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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Middlesex Water Company | NASDAQ:MSEX | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-0.47 | -0.81% | 57.21 | 56.78 | 57.66 | 57.89 | 56.80 | 57.89 | 111,937 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
Amendment No. 1
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________________ to ______________________
Commission
File Number
(Exact name of registrant as specified in its charter)
(State of Incorporation) | (IRS employer identification no.) |
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class: | Trading Symbol: | Name of each exchange on which registered: |
The |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐
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.
Indicate
by check mark whether the registrant has submitted electronically and posted on their corporate web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrants were required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.
Accelerated filer ☐ | Non-accelerated filer ☐ | |
Smaller reporting company ☐ | Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No
The
aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2022 was $
The number of shares outstanding for each of the registrant’s classes of common stock, as of February 24, 2023:
Common
Stock, No par Value
Documents Incorporated by Reference
Proxy Statement filed in connection with the Registrant’s Annual Meeting of Stockholders held on May 23, 2023, which was filed with the Securities and Exchange Commission within 120 days of the end of our 2022 fiscal year, is incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described herein.
Explanatory Note
Middlesex Water Company (the Company) is filing this Amendment No. 1 to the Annual Report on Form 10-K (this Form 10-K/A) for the fiscal year ended December 31, 2022, originally filed with the Securities and Exchange Commission (the SEC) on February 24, 2023 (the 2022 Form 10-K) to make certain changes described below.
In the 2022 Form 10-K, the Company indicated and reported that, based on its assessment at such time, its internal control over financial reporting was operating as designed and were effective. The 2022 Form 10-K included Baker Tilly US, LLP’s (Baker Tilly) Report of Independent Registered Public Accounting Firm dated February 24, 2023, that concluded “in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.”
Subsequent to the issuance of the Company’s 2022 Form 10-K, the Company’s independent registered public accounting firm, 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. On November 1, 2023, the Company determined, and Baker Tilly concurred, that the ITGCs deficiency and the resulting impact on other controls constitutes a material weakness in the Company’s internal control over financial reporting as of December 31, 2022. For a more detailed description of this material weakness, refer to Part II, Item 9A, “Controls and Procedures.”
Notwithstanding the newly identified material weakness referred to above, Management, including our Principal Executive Officer and Principal Financial Officer, believes that the financial statements contained in the 2022 Form 10-K 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.
In accordance with Rule 12b-15 of the Securities Exchange Act of 1934, as amended (the Exchange Act), this Form 10-K/A is being filed to (i) amend the Company’s Forward-Looking Statement, (ii) amend the Company’s risk factors included in Part I. Item 1A, (iii) replace Baker Tilly’s audit report with the revised audit report included in Part II, Item 8 to reflect the newly identified material weakness as of December 31, 2022, (iv) amend the Company’s disclosure on controls and procedures included in Part II, Item 9A, and (v) amend Part IV - Item 15 Exhibits and Financial Statement Schedules to replace Baker Tilly’s consent of independent registered public accounting firm with an updated consent of independent registered public accounting firm and include currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer as required by Section 302 and 906 of the Sarbanes-Oxley Act of 2002.
Please note that the only changes to the 2022 Form 10-K are those related to the matters described herein and only in the Items listed above. Except as described above, no changes have been made to the 2022 Form 10-K, and this Form 10-K/A does not modify, amend or update any of the other financial information or other information contained in the 2022 Form 10-K. In addition, in accordance with SEC rules, this Form 10-K/A includes an updated auditor consent as Exhibit 23.1 and updated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31, 31.1, 32 and 32.1. Except for the foregoing changes, the information in this Form 10-K/A is as of February 24, 2023, the filing date of the original Form 10-K for the year ended December 31, 2022, and has not been updated for the events subsequent to that date other than as discussed above.
MIDDLESEX WATER COMPANY
FORM 10-K
INDEX
PAGE | |||
Forward-Looking Statements | 1 | ||
PART I | 2 | ||
Item 1A. Risk Factors | 2 | ||
PART II | 9 | ||
Item 8. Financial Statements and Supplementary Data | 9 | ||
Item 9A. Controls and Procedures | 39 | ||
PART IV | |||
Item 15. Exhibits and Financial Statement Schedules | |||
Signatures | 41 | ||
Exhibit Index | 42 |
FORWARD-LOOKING STATEMENTS
Certain statements contained in this annual report and in the documents incorporated by reference constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Middlesex Water Company (the Company) intends that these statements be covered by the safe harbors created under those laws. They include, but are not limited to statements as to:
- | expected financial condition, performance, prospects and earnings of the Company; |
- | strategic plans for growth; |
- | the amount and timing of rate increases and other regulatory matters, including the recovery of certain costs recorded as regulatory assets; |
- | the Company’s expected liquidity needs during the upcoming fiscal year and beyond and the sources and availability of funds to meet its liquidity needs; |
- | expected customer rates, consumption volumes, service fees, revenues, margins, expenses and operating results; |
- | financial projections; |
- | the expected amount of cash contributions to fund the Company’s retirement benefit plans, anticipated discount rates and rates of return on plan assets; |
- | the ability of the Company to pay dividends; |
- | the Company’s compliance with environmental laws and regulations and estimations of the materiality of any related costs; |
- | the safety and reliability of the Company’s equipment, facilities and operations; |
- | the Company’s plans to renew municipal franchises and consents in the territories it serves; |
- | trends; and |
- | the availability and quality of our water supply. |
These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from anticipated results and outcomes include, but are not limited to:
- | effects of general economic conditions; |
- | increases in competition for growth in non-franchised markets to be potentially served by the Company; |
- | ability of the Company to adequately control selected operating expenses which are necessary to maintain safe and proper utility services, and which may be beyond the Company’s control; |
- | availability of adequate supplies of water; |
- | actions taken by government regulators, including decisions on rate increase requests; |
- | new or modified water quality standards; |
- | weather variations and other natural phenomena impacting utility operations; |
- | financial and operating risks associated with acquisitions and, or privatizations; |
- | acts of war or terrorism; |
- | cyber-attacks; |
- | changes in the pace of housing development; |
- | availability and cost of capital resources; |
- | timely availability of materials and supplies for operations and for critical infrastructure projects; |
- | effectiveness of internal control over financial reporting; |
- | impact of the Novel Coronavirus (COVID-19) or other pandemic; and |
- | other factors discussed elsewhere in this annual report. |
Many of these factors are beyond the Company’s ability to control or predict. Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements, which only speak to the Company’s understanding as of the date of this report. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.
For an additional discussion of factors that may affect the Company’s business and results of operations, see Item 1A - Risk Factors.
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PART I
ITEM 1A. | RISK FACTORS. |
Operational Risks
Weather conditions and overuse of underground aquifers may interfere with our sources of water, demand for water services and our ability to supply water to customers.
Our ability to meet current and future water demands of our customers depends on the availability of an adequate supply of water. Unexpected conditions may interfere with our water supply sources. Drought and overuse of underground aquifers may limit the availability of ground and/or surface water. Freezing weather may also contribute to water transmission interruptions caused by water main breakage. Any interruption in our water supply could cause a reduction in our revenue and profitability. These factors may adversely affect our ability to supply water in sufficient quantities to our customers. Governmental drought restrictions may result in decreased customer demand for water services and can adversely affect our revenue and earnings.
Our water sources or water service provided to customers may become contaminated by naturally-occurring or man-made compounds and events. This may cause disruption in services and impose operational and regulatory enforcement costs upon us to restore the water to required levels of quality as well as may damage our reputation and cause private litigation claims against us.
Our sources of water or water in our distribution systems may become contaminated by naturally-occurring or man-made compounds or other events. In the event that any portion of our water supply sources or water distribution systems is contaminated, we may need to interrupt service to our customers until we are able to remediate the contamination or substitute the flow of water from an uncontaminated water source through existing interconnections with other water purveyors or through our transmission and distribution systems, where possible. We may also incur significant costs in treating any contaminated water, or remediating the effects on our treatment and distribution systems, through the use of our current treatment facilities, or development of new treatment methods. Our inability to substitute water supply from an uncontaminated water source, or to adequately treat the contaminated water supply in a cost-effective manner, may reduce our revenues or increase our expenses and make us less profitable.
We may be unable to recover costs associated with treating water supplies through rates or, recovery of these costs may not occur in a timely manner. In addition, we could be subject to claims for damages arising from government enforcement actions or legal actions arising out of interruption of service or perceived human exposure to hazardous substances in our drinking water and water supplies. Such costs could adversely affect our financial results.
Contamination of the water supply or the water service provided to our customers could result in substantial injury or damage to our customers, employees or others and we could be exposed to substantial claims and litigation, which are inherently subject to uncertainties and are potentially subject to unfavorable regulatory and/or legal actions. Negative impacts to our profitability and/or our reputation may occur even if we are not responsible for the contamination or the consequences arising out of human exposure to contamination or hazardous substances in the water supplies. Pending or future claims against us could have a material adverse impact on our financial condition, results of operations and cash flows.
The necessity for ongoing physical and technological security has resulted, and may continue to result, in increased operating costs.
Because of physical and technological threats to the health and security of the United States of America, we employ procedures to review and modify security measures. We provide ongoing training and communications to our employees about threats to our water supply, our assets and related systems and our employees’ personal safety. We have incurred, and will continue to incur, costs for security measures in efforts to protect against such risks.
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Climate variability may cause weather volatility in the future, which may impact water usage and related revenue or, may require additional expenditures to reduce risk associated with any increasing storm, flood, drought or other weather occurrences.
Increased climate variability may cause increased precipitation and flooding, increased frequency and severity of storms and other weather events, potential degradation of water quality, decreases in available water supply, changes in water usage patterns and disruptions in service. Because of the uncertainty of weather volatility related to climate variability, we cannot predict its potential impact on our financial condition, results of operations, cash flows and liquidity. Although some or all potential expenditures and costs with respect to our regulated businesses could be recovered through rates we charge to our customers, there can be no assurance that the NJBPU or the DEPSC would authorize recovery of such costs, in whole or in part.
Regulatory Risks
Our revenue and earnings depend on the rates we charge our customers. We cannot raise utility rates in our regulated businesses without petitioning the appropriate Utility Commissions. If these agencies modify, delay or deny our petition, our revenues will not increase and our earnings will decline unless we are able to reduce costs without degrading service quality.
The NJBPU regulates our public utility companies in New Jersey with respect to rates and charges for service, classification of accounts, awards of new service territory, acquisitions, financings and other matters. That means, for example, that we cannot raise the utility rates we charge to our customers without first petitioning the NJBPU and navigating a lengthy administrative process. Similarly, the DEPSC regulates our public utility companies in Delaware. We cannot provide assurance as to when we will request approval for any such matter, nor can we predict whether these Utility Commissions will approve, deny or reduce the amount of such requests.
Certain costs are not completely within our control. The failure to obtain any rate increase would prevent us from increasing our revenues and, unless we are able to reduce costs without degrading service quality, would result in reduced earnings.
We are subject to environmental laws and regulations, including water quality and wastewater effluent quality regulations, as well as other state and local regulations. Compliance with those laws and regulations requires us to incur costs and we are subject to fines or other sanctions for non-compliance.
Government environmental regulatory agencies regulate our operations in New Jersey and Delaware with respect to water supply, treatment and distribution systems and the quality of water. Government environmental regulatory agencies also regulate our operations in New Jersey and Delaware with respect to wastewater collection, treatment and disposal.
Government environmental regulatory agencies’ regulations relating to water quality require us to perform expanded types of testing to ensure our water meets state and federal water quality requirements. We are subject to USEPA regulations under the Federal Safe Drinking Water Act and under the Federal Clean Water Act regarding wastewater services. Regulations under the Safe Drinking Water Act include the Lead and Copper Rule, the maximum contaminant levels established for various volatile organic compounds, the Federal Surface Water Treatment Rule and the Total Coliform Rule. There are also similar NJDEP regulations for our New Jersey water systems. The NJDEP and DEDPH a monitor our activities and review the results of water quality tests we perform for adherence to applicable regulations. In addition, Government Environmental Regulatory Agencies are continually reviewing regulations governing the limits of certain organic compounds found in the water as byproducts of treatment.
We are also subject to regulations related to fire protection services in New Jersey and Delaware. In New Jersey there is no state-wide fire protection regulatory agency. However, New Jersey regulations exist as to the size of piping required regarding the provision of fire protection services. In Delaware, fire protection is regulated statewide by the Office of State Fire Marshal.
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The cost of compliance with the water and wastewater effluent quality standards depends in part on the limits set in the regulations and on the methods selected to comply with these standards. If new or more restrictive standards are imposed, the cost of compliance could increase and therefore, have an adverse impact on our revenues and results of operations if we cannot recover those costs through the rates we charge our customers. The cost of compliance with fire protection requirements could also increase and make us less profitable if we cannot recover those costs through our rates charged to our customers.
The Company must comply with various environmental laws and regulations promulgated by the USEPA, NJDEP and other governmental agencies, including the Toxic Catastrophe Prevention Act, the Spill Prevention, Control, and Countermeasure Rule and the Discharge Prevention Program of the New Jersey Spill Compensation and Control Act. If we fail to comply with environmental or other laws and regulations to which our business is subject, we could be fined or subject to other sanctions, which could adversely impact our business or results of operations.
Financial Risks
We depend upon our ability to raise money in the capital markets to finance some of the costs of complying with laws and regulations, including environmental laws and regulations or to pay for some of the costs of improvements to or the expansion of our utility system assets. Our regulated utility companies cannot issue debt or equity securities without prior regulatory approval.
We require financing from external sources to fund the ongoing capital program for the improvement in our utility system assets and for planned expansion of those systems. We expect to spend approximately $266 million for capital projects through 2025. We must obtain prior approval from our economic regulators to sell debt or equity securities to raise capital for these projects. If sufficient capital is not available, or the cost of capital is too high, or if the regulatory authorities deny our petition to sell debt or equity securities, we may not be able to meet the costs of complying with environmental laws and regulations or the costs of improving and expanding our utility system assets to the level we believe operationally prudent. This may result in the imposition of fines from environmental regulators or restrictions on our operations which could curtail our ability to upgrade or replace utility system assets.
We face competition from other utilities and service providers which might hinder our growth opportunities and mitigate our future profitability.
We face risks of competition from other utilities or other entities authorized by federal, state or local agencies to expand rate-regulated or contracted utility services. Once a state utility regulator grants a franchise to a public utility to serve a specific territory, that utility effectively has an exclusive right to service that territory. Although a new franchise offers some protection against competitors, the pursuit of franchises is often competitive, particularly in Delaware, where new franchises may be awarded to utilities based upon competitive negotiation. Competing entities have challenged, and may challenge in the future, our applications for new franchises. Also, third parties entering into agreements to operate municipal utility systems may adversely affect the management of our long-term agreements to supply water or wastewater services on a contract basis to those municipalities, which could adversely affect our financial results.
We have short-term and long-term contractual obligations for water, wastewater and storm water system operation and maintenance under which we may incur costs in excess of payments received.
USA-PA and USA operate and maintain water and wastewater systems for three New Jersey municipalities under 10-year contracts expiring in 2028, 2030 and 2032, respectively. These contracts do not protect us against incurring costs in excess of revenues we earn pursuant to the contracts. There can be no absolute assurance we will not experience losses resulting from these contracts. Losses under these contracts, or our failure or inability to perform or renew such agreements, may have a material adverse effect on our financial condition and results of operations.
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Capital market conditions and key assumptions may adversely impact the value of our postretirement benefit plan assets and liabilities.
Market factors can adversely affect the rate of return on assets held in trusts to satisfy our future postretirement benefit obligations, as well negatively affect interest rates, which impacts the discount rates used in the determination of our postretirement benefit actuarial valuations. In addition, changes in demographics, such as increases in life expectancy assumptions, can increase future postretirement benefit obligations. Any negative impact to these factors, either individually or a combination thereof, may have a material adverse effect on our financial condition and results of operations.
An element of our growth strategy is the acquisition of water and wastewater assets, operations, contracts or companies. Any pending or future acquisitions we decide to undertake will involve risks.
The acquisition and/or operation of water and wastewater systems is an element of our growth strategy. This strategy depends on identifying suitable opportunities that meet our risk/reward profile and reaching mutually agreeable terms with acquisition candidates or contract parties. Further, acquisitions may result in dilution in the value of our equity securities, incurrence of debt and contingent liabilities and fluctuations in financial results. In addition, the assets, operations, contracts or companies we acquire may not achieve the revenues and profitability projected.
Our ability to achieve organic customer growth in our market area is dependent on the residential building market. New housing starts and home sale closings are one element that impacts our rate of growth and therefore, may not meet our expectations.
We expect our revenues to increase from customer growth for our regulated water operations as a result of anticipated construction, sale and close of new housing units. If housing starts decline, or do not increase as we have projected, or home sales closing cycle times increase as a result of economic conditions or otherwise, the timing and extent of our organic revenue growth may not meet our expectations, our deferred project costs may not produce revenue-generating projects in the timeframes anticipated and our financial results could be negatively impacted.
There can be no assurance we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.
We have paid dividends on our common stock each year since 1912 and have increased the amount of dividends paid each year since 1973. Our earnings, financial condition, capital requirements, applicable regulations and other factors, including the timeliness and adequacy of rate increases, will determine both our ability to pay dividends and the amount of those dividends. There can be no assurance we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.
If we are unable to pay the principal and interest on our indebtedness as it comes due or we default under certain other provisions of our loan documents, our indebtedness could be accelerated and our results of operations and financial condition could be adversely affected.
Our ability to pay the principal and interest on our indebtedness as it comes due will depend upon our current and future performance. Our performance is affected by many factors, some of which are beyond our control.
We believe cash generated from operations and, if necessary, borrowings under existing credit facilities, will be sufficient to enable us to make our debt payments as they become due. If, however, we do not generate sufficient cash, we may be required to refinance our obligations or sell additional equity, which may be on terms that are less favorable than we desire.
No assurance can be given that any refinancing or sale of equity will be possible when needed, or that we will be able to negotiate acceptable terms. In addition, our failure to comply with certain provisions contained in our trust
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indentures and loan agreements relating to our outstanding indebtedness could lead to a default under these documents, which could result in an acceleration of our indebtedness.
Our business is subject to seasonal fluctuations, which could affect demand for our water service and our revenues.
Demand for our water during the warmer months is generally greater than during colder months due primarily to additional consumption of water in connection with irrigation systems, swimming pools, cooling systems and other outdoor water use. Throughout the year, and particularly during typically warmer months, demand may vary with temperature and rainfall levels. In the event that temperatures during the typically warmer months are cooler than normal, or if there is more rainfall than normal, the demand for our water may decrease and adversely affect our revenues.
General economic conditions may materially and adversely affect our financial condition and results of operations.
Adverse economic conditions could negatively impact our customers’ water usage demands, particularly the level of water usage demand by our commercial and industrial customers in our Middlesex System. If water demand by our commercial and industrial customers in our Middlesex System decreases, our financial condition and results of operations could be negatively impacted until completion of a subsequent base rate filing.
The current concentration of our business in central New Jersey and in Delaware makes us susceptible to adverse developments in local regulatory, economic, demographic, competitive and weather conditions.
Our Middlesex System provides water services to customers located primarily in eastern Middlesex County, New Jersey. Water service is provided under wholesale contracts to the Townships of Edison, East Brunswick and Marlboro, the Borough of Highland Park, the Old Bridge Municipal Utilities Authority and the City of Rahway. We also provide water services to customers in the State of Delaware. Our revenues and operating results are therefore subject to local regulatory, economic, demographic, competitive and weather conditions in a relatively concentrated geographic area. A change in any of these conditions could make it more costly for us to conduct our business.
We are subject to anti-takeover measures that may be used to discourage, delay or prevent changes of control that might benefit non-management shareholders.
Subsection 10A of the New Jersey Business Corporation Act, known as the New Jersey Shareholders Protection Act, applies to us. The Shareholders Protection Act deters merger proposals, tender offers or other attempts to effect changes in control that are not approved by our Board of Directors. In addition, we have a classified Board of Directors, which means only a portion of the Director population is elected each year. A classified Board can make it more difficult for an acquirer to gain control of the Company by voting its candidates onto the Board of Directors and may also deter merger proposals and tender offers. Our Board of Directors also has the ability, subject to obtaining NJBPU approval, to issue one or more series of preferred stock having such number of shares, designation, preferences, voting rights, limitations and other rights as the Board of Directors may fix. This could be used by the Board of Directors to discourage, delay or prevent an acquisition the Board of Directors determines is not in the best interest of the common shareholders.
We identified a material weakness in our internal control related to ineffective information technology general controls which, if not remediated appropriately or timely, could result in loss of investor confidence and adversely impact our stock price.
Internal controls related to the operation of technology systems are critical to maintaining adequate internal control over financial reporting. During the fourth quarter of 2023, management identified a material weakness in internal control related to ineffective 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
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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. As a result, management concluded that our internal control over financial reporting was not effective as of December 31, 2022. Although we are working towards implementing remediation measures prior to the end of 2023, until remediation measures are completed, tested and determined effective, we will not be able to conclude that the material weakness has been remediated. If we are unable to determine that our remediation measures are effective or otherwise remediate the material weakness, or are otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods, could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affecting investor confidence in our financial statements and adversely impacting our stock price.
General Risks
We rely on our information technology systems to help manage our operations.
Our information technology systems require periodic modifications, upgrades and/or replacement which subject us to costs and risks including potential disruption of our internal control structure, substantial unanticipated capital expenditures, additional operating expenses, retention of sufficiently skilled personnel and other risks in transitioning to new systems or integrating new systems. A failure to modify, upgrade or replace our information technology systems could have an adverse impact on our business. In addition, challenges implementing new technology systems may cause disruptions in our business operations and have an adverse effect on our business operations.
