MIDDLESEX WATER CO - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☑

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

For the quarterly period ended September 30, 2023

☐	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 One South, 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(s)	Name of each exchange on which registered
Common Stock	MSEX	NASDAQ

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 its 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 such shorter period that the registrant was required to submit and post 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, non-accelerated filer, smaller reporting company and emerging growth company in Rule 12b-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 is a shell company (as defined in Rule 12b-2 of the Act).

Yes ☐ No ☑

The number of shares outstanding of each of the registrant's classes of common stock, as of November 9, 2023: Common Stock, No Par Value: 17,806,696 shares outstanding.

INDEX

PART I.	FINANCIAL INFORMATION	PAGE

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Statements of Income	1

	Condensed Consolidated Balance Sheets	2

	Condensed Consolidated Statements of Cash Flows	3

	Condensed Consolidated Statements of Capital Stock and Long-Term Debt	4

	Condensed Consolidated Statements of Common Stockholders’ Equity	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures of Market Risk	28

Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	30

Item 6.	Exhibits	31

SIGNATURES		32

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands except per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Operating Revenues	$	46,715	$	47,732	$	127,672	$	123,611

Operating Expenses:
Operations and Maintenance		22,581		20,312		64,042		59,007
Depreciation		6,376		5,814		18,546		17,107
Other Taxes		4,936		5,031		14,104		13,543

Total Operating Expenses		33,893		31,157		96,692		89,657

Gain on Sale of Subsidiary		—		—		—		5,232

Operating Income		12,822		16,575		30,980		39,186

Other Income (Expense):
Allowance for Funds Used During Construction		496		627		2,162		1,553
Other Income (Expense), net		936		1,412		3,124		4,185

Total Other Income, net		1,432		2,039		5,286		5,738

Interest Charges		3,518		2,355		9,364		6,574

Income before Income Taxes		10,736		16,259		26,902		38,350

Income Taxes		746		1,968		1,143		3,092

Net Income		9,990		14,291		25,759		35,258

Preferred Stock Dividend Requirements		30		30		90		90

Earnings Applicable to Common Stock	$	9,960	$	14,261	$	25,669	$	35,168

Earnings per share of Common Stock:
Basic	$	0.56	$	0.81	$	1.45	$	2.00
Diluted	$	0.56	$	0.80	$	1.44	$	1.99

Average Number of
Common Shares Outstanding :
Basic		17,758		17,628		17,708		17,583
Diluted		17,873		17,743		17,823		17,698

See Notes to Condensed Consolidated Financial Statements.

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

		September 30,		December 31,
ASSETS		2023		2022
UTILITY PLANT:	Water Production	$	299,187	$	249,153
	Transmission and Distribution		784,194		735,138
	General		99,933		97,581
	Construction Work in Progress		32,308		53,570
	TOTAL		1,215,622		1,135,442
	Less Accumulated Depreciation		230,124		214,891
	UTILITY PLANT - NET		985,498		920,551

CURRENT ASSETS:	Cash and Cash Equivalents		2,970		3,828
	Accounts Receivable, net of allowance for uncollectible accounts of $2,055 and $2,326, respectively		18,990		16,018
	Litigation Settlement Receivable		93,163		—
	Unbilled Revenues		11,316		8,659
	Materials and Supplies (at average cost)		6,405		6,177
	Prepayments		2,918		2,624
	TOTAL CURRENT ASSETS		135,762		37,306

OTHER ASSETS:	Operating Lease Right of Use Asset		3,338		3,826
	Preliminary Survey and Investigation Charges		2,372		2,806
	Regulatory Assets		94,485		90,046
	Non-utility Assets - Net		11,383		11,207
	Employee Benefit Plans		10,527		8,689
	Other		51		19
	TOTAL OTHER ASSETS		122,156		116,593
	TOTAL ASSETS	$	1,243,416	$	1,074,450

CAPITALIZATION AND LIABILITIES
CAPITALIZATION:	Common Stock, No Par Value	$	243,250		233,054
	Retained Earnings		176,333		167,274
	TOTAL COMMON EQUITY		419,583		400,328
	Preferred Stock		2,084		2,084
	Long-term Debt		354,276		290,280
	TOTAL CAPITALIZATION		775,943		692,692

CURRENT	Current Portion of Long-term Debt		7,444		17,462
LIABILITIES:	Notes Payable		42,250		55,500
	Accounts Payable		28,604		24,847
	Litigation Settlement Payable		27,949		—
	Accrued Taxes		8,143		12,162
	Accrued Interest		2,546		2,535
	Unearned Revenues and Advanced Service Fees		1,459		1,365
	Other		2,908		3,988
	TOTAL CURRENT LIABILITIES		121,303		117,859

COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)

OTHER LIABILITIES:	Customer Advances for Construction		21,464		21,382
	Lease Obligations		3,221		3,706
	Accumulated Deferred Income Taxes		87,763		77,783
	Regulatory Liabilities		112,815		46,734
	Other		681		919
	TOTAL OTHER LIABILITIES		225,944		150,524

CONTRIBUTIONS IN AID OF CONSTRUCTION			120,226		113,375
	TOTAL CAPITALIZATION AND LIABILITIES	$	1,243,416	$	1,074,450

See Notes to Consolidated Financial Statements.

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	25,759		$	35,258
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization		22,106			20,135
Provision for Deferred Income Taxes and Investment Tax Credits		(4,685	)		(4,312	)
Equity Portion of Allowance for Funds Used During Construction (AFUDC)		(1,300	)		(914	)
Cash Surrender Value of Life Insurance		(144	)		474
Stock Compensation Expense		1,790			1,270
Gain on Sale of Subsidiary		—			(5,232	)
Changes in Assets and Liabilities:
Accounts Receivable		(2,972	)		(2,770	)
Unbilled Revenues		(2,657	)		(3,749	)
Materials and Supplies		(228	)		(434	)
Prepayments		(294	)		(789	)
Accounts Payable		3,757			4,748
Accrued Taxes		(4,019	)		3,964
Accrued Interest		11			188
Employee Benefit Plans		(1,487	)		(1,973	)
Unearned Revenue and Advanced Service Fees		94			146
Other Assets and Liabilities		4,255			(1,769	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		39,986			44,241
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures, Including AFUDC of $862 in 2023 and $639 in 2022		(73,074	)		(65,939	)
Proceeds from Sale of Subsiary		—			3,122

NET CASH USED IN INVESTING ACTIVITIES		(73,074	)		(62,817	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt		(16,460	)		(6,397	)
Proceeds from Issuance of Long-term Debt		70,640			2,663
Net Short-term Bank Borrowings		(13,250	)		27,500
Deferred Debt Issuance Expense		(123	)		(612	)
Common Stock Issuance Expense		(10	)		(25	)
Payment of Grantee Witholding Taxes in Exchange for Restricted Stock		(619	)		—
Proceeds from Issuance of Common Stock		9,025			10,064
Payment of Common Dividends		(16,600	)		(15,298	)
Payment of Preferred Dividends		(90	)		(90	)
Construction Advances and Contributions-Net		(283	)		146

NET CASH PROVIDED BY FINANCING ACTIVITIES		32,230			17,951
NET CHANGES IN CASH AND CASH EQUIVALENTS		(858	)		(625	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		3,828			3,533
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,970		$	2,908


SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
Utility Plant received as Construction Advances and Contributions	$	5,954		$	5,705
Non-Cash Consideration for Sale of Subsidiary	$	—		$	2,100
Litigation Settlement Receivable	$	93,163		$	—
Litigation Settlement Payable	$	27,949		$	—

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest	$	9,589		$	6,793
Interest Capitalized	$	862		$	639
Income Taxes	$	2,716		$	2,125

See Notes to Condensed Consolidated Financial Statements.

