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Consolidated operating expenses increased by $0.8 million, or 2.1%, for the full year,
from 2019 to 2020, mainly due to the higher direct production costs, as well as labor and
benefit costs, as previously discussed.

Interest expense increased in 2020 when compared to 2019 due to interest costs
associated with: (1) the additional financed amounts for capital projects which have been
incurred for ongoing infrastructure replacement, in conformity with the Company’s key
mission objectives; (2) interest costs associated with a $2.5 million Paycheck Protection
Program Loan which was received on May 7, 2020 as part of the Coronavirus Aid, Relief
and Economic Security Act; and (3) increased debt amortization costs associated with the
write-off to maturity in 2014 and 2015 of escrow deposits required to facilitate the
advanced refunding of existing debt, which resulted from the issuance of $73.6 million of
taxable bonds by Pennichuck Water Works on August 26, 2020.

Pre-tax loss for the fourth quarter decreased to $1.8 million in 2020 versus $1.9 million in
2019, due to the increase in revenues as previously discussed.

The pre-tax loss for the year decreased from $5.0 million in 2019 to $1.5 million in 2020,
or 26%, due to the $5.2 million increase in revenues partially offset by expense increases,
as discussed previously, which resulted in the lower pre-tax loss in 2020.

Dividends paid to the sole shareholder in both 2020 and 2019 were consistent with, and
were paid pursuant to, the CBFRR structure provided for in the New Hampshire Public
Utilities Commission’s Order approving the City’s ownership of the Company.

The Income Tax Provision in the current year reflects the tax accounting for the amortization
of the Municipal Acquisition Regulatory Asset, which is not deductible for tax purposes, and
as such, constitutes a permanent difference in the deductibility of those amortization
expenses for tax purposes, as opposed to their inclusion in the GAAP based financial
statements. The Income Tax Provision (Benefit) also reflects the taxation of CIAC as
income for Regulated Water Utilities, due to the elimination of an exemption allowed prior to
the passage of the 2017 Tax Cuts and Jobs Act (“TCJA”) which made broad and complex
changes to the U.S. tax code. However, on November 27, 2019, the regulated utilities
received NHPUC approval on the requested amendments to their tariffs which now allow for
recovery of tax costs from developers and other CIAC contributors. This will now allow the
regulated utilities to fully fund the associated tax liability, which resulted from the change in
the 2017 federal tax law, for all CIAC contributions from independent third parties. Due to
these two significant items, the year-to-date results reflect a tax provision of approximately -
34.2% of pre-tax income for 2020, compared to the statutory tax rate expense of 27.08%.

Earnings Before Interest, Taxes, Depreciation and Amortization increased in the fourth
quarter from $3.2 million in 2019 to $4.0 million in 2020, or 25.0%, due to an increase in
revenues as discussed previously, over-and-above any operating expense increases.

Earnings Before Interest, Taxes, Depreciation and Amortization for 2020 increased
from 2019 by approximately $4.4 million, or 29.9%, again due to increased revenues
earned year-over-year, over-and-above operating expense increases.

Unaudited Cash Flow Statement

Cash Flow on a GAAP basis for the fourth quarter of 2020 as compared to the fourth quarter of
2019, and the year-to-date 2020 versus 2019, are as follows:

