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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to______________________
Commission File Number 0-422
MIDDLESEX WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1114430
(State of incorporation) (IRS employer identification no.)
1500 Ronson Road, Iselin, NJ 08830
(Address of principal executive offices, including zip code)
(732) 634-1500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is large accelerated file, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer |_| Accelerated filer |X| Non-accelerated filer |_|
The number of shares outstanding of each of the registrant's classes of common
stock, as of May 1, 2006: Common Stock, No Par Value: 11,606,699 shares
outstanding.
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INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements:
Condensed Consolidated Statements of Income 1
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statement of Cash Flows 3
Condensed Consolidated Statements of Capital Stock
and Long-term Debt 4
Notes to Unaudited Condensed Consolidated
Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures of Market Risk 17
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits 19
SIGNATURE 20
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
2006 2005
- -------------------------------------------------------------------------------
Operating Revenues $ 18,230,146 $ 16,742,903
- -------------------------------------------------------------------------------
Operating Expenses:
Operations 9,646,131 9,041,996
Maintenance 738,984 898,685
Depreciation 1,668,393 1,548,048
Other Taxes 2,203,453 2,083,134
- -------------------------------------------------------------------------------
Total Operating Expenses 14,256,961 13,571,863
- -------------------------------------------------------------------------------
Operating Income 3,973,185 3,171,040
- -------------------------------------------------------------------------------
Other Income:
Allowance for Funds Used During Construction 112,636 210,450
Other Income 57,938 55,219
Other Expense (1,739) (8,145)
- -------------------------------------------------------------------------------
Total Other Income, net 168,835 257,524
- -------------------------------------------------------------------------------
Income before Interest and Income Taxes 4,142,020 3,428,564
- -------------------------------------------------------------------------------
Interest Charges 1,514,998 1,382,092
- -------------------------------------------------------------------------------
Income before Income Taxes 2,627,022 2,046,472
- -------------------------------------------------------------------------------
Income Taxes 814,658 666,770
- -------------------------------------------------------------------------------
Net Income 1,812,364 1,379,702
Preferred Stock Dividend Requirements 61,947 63,697
Earnings Applicable to Common Stock $ 1,750,417 $ 1,316,005
===============================================================================
Earnings per share of Common Stock:
Basic $ 0.15 $ 0.12
Diluted $ 0.15 $ 0.12
Average Number of
Common Shares Outstanding :
Basic 11,593,624 11,367,475
Diluted 11,924,764 11,710,615
Cash Dividends Paid per Common Share $ 0.1700 $ 0.1675
See Notes to Condensed Consolidated Financial Statements.
1
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
ASSETS 2006 2005
- -----------------------------------------------------------------------------------------------------------
UTILITY PLANT: Water Production $ 91,692,824 $ 91,403,549
Transmission and Distribution 220,761,183 217,098,466
General 23,547,020 23,292,087
Construction Work in Progress 7,304,562 6,127,634
------------------------------------------------------------------------------------
TOTAL 343,305,589 337,921,736
Less Accumulated Depreciation 56,156,803 54,960,290
------------------------------------------------------------------------------------
UTILITY PLANT - NET 287,148,786 282,961,446
------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
CURRENT ASSETS: Cash and Cash Equivalents 3,298,887 2,983,762
Accounts Receivable, net 6,569,041 8,074,929
Unbilled Revenues 3,864,076 3,737,627
Materials and Supplies (at average cost) 1,369,592 1,259,935
Prepayments 625,289 927,254
------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 15,726,885 16,983,507
- -----------------------------------------------------------------------------------------------------------
DEFERRED CHARGES Unamortized Debt Expense 3,119,933 3,164,043
AND OTHER ASSETS: Preliminary Survey and Investigation Charges 2,349,116 1,774,817
Regulatory Assets 7,187,205 7,469,190
Restricted Cash 5,690,494 5,782,705
Non-utility Assets - Net 5,933,186 5,727,806
Other 616,343 519,610
------------------------------------------------------------------------------------
TOTAL DEFERRED CHARGES AND OTHER ASSETS 24,896,277 24,438,171
------------------------------------------------------------------------------------
TOTAL ASSETS $ 327,771,948 $ 324,383,124
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CAPITALIZATION AND LIABILITIES
- -----------------------------------------------------------------------------------------------------------
CAPITALIZATION: Common Stock, No Par Value $ 76,567,020 $ 76,160,949
Retained Earnings 23,418,420 23,638,301
Accumulated Other Comprehensive Loss, net of tax (206,702) (206,925)
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TOTAL COMMON EQUITY 99,778,738 99,592,325
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Preferred Stock 3,958,062 3,958,062
Long-term Debt 127,765,749 128,174,944
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TOTAL CAPITALIZATION 231,502,549 231,725,331
- -----------------------------------------------------------------------------------------------------------
CURRENT Current Portion of Long-term Debt 1,997,027 1,930,617
LIABILITIES: Notes Payable 7,200,000 4,000,000
Accounts Payable 4,099,816 6,038,060
Accrued Taxes 8,881,910 6,466,531
Accrued Interest 890,340 1,868,962
Unearned Revenues and Advanced Service Fees 506,594 473,627
Other 730,297 707,446
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TOTAL CURRENT LIABILITIES 24,305,984 21,485,243
- -----------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 6)
- -----------------------------------------------------------------------------------------------------------
DEFERRED CREDITS Customer Advances for Construction 16,881,788 17,180,962
AND OTHER LIABILITIES: Accumulated Deferred Investment Tax Credits 1,598,295 1,617,949
Accumulated Deferred Income Taxes 14,120,072 14,296,620
Employee Benefit Plans 6,919,550 6,650,724
Regulatory Liability - Cost of Utility Plant Removal 5,797,460 5,647,757
Other 778,106 793,857
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TOTAL DEFERRED CREDITS AND OTHER LIABILITIES 46,095,271 46,187,869
- -----------------------------------------------------------------------------------------------------------
CONTRIBUTIONS IN AID OF CONSTRUCTION 25,868,144 24,984,681
- -----------------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $ 327,771,948 $ 324,383,124
------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
2
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2006 2005
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,812,364 $ 1,379,702
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 1,865,274 1,720,355
Provision for Deferred Income Taxes and ITC (43,988) (25,049)
Allowance for Funds Used During Construction (112,636) (210,450)
Changes in Assets and Liabilities:
Accounts Receivable 1,505,888 235,720
Unbilled Revenues (126,449) (22,274)
Materials & Supplies (109,657) (94,930)
Prepayments 301,965 232,222
Other Assets (229,371) (28,823)
Accounts Payable (1,938,244) (1,686,994)
Accrued Taxes 2,415,265 1,915,449
Accrued Interest (978,622) (771,402)
Employee Benefit Plans 268,826 410,976
Unearned Revenue & Advanced Service Fees 32,967 8,678
Other Liabilities 7,100 (95,936)
- ----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,670,682 2,967,244
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (4,549,091) (4,192,222)
Cash Surrender Value & Other Investments (104,304) (85,936)
Restricted Cash 97,869 2,541,200
Preliminary Survey & Investigation Charges (574,299) (261,356)
- ----------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (5,129,825) (1,998,314)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (342,785) (210,575)
Proceeds from Issuance of Long-term Debt -- 335,646
Net Short-term Bank Borrowings (Repayments) 3,200,000 (1,500,000)
Deferred Debt Issuance Expenses -- (7,500)
Restricted Cash (5,658) --
Proceeds from Issuance of Common Stock 406,071 389,296
Payment of Common Dividends (1,970,298) (1,903,493)
Payment of Preferred Dividends (61,947) (63,697)
Construction Advances and Contributions-Net (451,115) (304,189)
- ----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 774,268 (3,264,512)
- ----------------------------------------------------------------------------------------------------
NET CHANGES IN CASH AND CASH EQUIVALENTS 315,125 (2,295,582)
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,983,762 4,034,768
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,298,887 $ 1,739,186
- ----------------------------------------------------------------------------------------------------
*Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
Utility Plant received as Construction Advances and Contributions $ 1,035,405 $ 332,600
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest $ 2,561,563 $ 2,111,221
Interest Capitalized $ (112,636) $ (210,450)
Income Taxes $ 100,000 $ 300,000
- ----------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
