UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2022

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     0-422

MIDDLESEX WATER COMPANY

(Exact name of registrant as specified in its charter)

New Jersey 22-1114430
(State of Incorporation) (IRS employer identification no.)

 

485C Route 1 South, Suite 400, Iselin New Jersey 08830

(Address of principal executive offices, including zip code)

(732) 634-1500

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class: Trading Symbol: Name of each exchange on which registered:
Common Stock, No Par Value MSEX The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☒    No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐   No ☒

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 and posted on their corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ☐   No ☒

The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2022 was $1,505,071,215 based on the closing market price of $87.68 per share on the NASDAQ Global Select Market.

The number of shares outstanding for each of the registrant's classes of common stock, as of February 24, 2023:

Common Stock, No par Value 17,642,147 shares outstanding

 

Documents Incorporated by Reference

Proxy Statement to be filed in connection with the Registrant’s Annual Meeting of Stockholders to be held on May 23, 2023, which will be filed with the Securities and Exchange Commission within 120 days of the end of our 2022 fiscal year, is incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described herein.

 

 

MIDDLESEX WATER COMPANY

FORM 10-K

 

INDEX

    PAGE
Forward-Looking Statements 1
PART I 2
Item 1. Business: 2
  Overview 2
  Financial Information 4
  Water Supplies and Contracts 4
  Wastewater Facilities 5
  Human Capital Management 5
  Competition 7
  Regulation 7
  Seasonality 10
  Management 11
Item 1A. Risk Factors 12
Item 1B. Unresolved Staff Comments 17
Item 2. Properties 17
Item 3. Legal Proceedings 19
Item 4. Mine Safety Disclosures 20
PART II 21
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21
Item 6. [Reserved] 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 23
Item 7A. Qualitative and Quantitative Disclosure About Market Risk 37
Item 8. Financial Statements and Supplementary Data 38
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 67
Item 9A. Controls and Procedures 67
Item 9B. Other Information 68
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 68
PART III 69
Item 10. Directors, Executive Officers and Corporate Governance 69
Item 11. Executive Compensation 69
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 69
Item 13. Certain Relationships and Related Transactions, and Director Independence 69
Item 14. Principal Accountant Fees and Services 69
PART IV 70
Item 15. Exhibits and Financial Statement Schedules 70
Item 16. Form 10-K Summary 70
     
Signatures  
Exhibit Index  

 

FORWARD-LOOKING STATEMENTS

Certain statements contained in this annual report and in the documents incorporated by reference constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Middlesex Water Company (the Company) intends that these statements be covered by the safe harbors created under those laws. They include, but are not limited to statements as to:

-expected financial condition, performance, prospects and earnings of the Company;
-strategic plans for growth;
-the amount and timing of rate increases and other regulatory matters, including the recovery of certain costs recorded as regulatory assets;
-the Company’s expected liquidity needs during the upcoming fiscal year and beyond and the sources and availability of funds to meet its liquidity needs;
-expected customer rates, consumption volumes, service fees, revenues, margins, expenses and operating results;
-financial projections;
-the expected amount of cash contributions to fund the Company’s retirement benefit plans, anticipated discount rates and rates of return on plan assets;
-the ability of the Company to pay dividends;
-the Company’s compliance with environmental laws and regulations and estimations of the materiality of any related costs;
-the safety and reliability of the Company’s equipment, facilities and operations;
-the Company’s plans to renew municipal franchises and consents in the territories it serves;
-trends; and
-the availability and quality of our water supply.

These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from anticipated results and outcomes include, but are not limited to:

-effects of general economic conditions;
-increases in competition for growth in non-franchised markets to be potentially served by the Company;
-ability of the Company to adequately control selected operating expenses which are necessary to maintain safe and proper utility services, and which may be beyond the Company’s control;
-availability of adequate supplies of water;
-actions taken by government regulators, including decisions on rate increase requests;
-new or modified water quality standards;
-weather variations and other natural phenomena impacting utility operations;
-financial and operating risks associated with acquisitions and, or privatizations;
-acts of war or terrorism;
-cyber-attacks;
-changes in the pace of housing development;
-availability and cost of capital resources;
-timely availability of materials and supplies for operations and for critical infrastructure projects;
-impact of the Novel Coronavirus (COVID-19) or other pandemic; and
-other factors discussed elsewhere in this annual report.

 

Many of these factors are beyond the Company’s ability to control or predict. Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements, which only speak to the Company’s understanding as of the date of this report. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.

 

For an additional discussion of factors that may affect the Company’s business and results of operations, see Item 1A - Risk Factors.

 

PART I

Item 1.Business.

Overview

 

Middlesex Water Company (Middlesex) was incorporated as a water utility company in 1897 and owns and operates regulated water utility and wastewater systems primarily in New Jersey and Delaware. Middlesex also operates water and wastewater systems under contract on behalf of municipal and private clients primarily in New Jersey and Delaware.

 

The terms “the Company,” “we,” “our,” and “us” refer to Middlesex Water Company and its subsidiaries, including Tidewater Utilities, Inc. (Tidewater) and Tidewater’s wholly-owned subsidiaries, Southern Shores Water Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc. (White Marsh). The Company’s other subsidiaries are Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), Utility Service Affiliates, Inc. (USA) and Utility Service Affiliates (Perth Amboy) Inc., (USA-PA).

 

The Company’s principal executive offices are located at 485C Route 1 South, Suite 400, Iselin, New Jersey 08830. Our telephone number is (732) 634-1500. Our website address is http://www.middlesexwater.com. Information contained on our website is not part of this Annual Report on Form 10-K. We make available, free of charge through our website, reports and amendments filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, after such material is electronically filed with or furnished to the United States Securities and Exchange Commission (the SEC).

 

Middlesex System

 

Located in New Jersey, the Middlesex System provides water services to approximately 61,000 retail customers, primarily in eastern Middlesex County and under wholesale contracts to the City of Rahway, Townships of Edison and Marlboro, the Borough of Highland Park and the Old Bridge Municipal Utilities Authority. The Middlesex System treats, stores and distributes water for residential, commercial, industrial and fire protection purposes. The Middlesex System also provides water treatment and pumping services to the Township of East Brunswick under contract. The amount of water supply allocated to the Township of East Brunswick is granted directly to the Township by the New Jersey Water Supply Authority. The Middlesex System produced approximately 65% of our 2022 consolidated operating revenues.

 

The Middlesex System’s retail customers are located in an area of approximately 55 square miles in Woodbridge Township, the City of South Amboy, the Boroughs of Metuchen and Carteret, portions of the Township of Edison and the Borough of South Plainfield, all in Middlesex County, and a portion of the Township of Clark in Union County. Retail customers include a mix of residential customers, large industrial concerns and commercial and light industrial facilities. These customers are located in generally well-developed areas of central New Jersey.

 

The contract customers of the Middlesex System comprise an area of approximately 110 square miles with a population of over 200,000. Contract sales to the Townships of Edison and Marlboro, the City of Rahway and the Old Bridge Municipal Utilities Authority are supplemental to the water systems owned and operated by these customers. Middlesex is the sole source of water for the Borough of Highland Park and the Township of East Brunswick.

 

Middlesex provides water service to approximately 300 customers in Cumberland County, New Jersey. This system is referred to as the Bayview System, and is not physically interconnected with the Middlesex System. The Bayview System produced less than 0.1% of our 2022 consolidated operating revenues.

 

Tidewater System

 

Tidewater, together with its wholly-owned subsidiary, Southern Shores, provides water services to approximately 56,000 retail customers for residential, commercial and fire protection purposes in over 460 separate communities

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in New Castle, Kent and Sussex Counties, Delaware. The Tidewater System produced approximately 26% of our 2022 consolidated operating revenues.

 

USA-PA

 

USA-PA operates the City of Perth Amboy, New Jersey’s (Perth Amboy) water and wastewater systems under a 10-year agreement, which expires in December 2028. In addition to performing day-to day operations, USA-PA is also responsible for emergency responses and management of capital projects funded by Perth Amboy. USA-PA produced approximately 4% of our 2022 consolidated operating revenues.

 

Pinelands Systems

 

Pinelands Water provides water services to approximately 2,500 residential customers in Burlington County, New Jersey. Pinelands Water is not physically interconnected with the Middlesex System. Pinelands Water produced approximately 1% of our 2022 consolidated operating revenues.

 

Pinelands Wastewater provides wastewater collection and treatment services to approximately 2,500 residential customers. Under contract, it also services one municipal wastewater system in Burlington County, New Jersey with approximately 200 residential customers. Pinelands Wastewater produced approximately 1% of our 2022 consolidated operating revenues.

 

USA

 

USA operates the Borough of Avalon, New Jersey’s (Avalon) water utility, sewer utility and storm water system under a ten-year operations and maintenance contract expiring in 2032. In addition to performing day-to-day service operations, USA is responsible for emergency responses and management of capital projects funded by Avalon.

 

USA operates the Borough of Highland Park, New Jersey’s (Highland Park) water utility and sewer utility under a ten-year operations and maintenance contract expiring in 2030.

 

USA also provides water and wastewater services to several other New Jersey municipalities under contracts that are not regulated by a public utility commission as to rates and service.

 

Under a marketing agreement with HomeServe USA Corp. (HomeServe) expiring in 2031, USA offers residential customers in New Jersey and Delaware various water and wastewater related home maintenance programs. USA receives a service fee for the billing, cash collection and other administrative matters associated with HomeServe’s service contracts.

 

USA produced approximately 2% of our 2022 consolidated operating revenues.

 

White Marsh

 

White Marsh operates or maintains water and/or wastewater systems that serve approximately 4,500 service connections under 30 separate contracts. White Marsh also owns two commercial properties that are leased to Tidewater for its administrative office campus and its field operations center. White Marsh produced approximately 1% of our 2022 consolidated operating revenues.

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Financial Information

 

Consolidated operating revenues, operating income and net income are as follows:

 

 

   (Thousands of Dollars) 
   Years Ended December 31, 
   2022   2021   2020 
             
Operating Revenues  $162,434   $143,141   $141,592 
                
Operating Income  $47,333   $33,211   $37,420 
                
Net Income  $42,429   $36,543   $38,425 

 

Operating revenues were earned from the following sources:

 

   Years Ended December 31, 
   2022   2021   2020 
             
Residential   52.3%   54.3%   54.2%
Commercial   14.0    11.7    10.9 
Industrial   6.9    6.3    6.7 
Fire Protection   7.8    8.8    8.8 
Contract Sales   11.6    10.2    10.7 
Contract Operations   7.4    8.6    8.6 
Other   0.0    0.1    0.1 
Total   100.0%   100.0%   100.0%

 

Water Supplies and Contracts

 

Our New Jersey and Delaware water supply systems are physically separate and are not interconnected. In New Jersey, the Pinelands System and Bayview System are not interconnected with the Middlesex System or each other. We believe we have adequate sources of water supply to meet the current service requirements of our present customers in New Jersey and Delaware.

 

Middlesex System

 

Our Middlesex System produced approximately 14.2 billion gallons in 2022 from:

 

●The Carl J. Olsen Surface Water Treatment Plant (CJO Plant)-11.7 billion gallons;
●Twenty-seven Company-owned wells (ground water)-0.8 billion gallons, and;
●The balance purchased from a non-affiliated water utility regulated by the New Jersey Board of Public Utilities (NJBPU) under an agreement which expires February 27, 2026. This agreement provides for minimum purchases of 3.0 million gallons per day (mgd) of treated water with provisions for additional purchases.

 

In December 2021, Middlesex temporarily ceased pumping from its Company-owned wells at the Park Avenue Wellfield Treatment Plant in South Plainfield, New Jersey and alternate sources of supply were obtained in order to comply with new State of New Jersey water quality regulations relative to poly- and perfluoroalkyl substances, collectively referred to as PFAS that became effective in 2021.

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Prior to 2021, the Company began design for construction of an enhanced treatment process at the Park Avenue Wellfield Treatment Plant to meet the expected PFAS water quality standards anticipated to be enacted by the State of New Jersey, which at that time were unknown as to their timing and extent. In June 2022, a portion of the enhanced treatment process was completed, placed into service and is effectively treating the ground water in compliance with all state and federal drinking water standards.

 

The Middlesex System’s distribution storage facilities are used to supply water to customers at times of peak demand, outages and emergencies.

 

The principal source of surface water for the Middlesex System is the Delaware & Raritan Canal, which is owned by the State of New Jersey and operated by the New Jersey Water Supply Authority (NJWSA). Middlesex is under contract with the NJWSA, which expires November 30, 2023, and provides for average purchases of 27.0 mgd of untreated water from the Delaware & Raritan Canal, augmented by the Round Valley/Spruce Run Reservoir System. The untreated surface water is pumped to, and treated at, the CJO Plant.

 

Water supply to customers of the Bayview System is derived from two wells, which produced approximately 6.4 million gallons in 2022.

 

Tidewater System

 

Our Tidewater System produced approximately 2.8 billion gallons in 2022, primarily from 178 wells. Tidewater expects to submit applications to Delaware regulatory authorities for the approval of additional wells as growth, customer demand and water quality warrant. Tidewater augments its water production with annual minimum purchases of 15.0 million gallons of treated water under contract from the City of Dover, Delaware. Tidewater does not have a central water treatment facility for the over 460 separate communities it serves. As the number has grown, many of Tidewater’s individual systems have been interconnected, forming several regional systems that are served by multiple water treatment facilities owned by Tidewater. 

 

Pinelands Water System

 

Water supply to our Pinelands Water System is derived from four wells which produced approximately 139.6 million gallons in 2022. The aggregate pumping capacity of the four wells is 2.2 mgd.

 

Wastewater Facilities

 

Pinelands Wastewater System

 

The Pinelands Wastewater System discharges into the South Branch of the Rancocas Creek through a wastewater treatment plant that provides clarification, sedimentation, filtration and disinfection. The total capacity of the plant is 0.5 mgd, and the system treated approximately 93.7 million gallons in 2022.

 

Human Capital Management

 

The Company strives to attract and retain employees by offering competitive compensation and benefits along with career development and training opportunities in a safe, supportive and inclusive work environment. Our mission, our business philosophy and the manner in which we deliver value for our customers, our shareholders and our employees is inherent in what we, as an enterprise, profess to be our core values of Respect, Integrity, Growth, Honesty and Teamwork. Our employees’ success is a key element of the Company’s success.

 

Workforce

 

As of December 31, 2022, the Company had 350 employees. None of our employees are subject to a collective bargaining agreement. We believe our employee relations are positive.

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Employee Compensation and Benefits

 

We offer comprehensive competitive employee compensation and benefit programs consistent with job functions, skill levels, experience, knowledge and geographic location. These programs are periodically independently evaluated by a nationally recognized consulting firm to gauge effectiveness and are benchmarked against industry peers and the overall markets in which we operate our businesses. Compensation increases and incentive compensation are based on merit, which is communicated to employees and documented in our bi-annual performance evaluation process. Benefits include a variety of programs to enhance employee overall physical, mental and financial health and well-being, including healthcare insurance, employer funded retirement savings plans, life insurance, disability insurance, accident insurance, tuition reimbursement, flu shots, wellness newsletters and webinars, flexible hybrid office and remote work capabilities, incentive programs for achieving fitness milestones, financial counseling, elder care assistance, substance abuse support and more.

 

Safety

 

The Company has implemented safety programs and management practices designed to promote a culture of safety to protect its employees. This includes required trainings for employees, as well as specific qualifications and certifications for certain operational employees. All employees have been empowered to report, and immediately stop, work which, in their personal judgement, is unsafe or is not consistent with our safety policies and procedures. They can take this action without fear of reprisal.

 

In response to the Coronavirus (COVID-19) pandemic, the Company continues to implement changes it determines are in the best interest of our employees and customers, as well as required to comply with government emergency orders and regulations. While the nature of our utility services business requires portions of our workforce to operate in the field and at treatment facilities, we employ and maintain a variety of processes to help ensure the safety of those employees and the public in light of the pandemic. For further discussion of the impact of the COVID-19 pandemic on the Company, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation, Coronavirus (COVID-19) Pandemic.

 

Employee Development and Training

 

The Company employs various training and other educational programs and has developed company-wide and project-specific training and educational programs, including tuition assistance for full-time employees enrolled in pre-approved undergraduate or graduate courses or professional licensing courses. All employees receive training to identify and report operational and financial risks, as well as risks to Company brand and reputation, which fosters a personal culture of accountability and reinforces our commitment to a safe and sustainable workplace. All employees receive cybersecurity training and other education regarding their use of sensitive data. Our Executive Management team and our Board of Directors continually assess succession plans, leadership development progress and policies and strategies regarding recruitment, retention, career development, diversity, equity and inclusion. Formalized succession planning strategies have been developed for key leadership positions.

 

Diversity, Equity & Inclusion (DEI)

 

The Company is committed to DEI based upon our belief that embracing DEI is consistent with our Company culture and benefits all stakeholders by maintaining a workforce with a variety of skills and perspectives as a result of their diverse backgrounds and experiences. The Company is a signatory to CEO Action for Diversity and Inclusion, a business led initiative which encourages companies to cultivate environments that support dialogue on DEI, implement and expand bias education and training and engage boards of directors in the development and evaluation of inclusion and diversity strategies. The Company also delivered various DEI trainings throughout 2022 to its entire employee base.

 

The Company is focused on recruitment and/or development of both external and internal candidates so that all prospective and current employees are provided an opportunity to advance their careers. We are intentional in our efforts to attract candidates from historically marginalized groups and seek a diverse pool of candidates for

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apprenticeships and internship opportunities. Statements on Diversity, Equity and Inclusion and our Human Rights Policy can be found on our website. We continue to monitor the results of our DEI efforts and continually explore opportunities to further engage our employees and customers.

 

Competition

 

Our business in our franchised service areas is substantially free from direct competition for growth with other public utilities, municipalities and other entities. However, our ability to provide contract wholesale water supply and operations and maintenance services that are not under the jurisdiction of a state public utility commission is subject to competition from other public utilities, municipalities and other entities. Although Tidewater has been granted exclusive franchises for its existing community water systems, the ability to expand service areas can be affected by the Delaware Public Service Commission (DEPSC) awarding franchises to other regulated water utilities with whom we compete for such franchises and for projects.

 

Regulation

  

Our rates charged to customers for utility services, the quality of the services we provide and certain other matters are regulated by the NJBPU and DEPSC (collectively, the Public Utility Commissions).

 

Our USA, USA-PA and White Marsh subsidiaries are not regulated public utilities as related to rates and service quality. However, they are subject to federal and state environmental regulations with respect to water quality and wastewater effluent quality to the extent such services are provided.

 

We are subject to environmental and water quality regulation by the following regulatory agencies (collectively, the Government Environmental Regulatory Agencies):

●United States Environmental Protection Agency (USEPA);
●New Jersey Department of Environmental Protection (NJDEP) with respect to operations in New Jersey; and
●Delaware Department of Natural Resources and Environmental Control, the Delaware Department of Health and Social Services-Division of Public Health (DEDPH), and the Delaware River Basin Commission with respect to operations in Delaware.

 

In addition, our issuances of equity securities are subject to the prior approval of the NJBPU and require registration with the Securities & Exchange Commission (SEC). Our issuances of long-term debt securities are subject to the prior approval of the respective state Public Utility Commissions.

 

Regulation of Rates and Services

 

For regulated rate setting purposes, we account separately for our regulated utility operations to facilitate independent rate setting by the applicable Public Utility Commissions.

 

In determining our regulated utility rates, the respective Public Utility Commissions consider the revenue, expenses and utility infrastructure used and useful in providing service to the public. Rate determinations by the respective Public Utility Commissions do not guarantee achievement by our regulated utility companies of specific rates of return for our regulated utility operations. Thus, we may not achieve the rates of return authorized by the Public Utility Commissions. In addition, there can be no assurance that any future rate increases will be granted or, if granted, that they will be in the amounts requested.

 

Middlesex Rate Matters

 

In December 2021, Middlesex’s petition to the NJBPU seeking permission to increase its base water rates was concluded, based on a negotiated settlement, resulting in an expected increase in annual operating revenues of $27.7 million. The approved tariff rates were designed to recover increased operating costs, as well as a return on invested capital of $513.5 million, based on an authorized return on common equity of 9.6%. The increase was implemented in two phases with $20.7 million of the increase effective January 1, 2022 and the remaining $7.0 million effective

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January 1, 2023. As part of the negotiated settlement, the Purchased Water Adjustment Clause (PWAC), which is a rate mechanism that allows for recovery of increased purchased water costs between base rate case filings, was reset to zero.

 

In September 2022, the NJBPU approved Middlesex's Emergency Relief Motion to permit Middlesex to reset its PWAC tariff rate to recover additional costs of $2.7 million for the purchase of treated water from a non-affiliated regulated water utility. The increase, effective October 1, 2022, is on an interim basis and subject to refund, with interest, pending final resolution expected in the second quarter of 2023.

 

In March 2021, the NJBPU approved Middlesex’s annual petition to reset its PWAC tariff rate to recover additional costs of $1.1 million for the purchase of treated water from a non-affiliated regulated water utility.  The new PWAC rate became effective April 4, 2021.

 

Tidewater Rate Matters

 

On August 31, 2022, the DEPSC issued an Order requiring Tidewater to reduce its base rates charged to general metered and private fire customers by 6%, effective for service rendered on and after September 1, 2022. In June 2022, the Delaware Division of the Public Advocate had filed a petition with the DEPSC requesting that Tidewater’s rates be reduced based on the claim that Tidewater had been earning above its authorized rate of return. The rate reduction is expected to reduce annual revenues by approximately $2.2 million.

 

In March 2021, Tidewater was notified by the DEPSC that it had determined Tidewater’s earned rate of return exceeded the rate of return authorized by the DEPSC. Consequently, Tidewater reset its Distribution System Improvement Charge (DSIC) rate to zero effective April 1, 2021 and refunded approximately $1.0 million to customers primarily in the form of an account credit for DSIC revenue previously billed between April 1, 2020 and March 31, 2021. 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.

 

Pinelands Rate Matters

 

In September 2022, Pinelands Water and Pinelands Wastewater filed separate petitions with the NJBPU seeking permission to increase base rates by approximately $0.6 million and $0.4 million per year, respectively. These requests were necessitated by capital infrastructure investments both companies have made, or have committed to make, and increased operations and maintenance costs. We cannot predict whether the NJBPU will ultimately approve, deny, or reduce the amount of the requests. A decision by the NJBPU in both matters is expected in the first quarter of 2023.

 

Southern Shores Rate Matters

 

Effective January 1, 2020, the DEPSC approved the renewal of a multi-year agreement for water service to a 2,200 unit condominium community we serve in Sussex County, Delaware.  Under the agreement, current rates were to remain in effect until December 31, 2024, unless there are unanticipated capital expenditures or regulatory related changes in operating expenses exceeding certain thresholds during this time period. In 2022, capital expenditures did exceed the established threshold and rates were increased by 5.39%, effective January 1, 2023. Beginning in 2025 and thereafter, inflation based rate increases cannot exceed the lesser of the regional Consumer Price Index or, 3%. Inflation based increases are in addition to the threshold rate increases. This agreement expires on December 31, 2029.

 

Future Rate Filings

 

Management monitors the need for rate relief for our regulated entities on an ongoing basis. When capital improvements and/or increases in operation, maintenance or other costs indicate a need for rate relief, base rate increase requests are filed with the respective Public Utility Commissions.

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Regulatory Service Matters

 

Twin Lakes Utilities, Inc. (Twin Lakes) provides water services to approximately 115 residential customers in Shohola, Pennsylvania. Pursuant to the Pennsylvania Public Utility Code, Twin Lakes filed a petition requesting the Pennsylvania Public Utilities Commission (PAPUC) to order the acquisition of Twin Lakes by a capable public utility. The PAPUC assigned an Administrative Law Judge (ALJ) to adjudicate the matter and submit a recommended decision (Recommended Decision) to the PAPUC. As part of this legal proceeding the PAPUC also issued an Order in January 2021 appointing a large Pennsylvania based investor-owned water utility as the receiver (the Receiver Utility) of the Twin Lakes system until the petition is fully adjudicated by the PAPUC.   In November 2021, the PAPUC issued an Order affirming the ALJ’s Recommended Decision, ordering the Receiver Utility to acquire the Twin Lakes water system and for Middlesex to submit $1.7 million into an escrow account within 30 days. Twin Lakes immediately filed a Petition For Review (PFR) with the Commonwealth Court of Pennsylvania (the Pennsylvania Court) seeking reversal and vacation of the escrow requirement on the grounds that it violates the Pennsylvania Public Utility Code as well as the United States Constitution. In addition, Twin Lakes filed an emergency petition for stay of the PAPUC Order pending the Pennsylvania Court’s review of the merits arguments contained in Twin Lakes’ PFR. In December 2021, the Pennsylvania Court granted Twin Lakes’ emergency petition, pending its review. In August 2022, the Commonwealth Court issued an opinion upholding PAPUC’s November 2021 Order in its entirety. In September 2022, Twin Lakes filed a Petition For Allowance of Appeal to the Supreme Court of Pennsylvania seeking reversal of the Commonwealth Court’s decision to uphold the escrow requirement on the grounds that the Pennsylvania Court erred in failing to address Twin Lakes’ constitutional claims. The timing of the final decision by the Supreme Court of Pennsylvania and the final adjudication of this matter cannot be predicted at this time.