000’s
Quarter Ended Year-to-Date
December 31, December 31, December 31, December 31,
2020 2019 2020 2019
Operating Activities:
Net Income (Loss) $ (2,577) $ (2,010) $ (1,984) $ (5,337)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 2,223 2,238 8,637 8,537
Provision for Deferred Taxes 790 67 534 341
(Gain) on Disposition of Property 0 (61) 0 (150)
Other (8) 251 (33) 71
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (964) 1,271 (3,154) 717
(Increase) Decrease in Inventory 28 (56) 50 (37)
(Increase) Decrease in Other Assets (3,686) (3,839) (2,441) (2,692)
Increase (Decrease) in Accounts Payable 287 (3,407) (550) (1,836)
Increase (Decrease) in Other Liabilities 4,265 4,457 2,610 3,859
Net Cash Provided by (Used in) Operating Activities 358 (1,089) 3,669 3,473
Investing Activities:
Purchases of Property, Plant & Equipment,
including the Debt Component of AFUDC (4,419) (7,503) (10,165) (16,843)
(Increase) Decrease in Restricted Cash/Investments 0 0 0 0
Proceeds from Sale of Property 0 0 0 221
Change in Deferred Land Costs 0 (80) 0 0
Net Cash Provided by (Used in) Investing Activities _(4,419) (7,583) (10,165) (16,622)
Financing Activities:
Borrowings (Repayments) on Line of Credit 218 3,864 (3,803) 2,656
Payments on Long-term Debt (1,064) (968) (77,588) (6,034)
Contributions in Aid of Construction 15 24 35 48
Proceeds from Long-term Borrowings 2,255 6,594 87,290 18,692
Debt Issuance Costs 0 0 0 0
Dividends Paid (70) (69) (280) (279)

Net Cash Provided by (Used in) Financing Activities 1,354 9,445 5,654 15,083

Increase (Decrease) in Cash and Cash Equivalents (2,707) 773 (842) 1,934
Cash and Cash Equivalents at Beginning of Period 12,139 9,501 10,274 8,340

Cash and Cash Equivalents at End of Period $ 9,432 $ 10,274 $ 9432 $10,274

Balance Sheet ($000’s)
As of As of
December 31, 2020 December 31, 2019
(Audited) (Audited)
Assets
Property, Plant & Equipment, Net $ 242.469 $ 237,182

Current Assets:

Cash 310 4,885
Restricted Cash Nee! 8,885 1,963
Investments — Bond Project Funds 237 3,426
Accounts Receivable N° 2 8,785 5,631
Inventory 598 648
Other Current Assets No 3 1,797 1,418
Total Current Assets 20,612 17,791
Other Assets:
Acquisition Premium ‘°* 4 67,202 69,263
Other Assets 17,014 13,727
Total Other Assets 84,216 82,990
TOTAL ASSETS $ 347,297 $ 338,148

Shareholders’ Equity and Liabilities

Shareholders’ Equity $ 412 $ _ 2,739
Bonds, Notes and Mortgages N*°> 226,912 212,296

Current Liabilities:

Lines of Credit 5,480 9,283
Current Portion of Long-Term Debt 6,020 6,582
Other Current Liabilities 5,474 6,722
Total Current Liabilities 16,974 22,587

Other Long-Term Liabilities:

CIAC, net 56,536 54,770
Deferred Income Taxes 14,931 14,427
Accrued Pension Liability N**° 15,424 12,971
Other Long-Term Liabilities 16,108 18,353
Total Other Long-Term Liabilities 102,999 100,521
TOTAL SHAREHOLDERS’ EQUITY AND $ 347,297 $ 338,143

LIABILITIES

Notes to Balance Sheet

Note 1 (Restricted Cash) — At December 31, 2020, the balance of $8.9 million represents an
increase of $6.9 million from the end of 2019, mainly due to: (1) the cash generated from the
increased revenue levels year-over-year; and (2) the additional proceeds received from
Pennichuck Water’s September 2™ bonding event as a one-time replenishment of the existing
MOERR Rate Stabilization Fund.

Note 2 (Accounts Receivable) — At December 31, 2020, the balance in Accounts Receivable
increased approximately $3.2 million from the year-end total at December 31, 2019 of $5.6
million. This is attributed to: (1) revenue increases generated by the regulated utilities due to the
increased consumption levels year-over-year; and (2) the additional $1.6 million in recoupment
revenues recorded for PWW (which remain as unbilled receivables as of December 31, 2020),
resulting from the November 24, 2020 NHPUC order as previously discussed.

Note 3 (Other Current Assets) —- At December 31, 2020, approximately $1.3 million of this
balance is comprised of prepaid property taxes, which will be expensed in the first quarter of
2021, relating to taxes paid in November and December of 2020 for the second half of the
property tax year ended March 31, 2021.