3
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CAPITAL STOCK
AND LONG-TERM DEBT
(Unaudited)
March 31, December 31,
2006 2005
- -----------------------------------------------------------------------------------------------------
Common Stock, No Par Value
Shares Authorized - 20,000,000
Shares Outstanding - 2006 - 11,603,238 $ 76,567,020 $ 76,160,949
2005 - 11,584,499
Retained Earnings 23,418,420 23,638,301
Accumulated Other Comprehensive Loss, net of tax (206,702) (206,925)
- -----------------------------------------------------------------------------------------------------
TOTAL COMMON EQUITY $ 99,778,738 $ 99,592,325
- -----------------------------------------------------------------------------------------------------
Cumulative Preference Stock, No Par Value:
Shares Authorized - 100,000
Shares Outstanding - None
Cumulative Preferred Stock, No Par Value
Shares Authorized - 139,497
Convertible:
Shares Outstanding, $7.00 Series - 13,881 $ 1,457,505 $ 1,457,505
Shares Outstanding, $8.00 Series - 12,000 1,398,857 1,398,857
Nonredeemable:
Shares Outstanding, $7.00 Series - 1,017 101,700 101,700
Shares Outstanding, $4.75 Series - 10,000 1,000,000 1,000,000
- -----------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK $ 3,958,062 $ 3,958,062
- -----------------------------------------------------------------------------------------------------
Long-term Debt
8.05%, Amortizing Secured Note, due December 20, 2021 $ 2,962,237 $ 2,983,384
6.25%, Amortizing Secured Note, due May 22, 2028 9,310,000 9,415,000
6.44%, Amortizing Secured Note, due August 25, 2030 6,836,667 6,906,667
6.46%, Amortizing Secured Note, due September 19, 2031 7,000,000 7,000,000
4.22%, State Revolving Trust Note, due December 31, 2022 754,164 754,164
3.30% to 3.60%, State Revolving Trust Note, due May 1, 2025 3,018,254 3,018,254
3.49%, State Revolving Trust Note, due January 25, 2027 278,144 278,144
4.00% to 5.00%, State Revolving Trust Bond, due September 1, 2021 760,000 760,000
0.00%, State Revolving Fund Bond, due September 1, 2021 604,038 614,436
First Mortgage Bonds:
5.20%, Series S, due October 1, 2022 12,000,000 12,000,000
5.25%, Series T, due October 1, 2023 6,500,000 6,500,000
6.40%, Series U, due February 1, 2009 15,000,000 15,000,000
5.25%, Series V, due February 1, 2029 10,000,000 10,000,000
5.35%, Series W, due February 1, 2038 23,000,000 23,000,000
0.00%, Series X, due September 1, 2018 688,524 700,280
4.25% to 4.63%, Series Y, due September 1, 2018 870,000 870,000
0.00%, Series Z, due September 1, 2019 1,539,390 1,567,367
5.25% to 5.75%, Series AA, due September 1, 2019 1,990,000 1,990,000
0.00%, Series BB, due September 1, 2021 1,894,335 1,926,956
4.00% to 5.00%, Series CC, due September 1, 2021 2,185,000 2,185,000
5.10%, Series DD, due January 1, 2032 6,000,000 6,000,000
0.00%, Series EE, due September 1, 2024 7,652,023 7,715,909
3.00% to 5.50%, Series FF, due September 1, 2024 8,920,000 8,920,000
- -----------------------------------------------------------------------------------------------------
SUBTOTAL LONG-TERM DEBT 129,762,776 130,105,561
- -----------------------------------------------------------------------------------------------------
Less: Current Portion of Long-term Debt (1,997,027) (1,930,617)
- -----------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 127,765,749 $ 128,174,944
- -----------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
4
MIDDLESEX WATER COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Organization - Middlesex Water Company (Middlesex or the Company) is the parent
company and sole shareholder of Tidewater Utilities, Inc. (Tidewater), Tidewater
Environmental Services, Inc. (TESI), Pinelands Water Company (Pinelands Water)
and Pinelands Wastewater Company (Pinelands Wastewater) (collectively,
Pinelands), Utility Service Affiliates, Inc. (USA), and Utility Service
Affiliates (Perth Amboy) Inc. (USA-PA). On January 1, 2006, the Company's
Bayview Water Company subsidiary was merged into Middlesex. Southern Shores
Water Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc.
(White Marsh) are wholly-owned subsidiaries of Tidewater. The financial
statements for Middlesex and its wholly-owned subsidiaries (the Company) are
reported on a consolidated basis. All significant intercompany accounts and
transactions have been eliminated.
The consolidated notes within the 2005 Form 10-K are applicable to these
financial statements and, in the opinion of the Company, the accompanying
unaudited condensed consolidated financial statements contain all adjustments
necessary (including normal recurring accruals) to present fairly the financial
position as of March 31, 2006 and the results of operations for the three month
periods ended March 31, 2006 and 2005, and cash flows for the three month
periods ended March 31, 2006 and 2005. Information included in the Balance Sheet
as of December 31, 2005, has been derived from the Company's audited financial
statements for the year ended December 31, 2005.
Certain reclassifications have been made to the prior year financial statements
to conform with the current period presentation.
Recent Accounting Pronouncements - In May 2005, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No.154, "Accounting Changes and Error Corrections" (SFAS 154), which requires
retrospective application to prior periods' financial statements of voluntary
changes in accounting principles unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change. SFAS 154
makes a distinction between "retrospective application" of an accounting
principle and the "restatement" of financial statements to reflect the
correction of an error. SFAS 154 replaces Accounting Principles Bulletin (APB)
No. 20, "Accounting Changes" (APB 20), and SFAS No. 3, Reporting Accounting
Changes in Interim Financial Statements. APB 20 previously required that most
voluntary changes in accounting principles be recognized by including the
cumulative effect of changing to the new accounting principle in the net income
of the period of the change. SFAS 154 requires that a change in depreciation,
amortization or depletion method for long-lived non-financial assets be
accounted for as a change in accounting estimate affected by a change in
accounting principle, whereas APB 20 had required accounting for such a change
as a change in accounting principle. SFAS 154 carries forward the guidance in
APB 20 for reporting the correction of an error in previously issued financial
statements and a change in accounting estimate as well as the requirement for
justifying a change in accounting principle on the basis of a preference. This
statement is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005 (January 1, 2006 for the
Company).
In December 2004, the FASB issued SFAS No.123(R), "Share-Based Payment" (SFAS
123(R)), which replaces SFAS No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123), and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees". SFAS 123(R) requires that the cost resulting from all share-based
payment transactions be recognized in the financial statements. The Statement
also establishes fair
5
value as the measurement objective in accounting for share-based payment
arrangements and requires all entities to apply a fair-value-based measurement
method in accounting for share-based payment transactions with employees, except
for equity instruments held by employee share ownership plans. This statement
was originally effective for quarters beginning after June 15, 2005, however on
April 14, 2005, the Securities and Exchange Commission adopted a rule which
makes the provisions of SFAS 123(R) effective for the first annual reporting
period beginning after June 15, 2005 (January 1, 2006 for the Company). The
Company previously recognized compensation expense at fair value for stock-based
payment awards in accordance with SFAS 123 and the adoption of this standard did
not have a material impact on the Company's financial position, results of
operations, or cash flows.
In November 2005, the FASB issued FASB Staff Position (FSP) FAS115-1/124-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments," which addresses the determination as to when an investment is
considered impaired, whether that impairment is other than temporary, and the
measurement of an impairment loss. This FSP also includes accounting
considerations subsequent to the recognition of another-than-temporary
impairment and requires certain disclosures about unrealized losses that have
not been recognized as other-than-temporary impairments. The guidance in this
FSP amends FASB Statements No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," and No. 124, "Accounting for Certain Investments Held by
Not-for-Profit Organizations," and APB Opinion No. 18, "The Equity Method of
Accounting for Investments in Common Stock." The FSP was effective for
accounting for reporting periods beginning after December 15, 2005 (January 1,
2006 for the Company). The adoption of this FSP had no impact on the Company's
financial position, results of operations, or cash flows.
Rate Matters - On April 28, 2006, Tidewater filed for a $5.5 million, or 38.6%,
base rate increase with the Delaware Public Service Commission (PSC). The
requested increase is intended to recover increased costs of operations,
maintenance and taxes, as well as capital investment of approximately $23.8
million since March 2005. We cannot predict whether the PSC will ultimately
approve, deny, or reduce the amount of our request. Concurrent with the rate
increase filing, Tidewater also submitted a request for a 15% interim rate
increase subject to refund. Under PSC regulations, interim rates may go into
effect 60 days after the initial request is submitted.