 

The financial results, total assets and financial obligations of Twin Lakes are not material to Middlesex.

 

COVID-19 Pandemic

 

The NJBPU and the DEPSC have allowed for potential future recovery in customer rates of incremental costs related to the COVID-19 pandemic. The Company has not deferred any COVID-19 related incremental costs. Neither jurisdiction has yet to establish a timeline or definitive formal procedures for seeking cost recovery (for further discussion of the impact of COVID-19 on the Company, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, Coronavirus (COVID-19)).

 

Water and Wastewater Quality and Environmental Regulations

 

Government environmental regulatory agencies regulate our operations in New Jersey and Delaware with respect to water supply, treatment and distribution systems and the quality of the water.  They also regulate our operations with respect to wastewater collection, treatment and disposal.

 

Regulations relating to water quality require us to perform tests to ensure our water meets state and federal quality requirements. In addition, government environmental regulatory agencies continuously review current regulations governing the limits of certain organic compounds found in the water as byproducts of the treatment process. We participate in industry-related research to identify technologies that may reduce the level of organic, inorganic and synthetic compounds found in water. The cost to water utilities to comply with any proposed water quality standards depends in part on the limits set in the regulations and on the method selected to treat the water to the required standards. We regularly test our water to determine compliance with government environmental regulatory agencies’ water quality standards.

 

In September 2021, the NJDEP issued a Notice of Non-Compliance (Notice) to Middlesex based on self-reporting by Middlesex that the level of Perfluorooctanoic Acid (PFOA) in water treated at its Park Avenue Wellfield Treatment Plant in South Plainfield, New Jersey exceeded a recently promulgated NJDEP standard effective in 2021. The NJDEP standard for PFOA was developed based on a Health-based Maximum Contaminant Level of 14 parts per trillion. Neither the NJDEP nor Middlesex characterized this exceedance as an acute health threat.

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However, Middlesex was required to notify its affected customers and complied in November 2021 as required by the regulation.

 

The Notice further required the Company to take any action necessary to comply with the new standard by September 7, 2022. Prior to 2021, the Company began design for construction of an enhanced treatment process at the Park Avenue Wellfield Treatment Plant to meet the expected PFAS water quality standards anticipated to be enacted by the State of New Jersey, which at that time were unknown as to their timing and extent. Since completion was not expected until mid-2023, in December 2021, the Company implemented an interim solution to meet the Notice requirements. The Park Avenue Wellfield Treatment Plant was temporarily taken off-line and alternate sources of supply were obtained. Simultaneously, the Company accelerated a portion of the enhanced treatment project to allow a restart of the Park Avenue Wellfield Treatment Plant ahead of historical higher water demand periods during the summer months.

 

In June 2022, a portion of the enhanced treatment process was completed, placed into service and is effectively treating the ground water in compliance with all state and federal drinking water standards.

 

In addition to the enhanced groundwater treatment process for PFAS, we treat the groundwater supplies in our Middlesex System with chlorination for primary disinfection purposes and use air stripping for removal of volatile organic compounds.

 

Surface water treatment in our Middlesex System is by conventional treatment; coagulation, sedimentation and filtration. The treatment process includes pH adjustment, ozone and chlorination for disinfection, and corrosion control for the distribution system.

 

Treatment of groundwater in our Tidewater System is by chlorination for disinfection purposes and, in some cases, pH adjustment and filtration for nitrate and iron removal and granular activated carbon filtration for organics removal. Chloramination is used for final disinfection at Southern Shores.

 

Treatment of groundwater in the Pinelands Water and Bayview Systems (primary disinfection only) is performed at individual well sites.

 

Treatment of wastewater in the Pinelands Wastewater System includes the use of rotating biological contactors.  

 

The NJDEP and DEDPH monitor our activities and review the results of water quality tests that are performed for adherence to applicable regulations. Other applicable regulations include the Federal Lead and Copper Rule, the Federal Surface Water Treatment Rule and the Federal Total Coliform Rule and regulations for maximum contaminant levels established for various volatile organic compounds.

 

The Company  must comply with various environmental laws and regulations promulgated by the USEPA, NJDEP and other governmental agencies, including the Toxic Catastrophe Prevention Act, the Spill Prevention, Control, and Countermeasure Rule and the Discharge Prevention Program of the New Jersey Spill Compensation and Control Act. 

 

Seasonality

 

Customer demand for our water during the warmer months is generally greater than other times of the year due primarily to additional consumption of water in connection with irrigation systems, swimming pools, cooling systems and other outside water use. Throughout the year, and particularly during typically warmer months, demand may vary with temperature and rainfall timing and overall levels. In the event that temperatures during the typically warmer months are cooler than normal, or if there is more rainfall than normal, the customer demand for our water may decrease and therefore, adversely affect our revenues.

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Management

 

This table lists information concerning our executive management team:

Name   Age   Principal Position(s)
Dennis W. Doll   64   President, Chief Executive Officer and Chairman of the Board of Directors
A. Bruce O’Connor   64   Senior Vice President, Treasurer and Chief Financial Officer
G. Christian Andreasen, Jr.   63   Vice President-Enterprise Engineering
Robert K. Fullagar   56   Vice President-Operations
Lorrie B. Ginegaw   47   Vice President-Human Resources
Jay L. Kooper   50   Vice President-General Counsel and Secretary
Georgia M. Simpson   49   Vice President-Information Technology
Bernadette M. Sohler   62   Vice President-Corporate Affairs

 

Dennis W. Doll – Mr. Doll joined the Company as Executive Vice President in November 2004 and was named President and Chief Executive Officer, and a Director of Middlesex, effective January 1, 2006.  In May 2010, he was elected Chairman of the Board, also serving as Chairman of the Boards of the Company’s subsidiary companies. He is a Past President of the National Association of Water Companies and past Chairman of the Board of the New Jersey Utilities Association, representing the state’s electric, gas, water and telecommunications industries. He is a past Chairman of the Board of The Water Research Foundation where he continues to serve as Director Emeritus, and has served as a Director and member of the Executive Committee of the Board of Directors of the American Water Works Association. He presently serves as Treasurer and member of the Board of Court Appointed Special Advocates of Middlesex County, NJ serving the needs of children living in foster care.

 

A. Bruce O’Connor – Mr. O’Connor, a Certified Public Accountant, joined the Company in 1990 and was named Vice President and Chief Financial Officer in 1996 and Treasurer in 2014. On January 1, 2019, Mr. O’Connor was appointed Senior Vice President of Middlesex and President of Tidewater and White Marsh. Mr. O’Connor is also the principal financial officer and a Director of all Middlesex subsidiaries.

 

G. Christian Andreasen, Jr. – Mr. Andreasen, a licensed professional engineer, joined the Company in 1982, was named Assistant Vice President-Enterprise Engineering in January 2019 and promoted to Vice President-Enterprise Engineering in July 2019. He is President and a Director of Pinelands Water and Pinelands Wastewater. Mr. Andreasen serves as a Member and Vice Chair of the NJDEP’s Water Supply Advisory Council.

 

Robert K. Fullagar – Mr. Fullagar, a licensed professional engineer, joined the Company in 1997, was named Assistant Vice President-Operations in January 2019 and promoted to Vice President-Operations in July 2019. He is President and a Director of USA-PA, USA and Twin Lakes. Mr. Fullagar serves as Sector Chair of the New Jersey Infrastructure Advisory Committee. 

 

Lorrie B. Ginegaw – Ms. Ginegaw joined Tidewater in 2004 and in 2007 was promoted to Director of Human Resources for Middlesex. In March 2012, Ms. Ginegaw was named Vice President-Human Resources. Prior to joining the Company, Ms. Ginegaw worked in various human resources positions in the healthcare and transportation/logistics industries. Ms. Ginegaw serves as a volunteer director on the Board of the New Jersey Utilities Association.

 

Jay L. Kooper – Mr. Kooper joined the Company in 2014 as Vice President and General Counsel and serves as Secretary for the Company and all subsidiaries. Prior to joining the Company, Mr. Kooper held various positions in private and public entities as well as in private law practice, representing electric, gas, water, wastewater, telephone and cable companies as well as municipalities and private clients before 17 state public utility commissions and legislatures, federal agencies and federal and state appellate courts.  Mr. Kooper serves as a volunteer director on selected non-profit utility industry-related Boards including the National Association of Water Companies (current Director and Chairman of the New Jersey Chapter) and the New Jersey State Bar Association’s Public Utility Law Section (current Consultor and Past Chairman) and on other non-profit boards based in New

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Jersey, including as President of Temple B’Nai Abraham in Livingston, New Jersey and as a Director of the Crohn’s and Colitis Foundation’s New Jersey Chapter.

 

Georgia M. Simpson – Ms. Simpson joined the Company in 2009, was named Assistant Vice President-Information Technology in January 2019 and promoted to Vice President- Information Technology in July 2019. In April 2022, Ms. Simpson was named Chief Technology Officer. Prior to joining the Company, Ms. Simpson held various Information Technology positions and has gained an extensive array of technical and business computer certifications.  Ms. Simpson serves as a member of the Delaware Cyber Security Advisory Council, the Society for Information Management, New Jersey chapter and the Project Management Institute, New Jersey chapter.

 

Bernadette M. Sohler – Ms. Sohler joined the Company in 1994 and was named Vice President-Corporate Affairs in March 2007. She also serves as Vice President of USA. Prior to joining the Company, Ms. Sohler held marketing and public relations management positions in the financial services industry. Ms. Sohler serves as a volunteer director on area Chambers of Commerce and several other non-profit Boards and is the former Chair of the New Jersey Utilities Association’s Communications Committee.

 

ITEM 1A.RISK FACTORS.

 

Operational Risks

 

Weather conditions and overuse of underground aquifers may interfere with our sources of water, demand for water services and our ability to supply water to customers.

 

Our ability to meet current and future water demands of our customers depends on the availability of an adequate supply of water. Unexpected conditions may interfere with our water supply sources. Drought and overuse of underground aquifers may limit the availability of ground and/or surface water. Freezing weather may also contribute to water transmission interruptions caused by water main breakage. Any interruption in our water supply could cause a reduction in our revenue and profitability. These factors may adversely affect our ability to supply water in sufficient quantities to our customers. Governmental drought restrictions may result in decreased customer demand for water services and can adversely affect our revenue and earnings.

 

Our water sources or water service provided to customers may become contaminated by naturally-occurring or man-made compounds and events. This may cause disruption in services and impose operational and regulatory enforcement costs upon us to restore the water to required levels of quality as well as may damage our reputation and cause private litigation claims against us.

 

Our sources of water or water in our distribution systems may become contaminated by naturally-occurring or man-made compounds or other events. In the event that any portion of our water supply sources or water distribution systems is contaminated, we may need to interrupt service to our customers until we are able to remediate the contamination or substitute the flow of water from an uncontaminated water source through existing interconnections with other water purveyors or through our transmission and distribution systems, where possible. We may also incur significant costs in treating any contaminated water, or remediating the effects on our treatment and distribution systems, through the use of our current treatment facilities, or development of new treatment methods. Our inability to substitute water supply from an uncontaminated water source, or to adequately treat the contaminated water supply in a cost-effective manner, may reduce our revenues or increase our expenses and make us less profitable.

 

We may be unable to recover costs associated with treating water supplies through rates or, recovery of these costs may not occur in a timely manner. In addition, we could be subject to claims for damages arising from government enforcement actions or legal actions arising out of interruption of service or perceived human exposure to hazardous substances in our drinking water and water supplies. Such costs could adversely affect our financial results.

 

Contamination of the water supply or the water service provided to our customers could result in substantial injury or damage to our customers, employees or others and we could be exposed to substantial claims and litigation, which are inherently subject to uncertainties and are potentially subject to unfavorable regulatory and/or legal

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actions. Negative impacts to our profitability and/or our reputation may occur even if we are not responsible for the contamination or the consequences arising out of human exposure to contamination or hazardous substances in the water supplies. Pending or future claims against us could have a material adverse impact on our financial condition, results of operations and cash flows.

 

The necessity for ongoing physical and technological security has resulted, and may continue to result, in increased operating costs.

 

Because of physical and technological threats to the health and security of the United States of America, we employ procedures to review and modify security measures. We provide ongoing training and communications to our employees about threats to our water supply, our assets and related systems and our employees’ personal safety. We have incurred, and will continue to incur, costs for security measures in efforts to protect against such risks.

 

Climate variability may cause weather volatility in the future, which may impact water usage and related revenue or, may require additional expenditures to reduce risk associated with any increasing storm, flood, drought or other weather occurrences.

 

Increased climate variability may cause increased precipitation and flooding, increased frequency and severity of storms and other weather events, potential degradation of water quality, decreases in available water supply, changes in water usage patterns and disruptions in service. Because of the uncertainty of weather volatility related to climate variability, we cannot predict its potential impact on our financial condition, results of operations, cash flows and liquidity.  Although some or all potential expenditures and costs with respect to our regulated businesses could be recovered through rates we charge to our customers, there can be no assurance that the NJBPU or the DEPSC would authorize recovery of such costs, in whole or in part.

 

Regulatory Risks

 

Our revenue and earnings depend on the rates we charge our customers. We cannot raise utility rates in our regulated businesses without petitioning the appropriate Utility Commissions. If these agencies modify, delay or deny our petition, our revenues will not increase and our earnings will decline unless we are able to reduce costs without degrading service quality.

 

The NJBPU regulates our public utility companies in New Jersey with respect to rates and charges for service, classification of accounts, awards of new service territory, acquisitions, financings and other matters. That means, for example, that we cannot raise the utility rates we charge to our customers without first petitioning the NJBPU and navigating a lengthy administrative process. Similarly, the DEPSC regulates our public utility companies in Delaware. We cannot provide assurance as to when we will request approval for any such matter, nor can we predict whether these Utility Commissions will approve, deny or reduce the amount of such requests.

 

Certain costs are not completely within our control. The failure to obtain any rate increase would prevent us from increasing our revenues and, unless we are able to reduce costs without degrading service quality, would result in reduced earnings.

 

We are subject to environmental laws and regulations, including water quality and wastewater effluent quality regulations, as well as other state and local regulations. Compliance with those laws and regulations requires us to incur costs and we are subject to fines or other sanctions for non-compliance.

 

Government environmental regulatory agencies regulate our operations in New Jersey and Delaware with respect to water supply, treatment and distribution systems and the quality of water. Government environmental regulatory agencies also regulate our operations in New Jersey and Delaware with respect to wastewater collection, treatment and disposal.

 

Government environmental regulatory agencies’ regulations relating to water quality require us to perform expanded types of testing to ensure our water meets state and federal water quality requirements. We are subject to USEPA regulations under the Federal Safe Drinking Water Act and under the Federal Clean Water Act regarding

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wastewater services. Regulations under the Safe Drinking Water Act include the Lead and Copper Rule, the maximum contaminant levels established for various volatile organic compounds, the Federal Surface Water Treatment Rule and the Total Coliform Rule. There are also similar NJDEP regulations for our New Jersey water systems. The NJDEP and DEDPH a monitor our activities and review the results of water quality tests we perform for adherence to applicable regulations. In addition, Government Environmental Regulatory Agencies are continually reviewing regulations governing the limits of certain organic compounds found in the water as byproducts of treatment.

 

We are also subject to regulations related to fire protection services in New Jersey and Delaware. In New Jersey there is no state-wide fire protection regulatory agency. However, New Jersey regulations exist as to the size of piping required regarding the provision of fire protection services. In Delaware, fire protection is regulated statewide by the Office of State Fire Marshal.

 

The cost of compliance with the water and wastewater effluent quality standards depends in part on the limits set in the regulations and on the methods selected to comply with these standards. If new or more restrictive standards are imposed, the cost of compliance could increase and therefore, have an adverse impact on our revenues and results of operations if we cannot recover those costs through the rates we charge our customers. The cost of compliance with fire protection requirements could also increase and make us less profitable if we cannot recover those costs through our rates charged to our customers.

The Company  must comply with various environmental laws and regulations promulgated by the USEPA, NJDEP and other governmental agencies, including the Toxic Catastrophe Prevention Act, the Spill Prevention, Control, and Countermeasure Rule and the Discharge Prevention Program of the New Jersey Spill Compensation and Control Act. If we fail to comply with environmental or other laws and regulations to which our business is subject, we could be fined or subject to other sanctions, which could adversely impact our business or results of operations.

 

Financial Risks

 

We depend upon our ability to raise money in the capital markets to finance some of the costs of complying with laws and regulations, including environmental laws and regulations or to pay for some of the costs of improvements to or the expansion of our utility system assets. Our regulated utility companies cannot issue debt or equity securities without prior regulatory approval.

 

We require financing from external sources to fund the ongoing capital program for the improvement in our utility system assets and for planned expansion of those systems. We expect to spend approximately $266 million for capital projects through 2025. We must obtain prior approval from our economic regulators to sell debt or equity securities to raise capital for these projects. If sufficient capital is not available, or the cost of capital is too high, or if the regulatory authorities deny our petition to sell debt or equity securities, we may not be able to meet the costs of complying with environmental laws and regulations or the costs of improving and expanding our utility system assets to the level we believe operationally prudent. This may result in the imposition of fines from environmental regulators or restrictions on our operations which could curtail our ability to upgrade or replace utility system assets.

 

We face competition from other utilities and service providers which might hinder our growth opportunities and mitigate our future profitability.

 

We face risks of competition from other utilities or other entities authorized by federal, state or local agencies to expand rate-regulated or contracted utility services. Once a state utility regulator grants a franchise to a public utility to serve a specific territory, that utility effectively has an exclusive right to service that territory. Although a new franchise offers some protection against competitors, the pursuit of franchises is often competitive, particularly in Delaware, where new franchises may be awarded to utilities based upon competitive negotiation. Competing entities have challenged, and may challenge in the future, our applications for new franchises. Also, third parties entering into agreements to operate municipal utility systems may adversely affect the management of our long-term agreements to supply water or wastewater services on a contract basis to those municipalities, which could adversely affect our financial results.

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We have short-term and long-term contractual obligations for water, wastewater and storm water system operation and maintenance under which we may incur costs in excess of payments received.

 

USA-PA and USA operate and maintain water and wastewater systems for three New Jersey municipalities under 10-year contracts expiring in 2028, 2030 and 2032, respectively. These contracts do not protect us against incurring costs in excess of revenues we earn pursuant to the contracts. There can be no absolute assurance we will not experience losses resulting from these contracts. Losses under these contracts, or our failure or inability to perform or renew such agreements, may have a material adverse effect on our financial condition and results of operations.

 

Capital market conditions and key assumptions may adversely impact the value of our postretirement benefit plan assets and liabilities.

 

Market factors can adversely affect the rate of return on assets held in trusts to satisfy our future postretirement benefit obligations, as well negatively affect interest rates, which impacts the discount rates used in the determination of our postretirement benefit actuarial valuations. In addition, changes in demographics, such as increases in life expectancy assumptions, can increase future postretirement benefit obligations. Any negative impact to these factors, either individually or a combination thereof, may have a material adverse effect on our financial condition and results of operations.

 

An element of our growth strategy is the acquisition of water and wastewater assets, operations, contracts or companies. Any pending or future acquisitions we decide to undertake will involve risks.

 

The acquisition and/or operation of water and wastewater systems is an element of our growth strategy. This strategy depends on identifying suitable opportunities that meet our risk/reward profile and reaching mutually agreeable terms with acquisition candidates or contract parties. Further, acquisitions may result in dilution in the value of our equity securities, incurrence of debt and contingent liabilities and fluctuations in financial results. In addition, the assets, operations, contracts or companies we acquire may not achieve the revenues and profitability projected.

 

Our ability to achieve organic customer growth in our market area is dependent on the residential building market. New housing starts and home sale closings are one element that impacts our rate of growth and therefore, may not meet our expectations.

 

We expect our revenues to increase from customer growth for our regulated water operations as a result of anticipated construction, sale and close of new housing units. If housing starts decline, or do not increase as we have projected, or home sales closing cycle times increase as a result of economic conditions or otherwise, the timing and extent of our organic revenue growth may not meet our expectations, our deferred project costs may not produce revenue-generating projects in the timeframes anticipated and our financial results could be negatively impacted.

 

There can be no assurance we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.

 

We have paid dividends on our common stock each year since 1912 and have increased the amount of dividends paid each year since 1973. Our earnings, financial condition, capital requirements, applicable regulations and other factors, including the timeliness and adequacy of rate increases, will determine both our ability to pay dividends and the amount of those dividends. There can be no assurance we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.

 

If we are unable to pay the principal and interest on our indebtedness as it comes due or we default under certain other provisions of our loan documents, our indebtedness could be accelerated and our results of operations and financial condition could be adversely affected.

 

Our ability to pay the principal and interest on our indebtedness as it comes due will depend upon our current and future performance. Our performance is affected by many factors, some of which are beyond our control.

 

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We believe cash generated from operations and, if necessary, borrowings under existing credit facilities, will be sufficient to enable us to make our debt payments as they become due. If, however, we do not generate sufficient cash, we may be required to refinance our obligations or sell additional equity, which may be on terms that are less favorable than we desire.

 

No assurance can be given that any refinancing or sale of equity will be possible when needed, or that we will be able to negotiate acceptable terms. In addition, our failure to comply with certain provisions contained in our trust indentures and loan agreements relating to our outstanding indebtedness could lead to a default under these documents, which could result in an acceleration of our indebtedness.

 

Our business is subject to seasonal fluctuations, which could affect demand for our water service and our revenues.

 

Demand for our water during the warmer months is generally greater than during colder months due primarily to additional consumption of water in connection with irrigation systems, swimming pools, cooling systems and other outdoor water use. Throughout the year, and particularly during typically warmer months, demand may vary with temperature and rainfall levels. In the event that temperatures during the typically warmer months are cooler than normal, or if there is more rainfall than normal, the demand for our water may decrease and adversely affect our revenues.

 

General economic conditions may materially and adversely affect our financial condition and results of operations.

 

Adverse economic conditions could negatively impact our customers’ water usage demands, particularly the level of water usage demand by our commercial and industrial customers in our Middlesex System. If water demand by our commercial and industrial customers in our Middlesex System decreases, our financial condition and results of operations could be negatively impacted until completion of a subsequent base rate filing.

 

The current concentration of our business in central New Jersey and in Delaware makes us susceptible to adverse developments in local regulatory, economic, demographic, competitive and weather conditions.

 

Our Middlesex System provides water services to customers located primarily in eastern Middlesex County, New Jersey. Water service is provided under wholesale contracts to the Townships of Edison, East Brunswick and Marlboro, the Borough of Highland Park, the Old Bridge Municipal Utilities Authority and the City of Rahway. We also provide water services to customers in the State of Delaware. Our revenues and operating results are therefore subject to local regulatory, economic, demographic, competitive and weather conditions in a relatively concentrated geographic area. A change in any of these conditions could make it more costly for us to conduct our business.

 

We are subject to anti-takeover measures that may be used to discourage, delay or prevent changes of control that might benefit non-management shareholders.

 

Subsection 10A of the New Jersey Business Corporation Act, known as the New Jersey Shareholders Protection Act, applies to us. The Shareholders Protection Act deters merger proposals, tender offers or other attempts to effect changes in control that are not approved by our Board of Directors. In addition, we have a classified Board of Directors, which means only a portion of the Director population is elected each year. A classified Board can make it more difficult for an acquirer to gain control of the Company by voting its candidates onto the Board of Directors and may also deter merger proposals and tender offers. Our Board of Directors also has the ability, subject to obtaining NJBPU approval, to issue one or more series of preferred stock having such number of shares, designation, preferences, voting rights, limitations and other rights as the Board of Directors may fix. This could be used by the Board of Directors to discourage, delay or prevent an acquisition the Board of Directors determines is not in the best interest of the common shareholders.

