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OPEB Expense and Deferred Outflows of Resources and Deferred (Inflows) of Resources
Related to OPEB

For the year ended June 30, 2021, the City recognized an OPEB expense of $4,694,079. At
June 30, 2021, the City reported deferred outflows and (inflows) of resources related to OPEB
from the following sources:

Deferred Deferred
Outflows of (Inflows) of
Resources Resources
Differences between expected and actual
experience $ 667,879 $ (5,639,344)
Changes of assumptions 5,496,932 -
Total $ 6,164,811 $ (5,639,344)

Amounts reported as deferred outflows and (inflows) of resources related to OPEB will be
recognized in OPEB expense as follows:

Fiscal Year Ended

2022 $ 20,399
2023 20,399
2024 20,400
2025 349,443
2026 349,444
Thereafter (234,618)
Total $ 525,467

Consolidation of Total/Net OPEB Liabilities and Related Deferred Outflows and (Inflows)
Below is a summary of all OPEB related items in the aggregate as of at June 30, 2021.
Details related to these items are presented separately for each plan on the previous pages.

Total Total
Total Deferred Deferred Total
OPEB Outflows of (Inflows) of OPEB
Liability Resources Resources Expense
City OPEB Plan $ 55,008,094 $ 6,164.81] §$ (5,639,344) $ 4,694,079
Proportionate share of
NHRS Medical Subsidy Plan 23,435,551 2,987,798 (223,423) 1,903,474
Total $ 78,443,645 $ 9,152,609 $ (5,862,767) $ 6,597,553

The City reports a net OPEB liability in governmental activities as these respective
employees are members of the NHRS, while Business-Type activities reports a total OPEB

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liability as these respective employees are included only in the City’s plan that does not
have assets held in a trust for future OPEB liabilities.

Self-Insurance

The City self-insures against claims for workers compensation, general liability, property,
long-term disability, and employee health coverage. Annual estimated requirements for
claims are provided in the City’s annual operating budget.

Health Insurance

The City contracts with insurance carriers for claims processing. Under the terms of the
insurance coverage, the employee is only liable for the cost sharing premiums and co-pays.
The City retains the risk to $350,000 and maintains excess insurance for claims that exceed
$350,000. The claims liability represents an estimate of claims incurred but unpaid at year-
end, based on past historical costs and claims paid subsequent to year-end.

General Liability/Workers’ Compensation

The City is self-administered for claims processing of the City’s workers’ compensation,
property, and casualty programs. The workers’ compensation, property, and casualty liabilities
represent an estimate of future costs based on historical analysis of similar claims.

Changes in the aggregate lability for claims for the year ended June 30, 202] are as
follows:

Year Ended Year Ended
June 30, 2021 June 30, 2020
Claims liability, beginning of year $ 8,788,358 $ 7,219,284
Claims incurred/recognized 52,509,713 48,776,314
Claims paid (52,734,131) (47,207,240)
Claims liability, end of year $ 8,563,940 * $ 8,788,358 *

* This liability is considered to be all current.

The $8,563,940 estimated liability for claims incurred, but not reported, includes only an
estimate for known loss events expected to later be presented as claims. The City is unable
to estimate the amount of unknown loss events expected to become claims and expected
future developments on claims already reported.

Commitments and Contingencies
Outstanding Legal Issues
On an ongoing basis, there are typically pending legal issues in which the City is involved.

The City’s management is of the opinion that the potential future settlement of these issues
would not materially affect its financial statements taken as a whole.

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Abatements

There are several cases pending before the Board of Tax and Land Appeals and Superior Court
in regard to alleged discrepancies in property assessments. According to the City’s counsel,
the probable outcome of these cases at the present time is indeterminable.

Grants

Amounts received or receivable from grantor agencies are subject to audit and adjustment
by grantor agencies, principally the federal government. Any disallowed claims, including
amounts already collected, may constitute a liability of the applicable funds. The amount
of expenditures which may be disallowed by the grantor cannot be determined at this time,
although the City expects such amounts, if any, to be immaterial.

Encumbrances
At year-end the City’s general fund has $3,032,807 in encumbrances that will be honored
in the next fiscal year.