Note 4 (Acquisition Premium) — In accordance with GAAP, the Acquisition Premium is being
written-off over the 30-year life of the principal of the City Acquisition Debt. This amortization
will continue until the full value of this asset is written off in January 2042.

Note 5 (Bonds, Notes and Mortgages) — At December 31, 2020, the balance in Bonds, Notes and
Mortgages increased approximately $14.6 million from the year-end total at December 31, 2019
of $212.3 million. This is attributed to: (1) the additional financed amounts for capital projects
which have been incurred for ongoing infrastructure replacement, in conformity with the
Company’s key mission objectives; (2) a $2.5 million Paycheck Protection Program Loan which
was received on May 7, 2020 as part of the Coronavirus Aid, Relief and Economic Security Act,
aimed at allowing the Company to retain its existing workforce at full-employment, during the
current COVID-19 global pandemic; (3) and the remaining proceeds which resulted from the
$73.6 million of taxable bonds issued by Pennichuck Water Works on August 26, 2020. This
event was primarily used to retire or refinance existing debt, with the remaining proceeds to
replenish the MOERR RSF for PWW back to its authorized imprest value, and to repay the
Pennichuck Corporation Working Capital Line of Credit for funds used to support the RSF funds
as the Company awaited the completion of the debt refinancing and the approval of PWW’s new
rates.

Note 6 (Accrued Pension Liability) — During 2020, approximately $1.5 million was contributed into
the Pension Plan, while approximately $0.7 million in benefit payments were made to participants,
and approximately $2.7 million of investment gains were recorded, attributed to changes in market
values.

Capital Expenditures

Capital expenditures in the fourth quarter of 2020 were $4.9 million compared to $7.2 million
in the fourth quarter of 2019. For the year 2020, capital expenditures were $10.7 million as
compared to $16.6 million in 2019.

The major expenditures for 2020 were as follows:

Locke Lake New Water Source $ 1,923,000

25 Walnut Street Office Building Fit-Up and Relocation 619,000

Peacham Road Pipeline — Locke Lake 591,000

Carbon Filter Media Changeout — 5 & 6 495,000

Merrimack River Intake 485,000

Workorder System Replacement - CMMS 433,000
Rate Cases

Pennichuck Water Works, Inc. - On November 24, 2020, the NHPUC issued Order No. 26,425
approving an overall permanent rate increase of 11.85%, becoming effective with services
rendered back to April 14, 2020. The permanent rate increase is inclusive of QCPAC surcharges
of 4.06% previously approved by NHPUC Order No. 26,298 on October 19, 2019 for 2018
capital expenditures, resulting in a net increase of billed rates to customers over and above the
QCPAC surcharge already in place, of 7.79%.

Pennichuck East Utility, Inc. - On November 24, 2020, Pennichuck East filed a request with the
NHPUC for a rate increase of 21.05% over its current rates for the test year 2019, effective
December 24, 2020, for which 15.0% of this increase is related to a request for a temporary rate
increase effective for services rendered on or after December 24, 2020. The 15.0% temporary
rate increase would be inclusive of a 2.98% QCPAC surcharge which was approved on
December 6, 2019 in Order No. 26,313 and a 1.97% QCPAC surcharge which is currently
pending in DW 20-019.

Pittsfield Aqueduct Company, Inc. - On November 16, 2020, Pittsfield Aqueduct filed a request
with the NHPUC for a rate increase of 11.18% over its current rates for the test year 2019, effective
December 17, 2020. The overall rate increase is subject to the normal regulatory filing process
with the NHPUC, as followed for all prior rate case filings, and as such, the final permanent rate
increase granted will be effective retroactive back to the filing date, with final approval by the
NHPUC in the Fall of 2021.