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND LONG-TERM DEBT

(Unaudited)

(In thousands)

	September 30,			December 31,
	2023			2022
Common Stock, No Par Value:
Shares Authorized - 40,000
Shares Outstanding - 2023 - 17,771; 2022 - 17,642	$	243,250		$	233,054

Retained Earnings		176,333			167,274
TOTAL COMMON EQUITY	$	419,583		$	400,328

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	$	278,374		$	252,269
Amortizing Secured Notes, 3.94%-7.05%, due 2028-2046		70,396			44,918
State Revolving Trust Notes, 2.00%-4.03%, due 2025-2044		11,797			9,200
SUBTOTAL LONG-TERM DEBT		360,567			306,387
Add: Premium on Issuance of Long-term Debt		6,577			6,873
Less: Unamortized Debt Expense		(5,424	)		(5,518	)
Less: Current Portion of Long-term Debt		(7,444	)		(17,462	)
TOTAL LONG-TERM DEBT	$	354,276		$	290,280

See Notes to Condensed Consolidated Financial Statements.

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands except per share amounts)

	Common		Common
	Stock		Stock		Retained
	Shares		Amount		Earnings			Total

For the Three Months Ended September 30, 2022
Balance at July 1, 2022		17,604	$	229,037	$	156,530		$	385,567
Net Income		—		—		14,291			14,291
Middlesex Water Company Invesment Plan		34		3,025		—			3,025
Restricted Stock Award - Net - Employees		—		361		—			361
Cash Dividends on Common Stock ($0.2900 per share)		—		—		(5,114	)		(5,114	)
Cash Dividends on Preferred Stock		—		—		(30	)		(30	)
Common Stock Expenses		—		—		(25	)		(25	)
Balance at September 30, 2022		17,638	$	232,423	$	165,652		$	398,075

For the Nine Months Ended September 30, 2022
Balance at January 1, 2022		17,522	$	221,919	$	145,807		$	367,726
Net Income		—		—		35,258			35,258
Middlesex Water Company Invesment Plan		110		10,064		—			10,064
Restricted Stock Award - Net - Employees		3		160		—			160
Stock Award - Board of Directors		3		280		—			280
Cash Dividends on Common Stock ($0.8700 per share)		—		—		(15,298	)		(15,298	)
Cash Dividends on Preferred Stock		—		—		(90	)		(90	)
Common Stock Expenses		—		—		(25	)		(25	)
Balance at September 30, 2022		17,638	$	232,423	$	165,652		$	398,075

For the Three Months Ended September 30, 2023
Balance at July 1, 2023		17,729	$	239,545	$	171,932		$	411,477
Net Income		—		—		9,990			9,990
Middlesex Water Company Invesment Plan		42		3,281		—			3,281
Restricted Stock Award - Net - Employees		—		424		—			424
Cash Dividends on Common Stock ($0.3125 per share)		—		—		(5,549	)		(5,549	)
Cash Dividends on Preferred Stock		—		—		(30	)		(30	)
Common Stock Expenses		—		—		(10	)		(10	)
Balance at September 30, 2023		17,771	$	243,250	$	176,333		$	419,583

For the Nine Months Ended September 30, 2023
Balance at January 1, 2023		17,642	$	233,054	$	167,274		$	400,328
Net Income		—		—		25,759			25,759
Middlesex Water Company Invesment Plan		117		9,025		—			9,025
Restricted Stock Award - Net - Employees		7		811		—			811
Stock Award - Board of Directors		5		360		—			360
Cash Dividends on Common Stock ($0.9375 per share)		—		—		(16,600	)		(16,600	)
Cash Dividends on Preferred Stock		—		—		(90	)		(90	)
Common Stock Expenses		—		—		(10	)		(10	)
Balance at September 30, 2023		17,771	$	243,250	$	176,333		$	419,583

See Notes to Condensed Consolidated Financial Statements.

MIDDLESEX WATER COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation and Recent Developments

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), and Utility Service Affiliates (Perth Amboy) Inc. (USA-PA). Southern Shores Water Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc. (White Marsh) are wholly-owned subsidiaries of Tidewater. The financial statements for Middlesex and its wholly-owned subsidiaries are reported on a consolidated basis. All significant intercompany accounts and transactions have been eliminated.

The consolidated notes within the 2022 Annual Report on Form 10-K/A (the 2022 Form 10-K/A) are applicable to these financial statements and, in the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (including normal recurring accruals) to present fairly the financial position as of September 30, 2023, the results of operations for the three and nine month periods ended September 30, 2023 and 2022 and cash flows for the nine month periods ended September 30, 2023 and 2022. Information included in the Condensed Consolidated Balance Sheet as of December 31, 2022, has been derived from the Company’s December 31, 2022 audited financial statements included in the 2022 Form 10-K/A.

Recent Developments

Middlesex President and Chief Executive Officer Retirement Announcement - On May 16, 2023, President and Chief Executive Officer, Dennis W. Doll announced a plan to retire upon turning age 65. Mr. Doll’s retirement is planned for the later of December 31, 2023 or, the date when a successor is duly named and effectively transitioned into the position. Mr. Doll will remain Chairman of the Middlesex Board of Directors (Board) through the expiration of his current term in May 2024. A search for Mr. Doll’s successor is being led by the Compensation Committee of the Board in collaboration with a nationally-recognized executive search firm.

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 standard promulgated in a NJDEP regulation that became effective in 2021. Middlesex was required by the regulation to notify its affected customers and complied within the required Notice period in November 2021.

The Notice further required the Company to take any action necessary to comply with the new standard by September 7, 2022. Consequently, in November 2021, the Company implemented an interim solution to meet the Notice requirements, which included putting the Park Avenue Wellfield Treatment Plant in off-line status and obtaining alternate sources of supply. In June 2022, the Company accelerated the in-service date for a portion of the enhanced treatment project based on engineering analysis that allowed a restart of the Park Avenue Wellfield Treatment Plant to ensure continued 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 required the Company to take whatever actions necessary to achieve and maintain compliance with applicable regulations. As prescribed in the ACO, the Company was to issue periodic public notifications until the ACO was closed.

In June 2023, the Company completed the permanent construction of the entire Park Avenue Wellfield treatment upgrades and placed the upgrades into operation in full compliance with the NJDEP PFOA standards. The Company received confirmation from the NJDEP that it has complied with all requirements of the ACO and consequently, the ACO has been closed.

The Company had previously initiated a lawsuit against 3M Company (3M), in connection with the Company’s claim that 3M introduced perfluoroalkyl substances (commonly known as “PFAS”), which include PFOA, into the Company’s water supply at its Park Avenue Wellfield facility.