Our information technology systems may be subject to physical and cyber attacks.
We rely on our computer, information and communications technology systems in connection with the operation of our business, especially with respect to customer service and billing, accounting and, in some cases, the monitoring and operation of our operating facilities. Our computer and communications systems and operations could be damaged or interrupted by natural disasters, cyber-attacks, power loss and internet, telecommunications or data network failures or acts of war or terrorism or similar events or disruptions. Any of these or other events could cause service interruption, delays and loss of critical data or, impede aspects of operations and therefore, adversely affect our financial results.
Cyber-attacks could result in the loss, or compromise, of customer, financial or operational data, disruption of billing, collections or normal field service activities, disruption of electronic monitoring and control of operational systems and delays in financial reporting and other management functions. Possible impacts associated with a cyber-incident may include remediation costs related to lost, stolen, or compromised data, repairs to data processing systems, increased cyber security protection costs, adverse effects on our compliance with regulatory and environmental laws and regulations, including standards for drinking water, litigation and reputational damage.
The COVID-19 pandemic and the attempt to contain it may harm our business, results of operations, financial condition and liquidity.
In January 2023, the United States Secretary of Health and Human Services renewed the determination that a nationwide health emergency exists as a result of the COVID-19 Pandemic with an announced end to the declared health emergency on May 11, 2023. While the Company’s operations and capital construction program have not been materially disrupted to date from the pandemic, the impact on economic conditions nationally and the areas the Company operates continues to be uncertain and could affect the Company’s results of operations, financial condition and liquidity in the future.
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We depend significantly on the technical and management services of our team, and the departure of any of certain persons could cause our operating results to temporarily be short of our expectations.
Our success depends significantly on the continued individual and collective contributions of our team. If we lose the services of certain members of our team, or are unable to attract and retain qualified personnel in key roles, our operating results could be negatively impacted.
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Middlesex Water Company:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets and consolidated statements of capital stock and long-term debt of Middlesex Water Company (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, common stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. In our report dated February 24, 2023, we expressed an unqualified opinion on the effectiveness of internal control over financial reporting as of December 31, 2022. Subsequent to February 24, 2023, a material weakness was identified in the Company’s internal control over financial reporting. Management revised its assessment of internal control over financial reporting due to the identification of a material weakness, as described below. Accordingly, our opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 expressed herein is different from that expressed in our previous report.
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 financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in the accompanying Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A:
There were ineffective 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. Those controls were found to be deficient because of a lack of sufficient IT control processes designed to prevent or detect unauthorized changes to applications and data in selected IT environments. As a result, automated and manual process controls dependent on those ITGCs were also not effective.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
9
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
We have served as the Company’s auditor since 2006.
February 24, 2023, except as to the effect of the material weakness as described in Management’s Annual Report on Internal Control over Financial Reporting, which is dated November 8, 2023
10
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
Years Ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Operating Revenues | $ | $ | $ | |||||||||
Operating Expenses: | ||||||||||||
Operations and Maintenance | ||||||||||||
Depreciation | ||||||||||||
Other Taxes | ||||||||||||
Total Operating Expenses | ||||||||||||
Gain on Sale of Subsidiary | ||||||||||||
Operating Income | ||||||||||||
Other Income (Expense): | ||||||||||||
Allowance for Funds Used During Construction | ||||||||||||
Other Income (Expense), net | ||||||||||||
Total Other Income, net | ||||||||||||
Interest Charges | ||||||||||||
Income before Income Taxes | ||||||||||||
Income Taxes | ( |
) | ( |
) | ||||||||
Net Income | ||||||||||||
Preferred Stock Dividend Requirements | ||||||||||||
Earnings Applicable to Common Stock | $ | $ | $ | |||||||||
Earnings per share of Common Stock: | ||||||||||||
Basic | $ | $ | $ | |||||||||
Diluted | $ | $ | $ | |||||||||
Average Number of | ||||||||||||
Common Shares Outstanding : | ||||||||||||
Basic | ||||||||||||
Diluted |
See Notes to Consolidated Financial Statements.
11
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, | December 31, | |||||||||
ASSETS | 2022 | 2021 | ||||||||
UTILITY PLANT: | Water Production | $ | $ | |||||||
Transmission and Distribution | ||||||||||
General | ||||||||||
Construction Work in Progress | ||||||||||
TOTAL | ||||||||||
Less Accumulated Depreciation | ||||||||||
UTILITY PLANT - NET | ||||||||||
CURRENT ASSETS: | Cash and Cash Equivalents | |||||||||
Accounts Receivable, net of allowance for uncollectible accounts of $ |
||||||||||
Unbilled Revenues | ||||||||||
Materials and Supplies (at average cost) | ||||||||||
Prepayments | ||||||||||
TOTAL CURRENT ASSETS | ||||||||||
OTHER ASSETS: | Operating Lease Right of Use Asset | |||||||||
Preliminary Survey and Investigation Charges | ||||||||||
Regulatory Assets | ||||||||||
Non-utility Assets - Net | ||||||||||
Employee Benefit Plans | ||||||||||
Other | ||||||||||
TOTAL OTHER ASSETS | ||||||||||
TOTAL ASSETS | $ | $ | ||||||||
CAPITALIZATION AND LIABILITIES | ||||||||||
CAPITALIZATION: | Common Stock, No Par Value | $ | $ | |||||||
Retained Earnings | ||||||||||
TOTAL COMMON EQUITY | ||||||||||
Preferred Stock | ||||||||||
Long-term Debt | ||||||||||
TOTAL CAPITALIZATION | ||||||||||
CURRENT | Current Portion of Long-term Debt | |||||||||
LIABILITIES: | Notes Payable | |||||||||
Accounts Payable | ||||||||||
Accrued Taxes | ||||||||||
Accrued Interest | ||||||||||
Unearned Revenues and Advanced Service Fees | ||||||||||
Other | ||||||||||
TOTAL CURRENT LIABILITIES | ||||||||||
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) | ||||||||||
OTHER LIABILITIES: | Customer Advances for Construction | |||||||||
Lease Obligations | ||||||||||
Accumulated Deferred Income Taxes | ||||||||||
Employee Benefit Plans | ||||||||||
Regulatory Liabilities | ||||||||||
Other | ||||||||||
TOTAL OTHER LIABILITIES | ||||||||||
CONTRIBUTIONS IN AID OF CONSTRUCTION | ||||||||||
TOTAL CAPITALIZATION AND LIABILITIES | $ | $ |
See Notes to Consolidated Financial Statements.
12
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net Income | $ | $ | $ | |||||||||
Adjustments to Reconcile Net Income to | ||||||||||||
Net Cash Provided by Operating Activities: | ||||||||||||
Depreciation and Amortization | ||||||||||||
Provision for Deferred Income Taxes | ( |
) | ( |
) | ( |
) | ||||||
Equity Portion of Allowance for Funds Used During Construction (AFUDC) | ( |
) | ( |
) | ( |
) | ||||||
Cash Surrender Value of Life Insurance | ( |
) | ( |
) | ||||||||
Stock Compensation Expense | ||||||||||||
Gain on Sale of Subsidiary | ( |
) | ||||||||||
Changes in Assets and Liabilities: | ||||||||||||
Accounts Receivable | ( |
) | ( |
) | ( |
) | ||||||
Unbilled Revenues | ( |
) | ( |
) | ||||||||
Materials & Supplies | ( |
) | ( |
) | ||||||||
Prepayments | ( |
) | ||||||||||
Accounts Payable | ( |
) | ||||||||||
Accrued Taxes | ( |
) | ||||||||||
Accrued Interest | ( |
) | ||||||||||
Employee Benefit Plans | ( |
) | ( |
) | ( |
) | ||||||
Unearned Revenue & Advanced Service Fees | ||||||||||||
Other Assets and Liabilities | ( |
) | ||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Utility Plant Expenditures, Including AFUDC of $ |
( |
) | ( |
) | ( |
) | ||||||
Proceeds from Sale of Subsidiary | ||||||||||||
NET CASH USED IN INVESTING ACTIVITIES | ( |
) | ( |
) | ( |
) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Redemption of Long-term Debt | ( |
) | ( |
) | ( |
) | ||||||
Proceeds from Issuance of Long-term Debt | ||||||||||||
Net Short-term Bank Borrowings | ( |
) | ||||||||||
Deferred Debt Issuance Expense | ( |
) | ( |
) | ( |
) | ||||||
Common Stock Issuance Expense | ( |
) | ( |
) | ||||||||
Proceeds from Issuance of Common Stock | ||||||||||||
Payment of Common Dividends | ( |
) | ( |
) | ( |
) | ||||||
Payment of Preferred Dividends | ( |
) | ( |
) | ( |
) | ||||||
Construction Advances and Contributions-Net | ||||||||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||||||
NET CHANGES IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( |
) | ( |
) | ||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | ||||||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | $ | $ | |||||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY: | ||||||||||||
Utility Plant received as Construction Advances and Contributions | $ | $ | $ | |||||||||
Long-term Debt Deobligation | $ | $ | $ | |||||||||
Non-Cash Consideration for Sale of Subsidiary | $ | $ | $ | |||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: | ||||||||||||
Cash Paid During the Year for: | ||||||||||||
Interest | $ | $ | $ | |||||||||
Interest Capitalized | $ | $ | $ | |||||||||
Income Taxes | $ | $ | $ |
See Notes to Consolidated Financial Statements.
13
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND LONG-TERM DEBT
(In thousands)
December 31, | December 31, | |||||||
2022 | 2021 | |||||||
Common Stock, No Par Value | ||||||||
Shares Authorized - |
||||||||
Shares Outstanding - 2022 - |
$ | $ | ||||||
Retained Earnings | ||||||||
TOTAL COMMON EQUITY | $ | $ | ||||||
Cumulative Preferred Stock, No Par Value: | ||||||||
Shares Authorized - |
||||||||
Shares Outstanding - |
||||||||
Convertible: | ||||||||
Shares Outstanding, $7.00 Series - |
$ | $ | ||||||
Nonredeemable: | ||||||||
Shares Outstanding, $7.00 Series - |
||||||||
Shares Outstanding, $4.75 Series - |
||||||||
TOTAL PREFERRED STOCK | $ | $ | ||||||
Long-term Debt: | ||||||||
First Mortgage Bonds, |
$ | $ | ||||||
Amortizing Secured Notes, |
||||||||
State Revolving Trust Notes, |
||||||||
Construction Loans, |
- | |||||||
SUBTOTAL LONG-TERM DEBT | ||||||||
Add: Premium on Issuance of Long-term Debt | ||||||||
Less: Unamortized Debt Expense | ( |
) | ( |
) | ||||
Less: Current Portion of Long-term Debt | ( |
) | ( |
) | ||||
TOTAL LONG-TERM DEBT | $ | $ |
See Notes to Consolidated Financial Statements.
14
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS’ EQUITY
(In thousands)
Common | Common | |||||||||||||||
Stock | Stock | Retained | ||||||||||||||
Shares | Amount | Earnings | Total | |||||||||||||
Balance at January 1, 2020 | $ | $ | $ | |||||||||||||
Net Income | - | $ | $ | $ | ||||||||||||
Dividend Reinvestment & Common Stock Purchase Plan | ||||||||||||||||
Restricted Stock Award - Net - Employees | ||||||||||||||||
Stock Award - Board Of Directors | ||||||||||||||||
Cash Dividends on Common Stock ($ |
- | ( |
) | ( |
) | |||||||||||
Cash Dividends on Preferred Stock | - | ( |
) | ( |
) | |||||||||||
Common Stock Expenses | - | ( |
) | ( |
) | |||||||||||
Balance at December 31, 2020 | $ | $ | $ | |||||||||||||
Net Income | - | $ | $ | $ | ||||||||||||
Dividend Reinvestment & Common Stock Purchase Plan | ||||||||||||||||
Restricted Stock Award - Net - Employees | ||||||||||||||||
Stock Award - Board Of Directors | ||||||||||||||||
Cash Dividends on Common Stock ($ |
- | ( |
) | ( |
) | |||||||||||
Cash Dividends on Preferred Stock | - | ( |
) | ( |
) | |||||||||||
Balance at December 31, 2021 | $ | $ | $ | |||||||||||||
Net Income | - | $ | $ | $ | ||||||||||||
Dividend Reinvestment & Common Stock Purchase Plan | ||||||||||||||||
Restricted Stock Award - Net - Employees | ||||||||||||||||
Stock Award - Board Of Directors | ||||||||||||||||
Cash Dividends on Common Stock ($ |
- | ( |
) | ( |
) | |||||||||||
Cash Dividends on Preferred Stock | - | ( |
) | ( |
) | |||||||||||
Common Stock Expenses | - | ( |
) | ( |
) | |||||||||||
Balance at December 31, 2022 | $ | $ | $ |
See Notes to Consolidated Financial Statements.
15
MIDDLESEX WATER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization, Summary of Significant Accounting Policies and Recent Developments
(a) Organization - Middlesex Water Company (Middlesex or the Company) is the parent company and sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), Utility Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy) Inc. (USA-PA) and Twin Lakes Utilities, Inc. (Twin Lakes). Southern Shores Water Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc. (White Marsh) are wholly-owned subsidiaries of Tidewater.
Middlesex has operated as a water utility in New Jersey since 1897 and in Delaware, through our wholly-owned subsidiary, Tidewater, since 1992. We are in the business of collecting, treating, distributing and selling water for domestic, commercial, municipal, industrial and fire protection purposes. We also operate New Jersey municipal water, wastewater and storm water systems under contract and provide unregulated water and wastewater services in New Jersey and Delaware through our subsidiaries. Our rates charged to customers for water and wastewater services, the quality of services we provide and certain other matters are regulated in New Jersey and Delaware by the New Jersey Board of Public Utilities (NJBPU) and the Delaware Public Service Commission (DEPSC), respectively. Our USA, USA-PA and White Marsh subsidiaries are not regulated utilities.
(b) Principles of Consolidation –
The financial statements for Middlesex and its wholly-owned subsidiaries (the Company) are reported on a consolidated basis. All significant
intercompany accounts and transactions have been eliminated. Other financial investments in which the Company holds a
(c) System of Accounts – The Company’s regulated utilities maintain their accounts in accordance with the Uniform System of Accounts prescribed by the NJBPU and DEPSC.
(d) Regulatory Accounting - We maintain
our books and records in accordance with accounting principles generally accepted in the United States of America. Middlesex and certain
of its subsidiaries, which account for
In accordance with ASC 980, Regulated Operations, costs and obligations are deferred if it is probable that these items will be recognized for rate-making purposes in future rates. Accordingly, we have recorded costs and obligations, which will be amortized over various future periods. Any change in the assessment of the probability of rate-making treatment will require us to change the accounting treatment of the deferred item. We have no reason to believe any of the deferred items that are recorded will be treated differently by the regulators in the future. For additional information, see Note 2 – Rate and Regulatory Matters.
(e) Retirement Benefit Plans - We maintain a noncontributory defined benefit pension plan (Pension Plan), which covers all active employees who were hired prior to April 1, 2007, as well as a defined contribution plan in which all employees are eligible to participate. In addition, the Company maintains an unfunded supplemental plan for certain of its executive officers. The Company has a retirement benefit plan other than pensions (Other Benefits Plan) for substantially all of its retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance.
The Company’s costs for providing retirement benefits are dependent upon numerous factors, including actual plan experience and assumptions of future experience. Retirement benefit plan obligations and expense are determined
16
based on investment performance, discount rates and various other demographic factors related to the population participating in the Company’s retirement benefit plans, all of which can change significantly in future years. For more information on the Company’s Retirement Benefit Plans, see Note 7 – Employee Benefit Plans.
(f) Utility Plant – Utility Plant is stated at original cost as defined for regulatory purposes. Property accounts are charged with the cost of betterments and major replacements of property. Cost includes direct material, labor and indirect charges for pension benefits and payroll taxes. The cost of labor, materials, supervision and other expenses incurred in making repairs and minor replacements and in maintaining the properties is charged to the appropriate expense accounts. At December 31, 2022, there was no event or change in circumstance that would indicate that the carrying amount of any long-lived asset was not recoverable.
(g) Depreciation – Depreciation
is computed by each regulated member of the Company utilizing a rate approved by the applicable regulatory authority. The accumulated
provision for depreciation is charged with the cost of property retired, less salvage. The following table sets forth the range of depreciation
rates for the major utility plant categories used to calculate depreciation for the years ended December 31, 2022, 2021 and 2020.
Source of Supply | Transmission and Distribution (T&D): | ||
Pumping | T&D – Mains | ||
Water Treatment | T&D – Services | ||
General Plant | T&D – Other | ||
Wastewater Collection |
Non-regulated fixed assets consist primarily of
office buildings, furniture and fixtures, and transportation equipment. These assets are recorded at original cost and depreciation is
calculated based on the estimated useful lives, ranging from
(h) Preliminary Survey and Investigation (PS&I) Costs – In the design of water and wastewater systems that the Company ultimately intends to construct, own and operate, certain expenditures are incurred to advance those project activities. These PS&I costs are recorded as deferred charges on the balance sheet as these costs are expected to be recovered through future rates charged to customers as the underlying project assets are placed into service as utility plant. If it is subsequently determined that costs for a project recorded as PS&I are not recoverable through rates charged to our customers, the applicable PS&I costs are recorded as Other Expense on the Statement of Income at that time.
(i) Customers’ Advances for Construction (CAC) – Utility plant and/or cash advances are provided to the Company by customers, real estate developers and builders in order to extend utility service to their properties. These transactions are recorded as CAC. Contractual Refunds of CACs in the form of cash are made by the Company and are based on either additional operating revenues generated from new customers or, as new customers are connected to the respective system. After all refunds are made and/or contract terms have expired, any remaining balance is transferred to Contributions in Aid of Construction.
Contributions in Aid of Construction (CIAC) – CIAC include direct non-refundable contributions of utility plant and/or cash and the portion of CAC that becomes non-refundable.
In accordance with regulatory requirements, CAC and CIAC are not depreciated. In addition, these amounts reduce the investment base for purposes of setting rates.
(j) Allowance for Funds Used During Construction (AFUDC) - Middlesex and its regulated subsidiaries capitalize AFUDC, which represents the cost of financing projects during construction. AFUDC is added to the construction costs of individual projects exceeding specific cost and construction period thresholds established for each company and then depreciated with the utility plant direct costs over the underlying assets’ estimated useful life. AFUDC is calculated using each company’s weighted cost of debt and equity as approved in their most recent
17
respective regulatory rate
order.
2022 | 2021 | 2020 | ||||||||||
Middlesex | % | % | % | |||||||||
Tidewater | % | % | % |
(k) Accounts Receivable – We record
bad debt expense based on a variety of factors such as our customers’ payment history, current economic conditions and trending
reasonable and supportable forecasts on expected collectability of accounts receivable. The allowance for doubtful accounts was $
(l) Revenues - The Company’s revenues are primarily generated from regulated tariff-based sales of water and wastewater services and non-regulated operation and maintenance contracts for services on water and wastewater systems owned by others. Revenue from contracts with customers is recognized when control of a promised good or service is transferred to customers at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services.
The Company’s regulated revenue results from tariff-based sales from the provision of water and wastewater services to residential, industrial, commercial, fire-protection and wholesale customers. Residential customers are billed quarterly while most industrial, commercial, fire-protection and wholesale customers are billed monthly. Payments by customers are due between 15 to 30 days after the invoice date. Revenue is recognized as the water and wastewater services are delivered to customers as well as from accrual of unbilled revenues estimated from the last meter reading date to the end of the accounting period utilizing factors such as historical customer data, regional weather indicators and general economic conditions in the relevant service territories. Unearned Revenues and Advance Service Fees include fixed service charge billings in advance to Tidewater customers recognized as service is provided to the customer.
Non-regulated service contract revenues consist of base service fees as well as fees for additional billable services provided to customers. Fees are billed monthly and are due within 30 days after the invoice date. The Company considers the amounts billed to represent the value of these services provided to customers. These contracts expire at various times through 2032 and contain remaining performance obligations for which the Company expects to recognize revenue in the future. These contracts also contain customary termination provisions.
Substantially all of the amounts included in operating revenues and accounts receivable are from contracts with customers. The Company records its allowance for doubtful accounts based on historical write-offs combined with an evaluation of current economic conditions within its service territories.
The Company’s contracts do not contain any significant financing components.
18
(In Thousands) | ||||||||||||
Years Ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Regulated Tariff Sales | ||||||||||||
Residential | $ | $ | $ | |||||||||
Commercial | ||||||||||||
Industrial | ||||||||||||
Fire Protection | ||||||||||||
Wholesale | ||||||||||||
Non-Regulated Contract Operations | ||||||||||||
Total Revenue from Contracts with Customers | $ | $ | $ | |||||||||
Other Regulated Revenues | ||||||||||||
Other Non-Regulated Revenues | ||||||||||||
Inter-segment Elimination | ( | ) | ( | ) | ( | ) | ||||||
Total Revenue | $ | $ | $ |
(m) Unamortized Debt Expense and Premiums on Long-Term Debt - Unamortized Debt Expense and Premiums on Long-Term Debt, included on the consolidated balance sheet in long-term debt, are amortized over the lives of the related debt issues.