Change in Accounting Principle

During fiscal year 2021, the City adopted Governmental Accounting Standards Board
(GASB) Statement No. 84, Fiduciary Activities, as revised by GASB 97, Certain
Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue
Code Section 457 Deferred Compensation Plans — an Amendment of GASB Statements
No. 14 and No. 84, and a Supersession of GASB Statement No. 32. This required moving
certain items previously recorded through a general fund liability account to the newly
established custodial fund that reports additions and deductions for these activities. No
restatement of beginning net position/fund balance was required in either fund.

New Pronouncements

The Governmental Accounting Standards Board (GASB) has issued Statement No. 87,
Leases, as amended by Statement 97, effective for the City beginning with its fiscal year
ending June 30, 2022. This statement establishes new reporting and disclosure requirements,
including the recording of various operating leases in the financial statements.

Subsequent Events

Management has evaluated subsequent events through April 14, 2022, which is the date
the financial statements were available to be issued.

Debt

On August 24, 2021, subsequent to June 30, 2021, the City issued $64,335,000 in general
obligation bonds, with variable interest rates from 2% to 5%. Principal payments are due
annually starting September 1, 2022 and mature on September I, 2042. S&P Global
Ratings has assigned a rating of AAA to the bonds.

Pennichuck Corporation and Subsidiaries
Notes to Financial Statements

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PENNICHUCK CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Description of Business and Summary of Significant Accounting Policies

Description of Business

Pennichuck Corporation (“the Company,” “we,” or “our”) is a holding company head-
quartered in Merrimack, New Hampshire with five wholly owned operating subsidiaries:
Pennichuck Water Works, Inc., (“Pennichuck Water’) Pennichuck East Utility, Inc.,
(“Pennichuck East”) and Pittsfield Aqueduct Company, Inc. (“PAC”) (collectively referred to as
the Company's “utility subsidiaries”), which are involved in regulated water supply and
distribution to customers in New Hampshire; Pennichuck Water Service Corporation (“Service
Corporation”) which conducts non-regulated water-related services; and The Southwood
Corporation (“Southwood”) which has historically owned several parcels of undeveloped land
(please refer to “Deferred Land Costs” in Note 1).

The Company’s utility subsidiaries are engaged principally in the collection, storage,
treatment and distribution of potable water to approximately 38,047 customers throughout
the State of New Hampshire. The utility subsidiaries, which are regulated by the New
Hampshire Public Utilities Commission (the “NHPUC”), are subject to the provisions of
Accounting Standards Codification (“ASC”) Topic 980 “Regulated Operations.”

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of consolidated 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 consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Property, Plant and Equipment

Property, plant and equipment, which includes principally the water utility assets of the
Company’s utility subsidiaries, is recorded at cost plus an allowance for funds used during
construction on major, long-term projects and includes property funded with contributions
in aid of construction.

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Maintenance, repairs and minor improvements are charged to expense as incurred. Improve-
ments which significantly increase the value of property, plant and equipment are capitalized.

Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash, money market funds and other short-
term liquid investments with original maturities of three months or less.

Restricted Cash — RSF

This restricted cash balance consists of funds maintained for the Rate Stabilization Fund
(“RSF”), which was established in conformity with the requirements of NHPUC Order No.
25,292, as explained more fully in Note 15 of these financial statements. The RSF is an imprest
fund of $5 million, which is subject to funding above or below the imprest fund balance,
reflecting actual revenue performance as it relates to prescribed revenue levels supported by
the RSF. The excess or deficient amount (versus the $5 million imprest balance) is subject to
return or collection to rate payers over the succeeding three-year period of time, as of the
rate order issued with the next promulgated rate case filing. On November 7, 2017, the
NHPUC approved and issued Order No. 26,070 which established new rates for Pennichuck
Water. In addition, the rate order then authorized the reallocation of the existing $5,000,000
RSF among the Company’s utility subsidiaries. Such that, Pennichuck Water's allocated share
of the RSF would now be $3,920,000, with the remaining balance of $1,080,000 to be
allocated between Pennichuck East and PAC. Rate order No. 26,179, under docket DW 17-
128 then allocated $980,000 of the $1,080,000 to Pennichuck East with the remaining
$100,000 to PAC. The purpose for splitting and allocating the existing RSF is to provide
additional reserves which ensure sufficient capital to enable the Company to support its
operations. For the years ended December 31, 2020 and 2019, the balances in the RSF were
approximately $8.6 million and $2.0 million, respectively.