 

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General Risks

 

We rely on our information technology systems to help manage our operations.

 

Our information technology systems require periodic modifications, upgrades and/or replacement which subject us to costs and risks including potential disruption of our internal control structure, substantial unanticipated capital expenditures, additional operating expenses, retention of sufficiently skilled personnel and other risks in transitioning to new systems or integrating new systems. A failure to modify, upgrade or replace our information technology systems could have an adverse impact on our business. In addition, challenges implementing new technology systems may cause disruptions in our business operations and have an adverse effect on our business operations.

 

Our information technology systems may be subject to physical and cyber attacks.

 

We rely on our computer, information and communications technology systems in connection with the operation of our business, especially with respect to customer service and billing, accounting and, in some cases, the monitoring and operation of our operating facilities.  Our computer and communications systems and operations could be damaged or interrupted by natural disasters, cyber-attacks, power loss and internet, telecommunications or data network failures or acts of war or terrorism or similar events or disruptions.  Any of these or other events could cause service interruption, delays and loss of critical data or, impede aspects of operations and therefore, adversely affect our financial results.

 

Cyber-attacks could result in the loss, or compromise, of customer, financial or operational data, disruption of billing, collections or normal field service activities, disruption of electronic monitoring and control of operational systems and delays in financial reporting and other management functions. Possible impacts associated with a cyber-incident may include remediation costs related to lost, stolen, or compromised data, repairs to data processing systems, increased cyber security protection costs, adverse effects on our compliance with regulatory and environmental laws and regulations, including standards for drinking water, litigation and reputational damage.

 

The COVID-19 pandemic and the attempt to contain it may harm our business, results of operations, financial condition and liquidity.

 

In January 2023, the United States Secretary of Health and Human Services renewed the determination that a nationwide health emergency exists as a result of the COVID-19 Pandemic with an announced end to the declared health emergency on May 11, 2023. While the Company’s operations and capital construction program have not been materially disrupted to date from the pandemic, the impact on economic conditions nationally and the areas the Company operates continues to be uncertain and could affect the Company’s results of operations, financial condition and liquidity in the future.

 

We depend significantly on the technical and management services of our team, and the departure of any of certain persons could cause our operating results to temporarily be short of our expectations.

 

Our success depends significantly on the continued individual and collective contributions of our team. If we lose the services of certain members of our team, or are unable to attract and retain qualified personnel in key roles, our operating results could be negatively impacted.

 

ITEM 1B.UNRESOLVED STAFF COMMENTS.

 

None.

 

ITEM 2.PROPERTIES.

 

Utility Plant

 

The water utility plant in our systems consists of source of supply, pumping, water treatment, transmission and distribution, general facilities and all appurtenances, including all connecting pipes.

 

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The wastewater utility plant in our systems consist of pumping, treatment, collection mains, general facilities and all appurtenances, including all connecting pipes.

 

We believe our water and wastewater utility plant facilities are sufficient for the operations of the Company.

 

Middlesex System

 

The Middlesex System’s principal source of surface supply is the Delaware & Raritan Canal owned by the State of New Jersey and operated as a water resource by the NJWSA.

 

Water is withdrawn from the Delaware & Raritan Canal at New Brunswick, New Jersey through our intake and pumping station, located on state-owned land bordering the canal. Water is transported through two raw water pipelines for treatment and distribution at our CJO Plant in Edison, New Jersey.

 

The CJO Plant includes chemical storage and chemical feed equipment, two dual rapid mixing basins, four upflow clarifiers which are also called superpulsators, two ozone contactors, twelve rapid filters containing gravel, sand and anthracite for water treatment and a steel washwater tank. The CJO Plant also includes a computerized Supervisory Control and Data Acquisitions system to monitor and control the CJO Plant and the water supply and distribution system in the Middlesex System. There is a State of New Jersey certified on-site laboratory capable of performing bacteriological, chemical, process control and advanced instrumental chemical sampling and analysis. The firm design capacity of the CJO Plant is 55 mgd (60 mgd maximum capacity). The five electric motor-driven, vertical turbine pumps presently installed have an aggregate capacity of 85 mgd.

 

In addition, there is a 15 mgd auxiliary pumping station on-site at the CJO Plant location. It has a dedicated substation and emergency power supply provided by a diesel-driven generator. It pumps from the 10 million gallon distribution storage reservoir directly into the distribution system.

 

The transmission and distribution system is comprised of 746 miles of mains and includes 24,300 feet of 48-inch concrete transmission main and 23,400 feet of 42-inch ductile iron transmission main connecting the CJO Plant to our distribution pipe network and related storage facilities. Also included are a 58,600 foot transmission main and a 38,800 foot transmission main, augmented with a long-term, non-exclusive agreement with East Brunswick to transport water through the East Brunswick system to several of our other contract customers.

 

The Middlesex System’s storage facilities consist of a 10 million gallon reservoir at the CJO Plant, 5 million gallon and 2 million gallon reservoirs in Edison and a 2 million gallon reservoir at the Park Avenue Well Field.

 

In New Jersey, we own the properties on which the Middlesex System’s 27 wells are located, the properties on which our storage tanks are located as well as the property where the CJO Plant is located. We own our operations center located at 1500 Ronson Road, Iselin, New Jersey, consisting of a 27,000 square foot office building, 16,500 square foot maintenance facility and a 1.96 acre equipment and materials storage and staging yard. We lease 29,036 square feet of commercial office space adjacent to the Ronson Road complex. The leased space, which is under contract through 2028, houses our corporate administrative functions including executive, accounting, customer service and billing, engineering, human resources, information technology and legal.

 

Tidewater System

 

The Tidewater System is comprised of 87 production plants that vary in pumping capacity from 46,000 gallons per day to 4.4 mgd. Water is transported to our customers through 888 miles of transmission and distribution mains. Storage facilities include 46 tanks, with an aggregate capacity of 7.9 million gallons. The Delaware office property, located on an eleven-acre parcel owned by White Marsh, consists of two office buildings totaling approximately 17,000 square feet. In addition, Tidewater maintains a field operations center servicing its largest service territory in Sussex County, Delaware. The operations center is located on a 2.9 acre parcel owned by White Marsh, and consists of three buildings totaling approximately 12,000 square feet.

 

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Pinelands Water System

 

Pinelands Water owns well site and storage properties in Southampton Township, New Jersey. The Pinelands Water storage facility is a 1.3 million gallon standpipe. Water is transported to our customers through 18 miles of transmission and distribution mains.

 

Pinelands Wastewater System

 

Pinelands Wastewater owns a 12 acre site on which its 0.5 mgd capacity wastewater treatment plant and connecting pipes are located. Its wastewater collection system is comprised of approximately 24 miles of sewer lines.

 

Bayview System

 

The Bayview System includes two well sites, which are located in Downe Township, Cumberland County, New Jersey. Water is transported to its customers through our 4.2 mile distribution system.

 

USA-PA, USA and White Marsh

Our non-regulated subsidiaries, namely USA-PA, USA and White Marsh, do not own utility plant property.

 

ITEM 3.LEGAL PROCEEDINGS.

 

PFOA Regulatory Notice of Non-Compliance – In September 2021, the NJDEP issued a Notice to Middlesex based on self-reporting by Middlesex that the level of PFOA in water treated at its Park Avenue Wellfield Treatment Plant in New Jersey exceeded a recently promulgated NJDEP standard effective in 2021. Neither the NJDEP nor Middlesex characterized this exceedance as an acute health emergency. However, Middlesex was required to notify its affected customers and the Company complied in due course. Water currently being delivered to customers is in compliance with all USEPA and NJDEP drinking water standards, including the newly established water quality standard for PFOA.

 

In November 2021, the Company was served with two PFOA-related class action lawsuits seeking restitution for medical, water filter replacement and other claimed related costs. These lawsuits are in the early stages of the legal process and their ultimate resolution cannot be predicted at this time. The Company’s insurance provider has acknowledged coverage of potential liability resulting from these lawsuits. For further discussion of this matter, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, Regulatory Notice of Non-Compliance. The following summarizes the legal complaints brought against Middlesex related to this matter:

 

●Vera et al. v. Middlesex Water Company - On October 29, 2021, a complaint was filed in the Superior Court of New Jersey, Middlesex County seeking restitution, equitable and injunctive relief for the costs of (1) seeking medical advice; (2) installing home water filters; (3) purchasing bottled water; and (4) court-supervised medical monitoring/testing going forward. On November 19, 2021, a first amended complaint was filed together with motions for Class Certification and Injunctive Relief. On December 17, 2021, the parties entered into a Stipulation where it was agreed that Plaintiff’s motion for injunctive relief would be withdrawn. On February 16, 2022, Middlesex filed a Motion To Dismiss Plaintiffs’ complaint for: (1) failure to include an indispensable party, 3M Company (3M), whom Middlesex claims is the source of the PFOA in the Company’s wells; and (2) failure to state legally cognizable claims in support of all of the counts set forth in the complaint. Plaintiff’s motion for Class Certification and further discovery is postponed pending the outcome of Middlesex’s Motion To Dismiss. On April 21, 2022, the Judge granted Vera’s Motion for Class Certification and granted in part and denied in part Middlesex’s Motion to Dismiss. On May 4, 2022, the Company impleaded 3M as a third-party defendant in this lawsuit. The Company has also initiated a separate lawsuit  against 3M seeking to hold 3M accountable for introduction of perfluoroalkyl substances, which include PFOA, into the Company’s water supply at its Park Avenue Wellfield facility. On July 6, 2022, the Company filed a Motion to Remove this case from New Jersey Superior Court to the United States District Court for the District of New Jersey. Vera is currently challenging Middlesex’s Motion To Remove at the U.S. District Court for the District of New Jersey in an attempt to remand the case back to the Superior Court of New Jersey.

 

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●Lonsk et al. v. Middlesex Water Company and 3M Company - On November 9, 2021, a complaint was filed in the United States District Court, District of New Jersey seeking Class Certification and restitution, equitable and injunctive relief for the costs of (1) seeking medical advice; (2) installing home water filters; (3) purchasing bottled water; and (4) all other claimed related costs. On December 23, 2021, the parties agreed to postpone the filing date of Middlesex’s and 3M’s answers to the complaint to January 14, 2022 at the earliest. This filing date was subsequently further postponed to March 1, 2022. On March 4, 2022, Middlesex filed a Motion to Dismiss Plaintiffs’ complaint. On April 15, 2022, Plaintiffs filed an Amended Complaint. On July 7, 2022, this case was reassigned to a new trial judge at the United States District Court for the District of New Jersey. On October 31, 2022, the trial judge in this matter dismissed Middlesex’s and 3M’s motions to dismiss the Plaintiffs’ complaint and Middlesex and 3M filed answers to Plaintiffs’ amended complaint on November 21, 2022. Discovery in this case is currently underway with a scheduled end date of January 9, 2024.

 

The Company is a defendant in other lawsuits in the normal course of business. We believe the resolution of these pending claims and legal proceedings will not have a material adverse effect on the Company’s consolidated financial statements.

 

ITEM 4.MINE SAFETY DISCLOSURES.

 

Not applicable.

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PART II

 

ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

The Company’s common stock is traded on the NASDAQ Stock Market, LLC, under the symbol MSEX. As of December 31, 2022, there were 1,751 holders of record.

 

The Company has paid dividends on its common stock each year since 1912. The payment of future dividends is contingent upon the future earnings of the Company, its financial condition and other factors deemed relevant by the Board of Directors at its discretion.

 

If four or more quarterly dividends are in arrears, the preferred shareholders, as a class, are entitled to elect two members to the Board of Directors in addition to Directors elected by holders of the common stock. In the event dividends on the preferred stock are in arrears, no dividends may be declared or paid on the common stock of the Company.

 

The Company issues shares of its common stock in connection with its Middlesex Water Company Investment Plan (the Investment Plan), a direct share purchase and dividend reinvestment plan for the Company’s common stock. Since the inception of the Investment Plan and its predecessor plan, the Company has periodically replenished the level of authorized shares in the plans. Currently, 0.2 million shares remain registered with the SEC for the Investment Plan and available for potential issuance to participants. Middlesex has filed a petition with the NJBPU seeking to increase the number of authorized shares under the Investment Plan by 0.7 million shares. The Company raised approximately $10.3 million through the issuance of shares under the Investment Plan during 2022.

 

On March 1, 2023, the Company will begin offering shares of its common stock for purchase at a 3% discount to participants in the Investment Plan. The discount offering will continue until 200,000 shares are purchased at the discounted price or December 1, 2023, whichever event occurs first.  The discount applies to all common stock purchases made under the Investment Plan, whether by optional cash payment or by dividend reinvestment.

 

The Company maintains a long-term incentive compensation plan for certain management employees where awards are made in the form of restricted common stock. Shares issued in connection with this plan are subject to forfeiture by the employee in the event of termination of employment for any reason within five years of the award, other than as a result of retirement at normal retirement age, death, disability or change in control. The maximum number of shares authorized for award under this plan is 0.3 million shares, of which approximately 80% remain available for award.

 

The Company maintains a stock plan for its independent members of the Board of Directors as a component of their compensation. In 2022, shares of the Company’s common stock valued at $0.3 million were granted and issued to the Independent Directors. The maximum number of shares authorized for grant under this plan is 0.1 million. Approximately 46% of the authorized shares remain available for future issuance.

 

Set forth below is a graph comparing the yearly change in the cumulative total return (which includes reinvestment of dividends) of a $100 investment for the Company’s common stock, a peer group of investor-owned water utilities, and the S&P 500 Stock Index for the period of five years commencing December 31, 2017. The S&P 500 Stock Index measures the stock performance of 500 large companies listed on stock exchanges in the United States.

 

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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN

Among Middlesex Water Company, the S&P 500 Stock Index and a Peer Group*

 

* Peer group includes American States Water Company, Artesian Resources Corp., California Water Service Group, Global Water Resources Inc, SJW Corp., York Water Company and Middlesex.

 

December 31,                        
   2017   2018   2019   2020   2021   2022 
Middlesex Water Company   100.00    136.54    165.40    191.52    321.79    213.14 
S&P 500 Stock Index   100.00    95.62    125.72    148.85    191.58    156.89 
Peer Group   100.00    108.39    134.25    136.58    178.54    161.23 

 

ITEM 6.[RESERVED]

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion should be read in conjunction with the Company’s consolidated financial statements and related notes.

 

Operations

 

Middlesex Water Company (Middlesex or the Company) has operated as a water utility in New Jersey since 1897 and in Delaware through our wholly-owned subsidiary, Tidewater Utilities, Inc. (Tidewater), since 1992. We are in the business of collecting, treating and distributing water for domestic, commercial, municipal, industrial and fire protection purposes. We operate water and wastewater systems under contract for governmental entities and private entities primarily in New Jersey and Delaware and also provide regulated wastewater services in New Jersey. We are regulated by state public utility commissions as to rates charged to customers for water and wastewater services, as to the quality of water and wastewater services we provide and as to certain other matters in the states in which our regulated subsidiaries operate. Only our Utility Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy), Inc. (USA-PA) and White Marsh Environmental Services, Inc. (White Marsh) subsidiaries are not regulated public utilities as related to rates and services quality. All municipal or commercial entities whose utility operations are managed by these entities however, are subject to environmental regulation at the federal and state levels.

 

Our principal New Jersey water utility system (the Middlesex System) provides water services to approximately 61,000 retail customers, primarily in central New Jersey. The Middlesex System also provides water sales under contract to municipalities in central New Jersey with a total population of over 0.2 million. Our Bayview System provides water services in Downe Township, New Jersey. Our other New Jersey subsidiaries, Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), provide water and wastewater services to approximately 2,500 customers in Southampton Township, New Jersey.

 

Our Delaware subsidiaries, Tidewater and Southern Shores Water Company, LLC (Southern Shores), provide water services to approximately 56,000 retail customers in New Castle, Kent and Sussex Counties, Delaware. Tidewater’s subsidiary, White Marsh, services approximately 4,500 customers in Kent and Sussex Counties through various operations and maintenance contracts.

 

USA-PA operates the water and wastewater systems for the City of Perth Amboy, New Jersey (Perth Amboy) under a 10-year operations and maintenance contract expiring in 2028. In addition to performing day-to day operations, USA-PA is also responsible for emergency response and management of capital projects funded by Perth Amboy.

 

USA operates the Borough of Avalon, New Jersey’s (Avalon) water utility, sewer utility and storm water system under a 10-year operations and maintenance contract expiring in 2032. USA also operates the Borough of Highland Park, New Jersey’s (Highland Park) water and wastewater systems under a 10-year operations and maintenance contract expiring in 2030. In addition to performing day-to-day service operations, USA is responsible for emergency response and management of capital projects funded by Avalon and Highland Park. Under a marketing agreement with HomeServe USA Corp. (HomeServe) expiring in 2031, USA offers residential customers in New Jersey and Delaware water and wastewater related services and home maintenance programs. HomeServe is a leading national provider of such home maintenance service programs. USA receives a service fee for the billing, cash collection and other administrative matters associated with HomeServe’s service contracts. USA also provides unregulated water and wastewater services under contract with several New Jersey municipalities.

 

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Regulatory Notice of Non-Compliance

 

In September 2021, the New Jersey Department of Environmental Protection (NJDEP) issued a Notice of Non-Compliance (Notice) to Middlesex based on self-reporting by Middlesex that the level of Perfluorooctanoic Acid (PFOA) in water treated at its Park Avenue Wellfield Treatment Plant in South Plainfield, New Jersey exceeded a NJDEP standard that became effective in 2021.

 

Prior to 2021, the Company began design for construction of an enhanced treatment process at the Park Avenue Wellfield Treatment Plant to comply with the new standard prior to the regulation being enacted. Since completion was not expected until mid-2023, the Company implemented an interim solution to meet the Notice requirements.

 

In June 2022, a portion of the enhanced treatment process was completed, placed into service and is effectively treating the ground water in compliance with all state and federal drinking water standards.

 

In September 2022, the Company entered into an Administrative Consent Order (ACO) with the NJDEP with respect to the Notice, which voided any further notice regarding the fact that the permanent treatment solution was not in service by September 7, 2022 as required by the Notice. The Company must comply with several other requirements of the ACO or face penalties.

 

In November 2021, the Company was served with two PFOA-related class action lawsuits seeking restitution for medical, water replacement and other claimed related costs. These lawsuits are in the early stages of the legal process and their ultimate resolution cannot be predicted at this time. The Company’s insurance provider has acknowledged coverage of potential liability which may result from these lawsuits. In May 2022, the Company impleaded 3M Company (3M) as a third-party defendant in one of these class action lawsuits. The Company has has also initiated a separate lawsuit against 3M seeking to hold 3M accountable for introduction of perfluoroalkyl substances (PFAS), which include PFOA, into the Company’s water supply at its Park Avenue Wellfield facility.

 

Capital Construction Program

 

The Company’s multi-year capital construction program encompasses numerous projects designed to upgrade and replace utility infrastructure as well as enhance the integrity and reliability of assets to better serve the current and future generations of water and wastewater customers. The Company plans to invest approximately $102 million in 2023 in connection with this plan for projects that include, but are not limited to:

 

●Completion of construction of a facility to provide an enhanced treatment process at the Company’s largest wellfield in South Plainfield, New Jersey to comply with new state water quality regulations relative to PFAS, and integrate surge protection to mitigate spikes in water pressures along with enhancements to corrosion control and chlorination processes;
●Replacement of approximately 24,000 linear feet of cast iron 6" water main in the Port Reading and Carteret sections of Woodbridge, New Jersey;
●Replacement of Company and customer owned lead and galvanized service lines;
●Interconnecting Tidewater’s Angola and Meadows Districts which will provide redundant capacity and storage for both districts;
●Improvements to Pinelands Water’s Well Station #2; and
●Various water main replacements and improvements.

 

Sale of Subsidiary

 

In January 2022, Middlesex closed on the Delaware Public Service Commission (DEPSC) approved sale of 100% of the common stock of its subsidiary Tidewater Environmental Services, Inc. for $6.4 million in cash and other consideration, resulting in a $5.2 million pre-tax gain. The Company will continue to own and operate its regulated water utilities in Delaware as well as its non-regulated operations and maintenance contract business.

 

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Coronavirus (COVID-19) Pandemic

 

In January 2023, the United States Secretary of Health and Human Services renewed the determination that a nationwide health emergency exists as a result of the COVID-19 Pandemic with an announced end to the nationwide health emergency on May 11, 2023. While the Company’s operations and capital construction program have not been materially disrupted to date from the pandemic, the COVID-19 impact on economic conditions nationally continues to be uncertain and could affect the Company’s results of operations, financial condition and liquidity in the future. In New Jersey, the declared COVID-19 State of Emergency Order ended in March 2022. In Delaware, the declared COVID-19 State of Emergency Order ended in July 2021.

 

The New Jersey Board of Public Utilities (the NJBPU) and the DEPSC have approved the tracking of COVID-19 related incremental costs for potential recovery in customer rates in future rate proceedings. Neither jurisdiction has established a timetable or definitive formal procedures for seeking cost recovery. The Company has increased its allowance for doubtful accounts for expected increases in accounts receivable write-offs due to the financial impact of COVID-19 on customers. The Company has not deferred any COVID-19 related incremental costs. We will continue to monitor the effects of COVID-19 and evaluate its impact on the Company’s results of operations, financial condition and liquidity.

 

Strategy for Growth

 

Our strategy for profitable growth is focused on the following key areas:

 

●Invest in projects, products and services that complement our core water and wastewater competencies;
●Timely and adequate recovery of infrastructure investments and other costs to maintain service quality;
●Prudent acquisitions of investor and municipally-owned water and wastewater utilities; and
●Operation of municipal and industrial water and wastewater systems on a contract basis which meet our risk profile.

 

Rates

 

Middlesex – In December 2021, Middlesex’s petition to the NJBPU seeking permission to increase its base water rates was concluded, based on a negotiated settlement, resulting in an expected increase in annual operating revenues of $27.7 million. The approved tariff rates were designed to recover increased operating costs, as well as a return on invested capital of $513.5 million, based on an authorized return on common equity of 9.6%. The increase was implemented in two phases with $20.7 million of the increase effective January 1, 2022 and the remaining $7.0 million effective January 1, 2023. As part of the negotiated settlement, the Purchased Water Adjustment Clause (PWAC), which is a rate mechanism that allows for recovery of increased purchased water costs between base rate case filings, was reset to zero.

 

In September 2022, the NJBPU approved Middlesex's Emergency Relief Motion to reset its PWAC tariff rate to recover additional costs of $2.7 million for the purchase of treated water from a non-affiliated regulated water utility. The increase, effective October 1, 2022, is on an interim basis and subject to refund with interest, pending final resolution expected in the second quarter of 2022.

 

In March 2021, the NJBPU approved Middlesex’s annual petition to reset its PWAC tariff rate to recover additional costs of $1.1 million for the purchase of treated water from a non-affiliated regulated water utility.  The new PWAC rate became effective April 4, 2021.

 

Tidewater – On August 31, 2022, the DEPSC issued an Order requiring Tidewater to reduce its base rates charged to general metered and private fire customers by 6%, effective for service rendered on and after September 1, 2022. In June 2022, the Delaware Division of the Public Advocate had filed a petition with the DEPSC requesting that Tidewater’s rates be reduced based on the claim that Tidewater had been earning above its authorized rate of return. The rate reduction is expected to reduce annual revenues by approximately $2.2 million.

 

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In March 2021, Tidewater was notified by the DEPSC that it had determined Tidewater’s earned rate of return exceeded the rate of return authorized by the DEPSC. Consequently, Tidewater reset its Distribution System Improvement Charge (DSIC) rate to zero effective April 1, 2021 and refunded approximately $1.0 million to customers principally in the form of an account credit for DSIC revenue previously billed between April 1, 2020 and March 31, 2021. 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.

 

Pinelands - In September 2022, Pinelands Water and Pinelands Wastewater filed separate petitions with the NJBPU seeking permission to increase base rates by approximately $0.6 million and $0.4 million per year, respectively. These requests were necessitated by capital infrastructure investments both companies have made, or have committed to make, and increased operations and maintenance costs. We cannot predict whether the NJBPU will ultimately approve, deny, or reduce the amount of the requests. A decision by the NJBPU in both matters is expected in the first quarter of 2023.