(n) Income Taxes - Middlesex files a consolidated federal income tax return for the Company and income taxes are allocated based on the separate return method. Certain income and expense items are accounted for in different time periods for financial reporting than for income tax reporting purposes. Deferred income taxes are provided on differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements. Investment tax credits have been deferred and are amortized over the estimated useful life of the related property. In the event that there are interest and penalties associated with income tax adjustments from income tax authority examinations, these amounts will be reported under interest expense and other expense, respectively. For more information on income taxes, see Note 3 – Income Taxes.
(o) Cash and Cash Equivalents - For purposes of reporting cash flows, the Company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents. Cash and cash equivalents represent bank balances and money market funds with investments maturing in less than 90 days.
(p) Restricted Cash – Restricted cash includes cash proceeds from loan transactions entered into through government financing programs and are held in trusts for specific capital expenditures or debt service.
(q) Use of Estimates - Conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates.
(r) Recent Accounting Pronouncements - There are no new adopted or proposed accounting guidance that the Company is aware of that could have a material impact on the Company’s consolidated financial statements.
(s) Coronavirus (COVID-19) Pandemic – In January 2023, the United States Secretary of Health and Human Services renewed the determination that a nationwide health emergency exists as a result of the COVID-19 Pandemic with an announced end to the declared health emergency on May 11, 2023. While the Company’s operations and capital construction program have not been materially disrupted to date from the pandemic, the COVID-19 impact on economic conditions nationally and areas the Company operated continues to be uncertain and could affect the Company’s results of operations, financial condition and liquidity in the future. In New Jersey, the declared COVID-19 State of Emergency Order ended in March 2022. In Delaware, the declared COVID-19 State of Emergency Order ended in July 2021.
19
The NJBPU and the DEPSC have approved the tracking of COVID-19 related incremental costs for potential recovery in customer rates in future rate proceedings. Neither jurisdiction has established a timetable or definitive formal procedures for seeking cost recovery. The Company’s allowance for doubtful accounts was increased for expected increases in accounts receivable write-offs due to the financial impact of COVID-19 on customers. The Company has not deferred any COVID-19 related incremental costs. We will continue to monitor the effects of COVID-19.
(t) Regulatory Notice of Non-Compliance – In September 2021, the New Jersey Department of Environmental Protection (NJDEP) issued a Notice of Non-Compliance (Notice) to Middlesex based on self-reporting by Middlesex that the level of Perfluorooctanoic Acid (PFOA) in water treated at its Park Avenue Wellfield Treatment Plant in South Plainfield, New Jersey exceeded a recently promulgated NJDEP standard effective in 2021. The NJDEP standard for PFOA was developed based on a Health-based Maximum Contaminant Level of 14 parts per trillion. Neither the NJDEP nor Middlesex has characterized this exceedance as an acute health threat. However, Middlesex was required to notify its affected customers and complied in November 2021 as required by the regulation.
The Notice further required the Company to take any action necessary to comply with the new standard by September 7, 2022. Prior to 2021, the Company began design for construction of an enhanced treatment process at the Park Avenue Wellfield Treatment Plant to comply with the new standard prior to the regulation being enacted. Since completion was not expected until mid-2023, in December 2021, the Company implemented an interim solution to meet the Notice requirements. The Park Avenue Wellfield Treatment Plant was temporarily taken off-line and alternate sources of supply were obtained. Simultaneously, the Company accelerated a portion of the enhanced treatment project to allow a restart of the Park Avenue Wellfield Treatment Plant ahead of historical higher water demand periods during the summer months.
In June 2022, a portion of the enhanced treatment process was completed, placed into service and is effectively treating the ground water in compliance with all state and federal drinking water standards.
On September 13, 2022, the Company entered into an Administrative Consent Order (ACO) with the NJDEP, which requires the Company to take whatever actions are necessary to achieve and maintain compliance with the Safe Drinking Water Act, N.J.S.A, 58:12A-1 et seq., and the Safe Drinking Water Act regulations N.J.A.C. 7:10-1 et seq., including applicable public notifications. The Company’s agreement to enter into an ACO avoided any further Notice regarding the fact that the permanent treatment solution was not in service by September 7, 2022. The Company issued the public notifications in February 2023 and will continue to update and distribute public information as prescribed in the ACO. In addition, in accordance with the ACO:
● | On or before June 30, 2023, the Company shall complete the permanent construction of the Park Avenue Wellfield treatment upgrades, place the treatment upgrades into operation, and all water at the Park Avenue Wellfield Treatment Plant shall be treated to comply with the PFOA NJDEP standards. |
● | The Company must perform required sample testing and reporting for PFOA subsequent to completion of the Park Avenue Wellfield treatment upgrades. |
● | The Company shall submit to the NJDEP quarterly progress reports detailing the Company’s compliance with the ACO. |
The Company’s failure to comply with the
compliance schedule and/or progress reporting requirements of the ACO could lead to penalties up to $
In November 2021, the Company was served with two PFOA-related class action lawsuits seeking restitution for medical, water replacement and other claimed related costs. These lawsuits are in the early stages of the legal process and their ultimate resolution cannot be predicted at this time. The Company’s insurance provider has
20
acknowledged coverage of potential liability which may result from these lawsuits. In May 2022, the Company impleaded 3M Company (3M) as a third-party defendant in one of these class action lawsuits. The Company had previously initiated a separate lawsuit against 3M seeking to hold 3M accountable for introduction of perfluoroalkyl substances, which include PFOA, into the Company’s water supply at its Park Avenue Wellfield facility.
In January 2022, the Company filed a petition with the NJBPU seeking to establish a regulatory asset and deferred accounting treatment until its next base rate setting proceeding for all costs associated with the interim solution to comply with the Notice. The Company is currently awaiting a decision on this matter from the NJBPU.
(u) Sale of Subsidiary
–– In January 2022, Middlesex closed on the DEPSC approved sale of
Note 2 - Rate and Regulatory Matters
Rate Matters
Middlesex - In December 2021, Middlesex’s
petition to the NJBPU seeking permission to increase its base water rates was concluded, based on a negotiated settlement, resulting in
an expected increase in annual operating revenues of $
In September 2022, the NJBPU approved Middlesex's
Emergency Relief Motion to reset its PWAC tariff rate to recover additional costs of $
In March 2021, the NJBPU approved Middlesex’s
annual petition to reset its PWAC tariff rate to recover additional costs of $
Tidewater – On August 31, 2022, the
DEPSC issued an Order requiring Tidewater to reduce its base rates charged to general metered and private fire customers by
In March 2021, Tidewater was notified by the DEPSC
that it had determined Tidewater’s earned rate of return exceeded the rate of return authorized by the DEPSC. Consequently,
Pinelands – In September 2022,
Pinelands Water and Pinelands Wastewater filed separate petitions with the NJBPU seeking permission to increase base rates by approximately
$
21
Southern Shores - Effective January
1, 2020, the DEPSC approved the renewal of a multi-year agreement for water service to a 2,200 unit condominium community we serve in
Sussex County, Delaware. Under the agreement, current rates were to remain in effect until December 31, 2024, unless there are unanticipated
capital expenditures or regulatory related changes in operating expenses exceeding certain thresholds during this time period. In 2022,
capital expenditures did exceed the established threshold and rates were increased by
Twin Lakes Utilities, Inc. (Twin Lakes) - Twin
Lakes provides water services to approximately 115 residential customers in Shohola, Pennsylvania. Pursuant to the Pennsylvania Public
Utility Code, Twin Lakes filed a petition requesting the Pennsylvania Public Utilities Commission (PAPUC) to order the acquisition of
Twin Lakes by a capable public utility. The PAPUC assigned an Administrative Law Judge (ALJ) to adjudicate the matter and submit a recommended
decision (Recommended Decision) to the PAPUC. As part of this legal proceeding the PAPUC also issued an Order in January 2021 appointing
a large Pennsylvania based investor-owned water utility as the receiver (the Receiver Utility) of the Twin Lakes system until the petition
is fully adjudicated by the PAPUC. In November 2021, the PAPUC issued an Order affirming the ALJ’s Recommended Decision,
ordering the Receiver Utility to acquire the Twin Lakes water system and for Middlesex to submit $
The financial results, total assets and financial obligations of Twin Lakes are not material to Middlesex.
Regulatory Matters
(Thousands of Dollars) | ||||||||||
December 31, | Remaining | |||||||||
Regulatory Assets | 2022 | 2021 | Recovery Periods | |||||||
Retirement Benefits | $ | $ | ||||||||
Income Taxes | ||||||||||
Rate Cases, Tank Painting, and Other | ||||||||||
Total | $ | $ |
Retirement benefits include pension and other retirement benefits that have been recorded on the Consolidated Balance Sheet in accordance with the guidance provided in ASC 715, Compensation – Retirement Benefits. These amounts represent obligations in excess of current funding, which the Company believes will be fully recovered in rates set by the regulatory authorities.
22
The recovery period for income taxes is dependent upon when the temporary differences between the tax and book treatment of various items reverse.
The 2017 Tax Act reduced the statutory corporate
federal income tax rate from
As part of Middlesex’s March 2018 base water
rate settlement with the NJBPU, Middlesex received approval for regulatory accounting treatment of income tax benefits associated with
the adoption of tangible property regulations issued by the IRS, and, as of December 31, 2022 and 2021, the Company has recorded $
The Company uses composite depreciation rates
for its regulated utility assets, which is currently an acceptable method under generally accepted accounting principles and is widely
used in the utility industry. Historically, under the composite depreciation method, the anticipated costs of removing assets upon retirement
are provided for over the life of those assets as a component of depreciation expense. The Company recovers certain asset retirement costs
through rates charged to customers as an approved component of depreciation expense. As of December 31, 2022 and 2021, the Company has
approximately $
Note 3 – Income Taxes
(Thousands of Dollars) | ||||||||||||
Years Ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Income Tax at Statutory Rate | $ | $ | $ | |||||||||
Tax Effect of: | ||||||||||||
Utility Plant Related | ( | ) | ( | ) | ( | ) | ||||||
Tangible Property Repairs | ( | ) | ( | ) | ( | ) | ||||||
State Income Taxes – Net | ||||||||||||
Other | ( | ) | ||||||||||
Total Income Tax Expense (Benefit) | $ | $ | ( | ) | $ | ( | ) |
23
(Thousands of Dollars) | ||||||||||||
Years Ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Current: | ||||||||||||
Federal | $ | $ | ( | ) | $ | ( | ) | |||||
State | ||||||||||||
Deferred: | ||||||||||||
Federal | ( | ) | ||||||||||
State | ( | ) | ||||||||||
Investment Tax Credits | ( | ) | ( | ) | ( | ) | ||||||
Total Income Tax (Benefit) Expense | $ | $ | ( | ) | $ | ( | ) |
As part of Middlesex’s March 2018 base water rate settlement with the NJBPU, Middlesex received approval for regulatory accounting treatment of income tax benefits associated with the adoption of tangible property regulations issued by the IRS (fully amortized as of March 31, 2022) as well as prospective recognition of the income tax benefits for the immediate deduction of repair costs on tangible property. This results in significant reductions in the Company’s effective income tax rate, current income tax expense (benefit) and deferred income tax expense (benefit).
(Thousands of Dollars) | ||||||||
December 31, | ||||||||
2022 | 2021 | |||||||
Utility Plant Related | $ | $ | ||||||
Customer Advances | ( | ) | ( | ) | ||||
Employee Benefits | ||||||||
Investment Tax Credits | ||||||||
Other | ||||||||
Total Accumulated Deferred Income Taxes | $ | $ |
The Company’s federal income tax returns
for the tax years 2014 through 2017 were selected for examination by the IRS, which included the tax year in which the Company had adopted
the final IRS tangible property regulations and changed its accounting method for the tax treatment of expenditures that qualified as
deductible repairs. As a result of the audit examination, the Company agreed to certain modifications of its accounting method for expenditures
that qualify as deductible repairs. In 2019, the Company paid $
The statutory review periods for federal income tax returns for the years prior to 2019 have been closed. There are no unrecognized tax benefits resulting from prior period tax positions.
24
Note 4 - Commitments and Contingent Liabilities
Water Supply - Middlesex has an agreement
with the New Jersey Water Supply Authority (NJWSA) for the purchase of untreated water through
Middlesex also has an agreement with a non-affiliated
NJBPU-regulated water utility for the purchase of treated water. This agreement, which expires
Tidewater contracts with the City of Dover, Delaware
to purchase treated water of
(Millions of Dollars) | ||||||||||||
Years Ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Untreated | $ | $ | $ | |||||||||
Treated | ||||||||||||
Total Costs | $ | $ | $ |
Leases - The Company determines if an arrangement is a lease at the inception of the lease. Generally, a lease agreement exists if the Company determines that the arrangement gives the Company control over the use of an identified asset and obtains substantially all of the benefits from the identified asset.
The Company has entered into an operating lease of office space for administrative purposes, expiring in 2030. The Company has not entered into any finance leases. The exercise of a lease renewal option for the Company’s administrative offices is solely at the discretion of the Company.
The right-of-use (ROU) asset recorded represents
the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s obligation
to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present
value of lease payments over the lease term. The Company’s operating lease does not provide an implicit discount rate and as such
the Company used an estimated incremental borrowing rate (
Given the impacts of accounting for regulated
operations, and the resulting recognition of expense at the amounts recovered in customer rates, expenditures for operating leases are
consistent with lease expense and was $
(In Millions) | ||||||||
December 31, | ||||||||
2022 | 2021 | |||||||
ROU Asset at Lease Inception | $ | $ | ||||||
Accumulated Amortization | ( | ) | ( | ) | ||||
Current ROU Asset | $ | $ |
25
(In Millions) | ||||
December 31, 2022 | ||||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
2027 | ||||
Thereafter | ||||
Total Lease Payments | $ | |||
Imputed Interest | ( | ) | ||
Present Value of Lease Payments | ||||
Less Current Portion* | ( | ) | ||
Non-Current Lease Liability | $ |
*
Construction –The
Company has projected to spend approximately $
Contingencies – Based on our operations in the heavily-regulated water and wastewater industries, the Company is routinely involved in disputes, claims, lawsuits and other regulatory and legal matters, including responsibility for fines and penalties relative to regulatory compliance. At this time, Management does not believe the final resolution of any such matters, whether asserted or unasserted, will have a material adverse effect on the Company’s financial position, results of operations or cash flows. In addition, the Company maintains business insurance coverage that may mitigate the effect of any current or future loss contingencies.
PFOA Matter - In November 2021, the Company was served with two PFOA-related class action lawsuits seeking restitution for medical, water replacement and other related costs and economic damages. These lawsuits are in the early stages of the legal process and their ultimate resolution cannot be predicted at this time. The Company’s insurance provider has acknowledged coverage of potential liability resulting from these lawsuits (for further discussion of this matter, see Note 1(t) Regulatory Notice of Non-Compliance).
Change in Control Agreements – The Company has Change in Control Agreements with its executive officers that provide compensation and benefits in the event of termination of employment in connection with a change in control of the Company.
26
Note 5 – Short-term Borrowings
(Millions of Dollars) | ||||||||
2022 | 2021 | |||||||
Average Amount Outstanding | $ | $ | ||||||
Weighted Average Interest Rate | % | % | ||||||
Notes Payable at Year-End | $ | $ | ||||||
Weighted Average Interest Rate at Year-End | % | % |
(Millions) | ||||||||||||||||
As of December 31, 2022 | Line of Credit | |||||||||||||||
Outstanding | Available | Maximum | Credit Type | Renewal Date | ||||||||||||
Bank of America | $ | $ | $ | | ||||||||||||
PNC Bank | | |||||||||||||||
CoBank, ACB (CoBank) | | |||||||||||||||
$ | $ | $ |
The Bank of
America line of credit is renewed on an annual basis and was increased from $
The maturity dates for the Notes Payable as of December 31, 2022 are in January 2023 through March 2023 and are extendable at the discretion of the Company.
The interest rates for borrowings under the Bank of America and PNC Bank lines of credit are set using the Bloomberg Short-Term Bank Yield Index and adding a credit spread, which varies by financial institution. The interest rate for borrowings under the CoBank line of credit are set weekly using CoBank’s internal cost of funds index that is similar to the Standard Overnight Financing Rate and adding a credit spread. There is no requirement for a compensating balance under any of the established lines of credit.
Note 6 - Capitalization
All the transactions discussed below related to the issuance of securities were approved by either the NJBPU or DEPSC, except where otherwise noted.
Common Stock
The Company issues shares of its common stock
in connection with its Middlesex Water Company Investment Plan (the Investment Plan), a direct share purchase and dividend reinvestment
plan for the Company’s common stock. The Company raised approximately $
27
petition with the NJBPU
seeking to increase the number of authorized shares under the Investment Plan by
The Company issues common shares under a restricted stock plan for certain management employees, which is described in Note 7 – Employee Benefit Plans.
The Company maintains a stock plan for its independent
Directors as a component of outside members of the Board of Directors compensation. For the years ended December 31, 2022, 2021 and 2020,
In the event dividends on the preferred stock are in arrears, no dividends may be declared or paid on the common stock of the Company.
Preferred Stock
At December 31, 2022 and 2021, there were
The Company may not pay any dividends on its common stock unless full cumulative dividends to the preceding dividend date for all outstanding shares of preferred stock have been paid or set aside for payment. If four or more quarterly dividends are in arrears, the preferred shareholders, as a class, are entitled to elect two members to the Board of Directors in addition to Directors elected by holders of the common stock. In addition, if Middlesex were to liquidate, holders of preferred stock would be paid back the stated value of their preferred shares before any distributions could be made to common stockholders.
The conversion feature of the no par $
Long-term Debt
Subject to regulatory approval, the Company periodically
issues long-term debt to fund its investments in utility plant. To the extent possible and fiscally prudent, the Company finances qualifying
capital projects under State Revolving Fund (SRF) loan programs in New Jersey and Delaware. These government programs provide financing
at interest rates typically below rates available in the broader financial markets. A portion of the borrowings under the New Jersey SRF
is interest-free. Under the New Jersey SRF program, borrowers first enter into a construction loan agreement with the New Jersey Infrastructure
Bank (NJIB) at a below market interest rate. The interest rate on the Company’s current construction loan borrowings is zero percent
(
In May 2022, Middlesex repaid two outstanding
NJIB construction loans by issuing First Mortgage Bonds (FMBs) to the NJIB under two loan agreements. The total amount of FMBs issued
is $
The NJIB has changed the SRF program for project funding priority ranking, the proportions of interest free loans and market interest rate loans and overall loan limits on interest free loan balances to investor-owned water utilities. These changes affect SRF projects for which the construction loan closes after September 2018. Under the new
28
guidelines, the principal balance having a stated interest rate of zero percent (
In June 2021, Middlesex received approval from
the NJBPU to redeem up to $
In May 2020, Middlesex
received approval from the NJBPU to borrow up to $
● | In November 2021, Middlesex closed on a $ |
● | In November 2020, Middlesex closed on a $ |
In December 2021, Tidewater closed on the DEPSC
approved $
In September 2021, Tidewater completed its $
Year | (Millions of Dollars) Annual Maturities | |||
2023 | $ | | ||
2024 | $ | |||
2025 | $ | |||
2026 | $ | |||
2027 | $ | |||
Thereafter | $ |
The weighted average interest rate on all long-term
debt at December 31, 2022 and 2021 was
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.
29
Earnings Per Share
(In Thousands, Except Per Share Amounts) | ||||||||||||||||||||||||
2022 | 2021 | 2020 | ||||||||||||||||||||||
Basic: | Income | Shares | Income | Shares | Income | Shares | ||||||||||||||||||
Net Income | $ | $ | $ | |||||||||||||||||||||
Preferred Dividend | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Earnings Applicable to Common Stock | $ | $ | $ | |||||||||||||||||||||
Basic EPS | $ | $ | $ | |||||||||||||||||||||
Diluted: | ||||||||||||||||||||||||
Earnings Applicable to Common Stock | $ | $ | $ | |||||||||||||||||||||
$ | ||||||||||||||||||||||||
Adjusted Earnings Applicable to Common Stock | $ | $ | $ | |||||||||||||||||||||
Diluted EPS | $ | $ | $ |
Fair Value of Financial Instruments
The following methods and assumptions were used
by the Company in estimating its fair value disclosure for financial instruments for which it is practicable to estimate that value. The
carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and
notes payable approximate their respective fair values due to the short-term maturities of these instruments. The fair value of FMBs and
SRF Bonds (collectively, the Bonds) issued by Middlesex is based on quoted market prices for similar issues. Under the fair value hierarchy,
the fair value of cash and cash equivalents is classified as a Level 1 measurement and the fair value of notes payable and the Bonds in
the table below are classified as Level 2 measurements.
(Thousands of Dollars) | ||||||||||||||||
At December 31, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
FMBs | $ | $ | $ | $ |
It was not practicable to estimate their fair
value on our outstanding long-term debt for which there is no quoted market price and there is not an active trading market. For details,
including carrying value, interest rate and due date on these series of long-term debt, please refer to those series of long-term debt
titled “Amortizing Secured Notes”, “State Revolving Trust Notes”, “State Revolving Fund Bond” and
“Construction Loans” on the Consolidated Statements of Capital Stock and Long-Term Debt. The carrying amount of these instruments
was $
30
Note 7 - Employee Benefit Plans
Pension Benefits
The Company’s Pension Plan covers all active
employees hired prior to April 1, 2007. Employees hired after March 31, 2007 are not eligible to participate in this plan, but can participate
in a defined contribution profit sharing plan that provides an annual contribution at the discretion of the Company, based upon a percentage
of the participants’ annual paid compensation. In order to be eligible for contribution, the eligible employee must be employed
by the Company on December 31st of the year to which the contribution relates. The Company maintains an unfunded supplemental
plan for a limited number of its executive officers. The Accumulated Benefit Obligation for the Company’s Pension Plan at December
31, 2022 and 2021 was $
Other Benefits
The Company’s Other Benefits Plan covers substantially all of its current retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance.