Financing

On April 23, 2020, the Company’s Pennichuck Water Works, Inc. subsidiary issued approximately
$7.5 million of tax-exempt and taxable bonds through the NH Business Finance Authority as
reimbursement for its 2019 capital improvements in Pennichuck Water Works’ water supply,
distribution and support systems. The bond issuance was approved by the Pennichuck Board of

Directors and the Sole Shareholder. This issuance had previously received NHPUC approval on
Order No. 26,101, dated February 2, 2018, which authorized up to $32.5 million in bonds via
multiple issuances for the years 2018-2021.

On May 6, 2020, the NHPUC issued Order No. 26,354 which permitted Pennichuck Water Works,
Inc. to borrow up to $2,563,662 from the federal Small Business Administration Paycheck
Protection Program. This loan includes a 2-year maturity at an interest rate of 1 percent, which
includes a provision in which a portion or all of the loan can be forgiven if all employees are kept
on the payroll for eight weeks upon disbursement of the loan proceeds. The loan proceeds were
disbursed by TD Bank, Inc., on behalf of the Small Business Administration on May 8, 2020. The
PPP loan was approved by the Pennichuck Corporation Board of Directors and the Sole
Shareholder. Approved forgiveness of this obligation has not yet been requested by the Company
but will be filed for during the early part of 2021.

On August 26, 2020, the Company’s Pennichuck Water Works, Inc. (PWW) subsidiary issued
approximately $73.6 million of taxable bonds through the NH Business Finance Authority to:
(1) advance refund and refinance PWW’s series 2014A, 2015A, and 2015B bonds, (2) early
retire an AULT bank loan set to mature on March 1, 2021 with a “bullet” maturity due at that
date, (3) complete the replenishment of the MOERR RSF for PWW back to its authorized
imprest value, and (4) to repay the Pennichuck Corporation Working Capital Line of Credit for
monies borrowed to bolster the MOERR RSF at PWW while awaiting rate relief from this
bonding event and the current PWW Rate Case. The bond issuance was approved by the
Pennichuck Board of Directors and the Sole Shareholder. This issuance had previously received
NHPUC approval on Order No. 26,383 dated July 24, 2020, which authorized up to

$75.0 million in bonds.

In December of 2020, the Company’s existing Working Capital Line of Credit (WCLOC) and
Pennichuck Water’s Fixed Asset Line of Credit (FALOC) were renewed. The WCLOC was
extended and renewed for an additional year and a half, expiring on June 30, 2022, whereas the
FALOC was extended and renewed for an additional two and a half years, expiring on June 30,
2023. Additionally, as a part of the renewal and extension of the FALOC, the capacity of that
facility was increased from $10 million to $12 million, while the Company’s WCLOC remains at
$4 million. Pennichuck East’s Fixed Asset Line of Credit (PEU FALOC) was renewed and
extended for an additional three years on November 24, 2020, expiring on September 30, 2023,
at its current facility level of $3 million. The two Fixed Asset Lines of Credit (FALOC and PEU
FALOC) are used to fund construction work in progress on capital projects, which will be
refinanced into long-term debt term loan obligations or issued bond indebtedness, annually. The
renewal and extension of all of these facilities were approved by the Company’s Board of
Directors, the Shareholder, and in the case of the two FALOC facilities, the NHPUC.

Qualified Capital Project Adjustment Charge (QCPAC)

On February 11, 2021, Pennichuck Water filed a petition with the NHPUC for a 5.44% QCPAC
surcharge on all capital improvements completed and placed in service by Pennichuck Water in
2020. The Commission has not issued an Order approving this requested surcharge. When the

Commission issues the Order, the surcharge will become effective retroactively to customers on
a “service rendered basis” back to April 1, 2021, which is the date for which PWW’s annual

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bond issuance associated with these capital investments and the QCPAC surcharge will be
completed and funded. The Order will allow recoupment of the surcharge from all its customers
based on their actual bills incurred between April 1, 2021 and the final effective date of the
Order.