Effective April 13, 2006, Pinelands Water and Pinelands Wastewater received
approval from the New Jersey Board of Public Utilities (BPU) for base rate
increases of 7.02% and 0.98%, respectively. This increase represents a total
base rate increase of approximately $0.1 million for Pinelands to help offset
the increased costs associated with capital improvements, and the operation and
maintenance of their systems.
In accordance with the tariff established for Southern Shores, an annual rate
increase of 3% was implemented on January 1, 2006. Under the terms of a contract
with Southern Shores Homeowners Association, the increase cannot exceed the
lesser of the regional Consumer Price Index or 3%. The rates are set to expire
on December 31, 2006, and the Company is currently negotiating a new agreement.
Stock Based Compensation - The Company recognizes compensation expense at fair
value for its restricted stock awards in accordance with SFAS 123(R). As
discussed in Note 1, SFAS 123(R) the adoption of this standard did not have a
material impact on the Company's financial position, results of operations, or
cash flows.
The Company maintains a Restricted Stock Plan, under which 56,067 shares of the
Company's common stock are held in escrow by the Company as of March 31, 2006
for key employees. Such stock is subject to an agreement requiring forfeiture by
the employee in the event of termination of employment within five years of
6
the award other than as a result of retirement, death, disability or change in
control. The maximum number of shares authorized for grant under this plan is
240,000 shares. There were no grants, vesting or forfeitures of restricted stock
during the three months ended March 31, 2006.
Compensation expense is determined by the market value of the stock on the date
of the award and is being amortized over a five-year period. Compensation
expense for the three months ended March 31, 2006 and 2005 was $0.1 million.
Total unearned compensation related to restricted stock was $0.6 million at
March 31, 2006.
Note 2 - Capitalization
Common Stock -During the three months ended March 31, 2006, there were 18,739
common shares (approximately $0.4 million) issued under the Company's Dividend
Reinvestment and Common Stock Purchase Plan.
Long-term Debt - Middlesex filed an application with the BPU seeking approval to
issue up to $4.0 million of first mortgage bonds through the New Jersey
Environmental Infrastructure Trust under the New Jersey State Revolving Fund
(SRF) program. If approved by the BPU, the Company expects to close on the bonds
in November 2006.
On April 25, 2006, Tidewater received approval from the PSC to borrow up to $1.0
million under the Delaware SRF program. The Delaware SRF program allows, but
does not obligate, Tidewater to draw against a General Obligation Note for a
specific project over a two-year period ending in April 2008. The interest rate
is set on the loan closing date and is based on 62.5% of the interest rate for a
10+ year high quality corporate bond. The Company expects to close on the loan
during May 2006.
Note 3 - Earnings Per Share
Basic earnings per share (EPS) are computed on the basis of the weighted average
number of shares outstanding. Diluted EPS assumes the conversion of both the
Convertible Preferred Stock $7.00 Series and the Convertible Preferred Stock
$8.00 Series.
(In Thousands Except for per Share Amounts)
Three Months Ended March 31,
Weighted Weighted
2006 Average 2005 Average
Basic: Income Shares Income Shares
- ------------------------------------------------------------------------------
Net Income $ 1,812 11,593 $ 1,380 11,367
Preferred Dividend (62) (64)
------- ------- ------- -------
Earnings Applicable to Common Stock $ 1,750 11,593 $ 1,316 11,367
Basic EPS $ 0.15 $ 0.12
- ------------------------------------------------------------------------------
Diluted:
- ------------------------------------------------------------------------------
Earnings Applicable to Common Stock $ 1,750 11,593 $ 1,316 11,367
$7.00 Series Preferred Dividend 24 167 26 179
$8.00 Series Preferred Dividend 24 164 24 164
------- ------- ------- -------
Adjusted Earnings Applicable to
Common Stock $ 1,798 11,924 $ 1,366 11,710
Diluted EPS $ 0.15 $ 0.12
7
Note 4 - 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 the
operations of a regulated wastewater system in New Jersey. 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 services within these States.
The other segment primarily includes non-regulated contract services for the
operation and maintenance of municipal and private water and wastewater systems
in New Jersey and Delaware. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies in the
Consolidated Notes to the Financial Statements in the Company's Annual Report
for the period ended December 31, 2005 filed on Form 10-K. 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. These
inter-segment transactions are eliminated in the Company's consolidated
financial statements.
(Dollars in Thousands)
Three Months Ended
March 31,
Operations by Segments: 2006 2005
- --------------------------------------------------------------------------------
Revenues:
Regulated $ 16,001 $ 14,759
Non - Regulated 2,259 2,014
Inter-segment Elimination (30) (30)
--------------------------
Consolidated Revenues $ 18,230 $ 16,743
--------------------------
Operating Income:
Regulated $ 3,703 $ 2,963
Non - Regulated 270 208
--------------------------
Consolidated Operating Income $ 3,973 $ 3,171
--------------------------
Net Income:
Regulated $ 1,666 $ 1,273
Non - Regulated 146 107
--------------------------
Consolidated Net Income $ 1,812 $ 1,380
--------------------------
Capital Expenditures:
Regulated $ 4,531 $ 4,133
Non - Regulated 18 59
--------------------------
Total Capital Expenditures $ 4,549 $ 4,192
--------------------------
As of As of
March 31,2006 December 31,2005
------------- ----------------
Assets:
Regulated $324,787 $320,889
Non - Regulated 5,549 5,912
Inter-segment Elimination (2,564) (2,418)
--------------------------
Consolidated Assets $327,772 $324,383
--------------------------
8
Note 5 - Short-term Borrowings
As of March 31, 2006, the Company has established lines of credit aggregating
$40.0 million. At March 31, 2006, the outstanding borrowings under these credit
lines were $7.2 million at a weighted average interest rate of 5.24%. As of that
date, the Company had borrowing capacity of $32.8 million under its credit
lines.
The weighted average daily amounts of borrowings outstanding under the Company's
credit lines and the weighted average interest rates on those amounts were $5.9
million and $10.4 million at 5.59% and 3.85% for the three months ended March
31, 2006 and 2005, respectively.
Note 6 - Commitments and Contingent Liabilities
Guarantees - USA-PA operates the City of Perth Amboy's (Perth Amboy) water and
wastewater systems under a service contract agreement through June 30, 2018. The
agreement was effected under New Jersey's Water Supply Public/Private
Contracting Act and the New Jersey Wastewater Public/Private Contracting Act.
Under the agreement, USA-PA receives a fixed fee and a variable fee based on
increased system billing. Scheduled fixed fee payments for 2006 are $7.6
million. The fixed fees will increase over the term of the contract to $10.2
million.
In connection with the agreement, Perth Amboy, through the Middlesex County
Improvement Authority, issued approximately $68.0 million in three series of
bonds. Middlesex guaranteed one of those series of bonds, designated the Series
C Serial Bonds, in the principal amount of approximately $26.3 million. Perth
Amboy guaranteed the two other series of bonds. The Series C Serial Bonds have
various maturity dates with the final maturity date on September 1, 2015. As of
March 31, 2006, approximately $23.9 million of the Series C Serial Bonds
remained outstanding.
We are obligated to perform under the guarantee in the event notice is received
from the Series C Serial Bonds trustee of an impending debt service deficiency.
If Middlesex funds any debt service obligations as guarantor, there is a
provision in the agreement that requires Perth Amboy to reimburse us. There are
other provisions in the agreement that we believe make it unlikely that we will
be required to perform under the guarantee, such as scheduled annual rate
increases for water and wastewater services as well as rate increases due to
unforeseen circumstances. In the event revenues from customers could not satisfy
the reimbursement requirements, Perth Amboy has Ad Valorem taxing powers, which
could be used to raise the needed amount.
Water Supply - Middlesex has an agreement with the New Jersey Water Supply
Authority (NJWSA) for the purchase of untreated water through November 30, 2023,
which provides for an average purchase of 27 million gallons per 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 regulated water utility
for the purchase of treated water. This agreement, which expires February 27,
2011, provides for the minimum purchase of 3 mgd of treated water with
provisions for additional purchases.