Regulatory Treatment of Over/Underfunded Retirement Obligations
Because the Company is subject to rate regulation in the states in which it operates, it is required to maintain its accounts in accordance with the regulatory authority’s rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows the guidance of ASC 980, Regulated Operations. Based on prior regulatory practice, and in accordance with the guidance in ASC 980, Regulated Operations, the Company records underfunded Pension Plan and Other Benefits Plan obligation costs, which otherwise would be recognized in Other Comprehensive Income under ASC 715, Compensation – Retirement Benefits, as a Regulatory Asset, and expects to recover those costs in rates charged to customers.
(Thousands of Dollars) | ||||||||||||||||
Pension Plan | Other Benefits Plan | |||||||||||||||
December 31, | ||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Change in Projected Benefit Obligation: | ||||||||||||||||
Beginning Balance | $ | $ | $ | $ | ||||||||||||
Service Cost | ||||||||||||||||
Interest Cost | ||||||||||||||||
Actuarial (Gain) Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Benefits Paid | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Ending Balance | $ | $ | $ | $ |
31
(Thousands of Dollars) | ||||||||||||||||
Pension Plan | Other Benefits Plan | |||||||||||||||
December 31, | ||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Change in Fair Value of Plan Assets: | ||||||||||||||||
Beginning Balance | $ | $ | $ | $ | ||||||||||||
Actual Return on Plan Assets | ( | ) | ( | ) | ||||||||||||
Employer Contributions | ||||||||||||||||
Benefits Paid | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Ending Balance | $ | $ | $ | $ | ||||||||||||
Funded Status | $ | ( | ) | $ | ( | ) | $ | $ |
(Thousands of Dollars) | ||||||||||||||||
Pension Plan | Other Benefits Plan | |||||||||||||||
December 31, | ||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Amounts Recognized in the Consolidated | ||||||||||||||||
Balance Sheets consist of: | ||||||||||||||||
Current Liability | $ | $ | $ | $ | ||||||||||||
Noncurrent Liability (Asset) | ( | ) | ( | ) | ||||||||||||
Net Liability (Asset) Recognized | $ | $ | $ | ( | ) | $ | ( | ) |
(Thousands of Dollars) | ||||||||||||||||||||||||
Pension Plan | Other Benefits Plan | |||||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||||||
2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |||||||||||||||||||
Components of Net Periodic Benefit Cost | ||||||||||||||||||||||||
Service Cost | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Interest Cost | ||||||||||||||||||||||||
Expected Return on Plan Assets | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
Amortization of Net Actuarial Loss | ||||||||||||||||||||||||
Net Periodic Benefit Cost* | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
*
(Thousands of Dollars) | ||||||||
Pension | Other Benefits Plan | |||||||
Actuarial Loss (Gain) | $ | $ | ( | ) |
32
Pension Plan | Other Benefits Plan | |||||||||||||||||||||||
2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |||||||||||||||||||
Weighted Average Assumptions: | ||||||||||||||||||||||||
Expected Return on Plan Assets | % | % | % | % | % | % | ||||||||||||||||||
Discount Rate for: | ||||||||||||||||||||||||
Benefit Obligation | % | % | % | % | % | % | ||||||||||||||||||
Benefit Cost | % | % | % | % | % | % | ||||||||||||||||||
Compensation Increase for: | ||||||||||||||||||||||||
Benefit Obligation | % | % | % | % | % | % | ||||||||||||||||||
Benefit Cost | % | % | % | % | % | % |
The compensation increase assumption for the Other Benefits Plan is attributable to life insurance provided to qualifying employees upon their retirement. The insurance coverage will be determined based on the employee’s base compensation as of their retirement date.
The Company utilizes the Society of Actuaries’ mortality table (Pri-2012) (Mortality Improvement Scale MP2021 for the 2022 valuation).
For the 2022 valuation, costs and obligations
for our Other Benefits Plan assumed a
(Thousands of Dollars) | ||||||||
1 Percentage Point | ||||||||
Increase | Decrease | |||||||
Effect on Current Year Service and Interest Costs | $ | $ | ( | ) | ||||
Effect on Projected Benefit Obligation | $ | $ | ( | ) |
(Thousands of Dollars) | ||||||||
Year | Pension Plan | Other Benefits Plan | ||||||
2023 | $ | $ | ||||||
2024 | ||||||||
2025 | ||||||||
2026 | ||||||||
2027 | ||||||||
2028-2032 | ||||||||
Totals | $ | $ |
33
Benefit Plans Assets
Pension Plan | Other Benefits Plan | |||||||||||||||||||||||
Asset Category | 2022 | 2021 | Target | 2022 | 2021 | Target | ||||||||||||||||||
Equity Securities | % | % | % | % | % | % | ||||||||||||||||||
Debt Securities | % | % | % | % | % | % | ||||||||||||||||||
Cash | % | % | % | % | % | % | ||||||||||||||||||
Real Estate/Commodities | % | % | % | % | % | % | ||||||||||||||||||
Total | % | % | % | % |
Two outside investment firms each manage a portion of the Pension Plan asset portfolio. One of those investment firms also manages the Other Benefits Plan asset portfolio. Quarterly meetings are held between the Company’s Pension Committee of the Board of Directors and the investment managers to review their performance and asset allocation. If the actual asset allocation is outside the targeted range, the Pension Committee reviews current market conditions and advice provided by the investment managers to determine the appropriateness of rebalancing the portfolio.
The objective of the Company is to maximize the long-term return on retirement plan assets, relative to a reasonable level of risk, maintain a diversified investment portfolio and maintain compliance with the Employee Retirement Income Security Act of 1974. The expected long-term rate of return is based on the various asset categories in which plan assets are invested and the current expectations and historical performance for these categories.
Fair Value Measurements
Accounting guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:
● | Level 1 – Inputs to the valuation methodology are unadjusted quoted market prices for identical assets or liabilities in accessible active markets. |
● | Level 2 – Inputs to the valuation methodology that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. If the asset or liability has a specified contractual term, the Level 2 input must be observable for substantially the full term of the asset or liability. |
● | Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Certain investments in cash and cash equivalents, equity securities, and commodities are valued based on quoted market prices in active markets and are classified as Level 1 investments. Certain investments in cash and cash equivalents, equity securities and fixed income securities are valued using prices received from pricing vendors that utilize observable inputs and are therefore classified as Level 2 investments.
34
(Thousands of Dollars) | ||||||||||||||||
As of December 31, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Mutual Funds | $ | $ | $ | $ | ||||||||||||
Money Market Funds | ||||||||||||||||
Common Equity Securities | ||||||||||||||||
Total Investments | $ | $ | $ | $ |
(Thousands of Dollars) | ||||||||||||||||
As of December 31, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Mutual Funds | $ | $ | $ | $ | ||||||||||||
Money Market Funds | ||||||||||||||||
Common Equity Securities | ||||||||||||||||
Total Investments | $ | $ | $ | $ |
The following tables present Middlesex’s Other Benefits Plan assets measured and recorded at fair value within the fair value hierarchy:
(Thousands of Dollars) | ||||||||||||||||
As of December 31, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Mutual Funds | $ | $ | $ | $ | ||||||||||||
Money Market Funds | ||||||||||||||||
Agency/US/State/Municipal Debt | ||||||||||||||||
Other | ||||||||||||||||
Total Investments | $ | $ | $ | $ |
(Thousands of Dollars) | ||||||||||||||||
As of December 31, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Mutual Funds | $ | $ | $ | $ | ||||||||||||
Money Market Funds | ||||||||||||||||
Agency/US/State/Municipal Debt | ||||||||||||||||
Total Investments | $ | $ | $ | $ |
Benefit Plans Contributions
For the Pension Plan, Middlesex made total cash
contributions of $
For the Other Benefits Plan, Middlesex made total
cash contributions of $
35
401(k) Plan
The Company maintains a 401(k) defined contribution
plan, which covers substantially all employees with more than
Employees hired after March 31, 2007 are not eligible
to participate in the Pension Plan and are generally eligible to participate in a discretionary profit sharing plan administered through
the 401(k) plan. In December each year, the Board of Directors may approve that a stated percentage of eligible compensation be contributed
to the account of the employee participant in the first quarter of the following year. For those employees still actively employed on
December 31, 2022 or retired during the current year, the Company will fund a discretionary contribution of $
Stock-Based Compensation
The Company maintains a long-term incentive compensation
plan for certain management employees where awards are made in the form of restricted common stock. Shares of restricted stock issued
under the plan are subject to forfeiture by the employee in the event of termination of employment for any reason within five years of
the award other than as a result of retirement at normal retirement age, death, disability or change in control. The maximum number of
shares authorized for award under the plan is
The Company recognizes compensation expense at fair value for the plan awards in accordance with ASC 718, Compensation – Stock Compensation. Compensation expense is determined by the market value of the stock on the date of the award and is being amortized over the expected vesting period.
Shares(thousands) | Unearned Compensation (thousands) | Weighted Average Granted Price | ||||||||||
Balance, January 1, 2020 | ||||||||||||
Granted | $ | |||||||||||
Vested | ( | ) | ||||||||||
Amortization of Compensation expense | ( | ) | ||||||||||
Balance, December 31, 2020 | ||||||||||||
Granted | $ | |||||||||||
Vested | ( | ) | ||||||||||
Amortization of Compensation expense | ( | ) | ||||||||||
Balance, December 31, 2021 | ||||||||||||
Granted | $ | |||||||||||
Vested | ( | ) | ||||||||||
Amortization of Compensation expense | ( | ) | ||||||||||
Balance, December 31, 2022 | $ |
36
Note 8 – Business Segment Data
The Company has identified two reportable segments. One is the regulated business of collecting, treating and distributing water on a retail and wholesale basis to residential, commercial, industrial and fire protection customers in parts of New Jersey and Delaware. This segment also includes regulated wastewater systems in New Jersey and Delaware. The Company is subject to regulations as to its rates, services and other matters by the states of New Jersey and Delaware with respect to utility service within these states. The other segment is primarily comprised of non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in New Jersey and Delaware.
(Thousands of Dollars) | ||||||||||||
Years Ended December 31, | ||||||||||||
Operations by Segments: | 2022 | 2021 | 2020 | |||||||||
Revenues: | ||||||||||||
Regulated | $ | $ | $ | |||||||||
Non – Regulated | ||||||||||||
Inter-segment Elimination | ( | ) | ( | ) | ( | ) | ||||||
Consolidated Revenues | $ | $ | $ | |||||||||
Operating Income: | ||||||||||||
Regulated | $ | $ | $ | |||||||||
Non – Regulated | ||||||||||||
Consolidated Operating Income | $ | $ | $ | |||||||||
Depreciation: | ||||||||||||
Regulated | $ | $ | $ | |||||||||
Non – Regulated | ||||||||||||
Consolidated Depreciation | $ | $ | $ | |||||||||
Other Income (Expense), Net: | ||||||||||||
Regulated | $ | $ | $ | |||||||||
Non – Regulated | ||||||||||||
Inter-segment Elimination | ( | ) | ( | ) | ( | ) | ||||||
Consolidated Other Income (Expense), Net | $ | $ | $ | |||||||||
Interest Expense: | ||||||||||||
Regulated | $ | $ | $ | |||||||||
Non – Regulated | ||||||||||||
Inter-segment Elimination | ( | ) | ( | ) | ( | ) | ||||||
Consolidated Interest Expense | $ | $ | $ | |||||||||
Income Taxes: | ||||||||||||
Regulated | $ | $ | ( | ) | $ | ( | ) | |||||
Non – Regulated | ||||||||||||
Consolidated Income Taxes | $ | $ | ( | ) | $ | ( | ) | |||||
Net Income: | ||||||||||||
Regulated | $ | $ | $ | |||||||||
Non – Regulated | ||||||||||||
Consolidated Net Income | $ | $ | $ | |||||||||
Capital Expenditures: | ||||||||||||
Regulated | $ | $ | $ | |||||||||
Non – Regulated | ||||||||||||
Total Capital Expenditures | $ | $ | $ |
37
As of December 31, 2022 | As of December 31, 2021 | |||||||
Assets: | ||||||||
Regulated | $ | $ | ||||||
Non – Regulated | ||||||||
Inter-segment Elimination | ( | ) | ( | ) | ||||
Consolidated Assets | $ | $ |
Note 9 - Quarterly Data - Unaudited
(Thousands of Dollars, Except per Share Data) | ||||||||||||||||||||
2022 | 1st | 2nd | 3rd | 4th | Total | |||||||||||||||
Operating Revenues | $ | $ | $ | $ | $ | |||||||||||||||
Gain on Sale of Subsidiary | - | - | - | |||||||||||||||||
Operating Income | ||||||||||||||||||||
Net Income | ||||||||||||||||||||
Basic Earnings per Share | $ | $ | $ | $ | $ | |||||||||||||||
Diluted Earnings per Share | $ | $ | $ | $ | $ | |||||||||||||||
Common Dividend Per Share | $ | $ | $ | $ | $ | |||||||||||||||
High/Low Common Stock Price | $ | $ | $ | $ |
2021 | 1st | 2nd | 3rd | 4th | Total | |||||||||||||||
Operating Revenues | $ | $ | $ | $ | $ | |||||||||||||||
Operating Income | ||||||||||||||||||||
Net Income | ||||||||||||||||||||
Basic Earnings per Share | $ | $ | $ | $ | $ | |||||||||||||||
Diluted Earnings per Share | $ | $ | $ | $ | $ | |||||||||||||||
Common Dividend Per Share | $ | $ | $ | $ | $ | |||||||||||||||
High/Low Common Stock Price | $ | $ | $ | $ |
The information above, in the opinion of the Company, includes all adjustments consisting only of normal recurring accruals necessary for a fair presentation of such amounts. The business of the Company is subject to seasonal fluctuation with the peak period usually occurring during the summer months. The quarterly earnings per share amounts above may differ slightly from previous filings due to the effects of rounding.
38
ITEM 9A. | CONTROLS AND PROCEDURES |
(1) Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding disclosure.
As required by Rule 13a-15 under the Exchange Act, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was conducted by the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer for the quarter ended December 31, 2022. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that no changes in internal control over financial reporting occurred during the quarter ended December 31, 2022 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 December 31, 2022 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.
As the material weakness was recently determined to exist, remediation has not yet been completed, and, therefore, management has determined that such material weakness persists, including through all 2023 quarterly reporting periods to date.
(2) Management’s Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13A-15(f) and 15d-15(f). Middlesex’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors of adequate preparation and fair presentation of the published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the adequacy of financial statement preparation and presentation. Middlesex’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework).
Subsequent to the issuance of the Company’s consolidated financial statements for the year ended December 31, 2022 which were included in Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, originally filed with the Securities and Exchange Commission (the SEC) on February 24, 2023 (the 2022 Form 10-K), 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
39
in our internal control over financial reporting and that the Company’s internal control over financial reporting was not effective as of December 31, 2022.
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 the 2022 Form 10-K 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. However, as the material weakness was recently determined to exist, remediation is still on-going.
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.
Middlesex’s independent registered public
accounting firm (PCAOB ID
/s/ Dennis W. Doll | /s/ A. Bruce O’Connor |
Dennis W. Doll | A. Bruce O’Connor |
President and | Senior Vice President, Treasurer and |
Chief Executive Officer | Chief Financial Officer |
Iselin, New Jersey
November 8, 2023
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MIDDLESEX WATER COMPANY | ||
By: | /s/ Dennis W. Doll | |
Dennis W. Doll | ||
President and Chief Executive Officer | ||
Date: | November 8, 2023 | |
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on November 8, 2023. | ||
By: | /s/ A. Bruce O’Connor | |
A. Bruce O’Connor | ||
Senior Vice President, Treasurer and Chief Financial Officer | ||
(Principal Financial Officer) | ||
By: | /s/ Rober J. Capko | |
Rober J. Capko | ||
Corporate Controller | ||
(Principal Accounting Officer) | ||
By: | /s/ Dennis W. Doll | |
Dennis W. Doll | ||
Chairman of the Board, President, Chief Executive Officer and Director | ||
(Principal Executive Officer) | ||
By: | /s/ Joshua Bershad, M.D. | |
Joshua Bershad, M.D. | ||
Director | ||
By: | /s/ James F. Cosgrove Jr. | |
James F. Cosgrove Jr. | ||
Director | ||
By: | /s/ Kim C. Hanemann | |
Kim C. Hanemann | ||
Director | ||
By: | /s/ Steven M. Klein | |
Steven M. Klein | ||
Director | ||
By: | /s/ Amy B. Mansue | |
Amy B. Mansue | ||
Director | ||
By: | /s/ Vaughn L. McKoy | |
Vaughn L. McKoy | ||
Director | ||
By: | /s/ Ann L. Noble | |
Ann L. Noble | ||
Director | ||
By: | /s/ Walter G. Reinhard | |
Walter G. Reinhard | ||
Director |
41
EXHIBIT INDEX
Exhibits designated with an asterisk (*) are filed herewith. The exhibits not so designated have heretofore been filed with the Commission and are incorporated herein by reference to the documents indicated in the previous filing columns following the description of such exhibits. Exhibits designated with a dagger (t) are management contracts or compensatory plans.
42
EXHIBIT INDEX
43
EXHIBIT INDEX
44
EXHIBIT INDEX
45
EXHIBIT INDEX
46
EXHIBIT INDEX
47
EXHIBIT INDEX
48
EXHIBIT INDEX
49
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-266482) and Form S-8 (File No. 333-156269) of Middlesex Water Company of our report dated February 24, 2023, except for the effect on our opinion on internal control over financial reporting of the material weakness described therein and in Management’s Report on Internal Control Over Financial Reporting, as to which the date is November 8, 2023, relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in this annual report on Form 10-K/A for the year ended December 31, 2022.
/s/ Baker Tilly US, LLP
Philadelphia, Pennsylvania
November 8, 2023
Exhibit 31
SECTION 302 CERTIFICATION PURSUANT TO RULES 13a-14
AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934
I, Dennis W. Doll, certify that:
1. | I have reviewed this Amendment No. 1 to the annual report on Form 10-K of Middlesex Water Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have; |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Dennis W. Doll | |
Dennis W. Doll | |
Chief Executive Officer | |
Date: November 8, 2023 |
Exhibit 31.1
SECTION 302 CERTIFICATION PURSUANT TO RULES 13a-14
AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934
I, A. Bruce O’Connor, certify that:
1. | I have reviewed this Amendment No. 1 to the annual report on Form 10-K of Middlesex Water Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have; |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ A. Bruce O’Connor | |
A. Bruce O’Connor | |
Chief Financial Officer | |
Date: November 8, 2023 |
Exhibit 32
SECTION 906 CERTIFICATION PURSUANT TO 18 U.S.C. §1350
I, Dennis W. Doll, hereby certify that, to the best of my knowledge, the periodic report being filed herewith containing financial statements fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that information contained in said periodic report fairly presents, in all material respects, the financial condition and results of operations of Middlesex Water Company for the period covered by said periodic report.
/s/ Dennis W. Doll | |
Dennis W. Doll | |
Chief Executive Officer | |
Date: November 8, 2023 |
A signed original of this written statement required by Section 906 has been provided to Middlesex Water Company and will be retained by Middlesex Water Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.1
SECTION 906 CERTIFICATION PURSUANT TO 18 U.S.C. §1350
I, A. Bruce O’Connor, hereby certify that, to the best of my knowledge, the periodic report being filed herewith containing financial statements fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that information contained in said periodic report fairly presents, in all material respects, the financial condition and results of operations of Middlesex Water Company for the period covered by said periodic report.
/s/ A. Bruce O’Connor | |
A. Bruce O’Connor | |
Chief Financial Officer | |
Date: November 8, 2023 |
A signed original of this written statement required by Section 906 has been provided to Middlesex Water Company and will be retained by Middlesex Water Company and furnished to the Securities and Exchange Commission or its staff upon request.
