Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from  _____  to  _____

Commission file number 000-18516

Title of each class
Trading Symbol (s)
Name of each exchange on which registered

 
graphic
 

ARTESIAN RESOURCES CORPORATION
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware
51-0002090
--------------------------------------------------------------------
-------------------------------------------------
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)

664 Churchmans Road, Newark, Delaware 19702
------------------------------------------------------------------
Address of principal executive offices

(302) 453 – 6900
-----------------------------------------------------------
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol (s)
Name of each exchange on which registered
Common Stock
ARTNA
The Nasdaq Stock Market


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes
No
 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes
No
 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.


Large Accelerated Filer
Accelerated Filer 
Non-Accelerated Filer
Smaller Reporting Company
Emerging Growth Company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act ).

Yes
No
 

As of August 5, 2020, 8,454,153 shares of Class A Non-Voting Common Stock and 881,442 shares of Class B Common Stock were outstanding.


Table of Contents


TABLE OF CONTENTS

ARTESIAN RESOURCES CORPORATION
FORM 10-Q

-
   
         
-
 
Page(s)
         
     
3
         
     
4
         
     
5 - 6
         
     
7 - 8
         
     
  9 - 22
         
-
 
23 - 31
         
-
 
31
         
-
 
31
         
      Part II
-
 
32
         
-
 
32
         
-
 
32
         
-
 
32
         
   
33
         
   
33
         
   
33
         
-
 
34
         
   Signatures
       
2

Table of Contents



PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS

ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands)

ASSETS
 
June 30, 2020
   
December 31, 2019
 
Utility plant, at original cost (less accumulated depreciation 2020 - $ 143,051; and 2019 - $136,588)
 
$
544,575
   
$
530,721
 
Current assets
               
Cash and cash equivalents
   
373
     
596
 
Accounts receivable (less allowance for doubtful accounts 2020 - $601; 2019 - $264)
   
8,191
     
6,913
 
Income tax receivable
   
     
19
 
Unbilled operating revenues
   
1,759
     
1,211
 
Materials and supplies
   
1,518
     
1,264
 
Prepaid property taxes
   
2
     
1,954
 
Prepaid expenses and other
   
2,657
     
2,250
 
Total current assets
   
14,500
     
14,207
 
Other assets
               
Non-utility property (less accumulated depreciation - 2020 - $828; 2019 - $790)
   
3,774
     
3,812
 
Other deferred assets
   
5,884
     
4,257
 
   Operating lease right of use assets
   
469
     
480
 
Total other assets
   
10,127
     
8,549
 
Regulatory assets, net
   
6,697
     
6,891
 
Total Assets
 
$
575,899
   
$
560,368
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Stockholders' equity
               
Common stock
 
$
9,333
   
$
9,292
 
Preferred stock
   
     
 
Additional paid-in capital
   
102,746
     
101,811
 
Retained earnings
   
50,831
     
49,165
 
Total stockholders' equity
   
162,910
     
160,268
 
Long-term debt, net of current portion
   
143,183
     
144,156
 
     
306,093
     
304,424
 
Current liabilities
               
Lines of credit
   
14,735
     
7,500
 
Current portion of long-term debt
   
1,799
     
1,706
 
Accounts payable
   
4,853
     
8,176
 
Accrued expenses
   
3,003
     
3,113
 
Dividends payable
   
2,330
     
 
Overdraft payable
   
197
     
15
 
Accrued interest
   
908
     
830
 
Income taxes payable
   
4,840
     
343
 
Customer and other deposits
   
2,011
     
1,970
 
Other
   
1,797
     
1,946
 
Total current liabilities
   
36,473
     
25,599
 
                 
Commitments and contingencies
   
     
 
                 
Deferred credits and other liabilities
               
Net advances for construction
   
5,058
     
5,421
 
Operating lease liabilities
   
440
     
450
 
Regulatory liabilities
   
21,969
     
22,246
 
Deferred investment tax credits
   
482
     
490
 
Deferred income taxes
   
50,501
     
52,259
 
Total deferred credits and other liabilities
   
78,450
     
80,866
 
                 
Net contributions in aid of construction
   
154,883
     
149,479
 
Total Liabilities and Stockholders’ Equity
 
$
575,899
   
$
560,368
 
See notes to the condensed consolidated financial statements.
3

Table of Contents


ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands, except per share amounts)

 
For the Three Months Ended June 30,
   
For the Six Months Ended June30,
 
             
   
2020
   
2019
   
2020
   
2019
 
Operating revenues
                       
Water sales
 
$
19,423
   
$
18,192
   
$
36,816
   
$
35,125
 
Other utility operating revenue
   
1,084
     
1,150
     
2,336
     
2,270
 
Non-utility operating revenue
   
1,245
     
1,310
     
2,501
     
2,642
 
Total Operating Revenues
   
21,752
     
20,652
     
41,653
     
40,037
 
                                 
Operating expenses
                               
Utility operating expenses
   
9,359
     
9,249
     
18,593
     
18,370
 
Non-utility operating expenses
   
733
     
779
     
1,462
     
1,546
 
Depreciation and amortization
   
2,693
     
2,724
     
5,445
     
5,438
 
State and federal income taxes
   
1,537
     
1,325
     
2,896
     
2,504
 
Property and other taxes
   
1,306
     
1,255
     
2,672
     
2,575
 
Total Operating Expenses
   
15,628
     
15,332
     
31,068
     
30,433
 
                                 
Operating income
   
6,124
     
5,320
     
10,585
     
9,604
 
                                 
Other income, net
                               
   Allowance for funds used during construction (AFUDC) construction (AFUDC)
   
338
     
266
     
762
     
492
 
 Miscellaneous (expense) income
   
(13
)
   
(58
)
   
1,075
     
742
 
                                 
Income before interest charges
   
6,449
     
5,528
     
12,422
     
10,838
 
                                 
Interest charges
   
1,883
     
1,750
     
3,782
     
3,470
 
                                 
Net income applicable to common stock
 
$
4,566
   
$
3,778
   
$
8,640
   
$
7,368
 
                                 
Income per common share:
                               
Basic
 
$
0.49
   
$
0.41
   
$
0.93
   
$
0.80
 
Diluted
 
$
0.49
   
$
0.41
   
$
0.92
   
$
0.79
 
                                 
Weighted average common shares outstanding:
                               
Basic
   
9,326
     
9,276
     
9,311
     
9,267
 
Diluted
   
9,367
     
9,324
     
9,357
     
9,319
 
                                 
Cash dividends per share of common stock
 
$
0.2496
   
$
0.2459
   
$
0.4992
   
$
0.4882
 

See notes to the condensed consolidated financial statements.
4

Table of Contents


ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)

           
   
2020
   
2019
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
 
$
8,640
   
$
7,368
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
5,445
     
5,438
 
Deferred income taxes, net
   
(1,766
)
   
(1,690
)
Stock compensation
   
90
     
90
 
AFUDC, equity portion
   
(508
)
   
(311
)
                 
Changes in assets and liabilities:
               
Accounts receivable, net of allowance for doubtful accounts
   
(1,278
)
   
3,604
 
Income tax receivable
   
19
     
574
 
Unbilled operating revenues
   
(548
)
   
(335
)
Materials and supplies
   
(254
)
   
159
 
Prepaid property taxes
   
1,952
     
1,867
 
Prepaid expenses and other
   
(407
)
   
(572
)
Other deferred assets
   
(425
)
   
(373
)
Regulatory assets
   
165
     
189
 
Regulatory liabilities
   
(323
)
   
(258
)
Income tax payable
   
4,497
     
899
 
Accounts payable
   
(3,323
)
   
(3,775
)
Accrued expenses
   
(110
)
   
(1,404
)
Accrued interest
   
78
     
1,023
 
Revenue reserved for refund
   
     
(3,298
)
Customer deposits and other
   
(107
)
   
(267
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
   
11,837
     
8,928
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Capital expenditures (net of AFUDC, equity portion)
   
(16,952
)
   
(18,109
)
Investment in acquisitions
   
(3,632
)
   
 
Proceeds from sale of assets
   
34
     
36
 
NET CASH USED IN INVESTING ACTIVITIES
   
(20,550
)
   
(18,073
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net borrowings under lines of credit agreements
   
7,235
     
9,757
 
Increase in overdraft payable
   
182
     
661
 
Net advances and contributions in aid of construction
   
5,711
     
3,314
 
Net proceeds from issuance of common stock
   
886
     
598
 
Dividends paid
   
(4,644
)
   
(4,522
)
Principal repayments of long-term debt
   
(880
)
   
(771
)
NET CASH PROVIDED BY FINANCING ACTIVITIES
   
8,490
     
9,037
 
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS
   
(223
)
   
(108
)
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
   
596
     
293
 
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
373
   
$
185
 
                 
Non-cash Investing and Financing Activity:
               
Utility plant received as construction advances and contributions
 
$
619
   
$
1,595
 
Dividends declared but not paid
   
2,330
     
2,282
 
                 
Supplemental Disclosures of Cash Flow Information:
               
Interest paid
 
$
3,704
   
$
2,447
 
Income taxes paid
 
$
360
   
$
2,940
 
                 
Preliminary purchase price of allocation of investment in acquisitions:
               
Utility plant
 
$
2,412
   
$
 
Other deferred assets/goodwill
   
1,220,000
     
 
Total investment in acquisitions
 
$
3,632,000
   
$
 

See notes to the condensed consolidated financial statements.
5

Table of Contents



ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Unaudited
(In thousands)

 
 
Common Shares Outstanding Class A Non-Voting (1) (3) (4)
   
Common Shares Outstanding Class B Voting (2)
   
$1 Par Value Class A Non-Voting
   
$1 Par Value Class B Voting
   
Additional Paid-in Capital
   
Retained Earnings
   
Total
 
 
                                         
Balance as of December 31, 2018
   
8,368
     
882
   
$
8,368
   
$
882
   
$
100,639
   
$
43,362
   
$
153,251
 
Net income
   
     
     
     
     
     
3,590
     
3,590
 
Cash dividends declared
                                                       
Common stock
   
     
     
     
     
     
(2,241
)
   
(2,241
)
Issuance of common stock
                                                       
Dividend reinvestment plan
   
2
     
     
2
     
     
85
     
     
87
 
Employee stock options and awards(4)
   
14
     
     
14
     
     
263
     
     
277
 
Employee Retirement Plan(3)
   
2
     
     
2
     
     
76
     
     
78
 
Balance as of March 31, 2019
   
8,386
     
882
     
8,386
     
882
     
101,063
     
44,711
     
155,042
 
Net income
   
     
     
     
     
     
3,778
     
3,778
 
Cash dividends declared
                                                       
Common stock
   
     
     
     
     
     
(4,563
)
   
(4,563
)
Issuance of common stock
                                                       
Dividend reinvestment plan
   
3
     
     
3
     
     
87
     
     
90
 
Employee stock options and awards(4)
   
5
     
     
5
     
     
38
     
     
43
 
Employee Retirement Plan(3)
   
3
     
     
3
     
     
110
     
     
113
 
Balance as of June 30, 2019
   
8,397
     
882
     
8,397
     
882
     
101,298
     
43,926
     
154,503
 

 
 
Common Shares Outstanding Class A Non-Voting (1) (3) (4)
   
Common Shares Outstanding Class B Voting (2)
   
$1 Par Value Class A Non-Voting
   
$1 Par Value Class B Voting
   
Additional Paid-in Capital
   
Retained Earnings
   
Total
 
 
                                         
Balance as of December 31, 2019
   
8,410
     
882
   
$
8,410
   
$
882
   
$
101,811
   
$
49,165
   
$
160,268
 
Net income
   
     
     
     
     
     
4,074
     
4,074
 
Cash dividends declared
                                                       
Common stock
   
     
     
     
     
     
(2,319
)
   
(2,319
)
Issuance of common stock
                                                       
Dividend reinvestment plan
   
3
     
     
3
     
     
105
     
     
108
 
Employee stock options and awards(4)
   
5
     
     
5
     
     
129
     
     
134
 
Employee Retirement Plan(3)
   
2
     
     
2
     
     
87
     
     
89
 
Balance as of March 31, 2020
   
8,420
     
882
     
8,420
     
882
     
102,132
     
50,920
     
162,354
 
Net income
   
     
     
     
     
     
4,566
     
4,566
 
Cash dividends declared
                                                       
Common stock
   
     
     
     
     
     
(4,655
)
   
(4,655
)
Issuance of common stock
                                                       
Dividend reinvestment plan
   
3
     
     
3
     
     
87
     
     
90
 
Employee stock options and awards(4)
   
24
     
     
24
     
     
399
     
     
423
 
Employee Retirement Plan(3)
   
4
     
     
4
     
     
128
     
     
132
 
Balance as of June 30, 2020
   
8,451
     
882
     
8,451
     
882
     
102,746
     
50,831
     
162,910
 

(1)
At June 30, 2020 and June 30, 2019, Class A Common Stock had 15,000,000 shares authorized.  For the same periods, shares issued, inclusive of treasury shares, were 8,451,917 and 8,426,291, respectively.
(2)
At June 30, 2020 and June 30, 2019, Class B Common Stock had 1,040,000 shares authorized and 881,452 shares issued.
(3)
Artesian Resources Corporation registered 500,000 shares of Class A Common Stock available for purchase through the Artesian Retirement Plan and the Artesian Supplemental Retirement Plan.
(4)
Under the Equity Compensation Plan, effective December 9, 2015, or the 2015 Plan, Artesian Resources Corporation authorized up to 331,500 shares of Class A Common Stock for issuance of grants in the form of stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in certain circumstances as discussed in the 2015 Plan. Includes stock compensation expense for June 30, 2020, and June 30, 2019, see Note 5-Stock Compensation Plans.

See notes to the condensed consolidated financial statements
6

Table of Contents



NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 – GENERAL

Artesian Resources Corporation, or Artesian Resources, includes income from the earnings of our eight wholly owned subsidiaries. The terms "we", "our", "Artesian" and the "Company" as used herein refer to Artesian Resources and its subsidiaries.

DELAWARE REGULATED SUBSIDIARIES

Artesian Water Company, Inc., or Artesian Water, our principal subsidiary, is the oldest and largest public water utility in the State of Delaware and has been providing water service within the state since 1905.  Artesian Water distributes and sells water to residential, commercial, industrial, governmental, municipal and utility customers throughout the State of Delaware.  In addition, Artesian Water provides services to other water utilities, including operations and billing functions, and has contract operation agreements with private and municipal water providers.  Artesian Water also provides water for public and private fire protection to customers in our service territories.

Artesian Wastewater Management, Inc., or Artesian Wastewater, is a regulated entity that owns wastewater collection and treatment infrastructure and provides wastewater services to customers in Delaware as a regulated public wastewater service company.  Artesian Wastewater owns and operates four wastewater treatment facilities, which are permitted to treat approximately 500,000 gallons per day.  Artesian Wastewater and Sussex County, a political subdivision of Delaware, provide reciprocal services to address the periodic need of each for additional wastewater treatment and disposal capacity in certain service areas within Sussex County. There are numerous locations in Sussex County where Artesian Wastewater’s and Sussex County’s facilities are capable of being connected or integrated to allow for the movement and disposal of wastewater generated by one or the other’s system in a manner that most efficiently and cost effectively manages wastewater transmission, treatment and disposal.  Artesian Wastewater received an operations permit in March 2020 for a disposal facility that includes a 90 million gallon storage lagoon and spray irrigation to agricultural land.  This facility will be used to provide treated process wastewater disposal services for an industrial customer at a rate of approximately 1.5 million gallons per day. We anticipate to be operating this facility in the third quarter of 2020, pending Allen Harim's receipt of their operations permit.

MARYLAND REGULATED SUBSIDIARIES

Artesian Water Maryland, Inc., or Artesian Water Maryland, began operations in August 2007. Artesian Water Maryland distributes and sells water to residential, commercial, industrial and municipal customers in Cecil County, Maryland.

Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, was incorporated on June 3, 2008 and is able to provide regulated wastewater services to customers in the State of Maryland.  It is currently not providing these services in Maryland.

PENNSYLVANIA REGULATED SUBSIDIARY

Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, began operations in 2002.  It provides water service to a residential community in Chester County, Pennsylvania.

OTHER SUBSIDIARIES

Our three other subsidiaries, none of which are regulated, are Artesian Utility Development, Inc., or Artesian Utility, Artesian Development Corporation, or Artesian Development, and Artesian Storm Water Services, Inc., or Artesian Storm Water.

Artesian Utility was formed in 1996 and designs and builds water and wastewater infrastructure and provides contract water and wastewater operation services on the Delmarva Peninsula to private, municipal and governmental institutions.  Artesian Utility also evaluates land parcels, provides recommendations to developers on the size of water or wastewater facilities and the type of technology that should be used for treatment at such facilities, and operates water and wastewater facilities in Delaware for municipal and governmental organizations.  Artesian Utility also contracts with developers for design and construction of wastewater facilities within the Delmarva Peninsula, using a number of different technologies for treatment of wastewater at each facility.  In addition, as further discussed below, Artesian Utility operates the Water Service Line Protection Plan, or WSLP Plan, the Sewer Service Line Protection Plan, or SSLP Plan, and the Internal Service Line Protection Plan, or ISLP Plan.
7

Table of Contents

Artesian Utility currently operates wastewater treatment facilities for the town of Middletown, in southern New Castle County, Delaware, or Middletown, under a 20-year contract that expires in July 2039.  The Company has been operating these facilities, which currently include two wastewater treatment stations with a combined capacity of up to approximately 2.8 million gallons per day, or mgd, and the related wastewater disposal facilities, since 1998.  The wastewater treatment facilities in Middletown provide reclaimed wastewater for use in spray irrigation on public and agricultural lands in the area.

Artesian Utility also offers three protection plans to customers, the WSLP Plan, the SSLP Plan, and the ISLP Plan. The WSLP Plan covers all parts, material and labor required to repair or replace participating customers' leaking water service lines up to an annual limit. The SSLP Plan covers all parts, material and labor required to repair or replace participating customers' leaking or clogged sewer lines up to an annual limit.  The ISLP Plan enhances available coverage to include water and wastewater lines within customers' residences.

Artesian Development is a real estate holding company that owns properties, including land approved for office buildings, a water treatment plant and wastewater facility, as well as property for current operations, including an office facility in Sussex County, Delaware.  The facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse space.

Artesian Storm Water, incorporated on January 17, 2017, was formed to provide design, installation, maintenance and repair services related to existing or proposed storm water management systems in Delaware and the surrounding areas.  The ability to offer storm water services will complement the primary water and wastewater services that we provide.

NOTE 2 – BASIS OF PRESENTATION

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, for Form 10-Q.  Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.  Accordingly, these condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes in the Company's annual report on Form 10-K for fiscal year 2019 as filed with the SEC on March 13, 2020.

The condensed consolidated financial statements include the accounts of Artesian Resources Corporation and its wholly owned subsidiaries, including its principal operating company, Artesian Water.  In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments (unless otherwise noted) necessary to present fairly the Company's balance sheet position as of June 30, 2020, the results of its operations for the three and six months periods ended June 30, 2020 and June 30, 2019, its cash flows for the six month periods ended June 30, 2020 and June 30, 2019 and the changes in stockholders’ equity for the three and six  months periods ended June 30, 2020 and June 30, 2019.  The December 31, 2019 Condensed Consolidated Balance Sheet was derived from the Company’s December 31, 2019 audited consolidated financial statements, but does not include all disclosures and notes normally provided in annual financial statements.

The results of operations for the interim periods presented are not necessarily indicative of the results for the full year or for future periods.

Use of Estimates

Management makes certain estimates and assumptions regarding each lease agreement, renewal and amendment, including, but not limited to, discount rates and probable term, which can impact the escalations in payment that are taken into consideration when calculating the straight line basis. The amount of rent expense and income reported could vary if different estimates and assumptions are used.  Management also makes certain estimates and assumptions regarding the fair value of the leased property at lease commencement and the separation of lease and nonlease components.


The ultimate impact from the coronavirus pandemic, or COVID-19, on the Company’s operations and financial results during 2020 will depend on, among other things, the severity and scope of the pandemic and the timing of when governmental restrictions and executive orders will ease.  We are not able to fully quantify the impact that these factors will have on our financial results during 2020 and beyond.  Management has made certain estimates and assumptions regarding credit losses and reserves for bad debt related to the executive orders issued by state government agencies requiring utility companies to temporarily prohibit late fees and service disconnections for non-payment.

Reclassification

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements.  These reclassifications had no effect on net income or stockholders' equity.


NOTE 3 – REVENUE RECOGNITION

Background

Artesian’s operating revenues are primarily attributable to contract services based upon tariff rates approved by the Delaware Public Service Commission, or DEPSC, the Maryland Public Service Commission, or MDPSC, and the Pennsylvania Public Utility Commission, or PAPUC.  Tariff contract service revenues consist of water consumption, industrial wastewater services, fixed fees for water and wastewater services including customer and fire protection fees, service charges and Distribution System Improvement Charges, or DSIC, billed to customers at rates outlined in our tariffs that represent stand-alone selling prices.  Our non-tariff contract revenues consist of Service Line Protection Plan, or SLP Plan, fees, water and wastewater contract operations and wastewater inspection fees.  Other operating revenue primarily consists of developer guarantee contributions for wastewater and rental income for antenna contracts.

Tariff Contract Revenues

Artesian generates revenue from the sale of water to customers in Delaware, Cecil County, Maryland, and Southern Chester County, Pennsylvania once a customer requests service in our territory.  We recognize water consumption revenue at tariff rates on a cycle basis for the volume of water transferred to customers based upon meter readings for actual gallons of water consumed as well as unbilled amounts for estimated usage from the date of the last meter reading to the end of the accounting period.  As actual usage amounts are known based on recurring meter readings, adjustments are made to the unbilled estimates in the next billing cycle based on the actual results.  Estimates are made on an individual customer basis, based on one of three methods: the previous year’s consumption in the same period, the previous billing period’s consumption, or averaging. While actual usage for individual customers may differ materially from the estimate based on management judgements described above, we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption.  The majority of our water customers are billed for water consumed on a monthly basis, while the remaining customers are billed on a quarterly basis.  As a result, we record unbilled operating revenue (contract asset) for any estimated usage through the end of the accounting period that will be billed in the next monthly or quarterly billing cycle.