9
Purchased water costs are shown below:
(Millions of Dollars)
Three Months Ended March 31,
Purchased Water 2006 2005
-------------------- ------- -------
Untreated $ 0.6 $ 0.6
Treated 0.4 0.4
------- -------
Total Costs $ 1.0 $ 1.0
======= =======
Construction - The Company expects to spend approximately $44.5 million on its
construction program in 2006.
Litigation - A lawsuit was filed in 1998 against the Company by an electric
utility for damages involving the break of both a Company water line and an
underground electric power cable containing both electric lines and petroleum
based insulating fluid. The electric utility also asserted claims against the
Company. The lawsuit was settled in 2003, and by agreement, the electric
utility's counterclaim for approximately $1.1 million in damages was submitted
to binding arbitration, in which the agreed maximum exposure of the Company is
$0.3 million, for which the Company has accrued a liability. While we are unable
to predict the outcome of the arbitration, we believe that we have substantial
defenses.
During 2005, the Office of State Fire Marshal in Delaware issued a Notice of
Violation (NOV) to Tidewater regarding a plan of correction to provide fire
protection services to one of Tidewater's community water systems, based upon a
recent interpretation by the Fire Marshal of regulations that have been
effective since 1989. Tidewater has appealed this NOV in the Superior Court of
the State of Delaware on the grounds that the water system was grandfathered
under the 1989 regulations and that due process had not been served in the
application of the recent interpretation. It is the Company's position that
Tidewater is not required to provide fire protection service to that water
system. If Tidewater is not successful in its appeal, it would be required to
install a fire protection system in this community at an estimated capital cost
of $0.9 million to $1.6 million. If the Company is unsuccessful in its appeal,
we cannot predict what further actions, if any, or the costs or timing thereof,
may be taken by the Fire Marshal regarding over 60 of Tidewater's other
community water systems. However, such amounts could be material. The Company
believes that any capital investments resulting from an unfavorable outcome
would be a component of Tidewater's rate base and therefore, included in future
rates. While we are unable to predict the outcome of our appeal, we believe that
we have substantial defenses.
The Company is a defendant in various lawsuits in the normal course of business.
We believe the resolution of pending claims and legal proceedings will not have
a material adverse effect on the Company's consolidated financial statements.
Change in Control Agreements - The Company has Change in Control Agreements with
certain of its Officers that provide compensation and benefits in the event of
termination of employment in connection with a change in control of the Company.
Note 7 - Employee Retirement Benefit Plans
Pension - The Company has a noncontributory defined benefit pension plan, which
covers all employees with more than 1,000 hours of service. The Company expects
to make cash contributions of $1.2 million during the current year. These
contributions are expected to be made during the second quarter of 2006. In
addition, the Company maintains an unfunded supplemental pension plan for its
executives.
10
Postretirement Benefits Other Than Pensions - The Company maintains a
postretirement benefit plan other than pensions for substantially all of its
retired employees. Coverage includes healthcare and life insurance. Retiree
contributions are dependent on credited years of service. The Company expects to
make total cash contributions of $1.0 million during the current year. These
contributions are expected to be made each quarter during 2006.
The following table sets forth information relating to the Company's periodic
costs for its retirement plans.
(Dollars in Thousands)
Pension Benefits Other Benefits
---------------- --------------
Three Months Ended March 31,
2006 2005 2006 2005
--------------------------------
Service Cost $ 310 $ 264 $ 177 $ 126
Interest Cost 430 374 217 161
Expected Return on Assets (415) (384) (90) (66)
Amortization of Unrecognized Losses 57 3 129 82
Amortization of Unrecognized Prior Service Cost 1 23 -- --
Amortization of Transition Obligation -- -- 34 34
--------------------------------
Net Periodic Benefit Cost $ 383 $ 280 $ 467 $ 337
--------------------------------
Note 8 - Other Comprehensive Income
Comprehensive income was as follows:
Three Months Ended
March 31,
2006 2005
-------------------------
Net Income $ 1,812,364 $ 1,379,702
Other Comprehensive Income (Loss):
Change in Value of Equity Investments,
Net of Income Tax 223 (613)
-------------------------
Other Comprehensive Income 223 (613)
Comprehensive Income $ 1,812,587 $ 1,379,089
-------------------------
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements of the Company included
elsewhere herein and with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2005.
Forward-Looking Statements
Certain statements contained in this quarterly report are "forward-looking
statements" within the meaning of federal securities laws. The Company intends
that these statements be covered by the safe harbors created under those laws.
These statements include, but are not limited to:
- statements as to expected financial condition, performance,
prospects and earnings of the Company;
- statements regarding strategic plans for growth;
- statements regarding the amount and timing of rate increases and
other regulatory matters;
- statements regarding expectations and events concerning capital
expenditures;
- statements as to the Company's expected liquidity needs during
fiscal 2006 and beyond and statements as to the sources and
availability of funds to meet its liquidity needs;
- statements as to expected rates, consumption volumes, service fees,
revenues, margins, expenses and operating results;
- statements as to the Company's compliance with environmental laws
and regulations and estimations of the materiality of any related
costs;
- statements as to the safety and reliability of the Company's
equipment, facilities and operations;
- statements as to financial projections;
- statements as to the ability of the Company to pay dividends;
- statements as to the Company's plans to renew municipal franchises
and consents in the territories it serves;
- expectations as to the amount of cash contributions to fund the
Company's pension plan, including statements as to anticipated
discount rates and rates of return on plan assets;
- statements as to trends; and
- statements regarding 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:
- the effects of general economic conditions;
- increases in competition in the markets served by the Company;
- the ability of the Company to control operating expenses and to
achieve efficiencies in its operations;
- the availability of adequate supplies of water;
- actions taken by government regulators, including decisions on base
rate increase requests;
- new or additional water quality standards;
- weather variations and other natural phenomena;
- acts of war or terrorism; and
- other factors discussed elsewhere in this quarterly 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
12
Company's understanding as of the date of this quarterly 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 quarterly report or to reflect the occurrence of unanticipated events,
except as may be required under applicable securities laws.
For an additional discussion of factors that may affect the Company's business
and results of operations, see Item 1A. - Risk Factors in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2005.
Overview
The Company 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
residential, irrigation, commercial, municipal, industrial and fire protection
purposes. We also operate a New Jersey municipal water and wastewater system
under contract and provide wastewater services in New Jersey and Delaware
through our subsidiaries. We are regulated as to rates charged to customers for
water and wastewater services in New Jersey and Delaware, as to the quality of
water service we provide and as to certain other matters. Our USA, USA-PA and
White Marsh subsidiaries are not regulated utilities.
Our New Jersey water utility system (the Middlesex System) provides water
services to approximately 58,500 retail customers, primarily in central New
Jersey. The Middlesex System also provides water service under contract to
municipalities in central New Jersey with a total population of approximately
267,000. Through our subsidiary, USA-PA, we operate the water supply system and
wastewater collection system for the City of Perth Amboy, New Jersey. Pinelands
Water and Pinelands Wastewater provide water and wastewater services to
residents in Southampton Township, New Jersey.
Tidewater and Southern Shores provide water services to approximately 28,700
retail customers in New Castle, Kent, and Sussex Counties, Delaware. Our TESI
subsidiary provides service to approximately 30 residential retail customers.
White Marsh serves 4,000 residents under unregulated operating contracts with
various owners of small water and wastewater systems in Kent and Sussex
Counties.
Our USA subsidiary provides customers within the Middlesex System a service line
maintenance program called LineCareSM.
The majority of our revenue is generated from retail and contract water services
to customers in our service areas. We record water service revenue as such
service is rendered and include estimates for amounts unbilled at the end of the
period for services provided after the last billing cycle. Fixed service charges
are billed in advance by our subsidiary, Tidewater, and are recognized in
revenue as the service is provided.
Our ability to increase operating income and net income is based significantly
on four factors: weather, adequate and timely rate relief, effective cost
management, and customer growth. These factors are evident in the discussions
below which compare our results of operations with prior periods.
13
Recent Developments
Rate Increases
On April 28, 2006, Tidewater filed for a $5.5 million, or 38.6%, base rate
increase with the Delaware Public Service Commission (PSC) on April 28, 2006.
The requested increase is intended to recover increased costs of operations,
maintenance and taxes, as well as capital investment of approximately $23.8
million since March 2005. We cannot predict whether the PSC will ultimately
approve, deny, or reduce the amount of our request. Concurrent with the rate
increase filing, Tidewater also submitted a request for a 15% interim rate
increase subject to refund. Under PSC regulations, interim rates may go into
effect 60 days after the initial request is submitted.