Document And Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Feb. 24, 2023 |
Jun. 30, 2022 |
|
Document Information Line Items | |||
Entity Registrant Name | MIDDLESEX WATER COMPANY | ||
Trading Symbol | MSEX | ||
Document Type | 10-K/A | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Common Stock, Shares Outstanding | 17,642,147 | ||
Entity Public Float | $ 1,505,071,215 | ||
Amendment Flag | true | ||
Amendment Description | Middlesex Water Company (the Company) is filing this Amendment No. 1 to the Annual Report on Form 10-K (this Form 10-K/A) for the fiscal year ended December 31, 2022, originally filed with the Securities and Exchange Commission (the SEC) on February 24, 2023 (the 2022 Form 10-K) to make certain changes described below.In the 2022 Form 10-K, the Company indicated and reported that, based on its assessment at such time, its internal control over financial reporting was operating as designed and were effective. The 2022 Form 10-K included Baker Tilly US, LLP’s (Baker Tilly) Report of Independent Registered Public Accounting Firm dated February 24, 2023, that concluded “in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.”Subsequent to the issuance of the Company’s 2022 Form 10-K, the Company’s independent registered public accounting firm, 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. On November 1, 2023, the Company determined, and Baker Tilly concurred, that the ITGCs deficiency and the resulting impact on other controls constitutes a material weakness in the Company’s internal control over financial reporting as of December 31, 2022. For a more detailed description of this material weakness, refer to Part II, Item 9A, “Controls and Procedures.”Notwithstanding the newly identified material weakness referred to above, Management, including our Principal Executive Officer and Principal Financial Officer, believes that the financial statements contained in the 2022 Form 10-K 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.In accordance with Rule 12b-15 of the Securities Exchange Act of 1934, as amended (the Exchange Act), this Form 10-K/A is being filed to (i) amend the Company’s Forward-Looking Statement, (ii) amend the Company’s risk factors included in Part I. Item 1A, (iii) replace Baker Tilly’s audit report with the revised audit report included in Part II, Item 8 to reflect the newly identified material weakness as of December 31, 2022, (iv) amend the Company’s disclosure on controls and procedures included in Part II, Item 9A, and (v) amend Part IV - Item 15 Exhibits and Financial Statement Schedules to replace Baker Tilly’s consent of independent registered public accounting firm with an updated consent of independent registered public accounting firm and include currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer as required by Section 302 and 906 of the Sarbanes-Oxley Act of 2002.Please note that the only changes to the 2022 Form 10-K are those related to the matters described herein and only in the Items listed above. Except as described above, no changes have been made to the 2022 Form 10-K, and this Form 10-K/A does not modify, amend or update any of the other financial information or other information contained in the 2022 Form 10-K. In addition, in accordance with SEC rules, this Form 10-K/A includes an updated auditor consent as Exhibit 23.1 and updated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31, 31.1, 32 and 32.1. Except for the foregoing changes, the information in this Form 10-K/A is as of February 24, 2023, the filing date of the original Form 10-K for the year ended December 31, 2022, and has not been updated for the events subsequent to that date other than as discussed above. | ||
Entity Central Index Key | 0000066004 | ||
Entity Current Reporting Status | Yes | ||
Entity Voluntary Filers | No | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Well-known Seasoned Issuer | Yes | ||
Document Period End Date | Dec. 31, 2022 | ||
Document Fiscal Year Focus | 2022 | ||
Document Fiscal Period Focus | FY | ||
Entity Small Business | false | ||
Entity Emerging Growth Company | false | ||
Entity Shell Company | false | ||
ICFR Auditor Attestation Flag | true | ||
Document Annual Report | true | ||
Document Transition Report | false | ||
Entity File Number | 0-422 | ||
Entity Incorporation, State or Country Code | NJ | ||
Entity Tax Identification Number | 22-1114430 | ||
Entity Address, Address Line One | 485C Route 1 South | ||
Entity Address, Address Line Two | Suite 400 | ||
Entity Address, City or Town | Iselin | ||
Entity Address, State or Province | NJ | ||
Entity Address, Postal Zip Code | 08830 | ||
City Area Code | (732) | ||
Local Phone Number | 634-1500 | ||
Title of 12(b) Security | Common Stock, No Par Value | ||
Security Exchange Name | NASDAQ | ||
Entity Interactive Data Current | Yes | ||
Auditor Name | Baker Tilly US, LLP | ||
Auditor Location | Philadelphia | ||
Auditor Firm ID | 23 | ||
Document Financial Statement Error Correction [Flag] | false |
CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($) $ in Thousands |
Dec. 31, 2022 |
Dec. 31, 2021 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for uncollectible accounts | $ 2,326 | $ 2,574 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parentheticals) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Statement of Cash Flows [Abstract] | |||
Utility Plant Expenditures, Including AFUDC | $ 927 | $ 1,148 | $ 1,513 |
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (Parentheticals) - $ / shares |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Common Stock | |||
Cash dividends paid, per share | $ 1.1825 | $ 1.108 | $ 1.041 |
Organization, Summary of Significant Accounting Policies and Recent Developments |
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Organization, Summary of Significant Accounting Policies and Recent Developments | Note 1 – Organization, Summary of Significant Accounting Policies and Recent Developments
(a) Organization - Middlesex Water Company (Middlesex or the Company) is the parent company and sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), Utility Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy) Inc. (USA-PA) and Twin Lakes Utilities, Inc. (Twin Lakes). Southern Shores Water Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc. (White Marsh) are wholly-owned subsidiaries of Tidewater.
Middlesex has operated as a water utility in New Jersey since 1897 and in Delaware, through our wholly-owned subsidiary, Tidewater, since 1992. We are in the business of collecting, treating, distributing and selling water for domestic, commercial, municipal, industrial and fire protection purposes. We also operate New Jersey municipal water, wastewater and storm water systems under contract and provide unregulated water and wastewater services in New Jersey and Delaware through our subsidiaries. Our rates charged to customers for water and wastewater services, the quality of services we provide and certain other matters are regulated in New Jersey and Delaware by the New Jersey Board of Public Utilities (NJBPU) and the Delaware Public Service Commission (DEPSC), respectively. Our USA, USA-PA and White Marsh subsidiaries are not regulated utilities.
(b) Principles of Consolidation – The financial statements for Middlesex and its wholly-owned subsidiaries (the Company) are reported on a consolidated basis. All significant intercompany accounts and transactions have been eliminated. Other financial investments in which the Company holds a 50% or less voting interest and cannot exercise control over the operation and policies of the investments are accounted for under the equity method of accounting. Under the equity method of accounting, the Company records its investment interests in Non-Utility Assets and its percentage share of the earnings or losses of the investees in Other Income (Expense).
(c) System of Accounts – The Company’s regulated utilities maintain their accounts in accordance with the Uniform System of Accounts prescribed by the NJBPU and DEPSC.
(d) Regulatory Accounting - We maintain our books and records in accordance with accounting principles generally accepted in the United States of America. Middlesex and certain of its subsidiaries, which account for 93% of Operating Revenues and 99% of Total Assets, are subject to regulation in the state in which they operate. Those companies are required to maintain their accounts in accordance with regulatory authorities’ rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows the guidance provided in Accounting Standards Codification (ASC) 980, Regulated Operations.
In accordance with ASC 980, Regulated Operations, costs and obligations are deferred if it is probable that these items will be recognized for rate-making purposes in future rates. Accordingly, we have recorded costs and obligations, which will be amortized over various future periods. Any change in the assessment of the probability of rate-making treatment will require us to change the accounting treatment of the deferred item. We have no reason to believe any of the deferred items that are recorded will be treated differently by the regulators in the future. For additional information, see Note 2 – Rate and Regulatory Matters.
(e) Retirement Benefit Plans - We maintain a noncontributory defined benefit pension plan (Pension Plan), which covers all active employees who were hired prior to April 1, 2007, as well as a defined contribution plan in which all employees are eligible to participate. In addition, the Company maintains an unfunded supplemental plan for certain of its executive officers. The Company has a retirement benefit plan other than pensions (Other Benefits Plan) for substantially all of its retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance.
The Company’s costs for providing retirement benefits are dependent upon numerous factors, including actual plan experience and assumptions of future experience. Retirement benefit plan obligations and expense are determined
based on investment performance, discount rates and various other demographic factors related to the population participating in the Company’s retirement benefit plans, all of which can change significantly in future years. For more information on the Company’s Retirement Benefit Plans, see Note 7 – Employee Benefit Plans.
(f) Utility Plant – Utility Plant is stated at original cost as defined for regulatory purposes. Property accounts are charged with the cost of betterments and major replacements of property. Cost includes direct material, labor and indirect charges for pension benefits and payroll taxes. The cost of labor, materials, supervision and other expenses incurred in making repairs and minor replacements and in maintaining the properties is charged to the appropriate expense accounts. At December 31, 2022, there was no event or change in circumstance that would indicate that the carrying amount of any long-lived asset was not recoverable.
(g) Depreciation – Depreciation is computed by each regulated member of the Company utilizing a rate approved by the applicable regulatory authority. The accumulated provision for depreciation is charged with the cost of property retired, less salvage. The following table sets forth the range of depreciation rates for the major utility plant categories used to calculate depreciation for the years ended December 31, 2022, 2021 and 2020. These rates have been approved by the NJBPU or DEPSC:
Non-regulated fixed assets consist primarily of office buildings, furniture and fixtures, and transportation equipment. These assets are recorded at original cost and depreciation is calculated based on the estimated useful lives, ranging from 3 to 42 years.
(h) Preliminary Survey and Investigation (PS&I) Costs – In the design of water and wastewater systems that the Company ultimately intends to construct, own and operate, certain expenditures are incurred to advance those project activities. These PS&I costs are recorded as deferred charges on the balance sheet as these costs are expected to be recovered through future rates charged to customers as the underlying project assets are placed into service as utility plant. If it is subsequently determined that costs for a project recorded as PS&I are not recoverable through rates charged to our customers, the applicable PS&I costs are recorded as Other Expense on the Statement of Income at that time.
(i) Customers’ Advances for Construction (CAC) – Utility plant and/or cash advances are provided to the Company by customers, real estate developers and builders in order to extend utility service to their properties. These transactions are recorded as CAC. Contractual Refunds of CACs in the form of cash are made by the Company and are based on either additional operating revenues generated from new customers or, as new customers are connected to the respective system. After all refunds are made and/or contract terms have expired, any remaining balance is transferred to Contributions in Aid of Construction.
Contributions in Aid of Construction (CIAC) – CIAC include direct non-refundable contributions of utility plant and/or cash and the portion of CAC that becomes non-refundable.
In accordance with regulatory requirements, CAC and CIAC are not depreciated. In addition, these amounts reduce the investment base for purposes of setting rates.
(j) Allowance for Funds Used During Construction (AFUDC) - Middlesex and its regulated subsidiaries capitalize AFUDC, which represents the cost of financing projects during construction. AFUDC is added to the construction costs of individual projects exceeding specific cost and construction period thresholds established for each company and then depreciated with the utility plant direct costs over the underlying assets’ estimated useful life. AFUDC is calculated using each company’s weighted cost of debt and equity as approved in their most recent
respective regulatory rate order. The AFUDC rates for the years ended December 31, 2022, 2021 and 2020 for Middlesex and Tidewater are as follows:
(k) Accounts Receivable – We record bad debt expense based on a variety of factors such as our customers’ payment history, current economic conditions and trending reasonable and supportable forecasts on expected collectability of accounts receivable. The allowance for doubtful accounts was $2.3 million and $2.6 million as of December 31, 2022 and 2021, respectively. For the years ended December 31, 2022, 2021 and 2020, bad debt expense was $0.5 million, $0.9 million and $1.1 million, respectively. For the years ended December 31, 2022, 2021 and 2020, write-offs were $0.7 million, $0.4 million and $0.5 million, respectively.
(l) Revenues - The Company’s revenues are primarily generated from regulated tariff-based sales of water and wastewater services and non-regulated operation and maintenance contracts for services on water and wastewater systems owned by others. Revenue from contracts with customers is recognized when control of a promised good or service is transferred to customers at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services.
The Company’s regulated revenue results from tariff-based sales from the provision of water and wastewater services to residential, industrial, commercial, fire-protection and wholesale customers. Residential customers are billed quarterly while most industrial, commercial, fire-protection and wholesale customers are billed monthly. Payments by customers are due between 15 to 30 days after the invoice date. Revenue is recognized as the water and wastewater services are delivered to customers as well as from accrual of unbilled revenues estimated from the last meter reading date to the end of the accounting period utilizing factors such as historical customer data, regional weather indicators and general economic conditions in the relevant service territories. Unearned Revenues and Advance Service Fees include fixed service charge billings in advance to Tidewater customers recognized as service is provided to the customer.
Non-regulated service contract revenues consist of base service fees as well as fees for additional billable services provided to customers. Fees are billed monthly and are due within 30 days after the invoice date. The Company considers the amounts billed to represent the value of these services provided to customers. These contracts expire at various times through 2032 and contain remaining performance obligations for which the Company expects to recognize revenue in the future. These contracts also contain customary termination provisions.
Substantially all of the amounts included in operating revenues and accounts receivable are from contracts with customers. The Company records its allowance for doubtful accounts based on historical write-offs combined with an evaluation of current economic conditions within its service territories.
The Company’s contracts do not contain any significant financing components.
The Company’s operating revenues are comprised of the following:
(m) Unamortized Debt Expense and Premiums on Long-Term Debt - Unamortized Debt Expense and Premiums on Long-Term Debt, included on the consolidated balance sheet in long-term debt, are amortized over the lives of the related debt issues.
(n) Income Taxes - Middlesex files a consolidated federal income tax return for the Company and income taxes are allocated based on the separate return method. Certain income and expense items are accounted for in different time periods for financial reporting than for income tax reporting purposes. Deferred income taxes are provided on differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements. Investment tax credits have been deferred and are amortized over the estimated useful life of the related property. In the event that there are interest and penalties associated with income tax adjustments from income tax authority examinations, these amounts will be reported under interest expense and other expense, respectively. For more information on income taxes, see Note 3 – Income Taxes.
(o) Cash and Cash Equivalents - For purposes of reporting cash flows, the Company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents. Cash and cash equivalents represent bank balances and money market funds with investments maturing in less than 90 days.
(p) Restricted Cash – Restricted cash includes cash proceeds from loan transactions entered into through government financing programs and are held in trusts for specific capital expenditures or debt service.
(q) Use of Estimates - Conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates.
(r) Recent Accounting Pronouncements - There are no new adopted or proposed accounting guidance that the Company is aware of that could have a material impact on the Company’s consolidated financial statements.
(s) Coronavirus (COVID-19) Pandemic – In January 2023, the United States Secretary of Health and Human Services renewed the determination that a nationwide health emergency exists as a result of the COVID-19 Pandemic with an announced end to the declared health emergency on May 11, 2023. While the Company’s operations and capital construction program have not been materially disrupted to date from the pandemic, the COVID-19 impact on economic conditions nationally and areas the Company operated continues to be uncertain and could affect the Company’s results of operations, financial condition and liquidity in the future. In New Jersey, the declared COVID-19 State of Emergency Order ended in March 2022. In Delaware, the declared COVID-19 State of Emergency Order ended in July 2021.
The NJBPU and the DEPSC have approved the tracking of COVID-19 related incremental costs for potential recovery in customer rates in future rate proceedings. Neither jurisdiction has established a timetable or definitive formal procedures for seeking cost recovery. The Company’s allowance for doubtful accounts was increased for expected increases in accounts receivable write-offs due to the financial impact of COVID-19 on customers. The Company has not deferred any COVID-19 related incremental costs. We will continue to monitor the effects of COVID-19.
(t) Regulatory Notice of Non-Compliance – In September 2021, the New Jersey Department of Environmental Protection (NJDEP) issued a Notice of Non-Compliance (Notice) to Middlesex based on self-reporting by Middlesex that the level of Perfluorooctanoic Acid (PFOA) in water treated at its Park Avenue Wellfield Treatment Plant in South Plainfield, New Jersey exceeded a recently promulgated NJDEP standard effective in 2021. The NJDEP standard for PFOA was developed based on a Health-based Maximum Contaminant Level of 14 parts per trillion. Neither the NJDEP nor Middlesex has characterized this exceedance as an acute health threat. However, Middlesex was required to notify its affected customers and complied in November 2021 as required by the regulation.
The Notice further required the Company to take any action necessary to comply with the new standard by September 7, 2022. Prior to 2021, the Company began design for construction of an enhanced treatment process at the Park Avenue Wellfield Treatment Plant to comply with the new standard prior to the regulation being enacted. Since completion was not expected until mid-2023, in December 2021, the Company implemented an interim solution to meet the Notice requirements. The Park Avenue Wellfield Treatment Plant was temporarily taken off-line and alternate sources of supply were obtained. Simultaneously, the Company accelerated a portion of the enhanced treatment project to allow a restart of the Park Avenue Wellfield Treatment Plant ahead of historical higher water demand periods during the summer months.
In June 2022, a portion of the enhanced treatment process was completed, placed into service and is effectively treating the ground water in compliance with all state and federal drinking water standards.
On September 13, 2022, the Company entered into an Administrative Consent Order (ACO) with the NJDEP, which requires the Company to take whatever actions are necessary to achieve and maintain compliance with the Safe Drinking Water Act, N.J.S.A, 58:12A-1 et seq., and the Safe Drinking Water Act regulations N.J.A.C. 7:10-1 et seq., including applicable public notifications. The Company’s agreement to enter into an ACO avoided any further Notice regarding the fact that the permanent treatment solution was not in service by September 7, 2022. The Company issued the public notifications in February 2023 and will continue to update and distribute public information as prescribed in the ACO. In addition, in accordance with the ACO:
The Company’s failure to comply with the compliance schedule and/or progress reporting requirements of the ACO could lead to penalties up to $500 per day. In addition, the NJDEP could penalize the Company for other violations, if any, of the ACO.
In November 2021, the Company was served with two PFOA-related class action lawsuits seeking restitution for medical, water replacement and other claimed related costs. These lawsuits are in the early stages of the legal process and their ultimate resolution cannot be predicted at this time. The Company’s insurance provider has
acknowledged coverage of potential liability which may result from these lawsuits. In May 2022, the Company impleaded 3M Company (3M) as a third-party defendant in one of these class action lawsuits. The Company had previously initiated a separate lawsuit against 3M seeking to hold 3M accountable for introduction of perfluoroalkyl substances, which include PFOA, into the Company’s water supply at its Park Avenue Wellfield facility.
In January 2022, the Company filed a petition with the NJBPU seeking to establish a regulatory asset and deferred accounting treatment until its next base rate setting proceeding for all costs associated with the interim solution to comply with the Notice. The Company is currently awaiting a decision on this matter from the NJBPU.
(u) Sale of Subsidiary –– In January 2022, Middlesex closed on the DEPSC approved sale of 100% of the common stock of its subsidiary Tidewater Environmental Services, Inc. for $6.4 million in cash and other consideration, resulting in a $5.2 million pre-tax gain. The Company will continue to own and operate its regulated water utilities in Delaware as well as its non-regulated operations and maintenance contract business. |
Rate and Regulatory Matters |
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Regulated Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rate and Regulatory Matters | Note 2 - Rate and Regulatory Matters
Rate Matters
Middlesex - In December 2021, Middlesex’s petition to the NJBPU seeking permission to increase its base water rates was concluded, based on a negotiated settlement, resulting in an expected increase in annual operating revenues of $27.7 million. The approved tariff rates were designed to recover increased operating costs, as well as a return on invested capital of $513.5 million, based on an authorized return on common equity of 9.6%. The increase was implemented in two phases with $20.7 million of the increase effective January 1, 2022 and the remaining $7.0 million effective January 1, 2023. As part of the negotiated settlement, the Purchased Water Adjustment Clause (PWAC), which is a rate mechanism that allows for recovery of increased purchased water costs between base rate case filings, was reset to zero.
In September 2022, the NJBPU approved Middlesex's Emergency Relief Motion to reset its PWAC tariff rate to recover additional costs of $2.7 million for the purchase of treated water from a non-affiliated regulated water utility. The increase, effective October 1, 2022, is on an interim basis and subject to refund with interest, pending final resolution of this matter, which is expected in the second quarter of 2023.
In March 2021, the NJBPU approved Middlesex’s annual petition to reset its PWAC tariff rate to recover additional costs of $1.1 million for the purchase of treated water from a non-affiliated regulated water utility. The new PWAC rate became effective April 4, 2021.
Tidewater – On August 31, 2022, the DEPSC issued an Order requiring Tidewater to reduce its base rates charged to general metered and private fire customers by 6%, effective for service rendered on and after September 1, 2022. In June 2022, the Delaware Division of the Public Advocate filed a petition with the DEPSC requesting that Tidewater’s rates be reduced based on the claim that Tidewater had been earning above its authorized rate of return. The rate reduction is expected to reduce annual revenues by approximately $2.2 million.
In March 2021, Tidewater was notified by the DEPSC that it had determined Tidewater’s earned rate of return exceeded the rate of return authorized by the DEPSC. Consequently, Tidewater reset its Distribution System Improvement Charge (DSIC) rate to zero effective April 1, 2021 and refunded approximately $1.0 million to customers primarily in the form of an account credit for DSIC revenue previously billed between April 1, 2020 and March 31, 2021. A DSIC is a rate-mechanism that allows water utilities to recover investments in, and generate a return on, qualifying capital improvements made between base rate proceedings.
Pinelands – In September 2022, Pinelands Water and Pinelands Wastewater filed separate petitions with the NJBPU seeking permission to increase base rates by approximately $0.6 million and $0.4 million per year, respectively. These requests were necessitated by capital infrastructure investments both companies have made, or have committed to make, and increased operations and maintenance costs. We cannot predict whether the NJBPU will ultimately approve, deny, or reduce the amount of the requests. A decision by the NJBPU in both matters is expected in the first quarter of 2023.
Southern Shores - Effective January 1, 2020, the DEPSC approved the renewal of a multi-year agreement for water service to a 2,200 unit condominium community we serve in Sussex County, Delaware. Under the agreement, current rates were to remain in effect until December 31, 2024, unless there are unanticipated capital expenditures or regulatory related changes in operating expenses exceeding certain thresholds during this time period. In 2022, capital expenditures did exceed the established threshold and rates were increased by 5.39%, effective January 1, 2023. Beginning in 2025 and thereafter, inflation based rate increases cannot exceed the lesser of the regional Consumer Price Index or, 3%. Inflation based increases are in addition to the threshold rate increases. This agreement expires on December 31, 2029.