Artesian generates revenue from industrial wastewater services provided to a customer in Sussex County, Delaware.  We recognize industrial wastewater service revenue at a contract rate on a monthly basis for the volume of wastewater transferred to Artesian’s wastewater facilities based upon meter readings for actual gallons of wastewater transferred.  These services are invoiced at the end of every month based on the actual meter readings for that month, and therefore there is no contract asset or liability associated with this revenue.

Artesian generates fixed fee revenue for water and wastewater services provided to customers once a customer requests service in our territory.  Our wastewater territory is located in Sussex County, Delaware.  We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of the Company remaining ready to provide them water and wastewater service.  These contract services are billed in advance at tariff rates on a monthly, quarterly or semi-annual basis.  As a result, we record deferred revenue (contract liability) and accounts receivable for any amounts for which we have a right to invoice but for which services have not been provided.  This deferred revenue is netted with unbilled operating revenue on the Condensed Consolidated Balance Sheet.

Artesian generates service charges primarily from non-payment fees, such as water shut off and reconnection fees and finance charges.  These fees are billed and recognized as revenue at the point in time when our tariffs indicate the Company has the right to payment such as days past due have been reached or shut-offs and reconnections have been performed.  There is no contract asset or liability associated with these fees.
9

Table of Contents

Artesian generates revenue from DSIC, which are surcharges applied to water customer tariff rates in Delaware related to specific types of water distribution system improvements.  This rate is calculated on a semi-annual basis based on an approved projected revenue requirement over the following six-month period.  This rate is adjusted up or down at the next DSIC filing to account for any differences between actual earned revenue and the projected revenue requirement.  Since DSIC revenue is a surcharge applied to tariff rates, we recognize DSIC revenue based on the same guidelines as noted above depending on whether the surcharge was applied to consumption revenue or fixed fee revenue.

The DEPSC required Delaware utilities to determine the impact that the Tax Cuts and Jobs Act, or TCJA, had on its customers and potential rate relief due to customers.  The reduction in corporate income tax expense resulting from the TCJA was passed through to customers in the form of reduced tariff rates as approved by the DEPSC on January 31, 2019.  Approximately $3.8 million was refunded to customers during the second quarter of 2019.  This amount was previously held in reserve (refund liability) and was not reflected in income.

Accounts receivable related to tariff contract revenues are typically due within 25 days of invoicing.  An allowance for doubtful accounts is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current conditions.  We mitigate our exposure to credit losses by discontinuing services in the event of non-payment; accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant.  However, due to the COVID-19 pandemic causing hardships for many utility customers, state government agencies issued executive orders requiring utility companies to take a number of steps to support their customers and communities, including prohibiting service disconnections for non-payment and prohibiting late fees.  The Company anticipates a longer receivable cycle and the need for increased reserves for bad debt compared to 2019.  Effective June 30, 2020 an adjustment was made to increase the reserve for bad debt in the amount of $0.3 million.  The DEPSC and MDPSC issued orders authorizing utilities deferred regulatory treatment for incremental costs related to COVID-19.

As of June 30, 2020, we have not recorded a deferred regulatory asset for incremental costs related to COVID-19, but will continue to evaluate the on-going impact of the pandemic and whether incremental costs incurred are sufficient to warrant treatment as a deferred regulatory asset in accordance with the orders issued by the DEPSC and MDPSC.


Non-tariff Contract Revenues

Artesian generates SLP Plan revenue once a customer requests service to cover all parts, materials and labor required to repair or replace leaking water service lines, leaking or clogged sewer lines, or water and wastewater lines within the customer's residences, up to an annual limit.  We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of having service line protection services.  These contract services are billed in advance on a monthly or quarterly basis.  As a result, we record deferred revenue (contract liability) and accounts receivable for any amounts for which we have a right to invoice but for which services have not been provided.  Accounts receivable from SLP Plan customers are typically due within 25 days of invoicing.  An allowance for doubtful accounts is calculated as a percentage of total SLP Plan contract revenue.  We mitigate our exposure to credit losses by discontinuing services in the event of non-payment; accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant.

Artesian generates contract operation revenue from water and wastewater operation services provided to customers.  We recognize revenue from these operation contracts, which consist primarily of monthly operation and maintenance services over time as customers receive and consume the benefits of such services performed. These services are invoiced in advance at the beginning of every month and are typically due within 30 days, and therefore there is no contract asset or liability associated with these revenues.  An allowance for doubtful accounts is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ creditworthiness.  The related allowance for doubtful accounts and associated bad debt expense has not been significant.

Artesian generates inspection fee revenue for inspection services related to onsite wastewater collection systems installed by developers of new communities.  These fees are paid by developers in advance when a service is requested for a new phase of a development.  Inspection fee revenue is recognized on a per lot basis once the inspection of the infrastructure that serves each lot is completed.  As a result, we record deferred revenue (contract liability) for any amounts related to infrastructure not yet inspected.  There are no accounts receivable, allowance for doubtful accounts or bad debt expense associated with inspection fee contracts.
10

Table of Contents

Sales Tax

The majority of Artesian’s revenues are earned within the State of Delaware, where there is no sales tax.  Revenues earned in the State of Maryland and the Commonwealth of Pennsylvania are related primarily to the sale of water by a public water utility and are exempt from sales tax.  Therefore, no sales tax is collected on revenues.

Disaggregated Revenues

The following table shows the Company’s revenues disaggregated by service type; all revenues are generated within a similar geographical location:

(in thousands)
 
Three months ended June 30, 2020
   
Three months ended June 30, 2019
   
Six months ended June 30, 2020
   
Six months ended June 30, 2019
 
Tariff Revenue
                       
     Consumption charges
 
$
12,182
   
$
11,505
   
$
22,342
   
$
21,476
 
     Fixed fees
   
6,657
     
6,349
     
13,394
     
12,997
 
     Service charges
   
15
     
156
     
162
     
333
 
     DSIC
   
1,267
     
908
     
2,418
     
1,795
 
     Industrial wastewater services
   
7
     
3
     
15
     
3
 
Total Tariff Revenue
 
$
20,128
   
$
18,921
   
$
38,331
   
$
36,604
 
                                 
Non-Tariff Revenue
                               
     Service line protection plans
 
$
1,079
   
$
1,028
   
$
2,167
   
$
2,079
 
     Contract operations
   
213
     
328
     
429
     
656
 
     Inspection fees
   
8
     
64
     
110
     
86
 
Total Non-Tariff Revenue
 
$
1,300
   
$
1,420
   
$
2,706
   
$
2,821
 
                                 
Other Operating Revenue
     not in scope of ASC 606
 
$
324
   
$
311
   
$
616
   
$
612
 
                                 
Total Operating Revenue
 
$
21,752
   
$
20,652
   
$
41,653
   
$
40,037
 

Contract Assets and Contract Liabilities

Our contract assets and liabilities consist of the following:

(in thousands)
 
June 30, 2020
   
December 31, 2019
 
             
Contract Assets – Tariff
 
$
2,731
   
$
2,146
 
                 
Deferred Revenue
               
     Deferred Revenue – Tariff
 
$
1,104
   
$
1,050
 
     Deferred Revenue – Non-Tariff
   
244
     
251
 
Total Deferred Revenue
 
$
1,348
   
$
1,301
 

For the six months ended June 30, 2020, the Company recognized revenue of $1.0 million from amounts that were included in Deferred Revenue – Tariff at the beginning of the year and revenue of $0.2 million from amounts that were included in Deferred Revenue – Non- Tariff at the beginning of the year.

The increases (decreases) of Accounts Receivable, Contract Assets and Deferred Revenue were primarily due to normal timing differences between our performance and customer payments.

Remaining Performance Obligations

As of June 30, 2020 and December 31, 2019, Deferred Revenue – Tariff is recorded net of contract assets within Unbilled operating revenues and represents our remaining performance obligations for our fixed fee water and wastewater services, all of which are expected to be satisfied and associated revenue recognized in the next three months.

As of June 30, 2020 and December 31, 2019, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our SLP Plan services and wastewater inspections, which are expected to be satisfied and associated revenue recognized within the next three months and one year for the SLP Plan revenue and inspection fee revenue, respectively.

11

Table of Contents


NOTE 4 – LEASES

The Company leases land and office equipment under operating leases from non-related parties.  Our leases have remaining lease terms of 2 years to 77 years, some of which include options to automatically extend the leases for up to 66 years.  Payments made under operating leases are recognized in the condensed consolidated statement of operations on a straight-line basis over the period of the lease.  The annual lease payments for the land operating leases increase each year either by the most recent increase in the Consumer Price Index or by 3%, as applicable based on the terms of the lease agreements.  Periodically, the annual lease payment for one land operating lease is determined based on the fair market value of the applicable parcel of land.  None of the operating leases contain contingent rent provisions.  The commencement date of all the operating leases is the earlier of the date we become legally obligated to make rent payments or the date we may exercise control over the use of the land or equipment.  The Company currently does not have any financing leases and does not have any lessor leases that require disclosure.

Management made certain assumptions related to the separation of lease and nonlease components and to the discount rate used when calculating the right of use asset and liability amounts for the operating leases.  As our leases do not provide an implicit rate, we use our incremental borrowing rates for long term and short term agreements and apply the rates accordingly based on the term of the lease agreements to determine the present value of lease payments.

Rent expense for all operating leases except those with terms of 12 months or less comprises:

 
(in thousands)
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
                         
Minimum rentals
 
$
7
   
$
7
   
$
14
   
$
9
 
Contingent rentals
   
     
     
     
 
                                 
   
$
7
   
$
7
   
$
14
   
$
9
 

Supplemental cash flow information related to leases is as follows:

 
 
(in thousands)
 
 
 
Six Months Ended
   
Six Months Ended
 
   
June 30, 2020
   
June 30, 2019
 
 
       
 
Cash paid for amounts included in the measurement of lease liabilities:
           
     Operating cash flows from operating leases
 
$
14
   
$
9
 
Right-of-use assets obtained in exchange for lease obligations:
               
     Operating leases
 
$
469
   
$
494
 

Supplemental balance sheet information related to leases is as follows:









 
 
(in thousands,
except lease term and discount rate)
 
 
 
June 30, 2020
   
December 31, 2019
 
 
           
Operating Leases:
           
     Operating lease right-of-use assets
 
$
469
   
$
480
 
                 
     Other current liabilities
 
$
20
     
19
 
     Operating lease liabilities
   
440
     
450
 
Total operating lease liabilities
 
$
460
   
$
469
 
                 
                 
Weighted Average Remaining Lease Term
               
     Operating leases
 
58 years
   
58 years
 
Weighted Average Discount Rate
               
     Operating leases
   
5.0
%
   
5.0
%

Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of June 30, 2020 are as follows:

 
 
(in thousands)
 
 
 
Operating Leases
 
Year
     
2020
 
$
42
 
2021
   
37
 
2022
   
23
 
2023
   
23
 
2024
   
23
 
Thereafter
   
1,317
 
Total undiscounted lease payments
 
$
1,465
 
Less effects of discounting
   
(1,005
)
Total lease liabilities recognized
 
$
460
 

As of June 30, 2020, we have not entered into operating or finance leases that will commence at a future date.

NOTE 5 – STOCK COMPENSATION PLANS

On December 9, 2015, the Company's stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan, which replaced the 2005 Equity Compensation Plan that expired on May 24, 2015. The 2015 Plan provides that grants may be in any of the following forms: incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based awards. The 2015 Plan is administered and interpreted by the Compensation Committee, or the Committee, of the Board of Directors of the Company, or the Board. The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, the type, size and terms of the grants, the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan), and deal with any other matters arising under the 2015 Plan. The Committee presently consists of three directors, each of whom is a non-employee director of the Company. All of the employees of the Company and its subsidiaries and non-employee directors of the Company are eligible for grants under the 2015 Plan. 

Compensation expense, for the three and six months ended June 30, 2020 of approximately $45,000 and $90,000, respectively, was recorded for restricted stock awards issued in May 2019 and May 2020.  Compensation expense, for the three and six months ended June 30, 2019 of approximately $43,000 and $90,000, respectively, was recorded for restricted stock awards issued in May 2018 and May 2019. Costs were determined based on the fair value on the dates of the awards and those costs were charged to income over the service periods associated with the awards.

There was no stock compensation cost capitalized as part of an asset.

On May 8, 2019, 5,000 shares of Class A Common Stock, or Class A Stock, were granted as restricted stock awards.  The fair value per share was $36.11, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 8, 2019.

On May 6, 2020, 5,000 shares of Class A Stock, were granted as restricted stock awards.  The fair value per share was 35.01, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 6, 2020. Prior to their release date, these restricted stock awards may be subject to forfeiture in the event of the recipient’s termination of service.
12

Table of Contents


The following summary reflects changes in the shares of Class A Stock underlying options and restricted stock awards for the six months ended June 30, 2020:

 
Options
   
Restricted Awards
 
   
Option Shares
   
Weighted Average Exercise Price
   
Weighted Average Remaining Life (Yrs.)
   
Aggregate Intrinsic Value (in thousands)
   
Outstanding Restricted Stock Awards
   
Weighted Average Grant Date Fair
Value
 
Plan options/restricted stock awards
                                   
Outstanding at January 1, 2020
   
153,250
   
$
20.40
         
$
2,575
     
5,000
   
$
36.11
 
Granted
   
     
           
     
5,000
     
35.01
 
Exercised/vested and released
   
(25,000
)
   
18.73
           
391
     
(5,000
)
   
36.11
 
Expired/cancelled
   
     
           
     
     
 
Outstanding at June 30, 2020
   
128,250
   
$
20.73
     
2.438
   
$
1,995
     
5,000
   
$
35.01
 
                                                 
Exercisable/vested at June 30, 2020
   
128,250
   
$
20.73
     
2.438
   
$
1,995
     
     
 

The total intrinsic value of options exercised during the six months ended June 30, 2020 was approximately $391,200.

There were no unvested option shares outstanding under the 2015 Plan during the six months ended June 30, 2020.

As of June 30, 2020, there were no unrecognized expenses related to non-vested option shares granted under the 2015 Plan.  

As of June 30, 2020, there was $148,000 total unrecognized expenses related to non-vested awards of restricted shares awarded under the 2015 Plan.  The cost will be recognized over 0.85 years, the remaining vesting period for the restricted stock awards.

NOTE 6 – OTHER DEFERRED ASSETS

The investment in CoBank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based on the underlying long-term debt agreements.  Goodwill is a result of the acquisition of water assets from the Town of Frankford in April 2020 based on a preliminary purchase price allocation.  The DEPSC will evaluate this amount in Artesian Water’s next base rate case to determine the appropriate ratemaking treatment of the acquisition price and the assets acquired. A large portion of the remaining other deferred assets, approximately $0.2 million, is in relation to the Mountain Hill acquisition.

In thousands
 
June 30, 2020
   
December 31, 2019
 
 
           
Investment in CoBank
 
$
4,374
   
$
3,968
 
Goodwill
   
1,220
     
0
 
Other
   
290
     
289
 
 
 
$
5,884
   
$
4,257
 

NOTE 7 - REGULATORY ASSETS

FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency. Certain expenses are recoverable through rates charged to our customers, without a return on investment, and are deferred and amortized during future periods using various methods as permitted by the DEPSC, MDPSC, and PAPUC.

The postretirement benefit obligation is the recognition of an offsetting regulatory liability as it relates to the accrual of the expected cost of providing postretirement health care and life insurance benefits to retired employees.  Artesian Water contributed approximately $11,500 to its postretirement benefit plan in the first six months of 2020. These contributions consist of insurance premium payments for medical, dental and life insurance benefits made on behalf of the Company's eligible retired employees.

The deferred income taxes will be amortized over future years as the tax effects of temporary differences that previously flowed through to our customers are reversed.
13

Table of Contents

Debt related costs include debt issuance costs and other debt related expense. The DEPSC has allowed rate recovery on issuance costs associated with Artesian Water's Series V First Mortgage bond in December 2019 that paid down outstanding lines of credit and a loan payable to Artesian Resources.  These amounts are recovered over the term of the new long-term debt issued.  For the Series V First Mortgage bond, cash was paid for the issuance costs and $30 million of cash was received from the proceeds of the bonds.

Regulatory expenses amortized on a straight-line basis are noted below:

Expense
Years Amortized
Rate case studies
5
Delaware rate proceedings
2.5
Maryland rate proceedings
5
Debt related costs
 15 to 30 (based on term of related debt)
Goodwill (resulting from acquisition of Mountain Hill Water Company in 2008)
50
Deferred acquisition costs (resulting from purchase of water assets in Cecil County, Maryland in 2011 and Port Deposit, Maryland in 2010)
20
Franchise Costs (resulting from purchase of water assets in Cecil County, Maryland in 2011)
80

Regulatory assets, net of amortization, comprise:
 
   
(in thousands)
 
   
June 30, 2020
   
December 31, 2019
 
             
Postretirement benefit obligation
 
$
51
   
$
51
 
Deferred income taxes
   
378
     
386
 
Expense of rate case studies
   
22
     
27
 
Debt related costs
   
5,398
     
5,556
 
Goodwill
   
284
     
288
 
Deferred acquisition and franchise costs
   
564
     
583
 
   
$
6,697
   
$
6,891
 

NOTE 8 – REGULATORY LIABILITIES

FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency.  Certain obligations are deferred and/or amortized as determined by the DEPSC, the MDPSC, and the PAPUC.  Regulatory liabilities represent excess recovery of cost or other items that have been deferred because it is probable such amounts will be returned to customers through future regulated rates.

Utility plant retirement cost obligation consists of estimated costs related to the potential removal and replacement of facilities and equipment on the Company’s water and wastewater properties.  Effective January 1, 2012, as authorized by the DEPSC, when depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received, is charged to a regulated retirement liability.  Each year the liability is increased by an annual amount authorized by the DEPSC.    

Pursuant to the enactment of the TCJA, on December 22, 2017, the Company adjusted its existing deferred income tax balances to reflect the decrease in the corporate income tax rate from 34% to 21% (see Note 11).  This resulted in a decrease in the net deferred income tax liability of approximately $24.3 million, of which $22.8 million was reclassed to a regulatory liability.  The regulatory liability amount is subject to certain Internal Revenue Service normalization rules that require the benefits to customers be spread over the remaining useful life of the underlying assets giving rise to the associated deferred income taxes.  On January 31, 2019, the DEPSC approved the amortization of the regulatory liability amount of $22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date.  The MDPSC has not issued a final order on the regulatory liability amount of $0.6 million regarding the effects of the TCJA on Maryland customers.
14

Table of Contents

Regulatory liabilities comprise:
 
 
 
(in thousands)
 
 
 
June 30, 2020
   
December 31, 2019
 
 
           
Utility plant retirement cost obligation
 
$
192
   
$
247
 
Deferred income taxes (related to TCJA)
   
21,777
     
21,999
 
   
$
21,969
   
$
22,246
 

NOTE 9 - NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE

Basic net income per share is based on the weighted average number of common shares outstanding. Diluted net income per share is based on the weighted average number of common shares outstanding, the potentially dilutive effect of employee stock options and restricted stock awards.

The following table summarizes the shares used in computing basic and diluted net income per share:

 
For the Three Months Ended June 30,
   
For the Six Months Ended June 30,
 
   
2020
   
2019
   
2020
   
2019
 
   
(in thousands)
 
Weighted average common shares outstanding during the period for Basic computation
   
9,326
     
9,276
     
9,311
     
9,267
 
Dilutive effect of employee stock options and awards
   
41
     
48
     
46
     
52
 
                                 
Weighted average common shares outstanding during the period for Diluted computation
   
9,367
     
9,324
     
9,357
     
9,319
 

For the three and six months ended June 30, 2020, no shares of restricted stock awards were excluded from the calculations of diluted net income per share.  For the three and six months ended June 30, 2019, 2,700 and 1,300 of restricted stock awards were excluded from the calculations of diluted net income per share, respectively.  Due to unrecognized compensation costs, the hypothetical repurchase of shares exceeded the number of restricted shares expected to vest during the period, creating an anti-dilutive effect. For the three and six months ended June 30, 2020 and June 30, 2019, no shares of stock options were excluded from the calculations of diluted net income per share, as the calculated proceeds from the options’ exercise were lower than the average market price of the Company’s common stock during the period.

The Company has 15,000,000 authorized shares of Class A Stock and 1,040,000 authorized shares of Class B Common Stock, or Class B Stock. As of June 30, 2020, 8,451,910 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. As of June 30, 2019, 8,397,314 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. The par value for both classes is $1.00 per share.

Equity per common share was $17.50 and $17.28 at June 30, 2020 and December 31, 2019, respectively. These amounts were computed by dividing common stockholders' equity by the number of shares of common stock outstanding on June 30, 2020 and December 31, 2019, respectively.

NOTE 10 - REGULATORY PROCEEDINGS

Our water and wastewater utilities generate operating revenue from customers based on rates that are established by state Public Service Commissions through a rate setting process that may include public hearings, evidentiary hearings and the submission of evidence and testimony in support of the requested level of rates by the Company.

We are subject to regulation by the following state regulatory commissions:
The DEPSC, regulates both Artesian Water and Artesian Wastewater.
The MDPSC, regulates both Artesian Water Maryland and Artesian Wastewater Maryland.
The PAPUC, regulates Artesian Water Pennsylvania.
15

Table of Contents

Rate Proceedings

Our regulated utilities periodically seek rate increases to cover the cost of increased operating expenses, increased financing expenses due to additional investments in utility plant and other costs of doing business.  In Delaware, utilities are permitted by law to place rates into effect, under bond, on a temporary basis pending completion of a rate increase proceeding. The first temporary increase may be up to the lesser of $2.5 million on an annual basis or 15% of gross water sales.  Should the rate case not be completed within seven months, by law, the utility may put the entire requested rate relief, up to 15% of gross water sales, in effect under bond until a final resolution is ordered and placed into effect.  If any such rates are found to be in excess of rates the DEPSC finds to be appropriate, the utility must refund customers the portion found to be in excess with interest.  The timing of our rate increase requests is therefore dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase.  We can provide no assurances that rate increase requests will be approved by applicable regulatory agencies and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase.