On August 29, 2023, Middlesex and 3M executed a settlement agreement (the Settlement Agreement) to resolve the lawsuit. The Settlement Agreement provides that:

●

3M will pay Middlesex $93.2 million in two installments, one payment of $23.3 million in December 2023 and one payment of $69.9 million in July 2024. Middlesex is obligated to pay 30% of the proceeds received to its lawyers as legal fees, or $27.9 million in total;

●

Middlesex anticipates its receipt of the Settlement Agreement payments will have the effect of mitigating future increases in customer rates, the determination of which are based, in part, on Middlesex’s investments in utility infrastructure. For additional details, see “Item 1. Business – Regulation - Regulation of Rates and Services” in Middlesex’s 2022 Form 10-K;

●

Middlesex, by nature of its status as a U.S. water purveyor impacted by PFAS, was automatically included in a Multi-District Litigation Settlement before the United States District Court for the District of South Carolina in which 3M and other companies (Non-3M Companies) are participants. Middlesex agreed as part of this settlement to remain a member of the plaintiff class in order to be eligible to obtain future additional compensation from 3M and the Non-3M Companies for the remediation of its water treatment facilities; and

●

Middlesex and 3M agreed to enter into a joint mediation, scheduled for November 2023, to resolve two PFOA-related class action lawsuits against Middlesex seeking restitution for medical, water replacement and other claimed related costs. Both Middlesex and 3M are defendants in these lawsuits. These lawsuits remain in the early stages of the legal process and their ultimate resolution cannot be predicted at this time.

It is the Company’s intent that any financial benefit which may result from the Settlement Agreement, net of any litigation costs to Middlesex, will ultimately inure to the benefit of the Middlesex customers in the form of mitigating future customer rate increases. As such, the anticipated net Settlement Agreement proceeds of $65.2 million have been recorded as a Regulatory Liability in the Company’s September 30, 2023 Consolidated Balance Sheet.

In January 2022, the Company filed a petition with the New Jersey Board of Public Utilities (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.

Coronavirus (COVID-19) Pandemic – On May 11, 2023, the United States Department of Health and Human Services declared the end of the COVID-19 Pandemic nationwide health emergency. 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 ended in March 2022. In Delaware, the declared COVID-19 State of Emergency Order ended in July 2021.

The NJBPU has approved the tracking of COVID-19 related incremental costs for potential recovery in customer rates in future rate proceedings. In May 2023, Middlesex filed a petition to defer consideration of rate recovery of COVID-19 related incremental costs incurred until its next base rate case. The Company has increased its allowance for doubtful accounts for expected higher accounts receivable write-offs due to the financial impact of COVID-19 on customers. 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.

Recent Accounting Guidance

There is no new adopted or proposed accounting guidance that the Company is aware of that could have a material impact on the Company’s financial statements.

Note 2 – Rate and Regulatory Matters

Middlesex – In May 2023, Middlesex filed a petition with the NJBPU seeking permission to increase annual base water revenues by approximately $34 million. The request was necessitated predominantly by capital infrastructure investments Middlesex has made, or has committed to make, to upgrade or replace utility assets to support continued regulatory compliance and overall quality of service. We cannot predict when and whether the NJBPU will ultimately approve, deny, or reduce the amount of the request. Under New Jersey statute, the NJPBU must render a decision within nine months of filing a base rate change petition.

Replacement of Middlesex and Middlesex customer-owned lead service lines is required by the New Jersey Lead Service Line Replacement Law. In May 2023, Middlesex filed a petition seeking NJBPU approval of Middlesex’s proposed cost recovery of its Lead Service Line Replacement Plan and cost recovery of project costs associated with replacing Middlesex customer-owned lead service lines. Under this legislation, these costs would be recovered through future customer surcharges. Middlesex currently estimates that replacement of Middlesex and Middlesex customer-owned lead service lines will be approximately $46 million to $77 million over a nine-year period. A decision in this matter is expected in the fourth quarter of 2023. We cannot predict if the NJBPU will ultimately approve, deny, or amend this petition.

In May 2023, Middlesex filed a petition with the NJBPU seeking approval of a Distribution System Improvement Charge (DSIC) Foundation Filing, which is a prerequisite to implementing a DSIC rate that allows water utilities to recover investments in, and generate a return on, qualifying capital improvements to their water distribution system made between base rate proceedings. This petition was approved by the NJBPU in October 2023 and will result in future rate increases for future DSIC qualifying projects.

In September 2022, the NJBPU approved Middlesex's Emergency Relief Motion to reset its Purchased Water Adjustment Clause (PWAC) tariff rate to recover additional costs of $2.7 million for the purchase of treated water from a non-affiliated water utility. A PWAC is a rate mechanism that allows for recovery of increased purchased water costs between base rate case filings. The increase, effective October 1, 2022, was on an interim basis and subject to refund with interest, pending final resolution of this matter, which the NJBPU provided in August 2023. In connection with the full recovery of the $2.7 million of additional costs, Middlesex reset its PWAC rate to zero in October 2023.

Pinelands – On April 12, 2023, Pinelands Water and Pinelands Wastewater concluded their base rate case matters when the NJBPU approved a combined $1.0 million increase in annual base rates, effective April 15, 2023. The requests were necessitated by capital infrastructure investments the companies have made as well as increased operations and maintenance costs.

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, the parent company of Twin Lakes, 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 Commonwealth 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 Commonwealth Court’s review of the merits arguments contained in Twin Lakes’ PFR. In December 2021, the Commonwealth 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 (Appeal Petition) to the Supreme Court of Pennsylvania seeking reversal of the Commonwealth Court’s decision to uphold the escrow requirement on the grounds that the Commonwealth Court erred in failing to address Twin Lakes’ claims that because the $1.7 million escrow requirement placed on Middlesex violated Middlesex’s constitutional rights, Middlesex’s refusal to submit this escrow payment would jeopardize the relief Twin Lakes was otherwise entitled to in the appointment of the Receiver Utility. In March 2023, the Supreme Court of Pennsylvania issued a decision denying Twin Lakes’ Appeal Petition without addressing this claim on the merits. As a result of the Pennsylvania Courts’ failure to address Twin Lakes’ claim, Middlesex has subsequently filed a Complaint with the United States District Court for the Middle District of Pennsylvania to address the issue of whether the PAPUC’s Order violated Middlesex’s rights under the United States Constitution. We are currently awaiting the Court’s decision.

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

Note 3 – Capitalization

Common Stock – During the nine months ended September 30, 2023 and 2022, there were 118,501 common shares (approximately $9.0 million) and 110,614 common shares (approximately $10.0 million) respectively, issued under the Middlesex Water Company Investment Plan (the Investment Plan).

In April 2023, Middlesex received approval from the NJBPU to issue and sell up to 1.0 million shares of its common stock, without par value, through December 31, 2025. Sales of additional shares of common stock are part of the Company’s comprehensive financing plan to fund its multi-year utility plant infrastructure investment program. As described below in “Long-term Debt”, the NJBPU also approved the debt funding component of the financing plan.

