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Contract Combination

To determine the proper revenue recognition method for contracts, the Company evaluates
whether two or more contracts should be combined and accounted for as one single contract
and whether the combined or single contract should be accounted for as more than one
performance obligation. This evaluation requires significant judgment and the decision to
combine a group of contracts or separate a combined or single contract into multiple
performance obligations could change the amount of revenue and profit recorded in a given
period. Contracts are considered to have a single performance obligation if the promise to
transfer the individual goods or services is not separately identifiable from other promises in
the contracts, which is mainly because the Company provides a significant service of
integrating a complex set of tasks and components into a single project or capability.

For contracts with multiple performance obligations, the Company allocates the transaction
price to each performance obligation using management’s best estimate of the standalone
selling price of each distinct good or service in the contract. In cases where the Company does
not provide the distinct good or service on a standalone basis, the primary method used to
estimate standalone selling price is the expected cost plus a margin approach, under which
management forecasts the Company’s expected costs of satisfying a performance obligation
and then adds an appropriate margin for that distinct good or service,

Performance Obligations

For performance obligations related to operations, planned maintenance, and water testing
and billing services, control transfers to the customer over time as the services are provided.
These services are sold primarily to municipalities or small, privately owned community water
systems. The majority of the Company’s unplanned maintenance contracts are billed on a
time and materials basis and revenue is recognized over time as the services are performed.
The majority of the Company's operations, planned maintenance, and water testing and
billing contracts are billed on a fixed price basis. For fixed price contracts, the Company
measures its progress towards complete satisfaction of the performance obligation using a
time-based measure. This method is used because management considers time elapsed to
be the best available measure of progress on contracts.

Contract Estimates and Modifications

Due to the nature of the work required to be performed on many of the Company’s
performance obligations, the estimation of total revenue and cost at completion is complex,
subject to many variables and requires significant judgment.

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As a significant change in one or more of these estimates could affect the profitability of the
Company’s contracts, management reviews and updates the Company’s contract-related
estimates regularly through a Company-wide project review process in which management
reviews the progress and execution of the Company's performance obligations and the
estimate at completion. As part of this process, management reviews information including,
but not limited to, any outstanding key contract matters, progress towards completion and
the related program schedule, and the related changes in estimates of revenues and costs.
Management must make assumptions and estimates regarding labor productivity and
availability, the complexity of the work to be performed, the cost and availability of materials,
among other variables.

The Company recognizes adjustments in estimated profit on contracts under the cumulative
catch-up method. Under this method, the impact of the adjustment on profit recorded to
date is recognized in the period the adjustment is identified. Revenue and profit in future
periods of contract performance is recognized using the adjusted estimate. If at any time the
estimate of contract profitability indicates an anticipated loss on the contract, the Company
recognizes the total loss in the period it is identified.

Variable Consideration

Variable consideration is estimated at the most likely amount to which the Company is
expected to be entitled. Any variable consideration is included in the transaction price to the
extent it is probable that a significant reversal of cumulative revenue recognized will not
occur when the uncertainty associated with the variable consideration is resolved. Estimates
of variable consideration and the determination of whether to include estimated amounts in
the transaction price are based largely on assessments of legal enforceability, the Company’s
performance, and all information (historical, current, and forecasted) that is reasonably
available to management.

Variable consideration is allocated entirely to a performance obligation or to a distinct good
or service within a performance obligation if it retates specifically to efforts to satisfy the
performance obligation or transfer the distinct good or service, and the allocation depicts the
amount of consideration the Company expects to be entitled.

Significant Judgments

The Company recognizes contract revenue for financial reporting purposes over time.
Progress toward completion of the Company's contracts is measured using a time-based
criterion for each contract and requires significant judgment. This method is used because
management considers time-elapsed to be the best available measure of progress on
contracts.

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Contract Assets and Liabilities

Billing practices are governed by the contract terms of each project based upon achievement
of milestones or pre-agreed schedules. Billings do not necessarily correlate with revenue
recognized using a time-elapsed method of revenue recognition. Contract assets include
unbilled amounts typically resulting from revenue under long-term contracts when the time-
elapsed method of revenue recognition is utilized and revenue recognized exceeds the
amount billed to the customer, and right to payment is not unconditional. Contract liabilities
consist of deferred revenue.