 

Southern Shores - Effective January 1, 2020, the DEPSC approved the renewal of a multi-year agreement for water service to a 2,200 unit condominium community we serve in Sussex County, Delaware.  Under the agreement, current rates were to remain in effect until December 31, 2024, unless there are unanticipated capital expenditures or regulatory related changes in operating expenses exceeding certain thresholds during this time period. In 2022, capital expenditures did exceed the established threshold and rates were increased by 5.39% effective January 1, 2023. Beginning in 2025 and thereafter, inflation based rate increases cannot exceed the lesser of the regional Consumer Price Index or 3%. Inflation based increases are in addition to the threshold rate increases. The agreement expires on December 31, 2029.

 

Outlook

 

Our ability to increase operating income and net income is based significantly on four factors: weather, adequate and timely rate relief, effective cost management and customer growth (which are evident in comparison discussions in the Results of Operations section below). Weather patterns which can result in lower customer demand for water may occur in 2023. As operating costs are anticipated to increase in 2023 in a variety of categories, we continue to implement plans to further streamline operations and further reduce, and mitigate increases in, operating costs. Changes in customer water usage habits, as well as increases in capital expenditures and operating costs, are significant factors in determining the timing and extent of rate increase requests.

 

The DEPSC issued an Order requiring Tidewater to reduce its base rates charged to general metered and private fire customers by 6% (for further discussion of the impact of this on the Company, see Rates, Tidewater above). Our investments in system infrastructure continue to grow significantly and our operating costs are anticipated to increase in 2023 and 2024 in a variety of categories. These factors, among others, will likely require Middlesex and Tidewater to file base rate increase requests as early as the second quarter of 2023.

 

Overall, organic residential customer growth continues in our Tidewater system (approximately 5% in 2022). However, current and evolving economic market conditions may challenge the growth level. Builders and developers in Tidewater’s service areas are experiencing lower home starts and longer home sales closing cycles due to supply chain issues, which may be further affected by inflationary trends on housing construction materials and mortgage interest rates.

 

The Company has projected to spend approximately $266 million for the 2023-2025 capital investment program, including approximately $22 million for PFAS-related treatment upgrades, $18 million for Lead and Copper Rule compliance in the Middlesex System, $34 million on the RENEW Program, which is our ongoing initiative to replace water mains in the Middlesex System and $8 million for construction of elevated storage tanks in our Tidewater and Middlesex Systems.

 

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Operating Results by Segment

 

The Company has two operating segments, Regulated and Non-Regulated. Our Regulated segment contributed approximately 93% of total revenues for the year ended December 31, 2022 and 91% for each of the years ended December 31, 2021 and 2020 and approximately 95% of net income for the year ended December 31, 2022 and 93% of net income for each of the years ended December 31, 2021, and 2020. The discussion of the Company’s results of operations is on a consolidated basis and includes significant factors by subsidiary. The segments in the tables included below are comprised of the following companies: Regulated- Middlesex, Tidewater, Pinelands and Southern Shores; Non-Regulated- USA, USA-PA, and White Marsh.

 

Results of Operations for 2022 as Compared to 2021

 

   (In Millions) 
   Years Ended December 31, 
   2022   2021 
   Regulated   Non-
Regulated		   Total   Regulated   Non-
Regulated		   Total 
Revenues  $150.6   $11.8   $162.4   $130.8   $12.3   $143.1 
Operations and maintenance expenses   70.8    8.3    79.1    65.4    8.3    73.7 
Depreciation expense   22.8    0.2    23.0    20.9    0.2    21.1 
Other taxes   18.0    0.2    18.2    14.9    0.2    15.1 
Gain on Sale of Subsidiary   5.2    —    5.2    —    —    0.0 
  Operating income   44.2    3.1    47.3    29.6    3.6    33.2 
                               
Other income (expense), net   7.4    0.3    7.7    5.6    0.3    5.9 
Interest expense   9.4    —    9.4    8.1    —    8.1 
Income taxes   2.0    1.2    3.2    (6.7)   1.2    (5.5)
  Net income  $40.2   $2.2   $42.4   $33.8   $2.7   $36.5 

  

Operating Revenues

 

Operating revenues for the year ended December 31, 2022 increased $19.3 million from the same period in 2021 due to the following factors:

 

●Middlesex System revenues increased by $21.6 million due to the approved 2022 base rate and PWAC rate increases and higher weather driven demand across all customer classes (for further discussion of Middlesex’s base and PWAC rate increases see Rates, Middlesex above);
●Tidewater System revenues increased $0.9 million due to additional customers and a one-time customer credit issued in 2021 partially offset by a DEPSC ordered 2022 rate reduction (for further information on the one-time credit and rate reduction, see Rates, Tidewater above);
●The sale of our regulated Delaware wastewater subsidiary in January 2022 reduced revenues by $2.7 million;
●Non-regulated revenues decreased $0.4 million, primarily due to lower supplemental contract services; and
●All other revenue categories decreased $0.1 million.

 

Operation and Maintenance Expense

 

Operation and maintenance expenses for the year ended December 31, 2022 increased $5.4 million from the same period in 2021 due to the following factors:

 

●Labor cost increased $1.5 million due to wage increases;
●Variable production costs increased $1.2 million primarily due to increased production, weather-driven changes in water quality and higher chemical prices;

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●Costs for employee benefits increased $1.0 million due to market fluctuations in the cash surrender value of life insurance policies and higher health insurance premiums;
●Higher weather-related main break activity in our Middlesex system during the winter months resulted in $0.6 million of additional non-labor costs;
●Equipment repairs and maintenance costs increased by $0.5 million;
●Transportation expenses increased $0.3 million due to higher fuel prices;
●Costs associated with the NJDEP PFOA customer notification process resulted in $0.2 million of additional expense (for further information on this matter, see Regulatory Notice of Non-Compliance above); and
●All other operation and maintenance expense categories increased $0.1 million.

 

Depreciation

 

Depreciation expense for the year ended December 31, 2022 increased $1.9 million from the same period in 2021 due to a higher level of utility plant in service.

 

Other Taxes

 

Other taxes for the year ended December 31, 2022 increased $3.0 million from the same period in 2021 primarily due to higher revenue related taxes on increased revenues in our Middlesex system.

 

Gain on Sale of Subsidiary

 

Middlesex recognized a $5.2 million gain on the sale of its regulated Delaware wastewater subsidiary in January 2022.

 

Other Income, net

 

Other Income, net for the year ended December 31, 2022 increased $1.8 million from the same period in 2021 primarily due to higher actuarially-determined retirement benefit plans non-service benefit partially offset by lower Allowance for Funds Used During Construction (AFUDC) resulting from a reduced level of capital projects under construction.

 

Interest Charges

 

Interest charges for the year ended December 31, 2022 increased $1.3 million from the same period in 2021 due to higher long-term and short-term debt outstanding in 2022 as compared to 2021 and higher average interest rates in 2022 as compared to 2021.

 

Income Taxes

 

Income taxes for the year ended December 31, 2022 increased by $8.7 million from the same period in 2021, primarily due to income taxes on the gain on the sale of a subsidiary and the expiration of income tax benefits associated with the adoption of Internal Revenue Service tangible property regulations as Middlesex was required by the NJBPU to account for the benefit of adopting these regulations over 48 months beginning in 2018. Partially offsetting these increases were greater income tax benefits associated with increased repair expenditures on tangible property in the Middlesex system.

 

Net Income and Earnings Per Share

 

Net income for the year ended December 31, 2022 increased $5.9 million as compared with the same period in 2021. Basic earnings per share were $2.40 and $2.08 for the years ended December 31, 2022 and 2021, respectively. Diluted earnings per share were $2.39 and $2.07 for the years ended December 31, 2022 and 2021, respectively.

 

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Results of Operations for 2021 as Compared to 2020

 

   (In Millions) 
   Years Ended December 31, 
   2021   2020 
   Regulated   Non-
Regulated		   Total   Regulated   Non-
Regulated		   Total 
Revenues  $130.8   $12.3   $143.1   $129.5   $12.1   $141.6 
Operations and maintenance expenses   65.4    8.3    73.7    62.5    8.3    70.8 
Depreciation expense   20.9    0.2    21.1    18.3    0.2    18.5 
Other taxes   14.9    0.2    15.1    14.7    0.2    14.9 
  Operating income   29.6    3.6    33.2    34.0    3.4    37.4 
                               
Other income (expense), net   5.6    0.3    5.9    4.3    0.1    4.4 
Interest expense   8.1    —    8.1    7.5    —    7.5 
Income taxes   (6.7)   1.2    (5.5)   (5.1)   1.0    (4.1)
  Net income  $33.8   $2.7   $36.5   $35.9   $2.5   $38.4 

 

Operating Revenues

 

Operating revenues for the year ended December 31, 2021 increased $1.5 million from the same period in 2020 due to the following factors:

 

●Middlesex System revenues decreased by $0.4 million due to lower water demand from general meter service and wholesale customers, offset by an increase in the PWAC tariff rate effective April 4, 2021 (see Rates, Middlesex above for further discussion);
●Tidewater System revenues increased $1.7 million due to additional customers and higher customer demand for water, partially offset by $1.0 million due to the DSIC revenue refund (for further information, see Rates, Tidewater above for further discussion);
●Non-regulated revenues increased $0.3 million, primarily due to USA’s contract to operate and maintain Highland Park’s water and wastewater systems, which commenced July 1, 2020; and
●All other revenue categories decreased $0.1 million.

 

Operation and Maintenance Expense

 

Operation and maintenance expenses for the year ended December 31, 2021 increased $2.9 million from the same period in 2020 due to the following factors:

 

●Higher weather-related water main break activity in our Middlesex system during the winter months resulted in $0.5 million of additional non-labor costs;
●Labor costs increased $0.9 million due to wage increases and lower allocation of labor to capital projects;
●Increased business insurance premiums resulted in $0.3 million of additional costs;
●Increased Avalon and Highland Park billable supplemental service expenses increased $0.5 million;
●Outside services and consultant costs increased $0.2 million due to higher regulatory and corporate activity, including compliance with America’s Water Infrastructure Act of 2018;
●Transportation expenses increased $0.2 million due to higher fuel prices;
●Information technology costs increased $0.2 million due to greater software licensing fees; and
●All other operation and maintenance expense categories increased $0.1 million.

 

Depreciation

 

Depreciation expense for the year ended December 31, 2021 increased $2.6 million from the same period in 2020 due to a higher level of utility plant in service.

 

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Other Taxes

 

Other taxes for the year ended December 31, 2021 increased $0.2 million from the same period in 2020 primarily due to higher payroll taxes on increased labor costs.

 

Other Income, net

 

Other Income, net for the year ended December 31, 2021 increased $1.6 million from the same period in 2020 primarily due to lower actuarially-determined retirement benefit plans non-service expense offset by lower AFUDC on a lower average level of capital construction projects under construction.

 

Interest Charges

 

Interest charges for the year ended December 31, 2021 increased $0.6 million from the same period in 2020 due to higher long-term and short-term debt outstanding in 2021 as compared to 2020 partially offset by lower average interest rates on short term borrowings year-over-year.

 

Income Taxes

 

The benefit from income taxes for the year ended December 31, 2021 increased by $1.4 million from the same period in 2020 primarily due to lower pre-tax income.

 

Net Income and Earnings Per Share

 

Net income for the year ended December 31, 2021 decreased $1.9 million as compared with the same period in 2020. Basic earnings per share were $2.08 and $2.19 for the years ended December 31, 2021 and 2020, respectively. Diluted earnings per share were $2.07 and $2.18 for the years ended December 31, 2021 and 2020, respectively. In anticipation of this expected decrease, in 2021, Middlesex filed and settled a base rate increase request with the NJBPU, with rate increases becoming effective on January 1, 2022 and January 1, 2023 (for further discussion of Middlesex’s rate increase, see Rates, Middlesex above).

 

Liquidity and Capital Resources

 

Cash Flows from Operating Activities

 

Cash flows from operating activities are largely influenced by four factors: weather, adequate and timely rate increases, effective cost management and customer growth. The effect of those factors on net income is discussed in the Results of Operations section above.

 

For the year ended December 31, 2022, cash flows from operating activities increased $28.3 million to $61.4 million. The increase in cash flows from operating activities primarily resulted from higher operating revenues from Middlesex’s January 1, 2022 rate increase and the timing of payments to vendors and to income tax authorities.

 

Increases in certain operating costs impact our liquidity and capital resources. We continually monitor the need for timely rate filing to minimize the lag between the time we experience increased operating costs and capital expenditures and the time we receive appropriate rate relief. There can be no assurances however that our regulated subsidiaries’ respective utility commissions will approve base water and/or wastewater rate increase requests in whole or in part or when the decisions will be rendered.

 

Cash Flows from Investing Activities

 

For the year ended December 31, 2022, cash flows used in investing activities increased $8.8 million to $88.2 million, which was attributable to higher utility plant expenditures partially offset by cash received from the sale of Middlesex’s regulated wastewater subsidiary in January 2022.

 

For further discussion on the Company’s future capital expenditures and expected funding sources, see “Capital Expenditures and Commitments” below.

 

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Cash Flows from Financing Activities

 

For the year ended December 31, 2022, cash flows provided by financing activities decreased $12.3 million to $27.1 million. The decrease in cash flows provided by financing activities is due to a decrease in net long-term borrowings, lower net customer advances and contributions and higher common stock dividends offset by higher proceeds from the issuance of common stock and higher short-term borrowing.

 

For further discussion on the Company’s short-term and long-term debt, see “Sources of Liquidity” below.

 

Capital Expenditures and Commitments

 

To fund our capital program, we use internally generated funds, short-term and long-term debt borrowings, proceeds from sales of common stock under the Investment Plan and, when market conditions are favorable, proceeds from sales to the public of our common stock.

 

The table below summarizes our estimated capital expenditures for the years 2023-2025.

 

   (Millions) 
   2023   2024   2025   2023-2025 
Distribution/Network System  $59   $61   $62   $182 
Production System   33    17    4    54 
Information Technolgy (IT) Systems   4    2    3    9 
Other   6    6    9    21 
Total Estimated Capital Expenditures  $102   $86   $78   $266 

 

Our estimated capital expenditures for the items listed above are primarily comprised of the following:

 

●Distribution/Network System-Includes projects associated with replacement, installation and relocation of water mains and service lines and wastewater collection systems, construction of water storage tanks, installation and replacement of hydrants, meters and meter pits and the RENEW Program. RENEW is our ongoing initiative to replace water mains in the Middlesex System. In connection with RENEW, we expect to spend approximately $12 million in 2023, and $11 million in each of 2024 and 2025. We expect to spend approximately $8 million in 2023 and 2024 for construction of elevated storage tanks in our Tidewater and Middlesex systems.
●Production System-Includes projects associated with our treatment plants, including approximately $22 million of expenditures in 2023 for PFAS treatment upgrades in our Middlesex system.
●Information Technology (IT) Systems-Includes further upgrade of our enterprise resource planning system and hardware and software purchases for other IT systems.
●Other-Includes purchase of transportation equipment, tools, furniture, laboratory equipment, security systems and other general infrastructure needs including improvements to field and inventory management facilities in Iselin, New Jersey.

 

The actual amount and timing of capital expenditures is dependent on the need for replacement of existing infrastructure, customer growth, residential new home construction and sales, project scheduling and continued refinement of project scope and costs and, could be impacted if significant effects of the COVID-19 pandemic further arise and continue for an extended period of time.

 

To pay for our capital program in 2023, we estimate we will utilize some or all of the following:

●Internally generated funds;
●Short-term borrowings, as needed, through $140 million of available lines of credit with several financial institutions. As of December 31, 2022, $55.5 million was outstanding under these lines of credit (see discussion under “Sources of Liquidity-Short-term Debt” below);

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●Proceeds from the Delaware State Revolving Fund (SRF). SRF programs provide low cost financing for projects meeting certain water quality and system improvement benchmarks (see discussion under “Sources of Liquidity-Long-term Debt” below);
●Proceeds from the sale and issuance of FMBs in private placement offerings (see discussion under “Sources of Liquidity-Long-term Debt” below);
●Proceeds from other long-term borrowings (see discussion under “Sources of Liquidity-Long-term Debt” below);
●Proceeds from common stock sales through the Investment Plan (see discussion under “Sources of Liquidity-Common Stock” below); and
●Proceeds from a common stock sale (see discussion under “Sources of Liquidity-Common Stock” below).

 

Sources of Liquidity

 

Short-term Debt - In January 2022, the Company increased available lines of credit from $110 million to $140 million. The outstanding borrowings under the credit lines at December 31, 2022 were $55.5 million, at a weighted average interest rate of 5.17%.

 

The weighted average daily amounts of borrowings outstanding under the credit lines and the weighted average interest rates on those amounts were $28.9 million and $23.7 million at 3.34% and 1.12 % for the years ended December 31, 2022 and 2021, respectively.

 

Long-term Debt - Subject to regulatory approval, the Company periodically issues long-term debt to fund investments in utility plant. To the extent possible and fiscally prudent, the Company finances qualifying capital projects under SRF loan programs in New Jersey and Delaware. These government programs provide financing at interest rates typically below rates available in the broader financial markets. A portion of the borrowings under the New Jersey SRF is interest-free. Under the New Jersey SRF program, borrowers first enter into a construction loan agreement with the New Jersey Infrastructure Bank (NJIB) and submit requisitions for cost reimbursements over the life of the construction period. The interest rate on the Company’s current construction loan borrowings is near zero percent. When construction on the qualifying project is substantially complete, NJIB will coordinate the conversion of the construction loan into a long-term securitized loan with a portion of the principal balance having a stated interest rate of zero percent (0%) and a portion of the principal balance at a market interest rate at the time of closing using the credit rating of the State of New Jersey. The term of the long-term loans currently offered through the NJIB is up to thirty years. Under the Delaware SRF program, borrowers typically enter into a long-term note agreement for a term not to exceed twenty years and submit requisitions for cost reimbursements for up to two years after the agreement is executed.

 

In May 2022, Middlesex repaid its two outstanding NJIB construction loans by issuing FMBs to the NJIB under two loan agreements. The total amount of FMBs issued is $52.2 million and designated as Series 2022A ($16.2 million) and Series 2022B ($36.0 million). The interest rate on the Series 2022A bond is zero and the interest rate on the Series 2022B bond ranges between 2.7% and 3.0%. The final maturity date for both FMBs is August 1, 2056, with scheduled debt service payments over the life of these loans.

 

The NJIB has changed the SRF program for project funding priority ranking, the proportions of interest free loans and market interest rate loans and overall loan limits on interest free loan balances to investor-owned water utilities. Under the new guidelines, the principal balance having a stated interest rate of zero percent (0%) is 25% of the loan balance with the remaining portion of 75% having a market based interest rate. This is limited to the first $10.0 million of the loan. Loan amounts above $10.0 million do not participate in the 0% rate program, but do participate at the market based interest rate. As a result of all these changes, the Company’s future capital funding plan currently does not include participating in the NJIB SRF program.

 

In November 2022, Middlesex filed a petition with the NJBPU for approval to borrow up to $300.0 million, in one or more negotiated transactions in the form of notes and/or FMBs through loans from the New Jersey SRF Program, the New Jersey Economic Development Authority, private placement and other financial institutions as needed in

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order to fund portions of its capital program and for other funding requirements. The Company expects to issue debt securities in a series of one or more transaction offerings over a multi-year period to align with the Company’s construction timetable.

 

In June 2021, Middlesex received approval from the NJBPU to redeem up to $45.5 million of outstanding FMBs, specifically Series RR ($22.5 million) and Series SS ($23.0 million), and issue replacement FMBs at an overall lower cost of debt. In November 2021, Middlesex closed on a $45.5 million, 2.90% private placement of FMBs, designated as Series 2021B with a 2051 maturity date to effectuate the redemptions.

 

In May 2020, Middlesex received approval from the NJBPU to borrow up to $100 million, in one or more private placement transactions through December 31, 2023 to help fund Middlesex’s multi-year capital construction program. In connection with this approval:

 

●In March 2023, Middlesex expects to close on a $40.0 million, 5.24% private placement of FMBs with a 2043 maturity date designated as Series 2023A. Proceeds will be used to reduce the Company’s outstanding balances under its lines of credit;

 

●In November 2021, Middlesex closed on a $19.5 million, 2.79% private placement of FMBs with a 2041 maturity date designated as Series 2021A. Proceeds were used to reduce the Company’s outstanding balances under its lines of credit.; and

 

●In November 2020, Middlesex closed on a $40.0 million, 2.90% private placement of FMBs with a 2050 maturity date designated as Series 2020A. Proceeds were used to reduce the Company’s outstanding balances under its lines of credit and for the Company’s 2020 capital program.

 

In February 2023, Tidewater filed three applications with the DEPSC seeking approval to borrow up to $10.2 million in total at an interest rate of 2.0% as set by the Delaware SRF Program for construction of several water transmission projects. If approved by the DEPSC, Tidewater expects to close on these loans in April 2023 and construct the projects in 2023 and 2024. Under the Delaware SRF Program, borrowers submit reimbursement requisitions during the construction period. Once the proceeds are received, Tidewater will record the debt obligation.

 

Tidewater expects to file an application with the DEPSC in late February 2023 seeking approval to borrow up to $20.0 million from CoBank, ACB (CoBank) with a term of up to 25 years and an interest rate to be determined at the loan’s closing. If approved by the DEPSC, Tidewater expects to close on this loan in April 2023 with the ability to draw the funds in one or more transactions until December 31, 2023. The interest rate will be set at the time of the individual draw. Proceeds from the loan would be used to pay off Tidewater’s outstanding balances under its lines of credit and for other general corporate purposes. 

 

In December 2021, Tidewater closed on the DEPSC approved $5.0 million Delaware SRF Program loan and began receiving disbursements in January 2022. Tidewater has borrowed $2.6 million under this loan with expected borrowings to continue through mid-2023. The final maturity date on the loan is 2044.

 

In September 2021, Tidewater completed its $20 million secured borrowing with CoBank, at an interest rate of 3.94% with a 2046 maturity date. Proceeds from the loan were used to pay off its outstanding balances under its lines of credit. 

 

In November 2022, Pinelands Water and Pinelands Wastewater filed petitions with the NJBPU for approval to borrow up to $4.9 million each from CoBank with terms up to 25 years and with interest rates to be determined at the loans’ closings. If approved by the NJBPU, Pinelands expects to close on these loans in the second quarter of 2023. Proceeds from the loan would be used to pay off Pinelands’ outstanding Note Payable balances and partially fund future capital expenditures. 

 

Substantially all of the utility plant of the Company is subject to the lien of its mortgage, which includes debt service and capital ratio covenants. The Company is in compliance with all of its mortgage covenants and restrictions.

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Common Stock - The Company issues shares of its common stock in connection with the Investment Plan, a direct share purchase and dividend reinvestment plan for the Company’s common stock. The Company raised approximately $10.3 million through the issuance of shares under the Investment Plan during 2022. Middlesex has filed a petition with the NJBPU seeking to increase the number of authorized shares under the Investment Plan by 0.7 million shares. On March 1, 2023, the Company will begin offering shares of its common stock for purchase at a 3% discount to participants in the Investment Plan. The discount offering will continue until 200,000 shares are purchased at the discounted price or December 1, 2023, whichever event occurs first.  The discount applies to all common stock purchases made under the Investment Plan, whether by optional cash payment or by dividend reinvestment.

 

In order to fully fund the ongoing capital investment program and maintain a balanced capital structure for a regulated water utility, Middlesex may offer for sale additional shares of its common stock. The amount, the timing and the sales method of the common stock is dependent on the timing of the construction expenditures, the level of additional debt financing and financial market conditions. In October 2022, Middlesex filed a petition with the NJBPU for approval to issue and sell up to 1.0 million shares of its common stock. A decision on the matter is expected in the second quarter of 2023. Common stock offerings will occur as needed to maintain a balanced capital structure and continue on a parallel path with future debt offerings.

 

Contractual Obligations

 

In the course of normal business activities, the Company enters into a variety of contractual obligations and commercial commitments. Some result in direct obligations on the Company’s balance sheet while others are commitments, some firm and some based on uncertainties, which are disclosed in the Company’s consolidated financial statements.

 

The table below presents our known contractual obligations for the periods specified as of December 31, 2022.

 

   Payment Due by Period 
   (Millions of Dollars) 
   Total   Less than 1
Year		   2-3 Years   4-5 Years   More than 5
Years		 
Long-term Debt  $306   $17   $14   $13   $262 
Note Payable   56    56    —    —    — 
Interest on Long-Term Debt   207    9    16    15    167 
Purchased Water Contracts   14    6    7    1    — 
Commercial  Office Leases   7    1    2    2    2 
TOTAL  $590   $89   $39   $31   $431 

 

The table above does not reflect any anticipated cash payments for retirement benefit plan obligations. The effect on the timing and amount of these payments resulting from potential changes in actuarial assumptions and returns on plan assets cannot be estimated. In 2022, the Company contributed $2.8 million to its retirement benefit plans and expects to contribute approximately $2.9 million in 2023.

