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Rate and Regulatory Matters

12 Months Ended

Dec. 31, 2016

Note 2 - Rate and Regulatory Matters

Rate Matters

Middlesex - In August 2015, Middlesex’s Petition to the NJBPU seeking permission to increase base water rates was concluded, based on a negotiated settlement, resulting in an increase in annual operating revenues of $5.0 million. The new base water rates were needed to recover increased costs and lost customer revenues, as well as a return on invested capital in rate base of $219.0 million, based on a return on equity of 9.75%. The rate increase became effective on August 29, 2015.

In June 2014, Middlesex’s Petition to the NJBPU seeking permission to increase base water rates was concluded, based on a negotiated settlement, resulting in an increase in annual operating revenues of $4.2 million. The new base water rates were designed to recover increased costs and lost customer revenues, as well as a return on invested capital in rate base of $208.6 million, based on a return on equity of 9.75%. The rate increase became effective on July 20, 2014.

On November 1, 2016, Middlesex implemented an NJBPU-approved purchased water adjustment clause sufficient to recover additional costs of less than $0.1 million for the purchase of treated water from a non-affiliated regulated water utility.

Tidewater - In August 2014, Tidewater’s Application to the DEPSC seeking permission to increase base water rates was concluded, based on a negotiated settlement, resulting in an increase in annual operating revenues of $0.8 million. The new base water rates were designed to recover increased costs and a return on invested capital in rate base of $208.6 million, based on a return on equity of 9.75%. The rate increase became effective on August 19, 2014.

Effective January 1, 2017, Tidewater increased its DEPSC-approved Distribution System Improvement Charge (DSIC) rate, which is expected to generate revenues of approximately $0.3 million annually. A DSIC is a rate-mechanism that allows water utilities to recover investments in, and generate a return on, qualifying capital improvements made between base rate proceedings.

In April 2014, the DEPSC approved Tidewater’s 50-year agreement with the United States Department of Defense for the privatization of the water system of Dover Air Force Base (DAFB) in Dover, Delaware. On October 1, 2014, Tidewater assumed ownership of the DAFB water utility assets and began providing regulated water service to DAFB under Tidewater’s DEPSC approved tariff rates.

TESI - In October 2014, TESI implemented a DEPSC-approved 33.5% base wastewater rate increase for residential customers in the Plantations development in Delaware (approximately $0.1 million annually).

Pinelands - In April 2016, the NJBPU approved $0.2 million and $0.1 million of increases, respectively, in Pinelands Water and Pinelands Wastewater’s annual base rates, effective May 7, 2016. In October 2015, the companies had filed petitions with the NJBPU seeking permission to increase base rates by approximately $0.5 million per year. The rate filings were necessitated by capital infrastructure investments the companies have made, or have committed to make, increased operations and maintenance costs and lower non-fixed fee revenues. The Pinelands Water base water rate increase will be phased-in over two years.

Southern Shores - Under the terms of a multi-year DEPSC-approved agreement expiring in 2020, customer rates will increase on January 1^st of each year to generate additional annual revenue of $0.1 million with each increase.

Twin Lakes - In June 2016, the Pennsylvania Public Utilities Commission approved a $0.1 million increase in Twin Lakes’ base water rates, effective June 15, 2016. In November 2015, Twin Lakes had filed a petition seeking permission to increase its base water rates by approximately $0.2 million per year. This request was necessitated by capital infrastructure investments Twin Lakes has made, or committed to make, and increased operations and maintenance costs. The rate increase will be phased in over two years.

Regulatory Matters

We have recorded certain costs as regulatory assets because we expect full recovery of, or are currently recovering, these costs in the rates we charge customers. These deferred costs have been excluded from rate base and, therefore, we are not earning a return on the unamortized balances. These items are detailed as follows:

	(Thousands of Dollars)
	December 31,				Remaining
Regulatory Assets	2016		2015		Recovery Periods
Retirement Benefits	$	40,603	$	39,378	Various
Income Taxes		15,899		15,541	Various
Rate Cases, Tank Painting, and Other		4,392		3,633	2-10 years
Total	$	60,894	$	58,552

Retirement benefits include pension and other retirement benefits that have been recorded on the Consolidated Balance Sheet in accordance with the guidance provided in ASC 715, Compensation – Retirement Benefits. These amounts represent obligations in excess of current funding, which the Company believes will be fully recovered in rates set by the regulatory authorities.

The recovery period for income taxes is dependent upon when the temporary differences between the tax and book treatment of various items reverse.

The Company uses composite depreciation rates for its regulated utility assets, which is currently an acceptable method under generally accepted accounting principles and is widely used in the utility industry. Historically, under the composite depreciation method, the anticipated costs of removing assets upon retirement are provided for over the life of those assets as a component of depreciation expense. The Company recovers certain asset retirement costs through rates charged to customers as an approved component of depreciation expense. As of December 31, 2016 and 2015, the Company has approximately $11.3 million and $10.9 million, respectively, of expected costs of removal recovered currently in rates in excess of actual costs incurred as regulatory liabilities.

The Company is recovering through customer rates acquisition premiums totaling $0.5 million over the remaining lives of the underlying Utility Plant. These deferred costs have been included in rate base as utility plant and a return is being earned on the unamortized balances during the recovery periods.