In March 2023, the Company began 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 May 2023, Middlesex received approval from the NJBPU to increase the number of authorized shares under the Investment Plan by 0.7 million shares.

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. 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.

Although the Company has no current projects in the NJIB loan program, it is seeking to have several projects added to the qualified list in order to borrow under the NJIB loan program.

In April 2023, Middlesex received approval from the NJBPU to borrow up to $300.0 million from the New Jersey SRF Program, the New Jersey Economic Development Authority, private placement and other financial institutions as needed through December 31, 2025. The Company expects to issue debt securities in a series of one or more transaction offerings over a multi-year period to help fund Middlesex’s multi-year capital construction program.

In March 2023, Middlesex closed on a $40.0 million, 5.24% private placement of First Mortgage Bonds (FMBs) with a 2043 maturity date designated as Series 2023A. Proceeds were used to reduce the Company’s outstanding balances under its bank lines of credit.

In May 2023, Tidewater closed on a $20.0 million loan from CoBank, ACB (CoBank) with an interest rate of 5.71% and a 2033 maturity date and fully drew all funds by June 30, 2023. Proceeds from the loan were used to pay off Tidewater’s outstanding balances under its bank lines of credit and for other general corporate purposes.

In April 2023, Tidewater closed on three Delaware Public Service Commission (DEPSC)-approved Delaware SRF loans totaling $10.2 million, all at interest rates of 2.0% with maturity dates in 2043 and 2044. These loans are for the construction, relocation, improvement, and/or interconnection of transmission mains. Tidewater has drawn a total of $1.5 million through September 30, 2023 and expects that the requisitions will continue through mid-2025.

In December 2021, Tidewater closed on a DEPSC-approved $5.0 million Delaware SRF loan at an interest rate of 2.0%. The loan was for construction of a one million gallon elevated storage tank. Through September 30, 2023, Tidewater has drawn a total of $4.2 million and expects that the requisitions will continue through the first quarter of 2024. The final maturity date on the loan is 2044.

Under the Delaware SRF Program, borrowers submit reimbursement requisitions during the construction period. As the proceeds are received from the requisitions, Tidewater records a corresponding debt obligation amount.

In July 2023, Pinelands Water and Pinelands Wastewater closed on $3.9 million and $3.6 million CoBank amortizing mortgage type loans, respectively, with an interest rate of 6.17% and a final maturity date of 2043 for each loan. Proceeds were used to pay off outstanding intercompany loans with Middlesex and for ongoing capital projects.

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 condensed 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 in the table below issued by Middlesex is based on quoted market prices for similar publicly traded 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 FMBs in the table below are classified as Level 2 measurements. The carrying amount and fair value of the FMBs were as follows:

	(Thousands of Dollars)
	September 30, 2023				December 31, 2022
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
FMBs	$	133,374	$	123,235	$	147,269	$	138,756

It was not practicable to estimate the 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 rates and due dates on these series of long-term debt, please refer to those series noted as “Amortizing Secured Notes” and “State Revolving Trust Notes” on the Condensed Consolidated Statements of Capital Stock and Long-Term Debt). The carrying amount of these instruments was $227.2 million and $159.1 million at September 30, 2023 and December 31, 2022, respectively. Customer advances for construction have carrying amounts of $21.5 million and $21.4 million at September 30, 2023 and December 31, 2022, 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.

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.

Note 4 – Earnings Per Share

Basic earnings per share (EPS) are computed on the basis of the weighted average number of shares outstanding during the period presented. Diluted EPS assumes the conversion of the Convertible Preferred Stock $7.00 Series.

	(In Thousands Except per Share Amounts)
	Three Months Ended September 30,
	2023					2022
Basic:	Income			Shares		Income			Shares
Net Income	$	9,990			17,758	$	14,291			17,628
Preferred Dividend		(30	)				(30	)
Earnings Applicable to Common Stock	$	9,960			17,758	$	14,261			17,628

Basic EPS	$	0.56				$	0.81

Diluted:
Earnings Applicable to Common Stock	$	9,960			17,758	$	14,261			17,628
$7.00 Series Preferred Dividend		17			115		17			115
Adjusted Earnings Applicable to Common Stock	$	9,977			17,873	$	14,278			17,743

Diluted EPS	$	0.56				$	0.80

	(In Thousands Except per Share Amounts)
	Nine Months Ended September 30,
	2023					2022
Basic:	Income			Shares		Income			Shares
Net Income	$	25,759			17,708	$	35,258			17,583
Preferred Dividend		(90	)				(90	)
Earnings Applicable to Common Stock	$	25,669			17,708	$	35,168			17,583

Basic EPS	$	1.45				$	2.00

Diluted:
Earnings Applicable to Common Stock	$	25,669			17,708	$	35,168			17,583
$7.00 Series Preferred Dividend		51			115		51			115
Adjusted Earnings Applicable to Common Stock	$	25,720			17,823	$	35,219			17,698

Diluted EPS	$	1.44				$	1.99

Note 5 – 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 New Jersey and Delaware with respect to utility services 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.

	(In Thousands)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Operations by Segments:	2023			2022			2023			2022
Revenues:
Regulated	$	43,763		$	44,861		$	118,625		$	115,222
Non – Regulated		3,251			3,431			9,649			9,316
Inter-segment Elimination		(299	)		(560	)		(602	)		(927	)
Consolidated Revenues	$	46,715		$	47,732		$	127,672		$	123,611

Operating Income:
Regulated	$	12,008		$	15,750		$	28,543		$	36,793
Non – Regulated		814			825			2,437			2,393
Consolidated Operating Income	$	12,822		$	16,575		$	30,980		$	39,186

Net Income:
Regulated	$	9,384		$	13,683		$	24,017		$	33,496
Non – Regulated		606			608			1,742			1,762
Consolidated Net Income	$	9,990		$	14,291		$	25,759		$	35,258

Capital Expenditures:
Regulated	$	22,415		$	26,588		$	72,994		$	65,722
Non – Regulated		24			8			80			217
Total Capital Expenditures	$	22,439		$	26,596		$	73,074		$	65,939


	As of			As of
	September 30, 2023			December 31, 2022
Assets:
Regulated	$	1,241,123		$	1,079,180
Non – Regulated		7,382			6,999
Inter-segment Elimination		(5,089	)		(11,729	)
Consolidated Assets	$	1,243,416		$	1,074,450

Note 6 – Short-term Borrowings

The Company maintains lines of credit aggregating $140.0 million.

	(Millions)
	As of September 30, 2023
	Outstanding		Available		Maximum		Credit Type	Renewal Date
Bank of America	$	4.0	$	56.0	$	60.0	Uncommitted	January 25, 2024
PNC Bank		35.3	$	32.7		68.0	Committed	July 31, 2025
CoBank		3.0		9.0		12.0	Committed	May 20, 2026
	$	42.3	$	97.7	$	140.0

The interest rates are set for borrowings under the Bank of America and PNC Bank lines of credit using the Bloomberg Short-Term Bank Yield Index and the Secured Overnight Financing Rate (SOFR), respectively, and then adding a specific financial institution credit spread. 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 SOFR and adding a credit spread. There is no requirement for a compensating balance under any of the established lines of credit.