On February 11, 2021, Pennichuck East filed a petition with the NHPUC for a 4.08% surcharge
on all capital improvements completed and placed in service by Pennichuck East in 2020. The
Commission has not issued an Order approving this requested surcharge. When the Commission
issues the Order, the surcharge will become effective retroactively on a “service rendered basis”
back to a date on or around July 31, 2021, depending upon the timing for which PEU completes
its annual debt financing with CoBank, which is done each year to convert FALOC borrowings
used to fund capital projects for the previous year, to a term loan with repayment terms of up to
25 years. The Order will allow recoupment of the surcharge from all its customers based on their
actual bills incurred between this estimated July 31, 2021 date and the final effective date of the
Order.

Other Events
PFOA Contamination Issues

During 2016, the Company was significantly involved in assisting the New Hampshire
Department of Environmental Services (“NHDES”) in assessing and bringing remediation
solutions to bear, in light of the PFOA contamination issues discovered in the towns surrounding
the Saint Gobain Performance Plastics (“SGPP”) site in north Merrimack. This included self-
instituting comprehensive and regular testing of the Company’s water supplies and water
systems, not only in the area adjacent to this site, but taking and processing at least two sets of
tests at all water sources that the Company owns throughout the State. This was done in order to
detect if any levels of contamination existed in the water sources, to aid the NHDES in
completing their statewide assessment, and to allow the Company to respond with certainty to
any of its customers as to any detectable levels. With regards to the water supply systems
directly adjacent to or connected to the Merrimack Village District, the Company has been
taking periodic regularly scheduled samples since this contamination site was disclosed in March
of 2016. The results of these tests were that none of the Company’s water sources had detectable
levels exceeding EPA lifetime advisory levels, or the State’s emergency and impending
permanent standard detection levels.

Additionally, at the request of the NHDES, the Company was asked to enter into a contract with
SGPP for the design of the expansion of public water to residents in the northern portion of
Litchfield, where private wells had been contaminated, in some cases well above acceptable
levels. Based upon the results of that design work, the Company was then contracted by SGPP
to expand the public water system owned by the Company in Litchfield to approximately 400
property owners, including nearly 10 miles of new water mains and nearly 10 miles of new
service lines. The cost of the design work and the expansion of the water system has and is
being paid totally by SGPP and was contributed to the Company as Contributions in Aid of
Construction (CIAC), as assets to be owned by the Company, the Town or DOT (for pavement
restoration on town or State roads), or the residents (in the case of the service lines) going
forward.

The price per 1,000 ft. and that reduced to a per foot measurement is listed with each vendors’
response. The total order amount for each vendor is listed also.

Vendor IMSA Spec Per 1,000 Price per foot Total Amount

Granite City Electric 20-2, 10 pair, 14-gauge solid $5,250.00 $5.25 $57,750.00
Granite City Electric 20-1, 20 conductor, 14-gauge solid $3,050.00 $3.05 $54,900.00
Granite City Electric Granite City Electric Order Total $112,650.00
Allied Wire and Cable _| 20-2, 10 pair, 14-gauge solid $6,430.00 $6.43 $70,730.00

__ Allied Wire and Cable | 20-1, 20 conductor, 14-gauge solid $2,660.00 $2.66 $47,880.00
“allied Wire and Cable Allied Wire and Cable Order Total| $118,610.00
Power and Tel 20-2, 10 pair, 14-gauge solid $4,372.73 $4.37 $48,100.03
Power and Tel 20-1, 20 conductor, 14-gauge solid $2,352.95 $2.35 $42,353.10
Power and Tel Es a Re CLE SPOS eS i ae | a Power and Tel Order Total. $90,453.13

From the quotes provided Power and Tel would be the vendor to use.

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Additionally, during 2018 the Company was asked by NHDES to contract for similar design
services with SGPP for expansion of its public water system in southern Bedford. This project
was initiated in 2018, and was slated for completion in the first half of 2019, bringing water to
approximately 90 new customers in that community.

