PUBLIC UTILITY REGULATION – Connecticut Water is subject to regulation for rates and other matters by the Connecticut Public Utility Regulatory Authority (“PURA”) and follows accounting policies prescribed by the PURA. Maine Water and BSWC are subject to regulation for rates and other matters by the MPUC. The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which includes the provisions of Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 980 “Regulated Operations” (“FASB ASC 980”). FASB ASC 980 requires cost-based, rate-regulated enterprises, such as Connecticut Water, Maine Water and BSWC, to reflect the impact of regulatory decisions in their financial statements. The state regulators, through the rate regulation process, can create regulatory assets and liabilities that result when costs and benefits are allowed for ratemaking purposes in a period after the period in which the costs or benefits would be charged to expense by an unregulated enterprise. The Consolidated Balance Sheets include regulatory assets and liabilities as appropriate, primarily related to income taxes, post-retirement benefit costs and deferred revenues associated with the Water Revenue Adjustment (WRA). In accordance with FASB ASC 980, costs which benefit future periods, such as well development, are amortized over the periods they benefit. The Company believes, based on current regulatory circumstances, that the regulatory assets recorded are likely to be recovered and that its use of regulatory accounting is appropriate and in accordance with the provisions of FASB ASC 980.
Regulatory assets and liabilities are comprised of the following:
|
| | | | | | | |
(in thousands) | December 31, |
| 2013 | | 2012 |
Assets: | | | |
Pension and postretirement benefits | $ | 4,373 |
| | $ | 21,341 |
|
Unrecovered income taxes | 47,135 |
| | 9,871 |
|
Deferred revenue (included in other current assets and deferred charges) | 6,703 |
| | 3,644 |
|
Other (included in other current assets and deferred charges) | 3,901 |
| | 3,151 |
|
Total regulatory assets | $ | 62,112 |
| | $ | 38,007 |
|
Liabilities: | |
| | |
|
Other (included in other current liabilities) | $ | 602 |
| | $ | 499 |
|
Unamortized Investment Tax Credits | 1,414 |
| | 1,490 |
|
Refunds to Customers (including current portion) | 12,399 |
| | — |
|
Unfunded future income taxes and other | 47,755 |
| | 11,215 |
|
Total regulatory liabilities | $ | 62,170 |
| | $ | 13,204 |
|
Pension and postretirement benefits include costs in excess of amounts funded. The Company believes these costs will be recoverable in future years, through rates, as funding is required and has recorded regulatory assets for those costs. The recovery period is dependent on contributions made to the plans and remaining life expectancy.
Certain items giving rise to deferred state income taxes, as well as a portion of deferred federal income taxes related primarily to differences between book and tax depreciation expense, are recognized for ratemaking purposes on a cash or flow-through basis and will be recovered in rates in future years as they reverse. In addition, basis differences resulting from the repair tax deduction adopted in 2013 contribute to the change in unfunded income taxes.
Deferred revenue represents a portion of the rate increase granted in Connecticut Water’s 2007 rate decision. The regulator’s decision required the Company to defer for future collection, beginning in 2008, a portion of the increase. Additionally, revenue recorded under the water revenue adjustment mechanism, discussed below, is included in deferred revenue.
Regulatory liabilities include deferred investment tax credits and amounts to be refunded to customers as a result of the adoption of the tangible property regulations. These liabilities will be given back to customers in rates as tax deductions occur in the future.