The DEPSC required Delaware utilities to determine the impact that the TCJA had on their customers and potential rate relief due to customers.  The reduction in corporate income tax expense resulting from the TCJA was passed through to customers in the form of reduced tariff rates as approved by the DEPSC on January 31, 2019.  Approximately $3.8 million was refunded to customers during the second quarter of 2019.  This amount was previously held in reserve and was not reflected in income..

Other Proceedings

Delaware law permits water utilities to put into effect, on a semi-annual basis, increases related to specific types of distribution system improvements through a DSIC. This charge may be implemented by water utilities between general rate increase applications that normally recognize changes in a water utility's overall financial position. The DSIC approval process is less costly when compared to the approval process for general rate increase requests. The DSIC rate applied between base rate filings is capped at  7.50% of the amount billed to customers under otherwise applicable rates and charges, and the DSIC rate increase applied cannot exceed 5.0% within any 12-month period.

The following table summarizes (1) Artesian Water’s applications with the DEPSC to collect DSIC rates and (2) the rates upon which eligible plant improvements are based:

Application Date
11/28/2018
05/29/2019
11/15/2019
05/29/2020
DEPSC Approval Date
12/20/2018
06/18/2019
12/12/2019
06/17/2020
Effective Date
01/01/2019
07/01/2019
01/01/2020
07/01/2020
Cumulative DSIC Rate
5.55%
7.41%
7.50%
7.41%
Net Eligible Plant Improvements – Cumulative Dollars (in millions)
$30.4
$43.1
$43.1
$43.1
Eligible Plant Improvements – Installed Beginning Date
10/01/2014
10/01/2014
10/01/2014
10/01/2014
Eligible Plant Improvements – Installed Ending Date
10/31/2018
04/30/2019
04/30/2019
04/30/2019

The DSIC rate effective January 1, 2020 replaced the DSIC rate effective July 1, 2019.  The DSIC rate effective July 1, 2020 replaced the DSIC rate effective January 1, 2020.  The rate reflects the eligible plant improvements installed through April 30, 2019.  The DSIC rates effective January 1, 2020 and July 1, 2020 are still subject to audit at a later date by the DEPSC.  For the three and six months ended June 30, 2020, we earned approximately $1.3 million and $2.4 million in DSIC revenue, respectively.  For the three and six months ended June 30, 2019, we earned approximately $0.9 million and $1.8 million in DSIC revenue, respectively.

NOTE 11 – INCOME TAXES

Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse. The Company’s rate regulated utilities recognize regulatory liabilities, to the extent considered in ratemaking, for deferred taxes provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the current statutory rate.  Such tax-related regulatory assets and liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties.
16

Table of Contents

Under FASB ASC Topic 740, an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes.  The Company establishes reserves for uncertain tax positions based upon management's judgment as to the sustainability of these positions. These accounting estimates related to the uncertain tax position reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits. The Company believes its tax positions comply with applicable law and that it has adequately recorded reserves as required. However, to the extent the final tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known.  The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense.  The Company has accrued approximately $10,100 in penalties and interest for the six months ended June 30, 2020. The Company remains subject to examination by federal and state authorities for the tax years 2016 through 2019.

The Tax Reform Act of 1986 mandated that Advances and CIAC received subsequent to December 31, 1986, generally are taxable income.  The 1996 Tax Act provided an exclusion from taxable income for CIAC and Advances received after June 12, 1996 except for certain contributions for large services that are not included in rate base for rate-making purposes.  On December 22, 2017, the TCJA repealed the 1996 exclusion from gross income effective on the enactment date.

Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives of the related assets.

NOTE 12 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value.

Current Assets and Liabilities

For those current assets and liabilities that are considered financial instruments, the carrying amounts approximate fair value because of the short maturity of those instruments.

Long-term Financial Liabilities

All of Artesian Resources’ outstanding long-term debt as of June 30, 2020 and December 31, 2019 was fixed-rate.  The fair value of the Company’s long-term debt is determined by discounting its future cash flows using current market interest rates on similar instruments with comparable maturities consistent with FASB ASC 825.  Under the fair value hierarchy, the fair value of the long-term debt in the table below is classified as Level 2 measurements.  Level 2 is valued using observable inputs other than quoted prices.  The fair values for long-term debt differ from the carrying values primarily due to interest rates that differ from the current market interest rates.  The carrying amount and fair value of Artesian Resources' long-term debt (including current portion) are shown below:

In thousands
     
   
June 30, 2020
   
December 31, 2019
 
Carrying amount
 
$
144,982
   
$
145,862
 
Estimated fair value
 
$
173,779
   
$
157,710
 

The fair value of Advances for Construction cannot be reasonably estimated due to the inability to estimate accurately the timing and amounts of future refunds expected to be paid over the life of the contracts.  Refund payments are based on the water sales to new customers in the particular development constructed.  The fair value of Advances for Construction would be less than the carrying amount because these financial instruments are non-interest bearing.

NOTE 13 – RELATED PARTY TRANSACTIONS

Mr. Michael Houghton currently serves as a director through the remainder of the three year term class that expires at the Annual Meeting of the Class B Stock shareholders to be held in 2021 and until his respective successor shall be elected and qualified.  Mr. Houghton is a Partner in the law firm of Morris Nichols Arsht & Tunnell, or MNAT, in Wilmington, Delaware.  In the normal course of business, the Company utilizes the services of MNAT for various regulatory, real estate and public policy matters.  Approximately $109,000 and $228,000 was paid to MNAT during the three and six months ended June 30, 2020 respectively, for legal services and director related services. Approximately $97,000 and $123,000 was paid to MNAT during the three and six months ended June 30, 2019, respectively, for legal and director related services.  As of June 30, 2020, the Company had a $5,000 accounts payable balance due to MNAT.

As set forth in the Charter of the Audit Committee of the Board, the Audit Committee is responsible for reviewing and, if appropriate, approving all related party transactions between us and any officer, any director, any person known to be the beneficial owner of more than 5% of any class of the Company's voting securities or any other related person that would potentially require disclosure.  In its review and approval of the related party transactions with MNAT, the Audit Committee considered the nature of the related person's interest in the transactions; the satisfactory performance of work contracted with the related party prior to the election of Mr. Houghton as a director; and the material terms of the transactions, including, without limitation, the amount and type of transactions, the importance of the transactions to the related person, the importance of the transactions to the Company and whether the transactions would impair the judgment of a director or officer to act in the best interest of the Company.  The Audit Committee approves only those related person transactions that are in, or are consistent with, the best interests of the Company and its stockholders.

NOTE 14 – BUSINESS COMBINATIONS

As part of the Company's growth strategy, on April 2, 2020, Artesian Water purchased substantially all of the water system operating assets from the Town of Frankford, or Frankford, a Delaware municipality located in Sussex County, Delaware, including the right to provide water service to Frankford’s existing customers, or the Frankford Water System.  The Frankford Water System serves approximately 360 customers.  The total purchase price was 3.6 million. The acquisition was accounted for as a business combination under ASC Topic 805, “Business Combinations”.  The preliminary purchase price allocation is expected to be primarily attributed to utility plant assets and will be finalized once the valuation of assets acquired has been completed, no later than one year after the acquisition date.

This acquisition was approved by the DEPSC on March 18, 2020 subject to the DEPSC determining the appropriate ratemaking treatment of the acquisition price and the assets acquired in Artesian Water’s next base rate case.  The pro forma effect of the business acquired is not material to the Company’s financial position or results of operations

NOTE 15 - IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued new guidance on the measurement of credit losses on financial instruments, to provide financial statement users with more information about expected credit losses on financial instruments. The guidance revises the incurred loss impairment methodology to reflect current expected credit losses and requires consideration of a broader range of information to estimate credit losses.  The new standard is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. For the Company, this standard is primarily applicable to accounts receivable balances.  The Company’s credit losses on accounts receivable is minimal since we mitigate our exposure by discontinuing services in the event of non-payment. However, due to the COVID-19 pandemic causing hardships for many utility customers, state government agencies issued executive orders requiring utility companies to take a number of steps to support their customers and communities, including prohibiting service disconnections for non-payment and prohibiting late fees.  The Company anticipates a longer receivable cycle and the need for increased reserves for bad debt compared to 2019.    Effective June 30, 2020 an adjustment was made to increase the reserve for bad debt in the amount of 0.3 million.  The DEPSC and MDPSC issued orders authorizing utilities deferred regulatory treatment for incremental costs related to COVID-19, which includes increased bad debt expense.  As of June 30, 2020, we have not recorded a deferred regulatory asset for incremental costs related to COVID-19, but will continue to evaluate the on-going impact of the pandemic and whether incremental costs incurred are sufficient to warrant treatment as a deferred regulatory asset in accordance with the orders issued by the DEPSC and MDPSC.


NOTE 16 - SUBSEQUENT EVENT

On August 3, 2020, Artesian Water completed its previously announced purchase of substantially all of the water system operating assets from the City of Delaware City, a Delaware municipality, or Delaware City, including the right to provide water service to Delaware City’s existing customers, or the Delaware City Water System.  Pursuant to the terms of the Asset Purchase Agreement, Delaware City transferred to Artesian Water all of Delaware City’s right, title and interest in and to all of the plant and equipment, associated real property, contracts, easements and permits possessed by Delaware City at closing related to the Delaware City Water System.  The total purchase price was $2.1 million, which included the payoff of certain indebtedness totaling approximately $0.6 million specifically related to the Delaware City Water System.  The Asset Purchase Agreement contains commitments to upgrade and replace certain operating assets.  The Delaware City Water System currently serves approximately 800 customers.  The Delaware Public Service Commission approved this transaction on July 15, 2020.
17

Table of Contents



ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q that express our "belief," "anticipation" or "expectation," as well as other statements that are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act and the Private Securities Litigation Reform Act of 1995.  Statements regarding specific and overall impacts of the COVID-19 global pandemic on our financial condition and results of operations, our goals, priorities, growth and expansion plans and expectation for our water and wastewater subsidiaries and non-regulated subsidiaries, customer base growth opportunities in Delaware and Cecil County, Maryland, our belief regarding our capacity to provide water services for the foreseeable future to our customers, our belief relating to our compliance and the cost to achieve compliance with relevant governmental regulations, our expectation of the timing of decisions by regulatory authorities, the impact of weather on our operations and the execution of our strategic initiatives, our expectation of the timing for construction on new projects, our expectation relating to the adoption of recent accounting pronouncements, contract operations opportunities, legal proceedings, our properties, deferred tax assets, adequacy of our available sources of financing, the expected recovery of expenses related to our long-term debt, our expectation to be in compliance with financial covenants in our debt instruments, our ability to refinance our debt as it comes due, our ability to adjust our debt level, interest rate, maturity schedule and structure, the timing and terms of renewals of our lines of credit, plans to increase our wastewater treatment operations, engineering services and other revenue streams less affected by weather, expected future contributions to our postretirement benefit plan, anticipated growth in our non-regulated division, the impact of recent acquisitions on our ability to expand and foster relationships, anticipated investments in certain of our facilities and systems and the sources of funding for such investments, and the sufficiency of internally generated funds and credit facilities to provide working capital and our liquidity needs are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties that could cause actual results to differ materially from those projected.  Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", "projects", "forecasts", "may", "should", variations of such words and similar expressions are intended to identify such forward-looking statements.  Certain factors as discussed under Item 1A -Risk Factors, in our Annual Report on Form10-K for the year ended December 31, 2019, and this Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, such as changes in weather, changes in our contractual obligations, changes in government policies, the timing and results of our rate requests, failure to receive regulatory approval, changes in economic and market conditions generally, and other matters could cause results to differ materially from those in the forward-looking statements.  Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic.  While the Company may elect to update forward-looking statements, we specifically disclaim any obligation to do so and you should not rely on any forward-looking statement as a representation of the Company's views as of any date subsequent to the date of the filing of this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 2020

OVERVIEW

Our profitability is primarily attributable to the sale of water. Gross water sales composed 88.3% of total operating revenues for the six months ended June 30, 2020.  Our profitability is also attributed to the various contract operations, water, sewer and internal SLP Plans and other services we provide.  Water sales are subject to seasonal fluctuations, particularly during summer when water demand may vary with rainfall and temperature.  In the event temperatures during the typically warmer months are cooler than expected, or rainfall is greater than expected, the demand for water may decrease and our revenues may be adversely affected.  We believe the effects of weather are short term and do not materially affect the execution of our strategic initiatives. Our contract operations and other services provide a revenue stream that is not affected by changes in weather patterns.


While water sales are our primary source of revenues, we continue to seek growth opportunities to provide wastewater services in Delaware and the surrounding areas. We also continue to explore and develop relationships with developers and municipalities in order to increase revenues from contract water and wastewater operations, wastewater management services, and design, construction and engineering services. We plan to continue developing and expanding our contract operations and other services in a manner that complements our growth in water service to new customers. Our anticipated growth in these areas is subject to changes in residential and commercial construction, which may be affected by interest rates, inflation and general housing and economic market conditions.  We anticipate continued growth in our non-regulated division due to our water, sewer, and internal SLP Plans.
18

Table of Contents

COVID-19 Pandemic

In March 2020, the World Health Organization classified the coronavirus, or COVID-19, outbreak as a pandemic. Subsequently on March 13, 2020, the President of the United States declared the COVID-19 outbreak a national emergency.  The emergence of COVID-19 around the world presents risks to the Company, not all of which the Company is able to fully evaluate or even to foresee at the current time.  While the COVID-19 pandemic did not materially adversely affect the Company’s financial results and business operations for the six months ended June 30, 2020, economic and health conditions in the United States and across most of the globe have changed rapidly since the end of the period.  The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Management is actively monitoring the situation and impacts on its operations, suppliers, industry, and workforce.

The COVID-19 pandemic may affect the Company’s operations in future quarters.  The Company maintains essential utility services and is following social distancing and remote work directives, however prolonged workforce disruptions may negatively impact performance of services or require use of emergency personnel.  Due to the COVID-19 pandemic causing hardships for many utility customers, state government agencies issued executive orders requiring utility companies to take a number of steps to support their customers and communities, including prohibiting service disconnections for non-payment and prohibiting late fees.  As a result, the Company anticipates a longer receivable cycle and the need for increased reserves for bad debt, along with changes in revenue mix between commercial and residential.  The DEPSC and the MDPSC issued orders authorizing utilities deferred regulatory treatment for incremental costs related to COVID-19.

Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year.  Given the changing nature of the COVID-19 outbreak and the responses to curb its spread, management cannot predict the full impact of the COVID-19 pandemic on the Company’s results of operations.  The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic ends.

On March 27, 2020, the United States Government enacted the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which provides economic relief and stimulus to support the national economy during the COVID-19 epidemic.  This package included support for individuals, large corporations, small business, and health care entities, among other affected groups.  While the Company, and the utility industry broadly, were not direct beneficiaries of the stimulus, the Company continues to review the provisions of the CARES Act and assess the potential impact on the Company’s operations.

Water Division

Artesian Water, Artesian Water Maryland and Artesian Water Pennsylvania provide water service to residential, commercial, industrial, governmental, municipal and utility customers.  Increases in the number of customers contribute to increases, or help to offset any intermittent decreases, in our operating revenue.  As of June 30, 2020, we had approximately 88,900 metered water customers in Delaware, an increase of approximately 2,350 compared to June 30, 2019.  The number of metered water customers in Maryland totaled approximately 2,490 as of June 30, 2020, an increase of approximately 40 compared to June 30, 2019.  The number of metered water customers in Pennsylvania remained consistent compared to June 30, 2019. For the six months ended June 30, 2020, approximately 3.9 billion gallons of water were distributed in our Delaware systems and approximately 63.1 million gallons of water were distributed in our Maryland systems.

Wastewater Division

Artesian Wastewater owns wastewater collection and treatment infrastructure and began providing regulated wastewater services to customers in Delaware in July 2005.   Artesian Wastewater Maryland was incorporated on June 3, 2008 and is able to provide regulated wastewater services to customers in Maryland.  It is not currently providing these services in Maryland.  Our residential and commercial wastewater customers are billed a flat monthly fee, which contributes to providing a revenue stream unaffected by weather.  The number of Delaware wastewater customers totaled approximately 2,650 as of June 30, 2020, an increase of approximately 380, or 16.7%, compared to June 30, 2019.  In addition, Artesian Wastewater entered into wastewater services agreements with Allen Harim Foods, LLC, or Allen Harim, a large industrial customer.  The wastewater services agreements with Allen Harim are discussed further in the “Strategic Direction” section below.
19

Table of Contents


Non-Regulated Division

Artesian Utility provides contract water and wastewater operation services to private, municipal and governmental institutions.  Artesian Utility also offers three protection plans to customers, the WSLP Plan, the SSLP Plan, and the ISLP Plan.  SLP Plan customers are billed a flat monthly or quarterly rate, which contributes to providing a revenue stream unaffected by weather.  There has been consistent customer growth over the years.  As of June 30, 2020, approximately 20,600, or 24.2%, of our eligible water customers enrolled in the WSLP Plan, approximately 16,000, or 18.9%, of our eligible customers enrolled in the SSLP Plan, and approximately 7,300, or 8.6%, of our eligible customers enrolled in the ISLP Plan.  Approximately 1,910 non-utility customers enrolled in one of our three protection plans.

Strategic Direction

Our strategy is to increase customer growth, revenues, earnings and dividends by expanding our water, wastewater and SLP Plan services across the Delmarva Peninsula.  We remain focused on providing superior service to our customers and continuously seek ways to improve our efficiency and performance.  Our strategy has included a focus on building strategic partnerships with county governments, municipalities and developers.  By providing water and wastewater services, we believe we are positioned as the primary resource for developers and communities throughout the Delmarva Peninsula seeking to fill both needs simultaneously.  We believe we have a proven ability to acquire and integrate high growth, reputable entities, through which we have captured additional service territories that will serve as a base for future revenue.  We believe this experience presents a strong platform for further expansion and that our success to date also produces positive relationships and credibility with regulators, municipalities, developers and customers in both existing and prospective service areas.

In our regulated water division, our strategy is to focus on a wide spectrum of activities, which include strategic acquisitions of existing systems, expanding certificated service area, identifying new and dependable sources of supply, developing the wells, treatment plants and delivery systems to supply water to customers and educating customers on the wise use of water.  Our strategy includes focused efforts to expand through strategic acquisitions and in new regions added to our Delaware service territory over the last 10 years.  We plan to expand our regulated water service area in the Cecil County designated growth corridor and to expand our business through the design, construction, operation, management and acquisition of additional water systems.  The expansion of our exclusive franchise areas elsewhere in Maryland and the award of contracts will similarly enhance our operations within the state.

Our ability to develop partnerships with various county governments, municipalities and developers has provided a number of opportunities.  In the last three years, we completed seven acquisitions including asset purchase agreements with municipal and developer/homeowner association operated systems.  Some recent acquisitions are noted below.

On October 1, 2019, Artesian Water purchased utility assets from High Point Associates, L.P. and connected these assets to our public water system to serve the residents of High Point Park located in Kent County, Delaware.

On April 2, 2020, Artesian Water completed its purchase of substantially all of the operating assets of the water system of the Town of Frankford, a Delaware municipality, or Frankford, including the right to provide water service to Frankford’s existing customers, or the Frankford Water System.  Pursuant to the terms of the agreement, Frankford transferred to Artesian Water all of Frankford’s right, title and interest in and to all of the plant and equipment, associated real property, contracts, easements and permits possessed by Frankford at closing related to the Frankford Water System.  The total purchase price was $3.6 million.







On August 3, 2020, Artesian Water completed the purchase of substantially all of the water system operating assets from the City of Delaware City, a Delaware municipality, or Delaware City, including the right to provide water service to Delaware City’s existing customers.  The total purchase price was $2.1 million.  Artesian Water had previously acquired the water assets of an area annexed by Delaware City, known as Fort DuPont, which was earmarked for growth and expansion of Delaware City.

We believe that Delaware's generally lower cost of living in the region, availability of development sites in relatively close proximity to the Atlantic Ocean in Sussex County, and attractive financing rates for construction and mortgages have resulted, and will continue to result, in increases to our customer base.  Delaware’s lower property and income tax rate make it an attractive region for new home development and retirement communities.  Substantial portions of Delaware currently are not served by a public water system, which could also assist in an increase to our customer base as systems are added.

In our regulated wastewater division, we foresee significant growth opportunities and will continue to seek strategic partnerships and relationships with developers and governmental agencies to complement existing agreements for the provision of wastewater service on the Delmarva Peninsula. Artesian Wastewater plans to utilize our larger regional wastewater facilities to expand service areas to new customers while transitioning our smaller treatment facilities into regional pump stations in order to gain additional efficiencies in the treatment and disposal of wastewater. We believe this will reduce operational costs at the smaller treatment facilities in the future because they will be converted from treatment and disposal plants to pump stations to assist with transitioning the flow of wastewater from one regional facility to another.
20

Table of Contents

On September 27, 2016, Artesian Wastewater entered into a wastewater services agreement with Allen Harim for Artesian Wastewater to provide treatment and disposal services for sanitary wastewater discharged from Allen Harim’s properties located in Sussex County, Delaware upon completion of a pipeline to transfer the sanitary wastewater.  The pipeline was completed in the second quarter of 2017.  The transfer of sanitary wastewater began in the second quarter of 2019.  On January 27, 2017, Artesian Wastewater entered into a second wastewater agreement with Allen Harim for Artesian Wastewater to provide disposal services for approximately 1.5 mgd of treated industrial process wastewater upon completion of an approximately eight mile pipeline that will transfer the wastewater from Allen Harim’s properties to a 90 million gallon storage lagoon at Artesian’s Sussex Regional Recharge Facility.  We will use the reclaimed wastewater for spray irrigation on agricultural land in the area.  We received an operations permit in March 2020.  We anticipate to be operating this facility in the third quarter of 2020, pending Allen Harim’s receipt of their operations permit.

The general need for increased capital investment in our water and wastewater systems is due to a combination of population growth, more protective water quality standards and aging infrastructure.  Our capital investment plan for the next three years includes projects for water treatment plant improvements and additions in both Delaware and Maryland and wastewater treatment plant improvements and expansion in Delaware.  Capital improvements are planned and budgeted to meet anticipated changes in regulations and needs for increased capacity related to projected growth.  The DEPSC and MDPSC have generally recognized the operating and capital costs associated with these improvements in setting water and wastewater rates for current customers and capacity charges for new customers.

