Search

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, 2019, 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% 29% 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 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.

114

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, 2020 was as follows:

(in thousands) Fair Value Level 1 Level 2 Level 3
DB Plan:
Guaranteed Interest Accounts S 5,731 $ : $ 7 S 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 5 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 (er 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.

115

The fair value of DB Plan and OPEB Plan assets by levels within the fair value hierarchy used
as of December 31, 2019 was as follows:

(in thousands) Fair Value Level 1 Level 2 Level 3
DB Plan:
Guaranteed Interest Accounts S 5,155 5 - 5 - S$ 5,155
Total Assets in the Fair Value Hierarchy 5,155 - - 5,155
Investments measured at net asset value”? 16,032 - - -
DB Plan Investments, at Fair Value 21,187 - - 5,155
OPEB Plans:
Common stocks 311 311 - -
Mutual funds 109 109 - -
Fixed income funds 170 170 - -
Money market funds 14 - 14 -
Total Assets in the Fair Value Hierarchy 604 590 14 -
investments measured at net asset value! - - - -
OPEB Plans Investments, at Fair Value 604 590 14 -
Totals § 21,791 S 590 S 14 S 5,155

(aj lo 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.

Leve/ 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, 2020 and 2019, respectively:

{in thousands} Fair Value

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

Total Pooled Separate Accounts $ 17,895

December 31, 2019
Pooled Separate Accounts:
Equities § 12,870
Fixed Income 3,162

Total Pooled Separate Accounts $ 16,032

116

The foilowing 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) 2020 2019

Balance, beginning of year $ 5,155 5 4,414
Plan transfers 1,941 1,079
Contributions 373 249
Benefits paid (1,844) (691)
Return on plan assets (net of investment expenses) 106 104
Balance, end of year $ 5,731 Ac) 5,155

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 $1.4 million to the DB Plan in 2021.

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
2021 S$ 1,135 S 99
2022 1,300 115
2023 1,350 120
2024 1,480 136
2025 1,592 144
2026 and thereafter 9,522 943
Total S 16,379 $ 1,557

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 costs in rates
charged to customers.

Defined Contribution Pian

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
$272,000 and $278,000 for the years ended December 31, 2020 and 2019, respectively.

117

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 $389,800 and $385,400
for the years ended December 31, 2020 and 2019, respectively.

The remaining non-cancelable lease commitments for the corporate office space and leased
equipment as of December 31, 2020 were as follows:

(in thousands} Amount
2021 $ 379
2022 364
2023 348
2024 347
2025 330
Thereafter 3,677
Total S 5,445

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.

118

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, 2020 and 2019 were
as follows:

December 31, 2020

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

December 31, 2019

(in thousands) Total Level 1 Level 2 Level 3
Liabilities:
Interest rate swap § (353) S$ - § (353) 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, 2020 and 2019
was as follows:
2020 2019
Carrying Fair Carrying Fair
{in thousands} Value Value Value Value

Liabilities:
Interest rate swap liability $ (460) $ (460) S$ (353) $ (353)

The fair market value of the interest rate swap represents the estimated cost to terminate
this agreement as of December 31, 2020 and 2019 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.

119

10.

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.

Disaggregation of Revenue
For the years ended December 31, 2020 and 2019, revenue recognized for goods transferred
over time totaled $2,777,693 and $2,892,868, respectively.

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%
revenues were from residential maintenance and other customers. For the year ended
December 31, 2019, approximately 59% of revenues were from large-contract customers,
20% of revenues were from small contract customers (con-ops), and 21% 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,
2020 and 2019 were as follows:

(in thousands) 2020 2019
Federal S 656 $ 144
State (116) 203
Amortization of investment tax credits (33) (33)
Total $ 507 $ 314
Current $ 33 $ -
Deferred 474 314
Total $ 507 $ 314

120

The following is a reconciliation between the statutory federal income tax rate and the
effective income tax rate for 2020 and 2019:

2020 2019
Statutory federal rate 21.0 % 21.0 %
State tax rate, net of federal benefits 6.1 6.1
Permanent differences (63.6) {33.9)
Amortization of investment tax credits 2.2 0.7
Effective tax rate (34.3) % (6.1) %

The temporary items that give rise to the net deferred tax liability as of December 31, 2020
and 2019 were as follows:

(in thousands) 2020 2019
Liabilities:
Property-related, net S 22,496 $ 21,396
Other 704 519
Total liabilities 23,200 21,915
Assets:
Pension accrued liability 1,659 1,403
Net operating loss carryforward 5,415 4,953
Alternative minimum tax credit A476 476
NH Business Enterprise Tax credits 957 1,123
Other 718 656
9,225 8,611
Less valuation allowance (956) (1,123)
Total assets 8,269 7,488
Net non-current deferred income tax liability $ 14,931 S$ 14,427

The Company has accumulated federal net operating losses. The federal tax benefit of the
cumulative net operating losses is approximately $4 million, begin to expire in 2033, and is
included in deferred income taxes in the Consolidated Balance Sheet as of December 31,
2020. Approximately 88% of the net operating losses are 100 percent 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 TCJA now limits the net operating loss shelter
to 80 percent 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 12% of the net operating losses were generated in 2019 and 2020 and
therefore are subject to the 80% limitation.