The weighted average interest rate on the outstanding borrowings at September 30, 2023 under these credit lines is 6.51%.

The weighted average daily amounts of borrowings outstanding under these credit lines and the weighted average interest rates on those amounts were as follows:

	(In Thousands)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Average Daily Amounts Outstanding	$	25,015	$	33,750	$	32,860	$	22,648
Weighted Average Interest Rates		6.37%		3.34%		5.89%		2.48%

The maturity dates for the $42.3 million outstanding as of September 30, 2023 were in October 2023 and continue through December 2023 and were or are expected to be extended at the discretion of the Company.

Note 7 – 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 million gallons a day (mgd). The agreement renewal process is underway and a new agreement is expected to be in place prior to the expiration date of the existing agreement. Middlesex does not expect the agreement terms and conditions to vary. 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 has an agreement with a non-affiliated regulated water utility for the purchase of treated water. This agreement, which expires February 27, 2026, provides for the minimum purchase of 3 mgd of treated water with provisions for additional purchases.

Tidewater contracts with the City of Dover, Delaware to purchase 15 million gallons of treated water annually.

Purchased water costs are shown below:

	(In Thousands)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

Treated	$	1,607	$	936	$	4,353	$	2,467
Untreated		812		835		2,352		2,384
Total Costs	$	2,419	$	1,771	$	6,705	$	4,851

Leases – The Company determines if an arrangement is a lease at inception. 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 the 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 the 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 were $0.2 million for each of the three months ended September 30, 2023 and 2022, respectively, and $0.6 million for each of the nine months ended September 30, 2023 and 2022, respectively.

Information related to operating lease ROU assets and lease liabilities is as follows:

	(In Millions)
	As of
	September 30, 2023			December 31, 2022
ROU Asset at Lease Inception	$	7.3		$	7.3
Accumulated Amortization		(4.0	)		(3.5	)
Current ROU Asset	$	3.3		$	3.8

The Company’s future minimum operating lease commitments as of September 30, 2023 are as follows:

	(In Millions)
2023	$	0.2
2024		0.8
2025		0.8
2026		0.9
2027		0.9
Thereafter		1.8
Total Lease Payments	$	5.4
Imputed Interest		(1.6	)
Present Value of Lease Payments		3.8
Less Current Portion*		(0.6	)
Non-Current Lease Liability	$	3.2

*Included in Other Current Liabilities

Construction – The Company has forecasted to spend approximately $96 million for its construction program in 2023. The Company has entered into several construction contracts that, in the aggregate, obligate expenditure of an estimated $8 million in the future. The actual amount and timing of capital expenditures is dependent on the need for upgrade or 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. With continued upward pressure on mortgage interest rates, as well as other financial market uncertainties, there is no assurance that projected customer growth and residential new home construction and sales will occur.

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. For further discussion of this matter, see Note 1 - Regulatory Notice of Non-Compliance.

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.

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 under certain conditions in connection with a change in control of the Company.

Note 8 – Employee Benefit Plans

Pension Benefits – The Company’s defined benefit pension plan (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 do participate in a defined contribution plan that provides for a potential annual contribution in an amount at the discretion of the Company, based upon a percentage of the participants’ annual paid compensation. For each of the nine month periods ended September 30, 2023 and 2022, the Company did not make cash contributions to the Pension Plan. The Company expects to make cash contributions of approximately $1.9 million over the remainder of the current year. The Company also maintains an unfunded supplemental retirement benefit plan for certain active and retired Company officers and currently pays $0.5 million in annual benefits to the retired participants.

Other Postretirement Benefits – The Company’s retirement plan other than pensions (Other Benefits Plan) covers substantially all currently eligible retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance. For each of the nine month periods ended September 30, 2023 and 2022, the Company did not make cash contributions to its Other Benefits Plan. The Company expects to make additional Other Benefits Plan cash contributions of $0.9 million over the remainder of the current year.

The following tables set forth information relating to the Company’s periodic costs (benefit) for its employee retirement benefit plans:

	(In Thousands)
	Pension Benefits						Other Benefits
	Three Months Ended September 30,
	2023			2022			2023			2022

Service Cost	$	388		$	591		$	98		$	200
Interest Cost		1,067			761			402			331
Expected Return on Assets		(1,466	)		(1,760	)		(771	)		(887	)
Amortization of Unrecognized Losses		164			418			(48	)		—
Net Periodic Benefit Cost (Benefit)*	$	153		$	10		$	(319	)	$	(356	)

	(In Thousands)
	Pension Benefits						Other Benefits
	Nine Months Ended September 30,
	2023			2022			2023			2022
Service Cost	$	1,163		$	1,772		$	293		$	599
Interest Cost		3,202			2,282			1,206			994
Expected Return on Assets		(4,399	)		(5,281	)		(2,312	)		(2,660	)
Amortization of Unrecognized Losses		493			1,255			(143	)		—
Net Periodic Benefit Cost (Benefit)*	$	459		$	28		$	(956	)	$	(1,067	)

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

Note 9 – Revenue Recognition from Contracts with Customers

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 entity expects to be entitled in exchange for those goods and services.

The Company’s regulated revenue from contracts with customers 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 and 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 June 2032 and contain remaining performance obligations for which the Company expects to recognize revenue in the future. These contracts also contain 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.

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

	(In Thousands)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Regulated Tariff Sales
Residential	$	25,070		$	25,108		$	66,726		$	65,767
Commercial		6,926			7,167			18,553			16,796
Industrial		3,396			3,208			9,041			8,504
Fire Protection		3,203			3,248			9,453			9,541
Wholesale		4,958			5,644			14,479			13,905
Non-Regulated Contract Operations		3,137			3,321			9,309			8,986
Total Revenue from Contracts with Customers	$	46,690		$	47,696		$	127,561		$	123,499
Other Regulated Revenues		210			486			373			709
Other Non-Regulated Revenues		114			110			340			330
Inter-segment Elimination		(299	)		(560	)		(602	)		(927	)
Total Revenue	$	46,715		$	47,732		$	127,672		$	123,611

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of Middlesex Water Company (Middlesex or the Company) included elsewhere herein and with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, including Amendment No. 1 to such Annual Report on Form 10-K.

Forward-Looking Statements

Certain statements contained in this periodic 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. 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 quality water;

actions taken by government regulators, including decisions on rate increase requests;

new or modified water quality standards and compliance with related legal and regulatory requirements;

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 new housing development;

availability and cost of capital resources;

timely availability of materials and supplies for operations and critical infrastructure projects;

effectiveness of internal control over financial reporting;

impact of the Novel Coronavirus (COVID-19) pandemic; and

other factors discussed elsewhere in this 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 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 in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2022.

Overview

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 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 service 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 60,000 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 subsidiary 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, provide water services to approximately 59,000 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 ten-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.