The Company was also asked by the NHDES to design a further buildout for SGPP in Litchfield
to bring public water to an additional 30 residences in Litchfield, due to this contamination site.
SGPP entered into another contract with the Company for the expansion of the Company’s water
system in that area, construction of which was completed between 2019 and early 2020, and was
fully paid for by SGPP, and included in CIAC assets at such time as that project was completed.

As of March 20, 2018, SGPP and NHDES entered into a Consent Decree. Under the Consent
Decree, SGPP needs to fulfill their obligations by November 2019 on all of these currently
identified activities, and/or request an extension of time to fulfill their obligations, due to
circumstances outside of their control, including the availability of qualified contractors to
complete the buildout of the public water system in the impacted areas.

A similar effort on behalf of Textiles Coated International, Inc. (“TCI”) in the town of Amherst,
due to PFOA contamination related to their previous existence as a manufacturer in that town,
was also undertaken at the request of the NHDES. The Company was contracted to do design
services for the expansion of the public water system in that area of Amherst, by TCI, and
construction of the expansion of that part of the system began in 2017, and was fully completed
in 2018. Once again, the entire cost of this project was borne by TCI, and has become part of the
Company’s owned infrastructure as CIAC assets.

Company Goals — 2021

The Company’s main goals for 2021 are as follows:

e Complete the PEU Rate Case for test year 2019, including requests for rate structure modification
relating to an MOEF (Material Operating Expense Factor to be included in the allowed revenue
calculation for the utility to provide adequate cash flows between rate case filings for inflationary
and other increases in operating expenses), with temporary rates expected in Q2/Q3 2021 and
permanent rates expected in Q1 2022

© Complete the PAC Rate Case for test year 2019, with final rates expected in Q3/Q4 2021,
inclusive of rate structure modifications requested for PAC equivalent to those granted to PWW
in its last two filed rate cases

e File annual PWW and PEU QCPAC cases

e Complete construction and installation of Locke Lake overflow intake and treatment facilities
upgrades, which were initiated in project construction during late 2019 and throughout 2020.

e Continued development and implementation of the Asset Management, GIS and DPaC modules,
including criticality and vulnerability assessment to establish framework for long-term Capex
planning

e¢ Continued roll-out and implementation of Company-wide Customer Security Program, to the benefit
and safety of customers and employees

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¢ Completion and ongoing response and action to PFOA contamination issues in Southern NH, in
cooperation with the NHDES and other State agencies

© Implementation of the new PFAS MCL and Arsenic MCL, as governed by the NHDES

© Continued training, mentoring and succession planning throughout the organization, including
impending retirements occurring 2021-2023 for certain key roles

e Complete design of enhancements needed for Bowers and Supply Pond Dams, in response to new
“100 year storm” requirements, in preparation of capital improvement projects on the dams to be
completed in 2021

© Complete Bond issuance reimbursement financing in early April for PWW 2020 Capex
e Complete CoBank term loan financing in June/July for PEU 2020 Capex reimbursement/refinance

© Continued participation in multiple educational outreach efforts within the Company’s customer
coverage radius

© Continued focus on system and applications integration Company-wide, in response to results of gap
analysis done with ISO 27001 study

e Comprehensive review of Emergency Action Plan conducted during Internal Control Review process

e Finalize and secure several new contracts for PWSC, including extension/renewals of existing
contracts (Amesbury, Eastham and Wellfleet)

e Evaluate and implement Customer Communication System to allow for texting and email
notifications to customers

e Research potential enhancements or upgrade to Macola ES application

© Installation of Solar field to augment long-term power needs and rates

¢ Continual enhancement and review of cybersecurity needs, risks and tools

e¢ Continued monitoring and response to COVID-19 pandemic, including but not limited to:

© Timing of possible resumption of “normal” activities

© Ongoing monitoring and protection of customers and employees

© Continued monitoring and response to financial impact on the Company of the pandemic
© Considerations for “new normal” operating activities on a going forward basis

Other detailed information is included in the Company’s financial statements.

Sincerely,

GF put.

Larry D. Goodhue
Chief Executive Officer and
Chief Financial Officer