Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

NEW ACCOUNTING PRONOUNCEMENTS – In February 2013, the FASB issued updated accounting guidance to improve the reporting of reclassifications out of accumulated other comprehensive income (“AOCI”). The update requires an entity to present information about the amounts reclassified from AOCI in their financial statements in either a single note or parenthetically on the face of the financial statements. The updated guidance is effective prospectively for reporting periods beginning after December 15, 2012. The Company will adopt the provisions of the updated guidance for its quarterly reporting period beginning January 1, 2013, and the Company does not expect the adoption of the revised guidance to have an impact on the Company's consolidated results of operations or consolidated financial position.

In May 2011, the FASB issued updated accounting guidance related to fair value measurements and disclosures that result in common fair value measurements and disclosures between U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. This new guidance amends current fair value measurement and disclosure guidance to increase transparency around valuation inputs and investment categorization. This guidance is effective for interim and annual periods beginning on January 1, 2012 and is required to be applied prospectively. The adoption of this guidance in the first quarter of 2012 did not have a significant impact on the Company's consolidated results of operations or consolidated financial position.

Business Description and Basis of Presentation [Text Block]

BASIS OF PRESENTATION – The consolidated financial statements include the operations of Connecticut Water Service, Inc. (the “Company”), an investor-owned holding company and its wholly-owned subsidiaries, including:

The Connecticut Water Company (“Connecticut Water”)

The Maine Water Company (“Maine Water”)

The Biddeford & Saco Water Company (“BSWC”)

Chester Realty, Inc. (“Chester Realty”)

New England Water Utility Services, Inc. (“NEWUS”)

Barnstable Holding Company (“Barnstable Holding”)

As of December 31, 2012, Connecticut Water, Maine Water and BSWC were our regulated public water utility companies (collectively the “Regulated Companies”), which served 121,791 customers in 76 towns throughout Connecticut and Maine.

Chester Realty is a real estate company whose net profits from rental of property are included in the Other Income (Deductions), Net of Taxes section of the Consolidated Statements of Income in the Non-Water Sales Earnings category.

NEWUS is engaged in water-related services, including the Linebacker^® program, emergency drinking water, pool water and contract operations.  Its earnings are included in the Non-Water Sales Earnings category of the Consolidated Statements of Income.

The Company has evaluated all subsequent events through the date the financial statements were issued.

Intercompany accounts and transactions have been eliminated.

Certain reclassifications have been made to conform previously reported data to the current presentation. In addition to these reclassifications, the prior year financial statements have been revised to adjust the unfunded future income taxes related to plant and pension and other postretirement benefits. The adjustment was recorded to the prior year consolidated balance sheet which resulted in a decrease to the unfunded future income taxes by $21.9 million and a decrease to the associated unrecovered income taxes - regulatory asset by $21.9 million.

Income Tax, Policy [Policy Text Block]

INCOME TAXES – The Company provides income tax expense for its utility operations in accordance with the regulatory accounting policies of the applicable jurisdictions.  The Company's income tax provision is calculated on a separate return basis. The Connecticut PURA requires the flow-through method of accounting for most state tax temporary differences as well as for certain federal temporary differences. The MPUC requires the flow-through method of accounting for most state temporary differences and normalized accounting for most federal temporary differences.

The Company computed deferred tax liabilities for all temporary book-tax differences using the liability method prescribed in FASB ASC 740 “Income Taxes” (“FASB ASC 740”).  Under the liability method, deferred income taxes are recognized at currently enacted income tax rates to reflect the tax effect of temporary differences between the financial reporting and tax bases of assets and liabilities.  Such temporary differences are the result of provisions in the income tax law that either require or permit certain items to be reported on the income tax return in a different period than they are reported in the financial statements.  Deferred tax liabilities that have not been reflected in tax expense due to regulatory treatment are reflected as Unfunded Future Income Taxes, and are expected to be recoverable in future years’ rates.

The Company believes that deferred income tax assets will be realized in the future.  The majority of unfunded future income taxes relate to deferred state income taxes regarding book to tax depreciation differences.

Deferred Federal Income Taxes consist primarily of amounts that have been provided for accelerated depreciation subsequent to 1981, as required by federal income tax regulations.  Deferred taxes have also been provided for temporary differences in the recognition of certain expenses for tax and financial statement purposes as allowed by PURA ratemaking policies.