Recent Developments

Middlesex Base Water Rate Increase Request - In May 2023, Middlesex filed a petition with the New Jersey Board of Public Utilities (NJBPU) seeking permission to increase annual base water revenues by approximately $34 million. The request was necessitated predominantly by capital infrastructure investments Middlesex has made, or has committed to make, to ensure proper maintenance, development and improvement of its utility assets to support continued regulatory compliance and overall quality of service. We cannot predict when and whether the NJBPU will ultimately approve, deny, or reduce the amount of the request. Under New Jersey statute, the NJPBU must render a decision within nine months of filing a base rate change petition.

Middlesex President and Chief Executive Officer Retirement Announcement – In May 2023, President and Chief Executive Officer (CEO), Dennis W. Doll announced a plan to retire upon turning age 65. Mr. Doll’s retirement is planned for the later of December 31, 2023 or, the date when a successor is duly named and effectively transitioned into the position. Mr. Doll will remain Chairman of the Middlesex Board of Directors (Board) through the expiration of his current term in May 2024. A search for Mr. Doll’s successor is being led by the Compensation Committee of the Board in collaboration with a nationally-recognized executive search firm.

Pinelands’ Base Rate Increases Approved - On April 12, 2023, Pinelands Water and Pinelands Wastewater concluded their base rate case matters when the NJBPU approved a combined $1.0 million increase in annual base rates, effective April 15, 2023. The requests were necessitated by capital infrastructure investments the companies have made as well as increased operations and maintenance costs.

Financings

Middlesex - In April 2023, Middlesex received approval from the NJBPU to issue and sell up to 1.0 million shares of its common stock, without par value, through December 31, 2025. Additionally, in April 2023, Middlesex received approval from the NJBPU to borrow up to $300.0 million from the New Jersey State Revolving Fund (SRF) Program, the New Jersey Economic Development Authority, private placement and other financial institutions as needed through December 31, 2025. The Company expects to issue equity and debt securities in a series of transaction offerings over a multi-year period to help fund Middlesex’s multi-year capital construction program.

In May 2023, Middlesex received approval from the NJBPU to increase the number of authorized shares under the Middlesex Water Company Investment Plan (the Investment Plan) by 0.7 million shares.

Tidewater - In April 2023, Tidewater closed on three Delaware Public Service Commission (DEPSC)-approved SRF loans totaling $10.2 million, all at interest rates of 2.0% with maturity dates in 2043 and 2044. These loans are for the construction, relocation, improvement, and/or interconnection of transmission mains. Tidewater has drawn a total of $1.5 million through September 30, 2023 and expects that the requisitions will continue through mid-2025.

In May 2023, Tidewater closed on a $20.0 million loan from CoBank, ACB (CoBank) with an interest rate of 5.71% and a 2033 maturity date. Proceeds from the loan were used to pay off Tidewater’s outstanding balances under its bank lines of credit and for other general corporate purposes.

Pinelands - In July 2023, Pinelands Water and Pinelands Wastewater closed on $3.9 million and $3.6 million CoBank amortizing mortgage type loans, respectively, with an interest rate of 6.17% and a final maturity date of 2043 for each loan. Proceeds from the loans were used to pay off outstanding intercompany loans with Middlesex and for ongoing capital projects.

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 maintain and improve service for the current and future generations of water and wastewater customers. The Company plans to invest approximately $23 million in the last quarter of 2023 in connection with 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 located in South Plainfield, New Jersey to comply with new state water quality regulations related to perfluoroalkyl substances (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 Borough of Carteret and the Port Reading section of Woodbridge, New Jersey;

●

Replacement of Company and customer owned lead and galvanized steel service lines;

●

Interconnecting Tidewater’s Angola and Meadows Districts which will provide redundant capacity and storage for both districts; and

●

Various water main replacements and improvements.

The actual amount and timing of capital expenditures is dependent on project scheduling and refinement of engineering estimates for certain capital projects.

The Company had previously initiated a lawsuit against 3M Company (3M), seeking to hold 3M accountable for the Company’s claim that 3M introduced perfluoroalkyl substances (commonly known as “PFAS”), which include PFOA, into the Company’s water supply at its Park Avenue Wellfield facility.

On August 29, 2023, Middlesex and 3M executed a settlement agreement (the Settlement Agreement) to resolve Middlesex’s lawsuit against 3M. The Settlement Agreement provides that:

●

3M will pay Middlesex $93.2 million in two installments, one payment of $23.3 million in December 2023 ($23.3 million) and one payment of $69.9 million in July 2024. Middlesex is obligated to pay 30% of the proceeds received to its lawyers as legal fees, or $27.9 million in total;

●

Middlesex anticipates its receipt of the Settlement Proceeds will have the effect of mitigating future increases in customer rates, the determination of which are based, in part, on Middlesex’s investments in utility infrastructure. For additional details, see “Item 1. Business – Regulation - Regulation of Rates and Services” in Middlesex’s 2022 Form 10-K;

●

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. These factors are discussed in the Results of Operations section below. Unfavorable weather patterns may occur at any time, which can result in lower customer demand for water.

Our investments in system infrastructure continue to grow significantly and our operating costs continue to increase in 2023 in a variety of categories. These factors led Middlesex to file for a base rate increase in May 2023. Tidewater has not yet determined the need to file for a base rate increase but continues to monitor its requirements for a rate filing in 2023.

Overall, organic residential customer growth continues in our Tidewater system but is impacted by the current and evolving macroeconomic market conditions relative to residential housing. Builders and developers in our Delaware service territory are experiencing longer home sales closing cycles due to supply chain constraints, which may be further affected by inflationary trends and the federal government’s ongoing efforts to mitigate inflation through increases in interest rates.

The Company has projected to spend approximately $277 million for the 2023-2025 capital investment program, including approximately $18 million for PFAS-related treatment upgrades, $9 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 $4 million for construction of elevated storage tanks in our Tidewater and Middlesex Systems.

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.

The calendar year 2023 is a period of significant transition for the Company based on the items noted above and elsewhere in this document, including the transition of the CEO and other elements of the Company’s succession plan, various rate case and other regulatory proceedings and various construction and financing initiatives. The timing and extent of these matters, both individually and collectively, may impact financial results in 2023. No such items however, are expected to have a material adverse effect on revenues or earnings.

Operating Results by Segment

The discussion of the Company’s operating results is on a consolidated basis and includes significant factors by subsidiary. The Company has two operating segments, Regulated and Non-Regulated. The operations of the Regulated segment are subject to regulations promulgated by state public utility commissions as to rates and level of service. Rates and level of service in the Non-Regulated segment are subject to the terms of individually-negotiated and executed contracts with municipal, industrial and other clients. Both segments are subject to federal and state environmental, water and wastewater quality and other associated legal and regulatory requirements.

The segments in the tables included below consist of the following companies: Regulated-Middlesex, Tidewater, Pinelands and Southern Shores; Non-Regulated-USA, USA-PA, and White Marsh.