Restricted Cash — CIAC

This restricted cash balance consists of funds maintained for the income tax impact from
Contributions in Aid of Construction (“CIAC”), which was established in conformity with the
NHPUC approval provided to the Company's regulated utilities on November 27, 2019. This
amendment to the Company’s tariffs allows for the recovery from developers and other CIAC
contributors, the tax costs needed to fully fund the associated tax liability created from the
elimination of an exemption whereby CIAC to water utilities was exempt from taxation, was
eliminated with the passage of the Tax Cuts and Jobs Act of 2017 (“the TCJA”). For the years
ended December 31, 2020 and 2019, the balances in this restricted cash account were
approximately $0.2 million and $0, respectively. In accordance with the amended tariffs,
these funds are the first used to pay for income tax liability payments incurred by the
Company, when and if actually incurred.

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Restricted Cash — Bond Project Funds

This restricted cash balance consists of funds remaining from the issuance of the Series 2014,
2015, 2019 and 2020 tax-exempt bonds (the “Bonds”) in December of 2014, October of 2015,
April of 2019, and April and August of 2020, respectively. The proceeds from those bond
issuance transactions are maintained in separate restricted cash accounts, with Trustee
oversight, and are subject to withdrawal as a reimbursement of eligible capital project
expenditures for the years 2014 through 2019, as defined by the indenture and issuance
documents associated with each offering. The restricted cash accounts are also used as a
“conduit” for the transfer of money from operating cash to restricted cash, allowing the
Trustee to make the required payments to bondholders for principal and interest due semi-
annually.

As of December 31, 2019, the funds in these restricted cash accounts totaled approximately
$3.4 million. During 2020, approximately $3.4 million was withdrawn from the restricted cash
accounts to make the principal and interest payments for the Bonds, on January 1, July 1 and
October 1. In December 2020, approximately $215,000 was transferred into these restricted
cash accounts from the Company's operating cash accounts, to provide the funds needed to
make the net principal and interest payments due on January 1, 2021 for the Bonds. As of
December 31, 2020, the funds in these restricted cash accounts totaled approximately
$237,000.

Concentration of Credit Risks

Financial instruments that subject the Company to credit risk consist primarily of cash
(including cash equivalents and restricted cash) and accounts receivable. Cash balances are
invested in financial institutions insured by the Federal Deposit Insurance Corporation
(“FDIC”). At December 31, 2020 and 2019, the Company had approximately $9,300,000 and
$9,600,000 in excess of FDIC insured limits, respectively. Our accounts receivable balances
primarily represent amounts due from the residential, commercial and industrial customers
of our regulated water utility operations, as well as receivables from our Service Corporation
customers.

Accounts Receivable — Billed, Net
Water utility accounts receivable (regulated) are recorded at invoiced amounts.

Non-regulated accounts receivable are recorded based on contracted prices when the
Company obtains an unconditional right to payment under the terms of the contract.

The allowance for doubtful accounts is our best estimate of the amount of probable credit
losses in our existing accounts receivable and is determined based on historical write-off
experience and the aging of account balances. We review the allowance for doubtful
accounts quarterly. Account balances are written off against the allowance when it is
probable the receivable will not be recovered.

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Accounts Receivable — Unbilled, Net

We read our customer meters on a monthly basis and record revenues based on meter
reading results. Information from the last meter reading date is used to estimate the value of
unbilled revenues through the end of the accounting period. Estimates of water utility
revenues for water delivered to customers but not yet billed are accrued at the end of each
accounting period. Actual results could differ from those estimates.

inventory
Inventory is stated at the lower of cost or net realizable value, cost being determined using
the average cost method which approximates the first-in, first-out (FIFO) method.