In our non-regulated division, we continue pursuing opportunities to expand our contract operations.  Through Artesian Utility, we will seek to expand our contract design, engineering and construction services of water and wastewater facilities for developers, municipalities and other utilities.  We also anticipate continued growth due to our water, sewer and internal SLP Plans.  Artesian Development owns two nine-acre parcels of land, located in Sussex County, Delaware, which will allow for construction of a water treatment facility and wastewater treatment facility.  Artesian Storm Water was formed to expand contract work related to the design, installation, maintenance and repair services associated with existing or proposed storm water management systems in Delaware and the surrounding areas.

Inflation


We are affected by inflation, most notably by the continually increasing costs required to maintain, improve and expand our service capability.  The cumulative effect of inflation results in significantly higher facility costs compared to investments made 20 to 40 years ago, which must be recovered from future cash flows.


Results of Operations – Analysis of the Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019.

Operating Revenues

Revenues totaled $21.8 million for the three months ended June 30, 2020, $1.1 million, or 5.3%, more than revenues for the three months ended June 30, 2019. Water sales revenue increased $1.2 million, or 6.8%, for the three months ended June 30, 2020 from the corresponding period in 2019, primarily due to an increase in residential consumption revenue. This increase is partially offset by a decrease in non-residential consumption revenue.  In addition, DSIC revenue and fixed fee revenue increased.  The DSIC rate effective January 1, 2019 was 5.55%.  The DSIC rate effective January 1, 2020 was 7.50%.  We realized 89.3% and 88.1% of our total operating revenue for the three months ended June 30, 2020 and June 30, 2019, respectively, from the sale of water.

Other utility operating revenue decreased approximately $0.1 million, or 5.7%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019.  The decrease is primarily due to a decrease in service and finance charges, related to executive orders issued by state governmental agencies requiring utility companies to prohibit late fees and service disconnections for non-payment.  This decrease is partially offset by an increase in wastewater revenue from customer growth.

Non-utility operating revenue decreased approximately $0.1 million, or 5.0%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019.  The decrease is primarily due to a decrease in contract service revenue.
21

Table of Contents

Operating Expenses

Operating expenses, excluding depreciation and income taxes, increased $0.1 million, or 1.0%, for the three months ended June 30, 2020, compared to the same period in 2019, primarily related to an increase in utility operating expenses of $0.1 million.

Utility operating expenses increased $0.1 million, or 1.2%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019.  The net increase is primarily related to the following.

Bad debt expense increased $0.3 million, related to executive orders issued by state governmental agencies requiring utility companies to prohibit late fees and service disconnections for non-payment resulting in a longer receivable cycle and the need for increased reserves for bad debt.
Payroll and employee benefit costs increased $0.1 million, related to an increase in overall wages and an increase in employee benefits costs.
General administration expenses decreased $0.2 million, primarily related to reduced in person group activity costs, such as meetings, training and conferences, as well as a decrease in employee recruitment costs.
Purchased water expenses decreased $0.1 million, primarily related to the timing of purchases under contract.

The ratio of operating expense, excluding depreciation and income taxes, to total revenue was 52.4% for the three months ended June 30, 2020, compared to 54.6% for the three months ended June 30, 2019.

Federal and state income tax expense increased $0.2 million, or 16.0%, primarily due to increased pre-tax book income in 2020 compared to 2019.

Interest Charges

Interest expense increased $0.1 million, primarily due to an increase in long-term debt interest related to the Series V First Mortgage Bond issued on December 17, 2019.  This increase is partially offset by a decrease in short-term debt interest, primarily related to lower interest rates and short-term borrowing levels in 2020.


Net Income

Our net income applicable to common stock increased $0.8 million.  Operating revenues increased $1.1 million and other income, net increased $0.1 million, while operating expenses increased $0.3 million and interest expense increased $0.1 million.

Results of Operations – Analysis of the Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019.

Operating Revenues

Revenues totaled $41.7 million for the six months ended June 30, 2020, $1.6 million, or 4.0%, more than revenues for the six months ended June 30, 2019. Water sales revenue increased $1.7 million, or 4.8%, for the six months ended June 30, 2020 from the corresponding period in 2019, primarily due to an increase in residential consumption revenue. This increase is partially offset by a decrease in non-residential consumption revenue.  In addition, DSIC revenue and fixed fee revenue increased.  The DSIC rate effective January 1, 2019 was 5.55%.  The DSIC rate effective January 1, 2020 was 7.50%.  We realized 88.4% and 87.7% of our total operating revenue for the six months ended June 30, 2020 and June 30, 2019, respectively, from the sale of water.





Other utility operating revenue increased approximately $0.1 million, or 2.9%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.  The increase is primarily due to an increase in wastewater revenue from customer growth.  This increase is partially offset by a decrease in service and finance charges, related to executive orders issued by state governmental agencies requiring utility companies to prohibit late fees and service disconnections for non-payment.

Non-utility operating revenue decreased approximately $0.1 million, or 5.3%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.  The decrease is primarily due to a decrease in contract service revenue.  This decrease is partially offset by an increase in SLP Plan revenue.
22

Table of Contents

Operating Expenses

Operating expenses, excluding depreciation and income taxes, increased $0.2 million, or 1.0%, for the six months ended June 30, 2020, compared to the same period in 2019.  The components of the change in operating expenses primarily include an increase in utility operating expenses of $0.2 million and an increase in property and other taxes of $0.1 million, partially offset by a $0.1 million decrease in non-utility operating expenses.

Utility operating expenses increased $0.2 million, or 1.2%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.  The net increase is primarily related to the following.

Bad debt expense increased $0.3 million, related to executive orders issued by state governmental agencies requiring utility companies to prohibit late fees and service disconnections for non-payment resulting in a longer receivable cycle and the need for increased reserves for bad debt.
Payroll and employee benefit costs increased $0.3 million, related to an increase in overall wages and an increase in employee benefits costs.
Purchased power expenses increased $0.1 million, primarily due to higher operational usage.
General administration expenses decreased $0.2 million, primarily related to reduced in person group activity costs, such as meetings, training and conferences, as well as a decrease in consulting services.
Purchased water expenses decreased $0.2 million, primarily related to the timing of purchases under contract.
Repair and maintenance expenses decreased $0.1 million, primarily due to a decrease in the timing of tank maintenance, partially offset by an increase in wastewater treatment costs related to an agreement to provide reciprocal services for certain service areas within Sussex County.

Non-utility operating expenses decreased $0.1 million, or 5.4%, primarily due to a decrease in payroll and benefit costs and contract service costs, partially offset by an increase in plumbing services related to the SLP Plans.

The ratio of operating expense, excluding depreciation and income taxes, to total revenue was 54.6% for the six months ended June 30, 2020, compared to 56.2% for the six months ended June 30, 2019.

Federal and state income tax expense increased $0.4 million, or 15.7%, primarily due to increased pre-tax book income in 2020 compared to 2019.

Property and other taxes increased $0.1 million, or 3.8%, primarily due to an increase in utility plant subject to taxation. Property taxes are assessed on land, buildings and certain utility plant, which include the footage and size of pipe, hydrants and wells.

Other Income, Net

Other income increased $0.6 million, primarily due to an increase in miscellaneous income of $0.3 million, related to an increase in the annual patronage refund from CoBank, ACB.  The refund is calculated based on 0.8% of the average loan balance outstanding.  In addition, in 2020 CoBank, ACB issued a one-time additional patronage distribution based on 0.1% of the average loan balance outstanding.  Allowance for funds used during construction, or AFUDC, increased $0.3 million, as a result of higher long-term construction activity subject to AFUDC for the six months ended June 30, 2020 compared to the same period in 2019.

Interest Charges

Interest expense increased $0.3 million, primarily due to an increase in long-term debt interest related to the Series V First Mortgage Bond issued on December 17, 2019.  This increase is partially offset by a decrease in short-term debt interest, primarily related to lower interest rates and short-term borrowing levels in 2020.  Customer deposit interest decreased $0.1 million from the 2019 customer refund amount held in reserve related to the Tax Cuts and Jobs Act.


Net Income

Our net income applicable to common stock increased $1.3 million.  Operating revenues increased $1.6 million and other income, net increased $0.6 million, while operating expenses increased $0.6 million and interest expense increased $0.3 million.
23

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our primary sources of liquidity for the six months ended June 30, 2020 were $11.8 million of cash provided by operating activities, $5.7 million in net contributions and advances from developers, $7.2 million from lines of credit borrowings and $0.9 million in net proceeds from the issuance of common stock.  Cash flow from operating activities is primarily provided by our utility operations, and is impacted by the timeliness and adequacy of rate increases and changes in water consumption as a result of year-to-year variations in weather conditions, particularly during the summer.  A significant part of our ability to maintain and meet our financial objectives is to ensure that our investments in utility plant and equipment are recovered in the rates charged to customers.  As such, from time to time, we file rate increase requests to recover increases in operating expenses and investments in utility plant and equipment.  We will continue to borrow on available lines of credit in order to satisfy current liquidity needs.

Investment in Plant and Systems

The primary focus of our investments is to continue to provide high quality reliable service to our growing service territory.  Capital expenditures during the first six months of 2020 were $20.6 million compared to $18.2 million during the same period in 2019.  During the first six months of 2020, we invested approximately $4.4 million for our rehabilitation program for transmission and distribution facilities by replacing aging or deteriorating mains and for new transmission and distribution facilities.  We invested $4.0 million to enhance or improve existing treatment facilities and replace aging wells and pumping equipment to better serve our customers.  We invested $1.1 million for equipment purchases, computer hardware and software upgrades and transportation equipment.  Developers financed $2.2 million for the installation of water mains and hydrants in 2020 compared to $1.9 million in 2019.  We invested $0.8 million to upgrade and automate our meter reading equipment.  We invested approximately $2.6 million in mandatory utility plant expenditures due to governmental highway projects, which required the relocation of water service mains in addition to facility improvements and upgrades.  We invested $1.9 million in wastewater projects in Delaware.  In addition, on April 2, 2020, Artesian Water invested $3.6 million to purchase water system operating assets from the Town of Frankford.

We depend on the availability of capital for expansion, construction and maintenance.  We have several sources of liquidity to finance our investment in utility plant and other fixed assets.  We estimate that future investments will be financed by our operations and external sources, including short-term borrowings under our revolving credit agreements discussed below. We expect to fund our activities for the next twelve months using our available cash balances, bank credit lines, projected cash generated from operations, state revolving fund loans and potential capital market financing if necessary.  Our cash flows from operations are primarily derived from water sales revenues and may be materially affected by changes in water sales due to weather and the timing and extent of increases in rates approved by state public service commissions.

Lines of Credit and Long Term Debt

At June 30, 2020, Artesian Resources had a $40 million line of credit with Citizens Bank, or Citizens, which is available to all subsidiaries of Artesian Resources. As of June 30, 2020, there was $32.8 million of available funds under this line of credit.  The interest rate for borrowings under this line is the London Interbank Offered Rate, or LIBOR, plus 0.85%.  This is a demand line of credit and therefore the financial institution may demand payment for any outstanding amounts at any time.  The term of this line of credit expires on the earlier of August 21, 2020 or any date on which Citizens demands payment. The Company expects to renew this line of credit.

At June 30, 2020, Artesian Water had a $20 million line of credit with CoBank, ACB, or CoBank, that allows for the financing of operations for Artesian Water, with up to $10 million of this line available for the operations of Artesian Water Maryland. As of June 30, 2020, there was $12.5 million of available funds under this line of credit.  The interest rate for borrowings under this line allows the Company to select either LIBOR plus 1.50% or a weekly variable rate established by CoBank; the Company has historically used the weekly variable interest rate.  The term of this line of credit expires on October 20, 2020. Artesian Water expects to renew this line of credit.

Line of Credit Commitments
Commitment Due by Period
 
 
In thousands
Less than
1 Year
 
1-3 Years
 
4-5 Years
 
Over 5 Years
 
Lines of Credit
 
$
14,735
   
$
--
   
$
--
   
$
--
 
24

Table of Contents


Contractual Obligations
 
Payments Due by Period
 
In thousands
 
Less than
1 Year
   
1-3
Years
   
4-5
Years
   
After 5
Years
   
Total
 
First mortgage bonds (principal and interest)
 
$
6,650
   
$
13,218
   
$
13,115
   
$
194,734
   
$
227,717
 
State revolving fund loans (principal and interest)
   
1,002
     
838
     
674
     
3,963
     
6,477
 
Promissory note (principal and interest)
   
960
     
1,921
     
1,921
     
13,018
     
17,820
 
Operating leases
   
42
     
60
     
46
     
1,317
     
1,465
 
Operating agreements
   
72
     
85
     
78
     
890
     
1,125
 
Unconditional purchase obligations
   
3,881
     
2,042
     
57
     
---
     
5,980
 
Total contractual cash obligations
 
$
12,607
   
$
18,164
   
$
15,891
   
$
213,922
   
$
260,584
 



Artesian’s long-term debt agreements and revolving lines of credit contain customary affirmative and negative covenants that are binding on us (which are in some cases subject to certain exceptions), including, but not limited to, restrictions on our ability to make certain loans and investments, guarantee certain obligations, enter into, or undertake, certain mergers, consolidations or acquisitions, transfer certain assets or change our business. In addition, we are required to abide by certain financial covenants and ratios.  As of June 30, 2020, we were in compliance with these covenants.

Long-term debt obligations reflect the maturities of certain series of our first mortgage bonds, which we intend to refinance when due if not refinanced earlier.  One first mortgage bond is subject to redemption in a principal amount equal to $150,000 plus interest per calendar quarter.  The state revolving fund loan obligation has an amortizing mortgage payment payable over a 20-year period.  The promissory note obligation has an amortizing payment payable over a 20-year period.  The first mortgage bonds, the state revolving fund loans and the promissory note have certain financial covenant provisions, the violation of which could result in default and require the obligation to be immediately repaid, including all interest.  We have not experienced conditions that would result in our default under these agreements.

On December 17, 2019, Artesian Water entered into a Bond Purchase Agreement relating to the issue and sale by Artesian Water to CoBank of a $30 million principal amount First Mortgage Bond, Series V, or the Series V Bond, due October 31, 2049, or the Maturity Date.  The Series V Bond was issued pursuant to Artesian Water’s Indenture of Mortgage dated as of July 1, 1961, as amended and supplemented by supplemental indentures, including the Twenty-Fourth Supplemental Indenture dated as of December 17, 2019 from Artesian Water to Wilmington Trust Company, as Trustee.  The Indenture is a first mortgage lien against substantially all of Artesian Water’s utility plant.  The proceeds from the sale of the Series V Bond were used to pay down outstanding lines of credit of the Company and a loan payable to Artesian Resources.  The DEPSC approved the issuance of the Series V Bond on November 14, 2019.

The Series V Bond carries an annual interest rate of 4.42% through but excluding the Maturity Date. Interest is payable on January 30th, April 30th, July 30th and October 30th in each year and on the Maturity Date, beginning January 30, 2020 until Artesian Water’s obligation with respect to the payment of principal, premium (if any) and interest shall be discharged.  Overdue payments shall bear interest as provided in the Twenty-Fourth Supplemental Indenture.  The term of the Series V Bond also includes certain limitations on Artesian Water’s indebtedness.

On April 28, 2020, Artesian Water entered into three financing agreements, or the Financing Agreements, with the Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health, a public agency of the state of Delaware, or the Department.  Under the Financing Agreements, the Department has agreed to advance to Artesian Water up to approximately $1.7 million, $1.0 million and $1.3 million, collectively, the Loans, to finance all or a portion of the costs to replace specific water transmission mains in service areas located in New Castle County, Delaware, collectively, the Projects.  In accordance with the Financing Agreements, Artesian Water will from time to time request funds under the Loans as it incurs costs in connection with the Projects.  The Company shall pay to the Department, on the principal amount drawn down and outstanding from the date drawn, interest at a rate of 0.6% per annum and an administrative fee at the rate of 0.6% per annum.  As of June 30, 2020, no funds were borrowed under the Loans.

In order to control purchased power costs, in August 2018 Artesian Water entered into an electric supply contract with MidAmerican. The fixed rate for MidAmerican was lowered 10.8% starting in September 2018.  The previous contract term was in effect since October 2015.  The current fixed price contract is effective from September 2018 through May 2022. In August 2018, Artesian Water Maryland entered into an electric supply agreement with Constellation NewEnergy.  The fixed rate for Constellation NewEnergy was lowered 4.9% starting in May 2019.  The previous contract term was in effect since December 2015.  The current fixed price contract is effective from May 2019 through May 2022.
25

Table of Contents

Payments for unconditional purchase obligations reflect minimum water purchase obligations based on rates that are subject to change under our interconnection agreement with the Chester Water Authority, which expires December 31, 2021 and minimum water purchase obligations based on a contract rate under our interconnection agreement with the Town of North East, which expires June 26, 2024.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, including any arrangements with any structured finance, special purpose or variable interest entities.


Critical Accounting Assumptions, Estimates and Policies; Recent Accounting Pronouncements

This discussion and analysis of our financial condition and results of operations is based on the accounting policies used and disclosed in our 2019 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted in the United States of America and included as part of our annual report on Form 10-K for the year ended December 31, 2019.  The preparation of those financial statements required management to make assumptions and estimates that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods.  Actual amounts or results could differ from those based on such assumptions and estimates.

Our critical accounting policies are described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K for the year ended December 31, 2019.  There have been no changes in our critical accounting policies.  Our significant accounting policies are described in our notes to the 2019 consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2019.

Information concerning our implementation and the impact of recent accounting pronouncements issued by the FASB is included in the notes to our 2019 consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2019 and also in the notes to our unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.  We did not adopt any accounting policy in the first six months of 2020 that had a material impact on our financial condition, liquidity or results of operations.


ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to the risk of fluctuating interest rates in the normal course of business.  Our policy is to manage interest rates through the use of fixed rate long-term debt and, to a lesser extent, short-term debt.  The Company's exposure to interest rate risk related to existing fixed rate, long-term debt is due to the term of the majority of our First Mortgage Bonds and the term of the promissory note, which have final maturity dates ranging from 2028 to 2038, and interest rates ranging from 4.24% to 5.96%, which exposes the Company to interest rate risk as interest rates may drop below the existing fixed rate of the long-term debt prior to such debt’s maturity.  In addition, the Company has interest rate exposure on $60 million of variable rate lines of credit with two banks, under which the interim bank loans payable at June 30, 2020 were approximately $14.7 million.  An increase in interest rates will result in an increase in the cost of borrowing on this variable rate line.  We are also exposed to market risk associated with changes in commodity prices.  Our risks associated with price increases in chemicals, electricity and other commodities are mitigated by our ability to recover our costs through rate increases to our customers.  We have also sought to mitigate future significant electric price increases by signing multi-year supply contracts at fixed prices.
26

Table of Contents

ITEM 4 – CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures


Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were designed to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (2) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.  In addition, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective to achieve the foregoing objectives.

(b) Change in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  The COVID-19 pandemic has had no impact on the Company’s internal controls over financial reporting.  The Company has had and continues to have the same processes as was the case prior to the pandemic.


PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

Periodically, we are involved in other proceedings or litigation arising in the ordinary course of business.  We do not believe that the ultimate resolution of these matters will materially affect our business, financial position or results of operations.  However, we cannot ensure that we will prevail in any litigation and, regardless of the outcome, may incur significant litigation expense and may have significant diversion of management attention.

ITEM 1A – RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019, which could materially affect our business, financial condition or future results. There have been no material changes to the risk factors described in such Annual Report on Form 10-K, except as follows:

Our business, results of operations, financial condition, cash flows and stock price may be adversely affected by pandemics, epidemics or other public health emergencies, such as the recent outbreak of the coronavirus, or COVID-19.

Our business, results of operations, financial condition, cash flows and stock price may be adversely affected by pandemics, epidemics or other public health emergencies, such as the recent outbreak of COVID-19.  In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.  The outbreak has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures.

We are considered an essential utility service company, as defined by the U.S. Department of Homeland Security.  Although we have continued to operate our business to date consistent with federal guidelines and state and local orders, the outbreak of COVID-19 and any preventive or protective actions taken by governmental authorities may have an adverse effect on our operations.  The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, depending upon the severity and duration of the outbreak and the effectiveness of actions taken to contain or mitigate its effects.  Any resulting financial impact cannot be estimated reasonably at this time, but results of operations, financial condition and cash flows could be adversely impacted.  State government agencies issued executive orders requiring utility companies to take a number of steps to support their customers and communities, including prohibiting service disconnections for non-payment and prohibiting late fees.  As a result, the Company anticipates a longer receivable cycle, the need for increased reserves for bad debt, along with changes in revenue mix between commercial and residential.  Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets, which may adversely impact our stock price.  To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in our 2019 Annual Report on Form 10-K, such as those relating to our financial performance.
27

Table of Contents

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.


ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 – OTHER INFORMATION

Not applicable.



28

Table of Contents



ITEM 6 - EXHIBITS

Exhibit No.
Description
 
 
Financing Agreement, dated as of April 28, 2020, between Artesian Water Company, Inc. and Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health.  Incorporated by reference to Exhibit 10.1 filed with the Company’s Form 8-K filed on April 30, 2020.
   
General Obligation Note (New Castle County Water Main Transmission Replacements Projects), Series 2020A-SRF, dated as of April 28, 2020, issued by Artesian Water Company, Inc. in favor of Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health.  Incorporated by reference to Exhibit 10.2 filed with the Company’s Form 8-K filed on April 30, 2020.
   
Financing Agreement, dated as of April 28, 2020, between Artesian Water Company, Inc. and Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health.  Incorporated by reference to Exhibit 10.3 filed with the Company’s Form 8-K filed on April 30, 2020.
   
General Obligation Note (New Castle County Water Main Transmission Replacements Projects), Series 2020B-SRF, dated as of April 28, 2020, issued by Artesian Water Company, Inc. in favor of Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health.  Incorporated by reference to Exhibit 10.4 filed with the Company’s Form 8-K filed on April 30, 2020.
   
Financing Agreement, dated as of April 28, 2020, between Artesian Water Company, Inc. and Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health. Incorporated by reference to Exhibit 10.5 filed with the Company’s Form 8-K filed on April 30, 2020.
   