Effective April 13, 2006, Pinelands Water and Pinelands Wastewater received
approval from the BPU for base rate increases of 7.02% and 0.98%, respectively.
This increase represents a total base rate increase of approximately $0.1
million for Pinelands to help offset the increased costs associated with capital
improvements, and the operation and maintenance of their systems.
In accordance with the tariff established for Southern Shores, an annual rate
increase of 3% was implemented on January 1, 2006. Under the terms of a contract
with the Southern Shores Homeowners Association, the increase cannot exceed the
lesser of the regional Consumer Price Index or 3%. The rates are set to expire
on December 31, 2006, and the Company is currently negotiating a new agreement.
Merger of Bayview Water Company into Middlesex Water Company
In December 2005, the BPU approved a merger of Bayview into the Middlesex system
effective January 1, 2006. As part of the BPU's stipulation approving the
merger, the water service rates for the customers of Bayview are to remain at
their current levels until the water service rates for Middlesex customers
exceed the current Bayview rates.
Operating Results by Segment
The Company has two operating segments, Regulated and Non-Regulated. Our
Regulated segment contributed 88% of total revenues and 92% of net income for
the three months ended March 31, 2006 and 2005. The discussion of the Company's
results of operations is on a consolidated basis, and includes significant
factors by subsidiary. The segments in the tables included below are comprised
of the following companies: Regulated- Middlesex, Tidewater, Pinelands, Southern
Shores, and TESI; Non-Regulated- USA, USA-PA, and White Marsh.
14
Results of Operations - Three Months Ended March 31, 2006
(Thousands of Dollars)
Three Months Ended March 31,
2006 | 2005
---- | ----
Non- | Non-
Regulated Regulated Total | Regulated Regulated Total
--------- --------- ----- | --------- --------- -----
Revenues $ 16,001 $ 2,229 $ 18,230 | $ 14,759 $ 1,984 $ 16,743
Operations and maintenance expenses 8,512 1,873 10,385 | 8,247 1,694 9,941
Depreciation expense 1,641 27 1,668 | 1,527 21 1,548
Other taxes 2,145 59 2,204 | 2,022 61 2,083
---------------------------------------------------------------------
Operating income 3,703 270 3,973 | 2,963 208 3,171
---------------------------------------------------------------------
|
Other income 169 -- 169 | 258 -- 258
Interest expense 1,488 27 1,515 | 1,359 23 1,382
Income taxes 718 97 815 | 589 78 667
---------------------------------------------------------------------
Net income $ 1,666 $ 146 $ 1,812 | $ 1,273 $ 107 $ 1,380
---------------------------------------------------------------------
Operating revenues for the three months ended March 31, 2006 increased $1.5
million or 8.9% from the same period in 2005. Water sales increased by $1.0
million in our New Jersey systems, which was primarily a result of base rate
increases. Revenues rose in our Delaware systems by $0.3 million. Customer
growth in Delaware provided additional water consumption sales, facility charges
and connection fees totaling $0.2 million. Base rate increases accounted for
$0.1 million of the increase. New unregulated wastewater contracts in Delaware
provided $0.1 million of additional revenues. USA's LineCareSM maintenance
program contributed an additional $0.1 million for new contracts sold since the
same period in 2005. Revenues for all of our other operations were consistent
with the same period in 2005.
While we anticipate continued organic customer and consumption growth in our
Delaware systems, such growth and increased consumption cannot be guaranteed.
Revenues from our water systems are highly dependent on the effects of weather,
which may adversely impact future consumption despite customer growth.
Appreciable organic customer and consumption growth is less likely in our New
Jersey systems due to the extent to which our service territory is developed.
Operation and maintenance expenses increased $0.4 million or 4.5%. Water
production and treatment costs for the Middlesex system increased $0.2 million.
This increase was offset by reduced payroll and benefits costs of $0.2 million
in New Jersey. In Delaware, insurance, legal fees, and additional employees and
related benefit expenses increased by $0.2 million. The costs of providing
services for new unregulated wastewater contracts increased by $0.1 million.
Costs for all of our other operations increased by $0.1 million.
We anticipate increases in electric generation costs beginning May 2006 in
Delaware due to deregulation of electricity. We expect our pension and
postretirement costs to increase in 2006. Payroll and related employee benefit
costs (excluding pension and postretirement expenses previously discussed) are
also expected to be higher in 2006.
Depreciation expense increased $0.1 million or 7.8%, primarily as a result of a
higher level of utility plant in service.
15
Other taxes increased by $0.1 million, reflecting higher taxes on taxable gross
revenues.
Other income decreased $0.1 million, primarily due to reduced AFUDC as a result
of the completion of a new $9.3 million raw water pipeline in New Jersey in
April 2005.
Interest expense increased by $0.1 million, primarily due to higher average
long-term borrowings as compared to the prior year period.
Higher income taxes of $0.1 million over the prior year are attributable to
improved operating results for 2006 as compared to 2005.
Net income increased by 31.3% to $1.8 million, and basic and diluted earnings
per share increased from $0.12 to $0.15.
Liquidity and Capital Resources
Cash flows from operations are largely dependent on three factors: the impact of
weather on water sales, adequate and timely rate increases, and customer growth.
The effect of those factors on net income is discussed in results of operations.
For the three months ended March 31, 2006, cash flows from operating activities
were $4.7 million, which was $1.7 million higher than the prior year. This
increase was attributable to the timing of collection of customer accounts and
payments for taxes. These increases were partially offset by the timing of
payments to vendors and payments of interest. The $4.7 million of net cash flow
from operations allowed us to fund all of our utility plant expenditures
internally for the period.
The Company's capital program for 2006 is estimated to be $44.5 million and
includes $20.2 million for additions and improvements to our Delaware water
systems, including the construction of several storage tanks and the creation of
new wells and interconnections. We expect to spend approximately $13.9 million
for system additions and acquisitions for our Delaware wastewater systems. We
expect to spend $3.3 million for the RENEW program, to clean and cement line
approximately nine miles of unlined mains in the Middlesex system. There remains
a total of approximately 120 miles of unlined mains in the 730-mile Middlesex
system. The capital program also includes $7.1 million for scheduled upgrades to
facilities in New Jersey. These upgrades consist of $1.4 million for
improvements to existing plant, $1.0 million for mains, $0.8 million for service
lines, $0.4 million for meters, $0.3 million for hydrants, and $3.2 million for
other infrastructure needs.
To fund our capital program in 2006, we will utilize internally generated funds
and funds available under existing New Jersey Environmental Infrastructure Trust
(NJEIT) loans (currently, $4.1 million) and Delaware State Revolving Fund (SRF)
loans (currently, $2.9 million), which provide low cost financing for projects
that meet certain water quality and system improvement benchmarks. We will also
utilize short-term borrowings through $40.0 million of available lines of credit
with several financial institutions. As of March 31, 2006, $7.2 million was
outstanding against the lines of credit.
Middlesex filed an application with the BPU seeking approval to issue up to $4.0
million of first mortgage bonds through the NJEIT. If approved by the BPU, the
Company expects to close on the bonds in November 2006.
On April 25, 2006, Tidewater received approval from the PSC to borrow up to $1.0
million under the Delaware SRF program. The Delaware SRF program allows, but
does not obligate, Tidewater to draw against a General Obligation Note for a
specific project over a two-year period ending in April 2008. The interest rate
is set on the
16
loan closing date and is based on 62.5% of the interest rate for a 10+ year high
quality corporate bond. The Company expects to close on the loan during May
2006.
The Company periodically issues shares of common stock in connection with its
dividend reinvestment and stock purchase plan. From time to time, the Company
may issue additional equity to reduce short-term indebtedness, align its capital
structure with utility commission guidelines, and for other general corporate
purposes.
Going forward into 2007 through 2008, we currently project that we will be
required to expend approximately $112.2 million for capital projects. To the
extent possible and because of the favorable interest rates available to
regulated water utilities, we will finance our capital expenditures under SRF
loan programs. We also expect to use internally generated funds and proceeds
from the sale of common stock through the Dividend Reinvestment and Common Stock
Purchase Plan. We also expect to sell shares of our common stock through a
public offering in late 2006 or early 2007.