Twin Lakes Utilities, Inc. (Twin Lakes) - Twin Lakes provides water services to approximately 115 residential customers in Shohola, Pennsylvania. Pursuant to the Pennsylvania Public Utility Code, Twin Lakes filed a petition requesting the Pennsylvania Public Utilities Commission (PAPUC) to order the acquisition of Twin Lakes by a capable public utility. The PAPUC assigned an Administrative Law Judge (ALJ) to adjudicate the matter and submit a recommended decision (Recommended Decision) to the PAPUC. As part of this legal proceeding the PAPUC also issued an Order in January 2021 appointing a large Pennsylvania based investor-owned water utility as the receiver (the Receiver Utility) of the Twin Lakes system until the petition is fully adjudicated by the PAPUC. In November 2021, the PAPUC issued an Order affirming the ALJ’s Recommended Decision, ordering the Receiver Utility to acquire the Twin Lakes water system and for Middlesex to submit $1.7 million into an escrow account within 30 days. Twin Lakes immediately filed a Petition For Review (PFR) with the Commonwealth Court of Pennsylvania (the Pennsylvania Court) seeking reversal and vacation of the escrow requirement on the grounds that it violates the Pennsylvania Public Utility Code as well as the United States Constitution. In addition, Twin Lakes filed an emergency petition for stay of the PAPUC Order pending the Pennsylvania Court’s review of the merits arguments contained in Twin Lakes’ PFR. In December 2021, the Pennsylvania Court granted Twin Lakes’ emergency petition, pending its review. In August 2022, the Commonwealth Court issued an opinion upholding PAPUC’s November 2021 Order in its entirety. In September 2022, Twin Lakes filed a Petition For Allowance of Appeal to the Supreme Court of Pennsylvania seeking reversal of the Commonwealth Court’s decision to uphold the escrow requirement on the grounds that the Pennsylvania Court erred in failing to address Twin Lakes’ constitutional claims. The timing of the final decision by the Supreme Court of Pennsylvania and the final adjudication of this matter cannot be predicted at this time.
The financial results, total assets and financial obligations of Twin Lakes are not material to Middlesex.
Regulatory Matters
We have recorded certain costs as regulatory assets because we expect full recovery of, or are currently recovering, these costs in the rates we charge customers. These deferred costs have been excluded from rate base and, therefore, we are not earning a return on the unamortized balances. These items are detailed as follows:
Retirement benefits include pension and other retirement benefits that have been recorded on the Consolidated Balance Sheet in accordance with the guidance provided in ASC 715, Compensation – Retirement Benefits. These amounts represent obligations in excess of current funding, which the Company believes will be fully recovered in rates set by the regulatory authorities.
The recovery period for income taxes is dependent upon when the temporary differences between the tax and book treatment of various items reverse.
The 2017 Tax Act reduced the statutory corporate federal income tax rate from 35% to 21%. The tariff rates charged to customers effective prior to 2018 in the Company’s regulated companies include recovery of income taxes at the statutory rate in effect at the time those rates were approved by the respective state public utility commissions. As of December 31, 2022 and 2021, the Company has recorded regulatory liabilities of $29.0 million and $30.4 million, respectively for excess income taxes collected through rates due to the lower income tax rate under the 2017 Tax Act. These regulatory liabilities are overwhelmingly related to utility plant depreciation deduction timing differences, which are subject to Internal Revenue Service (IRS) normalization rules. The IRS rules limit how quickly the excess taxes attributable to accelerated taxes can be returned to customers. The current base rates for Middlesex and Pinelands customers became effective after 2017 and reflect the impact of the 2017 Tax Act on their revenue requirements.
As part of Middlesex’s March 2018 base water rate settlement with the NJBPU, Middlesex received approval for regulatory accounting treatment of income tax benefits associated with the adoption of tangible property regulations issued by the IRS, and, as of December 31, 2022 and 2021, the Company has recorded $0.0 and $3.0 million of related regulatory liabilities, respectively,
The Company uses composite depreciation rates for its regulated utility assets, which is currently an acceptable method under generally accepted accounting principles and is widely used in the utility industry. Historically, under the composite depreciation method, the anticipated costs of removing assets upon retirement are provided for over the life of those assets as a component of depreciation expense. The Company recovers certain asset retirement costs through rates charged to customers as an approved component of depreciation expense. As of December 31, 2022 and 2021, the Company has approximately $17.7 million and $16.1 million, respectively, of expected costs of removal recovered currently in rates in excess of actual costs incurred as regulatory liabilities. |
Income Taxes |
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Income Taxes | Note 3 – Income Taxes
Income tax (benefit) expense differs from the amount computed by applying the statutory rate on book income subject to tax for the following reasons:
Income tax expense (benefit) is comprised of the following:
As part of Middlesex’s March 2018 base water rate settlement with the NJBPU, Middlesex received approval for regulatory accounting treatment of income tax benefits associated with the adoption of tangible property regulations issued by the IRS (fully amortized as of March 31, 2022) as well as prospective recognition of the income tax benefits for the immediate deduction of repair costs on tangible property. This results in significant reductions in the Company’s effective income tax rate, current income tax expense (benefit) and deferred income tax expense (benefit).
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. The components of the net deferred tax liability are as follows:
The Company’s federal income tax returns for the tax years 2014 through 2017 were selected for examination by the IRS, which included the tax year in which the Company had adopted the final IRS tangible property regulations and changed its accounting method for the tax treatment of expenditures that qualified as deductible repairs. As a result of the audit examination, the Company agreed to certain modifications of its accounting method for expenditures that qualify as deductible repairs. In 2019, the Company paid $2.7 million in income taxes and $0.1 million in interest in connection with the conclusion of the 2014 through 2017 federal income tax return audits. The statutory review period for 2018 and prior federal income tax returns has now closed, and as such, in the third quarter of 2022 the Company reversed the December 31, 2021 income tax reserve provision and interest expense liability of $0.5 million and $0.2 million, respectively.
The statutory review periods for federal income tax returns for the years prior to 2019 have been closed. There are no unrecognized tax benefits resulting from prior period tax positions. |
Commitments and Contingent Liabilities |
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Commitments and Contingent Liabilities | Note 4 - Commitments and Contingent Liabilities
Water Supply - Middlesex has an agreement with the New Jersey Water Supply Authority (NJWSA) for the purchase of untreated water through November 30, 2023, which provides for an average purchase of 27.0 million gallons a day (mgd). Pricing is set annually by the NJWSA through a public rate making process. The agreement has provisions for additional pricing in the event Middlesex overdrafts or exceeds certain monthly and annual thresholds.
Middlesex also has an agreement with a non-affiliated NJBPU-regulated water utility for the purchase of treated water. This agreement, which expires February 27, 2026, provides for the minimum purchase of 3.0 mgd of treated water with provisions for additional purchases if needed.
Tidewater contracts with the City of Dover, Delaware to purchase treated water of 15.0 million gallons annually.
Purchased water costs are shown below:
Leases - The Company determines if an arrangement is a lease at the inception of the lease. Generally, a lease agreement exists if the Company determines that the arrangement gives the Company control over the use of an identified asset and obtains substantially all of the benefits from the identified asset.
The Company has entered into an operating lease of office space for administrative purposes, expiring in 2030. The Company has not entered into any finance leases. The exercise of a lease renewal option for the Company’s administrative offices is solely at the discretion of the Company.
The right-of-use (ROU) asset recorded represents the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s operating lease does not provide an implicit discount rate and as such the Company used an estimated incremental borrowing rate (4.03%) based on the information available at commencement date in determining the present value of lease payments.
Given the impacts of accounting for regulated operations, and the resulting recognition of expense at the amounts recovered in customer rates, expenditures for operating leases are consistent with lease expense and was $0.8 million for each of the years ended December 31, 2022, 2021 and 2020.
Information related to operating lease ROU assets is as follows:
The Company’s future minimum operating lease commitments as of December 31, 2022 are as follows:
* Included in Other Current Liabilities
Construction –The Company has projected to spend approximately $102 million in 2023, $86 million in 2024 and $78 million in 2025 on its construction program. The Company has entered into several contractual construction agreements that in total obligate it to expend an estimated $16.8 million in the future. The actual amount and timing of capital expenditures is dependent on the need for replacement of existing infrastructure, customer growth, residential new home construction and sales, project scheduling, supply chain issues and continued refinement of project scope and costs and could be impacted if the effects of the COVID-19 pandemic continues for an extended period of time (for further discussion of the impact of COVID-19 on the Company, see Note 1(s) COVID-19). There is no assurance that projected customer growth and residential new home construction and sales will occur.
Contingencies – Based on our operations in the heavily-regulated water and wastewater industries, the Company is routinely involved in disputes, claims, lawsuits and other regulatory and legal matters, including responsibility for fines and penalties relative to regulatory compliance. At this time, Management does not believe the final resolution of any such matters, whether asserted or unasserted, will have a material adverse effect on the Company’s financial position, results of operations or cash flows. In addition, the Company maintains business insurance coverage that may mitigate the effect of any current or future loss contingencies.
PFOA Matter - In November 2021, the Company was served with two PFOA-related class action lawsuits seeking restitution for medical, water replacement and other related costs and economic damages. These lawsuits are in the early stages of the legal process and their ultimate resolution cannot be predicted at this time. The Company’s insurance provider has acknowledged coverage of potential liability resulting from these lawsuits (for further discussion of this matter, see Note 1(t) Regulatory Notice of Non-Compliance).
Change in Control Agreements – The Company has Change in Control Agreements with its executive officers that provide compensation and benefits in the event of termination of employment in connection with a change in control of the Company. |
Short-term Borrowings |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-term Borrowings | Note 5 – Short-term Borrowings
Information regarding the Company’s short-term borrowings for the years ended December 31, 2022 and 2021 is summarized below:
The Company maintains bank lines of credit aggregating $140.0 million.
The Bank of America line of credit is renewed on an annual basis and was increased from $30 million to $60 million in January 2022.
The maturity dates for the Notes Payable as of December 31, 2022 are in January 2023 through March 2023 and are extendable at the discretion of the Company.
The interest rates for borrowings under the Bank of America and PNC Bank lines of credit are set using the Bloomberg Short-Term Bank Yield Index and adding a credit spread, which varies by financial institution. The interest rate for borrowings under the CoBank line of credit are set weekly using CoBank’s internal cost of funds index that is similar to the Standard Overnight Financing Rate and adding a credit spread. There is no requirement for a compensating balance under any of the established lines of credit. |
Capitalization |
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Capitalization | Note 6 - Capitalization
All the transactions discussed below related to the issuance of securities were approved by either the NJBPU or DEPSC, except where otherwise noted.
Common Stock
The Company issues shares of its common stock in connection with its Middlesex Water Company Investment Plan (the Investment Plan), a direct share purchase and dividend reinvestment plan for the Company’s common stock. The Company raised approximately $10.3 million under the Investment Plan during 2022. On March 1, 2023, the Company will begin offering shares of its common stock for purchase at a 3% discount to participants in the Investment Plan. The discount offering will continue until 200,000 shares are purchased at the discounted price or December 1, 2023, whichever event occurs first. The discount applies to all common stock purchases made under the Investment Plan, whether by optional cash payment or by dividend reinvestment. Since the inception of the Investment Plan and its predecessor plan, the Company has periodically replenished the level of authorized shares in the plans. Currently, 0.2 million shares remain registered with the United States Securities and Exchange Commission for the Investment Plan and available for potential issuance to participants. Middlesex has filed a
petition with the NJBPU seeking to increase the number of authorized shares under the Investment Plan by 0.7 million shares.
The Company issues common shares under a restricted stock plan for certain management employees, which is described in Note 7 – Employee Benefit Plans.
The Company maintains a stock plan for its independent Directors as a component of outside members of the Board of Directors compensation. For the years ended December 31, 2022, 2021 and 2020, 2,664, 3,444 and 4,074 shares, respectively, of Middlesex common stock were granted and issued to the Company’s independent Directors under the plan. The maximum number of shares authorized for grant under the plan is 100,000, of which 46,461 shares remain available for future awards.
In the event dividends on the preferred stock are in arrears, no dividends may be declared or paid on the common stock of the Company.
Preferred Stock
At December 31, 2022 and 2021, there were 120,000 shares of preferred stock authorized and less than 21,000 shares of preferred stock outstanding. There were preferred stock dividends in arrears.
The Company may not pay any dividends on its common stock unless full cumulative dividends to the preceding dividend date for all outstanding shares of preferred stock have been paid or set aside for payment. If four or more quarterly dividends are in arrears, the preferred shareholders, as a class, are entitled to elect two members to the Board of Directors in addition to Directors elected by holders of the common stock. In addition, if Middlesex were to liquidate, holders of preferred stock would be paid back the stated value of their preferred shares before any distributions could be made to common stockholders.
The conversion feature of the no par $7.00 Series Cumulative and Convertible Preferred Stock allows the security holders to exchange one convertible preferred share for twelve shares of the Company's common stock. In addition, the Company may redeem up to 10% of the outstanding convertible stock in any calendar year at a price equal to the fair value of twelve shares of the Company's common stock for each share of convertible stock redeemed.
Long-term Debt
Subject to regulatory approval, the Company periodically issues long-term debt to fund its investments in utility plant. To the extent possible and fiscally prudent, the Company finances qualifying capital projects under State Revolving Fund (SRF) loan programs in New Jersey and Delaware. These government programs provide financing at interest rates typically below rates available in the broader financial markets. A portion of the borrowings under the New Jersey SRF is interest-free. Under the New Jersey SRF program, borrowers first enter into a construction loan agreement with the New Jersey Infrastructure Bank (NJIB) at a below market interest rate. The interest rate on the Company’s current construction loan borrowings is zero percent (0%). When construction on the qualifying project is substantially complete, NJIB will coordinate the conversion of the construction loan into a long-term securitized loan with a portion of the principal balance having a stated interest rate of zero percent (0%) and a portion of the principal balance at a market interest rate at the time of closing using the credit rating of the State of New Jersey. The term of the long-term loans currently offered through the NJIB is up to thirty years.
In May 2022, Middlesex repaid two outstanding NJIB construction loans by issuing First Mortgage Bonds (FMBs) to the NJIB under two loan agreements. The total amount of FMBs issued is $52.2 million and designated as Series 2022A ($16.2 million) and Series 2022B ($36.0 million). The interest rate on the Series 2022A bond is zero and the interest rate on the Series 2022B bond ranges between 2.7% and 3.0%. The final maturity date for both FMBs is August 1, 2056, with scheduled debt service payments over the life of these loans.
The NJIB has changed the SRF program for project funding priority ranking, the proportions of interest free loans and market interest rate loans and overall loan limits on interest free loan balances to investor-owned water utilities. These changes affect SRF projects for which the construction loan closes after September 2018. Under the new
guidelines, the principal balance having a stated interest rate of zero percent (0%) is 25% of the loan balance with the remaining portion of 75% having a market based interest rate. This is limited to the first $10.0 million of the loan. Loan amounts above $10.0 million do not participate in the 0% rate program, but do participate at the market based interest rate. As a result of all these changes, the Company’s future capital funding plan currently does not include participating in the NJIB SRF program.
In June 2021, Middlesex received approval from the NJBPU to redeem up to $45.5 million of outstanding FMBs, specifically Series RR ($22.5 million) and Series SS ($23.0 million), and issue replacement FMBs at an overall lower cost of debt. In November 2021, Middlesex closed on a $45.5 million, 2.90% private placement of FMBs, designated as Series 2021B with a 2051 maturity date to effectuate the redemptions.
In May 2020, Middlesex received approval from the NJBPU to borrow up to $100 million, in one or more private placement transactions through December 31, 2023 to help fund Middlesex’s multi-year capital construction program. In connection with this approval:
In December 2021, Tidewater closed on the DEPSC approved $5.0 million Delaware SRF Program loan and began receiving disbursements in January 2022. Tidewater has borrowed $2.6 million under this loan with borrowing expected to continue through mid-2023. The final maturity date on the loan is 2044.
In September 2021, Tidewater completed its $20 million secured borrowing with CoBank, at an interest rate of 3.94% with a 2046 maturity date. Proceeds from the loan were used to pay off its outstanding balances under its lines of credit.
The aggregate annual principal repayment obligations for all long-term debt over the next five years and thereafter are shown below:
The weighted average interest rate on all long-term debt at December 31, 2022 and 2021 was 2.98% and 2.83%, respectively. Except for the FMB Series 2020 ($40.0 million), FMB Series 2021 ($65.0 million) and Amortizing Secured Notes ($44.9 million), all of the Company’s outstanding long-term debt has been issued through the NJEDA ($63.6 million), the NJIB SRF program ($83.7 million) and the Delaware SRF program ($9.2 million).
Substantially all of the utility plant of the Company is subject to the lien of its mortgage, which includes debt service and capital ratio covenants. The Company is in compliance with all of its mortgage covenants and restrictions.
Earnings Per Share
The following table presents the calculation of basic and diluted earnings per share (EPS) for the years ended December 31, 2022, 2021 and 2020. Basic EPS is computed on the basis of the weighted average number of shares outstanding. Diluted EPS assumes the conversion of the Convertible Preferred Stock $7.00 Series.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments for which it is practicable to estimate that value. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and notes payable approximate their respective fair values due to the short-term maturities of these instruments. The fair value of FMBs and SRF Bonds (collectively, the Bonds) issued by Middlesex is based on quoted market prices for similar issues. Under the fair value hierarchy, the fair value of cash and cash equivalents is classified as a Level 1 measurement and the fair value of notes payable and the Bonds in the table below are classified as Level 2 measurements. The carrying amount and fair value of the Bonds were as follows:
It was not practicable to estimate their fair value on our outstanding long-term debt for which there is no quoted market price and there is not an active trading market. For details, including carrying value, interest rate and due date on these series of long-term debt, please refer to those series of long-term debt titled “Amortizing Secured Notes”, “State Revolving Trust Notes”, “State Revolving Fund Bond” and “Construction Loans” on the Consolidated Statements of Capital Stock and Long-Term Debt. The carrying amount of these instruments was $159.1 million and $212.3 million at December 31, 2022 and 2021, respectively. Customer advances for construction have carrying amounts of $21.4 million and $23.5 million at December 31, 2022 and 2021, respectively. Their relative fair values cannot be accurately estimated since future refund payments depend on several variables, including new customer connections, customer consumption levels and future rate increases. |
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Employee Benefit Plans | Note 7 - Employee Benefit Plans
Pension Benefits
The Company’s Pension Plan covers all active employees hired prior to April 1, 2007. Employees hired after March 31, 2007 are not eligible to participate in this plan, but can participate in a defined contribution profit sharing plan that provides an annual contribution at the discretion of the Company, based upon a percentage of the participants’ annual paid compensation. In order to be eligible for contribution, the eligible employee must be employed by the Company on December 31st of the year to which the contribution relates. The Company maintains an unfunded supplemental plan for a limited number of its executive officers. The Accumulated Benefit Obligation for the Company’s Pension Plan at December 31, 2022 and 2021 was $79.4 million and $100.4 million, respectively.
Other Benefits
The Company’s Other Benefits Plan covers substantially all of its current retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance.
Regulatory Treatment of Over/Underfunded Retirement Obligations
Because the Company is subject to rate regulation in the states in which it operates, it is required to maintain its accounts in accordance with the regulatory authority’s rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows the guidance of ASC 980, Regulated Operations. Based on prior regulatory practice, and in accordance with the guidance in ASC 980, Regulated Operations, the Company records underfunded Pension Plan and Other Benefits Plan obligation costs, which otherwise would be recognized in Other Comprehensive Income under ASC 715, Compensation – Retirement Benefits, as a Regulatory Asset, and expects to recover those costs in rates charged to customers.
The Company uses a December 31 measurement date for all of its employee benefit plans. The tables below set forth information relating to the Company’s Pension Plan and Other Benefits Plan for 2022 and 2021.
*Service cost is included in Operations and Maintenance expense on the consolidated statements of income; all other amounts are included in Other Income (Expense), net.
Amounts that are expected to be amortized from Regulatory Assets into Net Periodic Benefit Cost in 2023 are as follows:
The discount rate and compensation increase rate for determining our postretirement benefit plans’ benefit obligations and costs as of and for the years ended December 31, 2022, 2021 and 2020, respectively, are as follows:
The compensation increase assumption for the Other Benefits Plan is attributable to life insurance provided to qualifying employees upon their retirement. The insurance coverage will be determined based on the employee’s base compensation as of their retirement date.
The Company utilizes the Society of Actuaries’ mortality table (Pri-2012) (Mortality Improvement Scale MP2021 for the 2022 valuation).
For the 2022 valuation, costs and obligations for our Other Benefits Plan assumed a 7.5% annual rate of increase in the per capita cost of covered healthcare benefits in 2022 with the annual rate of increase declining 0.5% per year for 2023-2028, resulting in an annual rate of increase in the per capita cost of covered healthcare benefits of 4.5% by year 2029.
A one-percentage point change in assumed healthcare cost trend rates would have the following effects on the Other Benefits Plan:
The following benefit payments, which reflect expected future service, are expected to be paid:
Benefit Plans Assets
The allocation of plan assets at December 31, 2022 and 2021 by asset category is as follows:
Two outside investment firms each manage a portion of the Pension Plan asset portfolio. One of those investment firms also manages the Other Benefits Plan asset portfolio. Quarterly meetings are held between the Company’s Pension Committee of the Board of Directors and the investment managers to review their performance and asset allocation. If the actual asset allocation is outside the targeted range, the Pension Committee reviews current market conditions and advice provided by the investment managers to determine the appropriateness of rebalancing the portfolio.
The objective of the Company is to maximize the long-term return on retirement plan assets, relative to a reasonable level of risk, maintain a diversified investment portfolio and maintain compliance with the Employee Retirement Income Security Act of 1974. The expected long-term rate of return is based on the various asset categories in which plan assets are invested and the current expectations and historical performance for these categories.