Contract assets and liabilities are reported in a net position on a contract-by-contract basis at
the end of each reporting period. The Company classifies deferred revenue as current or
nencurrent based on the timing of when revenue is expected to be recognized, The current
portion of deferred revenue is included in current tiabilities in the Balance Sheets.

Practical Expedients
The Company generally expenses pre-contract costs when incurred because the amortization
period would have been one year or less.

income Taxes

Income taxes are recorded using the accrual method and the provision for federal and state
income taxes is based on income reported in the consolidated financial statements, adjusted
for items not recognized for income tax purposes. Provisions for deferred income taxes
are recognized for accelerated depreciation and other temporary differences. A valuation
allowance is provided to offset any net deferred tax assets if, based upon available evidence,
it is more likely than not that some or all of the deferred tax assets will not be realized.
investment tax credits previously realized for income tax purposes are amortized for financial
statement purposes over the life of the property, giving rise to the credit.

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Adoption of New Accounting Standards

Effective January 1, 2020, the Company adopted Accounting Standards Update (ASU) 2018-
13, Fair Value Measurement (Topic 820), Disclosure Framework — Changes to the Disclosure
Requirements for Fair Value Measurement, which removes certain disclosure requirements
from FASB ASC 820 and modifies certain other disclosures. The Company has applied this
guidance retrospectively for certain disclosures and prospectively for other disclosures as
required by the standard. There was no prior year effect to the financial statements as a result
of this change.

New Accounting Standards to be Adopted in the Future

Leases

In February 2016, the FASB issued ASU 2016-02, Leases. The ASU requires ail leases with lease
terms more than 12 months to be capitalized as a right of use asset and lease liability on the
balance sheet at the date of lease commencement. Leases will be classified as either finance
leases or operating leases. This distinction will be relevant for the pattern of expense
recognition in the income statement. This ASU will be effective for the Company for the year
ending December 31, 2022. The Company is currently in the process of evaluating the impact
of adoption of this ASU on the financial statements.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial
Instruments. The ASU requires a financial asset {including trade receivables) measured at
amortized cost basis to be presented at the net amount expected to be collected. Thus, the
income statement will reflect the measurement of credit losses for newly recognized financial
assets as well as the expected increases or decreases of expected credit losses that have
taken place during the period. This ASU will be effective for the Company for the year ending
December 31, 2023. The Company is currently in the process of evaluating the impact of
adoption of this ASU on the financial statements.

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2. Property, Plant and Equipment

The components of property, plant and equipment as of December 31, 2020 and 2019 were

as follows:
Useful Lives
(in thousands} 2020 2019 {in years)
Utility Property:
Land and land rights 5 5,972 5 5,993 -
Source of supply 73,721 72,360 3-70
Pumping and purification 31,846 29,929 7-64
Transmission and distribution, including
services, meters and hydrants 194,244 188,069 15-91
General and other equipment 17,023 16,352 7-75
Intangible plant 790 790 20
Construction work in progress 792 1,225
Total utility property 324,388 314,718
Total non-utility property 5 5 5-10
Total property, plant and equipment 324,393 314,723
Less accumulated depreciation (81,924) (77,541)
Property, Plant and Equipment, net $ 242,469 S$ 237,182

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 2.58% and 2.53% in 2020 and 2019, respectively.

3. Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash
reported within the consolidated balance sheets that sum to the total of the same such
amounts shown in the statements of cash flows.

(in thousands) 2020 2019
Cash and cash equivalents S 310 S$ 4,885
Restricted cash - RSF 8,611 1,963
Restricted cash - CIAC 274 -
Restricted cash - Bond Project Funds 237 3,426

Total cash, cash equivalents and restricted cash
shown in the consolidated statements of cashflows S 9,432 S$ 10,274

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Amounts included in restricted cash represent those required to be set aside as outlined in
Note 1.