In addition to the effect of weather conditions on revenues, increases in
certain operating costs will impact our liquidity and capital resources. As
described in our overview section, we have recently received rate relief for
Middlesex and Pinelands. Changes in operating costs and timing of capital
projects will have an impact on revenues, earnings, and cash flows and will also
impact the timing of filings for future rate increases.
Recent Accounting Pronouncements - See Note 1 of the Notes to Unaudited
Condensed Consolidated Financial Statements for a discussion of recent
accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures of Market Risk
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. Our capital program is partially financed with fixed rate,
long-term debt and, to a lesser extent, short-term debt. The Company's interest
rate risk related to existing fixed rate, long-term debt is not material due to
the term of the majority of our Amortizing Secured Notes and First Mortgage
Bonds, which have maturity dates ranging from 2009 to 2038. Over the next twelve
months, approximately $2.0 million of the current portion of fifteen existing
long-term debt instruments will mature. Applying a hypothetical change in the
rate of interest of 10% on those borrowings would not have a material effect on
earnings.
Item 4. Controls and Procedures
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. Based upon that evaluation, the Company's
Chief Executive Officer and the Company's Chief Financial Officer concluded that
the Company's disclosure controls and procedures are effective as of the end of
the period covered by this Report. There have been no significant changes in the
Company's internal controls or in other factors, which could significantly
affect internal controls during the quarter ended March 31, 2006.
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
17
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the Company's Annual Report on Form 10-K for the year ended
December 31, 2005.
Item 1A. Risk Factors
Information about risk factors for the three months ended March 31, 2006 does
not differ materially from those set forth in Part I, Item 1A. of the Company's
Annual Report on Form 10-K for the year ended December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
18
Item 6. Exhibits
10 Copy of Water Service Agreement between the Company and Elizabethtown
Water Company, dated February 28, 2006.
10.1 Copy of amended Supply Agreement, dated as of January 1, 2006, between
the Company and the Borough of Highland Park.
10.2 Copy of Supply Agreement, dated as of April 1, 2006, between the
Company and the City of Rahway.
31 Section 302 Certification by Dennis W. Doll pursuant to Rules 13a-14
and 15d-14 of the Securities Exchange Act of 1934.
31.1 Section 302 Certification by A. Bruce O'Connor pursuant to Rules 13a-14
and 15d-14 of the Securities Exchange Act of 1934.
32 Section 906 Certification by Dennis W. Doll pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Section 906 Certification by A. Bruce O'Connor pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MIDDLESEX WATER COMPANY
By: /s/ A. Bruce O'Connor
---------------------
A. Bruce O'Connor
Vice President and
Chief Financial Officer
Date: May 8, 2006
20
Exhibit 10
WATER SERVICE AGREEMENT
BETWEEN
MIDDLESEX WATER COMPANY
AND
ELIZABETHTOWN WATER COMPANY
THIS AGREEMENT made this 28th day of February, 2006,
BETWEEN
ELIZABETHTOWN WATER COMPANY, a public utility and corporation organized
under the laws of the State of New Jersey, with its principal office
131 Woodcrest Road, Cherry Hill, County of Camden, State of New Jersey,
hereinafter referred to as "ELIZABETHTOWN,"
AND
MIDDLESEX WATER COMPANY, a public utility and corporation organized
under the laws of the State of New Jersey, with its office 1500 Ronson
Road, Iselin, Woodbridge Township, County of Middlesex, State of New
Jersey,
hereinafter referred to as "MIDDLESEX,"
WHEREAS, MIDDLESEX desires to obtain an additional supply of potable
water for its use and for that of its customers; and
WHEREAS, ELIZABETHTOWN has a Rate Schedule No. 8, "Service to Other
Systems Under Contract," filed under authority of the New Jersey Board of Public
Utilities, and MIDDLESEX desires to obtain a supply of water under that rate
schedule and subject to its provisions, as may be amended and supplemented under
approval of the New Jersey Board of Public Utilities; and
WHEREAS, ELIZABETHTOWN and MIDDLESEX presently have an Agreement for
water supply dated April 28, 1995 as extended by agreement dated December 21,
2005, and the parties desire to have this Agreement supersede the said extended
Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein, it is agreed by the parties hereto as follows:
1. Effective upon the execution of this Agreement, ELIZABETHTOWN agrees
to sell, deliver and transport to MIDDLESEX 3,000,000 gallons of potable water
per day and MIDDLESEX agrees to accept and pay for a minimum daily quantity of
water in the amount of 3,000,000 gallons per day (MGD) from the water sources
and supplies of ELJZABETHTOWN at the rate set forth in Rate Schedule No. 8,
"Service to Other Systems Under Contract," and subject to its provisions as they
may be amended and supplemented under approval of the New Jersey Board of Public
Utilities.
If available in ELIZABETHTOWN's reasonable determination, ELIZABETHTOWN
will allow MIDDLESEX to take, on an as needed basis, as much water as
ELIZABETHTOWN is capable of providing without affecting the minimum daily
quantity requirement.
2. The initial obligation of both parties to perform in accordance with
the terms and conditions of this contract shall begin upon the date of signing
this contract and expire five (5) years from said date, provided that this
agreement shall renew for additional five (5) year periods unless either party
gives notice to the other no later than one (1) year before the end of the then
current term.
3. All water supplied to MIDDLESEX by ELIZABETHTOWN shall be metered by
meters owned and maintained by ELIZABETHTOWN, at the existing meter station
commonly known as Tingley Lane, and such other locations as may be agreed upon
by the parties.
4. Where the words "daily" is used in this Agreement, it shall refer to
the 24-hour period between daily meter readings. Meter readings shall be taken
daily when feasible, and if not, the meter readings shall be averaged over a
weekly or monthly period to arrive at an average daily quantity of water
delivered.
5. In the event that the total daily quantity of water delivered by
ELIZABETHTOWN exceeds 3,000,000 gallons per day, such excess quantity of water
shall be paid for at the rate set forth in Rate Schedule No. 8, "Service to
Other Systems Under Contract."
6. The parties hereby agree that the agreed upon minimum daily quantity
of water shall not be decreased during the term of this Agreement.
7. All water supplied and delivered to MIDDLESEX pursuant to this
Agreement will comply with all primary Federal and State Safe Drinking Water Act
requirements. ELIZABETHTOWN will provide notice to MIDDLESEX of any violation in
the water supplied to MIDDLESEX of the Maximum Contamination Levels, as required
in the Federal and State Safe Drinking Water Acts. ELIZABETHTOWN will provide to
MIDDLESEX a copy of New Jersey Department of Environmental Protection Safe
Drinking Water Act Water Quality Reports for the ELIZABETHTOWN supply.
8. ELIZABETHTOWN agrees to provide a continuous, regular and
uninterrupted transmission of water, subject to the terms of this Agreement, and
subject further to interruptions by reasons of an Act of God, strike, State or
Municipal interference or other causes beyond its control. In such event,
ELIZABETHTOWN shall not be liable to MIDDLESEX for damages by reason of
interruptions in supply of water to MIDDLESEX or its customers as a result of
such interruptions unless the same arises out of any gross negligence, breach of
warranty or other breach of duty by ELIZABETHTOWN.
ELIZABETHTOWN agrees to excuse payment obligations of MIDDLESEX if, by
reason of an Act of God, strike, State or Municipal interference or other causes
outside either party's control, there is a disruption of water being transmitted
to MIDDLESEX by ELIZABETHTOWN.
9. MIDDLESEX shall completely indemnify, protect and save harmless
ELIZABETHTOWN from any and all costs, expenses, including legal fees,
liabilities, losses, claims, suits and proceedings of whatsoever nature arising
out of any negligence, breach of warranty or other breach of duty by MIDDLESEX
in relation to the obligations contained herein.
10. ELIZABETHTOWN shall completely indemnify, protect and save harmless
MIDDLESEX from any and all costs, expenses, including legal fees, liabilities,
losses, claims, suits and proceedings of whatsoever nature arising out of any
negligence, breach of warranty or other breach of duty by ELIZABETHTOWN in
relation to the obligations contained herein.
11. ELIZABETHTOWN and MIDDLESEX hereby release the other from all
claims, liability and performance under the aforesaid contract dated April 28,
1995 as extended by agreement on December 21, 2005, unless such claims or
liability shall have accrued by the effective date of this Agreement.
12. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New Jersey.