Fair Value Measurements
Accounting guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:
Certain investments in cash and cash equivalents, equity securities, and commodities are valued based on quoted market prices in active markets and are classified as Level 1 investments. Certain investments in cash and cash equivalents, equity securities and fixed income securities are valued using prices received from pricing vendors that utilize observable inputs and are therefore classified as Level 2 investments.
The following tables present Middlesex’s Pension Plan assets measured and recorded at fair value within the fair value hierarchy:
The following tables present Middlesex’s Other Benefits Plan assets measured and recorded at fair value within the fair value hierarchy:
Benefit Plans Contributions
For the Pension Plan, Middlesex made total cash contributions of $1.9 million in 2022 and expects to make approximately $2.0 million of cash contributions in 2023.
For the Other Benefits Plan, Middlesex made total cash contributions of $0.9 million in 2022 and expects to make approximately $0.9 million of cash contributions in 2023.
401(k) Plan
The Company maintains a 401(k) defined contribution plan, which covers substantially all employees with more than 1,000 hours of service. Under the terms of the Plan, the Company matches 100% of a participant’s contributions, which do not exceed 1% of a participant’s compensation, plus 50% of a participant’s contributions exceeding 1%, but not more than 6%. The Company’s matching contribution was $0.7 million for each of the years ended December 31, 2022, 2021 and 2020.
Employees hired after March 31, 2007 are not eligible to participate in the Pension Plan and are generally eligible to participate in a discretionary profit sharing plan administered through the 401(k) plan. In December each year, the Board of Directors may approve that a stated percentage of eligible compensation be contributed to the account of the employee participant in the first quarter of the following year. For those employees still actively employed on December 31, 2022 or retired during the current year, the Company will fund a discretionary contribution of $0.9 million before April 1, 2023, which represents 5.0% of eligible 2022 compensation. For the years ended December 31, 2021 and 2020, the Company made qualifying discretionary contributions totaling $0.8 million and $0.7 million, respectively.
Stock-Based Compensation
The Company maintains a long-term incentive compensation plan for certain management employees where awards are made in the form of restricted common stock. Shares of restricted stock issued under the plan are subject to forfeiture by the employee in the event of termination of employment for any reason within five years of the award other than as a result of retirement at normal retirement age, death, disability or change in control. The maximum number of shares authorized for award under the plan is 300,000 shares, of which approximately 80% remain available for award.
The Company recognizes compensation expense at fair value for the plan awards in accordance with ASC 718, Compensation – Stock Compensation. Compensation expense is determined by the market value of the stock on the date of the award and is being amortized over the expected vesting period.
The following table presents awarded but not yet vested share information for the plan:
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Business Segment Data |
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Business Segment Data | Note 8 – Business Segment Data
The Company has identified two reportable segments. One is the regulated business of collecting, treating and distributing water on a retail and wholesale basis to residential, commercial, industrial and fire protection customers in parts of New Jersey and Delaware. This segment also includes regulated wastewater systems in New Jersey and Delaware. The Company is subject to regulations as to its rates, services and other matters by the states of New Jersey and Delaware with respect to utility service within these states. The other segment is primarily comprised of non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in New Jersey and Delaware.
Inter-segment transactions relating to operational costs are treated as pass-through expenses. Finance charges on inter-segment loan activities are based on interest rates that are below what would normally be charged by a third party lender.
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Quarterly Data - Unaudited | Note 9 - Quarterly Data - Unaudited
Financial information for each quarter of 2022 and 2021 is as follows:
The information above, in the opinion of the Company, includes all adjustments consisting only of normal recurring accruals necessary for a fair presentation of such amounts. The business of the Company is subject to seasonal fluctuation with the peak period usually occurring during the summer months. The quarterly earnings per share amounts above may differ slightly from previous filings due to the effects of rounding. |
Accounting Policies, by Policy (Policies) |
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Organization | (a) Organization - Middlesex Water Company (Middlesex or the Company) is the parent company and sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), Utility Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy) Inc. (USA-PA) and Twin Lakes Utilities, Inc. (Twin Lakes). Southern Shores Water Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc. (White Marsh) are wholly-owned subsidiaries of Tidewater. Middlesex has operated as a water utility in New Jersey since 1897 and in Delaware, through our wholly-owned subsidiary, Tidewater, since 1992. We are in the business of collecting, treating, distributing and selling water for domestic, commercial, municipal, industrial and fire protection purposes. We also operate New Jersey municipal water, wastewater and storm water systems under contract and provide unregulated water and wastewater services in New Jersey and Delaware through our subsidiaries. Our rates charged to customers for water and wastewater services, the quality of services we provide and certain other matters are regulated in New Jersey and Delaware by the New Jersey Board of Public Utilities (NJBPU) and the Delaware Public Service Commission (DEPSC), respectively. Our USA, USA-PA and White Marsh subsidiaries are not regulated utilities. |
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Principles of Consolidation | (b) Principles of Consolidation – The financial statements for Middlesex and its wholly-owned subsidiaries (the Company) are reported on a consolidated basis. All significant intercompany accounts and transactions have been eliminated. Other financial investments in which the Company holds a 50% or less voting interest and cannot exercise control over the operation and policies of the investments are accounted for under the equity method of accounting. Under the equity method of accounting, the Company records its investment interests in Non-Utility Assets and its percentage share of the earnings or losses of the investees in Other Income (Expense). |
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System of Accounts | (c) System of Accounts – The Company’s regulated utilities maintain their accounts in accordance with the Uniform System of Accounts prescribed by the NJBPU and DEPSC. |
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Regulatory Accounting | (d) Regulatory Accounting - We maintain our books and records in accordance with accounting principles generally accepted in the United States of America. Middlesex and certain of its subsidiaries, which account for 93% of Operating Revenues and 99% of Total Assets, are subject to regulation in the state in which they operate. Those companies are required to maintain their accounts in accordance with regulatory authorities’ rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows the guidance provided in Accounting Standards Codification (ASC) 980, Regulated Operations. In accordance with ASC 980, Regulated Operations, costs and obligations are deferred if it is probable that these items will be recognized for rate-making purposes in future rates. Accordingly, we have recorded costs and obligations, which will be amortized over various future periods. Any change in the assessment of the probability of rate-making treatment will require us to change the accounting treatment of the deferred item. We have no reason to believe any of the deferred items that are recorded will be treated differently by the regulators in the future. For additional information, see Note 2 – Rate and Regulatory Matters. |
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Retirement Benefit Plans | (e) Retirement Benefit Plans - We maintain a noncontributory defined benefit pension plan (Pension Plan), which covers all active employees who were hired prior to April 1, 2007, as well as a defined contribution plan in which all employees are eligible to participate. In addition, the Company maintains an unfunded supplemental plan for certain of its executive officers. The Company has a retirement benefit plan other than pensions (Other Benefits Plan) for substantially all of its retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance. The Company’s costs for providing retirement benefits are dependent upon numerous factors, including actual plan experience and assumptions of future experience. Retirement benefit plan obligations and expense are determined
based on investment performance, discount rates and various other demographic factors related to the population participating in the Company’s retirement benefit plans, all of which can change significantly in future years. For more information on the Company’s Retirement Benefit Plans, see Note 7 – Employee Benefit Plans. |
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Utility Plant | (f) Utility Plant – Utility Plant is stated at original cost as defined for regulatory purposes. Property accounts are charged with the cost of betterments and major replacements of property. Cost includes direct material, labor and indirect charges for pension benefits and payroll taxes. The cost of labor, materials, supervision and other expenses incurred in making repairs and minor replacements and in maintaining the properties is charged to the appropriate expense accounts. At December 31, 2022, there was no event or change in circumstance that would indicate that the carrying amount of any long-lived asset was not recoverable. |
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Depreciation | (g) Depreciation – Depreciation is computed by each regulated member of the Company utilizing a rate approved by the applicable regulatory authority. The accumulated provision for depreciation is charged with the cost of property retired, less salvage. The following table sets forth the range of depreciation rates for the major utility plant categories used to calculate depreciation for the years ended December 31, 2022, 2021 and 2020. These rates have been approved by the NJBPU or DEPSC:
Non-regulated fixed assets consist primarily of office buildings, furniture and fixtures, and transportation equipment. These assets are recorded at original cost and depreciation is calculated based on the estimated useful lives, ranging from 3 to 42 years. |
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Preliminary Survey and Investigation (PS&I) Costs | (h) Preliminary Survey and Investigation (PS&I) Costs – In the design of water and wastewater systems that the Company ultimately intends to construct, own and operate, certain expenditures are incurred to advance those project activities. These PS&I costs are recorded as deferred charges on the balance sheet as these costs are expected to be recovered through future rates charged to customers as the underlying project assets are placed into service as utility plant. If it is subsequently determined that costs for a project recorded as PS&I are not recoverable through rates charged to our customers, the applicable PS&I costs are recorded as Other Expense on the Statement of Income at that time. |
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Customers’ Advances for Construction (CAC) | (i) Customers’ Advances for Construction (CAC) – Utility plant and/or cash advances are provided to the Company by customers, real estate developers and builders in order to extend utility service to their properties. These transactions are recorded as CAC. Contractual Refunds of CACs in the form of cash are made by the Company and are based on either additional operating revenues generated from new customers or, as new customers are connected to the respective system. After all refunds are made and/or contract terms have expired, any remaining balance is transferred to Contributions in Aid of Construction. Contributions in Aid of Construction (CIAC) – CIAC include direct non-refundable contributions of utility plant and/or cash and the portion of CAC that becomes non-refundable. In accordance with regulatory requirements, CAC and CIAC are not depreciated. In addition, these amounts reduce the investment base for purposes of setting rates. |
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Allowance for Funds Used During Construction (AFUDC) | (j) Allowance for Funds Used During Construction (AFUDC) - Middlesex and its regulated subsidiaries capitalize AFUDC, which represents the cost of financing projects during construction. AFUDC is added to the construction costs of individual projects exceeding specific cost and construction period thresholds established for each company and then depreciated with the utility plant direct costs over the underlying assets’ estimated useful life. AFUDC is calculated using each company’s weighted cost of debt and equity as approved in their most recent
respective regulatory rate order. The AFUDC rates for the years ended December 31, 2022, 2021 and 2020 for Middlesex and Tidewater are as follows:
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Accounts Receivable | (k) Accounts Receivable – We record bad debt expense based on a variety of factors such as our customers’ payment history, current economic conditions and trending reasonable and supportable forecasts on expected collectability of accounts receivable. The allowance for doubtful accounts was $2.3 million and $2.6 million as of December 31, 2022 and 2021, respectively. For the years ended December 31, 2022, 2021 and 2020, bad debt expense was $0.5 million, $0.9 million and $1.1 million, respectively. For the years ended December 31, 2022, 2021 and 2020, write-offs were $0.7 million, $0.4 million and $0.5 million, respectively. |
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Revenues | (l) Revenues - The Company’s revenues are primarily generated from regulated tariff-based sales of water and wastewater services and non-regulated operation and maintenance contracts for services on water and wastewater systems owned by others. Revenue from contracts with customers is recognized when control of a promised good or service is transferred to customers at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services. The Company’s regulated revenue results from tariff-based sales from the provision of water and wastewater services to residential, industrial, commercial, fire-protection and wholesale customers. Residential customers are billed quarterly while most industrial, commercial, fire-protection and wholesale customers are billed monthly. Payments by customers are due between 15 to 30 days after the invoice date. Revenue is recognized as the water and wastewater services are delivered to customers as well as from accrual of unbilled revenues estimated from the last meter reading date to the end of the accounting period utilizing factors such as historical customer data, regional weather indicators and general economic conditions in the relevant service territories. Unearned Revenues and Advance Service Fees include fixed service charge billings in advance to Tidewater customers recognized as service is provided to the customer. Non-regulated service contract revenues consist of base service fees as well as fees for additional billable services provided to customers. Fees are billed monthly and are due within 30 days after the invoice date. The Company considers the amounts billed to represent the value of these services provided to customers. These contracts expire at various times through 2032 and contain remaining performance obligations for which the Company expects to recognize revenue in the future. These contracts also contain customary termination provisions. Substantially all of the amounts included in operating revenues and accounts receivable are from contracts with customers. The Company records its allowance for doubtful accounts based on historical write-offs combined with an evaluation of current economic conditions within its service territories. The Company’s contracts do not contain any significant financing components.
The Company’s operating revenues are comprised of the following:
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Unamortized Debt Expense and Premiums on Long-Term Debt | (m) Unamortized Debt Expense and Premiums on Long-Term Debt - Unamortized Debt Expense and Premiums on Long-Term Debt, included on the consolidated balance sheet in long-term debt, are amortized over the lives of the related debt issues. |
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Income Taxes | (n) Income Taxes - Middlesex files a consolidated federal income tax return for the Company and income taxes are allocated based on the separate return method. Certain income and expense items are accounted for in different time periods for financial reporting than for income tax reporting purposes. Deferred income taxes are provided on differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements. Investment tax credits have been deferred and are amortized over the estimated useful life of the related property. In the event that there are interest and penalties associated with income tax adjustments from income tax authority examinations, these amounts will be reported under interest expense and other expense, respectively. For more information on income taxes, see Note 3 – Income Taxes. |
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Cash and Cash Equivalents | (o) Cash and Cash Equivalents - For purposes of reporting cash flows, the Company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents. Cash and cash equivalents represent bank balances and money market funds with investments maturing in less than 90 days. |
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Restricted Cash | (p) Restricted Cash – Restricted cash includes cash proceeds from loan transactions entered into through government financing programs and are held in trusts for specific capital expenditures or debt service. |
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Use of Estimates | (q) Use of Estimates - Conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. |
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Recent Accounting Pronouncements | (r) Recent Accounting Pronouncements - There are no new adopted or proposed accounting guidance that the Company is aware of that could have a material impact on the Company’s consolidated financial statements. |
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Coronavirus (COVID-19) Pandemic | (s) Coronavirus (COVID-19) Pandemic – In January 2023, the United States Secretary of Health and Human Services renewed the determination that a nationwide health emergency exists as a result of the COVID-19 Pandemic with an announced end to the declared health emergency on May 11, 2023. While the Company’s operations and capital construction program have not been materially disrupted to date from the pandemic, the COVID-19 impact on economic conditions nationally and areas the Company operated continues to be uncertain and could affect the Company’s results of operations, financial condition and liquidity in the future. In New Jersey, the declared COVID-19 State of Emergency Order ended in March 2022. In Delaware, the declared COVID-19 State of Emergency Order ended in July 2021.
The NJBPU and the DEPSC have approved the tracking of COVID-19 related incremental costs for potential recovery in customer rates in future rate proceedings. Neither jurisdiction has established a timetable or definitive formal procedures for seeking cost recovery. The Company’s allowance for doubtful accounts was increased for expected increases in accounts receivable write-offs due to the financial impact of COVID-19 on customers. The Company has not deferred any COVID-19 related incremental costs. We will continue to monitor the effects of COVID-19. |
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Regulatory Notice of Non-Compliance | (t) Regulatory Notice of Non-Compliance – In September 2021, the New Jersey Department of Environmental Protection (NJDEP) issued a Notice of Non-Compliance (Notice) to Middlesex based on self-reporting by Middlesex that the level of Perfluorooctanoic Acid (PFOA) in water treated at its Park Avenue Wellfield Treatment Plant in South Plainfield, New Jersey exceeded a recently promulgated NJDEP standard effective in 2021. The NJDEP standard for PFOA was developed based on a Health-based Maximum Contaminant Level of 14 parts per trillion. Neither the NJDEP nor Middlesex has characterized this exceedance as an acute health threat. However, Middlesex was required to notify its affected customers and complied in November 2021 as required by the regulation. The Notice further required the Company to take any action necessary to comply with the new standard by September 7, 2022. Prior to 2021, the Company began design for construction of an enhanced treatment process at the Park Avenue Wellfield Treatment Plant to comply with the new standard prior to the regulation being enacted. Since completion was not expected until mid-2023, in December 2021, the Company implemented an interim solution to meet the Notice requirements. The Park Avenue Wellfield Treatment Plant was temporarily taken off-line and alternate sources of supply were obtained. Simultaneously, the Company accelerated a portion of the enhanced treatment project to allow a restart of the Park Avenue Wellfield Treatment Plant ahead of historical higher water demand periods during the summer months. In June 2022, a portion of the enhanced treatment process was completed, placed into service and is effectively treating the ground water in compliance with all state and federal drinking water standards. On September 13, 2022, the Company entered into an Administrative Consent Order (ACO) with the NJDEP, which requires the Company to take whatever actions are necessary to achieve and maintain compliance with the Safe Drinking Water Act, N.J.S.A, 58:12A-1 et seq., and the Safe Drinking Water Act regulations N.J.A.C. 7:10-1 et seq., including applicable public notifications. The Company’s agreement to enter into an ACO avoided any further Notice regarding the fact that the permanent treatment solution was not in service by September 7, 2022. The Company issued the public notifications in February 2023 and will continue to update and distribute public information as prescribed in the ACO. In addition, in accordance with the ACO:
The Company’s failure to comply with the compliance schedule and/or progress reporting requirements of the ACO could lead to penalties up to $500 per day. In addition, the NJDEP could penalize the Company for other violations, if any, of the ACO. In November 2021, the Company was served with two PFOA-related class action lawsuits seeking restitution for medical, water replacement and other claimed related costs. These lawsuits are in the early stages of the legal process and their ultimate resolution cannot be predicted at this time. The Company’s insurance provider has
acknowledged coverage of potential liability which may result from these lawsuits. In May 2022, the Company impleaded 3M Company (3M) as a third-party defendant in one of these class action lawsuits. The Company had previously initiated a separate lawsuit against 3M seeking to hold 3M accountable for introduction of perfluoroalkyl substances, which include PFOA, into the Company’s water supply at its Park Avenue Wellfield facility. In January 2022, the Company filed a petition with the NJBPU seeking to establish a regulatory asset and deferred accounting treatment until its next base rate setting proceeding for all costs associated with the interim solution to comply with the Notice. The Company is currently awaiting a decision on this matter from the NJBPU. |
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Sale of Subsidiary | (u) Sale of Subsidiary –– In January 2022, Middlesex closed on the DEPSC approved sale of 100% of the common stock of its subsidiary Tidewater Environmental Services, Inc. for $6.4 million in cash and other consideration, resulting in a $5.2 million pre-tax gain. The Company will continue to own and operate its regulated water utilities in Delaware as well as its non-regulated operations and maintenance contract business. |
Organization, Summary of Significant Accounting Policies and Recent Developments (Tables) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of depreciation rates | These
rates have been approved by the NJBPU or DEPSC:
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Schedule of allowance for funds used during construction rates | The AFUDC rates for the years ended December 31, 2022, 2021 and 2020 for Middlesex and Tidewater are as follows:
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Schedule of operating revenues | The Company’s operating revenues
are comprised of the following:
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Rate and Regulatory Matters (Tables) |
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Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Regulated Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of regulatory assets | We have recorded certain costs as regulatory assets
because we expect full recovery of, or are currently recovering, these costs in the rates we charge customers. These deferred costs have
been excluded from rate base and, therefore, we are not earning a return on the unamortized balances. These items are detailed as follows:
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Income Taxes (Tables) |
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Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of income tax expense reconciliation | Income tax (benefit) expense differs from the
amount computed by applying the statutory rate on book income subject to tax for the following reasons:
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Schedule of income tax expense | Income tax expense (benefit) is comprised of the following:
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Schedule of net deferred tax liability | Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. The components
of the net deferred tax liability are as follows:
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Commitments and Contingent Liabilities (Tables) |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of purchased water costs | Purchased water costs are shown below:
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Schedule of operating lease ROU assets | Information related to operating lease ROU assets is as follows:
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Schedule of future minimum operating lease commitments | The Company’s future minimum operating lease commitments as of
December 31, 2022 are as follows:
* Included in Other Current Liabilities |
Short-term Borrowings (Tables) |
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Schedule of information regarding short-term borrowings | Information regarding the Company’s short-term
borrowings for the years ended December 31, 2022 and 2021 is summarized below:
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Schedule of line of credit | The Company maintains bank lines of credit aggregating
$140.0 million.
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Capitalization (Tables) |
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Capitalization [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of long-term debt | The aggregate annual principal repayment obligations
for all long-term debt over the next five years and thereafter are shown below:
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Schedule of basic and diluted earnings per share | The following table presents the calculation of
basic and diluted earnings per share (EPS) for the years ended December 31, 2022, 2021 and 2020. Basic EPS is computed on the basis of
the weighted average number of shares outstanding. Diluted EPS assumes the conversion of the Convertible Preferred Stock $7.00 Series.
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Schedule of carrying amount and fair value of the bonds | The carrying amount and fair value of the Bonds were as follows:
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Employee Benefit Plans (Tables) |
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Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement Benefits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of pension plan and other benefits plan | The Company uses a December 31 measurement date for all of its employee
benefit plans. The tables below set forth information relating to the Company’s Pension Plan and Other Benefits Plan for 2022 and
2021.