Accounts Receivable

Accounts receivable consisted of the following at December 31, 2020 and 2019:

(in thousands) 2020 2019
Accounts receivable - billed S 4,365 S 3,091
Less allowance for doubtful accounts (68) (50)
Accounts receivable - billed, net S 4,297 § 3,041
Accounts receivable - unbilled S 4,473 S 2,575

Less allowance for doubtful accounts - -

Accounts receivable - unbilled, net S 4,473 $ 2,575

Deferred Charges and Other Assets

Deferred charges and other assets as of December 31, 2020 and 2019 consisted of the
following:

Recovery
Period
(in thousands) 2020 2019 (in years)
Regulatory assets:
Source development charges S 1,004 $ 801 5-25
Miscellaneous studies 998 790 2-25
Unrecovered pension and post-retirement
benefits expense 14,197 11,347 0)
Total regulatory assets 16,199 12,938
Supplemental executive retirement plan asset 815 789
Total deferred charges and other assets S 17,014 § 13,727

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

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Post-Retirement Benefit Plans

Pension Pian and Cther 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 medica! pian (the “Post-employment Pian”). 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 rates
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 $373 based on years of service.

The following table sets forth information regarding our OB Plan and our OPEB Plans as of
December 31, 2020 and for the year then ended:

(in thousands) DB Plan OPEB Plans
Projected benefit obligations $ 39,050 $ 5,549
Employer contribution 1,491 11
Benefits paid, excluding expenses (1,964) (72)
Fair value of plan assets 23,626 639
Accumulated benefit obligation 35,020 -
Funded status (15,424) (4,910)
Net periodic benefit cost 1,688 345

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

Non-current liability (15,424) (4,910)

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The following table sets forth information regarding our D8 Plan and our OPEB Plans as of
December 31, 2019 and for the year then ended:

{in thousands) DB Plan OPEB Plans
Projected benefit obligations $ 34,158 $ 4,586
Employer contribution 1,181 11
Benefits paid, excluding expenses (695) {63)
Fair value of plan assets 21,187 604
Accumulated benefit obligation 30,643 -
Funded status (12,971) {3,982)
Net periodic benefit cost 1,494 279

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

Non-current liability (12,971) (3,982)
Total $ (12,971) $ (3,982)

The components of net periodic benefit cost other than the service cost component are
included in the line item operations and maintenance in the consolidated statements of
income (loss), as the amounts are immaterial.

Changes in plan assets and benefit obligations recognized in regulatory assets, for the year
ended December 31, 2020, were as follows:

(in thousands} DB Plan OPEB Plans

Regulatory asset balance, beginning of period S$ 10,269 S 1,078
Net actuarial gain incurred during the period 2,733 621
Prior service cost incurred during the period - 16
Recognized net actuarial (gain)/loss 477 (43)
Regulatory asset balance, end of period S 12,525 S 1,672

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Changes in plan assets and benefit obligations recognized in regulatory assets, for the year
ended December 31, 2019, were as follows:

(in thousands) DB Plan OPEB Plans

Regulatory asset balance, beginning of period $ 7,632 $ 565
Net actuarial gain incurred during the period 2,991 516
Prior service cost incurred during the period - 16
Recognized net actuarial (gain)/loss 354 (19)
Regulatory asset balance, end of period S 10,269 5 1,078

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,
2020:

(in thousands} DB Plan OPEB Plans

Net actuarial loss $ 12,525 $ 1,787
Prior service cost - (115)
Regulatory asset $ 12,525 $ 1,672

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,
2019:

{in thousands) DB Plan OPEB Plans

Net actuarial loss S$ 10,269 S 1,209
Prior service cost - (131)
Regulatory asset S 10,269 $ 1,078

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

2020 2019
Discount rate for net periodic benefit cost, beginning of year 3.13% 4.15%
Discount rate for benefit obligations, end of year *! 2.39% 3.13%
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) 6.00% 6.50%

*' an increase or decrease in the discount rate of 0.5% would result ina change in the funded status as of December
31, 2020, for the OB Plan and the OPE@ Plans of approximately $3.4 million and $544 thousand, respectively.

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The estimated net actuarial loss for our DB Plan that will be amortized in 2021 from the
regulatory assets into net periodic benefit costs is $625,000. The estimated net actuarial gain
and prior service cost for our OPEB Plans that will be amortized in 2021 from the regulatory
assets into net periodic benefit costs is $60,200.

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 OPES 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, 2020, as well as the targeted allocation range:

OB 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%

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