13. This Agreement shall be filed with the Board of Public Utilities of
the State of New Jersey and approved by the Department of Environmental
Protection of the State of New Jersey, as required.
IN WITNESS WHEREOF, the ELIZABETHTOWN WATER COMPANY has caused these
presents to be signed by its Vice President and its corporate seal to be affixed
hereto and attested by its Secretary, and the MIDDLESEX WATER COMPANY, in the
County of Middlesex, has caused these presents to be signed by its President and
its corporate seal to be affixed hereto and attested by its Secretary, the day
and year first written above.
(SEAL) ELIZABETHTOWN WATER COMPANY
ATTEST: By: /s/ Wayne Morgan
----------------
Wayne Morgan
Vice President- Service Delivery
/s/ Jordan S. Mersky
- --------------------
Jordan S. Mersky
Assistant Secretary
(SEAL) MIDDLESEX WATER COMPANY
ATTEST: By: /s/ Dennis W. Doll
------------------
Dennis W. Doll
President
/s/ Kenneth J. Quinn
- --------------------
Secretary
Exhibit 10.1
AGREEMENT
FOR A SUPPLY OF WATER
BY
MIDDLESEX WATER COMPANY
TO THE
BOROUGH OF HIGHLAND PARK
----------------------------
Dated as of January 1, 2006
----------------------------
This Agreement (hereinafter referred to as the "Agreement") made as of
this 1st day of January 2006 between:
MIDDLESEX WATER COMPANY, a public utility and corporation
organized under the laws of the State of New Jersey, with
offices at 1500 Ronson Road, Iselin, New Jersey (hereinafter
referred to as "Middlesex"),
and the
BOROUGH OF HIGHLAND PARK, a municipal corporation of the State
of New Jersey (hereinafter referred to as "Highland Park").
W I T N E S S E T H:
WHEREAS, Middlesex owns and operates a public water supply system; and
WHEREAS, Highland Park has requested that Middlesex provide it with
additional supplies of water for private and public use; and
WHEREAS, the parties intend that their Agreement for a Supply of Water,
dated as of October 24, 1995, as amended, is to be superseded by this new
Agreement;
Now therefore, in consideration of the premises and of the mutual
covenants herein contained, the parties agree that:
2
1. Supply of Water.
Middlesex agrees to supply Highland Park with water upon the terms and
conditions set forth herein.
2. Term.
This Agreement shall be binding upon execution by both parties. Service
under this Agreement shall begin on or about January 1, 2006, and service under
this Agreement shall terminate on December 31, 2016. However, the terms of the
Agreement shall remain in effect after December 31, 2016 unless written notice
of intention to terminate the Agreement is given by either party at least thirty
(30) days prior to the end of such period. In the event that such notice has not
been given, the Agreement shall remain in effect until the earlier of (a)
renewal or modification of the Agreement by consent of both parties, or (b) a
date no less than ninety (90) days after the date that either party provides
written notification of termination.
3. Rate.
Highland Park shall pay for water delivered pursuant hereto at the rate
of $1,476.72 per million gallons according to Rate Schedule No. 5 or as said
rate may be changed from time to time with the approval of the Board of Public
Utilities of the State of New Jersey, or its successor agency, as required by
law (hereinafter referred to as the "Contract Rate").
3
4. Meter Stations/Delivery System.
Water to be supplied by Middlesex hereunder shall be delivered to
Highland Park through existing interconnections in Suttons Lane in Edison
adjacent to the railroad right of way, at Middlesex's Treatment Plant in Edison,
and through such other points of delivery as may be agreed to from time to time
by the parties (hereinafter referred to as the "Meter Stations"). The parties
agree that Middlesex may install one or more additional interconnections on a
large diameter transmission main (anticipated to be 36 or 42 inches in diameter)
planned for future construction by Middlesex and extending from Middlesex's
Treatment Plant in Edison, through the Borough of Highland Park, to a
transmission main or other facilities of Middlesex. Any additional
interconnections with the Borough of Highland Park would be installed by mutual
agreement. The general route for the Transmission Main is shown on Exhibit A.
(Said transmission main is hereinafter referred to as the "SRB Transmission
Main" or the "Transmission Main".) The SRB Transmission Main may be constructed
in phases.
The parties agree that Middlesex may proceed when it deems necessary
with the construction of the SRB Transmission Main. The construction of the SRB
Transmission Main and any service connections (and meter chambers) related to
the SRB Transmission Main shall be at the sole cost of Middlesex. Highland Park
agrees to cooperate and act in good faith in connection therewith and in
4
providing and obtaining necessary or desirable governmental approvals,
authorizations, rights of way and other actions. Highland Park agrees to grant
to Middlesex or to acquire for Middlesex, by purchase, condemnation, exchange or
otherwise, to the extent legally authorized, all lands, and/or easements in
Highland Park as are necessary or convenient for Middlesex's construction and
use of the SRB Transmission Main, and for any other mains, pipelines and
appurtenances necessary or convenient for water service to Highland Park with
all costs borne by Middlesex. Middlesex agrees to comply with reasonable
requirements of Highland Park for pavement and property restoration.
5. Meters, Services and Other Appurtenances.
Middlesex shall furnish, install and maintain at its own cost such
service connections and meters as agreed upon by both parties for connection to
Highland Park's water distribution system. The meters and service pipes shall
remain the property of Middlesex. Highland Park shall furnish, install and
maintain at its own cost all other piping, fittings, valves, meter pits or
vaults and appurtenances necessary to take water from Middlesex.
6. Exclusive Supplier.
The parties agree that during the term of this Agreement, Middlesex
shall be Highland Park's sole supplier of water. Except as provided in this
paragraph, Highland Park shall not purchase water from any other supplier in the
normal course of business. Highland Park shall have the right to purchase water
from
5
other sources in the event of an emergency or during any periods of time that
Middlesex is unable to supply water as provided in this Agreement.
7. Minimum Payment Obligation.
Highland Park shall be obligated to pay for the Daily Minimum quantity
of water. "Daily Minimum" shall mean either (a) one million two hundred thousand
(1.2 mgd) gallons of water a day, or (b) such greater amount as may be
established under paragraph 8 of this Agreement.
All water taken in any 24-hour period in excess of the Daily Minimum
shall be paid for at the Contract Rate.
8. Increase in Minimum Payment Obligation.
The total daily quantity of water taken by Highland Park at the Meter
Stations may exceed the Daily Minimum by up to 100% on a 24-hour basis without
affecting the minimum payment obligation.
The quantity of water supplied in the peak hour multiplied by 24 may
exceed the Daily Minimum by 200% without affecting the minimum payment
obligation.
If either the quantity of water taken in a 24-hour period shall exceed
the Daily Minimum by more than 100% or if the maximum hourly flow multiplied by
24 shall exceed the Daily Minimum by more than 200%, the Daily Minimum will be
increased to the greater of: (a) one-half of the daily quantity of water
supplied in the 24-hour period; or (b) one-third of the quantity supplied in the
peak hour
6
multiplied by 24. (For example, an existing Daily Minimum of 1.2 million gallons
per day ("mgd") will be increased if the quantity of water taken in any 24-hour
period exceeds 2.4 mgd, or if the quantity of water taken in any peak hour
multiplied by 24 exceeds 3.6 mgd.)
In no instance, and under no conditions, shall the daily quantity of
water supplied and purchased under this Agreement exceed 4.0 million gallons,
nor shall the maximum hourly flow multiplied by 24 exceed 5.0 million gallons
per day.
Any increased Daily Minimum payment obligation shall continue in effect
for 12 months unless increased again by an overrun. After this 12-month period
with the higher Daily Minimum in effect, the Daily Minimum shall revert to the
next lower minimum incurred during the four months preceding the end of such
12-month period and that amount shall continue as the Daily Minimum for 12
months unless increased again by an overrun.
9. Combined Charge.
The Daily Minimum payment obligation shall be determined on the basis
of the combined total daily quantity of water supplied through all the Meter
Stations.
10. Definitions.
Where the words "daily" or "24-hours" are used in this contract, they
shall refer to the 24-hour period between the daily meter readings.
7
11. Exceptions for Emergencies.
The Daily Minimum payment obligation shall not be affected in the event
that the amount of water supplied to Highland Park exceeds the daily or hourly
limitations established herein for not more than 24 hours in case of fire or
main break emergencies and for not more than five days in the case of other
catastrophes requiring an emergency supply of water, provided Middlesex is
promptly notified that any such emergency exists.