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Schedule of change in fair value of plan assets |
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Schedule of employee benefit plans recognized in balance sheet |
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Schedule of components of net benefit cost |
*Service cost is included in Operations and Maintenance expense on the consolidated statements of income; all other amounts are included in Other Income (Expense), net. |
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Schedule of regulatory assets into net periodic benefit cost | Amounts that are expected to be amortized from Regulatory Assets into
Net Periodic Benefit Cost in 2023 are as follows:
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Schedule of discount and compensation rates | The discount rate and compensation increase rate for determining our
postretirement benefit plans’ benefit obligations and costs as of and for the years ended December 31, 2022, 2021 and 2020, respectively,
are as follows:
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Schedule of effect of one-percentage point change in assumed health care cost trend rates | A one-percentage point change in assumed healthcare cost trend rates
would have the following effects on the Other Benefits Plan:
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Schedule of expected benefit payments | The following benefit payments, which reflect expected future service,
are expected to be paid:
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Schedule of allocation of plan assets | The allocation of plan assets at December 31, 2022 and 2021 by asset
category is as follows:
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Schedule of fair value of plan assets | The following tables present Middlesex’s Pension Plan assets
measured and recorded at fair value within the fair value hierarchy:
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Schedule of table presents awarded but not yet vested share | The following table presents awarded but not yet vested share information
for the plan:
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Business Segment Data (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of segment reporting information, by segment | 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.
|
Quarterly Data - Unaudited (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Data - Unaudited [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of financial information for each quarter | Financial information for each quarter of 2022 and 2021 is as follows:
|
Organization, Summary of Significant Accounting Policies and Recent Developments (Details) - Schedule of allowance for funds used during construction rates |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Middlesex [Member] | |||
Organization, Summary of Significant Accounting Policies and Recent Developments (Details) - Schedule of allowance for funds used during construction rates [Line Items] | |||
Allowance for funds used during construction rates | 6.35% | 6.50% | 6.50% |
Tidewater [Member] | |||
Organization, Summary of Significant Accounting Policies and Recent Developments (Details) - Schedule of allowance for funds used during construction rates [Line Items] | |||
Allowance for funds used during construction rates | 7.92% | 7.92% | 7.92% |
Organization, Summary of Significant Accounting Policies and Recent Developments (Details) - Schedule of operating revenues - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Regulated Tariff Sales | |||
Residential | $ 84,950 | $ 77,699 | $ 76,798 |
Commercial | 22,689 | 16,715 | 15,448 |
Industrial | 11,152 | 8,990 | 9,512 |
Fire Protection | 12,726 | 12,608 | 12,374 |
Wholesale | 18,769 | 14,590 | 15,187 |
Non-Regulated Contract Operations | 12,006 | 12,391 | 12,130 |
Total Revenue from Contracts with Customers | 162,292 | 142,993 | 141,449 |
Other Regulated Revenues | 831 | 929 | 532 |
Other Non-Regulated Revenues | 440 | 427 | 415 |
Inter-segment Elimination | (1,129) | (1,208) | (804) |
Total Revenue | $ 162,434 | $ 143,141 | $ 141,592 |
Rate and Regulatory Matters (Details) - Schedule of regulatory assets - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Regulatory Asset [Line Items] | ||
Regulatory Assets | $ 90,046 | $ 100,738 |
Retirement Benefits [Member] | ||
Regulatory Asset [Line Items] | ||
Regulatory Assets | $ 9,214 | 24,926 |
Remaining Recovery Periods | Various | |
Income Taxes [Member] | ||
Regulatory Asset [Line Items] | ||
Regulatory Assets | $ 74,422 | 70,427 |
Remaining Recovery Periods | Various | |
Rate Cases, Tank Painting, and Other [Member] | ||
Regulatory Asset [Line Items] | ||
Regulatory Assets | $ 6,410 | $ 5,385 |
Minimum [Member] | Rate Cases, Tank Painting, and Other [Member] | ||
Regulatory Asset [Line Items] | ||
Remaining Recovery Periods | 2 | |
Maximum [Member] | Rate Cases, Tank Painting, and Other [Member] | ||
Regulatory Asset [Line Items] | ||
Remaining Recovery Periods | 10 |
Income Taxes (Details) - Tax Year2014 Through2017 [Member] - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2021 |
Dec. 31, 2019 |
|
Income Taxes (Details) [Line Items] | ||
Income tax reserve provision | $ 0.5 | $ 2.7 |
Interest in connection | $ 0.1 | |
Interest expense liability | $ 0.2 |
Income Taxes (Details) - Schedule of income tax expense reconciliation - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Schedule of Income Tax Expense Reconciliation [Abstract] | |||
Income Tax at Statutory Rate | $ 9,590 | $ 6,521 | $ 7,204 |
Tax Effect of: | |||
Utility Plant Related | (1,106) | (1,290) | (1,356) |
Tangible Property Repairs | (6,767) | (12,281) | (11,298) |
State Income Taxes – Net | 1,296 | 1,499 | 1,364 |
Other | 227 | 63 | (33) |
Total Income Tax Expense (Benefit) | $ 3,240 | $ (5,488) | $ (4,119) |
Income Taxes (Details) - Schedule of income tax expense - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Current: | |||
Federal | $ 425 | $ (8,247) | $ (4,281) |
State | 1,381 | 1,467 | 2,598 |
Deferred: | |||
Federal | 1,242 | 933 | (1,490) |
State | 260 | 431 | (871) |
Investment Tax Credits | (68) | (72) | (75) |
Total Income Tax (Benefit) Expense | $ 3,240 | $ (5,488) | $ (4,119) |
Income Taxes (Details) - Schedule of net deferred tax liability - USD ($) $ in Thousands |
Dec. 31, 2022 |
Dec. 31, 2021 |
---|---|---|
Schedule of Net Deferred Tax Liability [Abstract] | ||
Utility Plant Related | $ 72,996 | $ 65,107 |
Customer Advances | (3,568) | (3,595) |
Employee Benefits | 7,380 | 7,091 |
Investment Tax Credits | 304 | 373 |
Other | 671 | 524 |
Total Accumulated Deferred Income Taxes | $ 77,783 | $ 69,500 |
Commitments and Contingent Liabilities (Details) |
12 Months Ended |
---|---|
Dec. 31, 2022
USD ($)
| |
Commitments and Contingent Liabilities (Details) [Line Items] | |
Estimated incremental borrowing rate | 4.03% |
Rental expenses under operating leases | $ 800,000 |
Construction program expenses | 102,000,000 |
Construction program fees | 86,000,000 |
Construction program spend fees | 78,000,000 |
Estimated obligation expenditure | $ 16,800,000 |
Purchase Commitment [Member] | |
Commitments and Contingent Liabilities (Details) [Line Items] | |
Purchase commitment expiration date of contract | Nov. 30, 2023 |
Average purchase | $ 27,000,000 |
Regulated Water Utility [Member] | |
Commitments and Contingent Liabilities (Details) [Line Items] | |
Purchase commitment expiration date of contract | Feb. 27, 2026 |
Average purchase | $ 3,000,000 |
City of Dover [Member] | |
Commitments and Contingent Liabilities (Details) [Line Items] | |
Average purchase | $ 15,000,000 |
Commitments and Contingent Liabilities (Details) - Schedule of purchased water costs - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Schedule Of Purchased Water Costs Abstract | |||
Untreated | $ 3.2 | $ 3.3 | $ 3.4 |
Treated | 3.9 | 3.6 | 3.6 |
Total Costs | $ 7.1 | $ 6.9 | $ 7.0 |
Commitments and Contingent Liabilities (Details) - Schedule of operating lease ROU assets - USD ($) $ in Millions |
Dec. 31, 2022 |
Dec. 31, 2021 |
---|---|---|
Schedule Of Operating Lease Rou Assets Abstract | ||
ROU Asset at Lease Inception | $ 7.3 | $ 7.3 |
Accumulated Amortization | (3.5) | (2.8) |
Current ROU Asset | $ 3.8 | $ 4.5 |
Commitments and Contingent Liabilities (Details) - Schedule of future minimum operating lease commitments $ in Millions |
Dec. 31, 2022
USD ($)
|
|||
---|---|---|---|---|
Schedule Of Future Minimum Operating Lease Commitments Abstract | ||||
2023 | $ 0.8 | |||
2024 | 0.8 | |||
2025 | 0.8 | |||
2026 | 0.9 | |||
2027 | 0.9 | |||
Thereafter | 1.8 | |||
Total Lease Payments | 6.0 | |||
Imputed Interest | (1.6) | |||
Present Value of Lease Payments | 4.4 | |||
Less Current Portion | (0.7) | [1] | ||
Non-Current Lease Liability | $ 3.7 | |||
|
Short-term Borrowings (Details) $ in Millions |
12 Months Ended |
---|---|
Dec. 31, 2022
USD ($)
| |
Short-term Borrowings (Details) [Line Items] | |
Lines of credit | $ 140.0 |
Minimum [Member] | |
Short-term Borrowings (Details) [Line Items] | |
Increase decrease line of credit | 30.0 |
Maximum [Member] | |
Short-term Borrowings (Details) [Line Items] | |
Increase decrease line of credit | $ 60.0 |
Short-term Borrowings (Details) - Schedule of information regarding short-term borrowings - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Schedule Of Information Regarding Short Term Borrowings Abstract | ||
Average Amount Outstanding | $ 28.9 | $ 23.7 |
Weighted Average Interest Rate | 3.34% | 1.12% |
Notes Payable at Year-End | $ 55.5 | $ 13.0 |
Weighted Average Interest Rate at Year-End | 5.17% | 1.04% |
Short-term Borrowings (Details) - Schedule of line of credit $ in Millions |
12 Months Ended |
---|---|
Dec. 31, 2022
USD ($)
| |
Line of Credit Facility [Line Items] | |
Outstanding | $ 55.5 |
Available | 84.5 |
Maximum | 140.0 |
Bank of America [Member] | |
Line of Credit Facility [Line Items] | |
Outstanding | 15.0 |
Available | 45.0 |
Maximum | $ 60.0 |
Credit Type | Uncommitted |
Renewal Date | Jan. 25, 2024 |
PNC Bank [Member] | |
Line of Credit Facility [Line Items] | |
Outstanding | $ 39.5 |
Available | 28.5 |
Maximum | $ 68.0 |
Credit Type | Committed |
Renewal Date | Jan. 31, 2024 |
CoBank [Member] | |
Line of Credit Facility [Line Items] | |
Outstanding | $ 1.0 |
Available | 11.0 |
Maximum | $ 12.0 |
Credit Type | Committed |
Renewal Date | Nov. 30, 2023 |
Capitalization (Details) - Schedule of long-term debt $ in Millions |
Dec. 31, 2022
USD ($)
|
---|---|
Schedule of maturities of long term debt [Abstract] | |
2023 | $ 17.5 |
2024 | 7.4 |
2025 | 6.9 |
2026 | 6.7 |
2027 | 6.4 |
Thereafter | $ 261.5 |
Capitalization (Details) - Schedule of basic and diluted earnings per share - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Schedule of earnings per share [Abstract] | |||
Net Income | $ 42,429 | $ 36,543 | $ 38,425 |
Net Income (in Shares) | 17,597 | 17,492 | 17,459 |
Preferred Dividend | $ (120) | $ (120) | $ (120) |
Earnings Applicable to Common Stock | $ 42,309 | $ 36,423 | $ 38,305 |
Earnings Applicable to Common Stock (in Shares) | 17,597 | 17,492 | 17,459 |
$7.00 Series Dividend | $ 67 | $ 67 | $ 67 |
$7.00 Series Dividend (in Shares) | 115 | 115 | 115 |
Adjusted Earnings Applicable to Common Stock | $ 42,376 | $ 36,490 | $ 38,372 |
Adjusted Earnings Applicable to Common Stock (in Shares) | 17,712 | 17,607 | 17,574 |
Diluted EPS (in Dollars per share) | $ 2.39 | $ 2.07 | $ 2.18 |
Basic EPS (in Dollars per share) | $ 2.4 | $ 2.08 | $ 2.19 |
Capitalization (Details) - Schedule of basic and diluted earnings per share (Parentheticals) - $ / shares |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Schedule of earnings per share [Abstract] | |||
Dividend | $ 7 | $ 7 | $ 7 |
Capitalization (Details) - Schedule of carrying amount and fair value of the bonds - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Schedule of Carrying Amount and Fair Value of Bonds [Abstract] | ||
Carrying Amount | $ 147,269 | $ 98,828 |
Fair Value | $ 138,756 | $ 107,781 |
Employee Benefit Plans (Details) - Schedule of pension plan and other benefits plan - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Pension Plan [Member] | ||
Employee Benefit Plans (Details) - Schedule of pension plan and other benefits plan [Line Items] | ||
Beginning Balance | $ 113,710 | $ 115,861 |
Service Cost | 2,362 | 2,696 |
Interest Cost | 3,042 | 2,706 |
Actuarial (Gain) Loss | (27,850) | (4,185) |
Benefits Paid | (3,476) | (3,368) |
Ending Balance | 87,788 | 113,710 |
Other Pension Plan [Member] | ||
Employee Benefit Plans (Details) - Schedule of pension plan and other benefits plan [Line Items] | ||
Beginning Balance | 49,396 | 52,776 |
Service Cost | 799 | 917 |
Interest Cost | 1,325 | 1,236 |
Actuarial (Gain) Loss | (17,761) | (4,705) |
Benefits Paid | (850) | (828) |
Ending Balance | $ 32,909 | $ 49,396 |
Employee Benefit Plans (Details) - Schedule of change in fair value of plan assets - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Pension Plan [Member] | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Beginning Balance | $ 100,750 | $ 88,921 |
Actual Return on Plan Assets | (14,346) | 11,798 |
Employer Contributions | 1,900 | 3,400 |
Benefits Paid | (3,476) | (3,369) |
Ending Balance | 84,828 | 100,750 |
Funded Status | (2,960) | (12,960) |
Other Pension Plan [Member] | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Beginning Balance | 50,668 | 44,892 |
Actual Return on Plan Assets | (6,639) | 5,776 |
Employer Contributions | 850 | 828 |
Benefits Paid | (850) | (828) |
Ending Balance | 44,029 | 50,668 |
Funded Status | $ 11,120 | $ 1,272 |
Employee Benefit Plans (Details) - Schedule of employee benefit plans recognized in balance sheet - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Pension Plan [Member] | ||
Balance Sheets consist of: | ||
Current Liability | $ 529 | $ 398 |
Noncurrent Liability (Asset) | 2,431 | 12,562 |
Net Liability (Asset) Recognized | 2,960 | 12,960 |
Other Pension Plan [Member] | ||
Balance Sheets consist of: | ||
Current Liability | ||
Noncurrent Liability (Asset) | (11,120) | (1,272) |
Net Liability (Asset) Recognized | $ (11,120) | $ (1,272) |
Employee Benefit Plans (Details) - Schedule of components of net benefit cost - USD ($) $ in Thousands |
12 Months Ended | ||||
---|---|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|||
Pension Plan [Member] | |||||
Employee Benefit Plans (Details) - Schedule of components of net benefit cost [Line Items] | |||||
Service Cost | $ 2,363 | $ 2,696 | $ 2,434 | ||
Interest Cost | 3,042 | 2,706 | 3,099 | ||
Expected Return on Plan Assets | (7,041) | (6,225) | (5,635) | ||
Amortization of Net Actuarial Loss | 1,673 | 2,868 | 2,059 | ||
Net Periodic Benefit Cost | [1] | 37 | 2,045 | 1,957 | |
Other Pension Plan [Member] | |||||
Employee Benefit Plans (Details) - Schedule of components of net benefit cost [Line Items] | |||||
Service Cost | 799 | 917 | 993 | ||
Interest Cost | 1,325 | 1,236 | 1,699 | ||
Expected Return on Plan Assets | (3,547) | (3,142) | (2,853) | ||
Amortization of Net Actuarial Loss | 527 | 1,352 | |||
Net Periodic Benefit Cost | [1] | $ (1,423) | $ (462) | $ 1,191 | |
|
Employee Benefit Plans (Details) - Schedule of regulatory assets into net periodic benefit cost $ in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2022
USD ($)
| |
Pension Plan [Member] | |
Employee Benefit Plans (Details) - Schedule of regulatory assets into net periodic benefit cost [Line Items] | |
Actuarial Loss (Gain) | $ 658 |
Other Pension Plan [Member] | |
Employee Benefit Plans (Details) - Schedule of regulatory assets into net periodic benefit cost [Line Items] | |
Actuarial Loss (Gain) | $ (191) |
Employee Benefit Plans (Details) - Schedule of discount and compensation rates |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Pension Plan [Member] | |||
Weighted Average Assumptions: | |||
Expected Return on Plan Assets | 7.00% | 7.00% | 7.00% |
Discount Rate for: | |||
Benefit Obligation | 4.98% | 2.72% | 2.37% |
Benefit Cost | 2.72% | 2.37% | 3.12% |
Compensation Increase for: | |||
Benefit Obligation | 3.00% | 3.00% | 3.00% |
Benefit Cost | 3.00% | 3.00% | 3.00% |
Other Pension Plan [Member] | |||
Weighted Average Assumptions: | |||
Expected Return on Plan Assets | 7.00% | 7.00% | 7.00% |
Discount Rate for: | |||
Benefit Obligation | 4.98% | 2.72% | 2.37% |
Benefit Cost | 2.72% | 2.37% | 3.12% |
Compensation Increase for: | |||
Benefit Obligation | 3.00% | 3.00% | 3.00% |
Benefit Cost | 3.00% | 3.00% | 3.00% |
Employee Benefit Plans (Details) - Schedule of effect of one-percentage point change in assumed health care cost trend rates $ in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2022
USD ($)
| |
Pension Plan [Member] | |
Employee Benefit Plans (Details) - Schedule of effect of one-percentage point change in assumed health care cost trend rates [Line Items] | |
Effect on Current Year Service and Interest Costs | $ 435 |
Effect on Projected Benefit Obligation | 4,239 |
Other Pension Plan [Member] | |
Employee Benefit Plans (Details) - Schedule of effect of one-percentage point change in assumed health care cost trend rates [Line Items] | |
Effect on Current Year Service and Interest Costs | (334) |
Effect on Projected Benefit Obligation | $ (3,448) |
Employee Benefit Plans (Details) - Schedule of expected benefit payments $ in Thousands |
Dec. 31, 2022
USD ($)
|
---|---|
Pension Plan [Member] | |
Employee Benefit Plans (Details) - Schedule of expected benefit payments [Line Items] | |
2023 | $ 4,153 |
2024 | 4,961 |
2025 | 5,349 |
2026 | 5,344 |
2027 | 5,437 |
2028-2032 | 28,483 |
Totals | 53,727 |
Other Pension Plan [Member] | |
Employee Benefit Plans (Details) - Schedule of expected benefit payments [Line Items] | |
2023 | 1,262 |
2024 | 1,423 |
2025 | 1,550 |
2026 | 1,645 |
2027 | 1,699 |
2028-2032 | 9,363 |
Totals | $ 16,942 |
Employee Benefit Plans (Details) - Schedule of table presents awarded but not yet vested share - Restricted Stock [Member] - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Employee Benefit Plans (Details) - Schedule of table presents awarded but not yet vested share [Line Items] | |||
Balance | 83 | 97 | |
Balance | $ 1,931 | $ 1,706 | |
Granted | 11 | 15 | 16 |
Granted | $ 1,151 | $ 1,151 | $ 982 |
Granted | $ 105.17 | $ 79.02 | $ 60.12 |
Vested | (17) | (18) | (27) |
Vested | |||
Amortization of Compensation Expense | |||
Amortization of Compensation Expense | $ (1,350) | $ (1,057) | $ (851) |
Balance | 77 | 83 | 86 |
Balance | $ 1,732 | $ 1,931 | $ 1,837 |
Quarterly Data - Unaudited (Details) - Schedule of financial information for each quarter - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 |
Sep. 30, 2022 |
Jun. 30, 2022 |
Mar. 31, 2022 |
Dec. 31, 2021 |
Sep. 30, 2021 |
Jun. 30, 2021 |
Mar. 31, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Quarterly Data - Unaudited (Details) - Schedule of financial information for each quarter [Line Items] | ||||||||||
Operating Revenues (in Dollars) | $ 38,823 | $ 47,732 | $ 39,683 | $ 36,196 | $ 34,025 | $ 39,874 | $ 36,701 | $ 32,541 | $ 162,434 | $ 143,141 |
Gain on Sale of Subsidiary (in Dollars) | 5,232 | 5,232 | ||||||||
Operating Income (in Dollars) | 8,146 | 16,575 | 10,088 | 12,523 | 6,339 | 11,424 | 9,814 | 5,634 | 47,332 | 33,211 |
Net Income (in Dollars) | $ 7,169 | $ 14,291 | $ 8,868 | $ 12,100 | $ 7,237 | $ 11,476 | $ 10,923 | $ 6,907 | $ 42,428 | $ 36,543 |
Basic Earnings per Share | $ 0.4 | $ 0.81 | $ 0.5 | $ 0.69 | $ 0.42 | $ 0.65 | $ 0.62 | $ 0.39 | $ 2.4 | $ 2.08 |
Diluted Earnings per Share | 0.4 | 0.81 | 0.5 | 0.68 | 0.41 | 0.65 | 0.62 | 0.39 | 2.39 | 2.07 |
Common Dividend Per Share | 0.3125 | 0.29 | 0.29 | 0.29 | 0.29 | 0.2725 | 0.2725 | 0.2725 | $ 1.1825 | $ 1.1075 |
Minimum [Member] | ||||||||||
Quarterly Data - Unaudited (Details) - Schedule of financial information for each quarter [Line Items] | ||||||||||
High/Low Common Stock Price | 74.2 | 77.08 | 75.77 | 94.56 | 119.37 | 116.4 | 88.61 | 85.92 | ||
Maximum [Member] | ||||||||||
Quarterly Data - Unaudited (Details) - Schedule of financial information for each quarter [Line Items] | ||||||||||
High/Low Common Stock Price | $ 95.82 | $ 96.19 | $ 108.27 | $ 121.1 | $ 98.12 | $ 81.02 | $ 77.31 | $ 67.09 |
1 Year Middlesex Water Chart |
1 Month Middlesex Water Chart |
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