 

We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements, or for other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts.

 

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Critical Accounting Policies and Estimates

 

The application of accounting policies and standards often requires the use of estimates, assumptions and judgments. The Company regularly evaluates these estimates, assumptions and judgments, including those related to the calculation of pension and other retirement benefits, unbilled revenues, and the recoverability of certain assets, including regulatory assets. The Company bases its estimates, assumptions and judgments on historical experience and current operating environment. Changes in any of the variables that are used for the Company’s estimates, assumptions and judgments may lead to significantly different financial statement results.

 

Our critical accounting policies and estimates are set forth below.

 

Regulatory Accounting

 

We maintain our books and records in accordance with accounting principles generally accepted in the United States of America. Middlesex and certain of its subsidiaries are subject to regulation in the states in which they operate. Those companies are required to maintain their accounts in accordance with regulatory authorities’ rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows the guidance in the Financial Accounting Standards Board Accounting Standards Codification Topic 980 Regulated Operations (Regulatory Accounting).

 

In accordance with Regulatory Accounting, costs and obligations are deferred if it is probable that these items will be recognized for rate-making purposes in future rates. Accordingly, we have recorded costs and obligations, which will be amortized over various future periods. Any change in the assessment of the probability of rate-making treatment would require us to change the accounting treatment of the deferred item. We have no reason to believe any of the deferred items that are recorded will be treated differently by the regulators in the future.

 

Revenues

 

Revenues from our regulated customers, which include amounts billed quarterly to residential customers and monthly to industrial, commercial, fire-protection and wholesale customers, also include unbilled amounts based upon estimated usage from the date of the last meter reading to the end of the accounting period. While actual usage for customers may differ from the estimate, we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual consumption.

 

Retirement Benefit Plans

 

We maintain a noncontributory defined benefit pension plan (Pension Plan) which covers all currently active employees hired prior to April 1, 2007. In addition, the Company maintains an unfunded supplemental plan for certain executive officers.

 

The Company has a retirement benefit plan other than pensions (Other Benefits Plan) for substantially all of its retired employees. Employees hired after March 31, 2007 are not eligible to participate in the Other Benefits Plan. Coverage includes healthcare and life insurance.

 

The costs for providing retirement benefits are dependent upon numerous factors, including actual plan experience and assumptions of future experience. Future retirement benefit plan obligations and expense will depend on future investment performance, changes in future discount rates and various other demographic factors related to the population participating in the Company’s retirement benefit plans, all of which can change significantly in future years.

 

The primary assumptions used for determining future retirement benefit plans’ obligations and costs, which are reviewed and revised as needed each year, are as follows:

 

●Discount Rate - calculated based on market rates for long-term, high-quality corporate bonds specific to the expected duration of our Pension Plan and Other Benefits Plan’s liabilities;
●Compensation Increase - based on management projected future employee compensation increases;

35 

●Long-Term Rate of Return - determined based on expected returns from our asset allocation for our Pension Plan and Other Benefits Plan assets;
●Mortality - The Company utilizes the Society of Actuaries’ mortality table (Pri-2012) (Mortality Improvement Scale MP-2021 for the 2022 valuation); and
●Healthcare Cost Trend Rate - based on management projected future healthcare costs.

 

The discount rate, compensation increase rate and long-term rate of return used to determine future obligations of our retirement benefit plans as of December 31, 2022 are as follows:

 

  Pension Plan Other Benefits Plan
Discount Rate 4.98% 4.98%
Compensation Increase 3.00% 3.00%
Long-term Rate of Return 7.00% 7.00%

 

For the 2022 valuation, costs and obligations for our Other Benefits Plan assumed an 7.5% annual rate of increase in the per capita cost of covered healthcare benefits in 2023 with the annual rate of increase declining 0.5% per year for 2024-2029, resulting in an annual rate of increase in the per capita cost of covered healthcare benefits of 4.5% by year 2029.

 

The following is a sensitivity analysis for certain actuarial assumptions used in determining projected benefit obligations (PBO) and expenses for our retirement benefit plans:

 

Pension Plan

 

Actuarial Assumptions  Estimated
Increase/
(Decrease)
on PBO
(000s)		   Estimated
Increase/
(Decrease)
on Expense
(000s)		 
Discount Rate 1% Increase  $(9,654)  $(1,427)
Discount Rate 1% Decrease   11,814    1,943 

 

Other Benefits Plan

 

Actuarial Assumptions  Estimated
Increase/
(Decrease)
on PBO
(000s)		   Estimated
Increase/
(Decrease)
on Expense
(000s)		 
Discount Rate 1% Increase  $(4,192)  $(1,239)
Discount Rate 1% Decrease   5,258    632 
Healthcare Cost Trend Rate 1% Increase   4,239    923 
Healthcare Cost Trend Rate 1% Decrease   (3,448)   (1,451)

 

Recent Accounting Standards

 

See Note 1(r) of the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements.

 

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ITEM 7A.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are exposed to market risk associated with changes in interest rates and commodity prices. 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, variable rate short-term debt. The Company’s interest rate risk related to existing fixed rate, long-term debt is not material due to the term of the majority of our First Mortgage Bonds, which have final maturity dates ranging from 2023 to 2059. Over the next twelve months, approximately $17.5 million of the current portion of existing long-term debt instruments will mature. The Company manages its interest rate risk related to existing variable-rate short-term debt by limiting our variable rate exposure. Applying a hypothetical change in the rate of interest charged by 10% on those fixed- and variable-rate borrowings would not have a material effect on our earnings.

 

Our risks associated with commodity price increases for chemicals, electricity and other commodities are reduced through contractual arrangements and the ability to recover price increases through rates. Non-performance by these commodity suppliers could have a material adverse impact on our results of operations, financial position and cash flows.

 

We are exposed to credit risk for both our Regulated and Non-Regulated business segments. Our Regulated operations serve residential, commercial, industrial and municipal customers while our Non-Regulated operations engage in business activities with developers, government entities and other customers. Our primary credit risk is exposure to customer default on contractual obligations and the associated loss that may be incurred due to the non-payment of customer accounts receivable balances. Our credit risk is managed through established credit and collection policies which are in compliance with applicable regulatory requirements and involve monitoring of customer exposure and the use of credit risk mitigation measures such as letters of credit or prepayment arrangements. Our credit portfolio is diversified with no significant customer or industry concentrations. In addition, our Regulated businesses are generally able to recover all prudently incurred costs including uncollectible customer accounts receivable expenses and collection costs through rates.

 

The Company's retirement benefit plan assets are exposed to the market price variations of debt and equity securities. Changes to the Company's retirement benefit plan assets’ value can impact the Company's retirement benefit plan expense, funded status and future minimum funding requirements. Risk is mitigated through our ability to recover retirement benefit plan costs through customer rates.

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Stockholders and the Board of Directors of Middlesex Water Company:

 

Opinions on the Financial Statements and Internal Control over Financial Reporting

 

We have audited the accompanying consolidated balance sheets and consolidated statements of capital stock and long-term debt of Middlesex Water Company (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, common stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

 

Basis for Opinions

 

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects.

 

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

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Definition and Limitations of Internal Control Over Financial Reporting

 

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's

assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Critical Audit Matters

 

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

 

 

 

/s/ Baker Tilly US, LLP

 

We have served as the Company's auditor since 2006.

 

Philadelphia, Pennsylvania

February 24, 2023

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 MIDDLESEX WATER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(In thousands except per share amounts)

 

   Years Ended December 31,
   2022  2021  2020
          
Operating Revenues  $162,434   $143,141   $141,592 
                
Operating Expenses:               
Operations and Maintenance   79,096    73,671    70,796 
Depreciation   23,029    21,109    18,472 
Other Taxes   18,208    15,150    14,904 
                
Total Operating Expenses   120,333    109,930    104,172 
                
Gain on Sale of Subsidiary   5,232    
—
    
—
 
                
Operating Income   47,333    33,211    37,420 
                
Other Income (Expense):               
Allowance for Funds Used During Construction   2,314    2,653    4,016 
Other Income (Expense), net   5,389    3,305    363 
                
Total Other Income, net   7,703    5,958    4,379 
                
Interest Charges   9,367    8,114    7,493 
                
Income before Income Taxes   45,669    31,055    34,306 
                
Income Taxes   3,240    (5,488)   (4,119)
                
Net Income   42,429    36,543    38,425 
                
Preferred Stock Dividend Requirements   120    120    120 
                
Earnings Applicable to Common Stock  $42,309   $36,423   $38,305 
                
Earnings per share of Common Stock:               
Basic  $2.40   $2.08   $2.19 
Diluted  $2.39   $2.07   $2.18 
                
Average Number of               
Common Shares Outstanding :               
Basic   17,597    17,492    17,459 
Diluted   17,712    17,607    17,574 

 

See Notes to Consolidated Financial Statements.

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MIDDLESEX WATER COMPANY

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

      December 31,  December 31,
ASSETS     2022  2021
UTILITY PLANT:  Water Production  $249,153   $247,286 
   Transmission and Distribution   735,138    697,200 
   General   97,581    95,658 
   Construction Work in Progress   53,570    24,947 
   TOTAL   1,135,442    1,065,091 
   Less Accumulated Depreciation   214,891    199,723 
   UTILITY PLANT - NET   920,551    865,368 
              
CURRENT ASSETS:  Cash and Cash Equivalents   3,828    3,533 
   Accounts Receivable, net of allowance for uncollectible accounts of $2,326 and $2,574, respectively   16,018    15,311 
   Unbilled Revenues   8,659    7,273 
   Materials and Supplies (at average cost)   6,177    5,358 
   Prepayments   2,624    2,880 
   TOTAL CURRENT ASSETS   37,306    34,355 
              
OTHER ASSETS:  Operating Lease Right of Use Asset   3,826    4,503 
   Preliminary Survey and Investigation Charges   2,806    3,540 
   Regulatory Assets   90,046    100,738 
   Non-utility Assets - Net   11,207    11,428 
   Employee Benefit Plans   8,689    
—
 
   Other   19    83 
   TOTAL OTHER ASSETS   116,593    120,292 
   TOTAL ASSETS  $1,074,450   $1,020,015 
              
CAPITALIZATION AND LIABILITIES         
              
              
CAPITALIZATION:  Common Stock, No Par Value  $233,054   $221,919 
   Retained Earnings   167,274    145,807 
   TOTAL COMMON EQUITY   400,328    367,726 
   Preferred Stock   2,084    2,084 
   Long-term Debt   290,280    306,520 
   TOTAL CAPITALIZATION   692,692    676,330 
              
CURRENT  Current Portion of Long-term Debt   17,462    6,731 
LIABILITIES:  Notes Payable   55,500    13,000 
   Accounts Payable   24,847    21,125 
   Accrued Taxes   12,162    8,621 
   Accrued Interest   2,535    1,986 
   Unearned Revenues and Advanced Service Fees   1,365    1,330 
   Other   3,988    3,826 
   TOTAL CURRENT LIABILITIES   117,859    56,619 
              
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)
 
    
 
 
              
OTHER LIABILITIES:  Customer Advances for Construction   21,382    23,529 
   Lease Obligations   3,706    4,367 
   Accumulated Deferred Income Taxes   77,783    69,500 
   Employee Benefit Plans   
—
    11,290 
   Regulatory Liabilities   46,734    49,431 
   Other   919    1,086 
   TOTAL OTHER LIABILITIES   150,524    159,203 
              
CONTRIBUTIONS IN AID OF CONSTRUCTION   113,375    127,863 
   TOTAL CAPITALIZATION AND LIABILITIES  $1,074,450   $1,020,015 

 

See Notes to Consolidated Financial Statements.

41 

 

MIDDLESEX WATER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

   Years Ended December 31,
   2022  2021  2020
CASH FLOWS FROM OPERATING ACTIVITIES:               
Net Income  $42,429   $36,543   $38,425 
Adjustments to Reconcile Net Income to               
Net Cash Provided by Operating Activities:               
Depreciation and Amortization   27,475    26,799    20,838 
Provision for Deferred Income Taxes   (5,334)   (10,989)   (13,490)
Equity Portion of Allowance for Funds Used During Construction (AFUDC)   (1,387)   (1,505)   (2,503)
Cash Surrender Value of Life Insurance   401    (136)   (391)
Stock Compensation Expense   1,630    1,338    1,096 
Gain on Sale of Subsidiary   (5,232)          
Changes in Assets and Liabilities:               
Accounts Receivable   (707)   (742)   (2,661)
Unbilled Revenues   (1,386)   (208)   118 
Materials & Supplies   (819)   (246)   333 
Prepayments   256    6    (519)
Accounts Payable   3,722    (9,318)   7,137 
Accrued Taxes   3,541    (1,517)   2,503 
Accrued Interest   549    (151)   106 
Employee Benefit Plans   (4,266)   (2,645)   (1,377)
Unearned Revenue & Advanced Service Fees   35    75    44 
Other Assets and Liabilities   454    (4,276)   3,696 
                
NET CASH PROVIDED BY OPERATING ACTIVITIES   61,361    33,028    53,355 
CASH FLOWS FROM INVESTING ACTIVITIES:               
Utility Plant Expenditures, Including AFUDC of $927 in 2022, $1,148 in 2021 and $1,513 in 2020   (91,335)   (79,378)   (105,619)
Proceeds from Sale of Subsidiary   3,122    
—
    
—
 
                
NET CASH USED IN INVESTING ACTIVITIES   (88,213)   (79,378)   (105,619)
CASH FLOWS FROM FINANCING ACTIVITIES:               
Redemption of Long-term Debt   (7,423)   (52,691)   (7,472)
Proceeds from Issuance of Long-term Debt   2,662    86,595    50,316 
Net Short-term Bank Borrowings   42,500    11,000    (18,000)
Deferred Debt Issuance Expense   (624)   (994)   (148)
Common Stock Issuance Expense   (32)   
—
    (37)
Proceeds from Issuance of Common Stock   10,335    3,837    1,230 
Payment of Common Dividends   (20,810)   (19,373)   (18,178)
Payment of Preferred Dividends   (120)   (120)   (120)
Construction Advances and Contributions-Net   659    11,225    8,578 
                
NET CASH PROVIDED BY FINANCING ACTIVITIES   27,147    39,479    16,169 
NET CHANGES IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH   295    (6,871)   (36,095)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD   3,533    10,404    46,499 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD  $3,828   $3,533   $10,404 
                
                
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:               
Utility Plant received as Construction Advances and Contributions  $6,252   $4,750   $5,080 
Long-term Debt Deobligation  $
—
   $64   $258 
Non-Cash Consideration for Sale of Subsidiary  $2,100   $
—
   $
—
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:               
Cash Paid During the Year for:               
Interest  $9,251   $8,546   $7,644 
Interest Capitalized  $927   $1,148   $1,513 
Income Taxes  $3,230   $3,335   $2,509 

 

See Notes to Consolidated Financial Statements.

42 

 

MIDDLESEX WATER COMPANY

 CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND LONG-TERM DEBT

(In thousands)

 

   December 31,  December 31,
   2022  2021
Common Stock, No Par Value          
Shares Authorized - 40,000   
 
    
 
 
Shares Outstanding - 2022 - 17,642; 2021 - 17,522  $233,054   $221,919 
           
Retained Earnings   167,274    145,807 
TOTAL COMMON EQUITY  $400,328   $367,726 
           
Cumulative Preferred Stock, No Par Value:          
Shares Authorized - 120   
 
    
 
 
Shares Outstanding - 20   
 
    
 
 
Convertible:          
Shares Outstanding, $7.00 Series - 10  $1,005   $1,005 
Nonredeemable:          
Shares Outstanding, $7.00 Series -   1   79    79 
Shares Outstanding, $4.75 Series - 10   1,000    1,000 
TOTAL PREFERRED STOCK  $2,084   $2,084 
           
Long-term Debt:          
First Mortgage Bonds, 0.00%-5.50%, due 2023-2059  $252,269   $203,892 
Amortizing Secured Notes, 3.94%-7.05%, due 2028-2046   44,918    47,613 
State Revolving Trust Notes, 2.00%-4.22%, due 2025-2038   9,200    7,510 
Construction Loans, 0.00%   —    52,131 
SUBTOTAL LONG-TERM DEBT   306,387    311,146 
Add: Premium on Issuance of Long-term Debt   6,873    7,271 
Less: Unamortized Debt Expense   (5,518)   (5,166)
Less: Current Portion of Long-term Debt   (17,462)   (6,731)
TOTAL LONG-TERM DEBT  $290,280   $306,520 

 

See Notes to Consolidated Financial Statements.

43 

 

MIDDLESEX WATER COMPANY

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

(In thousands)

 

   Common  Common      
   Stock  Stock  Retained   
   Shares  Amount  Earnings  Total
             
Balance at January 1, 2020   17,434   $215,125   $108,667   $323,792 
                     
Net Income   —   $
—
   $38,425   $38,425 
Dividend Reinvestment & Common Stock Purchase Plan   19    1,230    
—
    1,230 
Restricted Stock Award - Net - Employees   16    851    
—
    851 
Stock Award - Board Of Directors   4    245    
—
    245 
Cash Dividends on Common Stock ($1.041 per share)   —    
—
    (18,178)   (18,178)
Cash Dividends on Preferred Stock   —    
—
    (120)   (120)
Common Stock Expenses   —    —    (37)   (37)
Balance at December 31, 2020   17,473   $217,451   $128,757   $346,208 
                     
Net Income   —   $
—
   $36,543   $36,543 
Dividend Reinvestment & Common Stock Purchase Plan   40    3,837    
—
    3,837 
Restricted Stock Award - Net - Employees   6    350    
—
    350 
Stock Award - Board Of Directors   3    281    
—
    281 
Cash Dividends on Common Stock ($1.108 per share)   —    
—
    (19,373)   (19,373)
Cash Dividends on Preferred Stock   —    
—
    (120)   (120)
Balance at December 31, 2021   17,522   $221,919   $145,807   $367,726 
                     
Net Income   —   $—   $42,429   $42,429 
Dividend Reinvestment & Common Stock Purchase Plan   114    10,335    
—
    10,335 
Restricted Stock Award - Net - Employees   3    520    
—
    520 
Stock Award - Board Of Directors   3    280    
—
    280 
Cash Dividends on Common Stock ($1.1825 per share)   —    
—
    (20,810)   (20,810)
Cash Dividends on Preferred Stock   —    
—
    (120)   (120)
Common Stock Expenses   —    
—
    (32)   (32)
Balance at December 31, 2022   17,642   $233,054   $167,274   $400,328 

 

See Notes to Consolidated Financial Statements.

44 

 

MIDDLESEX WATER COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – Organization, Summary of Significant Accounting Policies and Recent Developments

 

(a) Organization - Middlesex Water Company (Middlesex or the Company) is the parent company and sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), Utility Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy) Inc. (USA-PA) and Twin Lakes Utilities, Inc. (Twin Lakes). Southern Shores Water Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc. (White Marsh) are wholly-owned subsidiaries of Tidewater.

 

Middlesex has operated as a water utility in New Jersey since 1897 and in Delaware, through our wholly-owned subsidiary, Tidewater, since 1992. We are in the business of collecting, treating, distributing and selling water for domestic, commercial, municipal, industrial and fire protection purposes. We also operate New Jersey municipal water, wastewater and storm water systems under contract and provide unregulated water and wastewater services in New Jersey and Delaware through our subsidiaries. Our rates charged to customers for water and wastewater services, the quality of services we provide and certain other matters are regulated in New Jersey and Delaware by the New Jersey Board of Public Utilities (NJBPU) and the Delaware Public Service Commission (DEPSC), respectively. Our USA, USA-PA and White Marsh subsidiaries are not regulated utilities.

 

(b) Principles of Consolidation – The financial statements for Middlesex and its wholly-owned subsidiaries (the Company) are reported on a consolidated basis. All significant intercompany accounts and transactions have been eliminated. Other financial investments in which the Company holds a 50% or less voting interest and cannot exercise control over the operation and policies of the investments are accounted for under the equity method of accounting. Under the equity method of accounting, the Company records its investment interests in Non-Utility Assets and its percentage share of the earnings or losses of the investees in Other Income (Expense).

 

(c) System of Accounts – The Company’s regulated utilities maintain their accounts in accordance with the Uniform System of Accounts prescribed by the NJBPU and DEPSC.

 

(d) Regulatory Accounting - We maintain our books and records in accordance with accounting principles generally accepted in the United States of America. Middlesex and certain of its subsidiaries, which account for 93% of Operating Revenues and 99% of Total Assets, are subject to regulation in the state in which they operate. Those companies are required to maintain their accounts in accordance with regulatory authorities’ rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows the guidance provided in Accounting Standards Codification (ASC) 980, Regulated Operations.

 

In accordance with ASC 980, Regulated Operations, costs and obligations are deferred if it is probable that these items will be recognized for rate-making purposes in future rates. Accordingly, we have recorded costs and obligations, which will be amortized over various future periods. Any change in the assessment of the probability of rate-making treatment will require us to change the accounting treatment of the deferred item. We have no reason to believe any of the deferred items that are recorded will be treated differently by the regulators in the future. For additional information, see Note 2 – Rate and Regulatory Matters.

 

(e) Retirement Benefit Plans - We maintain a noncontributory defined benefit pension plan (Pension Plan), which covers all active employees who were hired prior to April 1, 2007, as well as a defined contribution plan in which all employees are eligible to participate. In addition, the Company maintains an unfunded supplemental plan for certain of its executive officers. The Company has a retirement benefit plan other than pensions (Other Benefits Plan) for substantially all of its retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance.

 

The Company’s costs for providing retirement benefits are dependent upon numerous factors, including actual plan experience and assumptions of future experience. Retirement benefit plan obligations and expense are determined

45 

based on investment performance, discount rates and various other demographic factors related to the population participating in the Company’s retirement benefit plans, all of which can change significantly in future years. For more information on the Company’s Retirement Benefit Plans, see Note 7 – Employee Benefit Plans.

 

(f) Utility Plant – Utility Plant is stated at original cost as defined for regulatory purposes. Property accounts are charged with the cost of betterments and major replacements of property. Cost includes direct material, labor and indirect charges for pension benefits and payroll taxes. The cost of labor, materials, supervision and other expenses incurred in making repairs and minor replacements and in maintaining the properties is charged to the appropriate expense accounts. At December 31, 2022, there was no event or change in circumstance that would indicate that the carrying amount of any long-lived asset was not recoverable.

 

(g) Depreciation – Depreciation is computed by each regulated member of the Company utilizing a rate approved by the applicable regulatory authority. The accumulated provision for depreciation is charged with the cost of property retired, less salvage. The following table sets forth the range of depreciation rates for the major utility plant categories used to calculate depreciation for the years ended December 31, 2022, 2021 and 2020. These rates have been approved by the NJBPU or DEPSC:

 

Source of Supply 1.15% -   3.44% Transmission and Distribution (T&D):
Pumping 2.00% -   5.39% T&D – Mains 1.10%  -   3.13%
Water Treatment 1.65% -   7.09% T&D – Services 2.12%  -   3.16%
General Plant 2.08% - 17.84% T&D – Other 1.61%  -   4.63%
Wastewater Collection 1.42% -   1.81%    

 

Non-regulated fixed assets consist primarily of office buildings, furniture and fixtures, and transportation equipment. These assets are recorded at original cost and depreciation is calculated based on the estimated useful lives, ranging from 3 to 42 years.

 

(h) Preliminary Survey and Investigation (PS&I) Costs – In the design of water and wastewater systems that the Company ultimately intends to construct, own and operate, certain expenditures are incurred to advance those project activities. These PS&I costs are recorded as deferred charges on the balance sheet as these costs are expected to be recovered through future rates charged to customers as the underlying project assets are placed into service as utility plant. If it is subsequently determined that costs for a project recorded as PS&I are not recoverable through rates charged to our customers, the applicable PS&I costs are recorded as Other Expense on the Statement of Income at that time.

 

(i) Customers’ Advances for Construction (CAC) – Utility plant and/or cash advances are provided to the Company by customers, real estate developers and builders in order to extend utility service to their properties. These transactions are recorded as CAC. Contractual Refunds of CACs in the form of cash are made by the Company and are based on either additional operating revenues generated from new customers or, as new customers are connected to the respective system. After all refunds are made and/or contract terms have expired, any remaining balance is transferred to Contributions in Aid of Construction.