General Obligation Note (New Castle County Water Main Transmission Replacements Projects), Series 2020C-SRF, dated as of April 28, 2020, issued by Artesian Water Company, Inc. in favor of Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health.  Incorporated by reference to Exhibit 10.6 filed with the Company’s Form 8-K filed on April 30, 2020.
   
Asset Purchase Agreement, dated June 11, 2020 by and among Artesian Water Company Inc., a Delaware corporation, and the City of Delaware City, a Delaware municipality. Incorporated by reference to Exhibit 10.1 filed with the Company’s Form 8-K filed on June 16, 2020.
   
Certification of Chief Executive Officer of the Registrant required by Rule 13a–14(a) under the Securities Exchange Act of 1934, as amended.*
 
 
Certification of Chief Financial Officer of the Registrant required by Rule 13a–14(a) under the Securities Exchange Act of 1934, as amended.*
 
 
Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350).**
 
 
101
The following financial statements from Artesian Resources Corporation's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Balance Sheets (unaudited); (ii) the Condensed Consolidated Statements of Operations (unaudited); (iii) the Condensed Consolidated Statements of Cash Flows (unaudited); and (iv) the Notes to the Condensed Consolidated Financial Statements (unaudited) that have been detail tagged.*
 
104
The cover page from Artesian Resources Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, formatted in iXBRL (contained in exhibit 101).*
 
   

*   Filed herewith
** Furnished herewith

29


 
Exhibit 31.1
Certification of Chief Executive Officer of Artesian Resources Corporation
required by Rule 13a – 14 (a) under the Securities Act of 1934, as amended
 
I, Dian C. Taylor, certify that:
 
 
 
1.
I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2020 of Artesian Resources Corporation;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
Date:  August 7, 2020
    /s/ DIAN C. TAYLOR
 
Dian C. Taylor
 
Chief Executive Officer (Principal Executive Officer)




 
Exhibit 31.2
 
Certification of Chief Financial Officer of Artesian Resources Corporation
required by Rule 13a – 14 (a) under the Securities Act of 1934, as amended
 
I, David B. Spacht, certify that:
 
 
1.
I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2020 of Artesian Resources Corporation;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
 
Date:  August 7, 2020
   /s/ DAVID B. SPACHT
 
David B. Spacht
 
Chief Financial Officer (Principal Financial and Accounting Officer)



 
Exhibit 32
 
 
Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350
 
 
I, Dian C. Taylor, Chief Executive Officer, and David B. Spacht, Chief Financial Officer, of Artesian Resources Corporation, a Delaware corporation (the "Company"), hereby certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on our knowledge:
 
(1)
The Company's Quarterly Report on Form 10-Q for the period ended June 30, 2020 (the " Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 USC Section 78m(a) or Section 78o(d)), as amended; and
 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and results of operations of the Company for the period covered by the Report.
 
 
 
 
 
 
Date:  August 7, 2020
 
 
 
CHIEF EXECUTIVE OFFICER:
 
CHIEF FINANCIAL OFFICER:
 
 
 
 
 
 
   /s/ DIAN C. TAYLOR
 
 /s/ DAVID B. SPACHT
Dian C. Taylor
 
David B. Spacht
 
 
 
          These certifications accompany the Report to which they relate, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.
v3.20.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2020
Aug. 05, 2020
Entity Information [Line Items]    
Entity Registrant Name ARTESIAN RESOURCES CORPORATION  
Entity Central Index Key 0000863110  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Shell Company false  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Document Quarterly Report true  
Document Transition Report false  
Entity File Number 000-18516  
Entity Tax Identification Number 51-0002090  
Entity Incorporation, State or Country Code DE  
Entity Address, Address Line One 664 Churchmans Road  
Entity Address, City or Town Newark  
Entity Address, Postal Zip Code 19702  
City Area Code 302  
Local Phone Number 453 – 6900  
Title of 12(b) Security Common Stock  
Trading Symbol ARTNA  
Security Exchange Name NASDAQ  
Entity Address, State or Province DE  
Class A Stock [Member]    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding   8,454,153
Class B Stock [Member]    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding   881,442
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
ASSETS    
Utility plant, at original cost (less accumulated depreciation - 2020 - $143,051,; 2019 - $136,588) $ 544,575 $ 530,721
Current assets    
Cash and cash equivalents 373 596
Non-utility property (less accumulated depreciation - 2020- $828; 2019 - $790) 8,191 6,913
Income tax receivable 0 19
Unbilled operating revenues 1,759 1,211
Materials and supplies 1,518 1,264
Prepaid property taxes 2 1,954
Prepaid expenses and other 2,657 2,250
Total current assets 14,500 14,207
Other assets    
Non-utility property (less accumulated depreciation - 2020- $828; 2019 - $790) 3,774 3,812
Other deferred assets 5,884 4,257
Operating lease right of use assets 469 480
Total other assets 10,127 8,549
Regulatory assets, net 6,697 6,891
Total Assets 575,899 560,368
Stockholders' equity    
Common stock 9,333 9,292
Preferred stock 0 0
Additional paid-in capital 102,746 101,811
Retained earnings 50,831 49,165
Total stockholders' equity 162,910 160,268
Long-term debt, net of current portion 143,183 144,156
Total stockholders' equity and long term debt 306,093 304,424
Current liabilities    
Lines of credit 14,735 7,500
Current portion of long-term debt 1,799 1,706
Accounts payable 4,853 8,176
Accrued expenses 3,003 3,113
Dividends payable 2,330 0
Overdraft payable 197 15
Accrued interest 908 830
Income taxes payable 4,840 343
Customer and other deposits 2,011 1,970
Other 1,797 1,946
Total current liabilities 36,473 25,599
Commitments and contingencies
Deferred credits and other liabilities    
Net advances for construction 5,058 5,421
Operating lease liabilities 440 450
Regulatory liabilities 21,969 22,246
Deferred investment tax credits 482 490
Deferred income taxes 50,501 52,259
Total deferred credits and other liabilities 78,450 80,866
Net contributions in aid of construction 154,883 149,479
Total Liabilities and Stockholders' Equity $ 575,899 $ 560,368
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
ASSETS    
Utility Plant, accumulated depreciation $ 143,051 $ 136,588
Current assets    
Accounts receivable, allowance for doubtful accounts 601 264
Other assets    
Non-utility Property, accumulated depreciation $ 828 $ 790
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Operating revenues        
Total Tariff Revenue $ 21,752 $ 20,652 $ 41,653 $ 40,037
Operating expenses        
Utility operating expenses 9,359 9,249 18,593 18,370
Non-utility operating expenses 733 779 1,462 1,546
Depreciation and amortization 2,693 2,724 5,445 5,438
State and federal income taxes 1,537 1,325 2,896 2,504
Property and other taxes 1,306 1,255 2,672 2,575
Total Operating Expenses 15,628 15,332 31,068 30,433
Operating income 6,124 5,320 10,585 9,604
Other income, net        
Allowance for funds used during construction (AFUDC) 338 266 762 492
Miscellaneous income (13) (58) 1,075 742
Income before interest charges 6,449 5,528 12,422 10,838
Interest charges 1,883 1,750 3,782 3,470
Net income applicable to common stock $ 4,566 $ 3,778 $ 8,640 $ 7,368
Income per common share:        
Basic (in dollars per share) $ 0.49 $ 0.41 $ 0.93 $ 0.80
Diluted (in dollars per share) $ 0.49 $ 0.41 $ 0.92 $ 0.79
Weighted average common shares outstanding:        
Basic (in shares) 9,326 9,276 9,311 9,267
Diluted (in shares) 9,367 9,324 9,357 9,319
Cash dividends per share of common stock (in dollars per share) $ 0.2496 $ 0.2459 $ 0.4992 $ 0.4882
Water Sales [Member]        
Operating revenues        
Total Tariff Revenue $ 19,423 $ 18,192 $ 36,816 $ 35,125
Other Utility Operating Revenue [Member]        
Operating revenues        
Total Tariff Revenue 1,084 1,150 2,336 2,270
Non-Utility Operating Revenue [Member]        
Operating revenues        
Total Tariff Revenue $ 1,245 $ 1,310 $ 2,501 $ 2,642
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income $ 8,640,000 $ 7,368,000
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 5,445,000 5,438,000
Deferred income taxes, net (1,766,000) (1,690,000)
Stock compensation 90,000 90,000
AFUDC, equity portion (508,000) (311,000)
Changes in assets and liabilities:    
Accounts receivable, net of allowance for doubtful accounts (1,278,000) 3,604,000
Income tax receivable 19,000 574,000
Unbilled operating revenues (548,000) (335,000)
Materials and supplies (254,000) 159,000
Prepaid property taxes 1,952,000 1,867,000
Prepaid expenses and other (407,000) (572,000)
Other deferred assets (425,000) (373,000)
Regulatory assets 165,000 189,000
Regulatory liabilities (323,000) (258,000)
Income tax payable 4,497,000 899,000
Accounts payable (3,323,000) (3,775,000)
Accrued expenses (110,000) (1,404,000)
Accrued interest 78,000 1,023,000
Revenue reserved for refund 0 (3,298,000)
Customer deposits and other (107,000) (267,000)
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,837,000 8,928,000
CASH FLOWS FROM INVESTING ACTIVITIES    
Capital expenditures (net of AFUDC, equity portion) (16,952,000) (18,109,000)
Investment in acquisitions (3,632,000) 0
Proceeds from sale of assets 34,000 36,000
NET CASH USED IN INVESTING ACTIVITIES (20,550,000) (18,073,000)
CASH FLOWS FROM FINANCING ACTIVITIES    
Net borrowings under lines of credit agreements 7,235,000 9,757,000
Increase in overdraft payable 182,000 661,000
Net advances and contributions in aid of construction 5,711,000 3,314,000
Net proceeds from issuance of common stock 886,000 598,000
Dividends paid (4,644,000) (4,522,000)
Principal repayments of long-term debt (880,000) (771,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,490,000 9,037,000
NET DECREASE IN CASH AND CASH EQUIVALENTS (223,000) (108,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 596,000 293,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD 373,000 185,000
Non-cash Investing and Financing Activity:    
Utility plant received as construction advances and contributions 619,000 1,595,000
Dividends declared but not paid 2,330,000 2,282,000
Supplemental Disclosures of Cash Flow Information:    
Interest paid 3,704,000 2,447,000
Income taxes paid 360,000 2,940,000
Preliminary purchase price of allocation of investment in acquisitions:    
Utility plant 2,412,000 0
Other deferred assets/goodwill 1,220,000 0
Total investment in acquisitions $ 3,632,000 $ 0
v3.20.2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
shares in Thousands, $ in Thousands
Common Stock [Member]
Common Shares Class A Non-Voting [Member]
Common Stock [Member]
Common Shares Class B Voting [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Total
Balance at Dec. 31, 2018 $ 8,368 $ 882 $ 100,639 $ 43,362 $ 153,251
Balance (in shares) at Dec. 31, 2018 8,368 [1],[2],[3] 882 [4]      
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income $ 0 $ 0 0 3,590 3,590
Cash dividends declared          
Common stock 0 0 0 (2,241) (2,241)
Issuance of common stock          
Dividend reinvestment plan $ 2 $ 0 85 0 87
Dividend reinvestment plan (in shares) 2 [1],[2],[3] 0 [4]      
Employee stock options and awards [3] $ 14 $ 0 263 0 277
Employee stock options and awards (in shares) [3] 14 [1],[2] 0 [4]      
Employee Retirement Plan [1] $ 2 $ 0 76 0 78
Employee Retirement Plan (in shares) [1] 2 [2],[3] 0 [4]      
Balance at Mar. 31, 2019 $ 8,386 $ 882 101,063 44,711 155,042
Balance (in shares) at Mar. 31, 2019 8,386 [1],[2],[3] 882 [4]      
Balance at Dec. 31, 2018 $ 8,368 $ 882 100,639 43,362 153,251
Balance (in shares) at Dec. 31, 2018 8,368 [1],[2],[3] 882 [4]      
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income         7,368
Balance at Jun. 30, 2019 $ 8,397 $ 882 101,298 43,926 154,503
Balance (in shares) at Jun. 30, 2019 8,397 [1],[2],[3] 882 [4]      
Balance at Mar. 31, 2019 $ 8,386 $ 882 101,063 44,711 155,042
Balance (in shares) at Mar. 31, 2019 8,386 [1],[2],[3] 882 [4]      
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income $ 0 $ 0 0 3,778 3,778
Cash dividends declared          
Common stock 0 0 0 (4,563) (4,563)
Issuance of common stock          
Dividend reinvestment plan $ 3 $ 0 87 0 90
Dividend reinvestment plan (in shares) 3 [1],[2],[3] 0 [4]      
Employee stock options and awards [3] $ 5 $ 0 38 0 43
Employee stock options and awards (in shares) [3] 5 [1],[2] 0 [4]      
Employee Retirement Plan [1] $ 3 $ 0 110 0 113
Employee Retirement Plan (in shares) [1] 3 [2],[3] 0 [4]      
Balance at Jun. 30, 2019 $ 8,397 $ 882 101,298 43,926 154,503
Balance (in shares) at Jun. 30, 2019 8,397 [1],[2],[3] 882 [4]      
Balance at Dec. 31, 2019 $ 8,410 $ 882 101,811 49,165 160,268
Balance (in shares) at Dec. 31, 2019 8,410 [1],[2],[3] 882 [4]      
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income $ 0 $ 0 0 4,074 4,074
Cash dividends declared          
Common stock 0 0 0 (2,319) (2,319)
Issuance of common stock          
Dividend reinvestment plan $ 3 $ 0 105 0 108
Dividend reinvestment plan (in shares) 3 [1],[2],[3] 0 [4]      
Employee stock options and awards [3] $ 5 $ 0 129 0 134
Employee stock options and awards (in shares) [3] 5 [1],[2] 0 [4]      
Employee Retirement Plan [1] $ 2 $ 0 87 0 89
Employee Retirement Plan (in shares) [1] 2 [2],[3] 0 [4]      
Balance at Mar. 31, 2020 $ 8,420 $ 882 102,132 50,920 162,354
Balance (in shares) at Mar. 31, 2020 8,420 [1],[2],[3] 882 [4]      
Balance at Dec. 31, 2019 $ 8,410 $ 882 101,811 49,165 160,268
Balance (in shares) at Dec. 31, 2019 8,410 [1],[2],[3] 882 [4]      
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income         8,640
Balance at Jun. 30, 2020 $ 8,451 $ 882 102,746 50,831 162,910
Balance (in shares) at Jun. 30, 2020 8,451 [1],[2],[3] 882 [4]      
Balance at Mar. 31, 2020 $ 8,420 $ 882 102,132 50,920 162,354
Balance (in shares) at Mar. 31, 2020 8,420 [1],[2],[3] 882 [4]      
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income $ 0 $ 0 0 4,566 4,566
Cash dividends declared          
Common stock 0 0 0 (4,655) (4,655)
Issuance of common stock          
Dividend reinvestment plan $ 3 $ 0 87 0 90
Dividend reinvestment plan (in shares) 3 [1],[2],[3] 0 [4]      
Employee stock options and awards [3] $ 24 $ 0 399 0 423
Employee stock options and awards (in shares) [3] 24 [1],[2] 0 [4]      
Employee Retirement Plan [1] $ 4 $ 0 128 0 132
Employee Retirement Plan (in shares) [1] 4 [2],[3] 0 [4]      
Balance at Jun. 30, 2020 $ 8,451 $ 882 $ 102,746 $ 50,831 $ 162,910
Balance (in shares) at Jun. 30, 2020 8,451 [1],[2],[3] 882 [4]      
[1] Artesian Resources Corporation registered 500,000 shares of Class A Common Stock available for purchase through the Artesian Retirement Plan and the Artesian Supplemental Retirement Plan.
[2] At June 30, 2020 and June 30, 2019, Class A Common Stock had 15,000,000 shares authorized.  For the same periods, shares issued, inclusive of treasury shares, were 8,451,917 and 8,426,291, respectively.
[3] Under the Equity Compensation Plan, effective December 9, 2015, or the 2015 Plan, Artesian Resources Corporation authorized up to 331,500 shares of Class A Common Stock for issuance of grants in the form of stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in certain circumstances as discussed in the 2015 Plan. Includes stock compensation expense for June 30, 2020, and June 30, 2019, see Note 5-Stock Compensation Plans.
[4] At June 30, 2020 and June 30, 2019, Class B Common Stock had 1,040,000 shares authorized and 881,452 shares issued.
v3.20.2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares
Jun. 30, 2020
Jun. 30, 2019
Dec. 09, 2015
Common Shares Class A Non-Voting [Member]      
Common stock, par value (in dollars per share) $ 1.00    
Common stock, shares authorized (in shares) 15,000,000    
Common Shares Class B Voting [Member]      
Common stock, par value (in dollars per share) $ 1.00    
Common stock, shares authorized (in shares) 1,040,000    
Common Stock [Member] | Common Shares Class A Non-Voting [Member]      
Common stock, par value (in dollars per share) $ 1    
Common stock, shares authorized (in shares) 15,000,000    
Common Stock Shares Issued (in shares) 8,451,917 8,426,291  
Shares available for purchase through retirement plans (in shares) 500,000    
Shares authorized for issuance of grants under equity compensation plan (in shares)     331,500
Common Stock [Member] | Common Shares Class B Voting [Member]      
Common stock, par value (in dollars per share) $ 1    
Common stock, shares authorized (in shares) 1,040,000    
Common Stock Shares Issued (in shares) 881,452    
v3.20.2
GENERAL
6 Months Ended
Jun. 30, 2020
GENERAL [Abstract]  
GENERAL
NOTE 1 – GENERAL

Artesian Resources Corporation, or Artesian Resources, includes income from the earnings of our eight wholly owned subsidiaries. The terms "we", "our", "Artesian" and the "Company" as used herein refer to Artesian Resources and its subsidiaries.

DELAWARE REGULATED SUBSIDIARIES

Artesian Water Company, Inc., or Artesian Water, our principal subsidiary, is the oldest and largest public water utility in the State of Delaware and has been providing water service within the state since 1905.  Artesian Water distributes and sells water to residential, commercial, industrial, governmental, municipal and utility customers throughout the State of Delaware.  In addition, Artesian Water provides services to other water utilities, including operations and billing functions, and has contract operation agreements with private and municipal water providers.  Artesian Water also provides water for public and private fire protection to customers in our service territories.

Artesian Wastewater Management, Inc., or Artesian Wastewater, is a regulated entity that owns wastewater collection and treatment infrastructure and provides wastewater services to customers in Delaware as a regulated public wastewater service company.  Artesian Wastewater owns and operates four wastewater treatment facilities, which are permitted to treat approximately 500,000 gallons per day.  Artesian Wastewater and Sussex County, a political subdivision of Delaware, provide reciprocal services to address the periodic need of each for additional wastewater treatment and disposal capacity in certain service areas within Sussex County. There are numerous locations in Sussex County where Artesian Wastewater’s and Sussex County’s facilities are capable of being connected or integrated to allow for the movement and disposal of wastewater generated by one or the other’s system in a manner that most efficiently and cost effectively manages wastewater transmission, treatment and disposal.  Artesian Wastewater received an operations permit in March 2020 for a disposal facility that includes a 90 million gallon storage lagoon and spray irrigation to agricultural land.  This facility will be used to provide treated process wastewater disposal services for an industrial customer at a rate of approximately 1.5 million gallons per day. We anticipate to be operating this facility in the third quarter of 2020, pending Allen Harim's receipt of their operations permit.

MARYLAND REGULATED SUBSIDIARIES

Artesian Water Maryland, Inc., or Artesian Water Maryland, began operations in August 2007. Artesian Water Maryland distributes and sells water to residential, commercial, industrial and municipal customers in Cecil County, Maryland.

Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, was incorporated on June 3, 2008 and is able to provide regulated wastewater services to customers in the State of Maryland.  It is currently not providing these services in Maryland.

PENNSYLVANIA REGULATED SUBSIDIARY

Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, began operations in 2002.  It provides water service to a residential community in Chester County, Pennsylvania.

OTHER SUBSIDIARIES

Our three other subsidiaries, none of which are regulated, are Artesian Utility Development, Inc., or Artesian Utility, Artesian Development Corporation, or Artesian Development, and Artesian Storm Water Services, Inc., or Artesian Storm Water.

Artesian Utility was formed in 1996 and designs and builds water and wastewater infrastructure and provides contract water and wastewater operation services on the Delmarva Peninsula to private, municipal and governmental institutions.  Artesian Utility also evaluates land parcels, provides recommendations to developers on the size of water or wastewater facilities and the type of technology that should be used for treatment at such facilities, and operates water and wastewater facilities in Delaware for municipal and governmental organizations.  Artesian Utility also contracts with developers for design and construction of wastewater facilities within the Delmarva Peninsula, using a number of different technologies for treatment of wastewater at each facility.  In addition, as further discussed below, Artesian Utility operates the Water Service Line Protection Plan, or WSLP Plan, the Sewer Service Line Protection Plan, or SSLP Plan, and the Internal Service Line Protection Plan, or ISLP Plan.

Artesian Utility currently operates wastewater treatment facilities for the town of Middletown, in southern New Castle County, Delaware, or Middletown, under a 20-year contract that expires in July 2039.  The Company has been operating these facilities, which currently include two wastewater treatment stations with a combined capacity of up to approximately 2.8 million gallons per day, or mgd, and the related wastewater disposal facilities, since 1998.  The wastewater treatment facilities in Middletown provide reclaimed wastewater for use in spray irrigation on public and agricultural lands in the area.

Artesian Utility also offers three protection plans to customers, the WSLP Plan, the SSLP Plan, and the ISLP Plan. The WSLP Plan covers all parts, material and labor required to repair or replace participating customers' leaking water service lines up to an annual limit. The SSLP Plan covers all parts, material and labor required to repair or replace participating customers' leaking or clogged sewer lines up to an annual limit.  The ISLP Plan enhances available coverage to include water and wastewater lines within customers' residences.

Artesian Development is a real estate holding company that owns properties, including land approved for office buildings, a water treatment plant and wastewater facility, as well as property for current operations, including an office facility in Sussex County, Delaware.  The facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse space.

