NOTE 12

COMMITMENTS AND CONTINGENCIES

Leases

In the first quarter of 2019, the Company adopted the new standard on leases that was issued by the FASB and has applied this standard as disclosed in Note 3.

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Easements

During 2003, Artesian Water Pennsylvania entered into a 40 year easement agreement to acquire an easement to access, operate, maintain, repair, improve, replace and connect Artesian’s water system to a well, including a parcel of land around the well. Management made certain estimates and assumptions regarding the separation of lease and nonlease components related to this easement agreement. It was determined that the majority of this easement agreement contains nonlease components. Easement payments for 2019, 2018 and 2017 were $40,000, $38,000 and $37,000, respectively.

Artesian Wastewater entered into a perpetual agreement for the use of approximately 460 acres of land in Sussex County, Delaware for wastewater disposal. Beginning January 2007, Artesian Wastewater was required to pay a minimum of $40,000 per year for the use of this land. Beginning January 2012, and on each anniversary thereof until January 2027, the fee was adjusted upwards by an adjustment factor of two percent. In November 2016, this agreement was amended to remove the 2% increase. Once disposal operations begin, the monthly fee will be based on the volume of wastewater disposed on the properties charged at a rate per one thousand gallons of wastewater, providing for a minimum monthly payment. Payments for 2019, 2018 and 2017 were $44,000 each year. The agreement can be terminated by giving 180 day notice prior to the termination date.

Future minimum annual payments related to the easement agreements noted above for the years subsequent to 2019 are as follows:

In thousands
2020	$	72
2021		51
2022		40
2023		38
2024		39
2025 through 2043		906
	$	1,146

Interconnections

Artesian Water has one water service interconnection agreement with a neighboring utility, Chester Water Authority, which requires minimum annual purchases. Rates charged under this agreement are subject to change. The minimum purchase requirement is 1,095 million gallons annually, calculated as 3 million gallons per day times the number of calendar days in a year. The agreement extends through the year 2021. We provided written notice to Chester Water Authority that we do not intend to extend the term of the agreement under its existing terms.

In June 2019, Artesian Water Maryland signed an interconnection agreement with the Town of North East that has a “take or pay” clause requiring us to purchase a minimum of 35,000 gallons per day. The agreement extends through February 2024.

The minimum annual purchase commitments for all interconnection agreements for 2020 through 2024, calculated at the noticed rates, are as follows:

In thousands
2020	$	3,892
2021		3,881
2022		57
2023		57
2024		9
	$	7,896

Expenses for purchased water were $4.2 million, $4.2 million and $4.4 million for 2019, 2018 and 2017, respectively.

Other Commitments

In March 2017, Artesian Water entered into a 3-year agreement with Worldwide Industries Corporation to clean and paint tanks in 2017, 2018 and 2019. Pursuant to the 3-year agreement, the expenditure committed in total for the years 2017 through 2019 was $1.3 million. Tank painting expense for 2019, 2018 and 2017 was $447,000, $658,000, and $695,000, respectively.

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Budgeted mandatory utility plant expenditures, due to planned governmental highway projects, which require the relocation of Artesian Water's water service mains, expected to be incurred in 2020 through 2022 are as follows:

In thousands
2020	$	3,000
2021		3,000
2022		3,000
	$	9,000

The exact timing and extent of these relocation projects is controlled primarily by the Delaware Department of Transportation.