 

Contributions in Aid of Construction (CIAC) – CIAC include direct non-refundable contributions of utility plant and/or cash and the portion of CAC that becomes non-refundable.

 

In accordance with regulatory requirements, CAC and CIAC are not depreciated. In addition, these amounts reduce the investment base for purposes of setting rates.

 

(j) Allowance for Funds Used During Construction (AFUDC) - Middlesex and its regulated subsidiaries capitalize AFUDC, which represents the cost of financing projects during construction. AFUDC is added to the construction costs of individual projects exceeding specific cost and construction period thresholds established for each company and then depreciated with the utility plant direct costs over the underlying assets’ estimated useful life. AFUDC is calculated using each company’s weighted cost of debt and equity as approved in their most recent

46 

respective regulatory rate order. The AFUDC rates for the years ended December 31, 2022, 2021 and 2020 for Middlesex and Tidewater are as follows:

 

   2022  2021  2020
Middlesex   6.35%   6.50%   6.50%
Tidewater   7.92%   7.92%   7.92%

 

(k) Accounts Receivable – We record bad debt expense based on a variety of factors such as our customers’ payment history, current economic conditions and trending reasonable and supportable forecasts on expected collectability of accounts receivable. The allowance for doubtful accounts was $2.3 million and $2.6 million as of December 31, 2022 and 2021, respectively. For the years ended December 31, 2022, 2021 and 2020, bad debt expense was $0.5 million, $0.9 million and $1.1 million, respectively. For the years ended December 31, 2022, 2021 and 2020, write-offs were $0.7 million, $0.4 million and $0.5 million, respectively.

 

(l) Revenues - The Company’s revenues are primarily generated from regulated tariff-based sales of water and wastewater services and non-regulated operation and maintenance contracts for services on water and wastewater systems owned by others. Revenue from contracts with customers is recognized when control of a promised good or service is transferred to customers at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services.

 

The Company’s regulated revenue results from tariff-based sales from the provision of water and wastewater services to residential, industrial, commercial, fire-protection and wholesale customers. Residential customers are billed quarterly while most industrial, commercial, fire-protection and wholesale customers are billed monthly. Payments by customers are due between 15 to 30 days after the invoice date. Revenue is recognized as the water and wastewater services are delivered to customers as well as from accrual of unbilled revenues estimated from the last meter reading date to the end of the accounting period utilizing factors such as historical customer data, regional weather indicators and general economic conditions in the relevant service territories. Unearned Revenues and Advance Service Fees include fixed service charge billings in advance to Tidewater customers recognized as service is provided to the customer.

 

Non-regulated service contract revenues consist of base service fees as well as fees for additional billable services provided to customers. Fees are billed monthly and are due within 30 days after the invoice date. The Company considers the amounts billed to represent the value of these services provided to customers. These contracts expire at various times through 2032 and contain remaining performance obligations for which the Company expects to recognize revenue in the future. These contracts also contain customary termination provisions.

 

Substantially all of the amounts included in operating revenues and accounts receivable are from contracts with customers. The Company records its allowance for doubtful accounts based on historical write-offs combined with an evaluation of current economic conditions within its service territories.

 

The Company’s contracts do not contain any significant financing components.

47 

The Company’s operating revenues are comprised of the following:

 

   (In Thousands)
   Years Ended December 31,
   2022  2021  2020
Regulated Tariff Sales               
Residential  $84,950   $77,699   $76,798 
Commercial   22,689    16,715    15,448 
Industrial   11,152    8,990    9,512 
Fire Protection   12,726    12,608    12,374 
Wholesale   18,769    14,590    15,187 
Non-Regulated Contract Operations   12,006    12,391    12,130 
Total Revenue from Contracts with Customers  $162,292   $142,993   $141,449 
Other Regulated Revenues   831    929    532 
Other Non-Regulated Revenues   440    427    415 
Inter-segment Elimination   (1,129)   (1,208)   (804)
Total Revenue  $162,434   $143,141   $141,592 

 

(m) Unamortized Debt Expense and Premiums on Long-Term Debt - Unamortized Debt Expense and Premiums on Long-Term Debt, included on the consolidated balance sheet in long-term debt, are amortized over the lives of the related debt issues.

 

(n) Income Taxes - Middlesex files a consolidated federal income tax return for the Company and income taxes are allocated based on the separate return method. Certain income and expense items are accounted for in different time periods for financial reporting than for income tax reporting purposes. Deferred income taxes are provided on differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements. Investment tax credits have been deferred and are amortized over the estimated useful life of the related property. In the event that there are interest and penalties associated with income tax adjustments from income tax authority examinations, these amounts will be reported under interest expense and other expense, respectively. For more information on income taxes, see Note 3 – Income Taxes.

 

(o) Cash and Cash Equivalents - For purposes of reporting cash flows, the Company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents. Cash and cash equivalents represent bank balances and money market funds with investments maturing in less than 90 days.

 

(p) Restricted Cash – Restricted cash includes cash proceeds from loan transactions entered into through government financing programs and are held in trusts for specific capital expenditures or debt service.

 

(q) Use of Estimates - Conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates.

 

(r) Recent Accounting Pronouncements - There are no new adopted or proposed accounting guidance that the Company is aware of that could have a material impact on the Company’s consolidated financial statements.

 

(s) Coronavirus (COVID-19) Pandemic – In January 2023, the United States Secretary of Health and Human Services renewed the determination that a nationwide health emergency exists as a result of the COVID-19 Pandemic with an announced end to the declared health emergency on May 11, 2023. While the Company’s operations and capital construction program have not been materially disrupted to date from the pandemic, the COVID-19 impact on economic conditions nationally and areas the Company operated continues to be uncertain and could affect the Company’s results of operations, financial condition and liquidity in the future. In New Jersey, the declared COVID-19 State of Emergency Order ended in March 2022. In Delaware, the declared COVID-19 State of Emergency Order ended in July 2021.

 

48 

The NJBPU and the DEPSC have approved the tracking of COVID-19 related incremental costs for potential recovery in customer rates in future rate proceedings. Neither jurisdiction has established a timetable or definitive formal procedures for seeking cost recovery. The Company’s allowance for doubtful accounts was increased for expected increases in accounts receivable write-offs due to the financial impact of COVID-19 on customers. The Company has not deferred any COVID-19 related incremental costs. We will continue to monitor the effects of COVID-19.

 

(t) Regulatory Notice of Non-Compliance – In September 2021, the New Jersey Department of Environmental Protection (NJDEP) issued a Notice of Non-Compliance (Notice) to Middlesex based on self-reporting by Middlesex that the level of Perfluorooctanoic Acid (PFOA) in water treated at its Park Avenue Wellfield Treatment Plant in South Plainfield, New Jersey exceeded a recently promulgated NJDEP standard effective in 2021. The NJDEP standard for PFOA was developed based on a Health-based Maximum Contaminant Level of 14 parts per trillion. Neither the NJDEP nor Middlesex has characterized this exceedance as an acute health threat. However, Middlesex was required to notify its affected customers and complied in November 2021 as required by the regulation.

 

The Notice further required the Company to take any action necessary to comply with the new standard by September 7, 2022. Prior to 2021, the Company began design for construction of an enhanced treatment process at the Park Avenue Wellfield Treatment Plant to comply with the new standard prior to the regulation being enacted. Since completion was not expected until mid-2023, in December 2021, the Company implemented an interim solution to meet the Notice requirements. The Park Avenue Wellfield Treatment Plant was temporarily taken off-line and alternate sources of supply were obtained. Simultaneously, the Company accelerated a portion of the enhanced treatment project to allow a restart of the Park Avenue Wellfield Treatment Plant ahead of historical higher water demand periods during the summer months.

 

In June 2022, a portion of the enhanced treatment process was completed, placed into service and is effectively treating the ground water in compliance with all state and federal drinking water standards.

 

On September 13, 2022, the Company entered into an Administrative Consent Order (ACO) with the NJDEP, which requires the Company to take whatever actions are necessary to achieve and maintain compliance with the Safe Drinking Water Act, N.J.S.A, 58:12A-1 et seq., and the Safe Drinking Water Act regulations N.J.A.C. 7:10-1 et seq., including applicable public notifications. The Company’s agreement to enter into an ACO avoided any further Notice regarding the fact that the permanent treatment solution was not in service by September 7, 2022. The Company issued the public notifications in February 2023 and will continue to update and distribute public information as prescribed in the ACO. In addition, in accordance with the ACO:

 

●On or before June 30, 2023, the Company shall complete the permanent construction of the Park Avenue Wellfield treatment upgrades, place the treatment upgrades into operation, and all water at the Park Avenue Wellfield Treatment Plant shall be treated to comply with the PFOA NJDEP standards.

 

●The Company must perform required sample testing and reporting for PFOA subsequent to completion of the Park Avenue Wellfield treatment upgrades.

 

●The Company shall submit to the NJDEP quarterly progress reports detailing the Company’s compliance with the ACO.

 

The Company’s failure to comply with the compliance schedule and/or progress reporting requirements of the ACO could lead to penalties up to $500 per day. In addition, the NJDEP could penalize the Company for other violations, if any, of the ACO.

 

In November 2021, the Company was served with two PFOA-related class action lawsuits seeking restitution for medical, water replacement and other claimed related costs. These lawsuits are in the early stages of the legal process and their ultimate resolution cannot be predicted at this time. The Company’s insurance provider has

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acknowledged coverage of potential liability which may result from these lawsuits. In May 2022, the Company impleaded 3M Company (3M) as a third-party defendant in one of these class action lawsuits. The Company had previously initiated a separate lawsuit against 3M seeking to hold 3M accountable for introduction of perfluoroalkyl substances, which include PFOA, into the Company’s water supply at its Park Avenue Wellfield facility.

 

In January 2022, the Company filed a petition with the NJBPU seeking to establish a regulatory asset and deferred accounting treatment until its next base rate setting proceeding for all costs associated with the interim solution to comply with the Notice. The Company is currently awaiting a decision on this matter from the NJBPU.

 

(u) Sale of Subsidiary –– In January 2022, Middlesex closed on the DEPSC approved sale of 100% of the common stock of its subsidiary Tidewater Environmental Services, Inc. for $6.4 million in cash and other consideration, resulting in a $5.2 million pre-tax gain. The Company will continue to own and operate its regulated water utilities in Delaware as well as its non-regulated operations and maintenance contract business.

 

Note 2 - Rate and Regulatory Matters

 

Rate Matters

 

Middlesex - In December 2021, Middlesex’s petition to the NJBPU seeking permission to increase its base water rates was concluded, based on a negotiated settlement, resulting in an expected increase in annual operating revenues of $27.7 million. The approved tariff rates were designed to recover increased operating costs, as well as a return on invested capital of $513.5 million, based on an authorized return on common equity of 9.6%. The increase was implemented in two phases with $20.7 million of the increase effective January 1, 2022 and the remaining $7.0 million effective January 1, 2023. As part of the negotiated settlement, the Purchased Water Adjustment Clause (PWAC), which is a rate mechanism that allows for recovery of increased purchased water costs between base rate case filings, was reset to zero.

 

In September 2022, the NJBPU approved Middlesex's Emergency Relief Motion to reset its PWAC tariff rate to recover additional costs of $2.7 million for the purchase of treated water from a non-affiliated regulated water utility. The increase, effective October 1, 2022, is on an interim basis and subject to refund with interest, pending final resolution of this matter, which is expected in the second quarter of 2023.

 

In March 2021, the NJBPU approved Middlesex’s annual petition to reset its PWAC tariff rate to recover additional costs of $1.1 million for the purchase of treated water from a non-affiliated regulated water utility.  The new PWAC rate became effective April 4, 2021.

 

Tidewater – On August 31, 2022, the DEPSC issued an Order requiring Tidewater to reduce its base rates charged to general metered and private fire customers by 6%, effective for service rendered on and after September 1, 2022. In June 2022, the Delaware Division of the Public Advocate filed a petition with the DEPSC requesting that Tidewater’s rates be reduced based on the claim that Tidewater had been earning above its authorized rate of return. The rate reduction is expected to reduce annual revenues by approximately $2.2 million.

 

In March 2021, Tidewater was notified by the DEPSC that it had determined Tidewater’s earned rate of return exceeded the rate of return authorized by the DEPSC. Consequently, Tidewater reset its Distribution System Improvement Charge (DSIC) rate to zero effective April 1, 2021 and refunded approximately $1.0 million to customers primarily in the form of an account credit for DSIC revenue previously billed between April 1, 2020 and March 31, 2021. 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.

 

Pinelands – In September 2022, Pinelands Water and Pinelands Wastewater filed separate petitions with the NJBPU seeking permission to increase base rates by approximately $0.6 million and $0.4 million per year, respectively. These requests were necessitated by capital infrastructure investments both companies have made, or have committed to make, and increased operations and maintenance costs. We cannot predict whether the NJBPU will ultimately approve, deny, or reduce the amount of the requests. A decision by the NJBPU in both matters is expected in the first quarter of 2023.

 

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Southern Shores - Effective January 1, 2020, the DEPSC approved the renewal of a multi-year agreement for water service to a 2,200 unit condominium community we serve in Sussex County, Delaware.  Under the agreement, current rates were to remain in effect until December 31, 2024, unless there are unanticipated capital expenditures or regulatory related changes in operating expenses exceeding certain thresholds during this time period. In 2022, capital expenditures did exceed the established threshold and rates were increased by 5.39%, effective January 1, 2023. Beginning in 2025 and thereafter, inflation based rate increases cannot exceed the lesser of the regional Consumer Price Index or, 3%. Inflation based increases are in addition to the threshold rate increases. This agreement expires on December 31, 2029.

 

Twin Lakes Utilities, Inc. (Twin Lakes) - Twin Lakes provides water services to approximately 115 residential customers in Shohola, Pennsylvania. Pursuant to the Pennsylvania Public Utility Code, Twin Lakes filed a petition requesting the Pennsylvania Public Utilities Commission (PAPUC) to order the acquisition of Twin Lakes by a capable public utility. The PAPUC assigned an Administrative Law Judge (ALJ) to adjudicate the matter and submit a recommended decision (Recommended Decision) to the PAPUC. As part of this legal proceeding the PAPUC also issued an Order in January 2021 appointing a large Pennsylvania based investor-owned water utility as the receiver (the Receiver Utility) of the Twin Lakes system until the petition is fully adjudicated by the PAPUC.   In November 2021, the PAPUC issued an Order affirming the ALJ’s Recommended Decision, ordering the Receiver Utility to acquire the Twin Lakes water system and for Middlesex to submit $1.7 million into an escrow account within 30 days. Twin Lakes immediately filed a Petition For Review (PFR) with the Commonwealth Court of Pennsylvania (the Pennsylvania Court) seeking reversal and vacation of the escrow requirement on the grounds that it violates the Pennsylvania Public Utility Code as well as the United States Constitution. In addition, Twin Lakes filed an emergency petition for stay of the PAPUC Order pending the Pennsylvania Court’s review of the merits arguments contained in Twin Lakes’ PFR. In December 2021, the Pennsylvania Court granted Twin Lakes’ emergency petition, pending its review. In August 2022, the Commonwealth Court issued an opinion upholding PAPUC’s November 2021 Order in its entirety. In September 2022, Twin Lakes filed a Petition For Allowance of Appeal to the Supreme Court of Pennsylvania seeking reversal of the Commonwealth Court’s decision to uphold the escrow requirement on the grounds that the Pennsylvania Court erred in failing to address Twin Lakes’ constitutional claims. The timing of the final decision by the Supreme Court of Pennsylvania and the final adjudication of this matter cannot be predicted at this time.

 

The financial results, total assets and financial obligations of Twin Lakes are not material to Middlesex.

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  2022  2021  Recovery Periods
Retirement Benefits  $9,214   $24,926   Various
Income Taxes   74,422    70,427   Various
Rate Cases, Tank Painting, and Other   6,410    5,385   2-10 years
Total  $90,046   $100,738    

 

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.

 

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

 

The 2017 Tax Act reduced the statutory corporate federal income tax rate from 35% to 21%. The tariff rates charged to customers effective prior to 2018 in the Company’s regulated companies include recovery of income taxes at the statutory rate in effect at the time those rates were approved by the respective state public utility commissions. As of December 31, 2022 and 2021, the Company has recorded regulatory liabilities of $29.0 million and $30.4 million, respectively for excess income taxes collected through rates due to the lower income tax rate under the 2017 Tax Act. These regulatory liabilities are overwhelmingly related to utility plant depreciation deduction timing differences, which are subject to Internal Revenue Service (IRS) normalization rules. The IRS rules limit how quickly the excess taxes attributable to accelerated taxes can be returned to customers. The current base rates for Middlesex and Pinelands customers became effective after 2017 and reflect the impact of the 2017 Tax Act on their revenue requirements.

 

As part of Middlesex’s March 2018 base water rate settlement with the NJBPU, Middlesex received approval for regulatory accounting treatment of income tax benefits associated with the adoption of tangible property regulations issued by the IRS, and, as of December 31, 2022 and 2021, the Company has recorded $0.0 and $3.0 million of related regulatory liabilities, respectively,

 

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, 2022 and 2021, the Company has approximately $17.7 million and $16.1 million, respectively, of expected costs of removal recovered currently in rates in excess of actual costs incurred as regulatory liabilities.

 

Note 3 – Income Taxes

 

Income tax (benefit) expense differs from the amount computed by applying the statutory rate on book income subject to tax for the following reasons:

 

   (Thousands of Dollars)
   Years Ended December 31,
   2022  2021  2020
Income Tax at Statutory Rate  $9,590   $6,521   $7,204 
Tax Effect of:               
Utility Plant Related   (1,106)   (1,290)   (1,356)
Tangible Property Repairs   (6,767)   (12,281)   (11,298)
State Income Taxes – Net   1,296    1,499    1,364 
Other   227    63    (33)
Total Income Tax Expense (Benefit)  $3,240   $(5,488)  $(4,119)

 

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Income tax expense (benefit) is comprised of the following:

 

   (Thousands of Dollars)
   Years Ended December 31,
   2022  2021  2020
Current:         
Federal  $425   $(8,247)  $(4,281)
State   1,381    1,467    2,598 
Deferred:               
Federal   1,242    933    (1,490)
State   260    431    (871)
Investment Tax Credits   (68)   (72)   (75)
Total Income Tax (Benefit) Expense  $3,240   $(5,488)  $(4,119)

 

As part of Middlesex’s March 2018 base water rate settlement with the NJBPU, Middlesex received approval for regulatory accounting treatment of income tax benefits associated with the adoption of tangible property regulations issued by the IRS (fully amortized as of March 31, 2022) as well as prospective recognition of the income tax benefits for the immediate deduction of repair costs on tangible property. This results in significant reductions in the Company’s effective income tax rate, current income tax expense (benefit) and deferred income tax expense (benefit).

 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. The components of the net deferred tax liability are as follows:

 

   (Thousands of Dollars)
   December 31,
   2022  2021
Utility Plant Related  $72,996   $65,107 
Customer Advances   (3,568)   (3,595)
Employee Benefits   7,380    7,091 
Investment Tax Credits   304    373 
Other   671    524 
Total Accumulated Deferred Income Taxes  $77,783   $69,500 

 

The Company’s federal income tax returns for the tax years 2014 through 2017 were selected for examination by the IRS, which included the tax year in which the Company had adopted the final IRS tangible property regulations and changed its accounting method for the tax treatment of expenditures that qualified as deductible repairs. As a result of the audit examination, the Company agreed to certain modifications of its accounting method for expenditures that qualify as deductible repairs. In 2019, the Company paid $2.7 million in income taxes and $0.1 million in interest in connection with the conclusion of the 2014 through 2017 federal income tax return audits. The statutory review period for 2018 and prior federal income tax returns has now closed, and as such, in the third quarter of 2022 the Company reversed the December 31, 2021 income tax reserve provision and interest expense liability of $0.5 million and $0.2 million, respectively.

 

The statutory review periods for federal income tax returns for the years prior to 2019 have been closed. There are no unrecognized tax benefits resulting from prior period tax positions.

 

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Note 4 - Commitments and Contingent Liabilities

 

Water Supply - Middlesex has an agreement with the New Jersey Water Supply Authority (NJWSA) for the purchase of untreated water through November 30, 2023, which provides for an average purchase of 27.0 million gallons a day (mgd). Pricing is set annually by the NJWSA through a public rate making process. The agreement has provisions for additional pricing in the event Middlesex overdrafts or exceeds certain monthly and annual thresholds.

 

Middlesex also has an agreement with a non-affiliated NJBPU-regulated water utility for the purchase of treated water. This agreement, which expires February 27, 2026, provides for the minimum purchase of 3.0 mgd of treated water with provisions for additional purchases if needed.

 

Tidewater contracts with the City of Dover, Delaware to purchase treated water of 15.0 million gallons annually.

 

Purchased water costs are shown below:

 

   (Millions of Dollars)
   Years Ended December 31,
   2022  2021  2020
Untreated  $3.2   $3.3   $3.4 
Treated   3.9    3.6    3.6 
Total Costs  $7.1   $6.9   $7.0 

 

Leases - The Company determines if an arrangement is a lease at the inception of the lease. Generally, a lease agreement exists if the Company determines that the arrangement gives the Company control over the use of an identified asset and obtains substantially all of the benefits from the identified asset.

 

The Company has entered into an operating lease of office space for administrative purposes, expiring in 2030. The Company has not entered into any finance leases. The exercise of a lease renewal option for the Company’s administrative offices is solely at the discretion of the Company.

 

The right-of-use (ROU) asset recorded represents the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s operating lease does not provide an implicit discount rate and as such the Company used an estimated incremental borrowing rate (4.03%) based on the information available at commencement date in determining the present value of lease payments.

 

Given the impacts of accounting for regulated operations, and the resulting recognition of expense at the amounts recovered in customer rates, expenditures for operating leases are consistent with lease expense and was $0.8 million for each of the years ended December 31, 2022, 2021 and 2020.

 

Information related to operating lease ROU assets is as follows:

 

   (In Millions)
   December 31,
   2022  2021
ROU Asset at Lease Inception  $7.3   $7.3 
Accumulated Amortization   (3.5)   (2.8)
Current ROU Asset  $3.8   $4.5 

 

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The Company’s future minimum operating lease commitments as of December 31, 2022 are as follows:

 

   (In Millions) 
   December 31, 2022 
2023   0.8 
2024   0.8 
2025   0.8 
2026   0.9 
2027   0.9 
Thereafter   1.8 
Total Lease Payments  $6.0 
Imputed Interest   (1.6)
Present Value of Lease Payments   4.4 
Less Current Portion*   (0.7)
Non-Current Lease Liability  $3.7 
      
*Included in Other Current Liabilities     

 

Construction –The Company has projected to spend approximately $102 million in 2023, $86 million in 2024 and $78 million in 2025 on its construction program. The Company has entered into several contractual construction agreements that in total obligate it to expend an estimated $16.8 million in the future. The actual amount and timing of capital expenditures is dependent on the need for replacement of existing infrastructure, customer growth, residential new home construction and sales, project scheduling, supply chain issues and continued refinement of project scope and costs and could be impacted if the effects of the COVID-19 pandemic continues for an extended period of time (for further discussion of the impact of COVID-19 on the Company, see Note 1(s) COVID-19). There is no assurance that projected customer growth and residential new home construction and sales will occur.

 

Contingencies – Based on our operations in the heavily-regulated water and wastewater industries, the Company is routinely involved in disputes, claims, lawsuits and other regulatory and legal matters, including responsibility for fines and penalties relative to regulatory compliance. At this time, Management does not believe the final resolution of any such matters, whether asserted or unasserted, will have a material adverse effect on the Company’s financial position, results of operations or cash flows. In addition, the Company maintains business insurance coverage that may mitigate the effect of any current or future loss contingencies.

 

PFOA Matter - In November 2021, the Company was served with two PFOA-related class action lawsuits seeking restitution for medical, water replacement and other related costs and economic damages. These lawsuits are in the early stages of the legal process and their ultimate resolution cannot be predicted at this time. The Company’s insurance provider has acknowledged coverage of potential liability resulting from these lawsuits (for further discussion of this matter, see Note 1(t) Regulatory Notice of Non-Compliance).

Change in Control Agreements – The Company has Change in Control Agreements with its executive officers that provide compensation and benefits in the event of termination of employment in connection with a change in control of the Company.