Artesian Storm Water, incorporated on January 17, 2017, was formed to provide design, installation, maintenance and repair services related to existing or proposed storm water management systems in Delaware and the surrounding areas.  The ability to offer storm water services will complement the primary water and wastewater services that we provide.
v3.20.2
BASIS OF PRESENTATION
6 Months Ended
Jun. 30, 2020
BASIS OF PRESENTATION [Abstract]  
BASIS OF PRESENTATION
NOTE 2 – BASIS OF PRESENTATION

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, for Form 10-Q.  Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.  Accordingly, these condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes in the Company's annual report on Form 10-K for fiscal year 2019 as filed with the SEC on March 13, 2020.

The condensed consolidated financial statements include the accounts of Artesian Resources Corporation and its wholly owned subsidiaries, including its principal operating company, Artesian Water.  In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments (unless otherwise noted) necessary to present fairly the Company's balance sheet position as of June 30, 2020, the results of its operations for the three and six months periods ended June 30, 2020 and June 30, 2019, its cash flows for the six month periods ended June 30, 2020 and June 30, 2019 and the changes in stockholders’ equity for the three and six  months periods ended June 30, 2020 and June 30, 2019.  The December 31, 2019 Condensed Consolidated Balance Sheet was derived from the Company’s December 31, 2019 audited consolidated financial statements, but does not include all disclosures and notes normally provided in annual financial statements.

The results of operations for the interim periods presented are not necessarily indicative of the results for the full year or for future periods.

Use of Estimates

Management makes certain estimates and assumptions regarding each lease agreement, renewal and amendment, including, but not limited to, discount rates and probable term, which can impact the escalations in payment that are taken into consideration when calculating the straight line basis. The amount of rent expense and income reported could vary if different estimates and assumptions are used.  Management also makes certain estimates and assumptions regarding the fair value of the leased property at lease commencement and the separation of lease and nonlease components.

The ultimate impact from the coronavirus pandemic, or COVID-19, on the Company’s operations and financial results during 2020 will depend on, among other things, the severity and scope of the pandemic and the timing of when governmental restrictions and executive orders will ease.  We are not able to fully quantify the impact that these factors will have on our financial results during 2020 and beyond.  Management has made certain estimates and assumptions regarding credit losses and reserves for bad debt related to the executive orders issued by state government agencies requiring utility companies to temporarily prohibit late fees and service disconnections for non-payment.

Reclassification

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements.  These reclassifications had no effect on net income or stockholders' equity.

v3.20.2
REVENUE RECOGNITION
6 Months Ended
Jun. 30, 2020
REVENUE RECOGNITION [Abstract]  
REVENUE RECOGNITION
NOTE 3 – REVENUE RECOGNITION

Background

Artesian’s operating revenues are primarily attributable to contract services based upon tariff rates approved by the Delaware Public Service Commission, or DEPSC, the Maryland Public Service Commission, or MDPSC, and the Pennsylvania Public Utility Commission, or PAPUC.  Tariff contract service revenues consist of water consumption, industrial wastewater services, fixed fees for water and wastewater services including customer and fire protection fees, service charges and Distribution System Improvement Charges, or DSIC, billed to customers at rates outlined in our tariffs that represent stand-alone selling prices.  Our non-tariff contract revenues consist of Service Line Protection Plan, or SLP Plan, fees, water and wastewater contract operations and wastewater inspection fees.  Other operating revenue primarily consists of developer guarantee contributions for wastewater and rental income for antenna contracts.

Tariff Contract Revenues

Artesian generates revenue from the sale of water to customers in Delaware, Cecil County, Maryland, and Southern Chester County, Pennsylvania once a customer requests service in our territory.  We recognize water consumption revenue at tariff rates on a cycle basis for the volume of water transferred to customers based upon meter readings for actual gallons of water consumed as well as unbilled amounts for estimated usage from the date of the last meter reading to the end of the accounting period.  As actual usage amounts are known based on recurring meter readings, adjustments are made to the unbilled estimates in the next billing cycle based on the actual results.  Estimates are made on an individual customer basis, based on one of three methods: the previous year’s consumption in the same period, the previous billing period’s consumption, or averaging. While actual usage for individual customers may differ materially from the estimate based on management judgements described above, we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption.  The majority of our water customers are billed for water consumed on a monthly basis, while the remaining customers are billed on a quarterly basis.  As a result, we record unbilled operating revenue (contract asset) for any estimated usage through the end of the accounting period that will be billed in the next monthly or quarterly billing cycle.

Artesian generates revenue from industrial wastewater services provided to a customer in Sussex County, Delaware.  We recognize industrial wastewater service revenue at a contract rate on a monthly basis for the volume of wastewater transferred to Artesian’s wastewater facilities based upon meter readings for actual gallons of wastewater transferred.  These services are invoiced at the end of every month based on the actual meter readings for that month, and therefore there is no contract asset or liability associated with this revenue.

Artesian generates fixed fee revenue for water and wastewater services provided to customers once a customer requests service in our territory.  Our wastewater territory is located in Sussex County, Delaware.  We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of the Company remaining ready to provide them water and wastewater service.  These contract services are billed in advance at tariff rates on a monthly, quarterly or semi-annual basis.  As a result, we record deferred revenue (contract liability) and accounts receivable for any amounts for which we have a right to invoice but for which services have not been provided.  This deferred revenue is netted with unbilled operating revenue on the Condensed Consolidated Balance Sheet.

Artesian generates service charges primarily from non-payment fees, such as water shut off and reconnection fees and finance charges.  These fees are billed and recognized as revenue at the point in time when our tariffs indicate the Company has the right to payment such as days past due have been reached or shut-offs and reconnections have been performed.  There is no contract asset or liability associated with these fees.

Artesian generates revenue from DSIC, which are surcharges applied to water customer tariff rates in Delaware related to specific types of water distribution system improvements.  This rate is calculated on a semi-annual basis based on an approved projected revenue requirement over the following six-month period.  This rate is adjusted up or down at the next DSIC filing to account for any differences between actual earned revenue and the projected revenue requirement.  Since DSIC revenue is a surcharge applied to tariff rates, we recognize DSIC revenue based on the same guidelines as noted above depending on whether the surcharge was applied to consumption revenue or fixed fee revenue.

The DEPSC required Delaware utilities to determine the impact that the Tax Cuts and Jobs Act, or TCJA, had on its customers and potential rate relief due to customers.  The reduction in corporate income tax expense resulting from the TCJA was passed through to customers in the form of reduced tariff rates as approved by the DEPSC on January 31, 2019.  Approximately $3.8 million was refunded to customers during the second quarter of 2019.  This amount was previously held in reserve (refund liability) and was not reflected in income.

Accounts receivable related to tariff contract revenues are typically due within 25 days of invoicing.  An allowance for doubtful accounts is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current conditions.  We mitigate our exposure to credit losses by discontinuing services in the event of non-payment; accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant.  However, due to the COVID-19 pandemic causing hardships for many utility customers, state government agencies issued executive orders requiring utility companies to take a number of steps to support their customers and communities, including prohibiting service disconnections for non-payment and prohibiting late fees.  The Company anticipates a longer receivable cycle and the need for increased reserves for bad debt compared to 2019.  Effective June 30, 2020 an adjustment was made to increase the reserve for bad debt in the amount of $0.3 million.  The DEPSC and MDPSC issued orders authorizing utilities deferred regulatory treatment for incremental costs related to COVID-19.

As of June 30, 2020, we have not recorded a deferred regulatory asset for incremental costs related to COVID-19, but will continue to evaluate the on-going impact of the pandemic and whether incremental costs incurred are sufficient to warrant treatment as a deferred regulatory asset in accordance with the orders issued by the DEPSC and MDPSC.


Non-tariff Contract Revenues

Artesian generates SLP Plan revenue once a customer requests service to cover all parts, materials and labor required to repair or replace leaking water service lines, leaking or clogged sewer lines, or water and wastewater lines within the customer's residences, up to an annual limit.  We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of having service line protection services.  These contract services are billed in advance on a monthly or quarterly basis.  As a result, we record deferred revenue (contract liability) and accounts receivable for any amounts for which we have a right to invoice but for which services have not been provided.  Accounts receivable from SLP Plan customers are typically due within 25 days of invoicing.  An allowance for doubtful accounts is calculated as a percentage of total SLP Plan contract revenue.  We mitigate our exposure to credit losses by discontinuing services in the event of non-payment; accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant.

Artesian generates contract operation revenue from water and wastewater operation services provided to customers.  We recognize revenue from these operation contracts, which consist primarily of monthly operation and maintenance services over time as customers receive and consume the benefits of such services performed. These services are invoiced in advance at the beginning of every month and are typically due within 30 days, and therefore there is no contract asset or liability associated with these revenues.  An allowance for doubtful accounts is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ creditworthiness.  The related allowance for doubtful accounts and associated bad debt expense has not been significant.

Artesian generates inspection fee revenue for inspection services related to onsite wastewater collection systems installed by developers of new communities.  These fees are paid by developers in advance when a service is requested for a new phase of a development.  Inspection fee revenue is recognized on a per lot basis once the inspection of the infrastructure that serves each lot is completed.  As a result, we record deferred revenue (contract liability) for any amounts related to infrastructure not yet inspected.  There are no accounts receivable, allowance for doubtful accounts or bad debt expense associated with inspection fee contracts.

Sales Tax

The majority of Artesian’s revenues are earned within the State of Delaware, where there is no sales tax.  Revenues earned in the State of Maryland and the Commonwealth of Pennsylvania are related primarily to the sale of water by a public water utility and are exempt from sales tax.  Therefore, no sales tax is collected on revenues.

Disaggregated Revenues

The following table shows the Company’s revenues disaggregated by service type; all revenues are generated within a similar geographical location:

(in thousands)
 
Three months ended June 30, 2020
   
Three months ended June 30, 2019
   
Six months ended June 30, 2020
   
Six months ended June 30, 2019
 
Tariff Revenue
                       
     Consumption charges
 
$
12,182
   
$
11,505
   
$
22,342
   
$
21,476
 
     Fixed fees
   
6,657
     
6,349
     
13,394
     
12,997
 
     Service charges
   
15
     
156
     
162
     
333
 
     DSIC
   
1,267
     
908
     
2,418
     
1,795
 
     Industrial wastewater services
   
7
     
3
     
15
     
3
 
Total Tariff Revenue
 
$
20,128
   
$
18,921
   
$
38,331
   
$
36,604
 
                                 
Non-Tariff Revenue
                               
     Service line protection plans
 
$
1,079
   
$
1,028
   
$
2,167
   
$
2,079
 
     Contract operations
   
213
     
328
     
429
     
656
 
     Inspection fees
   
8
     
64
     
110
     
86
 
Total Non-Tariff Revenue
 
$
1,300
   
$
1,420
   
$
2,706
   
$
2,821
 
                                 
Other Operating Revenue
     not in scope of ASC 606
 
$
324
   
$
311
   
$
616
   
$
612
 
                                 
Total Operating Revenue
 
$
21,752
   
$
20,652
   
$
41,653
   
$
40,037
 

Contract Assets and Contract Liabilities

Our contract assets and liabilities consist of the following:

(in thousands)
 
June 30, 2020
   
December 31, 2019
 
             
Contract Assets – Tariff
 
$
2,731
   
$
2,146
 
                 
Deferred Revenue
               
     Deferred Revenue – Tariff
 
$
1,104
   
$
1,050
 
     Deferred Revenue – Non-Tariff
   
244
     
251
 
Total Deferred Revenue
 
$
1,348
   
$
1,301
 

For the six months ended June 30, 2020, the Company recognized revenue of $1.0 million from amounts that were included in Deferred Revenue – Tariff at the beginning of the year and revenue of $0.2 million from amounts that were included in Deferred Revenue – Non- Tariff at the beginning of the year.

The increases (decreases) of Accounts Receivable, Contract Assets and Deferred Revenue were primarily due to normal timing differences between our performance and customer payments.

Remaining Performance Obligations

As of June 30, 2020 and December 31, 2019, Deferred Revenue – Tariff is recorded net of contract assets within Unbilled operating revenues and represents our remaining performance obligations for our fixed fee water and wastewater services, all of which are expected to be satisfied and associated revenue recognized in the next three months.

As of June 30, 2020 and December 31, 2019, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our SLP Plan services and wastewater inspections, which are expected to be satisfied and associated revenue recognized within the next three months and one year for the SLP Plan revenue and inspection fee revenue, respectively.
v3.20.2
LEASES
6 Months Ended
Jun. 30, 2020
LEASES [Abstract]  
LEASES
NOTE 4 – LEASES

The Company leases land and office equipment under operating leases from non-related parties.  Our leases have remaining lease terms of 2 years to 77 years, some of which include options to automatically extend the leases for up to 66 years.  Payments made under operating leases are recognized in the condensed consolidated statement of operations on a straight-line basis over the period of the lease.  The annual lease payments for the land operating leases increase each year either by the most recent increase in the Consumer Price Index or by 3%, as applicable based on the terms of the lease agreements.  Periodically, the annual lease payment for one land operating lease is determined based on the fair market value of the applicable parcel of land.  None of the operating leases contain contingent rent provisions.  The commencement date of all the operating leases is the earlier of the date we become legally obligated to make rent payments or the date we may exercise control over the use of the land or equipment.  The Company currently does not have any financing leases and does not have any lessor leases that require disclosure.

Management made certain assumptions related to the separation of lease and nonlease components and to the discount rate used when calculating the right of use asset and liability amounts for the operating leases.  As our leases do not provide an implicit rate, we use our incremental borrowing rates for long term and short term agreements and apply the rates accordingly based on the term of the lease agreements to determine the present value of lease payments.

Rent expense for all operating leases except those with terms of 12 months or less comprises:

 
(in thousands)
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
                         
Minimum rentals
 
$
7
   
$
7
   
$
14
   
$
9
 
Contingent rentals
   
     
     
     
 
                                 
   
$
7
   
$
7
   
$
14
   
$
9
 

Supplemental cash flow information related to leases is as follows:

 
 
(in thousands)
 
 
 
Six Months Ended
   
Six Months Ended
 
   
June 30, 2020
   
June 30, 2019
 
 
       
 
Cash paid for amounts included in the measurement of lease liabilities:
           
     Operating cash flows from operating leases
 
$
14
   
$
9
 
Right-of-use assets obtained in exchange for lease obligations:
               
     Operating leases
 
$
469
   
$
494
 

Supplemental balance sheet information related to leases is as follows:









 
 
(in thousands,
except lease term and discount rate)
 
 
 
June 30, 2020
   
December 31, 2019
 
 
           
Operating Leases:
           
     Operating lease right-of-use assets
 
$
469
   
$
480
 
                 
     Other current liabilities
 
$
20
     
19
 
     Operating lease liabilities
   
440
     
450
 
Total operating lease liabilities
 
$
460
   
$
469
 
                 
                 
Weighted Average Remaining Lease Term
               
     Operating leases
 
58 years
   
58 years
 
Weighted Average Discount Rate
               
     Operating leases
   
5.0
%
   
5.0
%

Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of June 30, 2020 are as follows:

 
 
(in thousands)
 
 
 
Operating Leases
 
Year
     
2020
 
$
42
 
2021
   
37
 
2022
   
23
 
2023
   
23
 
2024
   
23
 
Thereafter
   
1,317
 
Total undiscounted lease payments
 
$
1,465
 
Less effects of discounting
   
(1,005
)
Total lease liabilities recognized
 
$
460
 

As of June 30, 2020, we have not entered into operating or finance leases that will commence at a future date.
v3.20.2
STOCK COMPENSATION PLANS
6 Months Ended
Jun. 30, 2020
STOCK COMPENSATION PLANS [Abstract]  
STOCK COMPENSATION PLANS
NOTE 5 – STOCK COMPENSATION PLANS

On December 9, 2015, the Company's stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan, which replaced the 2005 Equity Compensation Plan that expired on May 24, 2015. The 2015 Plan provides that grants may be in any of the following forms: incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based awards. The 2015 Plan is administered and interpreted by the Compensation Committee, or the Committee, of the Board of Directors of the Company, or the Board. The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, the type, size and terms of the grants, the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan), and deal with any other matters arising under the 2015 Plan. The Committee presently consists of three directors, each of whom is a non-employee director of the Company. All of the employees of the Company and its subsidiaries and non-employee directors of the Company are eligible for grants under the 2015 Plan. 

Compensation expense, for the three and six months ended June 30, 2020 of approximately $45,000 and $90,000, respectively, was recorded for restricted stock awards issued in May 2019 and May 2020.  Compensation expense, for the three and six months ended June 30, 2019 of approximately $43,000 and $90,000, respectively, was recorded for restricted stock awards issued in May 2018 and May 2019. Costs were determined based on the fair value on the dates of the awards and those costs were charged to income over the service periods associated with the awards.

There was no stock compensation cost capitalized as part of an asset.

On May 8, 2019, 5,000 shares of Class A Common Stock, or Class A Stock, were granted as restricted stock awards.  The fair value per share was $36.11, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 8, 2019.

On May 6, 2020, 5,000 shares of Class A Stock, were granted as restricted stock awards.  The fair value per share was 35.01, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 6, 2020. Prior to their release date, these restricted stock awards may be subject to forfeiture in the event of the recipient’s termination of service.


The following summary reflects changes in the shares of Class A Stock underlying options and restricted stock awards for the six months ended June 30, 2020:

 
Options
   
Restricted Awards
 
   
Option Shares
   
Weighted Average Exercise Price
   
Weighted Average Remaining Life (Yrs.)
   
Aggregate Intrinsic Value (in thousands)
   
Outstanding Restricted Stock Awards
   
Weighted Average Grant Date Fair
Value
 
Plan options/restricted stock awards
                                   
Outstanding at January 1, 2020
   
153,250
   
$
20.40
         
$
2,575
     
5,000
   
$
36.11
 
Granted
   
     
           
     
5,000
     
35.01
 
Exercised/vested and released
   
(25,000
)
   
18.73
           
391
     
(5,000
)
   
36.11
 
Expired/cancelled
   
     
           
     
     
 
Outstanding at June 30, 2020
   
128,250
   
$
20.73
     
2.438
   
$
1,995
     
5,000
   
$
35.01
 
                                                 
Exercisable/vested at June 30, 2020
   
128,250
   
$
20.73
     
2.438
   
$
1,995
     
     
 

The total intrinsic value of options exercised during the six months ended June 30, 2020 was approximately $391,200.

There were no unvested option shares outstanding under the 2015 Plan during the six months ended June 30, 2020.

As of June 30, 2020, there were no unrecognized expenses related to non-vested option shares granted under the 2015 Plan.  

As of June 30, 2020, there was $148,000 total unrecognized expenses related to non-vested awards of restricted shares awarded under the 2015 Plan.  The cost will be recognized over 0.85 years, the remaining vesting period for the restricted stock awards.
v3.20.2
OTHER DEFERRED ASSETS
6 Months Ended
Jun. 30, 2020
OTHER DEFERRED ASSETS [Abstract]  
OTHER DEFERRED ASSETS
NOTE 6 – OTHER DEFERRED ASSETS

The investment in CoBank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based on the underlying long-term debt agreements.  Goodwill is a result of the acquisition of water assets from the Town of Frankford in April 2020 based on a preliminary purchase price allocation.  The DEPSC will evaluate this amount in Artesian Water’s next base rate case to determine the appropriate ratemaking treatment of the acquisition price and the assets acquired. A large portion of the remaining other deferred assets, approximately $0.2 million, is in relation to the Mountain Hill acquisition.

In thousands
 
June 30, 2020
   
December 31, 2019
 
 
           
Investment in CoBank
 
$
4,374
   
$
3,968
 
Goodwill
   
1,220
     
0
 
Other
   
290
     
289
 
 
 
$
5,884
   
$
4,257
 
v3.20.2
REGULATORY ASSETS
6 Months Ended
Jun. 30, 2020
REGULATORY ASSETS [Abstract]  
REGULATORY ASSETS
NOTE 7 - REGULATORY ASSETS

FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency. Certain expenses are recoverable through rates charged to our customers, without a return on investment, and are deferred and amortized during future periods using various methods as permitted by the DEPSC, MDPSC, and PAPUC.

The postretirement benefit obligation is the recognition of an offsetting regulatory liability as it relates to the accrual of the expected cost of providing postretirement health care and life insurance benefits to retired employees.  Artesian Water contributed approximately $11,500 to its postretirement benefit plan in the first six months of 2020. These contributions consist of insurance premium payments for medical, dental and life insurance benefits made on behalf of the Company's eligible retired employees.

The deferred income taxes will be amortized over future years as the tax effects of temporary differences that previously flowed through to our customers are reversed.

Debt related costs include debt issuance costs and other debt related expense. The DEPSC has allowed rate recovery on issuance costs associated with Artesian Water's Series V First Mortgage bond in December 2019 that paid down outstanding lines of credit and a loan payable to Artesian Resources.  These amounts are recovered over the term of the new long-term debt issued.  For the Series V First Mortgage bond, cash was paid for the issuance costs and $30 million of cash was received from the proceeds of the bonds.

Regulatory expenses amortized on a straight-line basis are noted below:

Expense
Years Amortized
Rate case studies
5
Delaware rate proceedings
2.5
Maryland rate proceedings
5
Debt related costs
 15 to 30 (based on term of related debt)
Goodwill (resulting from acquisition of Mountain Hill Water Company in 2008)
50
Deferred acquisition costs (resulting from purchase of water assets in Cecil County, Maryland in 2011 and Port Deposit, Maryland in 2010)
20
Franchise Costs (resulting from purchase of water assets in Cecil County, Maryland in 2011)
80

Regulatory assets, net of amortization, comprise:
 
   
(in thousands)
 
   
June 30, 2020
   
December 31, 2019
 
             
Postretirement benefit obligation
 
$
51
   
$
51
 
Deferred income taxes
   
378
     
386
 
Expense of rate case studies
   
22
     
27
 
Debt related costs
   
5,398
     
5,556
 
Goodwill
   
284
     
288
 
Deferred acquisition and franchise costs
   
564
     
583
 
   
$
6,697
   
$
6,891
 
v3.20.2
REGULATORY LIABILITIES
6 Months Ended
Jun. 30, 2020
REGULATORY LIABILITIES [Abstract]  
REGULATORY LIABILITIES
NOTE 8 – REGULATORY LIABILITIES

FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency.  Certain obligations are deferred and/or amortized as determined by the DEPSC, the MDPSC, and the PAPUC.  Regulatory liabilities represent excess recovery of cost or other items that have been deferred because it is probable such amounts will be returned to customers through future regulated rates.