Deferred Land Costs

Deferred land costs have been recorded in all reporting periods leading up to and including
2019 by Southwood, the Company’s real estate subsidiary. Southwood was passively engaged
in the management and maintenance of land holdings outside of any of the land holdings
held in ownership by the Company’s utility subsidiaries. Included in deferred land costs is the
Company’s original basis in its undeveloped landholdings and any land improvement costs,
which are stated at the lower of cost or market. All costs associated with real estate and land
projects are capitalized and allocated to the project to which the costs relate. Administrative
labor and the related fringe benefit costs attributable to the acquisition, active development,
and construction of land parcels are capitalized as deferred land costs. No labor and benefits
were capitalized for the years ended December 31, 2020 and 2015.

As of the end of 2019, all of the land holdings previously owned by Southwood were
transferred to the Company, which now has assumed the passive management and
maintenance of those land holdings. On a going forward basis, Southwood will be
maintained as a “corporate shell” allowing for its usage in possibie future land management
opportunities, should they occur.

Deferred Charges and Other Assets

Deferred charges include certain regulatory assets and other assets. Regulatory assets are
amortized over the periods they are recovered through NHPUC-authorized water rates. The
Company’s utility subsidiaries have recorded certain regulatory assets in cases where the
NHPUC has permitted, or is expected to permit, recovery of these costs over future periods.
Currently, the regulatory assets are being amortized over periods ranging from 2 to 25 years.

Unamortized Debt Issuance Costs

Unamortized debt issuance costs are amortized over the original term of the related bonds
and notes. The Company's utility subsidiaries have recorded unamortized debt issuance costs
in cases where the NHPUC has permitted or is expected to permit recovery of these costs
over future periods. The debt issuance costs are being amortized over the original lives of the
associated debt.

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Contributions in Aid of Construction

Under construction contracts with real estate developers and others, the Company’s utility
subsidiaries may receive non-refundable advances for the cost of installing new water mains.
These advances are recorded as CIAC. The Company’s utility subsidiaries also record to plant
and CIAC the fair market value of developer installed mains and any excess of fair market
value over the cost of community water systems purchased from developers. CIAC are
amortized over the life of the related properties.

Paycheck Protection Program Loan

The Company accounts for its Paycheck Protection Program (PPP) loan in accordance with
the guidelines established by the Financial Accounting Standards Board (FASB) ASC 470, Debt.
The guidance requires the company to account for the proceeds from the PPP loan as debt
and apply interest considering the ten-month interest payment deferral allowed for the loan.
The loan and accrued interest may be forgivable after eight or twenty-four weeks if the loan
proceeds are used for eligible purposes. The Company has elected to report the PPP loan as
long-term debt. No income will be recognized from the extinguishment of the PPP debt
(whether as a result of forgiveness or otherwise) until the Company has been legally released
as the primary obligor of the loan.

Revenue Recognition — Regulated Entities

Standard charges for water utility services to customers are recorded as revenue, based upon
meter readings and contract service, as services are provided. The majority of the Company's
water revenues are based on rates approved by the NHPUC. Estimates of unbilled service
revenues are recorded in the period the services are provided. Provision is made in the
consolidated financial statements for estimated uncollectible accounts.

Revenue Recognition - Non-Regulated Entities

The Company derives its non-regulated revenues primarily from water management services
which include contract operations and maintenance, and water testing and billing services to
municipalities and small, privately owned community water systems. Revenue is measured
based on consideration specified in contracts with customers. The Company recognizes
revenue when it satisfies performance obligations under the terms of the contract which
generally occurs with the transfer of control of the services to the customer. Revenues from
unplanned additional work are based upon time and materials incurred in connection with
activities not specifically identified in the contract, or for which work levels exceed contracted
amounts.

Revenues from real estate operations, other than undistributed earnings or losses from
equity method joint ventures, are recorded upon completion of a sale of real property. The
Company’s real estate holdings outside of the Company's utility subsidiaries are comprised
primarily of undeveloped land.

The Company does not have any significant financing components as payment is received at
or shortly after the point of sale.

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