Public Utilities, Policy [Policy Text Block]

PUBLIC UTILITY REGULATION – Connecticut Water is subject to regulation for rates and other matters by the Connecticut Public Utility Regulatory Authority (“PURA”), formerly the Department of Public Utility Control and follows accounting policies prescribed by the PURA.  Maine Water and BSWC are subject to regulation for rates and other matters by the Maine Public Utilities Commission ("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, to reflect the impact of regulatory decisions in their financial statements. The state regulators, through the rate regulation process, can create regulatory assets that result when costs are allowed for ratemaking purposes in a period after the period in which the costs would be charged to expense by an unregulated enterprise.  The balance sheets include regulatory assets and liabilities as appropriate, primarily related to income taxes and post-retirement benefit costs.  In accordance with FASB ASC 980, costs which benefit future periods, such as tank painting, are expensed 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,
	2012		2011
Assets:
Pension and postretirement benefits	$	21,341	$	17,829
Unrecovered income taxes and other	9,871		7,355
Deferred revenue (included in deferred charges)	3,644		3,883
Other (included in deferred charges)	3,151		2,464
Total regulatory assets	$	38,007	$	31,531
Liabilities:
Other (included in other current liabilities)	$	499	$	—
Unamortized Investment Tax Credits	1,490		1,313
Unfunded future income taxes and other	11,215		7,355
Total regulatory liabilities	$	13,204	$	8,668

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 the discount rate used to value the obligations.

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.

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.

Regulatory liabilities include deferred investment tax credits.  These liabilities will be given back to customers in rates as tax deductions occur in the future.

Use of Estimates, Policy [Policy Text Block]

USE OF ESTIMATES – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Utility, Revenue and Expense Recognition, Policy [Policy Text Block]

REVENUES – The Company’s accounting policies regarding revenue recognition by segment are as follows:

Water Activities – Most of our water customers are billed quarterly, with the exception of larger commercial and industrial customers, as well as public and private fire protection customers who are billed monthly.  Most customers, except fire protection customers, are metered.  Revenues from metered customers are based on their water usage multiplied by approved, regulated rates and are earned when water is delivered.  Public fire protection revenues are based on the length of the water main, and number of hydrants in service and are earned on a monthly basis.  Private fire protection charges are based on the diameter of the connection to the water main.  Our Regulated Companies accrue an estimate for metered customers for the amount of revenues earned relating to water delivered but unbilled at the end of each quarter, which is reflected as Accrued Unbilled Revenues in the accompanying balance sheets.

Real Estate Transactions – Revenues are recorded when a sale or other transaction has been completed and title to the real estate has been transferred. Upon completion of any real estate transaction, the Company no longer has any continuing involvement in the property.

Services and Rentals – Revenues are recorded when the Company has delivered the services called for by contractual obligation.

Property, Plant and Equipment, Policy [Policy Text Block]

UTILITY PLANT – Utility plant is stated at the original cost of such property when first devoted to public service.  Utility plant accounts are charged with the cost of improvements and replacements of property including an Allowance for Funds Used During Construction.  Retired or disposed of depreciable plant is charged to accumulated provision for depreciation together with any costs applicable to retirement, less any salvage received.  Maintenance of utility plant is charged to expense.  Accounting policies relating to other areas of utility plant are listed below:

Allowance For Funds Used During Construction – Allowance for Funds Used During Construction (AFUDC) is the cost of debt and equity funds used to finance the construction of utility plant. The amount shown on the Consolidated Statements of Income relates to the equity portion.  The debt portion is included as an offset to Other Interest Charges.  Generally, utility plant under construction is not recognized as part of rate base for ratemaking purposes until facilities are placed into service, and accordingly, AFUDC is charged to the construction cost of utility plant.  Capitalized AFUDC, which does not represent current cash income, is recovered through rates over the service lives of the facilities.

Our Regulated Companies’ allowed rate of return on rate base is used to calculate its AFUDC.

Customers’ Advances For Construction, Contributed Plant and Contributions In Aid Of Construction –Under the terms of construction contracts with real estate developers and others, the Regulated Companies periodically receive either advances for the costs of new main installations or title to the main after it is constructed and financed by the developer.  Refunds are made, without interest, as services are connected to the main, over periods not exceeding fifteen years and not in excess of the original advance.  Unrefunded balances, at the end of the contract period, are credited to contributions in aid of construction (CIAC) and are no longer refundable.