Utility plant retirement cost obligation consists of estimated costs related to the potential removal and replacement of facilities and equipment on the Company’s water and wastewater properties.  Effective January 1, 2012, as authorized by the DEPSC, when depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received, is charged to a regulated retirement liability.  Each year the liability is increased by an annual amount authorized by the DEPSC.    

Pursuant to the enactment of the TCJA, on December 22, 2017, the Company adjusted its existing deferred income tax balances to reflect the decrease in the corporate income tax rate from 34% to 21% (see Note 11).  This resulted in a decrease in the net deferred income tax liability of approximately $24.3 million, of which $22.8 million was reclassed to a regulatory liability.  The regulatory liability amount is subject to certain Internal Revenue Service normalization rules that require the benefits to customers be spread over the remaining useful life of the underlying assets giving rise to the associated deferred income taxes.  On January 31, 2019, the DEPSC approved the amortization of the regulatory liability amount of $22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date.  The MDPSC has not issued a final order on the regulatory liability amount of $0.6 million regarding the effects of the TCJA on Maryland customers.

Regulatory liabilities comprise:
 
 
 
(in thousands)
 
 
 
June 30, 2020
   
December 31, 2019
 
 
           
Utility plant retirement cost obligation
 
$
192
   
$
247
 
Deferred income taxes (related to TCJA)
   
21,777
     
21,999
 
   
$
21,969
   
$
22,246
 
v3.20.2
NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE
6 Months Ended
Jun. 30, 2020
NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE [Abstract]  
NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE
NOTE 9 - NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE

Basic net income per share is based on the weighted average number of common shares outstanding. Diluted net income per share is based on the weighted average number of common shares outstanding, the potentially dilutive effect of employee stock options and restricted stock awards.

The following table summarizes the shares used in computing basic and diluted net income per share:

 
For the Three Months Ended June 30,
   
For the Six Months Ended June 30,
 
   
2020
   
2019
   
2020
   
2019
 
   
(in thousands)
 
Weighted average common shares outstanding during the period for Basic computation
   
9,326
     
9,276
     
9,311
     
9,267
 
Dilutive effect of employee stock options and awards
   
41
     
48
     
46
     
52
 
                                 
Weighted average common shares outstanding during the period for Diluted computation
   
9,367
     
9,324
     
9,357
     
9,319
 

For the three and six months ended June 30, 2020, no shares of restricted stock awards were excluded from the calculations of diluted net income per share.  For the three and six months ended June 30, 2019, 2,700 and 1,300 of restricted stock awards were excluded from the calculations of diluted net income per share, respectively.  Due to unrecognized compensation costs, the hypothetical repurchase of shares exceeded the number of restricted shares expected to vest during the period, creating an anti-dilutive effect. For the three and six months ended June 30, 2020 and June 30, 2019, no shares of stock options were excluded from the calculations of diluted net income per share, as the calculated proceeds from the options’ exercise were lower than the average market price of the Company’s common stock during the period.

The Company has 15,000,000 authorized shares of Class A Stock and 1,040,000 authorized shares of Class B Common Stock, or Class B Stock. As of June 30, 2020, 8,451,910 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. As of June 30, 2019, 8,397,314 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. The par value for both classes is $1.00 per share.

Equity per common share was $17.50 and $17.28 at June 30, 2020 and December 31, 2019, respectively. These amounts were computed by dividing common stockholders' equity by the number of shares of common stock outstanding on June 30, 2020 and December 31, 2019, respectively.
v3.20.2
REGULATORY PROCEEDINGS
6 Months Ended
Jun. 30, 2020
REGULATORY PROCEEDINGS [Abstract]  
REGULATORY PROCEEDINGS
NOTE 10 - REGULATORY PROCEEDINGS

Our water and wastewater utilities generate operating revenue from customers based on rates that are established by state Public Service Commissions through a rate setting process that may include public hearings, evidentiary hearings and the submission of evidence and testimony in support of the requested level of rates by the Company.

We are subject to regulation by the following state regulatory commissions:
The DEPSC, regulates both Artesian Water and Artesian Wastewater.
The MDPSC, regulates both Artesian Water Maryland and Artesian Wastewater Maryland.
The PAPUC, regulates Artesian Water Pennsylvania.

Rate Proceedings

Our regulated utilities periodically seek rate increases to cover the cost of increased operating expenses, increased financing expenses due to additional investments in utility plant and other costs of doing business.  In Delaware, utilities are permitted by law to place rates into effect, under bond, on a temporary basis pending completion of a rate increase proceeding. The first temporary increase may be up to the lesser of $2.5 million on an annual basis or 15% of gross water sales.  Should the rate case not be completed within seven months, by law, the utility may put the entire requested rate relief, up to 15% of gross water sales, in effect under bond until a final resolution is ordered and placed into effect.  If any such rates are found to be in excess of rates the DEPSC finds to be appropriate, the utility must refund customers the portion found to be in excess with interest.  The timing of our rate increase requests is therefore dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase.  We can provide no assurances that rate increase requests will be approved by applicable regulatory agencies and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase.

The DEPSC required Delaware utilities to determine the impact that the TCJA had on their customers and potential rate relief due to customers.  The reduction in corporate income tax expense resulting from the TCJA was passed through to customers in the form of reduced tariff rates as approved by the DEPSC on January 31, 2019.  Approximately $3.8 million was refunded to customers during the second quarter of 2019.  This amount was previously held in reserve and was not reflected in income..

Other Proceedings

Delaware law permits water utilities to put into effect, on a semi-annual basis, increases related to specific types of distribution system improvements through a DSIC. This charge may be implemented by water utilities between general rate increase applications that normally recognize changes in a water utility's overall financial position. The DSIC approval process is less costly when compared to the approval process for general rate increase requests. The DSIC rate applied between base rate filings is capped at  7.50% of the amount billed to customers under otherwise applicable rates and charges, and the DSIC rate increase applied cannot exceed 5.0% within any 12-month period.

The following table summarizes (1) Artesian Water’s applications with the DEPSC to collect DSIC rates and (2) the rates upon which eligible plant improvements are based:

Application Date
11/28/2018
05/29/2019
11/15/2019
05/29/2020
DEPSC Approval Date
12/20/2018
06/18/2019
12/12/2019
06/17/2020
Effective Date
01/01/2019
07/01/2019
01/01/2020
07/01/2020
Cumulative DSIC Rate
5.55%
7.41%
7.50%
7.41%
Net Eligible Plant Improvements – Cumulative Dollars (in millions)
$30.4
$43.1
$43.1
$43.1
Eligible Plant Improvements – Installed Beginning Date
10/01/2014
10/01/2014
10/01/2014
10/01/2014
Eligible Plant Improvements – Installed Ending Date
10/31/2018
04/30/2019
04/30/2019
04/30/2019

The DSIC rate effective January 1, 2020 replaced the DSIC rate effective July 1, 2019.  The DSIC rate effective July 1, 2020 replaced the DSIC rate effective January 1, 2020.  The rate reflects the eligible plant improvements installed through April 30, 2019.  The DSIC rates effective January 1, 2020 and July 1, 2020 are still subject to audit at a later date by the DEPSC.  For the three and six months ended June 30, 2020, we earned approximately $1.3 million and $2.4 million in DSIC revenue, respectively.  For the three and six months ended June 30, 2019, we earned approximately $0.9 million and $1.8 million in DSIC revenue, respectively.
v3.20.2
INCOME TAXES
6 Months Ended
Jun. 30, 2020
INCOME TAXES [Abstract]  
INCOME TAXES
NOTE 11 – INCOME TAXES

Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse. The Company’s rate regulated utilities recognize regulatory liabilities, to the extent considered in ratemaking, for deferred taxes provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the current statutory rate.  Such tax-related regulatory assets and liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties.

Under FASB ASC Topic 740, an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes.  The Company establishes reserves for uncertain tax positions based upon management's judgment as to the sustainability of these positions. These accounting estimates related to the uncertain tax position reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits. The Company believes its tax positions comply with applicable law and that it has adequately recorded reserves as required. However, to the extent the final tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known.  The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense.  The Company has accrued approximately $10,100 in penalties and interest for the six months ended June 30, 2020. The Company remains subject to examination by federal and state authorities for the tax years 2016 through 2019.

The Tax Reform Act of 1986 mandated that Advances and CIAC received subsequent to December 31, 1986, generally are taxable income.  The 1996 Tax Act provided an exclusion from taxable income for CIAC and Advances received after June 12, 1996 except for certain contributions for large services that are not included in rate base for rate-making purposes.  On December 22, 2017, the TCJA repealed the 1996 exclusion from gross income effective on the enactment date.

Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives of the related assets.
v3.20.2
FAIR VALUE OF FINANCIAL INSTRUMENTS
6 Months Ended
Jun. 30, 2020
FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS
NOTE 12 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value.

Current Assets and Liabilities

For those current assets and liabilities that are considered financial instruments, the carrying amounts approximate fair value because of the short maturity of those instruments.

Long-term Financial Liabilities

All of Artesian Resources’ outstanding long-term debt as of June 30, 2020 and December 31, 2019 was fixed-rate.  The fair value of the Company’s long-term debt is determined by discounting its future cash flows using current market interest rates on similar instruments with comparable maturities consistent with FASB ASC 825.  Under the fair value hierarchy, the fair value of the long-term debt in the table below is classified as Level 2 measurements.  Level 2 is valued using observable inputs other than quoted prices.  The fair values for long-term debt differ from the carrying values primarily due to interest rates that differ from the current market interest rates.  The carrying amount and fair value of Artesian Resources' long-term debt (including current portion) are shown below:

In thousands
     
   
June 30, 2020
   
December 31, 2019
 
Carrying amount
 
$
144,982
   
$
145,862
 
Estimated fair value
 
$
173,779
   
$
157,710
 

The fair value of Advances for Construction cannot be reasonably estimated due to the inability to estimate accurately the timing and amounts of future refunds expected to be paid over the life of the contracts.  Refund payments are based on the water sales to new customers in the particular development constructed.  The fair value of Advances for Construction would be less than the carrying amount because these financial instruments are non-interest bearing.
v3.20.2
RELATED PARTY TRANSACTIONS
6 Months Ended
Jun. 30, 2020
RELATED PARTY TRANSACTIONS [Abstract]  
RELATED PARTY TRANSACTIONS
NOTE 13 – RELATED PARTY TRANSACTIONS

Mr. Michael Houghton currently serves as a director through the remainder of the three year term class that expires at the Annual Meeting of the Class B Stock shareholders to be held in 2021 and until his respective successor shall be elected and qualified.  Mr. Houghton is a Partner in the law firm of Morris Nichols Arsht & Tunnell, or MNAT, in Wilmington, Delaware.  In the normal course of business, the Company utilizes the services of MNAT for various regulatory, real estate and public policy matters.  Approximately $109,000 and $228,000 was paid to MNAT during the three and six months ended June 30, 2020 respectively, for legal services and director related services. Approximately $97,000 and $123,000 was paid to MNAT during the three and six months ended June 30, 2019, respectively, for legal and director related services.  As of June 30, 2020, the Company had a $5,000 accounts payable balance due to MNAT.

As set forth in the Charter of the Audit Committee of the Board, the Audit Committee is responsible for reviewing and, if appropriate, approving all related party transactions between us and any officer, any director, any person known to be the beneficial owner of more than 5% of any class of the Company's voting securities or any other related person that would potentially require disclosure.  In its review and approval of the related party transactions with MNAT, the Audit Committee considered the nature of the related person's interest in the transactions; the satisfactory performance of work contracted with the related party prior to the election of Mr. Houghton as a director; and the material terms of the transactions, including, without limitation, the amount and type of transactions, the importance of the transactions to the related person, the importance of the transactions to the Company and whether the transactions would impair the judgment of a director or officer to act in the best interest of the Company.  The Audit Committee approves only those related person transactions that are in, or are consistent with, the best interests of the Company and its stockholders.
v3.20.2
BUSINESS COMBINATIONS
6 Months Ended
Jun. 30, 2020
BUSINESS COMBINATIONS [Abstract]  
BUSINESS COMBINATIONS
NOTE 14 – BUSINESS COMBINATIONS

As part of the Company's growth strategy, on April 2, 2020, Artesian Water purchased substantially all of the water system operating assets from the Town of Frankford, or Frankford, a Delaware municipality located in Sussex County, Delaware, including the right to provide water service to Frankford’s existing customers, or the Frankford Water System.  The Frankford Water System serves approximately 360 customers.  The total purchase price was 3.6 million. The acquisition was accounted for as a business combination under ASC Topic 805, “Business Combinations”.  The preliminary purchase price allocation is expected to be primarily attributed to utility plant assets and will be finalized once the valuation of assets acquired has been completed, no later than one year after the acquisition date.

This acquisition was approved by the DEPSC on March 18, 2020 subject to the DEPSC determining the appropriate ratemaking treatment of the acquisition price and the assets acquired in Artesian Water’s next base rate case.  The pro forma effect of the business acquired is not material to the Company’s financial position or results of operations
v3.20.2
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
6 Months Ended
Jun. 30, 2020
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS [Abstract]  
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
NOTE 15 - IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued new guidance on the measurement of credit losses on financial instruments, to provide financial statement users with more information about expected credit losses on financial instruments. The guidance revises the incurred loss impairment methodology to reflect current expected credit losses and requires consideration of a broader range of information to estimate credit losses.  The new standard is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. For the Company, this standard is primarily applicable to accounts receivable balances.  The Company’s credit losses on accounts receivable is minimal since we mitigate our exposure by discontinuing services in the event of non-payment. However, due to the COVID-19 pandemic causing hardships for many utility customers, state government agencies issued executive orders requiring utility companies to take a number of steps to support their customers and communities, including prohibiting service disconnections for non-payment and prohibiting late fees.  The Company anticipates a longer receivable cycle and the need for increased reserves for bad debt compared to 2019.    Effective June 30, 2020 an adjustment was made to increase the reserve for bad debt in the amount of 0.3 million.  The DEPSC and MDPSC issued orders authorizing utilities deferred regulatory treatment for incremental costs related to COVID-19, which includes increased bad debt expense.  As of June 30, 2020, we have not recorded a deferred regulatory asset for incremental costs related to COVID-19, but will continue to evaluate the on-going impact of the pandemic and whether incremental costs incurred are sufficient to warrant treatment as a deferred regulatory asset in accordance with the orders issued by the DEPSC and MDPSC.
v3.20.2
SUBSEQUENT EVENTS
6 Months Ended
Jun. 30, 2020
SUBSEQUENT EVENTS [Abstract]  
SUBSEQUENT EVENTS
NOTE 16 - SUBSEQUENT EVENT

On August 3, 2020, Artesian Water completed its previously announced purchase of substantially all of the water system operating assets from the City of Delaware City, a Delaware municipality, or Delaware City, including the right to provide water service to Delaware City’s existing customers, or the Delaware City Water System.  Pursuant to the terms of the Asset Purchase Agreement, Delaware City transferred to Artesian Water all of Delaware City’s right, title and interest in and to all of the plant and equipment, associated real property, contracts, easements and permits possessed by Delaware City at closing related to the Delaware City Water System.  The total purchase price was $2.1 million, which included the payoff of certain indebtedness totaling approximately $0.6 million specifically related to the Delaware City Water System.  The Asset Purchase Agreement contains commitments to upgrade and replace certain operating assets.  The Delaware City Water System currently serves approximately 800 customers.  The Delaware Public Service Commission approved this transaction on July 15, 2020.


v3.20.2
REVENUE RECOGNITION (Tables)
6 Months Ended
Jun. 30, 2020
REVENUE RECOGNITION [Abstract]  
Disaggregation of Revenues
The following table shows the Company’s revenues disaggregated by service type; all revenues are generated within a similar geographical location:

(in thousands)
 
Three months ended June 30, 2020
   
Three months ended June 30, 2019
   
Six months ended June 30, 2020
   
Six months ended June 30, 2019
 
Tariff Revenue
                       
     Consumption charges
 
$
12,182
   
$
11,505
   
$
22,342
   
$
21,476
 
     Fixed fees
   
6,657
     
6,349
     
13,394
     
12,997
 
     Service charges
   
15
     
156
     
162
     
333
 
     DSIC
   
1,267
     
908
     
2,418
     
1,795
 
     Industrial wastewater services
   
7
     
3
     
15
     
3
 
Total Tariff Revenue
 
$
20,128
   
$
18,921
   
$
38,331
   
$
36,604
 
                                 
Non-Tariff Revenue
                               
     Service line protection plans
 
$
1,079
   
$
1,028
   
$
2,167
   
$
2,079
 
     Contract operations
   
213
     
328
     
429
     
656
 
     Inspection fees
   
8
     
64
     
110
     
86
 
Total Non-Tariff Revenue
 
$
1,300
   
$
1,420
   
$
2,706
   
$
2,821
 
                                 
Other Operating Revenue
     not in scope of ASC 606
 
$
324
   
$
311
   
$
616
   
$
612
 
                                 
Total Operating Revenue
 
$
21,752
   
$
20,652
   
$
41,653
   
$
40,037
 
Contract Assets and Contract Liabilities
Our contract assets and liabilities consist of the following:

(in thousands)
 
June 30, 2020
   
December 31, 2019
 
             
Contract Assets – Tariff
 
$
2,731
   
$
2,146
 
                 
Deferred Revenue
               
     Deferred Revenue – Tariff
 
$
1,104
   
$
1,050
 
     Deferred Revenue – Non-Tariff
   
244
     
251
 
Total Deferred Revenue
 
$
1,348
   
$
1,301
 
v3.20.2
LEASES (Tables)
6 Months Ended
Jun. 30, 2020
LEASES [Abstract]  
Rent Expense for All Operating Leases Except Those with Terms of 12 Months or Less
Rent expense for all operating leases except those with terms of 12 months or less comprises:

 
(in thousands)
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
                         
Minimum rentals
 
$
7
   
$
7
   
$
14
   
$
9
 
Contingent rentals
   
     
     
     
 
                                 
   
$
7
   
$
7
   
$
14
   
$
9
 
Supplemental Cash Flow Information Related to Leases
Supplemental cash flow information related to leases is as follows:

 
 
(in thousands)
 
 
 
Six Months Ended
   
Six Months Ended
 
   
June 30, 2020
   
June 30, 2019
 
 
       
 
Cash paid for amounts included in the measurement of lease liabilities:
           
     Operating cash flows from operating leases
 
$
14
   
$
9
 
Right-of-use assets obtained in exchange for lease obligations:
               
     Operating leases
 
$
469
   
$
494
 
Supplemental Balance Sheet Information Related to Leases
Supplemental balance sheet information related to leases is as follows:









 
 
(in thousands,
except lease term and discount rate)
 
 
 
June 30, 2020
   
December 31, 2019
 
 
           
Operating Leases:
           
     Operating lease right-of-use assets
 
$
469
   
$
480
 
                 
     Other current liabilities
 
$
20
     
19
 
     Operating lease liabilities
   
440
     
450
 
Total operating lease liabilities
 
$
460
   
$
469
 
                 
                 
Weighted Average Remaining Lease Term
               
     Operating leases
 
58 years
   
58 years
 
Weighted Average Discount Rate
               
     Operating leases
   
5.0
%
   
5.0
%
Maturities of Operating Lease Liabilities
Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of June 30, 2020 are as follows:

 
 
(in thousands)
 
 
 
Operating Leases
 
Year
     
2020
 
$
42
 
2021
   
37
 
2022
   
23
 
2023
   
23
 
2024
   
23
 
Thereafter
   
1,317
 
Total undiscounted lease payments
 
$
1,465
 
Less effects of discounting
   
(1,005
)
Total lease liabilities recognized
 
$
460
 
v3.20.2
STOCK COMPENSATION PLANS (Tables)
6 Months Ended
Jun. 30, 2020
STOCK COMPENSATION PLANS [Abstract]  
Changes in Shares of Class A Common Stock Underlying Options and Restricted Stock Awards
The following summary reflects changes in the shares of Class A Stock underlying options and restricted stock awards for the six months ended June 30, 2020:

 
Options
   
Restricted Awards
 
   
Option Shares
   
Weighted Average Exercise Price
   
Weighted Average Remaining Life (Yrs.)
   
Aggregate Intrinsic Value (in thousands)
   
Outstanding Restricted Stock Awards
   
Weighted Average Grant Date Fair
Value
 
Plan options/restricted stock awards
                                   
Outstanding at January 1, 2020
   
153,250
   
$
20.40
         
$
2,575
     
5,000
   
$
36.11
 
Granted
   
     
           
     
5,000
     
35.01
 
Exercised/vested and released
   
(25,000
)
   
18.73
           
391
     
(5,000
)
   
36.11
 
Expired/cancelled
   
     
           
     
     
 
Outstanding at June 30, 2020
   
128,250
   
$
20.73
     
2.438
   
$
1,995
     
5,000
   
$
35.01
 
                                                 
Exercisable/vested at June 30, 2020
   
128,250
   
$
20.73
     
2.438
   
$
1,995
     
     
 
v3.20.2
OTHER DEFERRED ASSETS (Tables)
6 Months Ended
Jun. 30, 2020
OTHER DEFERRED ASSETS [Abstract]  
Other Deferred Assets
The investment in CoBank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based on the underlying long-term debt agreements.  Goodwill is a result of the acquisition of water assets from the Town of Frankford in April 2020 based on a preliminary purchase price allocation.  The DEPSC will evaluate this amount in Artesian Water’s next base rate case to determine the appropriate ratemaking treatment of the acquisition price and the assets acquired. A large portion of the remaining other deferred assets, approximately $0.2 million, is in relation to the Mountain Hill acquisition.