 

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Note 5 – Short-term Borrowings

 

Information regarding the Company’s short-term borrowings for the years ended December 31, 2022 and 2021 is summarized below:

 

   (Millions of Dollars) 
   2022   2021 
Average Amount Outstanding  $28.9   $23.7 
Weighted Average Interest Rate   3.34%   1.12%
Notes Payable at Year-End  $55.5   $13.0 
Weighted Average Interest Rate at Year-End   5.17%   1.04%

 

The Company maintains bank lines of credit aggregating $140.0 million.

 

   (Millions)       
   As of December 31, 2022      Line of Credit
   Outstanding   Available   Maximum   Credit Type  Renewal Date
Bank of America  $15.0   $45.0   $60.0    Uncommitted  January 25, 2024
PNC Bank   39.5    28.5    68.0    Committed  January 31, 2024
CoBank, ACB (CoBank)   1.0    11.0    12.0    Committed  November 30, 2023
   $55.5   $84.5   $140.0       

 

The Bank of America line of credit is renewed on an annual basis and was increased from $30 million to $60 million in January 2022.

 

The maturity dates for the Notes Payable as of December 31, 2022 are in January 2023 through March 2023 and are extendable at the discretion of the Company.

 

The interest rates for borrowings under the Bank of America and PNC Bank lines of credit are set using the Bloomberg Short-Term Bank Yield Index and adding a credit spread, which varies by financial institution. The interest rate for borrowings under the CoBank line of credit are set weekly using CoBank’s internal cost of funds index that is similar to the Standard Overnight Financing Rate and adding a credit spread. There is no requirement for a compensating balance under any of the established lines of credit.

 

Note 6 - Capitalization

 

All the transactions discussed below related to the issuance of securities were approved by either the NJBPU or DEPSC, except where otherwise noted.

 

Common Stock

 

The Company issues shares of its common stock in connection with its Middlesex Water Company Investment Plan (the Investment Plan), a direct share purchase and dividend reinvestment plan for the Company’s common stock. The Company raised approximately $10.3 million under the Investment Plan during 2022. On March 1, 2023, the Company will begin offering shares of its common stock for purchase at a 3% discount to participants in the Investment Plan. The discount offering will continue until 200,000 shares are purchased at the discounted price or December 1, 2023, whichever event occurs first.  The discount applies to all common stock purchases made under the Investment Plan, whether by optional cash payment or by dividend reinvestment. Since the inception of the Investment Plan and its predecessor plan, the Company has periodically replenished the level of authorized shares in the plans. Currently, 0.2 million shares remain registered with the United States Securities and Exchange Commission for the Investment Plan and available for potential issuance to participants. Middlesex has filed a

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petition with the NJBPU seeking to increase the number of authorized shares under the Investment Plan by 0.7 million shares.

 

The Company issues common shares under a restricted stock plan for certain management employees, which is described in Note 7 – Employee Benefit Plans.

 

The Company maintains a stock plan for its independent Directors as a component of outside members of the Board of Directors compensation. For the years ended December 31, 2022, 2021 and 2020, 2,664, 3,444 and 4,074 shares, respectively, of Middlesex common stock were granted and issued to the Company’s independent Directors under the plan. The maximum number of shares authorized for grant under the plan is 100,000, of which 46,461 shares remain available for future awards.

 

In the event dividends on the preferred stock are in arrears, no dividends may be declared or paid on the common stock of the Company.

 

Preferred Stock

 

At December 31, 2022 and 2021, there were 120,000 shares of preferred stock authorized and less than 21,000 shares of preferred stock outstanding. There were no preferred stock dividends in arrears.

 

The Company may not pay any dividends on its common stock unless full cumulative dividends to the preceding dividend date for all outstanding shares of preferred stock have been paid or set aside for payment. If four or more quarterly dividends are in arrears, the preferred shareholders, as a class, are entitled to elect two members to the Board of Directors in addition to Directors elected by holders of the common stock. In addition, if Middlesex were to liquidate, holders of preferred stock would be paid back the stated value of their preferred shares before any distributions could be made to common stockholders.

 

The conversion feature of the no par $7.00 Series Cumulative and Convertible Preferred Stock allows the security holders to exchange one convertible preferred share for twelve shares of the Company's common stock. In addition, the Company may redeem up to 10% of the outstanding convertible stock in any calendar year at a price equal to the fair value of twelve shares of the Company's common stock for each share of convertible stock redeemed.

 

Long-term Debt

 

Subject to regulatory approval, the Company periodically issues long-term debt to fund its investments in utility plant. To the extent possible and fiscally prudent, the Company finances qualifying capital projects under State Revolving Fund (SRF) loan programs in New Jersey and Delaware. These government programs provide financing at interest rates typically below rates available in the broader financial markets. A portion of the borrowings under the New Jersey SRF is interest-free. Under the New Jersey SRF program, borrowers first enter into a construction loan agreement with the New Jersey Infrastructure Bank (NJIB) at a below market interest rate. The interest rate on the Company’s current construction loan borrowings is zero percent (0%). When construction on the qualifying project is substantially complete, NJIB will coordinate the conversion of the construction loan into a long-term securitized loan with a portion of the principal balance having a stated interest rate of zero percent (0%) and a portion of the principal balance at a market interest rate at the time of closing using the credit rating of the State of New Jersey. The term of the long-term loans currently offered through the NJIB is up to thirty years.

 

In May 2022, Middlesex repaid two outstanding NJIB construction loans by issuing First Mortgage Bonds (FMBs) to the NJIB under two loan agreements. The total amount of FMBs issued is $52.2 million and designated as Series 2022A ($16.2 million) and Series 2022B ($36.0 million). The interest rate on the Series 2022A bond is zero and the interest rate on the Series 2022B bond ranges between 2.7% and 3.0%. The final maturity date for both FMBs is August 1, 2056, with scheduled debt service payments over the life of these loans.

 

The NJIB has changed the SRF program for project funding priority ranking, the proportions of interest free loans and market interest rate loans and overall loan limits on interest free loan balances to investor-owned water utilities. These changes affect SRF projects for which the construction loan closes after September 2018. Under the new

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guidelines, the principal balance having a stated interest rate of zero percent (0%) is 25% of the loan balance with the remaining portion of 75% having a market based interest rate. This is limited to the first $10.0 million of the loan. Loan amounts above $10.0 million do not participate in the 0% rate program, but do participate at the market based interest rate. As a result of all these changes, the Company’s future capital funding plan currently does not include participating in the NJIB SRF program.

 

In June 2021, Middlesex received approval from the NJBPU to redeem up to $45.5 million of outstanding FMBs, specifically Series RR ($22.5 million) and Series SS ($23.0 million), and issue replacement FMBs at an overall lower cost of debt. In November 2021, Middlesex closed on a $45.5 million, 2.90% private placement of FMBs, designated as Series 2021B with a 2051 maturity date to effectuate the redemptions.

 

In May 2020, Middlesex received approval from the NJBPU to borrow up to $100 million, in one or more private placement transactions through December 31, 2023 to help fund Middlesex’s multi-year capital construction program. In connection with this approval:

 

●In November 2021, Middlesex closed on a $19.5 million, 2.79% private placement of FMBs with a 2041 maturity date designated as Series 2021A. Proceeds were used to reduce the Company’s outstanding balances under its lines of credit.; and

 

●In November 2020, Middlesex closed on a $40.0 million, 2.90% private placement of FMBs with a 2050 maturity date designated as Series 2020A. Proceeds were used to reduce the Company’s outstanding balances under its lines of credit and for the Company’s 2020 capital program.

 

In December 2021, Tidewater closed on the DEPSC approved $5.0 million Delaware SRF Program loan and began receiving disbursements in January 2022. Tidewater has borrowed $2.6 million under this loan with borrowing expected to continue through mid-2023. The final maturity date on the loan is 2044.

 

In September 2021, Tidewater completed its $20 million secured borrowing with CoBank, at an interest rate of 3.94% with a 2046 maturity date. Proceeds from the loan were used to pay off its outstanding balances under its lines of credit.

 

The aggregate annual principal repayment obligations for all long-term debt over the next five years and thereafter are shown below:

 

Year 

(Millions of Dollars)

Annual Maturities

 
2023  $17.5 
2024  $7.4 
2025  $6.9 
2026  $6.7 
2027  $6.4 
Thereafter  $261.5 

 

The weighted average interest rate on all long-term debt at December 31, 2022 and 2021 was 2.98% and 2.83%, respectively. Except for the FMB Series 2020 ($40.0 million), FMB Series 2021 ($65.0 million) and Amortizing Secured Notes ($44.9 million), all of the Company’s outstanding long-term debt has been issued through the NJEDA ($63.6 million), the NJIB SRF program ($83.7 million) and the Delaware SRF program ($9.2 million).

 

Substantially all of the utility plant of the Company is subject to the lien of its mortgage, which includes debt service and capital ratio covenants. The Company is in compliance with all of its mortgage covenants and restrictions.

 

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Earnings Per Share

 

The following table presents the calculation of basic and diluted earnings per share (EPS) for the years ended December 31, 2022, 2021 and 2020. Basic EPS is computed on the basis of the weighted average number of shares outstanding. Diluted EPS assumes the conversion of the Convertible Preferred Stock $7.00 Series.

 

   (In Thousands, Except Per Share Amounts) 
   2022   2021   2020     
Basic:  Income   Shares   Income   Shares   Income   Shares 
Net Income  $42,429    17,597   $36,543    17,492   $38,425    17,459 
Preferred Dividend   (120)        (120)        (120)     
Earnings Applicable to Common Stock  $42,309    17,597   $36,423    17,492   $38,305    17,459 
Basic EPS  $2.40        $2.08        $2.19      
Diluted:                              
Earnings Applicable to Common Stock  $42,309    17,597   $36,423    17,492   $38,305    17,459 
$7.00 Series Dividend   67    115    67    115    67    115 
Adjusted Earnings Applicable to Common Stock  $42,376    17,712   $36,490    17,607   $38,372    17,574 
Diluted EPS  $2.39        $2.07        $2.18      

 

Fair Value of Financial Instruments

 

The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments for which it is practicable to estimate that value. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and notes payable approximate their respective fair values due to the short-term maturities of these instruments. The fair value of FMBs and SRF Bonds (collectively, the Bonds) issued by Middlesex is based on quoted market prices for similar issues. Under the fair value hierarchy, the fair value of cash and cash equivalents is classified as a Level 1 measurement and the fair value of notes payable and the Bonds in the table below are classified as Level 2 measurements. The carrying amount and fair value of the Bonds were as follows:

 

 

   (Thousands of Dollars) 
   At December 31, 
   2022   2021 
   Carrying   Fair   Carrying   Fair 
   Amount   Value   Amount   Value 
FMBs  $147,269   $138,756   $98,828   $107,781 

 

It was not practicable to estimate their fair value on our outstanding long-term debt for which there is no quoted market price and there is not an active trading market. For details, including carrying value, interest rate and due date on these series of long-term debt, please refer to those series of long-term debt titled “Amortizing Secured Notes”, “State Revolving Trust Notes”, “State Revolving Fund Bond” and “Construction Loans” on the Consolidated Statements of Capital Stock and Long-Term Debt. The carrying amount of these instruments was $159.1 million and $212.3 million at December 31, 2022 and 2021, respectively. Customer advances for construction have carrying amounts of $21.4 million and $23.5 million at December 31, 2022 and 2021, respectively. Their relative fair values cannot be accurately estimated since future refund payments depend on several variables, including new customer connections, customer consumption levels and future rate increases.

 

59 

 

Note 7 - Employee Benefit Plans

 

Pension Benefits

The Company’s Pension Plan covers all active employees hired prior to April 1, 2007. Employees hired after March 31, 2007 are not eligible to participate in this plan, but can participate in a defined contribution profit sharing plan that provides an annual contribution at the discretion of the Company, based upon a percentage of the participants’ annual paid compensation. In order to be eligible for contribution, the eligible employee must be employed by the Company on December 31st of the year to which the contribution relates. The Company maintains an unfunded supplemental plan for a limited number of its executive officers. The Accumulated Benefit Obligation for the Company’s Pension Plan at December 31, 2022 and 2021 was $79.4 million and $100.4 million, respectively.

 

Other Benefits

The Company’s Other Benefits Plan covers substantially all of its current retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance.

 

Regulatory Treatment of Over/Underfunded Retirement Obligations

 

Because the Company is subject to rate regulation in the states in which it operates, it is required to maintain its accounts in accordance with the regulatory authority’s rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows the guidance of ASC 980, Regulated Operations. Based on prior regulatory practice, and in accordance with the guidance in ASC 980, Regulated Operations, the Company records underfunded Pension Plan and Other Benefits Plan obligation costs, which otherwise would be recognized in Other Comprehensive Income under ASC 715, Compensation – Retirement Benefits, as a Regulatory Asset, and expects to recover those costs in rates charged to customers.

 

The Company uses a December 31 measurement date for all of its employee benefit plans. The tables below set forth information relating to the Company’s Pension Plan and Other Benefits Plan for 2022 and 2021.

 

   (Thousands of Dollars)
   Pension Plan  Other Benefits Plan
   December 31,
   2022  2021  2022  2021
Change in Projected Benefit Obligation:                    
Beginning Balance  $113,710   $115,861   $49,396   $52,776 
Service Cost   2,362    2,696    799    917 
Interest Cost   3,042    2,706    1,325    1,236 
Actuarial (Gain) Loss   (27,850)   (4,185)   (17,761)   (4,705)
Benefits Paid   (3,476)   (3,368)   (850)   (828)
Ending Balance  $87,788   $113,710   $32,909   $49,396 

 

60 

   (Thousands of Dollars)
   Pension Plan  Other Benefits Plan
   December 31,
   2022  2021  2022  2021
Change in Fair Value of Plan Assets:            
Beginning Balance  $100,750   $88,921   $50,668   $44,892 
Actual Return on Plan Assets   (14,346)   11,798    (6,639)   5,776 
Employer Contributions   1,900    3,400    850    828 
Benefits Paid   (3,476)   (3,369)   (850)   (828)
Ending Balance  $84,828   $100,750   $44,029   $50,668 
                     
Funded Status  $(2,960)  $(12,960)  $11,120   $1,272 

 

   (Thousands of Dollars)
   Pension Plan  Other Benefits Plan
   December 31,
   2022  2021  2022  2021
Amounts Recognized in the Consolidated                    
Balance Sheets consist of:                    
Current Liability  $529   $398   $
—
   $
—
 
Noncurrent Liability (Asset)   2,431    12,562    (11,120)   (1,272)
Net Liability (Asset) Recognized  $2,960   $12,960   $(11,120)  $(1,272)

 

   (Thousands of Dollars)
   Pension Plan  Other Benefits Plan
   Years Ended December 31,
   2022  2021  2020  2022  2021  2020
Components of Net Periodic Benefit Cost                  
Service Cost  $2,363   $2,696   $2,434   $799   $917   $993 
Interest Cost   3,042    2,706    3,099    1,325    1,236    1,699 
Expected Return on Plan Assets   (7,041)   (6,225)   (5,635)   (3,547)   (3,142)   (2,853)
Amortization of Net Actuarial Loss   1,673    2,868    2,059    
—
    527    1,352 
Net Periodic Benefit Cost*  $37   $2,045   $1,957   $(1,423)  $(462)  $1,191 

 

*Service cost is included in Operations and Maintenance expense on the consolidated statements of income; all other amounts are included in Other Income (Expense), net.

 

Amounts that are expected to be amortized from Regulatory Assets into Net Periodic Benefit Cost in 2023 are as follows:

   (Thousands of Dollars)
  

 

Pension
Plan

  Other
 Benefits Plan
Actuarial Loss (Gain)  $658   $(191)

 

61 

The discount rate and compensation increase rate for determining our postretirement benefit plans’ benefit obligations and costs as of and for the years ended December 31, 2022, 2021 and 2020, respectively, are as follows:

 

   Pension Plan  Other Benefits Plan
   2022  2021  2020  2022  2021  2020
Weighted Average Assumptions:                              
Expected Return on Plan Assets   7.00%   7.00%   7.00%   7.00%   7.00%   7.00%
Discount Rate for:                              
Benefit Obligation   4.98%   2.72%   2.37%   4.98%   2.72%   2.37%
Benefit Cost   2.72%   2.37%   3.12%   2.72%   2.37%   3.12%
Compensation Increase for:                              
Benefit Obligation   3.00%   3.00%   3.00%   3.00%   3.00%   3.00%
Benefit Cost   3.00%   3.00%   3.00%   3.00%   3.00%   3.00%

 

The compensation increase assumption for the Other Benefits Plan is attributable to life insurance provided to qualifying employees upon their retirement. The insurance coverage will be determined based on the employee’s base compensation as of their retirement date.

 

The Company utilizes the Society of Actuaries’ mortality table (Pri-2012) (Mortality Improvement Scale MP2021 for the 2022 valuation).

 

For the 2022 valuation, costs and obligations for our Other Benefits Plan assumed a 7.5% annual rate of increase in the per capita cost of covered healthcare benefits in 2022 with the annual rate of increase declining 0.5% per year for 2023-2028, resulting in an annual rate of increase in the per capita cost of covered healthcare benefits of 4.5% by year 2029.

 

A one-percentage point change in assumed healthcare cost trend rates would have the following effects on the Other Benefits Plan:

 

   (Thousands of Dollars)
   1 Percentage Point
   Increase  Decrease
Effect on Current Year Service and Interest Costs  $435   $(334)
Effect on Projected Benefit Obligation  $4,239   $(3,448)

 

The following benefit payments, which reflect expected future service, are expected to be paid:

 

   (Thousands of Dollars)
Year  Pension Plan  Other Benefits Plan
2023  $4,153   $1,262 
2024   4,961    1,423 
2025   5,349    1,550 
2026   5,344    1,645 
2027   5,437    1,699 
2028-2032   28,483    9,363 
  Totals  $53,727   $16,942 

 

62 

 

Benefit Plans Assets

 

The allocation of plan assets at December 31, 2022 and 2021 by asset category is as follows:

 

   Pension Plan  Other Benefits Plan
Asset Category  2022  2021  Target  2022  2021  Target
Equity Securities   53.6%   59.6%   55%   55.2%   66.8%   43%
Debt Securities   40.9%   37.9%   38%   24.7%   30.7%   50%
Cash   3.9%   1.0%   2%   20.1%   2.5%   2%
Real Estate/Commodities   1.6%   1.5%   5%   0.0%   0.0%   5%
Total   100.0%   100.0%        100.0%   100.0%     

 

Two outside investment firms each manage a portion of the Pension Plan asset portfolio. One of those investment firms also manages the Other Benefits Plan asset portfolio. Quarterly meetings are held between the Company’s Pension Committee of the Board of Directors and the investment managers to review their performance and asset allocation. If the actual asset allocation is outside the targeted range, the Pension Committee reviews current market conditions and advice provided by the investment managers to determine the appropriateness of rebalancing the portfolio.

 

The objective of the Company is to maximize the long-term return on retirement plan assets, relative to a reasonable level of risk, maintain a diversified investment portfolio and maintain compliance with the Employee Retirement Income Security Act of 1974. The expected long-term rate of return is based on the various asset categories in which plan assets are invested and the current expectations and historical performance for these categories.

 

Fair Value Measurements

 

Accounting guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:

 

●Level 1 – Inputs to the valuation methodology are unadjusted quoted market prices for identical assets or liabilities in accessible active markets.
●Level 2 – Inputs to the valuation methodology that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. If the asset or liability has a specified contractual term, the Level 2 input must be observable for substantially the full term of the asset or liability.
●Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

Certain investments in cash and cash equivalents, equity securities, and commodities are valued based on quoted market prices in active markets and are classified as Level 1 investments. Certain investments in cash and cash equivalents, equity securities and fixed income securities are valued using prices received from pricing vendors that utilize observable inputs and are therefore classified as Level 2 investments.

 

63 

 

The following tables present Middlesex’s Pension Plan assets measured and recorded at fair value within the fair value hierarchy:

 

   (Thousands of Dollars)
   As of December 31, 2022
   Level 1  Level 2  Level 3  Total
Mutual Funds  $71,559   $
—
   $
—
   $71,559 
Money Market Funds   3,271    
—
    
—
    3,271 
Common Equity Securities   9,998    
—
    
—
    9,998 
Total Investments  $84,828   $
—
   $
—
   $84,828 

 

   (Thousands of Dollars)
   As of December 31, 2021
   Level 1  Level 2  Level 3  Total
Mutual Funds  $87,687   $
—
   $
—
   $87,687 
Money Market Funds   1,057    
—
    
—
    1,057 
Common Equity Securities   12,006    
—
    
—
    12,006 
Total Investments  $100,750   $
—
   $
—
   $100,750 

 

The following tables present Middlesex’s Other Benefits Plan assets measured and recorded at fair value within the fair value hierarchy:

 

   (Thousands of Dollars)
   As of December 31, 2022
   Level 1  Level 2  Level 3  Total
Mutual Funds  $23,660   $
—
   $
—
   $23,660 
Money Market Funds   8,623    
—
    
—
    8,623 
Agency/US/State/Municipal Debt   
—
    10,592    
—
    10,592 
Other   1,154    
—
    
—
    1,154 
Total Investments  $33,437   $10,592   $
—
   $44,029 

  

   (Thousands of Dollars)
   As of December 31, 2021
   Level 1  Level 2  Level 3  Total
Mutual Funds  $33,844   $
—
   $
—
   $33,844 
Money Market Funds   1,291    
—
    
—
    1,291 
Agency/US/State/Municipal Debt   
—
    15,533    
—
    15,533 
Total Investments  $35,135   $15,533   $
—
   $50,668 

 

Benefit Plans Contributions

For the Pension Plan, Middlesex made total cash contributions of $1.9 million in 2022 and expects to make approximately $2.0 million of cash contributions in 2023.

 

For the Other Benefits Plan, Middlesex made total cash contributions of $0.9 million in 2022 and expects to make approximately $0.9 million of cash contributions in 2023.

 

64 

 

401(k) Plan

 

The Company maintains a 401(k) defined contribution plan, which covers substantially all employees with more than 1,000 hours of service. Under the terms of the Plan, the Company matches 100% of a participant’s contributions, which do not exceed 1% of a participant’s compensation, plus 50% of a participant’s contributions exceeding 1%, but not more than 6%. The Company’s matching contribution was $0.7 million for each of the years ended December 31, 2022, 2021 and 2020.

 

Employees hired after March 31, 2007 are not eligible to participate in the Pension Plan and are generally eligible to participate in a discretionary profit sharing plan administered through the 401(k) plan. In December each year, the Board of Directors may approve that a stated percentage of eligible compensation be contributed to the account of the employee participant in the first quarter of the following year. For those employees still actively employed on December 31, 2022 or retired during the current year, the Company will fund a discretionary contribution of $0.9 million before April 1, 2023, which represents 5.0% of eligible 2022 compensation. For the years ended December 31, 2021 and 2020, the Company made qualifying discretionary contributions totaling $0.8 million and $0.7 million, respectively.

 

Stock-Based Compensation

The Company maintains a long-term incentive compensation plan for certain management employees where awards are made in the form of restricted common stock. Shares of restricted stock issued under the plan are subject to forfeiture by the employee in the event of termination of employment for any reason within five years of the award other than as a result of retirement at normal retirement age, death, disability or change in control. The maximum number of shares authorized for award under the plan is 300,000 shares, of which approximately 80% remain available for award.

 

The Company recognizes compensation expense at fair value for the plan awards in accordance with ASC 718, Compensation – Stock Compensation. Compensation expense is determined by the market value of the stock on the date of the award and is being amortized over the expected vesting period.

 

The following table presents awarded but not yet vested share information for the plan:

 

   Shares(thousands)   Unearned
Compensation
(thousands)		   Weighted Average
Granted Price		 
Balance, January 1, 2020   97    1,706      
Granted   16    982   $60.12 
Vested   (27)   
—
      
Amortization of Compensation expense   
—
    (851)     
Balance, December 31, 2020   86    1,837      
Granted   15    1,151   $79.02 
Vested   (18)   
 
      
Amortization of Compensation expense   
—
    (1,057)     
Balance, December 31, 2021   83    1,931      
Granted   11    1,151   $105.17 
Vested   (17)   
—
      
Amortization of Compensation expense   
—
    (1,350)     
Balance, December 31, 2022   77   $1,732      

65 

 

Note 8 – Business Segment Data

 

The Company has identified two reportable segments. One is the regulated business of collecting, treating and distributing water on a retail and wholesale basis to residential, commercial, industrial and fire protection customers in parts of New Jersey and Delaware. This segment also includes regulated wastewater systems in New Jersey and Delaware. The Company is subject to regulations as to its rates, services and other matters by the states of New Jersey and Delaware with respect to utility service within these states. The other segment is primarily comprised of non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in New Jersey and Delaware.