Utility Plant is added in two ways.  The majority of the Company’s plant additions occur from direct investment of Company funds that originated through operating activities or financings.  The Company manages the construction of these plant additions.  These plant additions are part of the Company’s depreciable utility plant and are generally part of rate base.  The Company’s rate base is a key component of how its regulated rates are set, and is recovered through the depreciation component of the Company’s rates.  The second way in which plant additions occur are through developer advances and contributions.  Under this scenario either the developer funds the additions through payments to the Company, who in turn manages the construction of the project, or the developer pays for the plant construction directly and contributes the asset to the Company after it is complete.  Plant additions that are financed by a developer, either directly or indirectly, are excluded from the Company’s rate base and not recovered through the rates process, and are also not depreciated.

The components that comprise Net Additions to Utility Plant during the last three years ending December 31 are as follows:

(in thousands)	2012		2011		2010
Additions to Utility Plant:
Company Financed	$	24,653	$	22,858	$	26,240
Allowance for Funds Used During Construction	239		188		171
Subtotal – Utility Plant Increase to Rate Base	24,892		23,046		26,411
Advances from Others for Construction	1,041		966		281
Net Additions to Utility Plant	$	25,933	$	24,012	$	26,692

Depreciation – Depreciation is computed on a straight-line basis at various rates as approved by the state regulator on a company by company basis.  Depreciation allows the Company to recover the investment in utility plant over its useful life.  The overall consolidated company depreciation rate, based on the average balances of depreciable property, was 2.0%, 1.8%, and 1.7% for 2012, 2011, and 2010, respectively.

Municipal Taxes [Policy Text Block]

MUNICIPAL TAXES – Municipal taxes are reflected as Taxes Other than Income Taxes and are generally expensed over the twelve-month period beginning on July 1 following the lien date, corresponding with the period in which the municipal services are provided.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

STOCK OPTIONS – In the past, the Company issued stock options to certain employees; but has not done so since 2003.  For more information regarding stock based compensation, see Note 13, Stock Based Compensation Plans.

Unamortized Debt Expense [Policy Text Block]

UNAMORTIZED DEBT ISSUANCE EXPENSE – The issuance costs of long-term debt, including the remaining balance of issuance costs on long-term debt issues that have been refinanced prior to maturity, and related call premiums, are amortized over the respective lives of the outstanding debt, as approved by the PURA and the MPUC.

Goodwill and Intangible Assets, Policy [Policy Text Block]

GOODWILL – As part of the purchase of regulated water companies, the Company recorded goodwill of $31.7 million representing the amount of the purchase price over net book value of the assets acquired.  The Company accounts for goodwill in accordance with Accounting Standards Codification 350 “Intangibles – Goodwill and Other” (“FASB ASC 350”). For a roll forward of the Company's goodwill balance, see Note 15.

As part of FASB ASC 350, the Company is required to perform an annual goodwill impairment test, which we perform as of December 31 each year. We update the test between the annual testing if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. The analysis of a potential impairment of goodwill requires a two step process. Step one of the test involves comparing the fair value of a reporting unit with its carrying value, including goodwill. If the carrying value of a reporting unit exceeds the reporting unit's fair value, step two must be performed to determine the amount, if any, of goodwill impairment loss. If the carrying value is less than fair value, further testing for goodwill impairment is not performed.

Step two of the goodwill impairment test involves comparing the implied fair value of the reporting unit's goodwill against the carrying value of the goodwill. In step two, determining the implied fair value of goodwill requires the valuation of a reporting unit's identifiable tangible and intangible assets and liabilities as if the reporting unit had been acquired in a business combination on the testing date. The difference between the fair value of the entire reporting unit as determined in step one and the net fair value of all identifiable assets and liabilities represents the implied fair value of the goodwill. The goodwill impairment charge, if any, would be the difference between the carrying amount of goodwill and the implied fair value of goodwill upon the completion of step two.

In performing the annual goodwill impairment test, for purposes of the step one analysis, the Company bases the determination of the fair value of its reporting unit on the income approach, which estimates the fair value based on discounted future cash flows. Based on the completion of step one of the annual impairment analysis, management determined that the fair value of the Water Activities reporting unit was greater than its carrying value.

We may be required to recognize an impairment of goodwill in the future due to market conditions or other factors that are beyond our control and unrelated to our performance. Those market events could include a decline in the forecasted results in our business plan, significant adverse rate case results, changes in capital investment budgets or changes in interest rates that could permanently impair the fair value of a reporting unit. Recognition of impairments of a significant portion of goodwill would negatively impact our reported results of operation and total capitalization, the effects of which could be material and could make it more difficult to maintain our credit ratings, secure financing on favorable terms, maintain compliance with debt covenants and meet expectations of our regulators.