In thousands
 
June 30, 2020
   
December 31, 2019
 
 
           
Investment in CoBank
 
$
4,374
   
$
3,968
 
Goodwill
   
1,220
     
0
 
Other
   
290
     
289
 
 
 
$
5,884
   
$
4,257
 
v3.20.2
REGULATORY ASSETS (Tables)
6 Months Ended
Jun. 30, 2020
REGULATORY ASSETS [Abstract]  
Amortization Period of Other Regulatory Expense
Regulatory expenses amortized on a straight-line basis are noted below:

Expense
Years Amortized
Rate case studies
5
Delaware rate proceedings
2.5
Maryland rate proceedings
5
Debt related costs
 15 to 30 (based on term of related debt)
Goodwill (resulting from acquisition of Mountain Hill Water Company in 2008)
50
Deferred acquisition costs (resulting from purchase of water assets in Cecil County, Maryland in 2011 and Port Deposit, Maryland in 2010)
20
Franchise Costs (resulting from purchase of water assets in Cecil County, Maryland in 2011)
80
Regulatory Assets, Net of Amortization, Comprise
Regulatory assets, net of amortization, comprise:
 
   
(in thousands)
 
   
June 30, 2020
   
December 31, 2019
 
             
Postretirement benefit obligation
 
$
51
   
$
51
 
Deferred income taxes
   
378
     
386
 
Expense of rate case studies
   
22
     
27
 
Debt related costs
   
5,398
     
5,556
 
Goodwill
   
284
     
288
 
Deferred acquisition and franchise costs
   
564
     
583
 
   
$
6,697
   
$
6,891
 
v3.20.2
REGULATORY LIABILITIES (Tables)
6 Months Ended
Jun. 30, 2020
REGULATORY LIABILITIES [Abstract]  
Regulatory Liabilities
Regulatory liabilities comprise:
 
 
 
(in thousands)
 
 
 
June 30, 2020
   
December 31, 2019
 
 
           
Utility plant retirement cost obligation
 
$
192
   
$
247
 
Deferred income taxes (related to TCJA)
   
21,777
     
21,999
 
   
$
21,969
   
$
22,246
 
v3.20.2
NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE (Tables)
6 Months Ended
Jun. 30, 2020
NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE [Abstract]  
Shares Used in Computing Basic and Diluted Net Income Per Share
The following table summarizes the shares used in computing basic and diluted net income per share:

 
For the Three Months Ended June 30,
   
For the Six Months Ended June 30,
 
   
2020
   
2019
   
2020
   
2019
 
   
(in thousands)
 
Weighted average common shares outstanding during the period for Basic computation
   
9,326
     
9,276
     
9,311
     
9,267
 
Dilutive effect of employee stock options and awards
   
41
     
48
     
46
     
52
 
                                 
Weighted average common shares outstanding during the period for Diluted computation
   
9,367
     
9,324
     
9,357
     
9,319
 
v3.20.2
REGULATORY PROCEEDINGS (Tables)
6 Months Ended
Jun. 30, 2020
REGULATORY PROCEEDINGS [Abstract]  
Eligible Plant Improvements
The following table summarizes (1) Artesian Water’s applications with the DEPSC to collect DSIC rates and (2) the rates upon which eligible plant improvements are based:

Application Date
11/28/2018
05/29/2019
11/15/2019
05/29/2020
DEPSC Approval Date
12/20/2018
06/18/2019
12/12/2019
06/17/2020
Effective Date
01/01/2019
07/01/2019
01/01/2020
07/01/2020
Cumulative DSIC Rate
5.55%
7.41%
7.50%
7.41%
Net Eligible Plant Improvements – Cumulative Dollars (in millions)
$30.4
$43.1
$43.1
$43.1
Eligible Plant Improvements – Installed Beginning Date
10/01/2014
10/01/2014
10/01/2014
10/01/2014
Eligible Plant Improvements – Installed Ending Date
10/31/2018
04/30/2019
04/30/2019
04/30/2019
v3.20.2
FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)
6 Months Ended
Jun. 30, 2020
FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]  
Carrying Amount and Fair Value of Long-Term Debt
All of Artesian Resources’ outstanding long-term debt as of June 30, 2020 and December 31, 2019 was fixed-rate.  The fair value of the Company’s long-term debt is determined by discounting its future cash flows using current market interest rates on similar instruments with comparable maturities consistent with FASB ASC 825.  Under the fair value hierarchy, the fair value of the long-term debt in the table below is classified as Level 2 measurements.  Level 2 is valued using observable inputs other than quoted prices.  The fair values for long-term debt differ from the carrying values primarily due to interest rates that differ from the current market interest rates.  The carrying amount and fair value of Artesian Resources' long-term debt (including current portion) are shown below:

In thousands
     
   
June 30, 2020
   
December 31, 2019
 
Carrying amount
 
$
144,982
   
$
145,862
 
Estimated fair value
 
$
173,779
   
$
157,710
 
v3.20.2
GENERAL (Details)
gal in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
gal / d
gal
Facility
Plan
WaterSystem
Jun. 30, 2020
gal / d
Squarefeet
Facility
Subsidiary
Business Operations [Abstract]    
Number of wholly owned subsidiaries | Subsidiary   8
Number of subsidiaries not regulated | Subsidiary   3
Artesian Development purchased area of office space (in square feet) | Squarefeet   10,000
Artesian Development purchased area of warehouse space (in square feet) | Squarefeet   10,000
Artesian Wastewater [Member]    
Business Operations [Abstract]    
Number of wastewater treatment facilities owned and operated | Facility   4
Capacity of wastewater treatment facilities   500,000
Number of other's system efficiently and cost effectively manages wastewater transmission, treatment and disposal | WaterSystem 1  
Disposal facility and spray irrigation to agricultural land | gal 90  
Maximum supply amount of water per day 1,500,000  
Artesian Utility [Member]    
Business Operations [Abstract]    
Capacity of wastewater treatment facilities   2,800,000
Initial contract period of operating wastewater treatment facilities in Middletown 20 years  
Number of wastewater treatment station facility operations in Middletown | Facility 2  
Number of protection plans offered to customers | Plan 3  
v3.20.2
REVENUE RECOGNITION, Disaggregated Revenues (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
REVENUE RECOGNITION [Abstract]        
Refund to customers through reduced tariff rates       $ (3,800)
Minimum number of days for accounts receivable from tariff contract customers     25 days  
Increase in reserve for bad debt $ 300   $ 300  
Minimum number of days due for accounts receivable from SLP Plan customer     25 days  
Minimum number of days customers services invoiced in advance     30 days  
Disaggregation of Revenue [Abstract]        
Other Operating Revenue not in scope of ASC 606 324 $ 311 $ 616 612
Total Operating Revenues 21,752 20,652 41,653 40,037
Tariff Revenue [Member]        
Disaggregation of Revenue [Abstract]        
Total Operating Revenues 20,128 18,921 38,331 36,604
Tariff Revenue [Member] | Consumption Charges [Member]        
Disaggregation of Revenue [Abstract]        
Total Operating Revenues 12,182 11,505 22,342 21,476
Tariff Revenue [Member] | Fixed Fees [Member]        
Disaggregation of Revenue [Abstract]        
Total Operating Revenues 6,657 6,349 13,394 12,997
Tariff Revenue [Member] | Service Charges [Member]        
Disaggregation of Revenue [Abstract]        
Total Operating Revenues 15 156 162 333
Tariff Revenue [Member] | DSIC [Member]        
Disaggregation of Revenue [Abstract]        
Total Operating Revenues 1,267 908 2,418 1,795
Tariff Revenue [Member] | Industrial Wastewater Services [Member]        
Disaggregation of Revenue [Abstract]        
Total Operating Revenues 7 3 15 3
Non-Tariff Revenue [Member]        
Disaggregation of Revenue [Abstract]        
Total Operating Revenues 1,300 1,420 2,706 2,821
Non-Tariff Revenue [Member] | Service Line Protection Plans [Member]        
Disaggregation of Revenue [Abstract]        
Total Operating Revenues 1,079 1,028 2,167 2,079
Non-Tariff Revenue [Member] | Contract Operations [Member]        
Disaggregation of Revenue [Abstract]        
Total Operating Revenues 213 328 429 656
Non-Tariff Revenue [Member] | Inspection Fees [Member]        
Disaggregation of Revenue [Abstract]        
Total Operating Revenues $ 8 $ 64 $ 110 $ 86
v3.20.2
REVENUE RECOGNITION, Contract Assets and Contract Liabilities (Details) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Contract with Customer, Asset and Liability [Abstract]    
Total Deferred Revenue $ 1,348 $ 1,301
Tariff Revenue [Member]    
Contract with Customer, Asset and Liability [Abstract]    
Contract Assets 2,731 2,146
Total Deferred Revenue 1,104 1,050
Tariff Deferred Revenue 1,000  
Non-Tariff Revenue [Member]    
Contract with Customer, Asset and Liability [Abstract]    
Total Deferred Revenue 244 $ 251
Tariff Deferred Revenue $ 200  
v3.20.2
LEASES (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Operating Lease, Description [Abstract]          
Percentage of increase in annual lease payments     3.00%    
Rent Expense [Abstract]          
Minimum rentals $ 7 $ 7 $ 14 $ 9  
Contingent rentals 0 0 0 0  
Rent expenses 7 $ 7 14 9  
Cash paid for amounts included in the measurement of lease liabilities [Abstract]          
Operating cash flows from operating leases     14 9  
Right-of-use assets obtained in exchange for lease obligations [Abstract]          
Operating leases     469 $ 494  
Operating leases [Abstract]          
Operating lease right-of-use assets 469   469   $ 480
Other current liabilities 20   20   19
Operating lease liabilities 440   440   450
Total operating lease liabilities $ 460   $ 460   $ 469
Weighted Average Remaining Lease Term [Abstract]          
Operating leases 58 years   58 years   58 years
Weighted Average Discount Rate [Abstract]          
Operating leases 5.00%   5.00%   5.00%
Maturities of Operating Lease Liabilities [Abstract]          
2020 $ 42   $ 42    
2021 37   37    
2022 23   23    
2023 23   23    
2024 23   23    
Thereafter 1,317   1,317    
Total undiscounted lease payments 1,465   1,465    
Less effects of discounting (1,005)   (1,005)    
Total lease liabilities recognized $ 460   $ 460   $ 469
Minimum [Member]          
Operating Lease, Description [Abstract]          
Remaining lease term 2 years   2 years    
Maximum [Member]          
Operating Lease, Description [Abstract]          
Remaining lease term 77 years   77 years    
Option to extend lease term 66 years   66 years    
v3.20.2
STOCK COMPENSATION PLANS (Details)
3 Months Ended 6 Months Ended
May 06, 2020
$ / shares
shares
May 08, 2019
$ / shares
shares
Jun. 30, 2020
USD ($)
$ / shares
shares
Jun. 30, 2019
USD ($)
Jun. 30, 2020
USD ($)
Director
$ / shares
shares
Jun. 30, 2019
USD ($)
Stock Compensation Plans [Abstract]            
Compensation expense         $ 90,000 $ 90,000
Number of directors in committee | Director         3  
Total intrinsic value of options exercised     $ 391,200      
Shares of Class A Non-Voting Common Stock under option [Abstract]            
Exercised/vested and released, aggregate intrinsic value     $ 391,200      
Class A Stock [Member] | Stock Options [Member]            
Stock Compensation Plans [Abstract]            
Total intrinsic value of options exercised         $ 391,000  
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]            
Outstanding at beginning of period, option shares (in shares) | shares         153,250  
Granted, option shares (in shares) | shares         0  
Exercised/vested and released, option shares (in shares) | shares         (25,000)  
Expired/cancelled, option shares (in shares) | shares         0  
Outstanding at end of period, option shares (in shares) | shares     128,250   128,250  
Exercisable/vested at end of period, option share (in shares) | shares     128,250   128,250  
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]            
Outstanding at beginning of period, weighted average exercise price (in dollars per shares) | $ / shares         $ 20.40  
Granted, weighted average exercise price (in dollars per share) | $ / shares         0  
Exercised/vested and released, weighted average exercise price (in dollars per shares) | $ / shares         18.73  
Expired/cancelled, weighted average exercise price (in dollars per share) | $ / shares         0  
Outstanding at end of period, weighted average exercise price (in dollars per shares) | $ / shares     $ 20.73   20.73  
Options exercisable at year end (in dollars per shares) | $ / shares     $ 20.73   $ 20.73  
Shares of Class A Non-Voting Common Stock under option [Abstract]            
Outstanding at end of period, weighted average remaining life         2 years 5 months 7 days  
Exercisable/vested at end of period, weighted average remaining life         2 years 5 months 7 days  
Outstanding at beginning of period, aggregate intrinsic value         $ 2,575,000  
Granted, aggregate intrinsic value         0  
Exercised/vested and released, aggregate intrinsic value         391,000  
Expired/cancelled, aggregate intrinsic value         0  
Outstanding at end of period, aggregate intrinsic value     $ 1,995,000   1,995,000  
Exercisable/vested at end of period, aggregate intrinsic value     1,995,000   1,995,000  
Class A Stock [Member] | Stock Options [Member] | 2015 Equity Compensation Plan [Member]            
Stock Compensation Plans [Abstract]            
Unrecognized expense related to non-vested option shares     0   0  
Class A Stock [Member] | Restricted Stock [Member]            
Stock Compensation Plans [Abstract]            
Compensation expense     $ 45,000 $ 43,000 $ 90,000 $ 90,000
Fair value per share (in dollars per share) | $ / shares $ 35.01 $ 36.11        
Shares [Roll Forward]            
Outstanding at beginning of year (in shares) | shares         5,000  
Granted (in shares) | shares 5,000 5,000     5,000  
Exercised/vested and released, restricted stock awards (in shares) | shares         (5,000)  
Cancelled (in shares) | shares         0  
Unvested Outstanding at end of year (in shares) | shares     5,000   5,000  
Weighted Average Grant Date Fair Value [Abstract]            
Outstanding at beginning of year (in dollars per shares) | $ / shares         $ 36.11  
Granted, weighted average grant date fair value (in dollars per share) | $ / shares         35.01  
Vested and released, weighted average grant date fair value (in dollars per shares) | $ / shares         36.11  
Cancelled, weighted average grant date fair value (in dollars per share) | $ / shares         0  
Unvested Outstanding at end of year (in dollars per shares) | $ / shares     $ 35.01   $ 35.01  
Class A Stock [Member] | Restricted Stock [Member] | 2015 Equity Compensation Plan [Member]            
Stock Compensation Plans [Abstract]            
Unrecognized expense related to non-vested option shares     $ 148,000   $ 148,000  
Period over which unvested options cost will recognized         10 months 6 days  
v3.20.2
OTHER DEFERRED ASSETS (Details) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Jun. 30, 2019
Other Deferred Assets [Abstract]      
Investment in CoBank $ 4,374,000 $ 3,968,000  
Goodwill 1,220,000 0 $ 0
Other 290,000 289,000  
Other deferred assets $ 5,884,000 $ 4,257,000  
v3.20.2
REGULATORY ASSETS (Details) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2020
Dec. 31, 2019
Regulatory Assets [Abstract]      
Contributions to postretirement benefit plan   $ 11,500  
Cash received for bond issuance     $ 30,000,000
Amortization period of other regulatory expense [Abstract]      
Rate case studies   5 years  
Goodwill   50 years  
Deferred acquisition costs   20 years  
Franchise costs   80 years  
Regulatory assets net of amortization, comprise [Abstract]      
Regulatory assets, net $ 6,697,000 $ 6,697,000 6,891,000
Maximum [Member]      
Amortization period of other regulatory expense [Abstract]      
Debt related cost   30 years  
Minimum [Member]      
Amortization period of other regulatory expense [Abstract]      
Debt related cost   15 years  
Delaware [Member]      
Amortization period of other regulatory expense [Abstract]      
Regulatory rate proceedings 2 years 6 months    
Maryland [Member]      
Amortization period of other regulatory expense [Abstract]      
Regulatory rate proceedings 5 years    
Postretirement Benefit Obligation [Member]      
Regulatory assets net of amortization, comprise [Abstract]      
Regulatory assets, net $ 51,000 $ 51,000 51,000
Deferred Income Taxes [Member]      
Regulatory assets net of amortization, comprise [Abstract]      
Regulatory assets, net 378,000 378,000 386,000
Debt Related Costs [Member]      
Regulatory assets net of amortization, comprise [Abstract]      
Regulatory assets, net 22,000 22,000 27,000
Expense of Rate and Regulatory Proceedings [Member]      
Regulatory assets net of amortization, comprise [Abstract]      
Regulatory assets, net 5,398,000 5,398,000 5,556,000
Goodwill [Member]      
Regulatory assets net of amortization, comprise [Abstract]      
Regulatory assets, net 284,000 284,000 288,000
Deferred Acquisition and Franchise Costs [Member]      
Regulatory assets net of amortization, comprise [Abstract]      
Regulatory assets, net $ 564,000 $ 564,000 $ 583,000
v3.20.2
REGULATORY LIABILITIES (Details) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2018
Dec. 31, 2019
Jan. 31, 2019
REGULATORY LIABILITIES [Abstract]        
Contributions to postretirement benefit plan $ 11,500      
Federal corporate tax rate 21.00% 34.00%    
Decrease in the net deferred income tax liability $ 24,300,000      
Regulatory Liabilities [Abstract]        
Regulatory liabilities $ 21,969,000 $ 22,800,000 $ 22,246,000  
DEPSC [Member]        
Regulatory Liabilities [Abstract]        
Regulatory liabilities       $ 22,200,000
Regulatory liabilities, amortization period 49 years 6 months      
MDPSC [Member]        
Regulatory Liabilities [Abstract]        
Regulatory liabilities $ 600,000      
Utility Plant Retirement Cost Obligation [Member]        
Regulatory Liabilities [Abstract]        
Regulatory liabilities 192,000   247,000  
Deferred Income Taxes [Member]        
Regulatory Liabilities [Abstract]        
Regulatory liabilities $ 21,777,000   $ 21,999,000  
v3.20.2
NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE (Details) - $ / shares
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Shares used in computing basic and diluted net income per share [Abstract]          
Weighted average common shares outstanding during the period for Basic computation (in shares) 9,326,000 9,276,000 9,311,000 9,267,000  
Dilutive effect of employee stock options and awards (in shares) 41,000 48,000 46,000 52,000  
Weighted average common shares outstanding during the period for Diluted computation (in shares) 9,367,000 9,324,000 9,357,000 9,319,000  
Class A Stock [Member]          
Common Stock [Abstract]          
Common stock, shares authorized (in shares) 15,000,000   15,000,000    
Common stock, shares issued (in shares) 8,451,910 8,397,314 8,451,910 8,397,314  
Common stock, shares outstanding (in shares) 8,451,910 8,397,314 8,451,910 8,397,314  
Common stock, par value (in dollars per share) $ 1.00   $ 1.00    
Earnings Per Share [Abstract]          
Equity per common share (in dollars per share)     $ 17.50   $ 17.28
Class B Stock [Member]          
Common Stock [Abstract]          
Common stock, shares authorized (in shares) 1,040,000   1,040,000    
Common stock, shares issued (in shares) 881,452 881,452 881,452 881,452  
Common stock, shares outstanding (in shares) 881,452 881,452 881,452 881,452  
Common stock, par value (in dollars per share) $ 1.00   $ 1.00    
Stock Option [Member]          
Antidilutive Securities Excluded from Computation of Earnings Per Share [Abstract]          
Shares excluded from calculations of diluted net income per share (in shares) 0 0 0 0  
Restricted Stock [Member]          
Antidilutive Securities Excluded from Computation of Earnings Per Share [Abstract]          
Shares excluded from calculations of diluted net income per share (in shares) 0 2,700 0 1,300  
v3.20.2
REGULATORY PROCEEDINGS (Details) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Mar. 31, 2020
Other Proceedings [Abstract]              
Cumulative DSIC Rate 7.41% 7.41% 7.41% 7.41%   5.55% 7.50%
Net Eligible Plant Improvements - Cumulative Dollars     $ 43.1 $ 43.1 $ 43.1 $ 30.4  
Delaware [Member]              
Rate Proceedings [Abstract]              
Percentage of gross water sales     15.00%        
Period to complete rate case by law     7 months        
Revenue returned to customers as a result of TCJA     $ 3.8        
Delaware [Member] | Maximum [Member]              
Rate Proceedings [Abstract]              
Temporary annual rate increase subject to 15% gross water sales limitation     $ 2.5        
Percentage of rate relief allowed should a rate case not complete     15.00%        
Other Proceedings [Abstract]              
Distribution System Improvement Charge rate increase applied between base rate filings     7.50%        
Distribution System Improvement Charge rate increase within a 12-month period     5.00%        
Artesian Water [Member]              
Other Proceedings [Abstract]              
Revenue earned in DSIC rate increases $ 1.3 $ 0.9 $ 2.4 $ 1.8      
v3.20.2
INCOME TAXES (Details)
6 Months Ended
Jun. 30, 2020
USD ($)
Income Taxes [Abstract]  
Income tax penalties and interest accrued for unrecognized tax position $ 10,100
State Authorities [Member]  
Income Taxes [Abstract]  
Tax year open to examination 2016 2017 2018 2019
Federal Authorities [Member]  
Income Taxes [Abstract]  
Tax year open to examination 2016 2017 2018 2019
v3.20.2
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Carrying Amount [Member]    
Long-term Financial Liabilities [Abstract]    
Long-term debt $ 144,982 $ 145,862
Estimated Fair Value [Member]    
Long-term Financial Liabilities [Abstract]    
Long-term debt $ 173,779 $ 157,710
v3.20.2
RELATED PARTY TRANSACTIONS (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Related Party Transactions [Abstract]        
Stock ownership required to be disclosed, minimum 5.00%   5.00%  
Michael Houghton [Member]        
Related Party Transactions [Abstract]        
Term of director     3 years  
Morris Nichols Arsht & Tunnell [Member]        
Related Party Transactions [Abstract]        
Amount paid for legal services $ 109,000 $ 97,000 $ 228,000 $ 123,000
Accounts payable balance $ 5,000   $ 5,000  
v3.20.2
BUSINESS COMBINATIONS (Details)
$ in Thousands
6 Months Ended
Apr. 02, 2020
USD ($)
Customer
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Business Combinations [Abstract]      
Total purchase price   $ 3,632 $ 0
Frankford [Member]      
Business Combinations [Abstract]      
Number of customers | Customer 360    
Total purchase price $ 3,600    
v3.20.2
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS (Details)
$ in Millions
Jun. 30, 2020
USD ($)
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS [Abstract]  
Increase in reserve for bad debt $ 0.3
v3.20.2
SUBSEQUENT EVENTS (Details) - Subsequent Event [Member] - Delaware City [Member]
$ in Millions
Aug. 03, 2020
USD ($)
Subsequent Event [Abstract]  
Total purchase price $ 2.1
Debt acquired related to the Water System $ 0.6