Results of Operations – Three Months Ended September 30, 2023

	(In Thousands)
	Three Months Ended September 30,
	2023						2022
	Regulated		Non- Regulated		Total		Regulated		Non- Regulated		Total
Revenues	$	43,578	$	3,137	$	46,715	$	44,411	$	3,321	$	47,732
Operations and maintenance expenses		20,376		2,205		22,581		17,935		2,377		20,312
Depreciation expense		6,311		65		6,376		5,754		60		5,814
Other taxes		4,883		53		4,936		4,972		59		5,031
Operating income	$	12,008	$	814	$	12,822	$	15,750	$	825	$	16,575

Other income, net		1,354		78		1,432		1,967		72		2,039
Interest expense		3,518		—		3,518		2,355		—		2,355
Income taxes		460		286		746		1,679		289		1,968
Net income	$	9,384	$	606	$	9,990	$	13,683	$	608	$	14,291

Operating Revenues

Operating revenues for the three months ended September 30, 2023 decreased $1.0 million from the same period in 2022 due to the following factors:

●

Middlesex System revenues decreased $0.2 million due to lower customer demand offset somewhat by the implementation of the final phase of the 2021 base rate case increase on January 1, 2023;

●

Tidewater System revenues decreased $0.7 million due to lower customer demand and lower revenue from a 2022 DEPSC-ordered rate reduction partially offset by an increase in customers; and

●

All other revenue categories decreased $0.1 million.

Operation and Maintenance Expense

Operation and maintenance expenses for the three months ended September 30, 2023 increased $2.3 million from the same period in 2022 due to the following factors:

●

Higher purchased water costs and water treatment costs in our Middlesex system resulted in increased production costs of $1.4 million;

●

Outside service costs rose by $0.4 million primarily due to production instrumentation calibration activities; and

●

All other operation and maintenance expense categories increased $0.5 million.

Depreciation

Depreciation expense for the three months ended September 30, 2023 increased $0.6 million from the same period in 2022 due to a higher level of utility plant in service.

Other Taxes

Other taxes for the three months ended September 30, 2023 decreased $0.1 million from the same period in 2022 primarily due to lower revenue related taxes on decreased revenues in our Middlesex System.

Other Income, net

Other Income, net for the three months ended September 30, 2023 decreased $0.6 million from the same period in 2022 due primarily to lower actuarially-determined retirement benefit plans non-service benefit and lower Allowance for Funds Used During Construction (AFUDC) resulting from a lower level of capital projects in progress.

Interest Charges

Interest charges for the three months ended September 30, 2023 increased $1.2 million from the same period in 2022 due to higher average debt outstanding and an increase in average borrowing rates.

Income Taxes

Income taxes for the three months ended September 30, 2023 decreased by $1.2 million from the same period in 2022, primarily due to greater income tax benefits associated with increased repair expenditures on tangible property in the Middlesex System and lower pre-tax income.

Net Income and Earnings Per Share

Net income for the three months ended September 30, 2023 decreased $4.3 million as compared with the same period in 2022. Basic earnings per share were $0.56 and $0.81 for the three months ended September 30, 2023 and 2022, respectively. Diluted earnings per share were $0.56 and $0.80 for the three months ended September 30, 2023 and 2022, respectively.

Results of Operations – Nine Months Ended September 30, 2023

	(In Thousands)
	Nine Months Ended September 30,
	2023						2022
	Regulated		Non- Regulated		Total		Regulated		Non- Regulated			Total
Revenues	$	118,363	$	9,309	$	127,672	$	114,625	$	8,986		$	123,611
Operations and maintenance expenses		57,548		6,494		64,042		52,780		6,227			59,007
Depreciation expense		18,350		196		18,546		16,925		182			17,107
Other taxes		13,922		182		14,104		13,359		184			13,543
Gain on Sale of Subsidiary		—		—		—		5,232		—			5,232
Operating income		28,543		2,437		30,980		36,793		2,393			39,186

Other income, net		5,126		160		5,286		5,531		207			5,738
Interest expense (benefit)		9,364		—		9,364		6,575		(1	)		6,574
Income taxes		288		855		1,143		2,253		839			3,092
Net income	$	24,017	$	1,742	$	25,759	$	33,496	$	1,762		$	35,258

Operating Revenues

Operating revenues for the nine months ended September 30, 2023 increased $4.1 million from the same period in 2022 due to the following factors:

●

Middlesex System revenues increased $4.9 million due to the implementation of the final phase of the 2021 base rate case increase on January 1, 2023 offset somewhat by lower customer demand;

●

Tidewater System revenues decreased $1.2 million due to lower new connection fees and lower revenue from a 2022 DEPSC-ordered rate reduction partially offset by an increase in customers; and

●

Non-regulated revenues increased $0.3 million due to higher supplemental contract services; and

●

Pinelands revenue increased $0.1 million due to the implementation of a base rate increase effective April 15, 2023.

Operation and Maintenance Expense

Operation and maintenance expenses for the nine months ended September 30, 2023 increased $5.0 million from the same period in 2022 due to the following factors:

●

Higher purchased water costs and water treatment costs in our Middlesex system resulted in increased production costs of $3.4 million;

●

Labor costs also increased by $0.7 million due to wage increases;

●

Outside service costs rose by $0.7 million primarily due to production instrumentation calibration activities;

●

Business insurance costs increased $0.4 million due to higher policy premiums;

●

Lower weather-related main break activity in our Middlesex system during the winter months resulted in $0.8 million of decreased non-labor costs;

●

Non-regulated operation and maintenance expense increased $0.3 million due to higher supplemental contract services; and

●

All other operation and maintenance expense categories increased $0.3 million.

Depreciation

Depreciation expense for the nine months ended September 30, 2023 increased $1.4 million from the same period in 2022 due to a higher level of utility plant in service.

Other Taxes

Other taxes for the nine months ended September 30, 2023 increased $0.6 million from the same period in 2022 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 nine months ended September 30, 2023 decreased $0.5 million from the same period in 2022 primarily due to lower actuarially-determined retirement benefit plans non-service benefit partially offset by higher AFUDC resulting from a lower level of capital projects in progress.

Interest Charges

Interest charges for the nine months ended September 30, 2023 increased $2.8 million from the same period in 2022 due to higher average debt outstanding and an increase in average borrowing rates.

Income Taxes

Income taxes for the nine months ended September 30, 2023 decreased by $1.9 million from the same period in 2022, primarily due to greater income tax benefits associated with increased repair expenditures on tangible property in the Middlesex System and lower pretax income due to gain on the sale of a subsidiary in 2022.

Net Income and Earnings Per Share

Net income for the nine months ended September 30, 2023 decreased $9.5 million as compared with the same period in 2022. Basic earnings per share were $1.45 and $2.00 for the nine months ended September 30, 2023 and 2022, respectively. Diluted earnings per share were $1.44 and $1.99 for the nine months ended September 30, 2023 and 2022, respectively.

Liquidity and Capital Resources

Operating Cash Flows

Cash flows from operations are largely based on 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 “Results of Operations.”

For the nine months ended September 30, 2023, cash flows from operating activities decreased $4.3 million to $40.0 million. The decrease in cash flows from operating activities primarily resulted from lower net income and higher interest and tax payments.

Investing Cash Flows

For the nine months ended September 30, 2023, cash flows used in investing activities increased $10.3 million to $73.1 million due to increased utility plant expenditures in 2023 and cash received in January 2022 from the sale of Middlesex’s regulated wastewater subsidiary.