 

Inter-segment transactions relating to operational costs are treated as pass-through expenses. Finance charges on inter-segment loan activities are based on interest rates that are below what would normally be charged by a third party lender.

 

   (Thousands of Dollars) 
   Years Ended December 31, 
Operations by Segments:  2022   2021   2020 
Revenues:            
Regulated  $151,117   $131,531   $129,851 
Non – Regulated   12,446    12,818    12,545 
Inter-segment Elimination   (1,129)   (1,208)   (804)
Consolidated Revenues  $162,434   $143,141   $141,592 
                
Operating Income:               
Regulated  $44,257   $29,577   $34,043 
Non – Regulated   3,076    3,634    3,377 
Consolidated Operating Income  $47,333   $33,211   $37,420 
                
Depreciation:               
Regulated  $22,783   $20,897   $18,264 
Non – Regulated   246    212    208 
Consolidated Depreciation  $23,029   $21,109   $18,472 
                
Other Income (Expense), Net:               
Regulated  $7,898   $6,112   $4,605 
Non – Regulated   279    279    130 
Inter-segment Elimination   (474)   (433)   (356)
Consolidated Other Income (Expense), Net  $7,703   $5,958   $4,379 
                
Interest Expense:               
Regulated  $9,833   $8,529   $7,780 
Non – Regulated   7    17    70 
Inter-segment Elimination   (473)   (432)   (357)
Consolidated Interest Expense  $9,367   $8,114   $7,493 
                
Income Taxes:               
Regulated  $2,084   $(6,723)  $(5,139)
Non – Regulated   1,156    1,235    1,020 
Consolidated Income Taxes  $3,240   $(5,488)  $(4,119)
             
Net Income:            
Regulated  $40,229   $33,849   $35,951 
Non – Regulated   2,200    2,694    2,474 
Consolidated Net Income  $42,429   $36,543   $38,425 
             
Capital Expenditures:            
Regulated  $91,054   $79,195   $105,091 
Non – Regulated   281    183    528 
Total Capital Expenditures  $91,335   $79,378   $105,619 

 

66 

  

As of

December 31, 2022

  

As of

December 31, 2021

 
Assets:          
Regulated  $1,079,180   $1,022,116 
Non – Regulated   6,999    7,811 
Inter-segment Elimination   (11,729)   (9,912)
Consolidated Assets  $1,074,450   $1,020,015 

 

Note 9 - Quarterly Data - Unaudited

 

Financial information for each quarter of 2022 and 2021 is as follows:

 

   (Thousands of Dollars, Except per Share Data) 
2022  1st   2nd   3rd   4th   Total 
                     
Operating Revenues  $36,196   $39,683   $47,732   $38,823   $162,434 
Gain on Sale of Subsidiary   5,232    —    —    —    5,232 
Operating Income   12,523    10,088    16,575    8,146    47,332 
Net Income   12,100    8,868    14,291    7,169    42,428 
Basic Earnings per Share  $0.69   $0.50   $0.81   $0.40   $2.40 
Diluted Earnings per Share  $0.68   $0.50   $0.81   $0.40   $2.39 
Common Dividend Per Share  $0.2900   $0.2900   $0.2900   $0.3125   $1.1825 
High/Low Common Stock Price    $94.56/$121.10     $75.77/$108.27     $77.08/$96.19     $74.20/$95.82      

 

2021  1st   2nd   3rd   4th   Total 
                          
Operating Revenues  $32,541   $36,701   $39,874   $34,025   $143,141 
Operating Income   5,634    9,814    11,424    6,339    33,211 
Net Income   6,907    10,923    11,476    7,237    36,543 
Basic Earnings per Share  $0.39   $0.62   $0.65   $0.42   $2.08 
Diluted Earnings per Share  $0.39   $0.62   $0.65   $0.41   $2.07 
Common Dividend Per Share  $0.2725   $0.2725   $0.2725   $0.2900   $1.1075 
High/Low Common Stock Price    $85.92/$67.09     $88.61/$77.31     $116.40/$81.02     $119.37/$98.12      

 

The information above, in the opinion of the Company, includes all adjustments consisting only of normal recurring accruals necessary for a fair presentation of such amounts. The business of the Company is subject to seasonal fluctuation with the peak period usually occurring during the summer months. The quarterly earnings per share amounts above may differ slightly from previous filings due to the effects of rounding.

 

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

 

ITEM 9A.CONTROLS AND PROCEDURES

 

(1) Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding disclosure.

67 

As required by Rule 13a-15 under the Exchange Act, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was conducted by the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer for the quarter ended December 31, 2022. Based upon that evaluation the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded:

(a) Disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) No changes in internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Accordingly, management believes the consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

(2) Management’s Report on Internal Control Over Financial Reporting

 

The management of Middlesex Water Company (Middlesex or the Company) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13A-15(f) and 15d-15(f). Middlesex’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors of adequate preparation and fair presentation of the published financial statements.

 

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the adequacy of financial statement preparation and presentation. Middlesex’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on our assessment, we believe that as of December 31, 2022, the Company’s internal control over financial reporting is operating as designed and is effective based on those criteria.

 

Middlesex’s independent registered public accounting firm (PCAOB ID 23) has audited the effectiveness of our internal control over financial reporting as of December 31, 2022 as stated in their report which is included herein.

 

  /s/ Dennis W. Doll /s/ A. Bruce O’Connor
Dennis W. Doll A. Bruce O’Connor
President and Senior Vice President, Treasurer and
Chief Executive Officer Chief Financial Officer

 

Iselin, New Jersey

February 24, 2023

 

ITEM 9B.OTHER INFORMATION.

 

None.

 

ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

 

Not applicable.

68 

 

PART III

 

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Information with respect to Directors of Middlesex Water Company is included in Middlesex Water Company’s Proxy Statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference.

 

Information regarding the Executive Officers of Middlesex Water Company is included under Item 1. in Part I of this Annual Report.

 

ITEM 11.EXECUTIVE COMPENSATION.

 

This Information for Middlesex Water Company is included in Middlesex Water Company’s Proxy Statement for the 2022 Annual Meeting of Stockholders and is incorporated herein by reference.

 

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

This information for Middlesex Water Company is included in Middlesex Water Company’s Proxy Statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference.

 

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

This information for Middlesex Water Company is included in Middlesex Water Company’s Proxy Statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference.

 

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

This information for Middlesex Water Company is included in Middlesex Water Company’s Proxy Statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference.

 

69 

 

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
   
1.The following Financial Statements and Supplementary Data are included in Part II- Item 8. of this Annual Report:

Consolidated Balance Sheets at December 31, 2022 and 2021.

Consolidated Statements of Income for each of the three years in the period ended December 31, 2022.

 

Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2022.

 

Consolidated Statements of Capital Stock and Long-term Debt as of December 31, 2022 and 2021.

Consolidated Statements of Common Stockholders’ Equity for each of the three years in the period ended December 31, 2022.

Notes to Consolidated Financial Statements.

 

2. Financial Statement Schedules

 

All Schedules are omitted because of the absence of the conditions under which they are required or because the required information is shown in the financial statements or notes thereto.

 

3.Exhibits

 

See Exhibit listing immediately following the signature page.

 

ITEM 16.FORM 10-K SUMMARY.

None.

70 

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

MIDDLESEX WATER COMPANY  
     
By: /s/ Dennis W. Doll  
  Dennis W. Doll  
  President and Chief Executive Officer  
Date: February 24, 2023  
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 24, 2023.
     
By: /s/ A. Bruce O’Connor  
  A. Bruce O’Connor  
  Senior Vice President, Treasurer and Chief Financial Officer  
  (Principal Financial Officer and Principal Accounting Officer)  
     
By: /s/ Dennis W. Doll  
  Dennis W. Doll  
  Chairman of the Board, President, Chief Executive Officer and Director  
  (Principal Executive Officer)  
     
By: /s/ Joshua Bershad, M.D.  
  Joshua Bershad, M.D.  
  Director  
     
By: /s/ James F. Cosgrove Jr.  
  James F. Cosgrove Jr.  
  Director  
     
By: /s/ Kim C. Hanemann  
  Kim C. Hanemann  
  Director  
     
By: /s/ Steven M. Klein  
  Steven M. Klein  
  Director  
     
By: /s/ Amy B. Mansue  
  Amy B. Mansue  
  Director  
     
By: /s/ Vaughn L. McKoy  
  Vaughn L. McKoy  
  Director  
By: /s/ Ann L. Noble  
  Ann L. Noble  
  Director  
By: /s/ Walter G. Reinhard  
  Walter G. Reinhard  
  Director  

 

71 

 

EXHIBIT INDEX

 

Exhibits designated with an asterisk (*) are filed herewith. The exhibits not so designated have heretofore been filed with the Commission and are incorporated herein by reference to the documents indicated in the previous filing columns following the description of such exhibits. Exhibits designated with a dagger (t) are management contracts or compensatory plans.

 

 

 

Exhibit No.

 

 

Document Description

Previous

Registration

No.

Filing’s

Exhibit

No.

3.1 The Restated Certificate of Incorporation, filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the Year ended December 31, 1998.    
3.2 Certificate of Amendment to the Restated Certificate of Incorporation, filed with the State of New Jersey on June 20, 1997, filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997.    
3.3 Certificate of Amendment to the Restated Certificate of Incorporation, filed with the State of New Jersey on May 27, 1998, filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998.    
3.4 Certificate of Amendment to the Restated Certificate of Incorporation, filed with the State of New Jersey on June 10, 1998, filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998.    
3.5 Certificate of Correction of Middlesex Water Company filed with the State of New Jersey on April 30, 1999, filed as Exhibit 3.3 to the Company’s Annual Report on Form 10-K/A-2 for the year ended December 31, 2003.    
3.6 Certificate of Amendment to the Restated Certificate of Incorporation of Middlesex Water Company, filed with the State of New Jersey on February 17, 2000, filed as Exhibit 3.4 to the Company’s Annual Report on Form 10-K/A-2 for the year ended December 31, 2003.    
3.7 Certificate of Amendment to the Restated Certificate of Incorporation of Middlesex Water Company, filed with the State of New Jersey on June 5, 2002, filed as Exhibit 3.5 to the Company’s Annual Report on Form 10-K/A-2 for the year ended December 31, 2003.    
3.8 Certificate of Amendment to the Restated Certificate of Incorporation, filed with the State of New Jersey on June 19, 2007, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed April 30, 2010.    
3.9 Certificate of Amendment to the Restated Certificate of Incorporation, filed with the State of New Jersey on September 4, 2019, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed September 6, 2019.    
3.10 Certificate of Amendment to the Restated Certificate of Incorporation, filed with the State of New Jersey on September 19, 2019, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed September 23, 2019.    

72 

 

EXHIBIT INDEX

 

 

Exhibit No.

 

 

Document Description

Previous

Registration

No.

Filing’s

Exhibit

No.

3.11 By-laws of the Company, as amended, filed as Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.    
3.12 Amendments to the by-laws of the Company, included as Exhibit 3(ii) to the Company’s Current Report on Form 8-K dated November 22, 2017.    
4.1 Form of Common Stock Certificate. 2-55058 2(a)
10.1 Water Service Agreement, dated February 28, 2006,  between the Company and Elizabethtown Water Company, filed as Exhibit 10 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.    
10.2 Mortgage, dated April 1, 1927, between the Company and Union County Trust Company, as Trustee, as supplemented by Supplemental Indentures, dated as of October 1, 1939 and April 1, 1949. 2-15795 4(a)-4(f)
10.3 Supplemental Indenture, dated as of July 1, 1964 and June 15, 1991, between the Company and Union County Trust Company, as Trustee. 33-54922 10.4-10.9
10.4 Agreement for a Supply of Water, dated as of July 27, 2011, between the Company and the Old Bridge Municipal Utilities Authority, filed as Exhibit No. 10.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.    
10.5 Water Supply Agreement, dated as of July 14, 1987, between the Company and the Marlboro Township Municipal Utilities Authority, as amended. 33-31476 10.13
10.6 Water Purchase Contract, dated as of September 25, 2003, between the Company and the New Jersey Water Supply Authority, filed as Exhibit No. 10.7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.    
10.7 Treatment and Pumping Agreement, dated October 1, 2014, between the Company and the Township of East Brunswick, filed as Exhibit No. 10.7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.    
10.8 Water Supply Agreement, dated June 4, 1990, between the Company and Edison Township. 33-54922 10.24
10.9 Agreement for a Supply of Water, dated January 1, 2006, between the Company and the Borough of Highland Park, filed as Exhibit No. 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.    
10.9(a) Amendment to Agreement for a Supply of Water, dated as of December 1, 2015, between the Company and the Borough of Highland Park, filed as Exhibit No. 10.9(a) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.    

73 

 

EXHIBIT INDEX

 

 

Exhibit No.

 

 

Document Description

Previous

Registration

No.

Filing’s

Exhibit

No.

(t)10.10 Middlesex Water Company Supplemental Executive Retirement Plan, filed as Exhibit 10.13 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.    
(t)10.11(a) Middlesex Water Company 2018 Restricted Stock Plan, filed as Appendix A to the Company’s Definitive Proxy Statement, dated and filed April 12, 2018.    
(t)10.11(b) Registration Statement, Form S-8, under the Securities Act of 1933, filed December 18, 2008, relating to the Middlesex Water Company Outside Director Stock Compensation Stock Plan. 333-156269  
(t)10.12(a) Change in Control Termination Agreement, dated as of January 1, 2009, between the Company and Dennis W. Doll, filed as Exhibit 10.13(a) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

  
(t)10.12(b) Change in Control Termination Agreement, dated as of January 1, 2009, between the Company and A. Bruce O’Connor, filed as Exhibit 10.13(b) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.    
(t)10.12(c) Change in Control Termination Agreement, dated as of March 1, 2012, between the Company and Lorrie B. Ginegaw, filed as Exhibit 10.13(e) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.    
(t)10.12(d) Change in Control Termination Agreement, dated as of January 1, 2009, between the Company and Bernadette M. Sohler, filed as Exhibit 10.13(h) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.    
(t)10.12(e) Change in Control Termination Agreement, dated as of March 17, 2014, between the Company and Jay L. Kooper, filed as Exhibit 10.12(g) of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.    
(t)10.12(f) Change in Control Termination Agreement, dated as of July 1, 2019, between the Company and G. Christian Andreasen, filed as Exhibit 10.12(f) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.    
(t)10.12(g) Change in Control Termination Agreement, dated as of July 1, 2019, between the Company and Robert K. Fullagar, filed as Exhibit 10.12(g) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.    
(t)10.12(h) Change in Control Termination Agreement, dated as of July 1, 2019, between the Company and Georgia M. Simpson, filed as Exhibit 10.12(h) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.    
10.13 Transmission Agreement, dated October 16, 1992, between the Company and the Township of East Brunswick. 33-54922 10.23

74 

 

EXHIBIT INDEX

 

 

Exhibit No.

 

 

Document Description

Previous

Registration

No.

Filing’s

Exhibit

No.

10.13(a) Amendment, dated November 28, 2016, to Transmission Agreement between the Company and the Township of East Brunswick, filed as Exhibit No. 10.13(a) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.    
10.14 Contract, dated August 20, 2018, between the City of Perth Amboy and Utility Service Affiliates (Perth Amboy), Inc., filed as Exhibit 10.16 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.    
10.15 Thirtieth Supplemental Indenture, dated October 15, 2004, between the Company and Wachovia Bank, National Association; Loan Agreement, dated November 1, 2004, between the State of New Jersey and the Company (Series EE), filed as Exhibit No. 10.26 of the Company’s for the year ended December 31, 2004.    
10.16 Thirty-First Supplemental Indenture, dated October 15, 2004, between the Company and Wachovia Bank, National Association; Loan Agreement, dated November 1, 2004, between the New Jersey Environmental Infrastructure Trust and the Company (Series FF), filed as Exhibit No. 10.27 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.    
10.17(a) Promissory Note and Supplement, dated October 15, 2014, between Tidewater Utilities, Inc. and CoBank, ACB; Amendment to Combination Water Utility Real Estate Mortgage and Security Agreement, effective October 15, 2014, between Tidewater Utilities, Inc. and CoBank, ACB, filed as Exhibit 10.23 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.  

10.17(b)

 Promissory Note and Supplement, dated March 29, 2021, between Tidewater Utilities, Inc. and CoBank, ACB; Amendment to Combination Water Utility Real Estate Mortgage and Security Agreement, effective March 29,2021, between Tidewater Utilities, Inc. and CoBank, ACB, filed as Exhibit 10.19(b) of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.  
10.18 Agreement for a Supply of Water, dated April 1, 2006, between the Company and the City of Rahway, filed as Exhibit No. 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.  
10.19 Loan Agreement, dated November 1, 2006, between the State of New Jersey and the Company (Series GG), filed as Exhibit No. 10.30 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.  

 

75 

 

EXHIBIT INDEX

 

 

Exhibit No.

 

 

Document Description

Previous

Registration

No.

Filing’s

Exhibit

No.

10.20

 Loan Agreement, dated November 1, 2006, between the New Jersey Environmental Infrastructure Trust and the Company (Series HH), filed as Exhibit No. 10.31 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.    
10.21 Loan Agreement, dated November 1, 2007, between New Jersey Environmental Infrastructure Trust and the Company (Series II), filed as Exhibit No. 10.32 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.    
10.22 Loan Agreement, dated November 1, 2007, between the State of New Jersey and the Company (Series JJ), filed as Exhibit 10.33 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.    
10.23 Loan Agreement, dated November 1, 2008, between New Jersey Environmental Infrastructure Trust and the Company dated as of (Series KK),  filed as Exhibit 10.34 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.    
10.24 Loan Agreement, dated November 1, 2008, between the State of New Jersey and the Company (Series LL),  filed as Exhibit 10.35 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.    
10.25 Prospectus Supplement, filed August 3, 2022, relating to the Middlesex Water Company Investment Plan. 333-266482  
10.26(a) Amended and Restated $68,000,000 Revolving Line of Credit Note, dated February 9, 2022, between the Company, Pinelands Wastewater Company, Pinelands Water Company, Tidewater Utilities, Inc., Utility Service Affiliates (Perth Amboy) Inc., Utility Service Affiliates Inc. and While Marsh Environmental Systems, Inc., and PNC Bank, N.A., filed as Exhibit 10.26(a) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.      
10.26(b) Waiver and Amendment to Loan Documents, dated February 9, 2022, between the Company, Pinelands Wastewater Company, Pinelands Water Company, Tidewater Utilities, Inc., Utility Service Affiliates (Perth Amboy) Inc., Utility Service Affiliates Inc. and While Marsh Environmental Systems, Inc., and PNC Bank, N.A., filed as Exhibit 10.26(b) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.    
       

76 

EXHIBIT INDEX

 

 

Exhibit No.

 

 

Document Description

Previous

Registration

No.

Filing’s

Exhibit

No.

10.27(a) Uncommitted ($30,000,000) Loan Agreement, dated January 28, 2021, between the Company, Tidewater Utilities, Inc., White Marsh Environmental Systems, Inc., Pinelands Water Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc., Utility Service Affiliates (Perth Amboy) Inc., Tidewater Environmental Services, Inc., and Bank of America, N.A. filed as Exhibit 10.30 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.    
10.27(b) Amendment No. 1 ($60,000,000) to Uncommitted Loan Agreement, dated January 27, 2022, between the Company, Tidewater Utilities, Inc., White Marsh Environmental Systems, Inc., Pinelands Water Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc., Utility Service Affiliates (Perth Amboy) Inc., and Bank of America, N.A., filed as Exhibit 10.27(b) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.    
10.27(c)* Amendment No. 2 ($60,000,000) to Uncommitted Loan Agreement, dated January 26, 2023, between the Company, Tidewater Utilities, Inc., White Marsh Environmental Systems, Inc., Pinelands Water Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc., Utility Service Affiliates (Perth Amboy) Inc., and Bank of America, N.A.    
10.28 Fourth Amendment to Promissory Note and Supplement, dated as of August 19, 2020, between Tidewater Utilities, Inc. and CoBank, ACB, filed as Exhibit 10.34 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.    
10.29 Loan Agreement, dated December 1, 2010, between the State of New Jersey and the Company (Series MM), filed as Exhibit 10.41 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.    
10.30 Loan Agreement, dated December 1, 2010, between New Jersey Environmental Infrastructure Trust and the Company (Series NN), filed as Exhibit 10.42 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.    
10.31 Loan Agreement, dated May 1, 2012, between the State of New Jersey and the Company, (Series OO), filed as Exhibit 10.43 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.    
10.32 Loan Agreement, dated May 1, 2012, between New Jersey Environmental Infrastructure Trust and the Company (Series PP), filed as Exhibit 10.44 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.    

77 

EXHIBIT INDEX

 

 

Exhibit No.

 

 

Document Description

Previous

Registration

No.

Filing’s

Exhibit

No.
10.33 Loan Agreement, dated November 1, 2012, between the New Jersey Economic Development Authority and the Company (Series QQ, RR & SS), filed as Exhibit 10.41 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.    
10.34 Loan Agreement, dated May 1, 2013, between the State of New Jersey and the Company (Series TT), filed as Exhibit 10.42 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.    
10.35 Loan Agreement, dated May 1, 2013, between New Jersey Environmental Infrastructure Trust and the Company (Series UU), filed as Exhibit 10.43 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.    
10.36 Loan Agreement, dated May 1, 2014, between New Jersey Environmental Infrastructure Trust and the Company (Series VV), filed as Exhibit 10.43 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.    
10.37 Loan Agreement, dated May 1, 2014, between New Jersey Environmental Infrastructure Trust and the Company (Series WW), filed as Exhibit 10.44 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.    
10.38 Loan Agreement, dated November 1, 2017, between New Jersey Environmental Infrastructure Trust and the Company (Series XX), filed as Exhibit 10.44 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.    
10.39 Loan Agreement, dated November 1, 2017, between New Jersey Environmental Infrastructure Trust and the Company (Series YY), filed as Exhibit 10.45 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.    
10.40 Loan Agreement, dated May 1, 2018, between New Jersey Environmental Infrastructure Trust and the Company (Series 2018A), filed as Exhibit 10.46 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.    
10.41 Loan Agreement, dated May 1, 2018, between New Jersey Environmental Infrastructure Trust and the Company (Series 2018B), filed as Exhibit 10.47 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.    
10.42 Loan Agreement, dated August 1, 2019, between New Jersey Economic Development Authority and the Company (Series 2019A and Series 2019B), filed as Exhibit 10.50 to the Company’s Current Report on Form 8-K filed September 6, 2019.    

 

78 

EXHIBIT INDEX

 

 

Exhibit No.

 

 

Document Description

Previous

Registration

No.

Filing’s

Exhibit

No.

10.43 Bond Purchase Agreement, dated November 16, 2020, between New York Life Insurance Company and Affiliates and the Company (Series 2020A), filed as Exhibit 10.48 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.    
10.44 Bond Purchase Agreement, dated November 5, 2021, between New York Life Insurance Company and Affiliates and the Company (Series 2021A and Series 2021B), filed as Exhibit 10.46 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.    
10.45 Financing Agreement, dated December 16, 2021, between the Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, and Tidewater Utilities, Inc, filed as Exhibit 10.46 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.    
10.46 Loan Agreement, dated May 1, 2022, between New Jersey Infrastructure Bank and the Company (Series 2022A), filed as Exhibit 10.40 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022.    
10.47 Loan Agreement, dated May 1, 2022, between the State of New Jersey, acting by and through the New Jersey Department of Environmental Protection, and the Company (Series 2022B) filed as Exhibit 10.41 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022.    
*21 Middlesex Water Company Subsidiaries.    
*23.1 Consent of Independent Registered Public Accounting Firm, Baker Tilly US, LLP.    
*31 Section 302 Certification by Dennis W. Doll pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.    
*31.1 Section 302 Certification by A. Bruce O’Connor pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.    
*32 Section 906 Certification by Dennis W. Doll pursuant to 18 U.S.C.§1350.    
*32.1 Section 906 Certification by A. Bruce O’Connor pursuant to 18 U.S.C.§1350.  
101.INS XBRL Instance Document– the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.  
101.SCH Inline XBRL Taxonomy Extension Schema Document  
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document  

 

79 

 

 

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Middlesex Water (PK) (USOTC:MSEXP)
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