121

The Company has accumulated New Hampshire net operating losses. The New Hampshire tax
benefit of the cumulative net operating loss is approximately $1.4 million which begins to
expire in 2023 and is included in deferred income taxes in the Consolidated Balance Sheet as
of December 31, 2020.

As of December 31, 2020 and 2019, 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, 2020 and 2019, the Company had New Hampshire Business Enterprise
Tax (“NHBET”) credits of approximately $960,000 and $1.1 million, respectively. NHBET
credits begin to expire in 2021. 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 $167,000 and increased
by approximately $126,000 in the years ended December 31, 2020 and 2019, 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 $9,918,000
and $9,930,000 as of December 31, 2020 and 2019, 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 ina 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 2020 and 2019. We incurred no penalties during the years ended December 31, 2020 and
2019.

122

11.

Long-Term Debt

Long-term debt as of December 31, 2020 and 2019 consisted of the following:

2020
Unamortized
Debt Issuance
{in thousands} Principal Costs
Unsecured note payable to City of Nashua, 5.75%,
due 12/25/2041 $ 102,173 $
Unsecured Business Finance Authority:
Revenue Bonds (Series 20146), 4.50%, due January 1, 2045 4,830 105
Revenue Bonds (Series 2018A), interest rates from 4.375% to 5.00%,
due April 1, 2048 4,460 244
Revenue Bonds (Series 2018B), 4.33%, due April 1, 2028 900 50
Revenue Bonds (Series 20194), interest rates from 2.19% to 4.15%,
due April 1, 2049 8,080 277
Revenue Bonds (Series 2020A), interest rates from 3.15% to 4%,
due April 1, 2050 7,000 284
Revenue Bonds {Series 2020B), 5.25%, due April 1, 2023 380 12
Revenue Bonds (Series 2020C), interest rates from 1.275% to 4.02%,
due September 1, 2055 (3) 73,630 10,654
Unsecured notes payable to bank, floating-rate, due March 1, 2030 2,494 12
Unsecured notes payable to bank, 3.62%, due June 20, 2023 1,219 4
Unsecured notes payable to bank, 4.20%, due Decernmber 20, 2041 1,128 4
Unsecured notes payable to bank, 4.83%, due December 20, 2041 864 5
Unsecured notes payable to bank, 4.25%, due June 20, 2033 667 5
Unsecured notes payable to bank, 4.90%, due March 6, 2040 541 31
Unsecured notes payable to bank, 5.33%, due June 20, 2043 332 11
Unsecured notes payable to bank, 4.38%, due September 20, 2044 1,118 is
Unsecured notes payable to bank, 3.98%, due January 1, 2046 800 12
Unsecured New Hampshire State Revolving Fund (“SRF”) notes (1) 23,048 162
Unsecured New Hampshire Drinking Water & Groundwater Trust
Fund ("DWGTF") notes (2} 8,675 11
Paycheck Protection Program Loan, 1.00%, due May 7, 2022 2,544 -
Unamortized debt issuance costs for defeased obligations,
allowed by regulation - 3,162
Total 244,883 $ 15,060
Less current portion (6,018)
Less unamortized debt issuance costs (15,060)
Total long-term debt, Jess current portion
and unamortized debt issuance costs $ 223,805

{1} SRE notes are due through 2051 at interest rates ranging from 1% to 3.8%. These notes are payable in 120 to 240 consecutlve monthly
installments of principal and interest. The 1% rate applies to construction projects still in process until the earlier of (i) the date of
substantial completion of the impr , or (ii) various dates specified in the note (such earlier date being the interest rate change
date). Commencing on the interest rate change date, the interest rate changes to the lower of (i) the rate as stated in the note or (ii) 80% af
the established 11 General Obligations Bond Index published during the specified time period before the interest rate change date.

(2) OWGTF notes are due through 2050 at interest rates ranging from 1% to 3.38%. These notes are payable in 360 consecutive monthly
installments of principle and interest. The 1% rate applies to construction projects still in process until the earlier of (i) the date of
substantial completion of the improvements or {ii) June 1, 2020 as specified in the note [such earlier date being the interest rate change
date}. Commencing on the interest rate change date, the interest rate change to the rate as stated in the note.

(3) Revenue Bonds (2020C) proceeds were partially used to advance refund the 20144, 2015A and 2015B bonds with maturity dates of
January 1, 2045, January 1, 2046, and January 1, 2031 respectively. The advance refunding proceeds are held in escrow until their future
call dates of December 2023 and December 2024, to then be used to facilitate retirement of the bonds. Of the remaining $10,654 of
Unarnortized Debt Issuance Costs as of December 31, 2020 generated by the September 2nd issuance, $9,269 are directly tred the advance
refunding and will fully-amortize on a straight-line basis until their respective call dates.

123