,264
Investments measured at net asset value” 12,625 - - -
DB Plan Investments, at Fair Value 14,889 - - 2,264
(continued)

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(continued)

(in thousands) Fair Value Level 1 Level 2 Level 3
OPEB Plans:
Common stocks 268 268 - -
Mutual funds 131 131 - -
Fixed income funds 173 173 - -
Money market funds 13 - 13 -
Total Assets in the Fair Value Hierarchy 585 572 13 -
Investments measured at net asset value” - - - -
OPEB Plans Investments, at Fair Value 585 572 13 -
Totals $ 15,474 $ 572 $ 13 $ 2,264

{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.

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, 2017 and 2016, respectively:

(in thousands) Fair Value
December 31, 2017
Pooled Separate Accounts:
Equities $ 11,117
Fixed Income 3,434

Total Pooled Separate Accounts $ 14,551

December 31, 2016
Pooled Separate Accounts:
Equities $ 9,561
Fixed Income 3,064

Total Pooled Separate Accounts $ 12,625

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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) 2017 2016
Balance, beginning of year $ 2,264 $ 2,581
Plan transfers 1,314 493
Contributions 222 196
Benefits paid (651) (1,068)
Return on plan assets (net of investment expenses) 66 62
Balance, end of year $ 3,215 $ 2,264

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 $1.1 million to the DB Plan in 2018.

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
2018 $ 818 $ 70
2019 974 87
2020 980 90
2021 1,115 108
2022 1,248 123
2023 - 2027 7,663 745
Total $ 12,798 $ 1,223

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 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 costs 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 salary contributed to the plan.
The matching employer’s contributions, recorded as operating expenses, were approximately
$239,000 and $215,000 for the years ended December 31, 2017 and 2016, respectively,

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Note 6 - 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 $309,800 and $344,800
for the years ended December 31, 2017 and 2016, respectively.

The remaining non-cancelable lease commitments for the corporate office space and leased
equipment as of December 31, 2017 were as follows:

(in thousands) Amount
2018 $ 348
2019 343
2020 333
2021 338
2022 199
Total $ 1,561

Note 7 — 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 respec-
tive 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.

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