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

Financing Cash Flows

For the nine months ended September 30, 2023, cash flows from financing activities increased $14.3 million to $32.2 million. The increase in cash flows provided by financing activities is due to an increase in net borrowings partially offset by increased common stock dividend payments and lower proceeds from the issuance of common stock under the Investment Plan.

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 proceeds from sales offerings to the public of our common stock. See below for a more detailed discussion regarding the funding of our capital program.

The capital investment program for 2023 is currently estimated to be approximately $96 million. Through September 30, 2023, we have expended $73.1 million and expect to incur approximately $23 million for capital projects for the remainder of 2023.

We currently project that we may expend approximately $181 million for capital projects in 2024 and 2025. 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.

To pay for our capital program for the remainder of 2023, we plan on utilizing some or all of the following:

●

Internally generated funds;

●

Short-term borrowings, as needed, through $140 million of bank lines of credit established with multiple financial institutions. As of September 30, 2023, there was $97.8 million of available credit under these lines (for further discussion on Company lines of credit, see Note 6 – Short Term Borrowings);

●

Proceeds from long-term borrowing arrangements, including loans from private placement, CoBank and the Delaware SRF Program, which provides cost-effective financing for projects that meet certain water quality-related and/or system improvement criteria (for further discussion on long-term borrowings, see Recent Developments – Financings above); and

●

Proceeds from sales of common stock under the Investment Plan.

In May 2023, Middlesex received approval from the NJBPU to increase the number of authorized shares under the Investment Plan by 0.7 million shares.

In order to fully fund the ongoing investment program in our utility plant infrastructure and maintain a balanced capital structure consistent with regulators’ expectations 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. As approved by the NJBPU, the Company is authorized to issue and sell up to 1.0 million shares of its common stock in one or more transactions through December 31, 2025.

Recent Accounting Pronouncements – See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements and guidance.

Item 3. Quantitative and Qualitative Disclosures of 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, 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 $7.4 million of the current portion of existing long-term debt instruments will mature. Applying a hypothetical change in the rate of interest charged by 10% on those borrowings, would not have a material effect on our earnings.

Our risks associated with price increases for chemicals, electricity and other commodities are reduced through contractual arrangements and the ability to recover price increases through rates charged to the Company’s regulated utility customers. 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 customers’ rates.

The Company's retirement benefit plan assets are subject to fluctuating market prices of debt and equity securities. Changes to the Company's retirement benefit plan asset values can impact the Company's retirement benefit plan expense, funded status and future minimum funding requirements. Risk is mitigated by our ability to recover retirement benefit plan costs through rates for regulated utility services charged to our customers.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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.

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 September 30, 2023. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that no changes in internal control over financial reporting occurred during the quarter ended September 30, 2023 that has materially affected, or are reasonably likely to materially affect, internal control over financial reporting and that our disclosure controls and procedures were not effective as of September 30, 2023 due to the material weakness described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

In 2023, the Company’s independent registered public accounting firm, Baker Tilly US, LLP (Baker Tilly), conducted a routine internal quality review of its integrated audit of the Company’s 2022 consolidated financial statements and internal control over financial reporting as of December 31, 2022. As a result of this review, Baker Tilly re-examined the Company’s information technology general controls (ITGCs) in the areas of user access and change management over certain information technology (IT) systems that support the Company’s financial reporting processes. Certain of those controls were found to be deficient because of a lack of sufficient IT control processes designed to prevent or detect unauthorized changes in applications and data in selected IT environments. It has therefore been concluded that automated and manual process controls dependent on ITGCs were not effective. These ineffective controls create a possibility that material misstatements in financial reporting processes and financial statement accounts in our consolidated financial statements will not be prevented or detected on a timely basis and, therefore, based on the assessment, management has concluded that they represent a material weakness in our internal control over financial reporting and that the Company’s internal control over financial reporting was not effective as of September 30, 2023.

Notwithstanding the newly identified material weakness referred to above, Management, including our Principal Executive Officer and Principal Financial Officer, believe that the financial statements contained in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 fairly present, in all material respects, the financial condition, results of operations and cash flows of the Company for all periods presented in accordance with accounting principles generally accepted in the United States of America.

We are committed to remediating the material weakness in a timely manner. Our remediation process includes, but is not limited to, enhancements to our ITGCs and automated auditing features of our IT systems as well increased monitoring of IT system changes made through certain user accounts.

While the Audit Committee of our Board of Directors and Company Management will closely monitor the remediation efforts, until the remediation efforts discussed in this section, including any additional remediation efforts that our Management identifies as necessary, are complete, tested and determined effective, we will not be able to conclude that the material weakness has been remediated.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

The following information updates and amends the information provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 in Part I, Item 3—Legal Proceedings. Capitalized terms used but not otherwise defined herein have the meanings set forth in the Company’s Form 10-K.

PFOA Regulatory Notice of Non-Compliance

Vera et al. v. Middlesex Water Company – On March 21, 2023, the United States District Court for the District of New Jersey issued an order remanding the case back to the Superior Court of New Jersey. Discovery is underway in this matter. On August 29, 2023 the Company executed a settlement agreement with 3M Company to resolve a lawsuit related to perfluoroalkyl substances. For additional information see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Regulatory Notice of Non-Compliance.”

Item 1A.

Risk Factors

The information about risk factors does not differ materially from those set forth in Part I, Item 1A. of the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2022 (filed November 8, 2023).

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

(a)

None.

(b)

None.

(c)

Insider Trading Arrangements and Policies - During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6.	Exhibits

10.17(c)	Promissory Note and Supplement, dated May 11, 2023, between Tidewater Utilities, Inc. and CoBank, ACB; Amendments to Combination Water Utility Real Estate Mortgage and Security Agreement, effective May 11, 2023, between Tidewater Utilities, Inc. and CoBank, ACB.

10.17(d)	Sixth Amendment to Promissory Note and Supplement, dated as of May 11, 2023, between Tidewater Utilities, Inc. and CoBank, ACB.

10.53	Multiple Advance Term Promissory Note, dated May 22, 2023, between Pinelands Water Company and CoBank, ACB.

10.54	Multiple Advance Term Promissory Note, dated May 22, 2023, between Pinelands Wastewater Company and CoBank, ACB.

10.55*	Settlement Agreement, dated as of August 28, 2023 between Middlesex Water Company and 3M Company

31.1	Section 302 Certification by Dennis W. Doll pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

31.2	Section 302 Certification by A. Bruce O’Connor pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

32.1	Section 906 Certification by Dennis W. Doll pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.2	Section 906 Certification by A. Bruce O’Connor pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Schema Document

101.CAL

XBRL Calculation Linkbase Document

101.LAB

XBRL Labels Linkbase Document

101.PRE

XBRL Presentation Linkbase Document

101.DEF

XBRL Definition Linkbase Document

104	Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

Certain portions of this exhibit that constitute confidential information have been omitted in accordance with Regulation S-K, Item 601(b)(10)(iv) because it is both (i) not material and (ii) is the type of information the Company treats as private and confidential.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MIDDLESEX WATER COMPANY

	By:	/s/A. Bruce O’Connor
		A. Bruce O’Connor
		Senior Vice President, Treasurer and
		Chief Financial Officer
		(Principal Financial Officer)

Date: November 9, 2023