12. Meter Readings.
Middlesex will read the meters daily for all water supplied to Highland
Park at each connection then in operation.
13. Excused Performance.
Middlesex agrees to provide a continuous, regular and uninterrupted
supply of water, subject to interruptions by reasons of acts of God, accident,
strike, legal process, State or municipal interference or other cause beyond its
control, but shall not be liable for damages to Highland Park by reasons of
inadequate pressure or volume or failure to provide water for any cause
whatever.
14. Indemnification/Limitation of Liability.
Highland Park shall completely indemnify, protect and save harmless
Middlesex from any and all costs, expenses, liability, losses, claims, suits and
proceedings of any nature whatsoever arising out of the water service by
Highland Park. However, as to claims involving water quality, the within Article
is intended
8
not to apply to water until after it is delivered to Highland Park's system,
i.e. after water is supplied through the Meter Stations referred to in Article
4.
Middlesex shall completely indemnify, protect and save harmless
Highland Park from all costs, expenses, liability, losses, claims, suits and
proceedings of any nature whatsoever arising out of any negligence of Middlesex.
Notwithstanding anything herein to the contrary, Middlesex's aggregate
liability to Highland Park arising out of or in connection with this Agreement
shall not exceed an amount equal to one year's gross revenues required to be
paid by Highland Park to Middlesex based upon the Daily Minimum in effect at the
time of the occurrence giving rise to the liability, and Highland Park hereby
releases Middlesex from any liability in excess thereof. This paragraph is not
intended to limit Middlesex's liability to third parties.
15. Regulatory Approvals.
If required by law, this Agreement shall be filed with and subject to
approval by the Board of Public Utilities of the State of New Jersey and the
Department of Environmental Protection of the State of New Jersey.
9
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first written above.
MIDDLESEX WATER COMPANY
ATTEST:
By: /s/ Dennis W. Doll
------------------
Dennis W. Doll
President
/s/ Kenneth J. Quinn
- --------------------
Kenneth J. Quinn
Vice President, General Counsel,
Secretary and Treasurer
BOROUGH OF HIGHLAND PARK
ATTEST:
By: /s/ Meryl Frank
---------------
Meryl Frank
Mayor
/s/ Joan Hullings
- -----------------
Joan Hullings
Borough Clerk
10
Exhibit 10.2
AGREEMENT
for a Supply of Water
between
MIDDLESEX WATER COMPANY
and the
CITY OF RAHWAY
--------------------------------------------
Entered into as of April 1, 2006
--------------------------------------------
This Agreement (hereinafter referred to as the "Agreement") is entered
into as of this 1st day of April 2006 between:
MIDDLESEX WATER COMPANY, a public utility and corporation organized
under the laws of the State of New Jersey, with offices at 1500 Ronson
Road, Iselin, New Jersey (hereinafter referred to as "Middlesex")
and the
CITY OF RAHWAY, a municipal corporation of the State of New Jersey with
its principal offices located at City Hall Plaza, Rahway, New Jersey
07065 (hereinafter referred to as "Rahway").
W I T N E S S E T H:
WHEREAS, Middlesex owns and operates a public water supply system; and
WHEREAS, Rahway has requested that Middlesex provide it with a supply
of water for private and public use; and
WHEREAS, this Agreement is designed to set for the terms and conditions
between the parties relating to a supply of water.
Now therefore, in consideration of the premises and of the mutual
covenants herein contained, the parties agree that:
1. Supply of Water.
---------------
Middlesex agrees to supply Rahway with water, and Rahway agrees to
accept such water upon the terms and conditions set forth herein.
2. Term.
----
The term of this Agreement shall be ten (10) years from the date
hereof. Except as otherwise provided herein, or as the parties may mutually
agree upon, service shall terminate on a date that is ten (10) years following
the date hereof.
The terms of the Agreement shall remain in effect after the termination
date and any periods of renewal of the Agreement, unless written notice of
intention to terminate the Agreement is given by either party at least three
hundred sixty-five (365) days prior to the end of any such period. In the event
that such notice has not been given, the Agreement shall remain in effect until
the earlier of (a) renewal or modification of the Agreement by consent of both
parties, or (b) a date no less than three hundred sixty-five (365) days after
the date that either party provides written notification of termination.
-2-
3. Rates.
-----
Rahway shall pay Middlesex at a rate which is the sum of (a) the rate
for Service Under Contract pursuant to Rate Schedule No. 5 of Middlesex's
tariff, currently at the rate of $1,476.72 per million gallons (Exhibit A
attached hereto), and (b) the rate for Transmission Service pursuant to Rate
Schedule No. 8 of Middlesex's tariff, currently at the rate of $50.00 per
million gallons (Exhibit B attached hereto); or as applicable rates and tariffs
may be established and/or changed from time to time with the approval of the New
Jersey Board of Public Utilities ("BPU") as required by law. (Such rate is
hereinafter referred to as the "Contract Rate.") Rahway shall pay Middlesex at
the said Contract Rate for the greater of the Daily Minimum quantity of water
(as defined below in paragraph 7) or for all water delivered to Meter Stations
(as defined below in paragraph 5 (Meter Stations/Points of Delivery) up to and
including the Allowable Excess as determined under paragraph 8 (a). Rahway shall
pay Middlesex the applicable Peaking Charges, set forth in paragraph 8, for all
water in excess of the Allowable Excess, subject to the provisions of paragraph
9 hereof.
4. Delivery System.
---------------
Water to be supplied by Middlesex hereunder shall be delivered to
Rahway through Middlesex's water transmission system and all existing
interconnections located on such transmission system as existed at the date of
this Agreement and such other interconnections as may be reasonably agreed upon
from time to time.
5. Meter Stations/Points of Delivery.
---------------------------------
The parties understand and agree that delivery shall be made through
such points of delivery into the Rahway system as may be reasonably agreed upon
from time to time by the parties (hereinafter referred to as "Meter Stations").
Water so supplied shall be metered at the Meter Stations.
6. Meters, Services and Other Appurtenances.
----------------------------------------
Middlesex shall furnish, install and maintain at its own cost such
service connections and meters as it shall deem necessary for connection to the
Meter Stations. The meters and service pipes shall remain the property of
Middlesex. Middlesex shall maintain and verify the accuracy of said meters at
least annually, and Rahway, at its sole cost, shall have the right to test the
meters at the Meter Stations by a certified meter
-3-
technician at any reasonable time upon written notice to Middlesex. Rahway shall
provide for furnishing, installing and maintaining at its own cost all other
piping, fittings, valves, meter pits or vaults and appurtenances, including
pressure reducing stations, necessary to take water from Middlesex.
7. Minimum Payment Obligation.
(a) Rahway shall be obligated to pay for the Daily Minimum quantity of
water at the Contract Rate. "Daily Minimum" shall mean:
(i) One hundred thousand (100,000) gallons of water a day
(0.10 million gallons per day (mgd)), or
(ii) Such greater amount as may be elected under paragraph
7 (b) of this Agreement.
(b) At any time during the term of this Agreement, Rahway may elect,
upon written notification to Middlesex, to increase the Daily Minimum quantity
of water to a greater quantity of water (hereinafter referred to as the "Revised
Daily Minimum"). Once such an election is made by Rahway, the Revised Daily
Minimum quantity of water shall remain in effect for a period of at least twelve
(12) months from the effective date of such election unless further increased
pursuant to this Agreement. At the end of such twelve (12) month period, the
Revised Daily Minimum shall remain in effect unless Rahway shall further amend
(increase or decrease) the Revised Daily Minimum. Each such election to amend
shall be on written notice to Middlesex and shall remain in effect for a period
of twelve (12) months from the effective date of such election unless further
increased pursuant to this Agreement. Any election to decrease the Revised Daily
Minimum shall not be reduced below the initial amount of one hundred thousand
(100,000) gallons of water a day specified in paragraph 7(a)(i) of this
Agreement.
8. Peaking Charges.
---------------
(a) The total daily quantity of water taken by Rahway at the Meter
Stations may exceed the Daily Minimum or the Revised Daily Minimum by up to 50%
on a 24-hour basis without affecting the Contract Rate. The quantity of water
taken in the peak hour multiplied by 24 may exceed the Daily Minimum or the
Revised Daily Minimum by up to 100% without affecting the Contract Rate. Such
excess quantities of water are known as the "Allowable Excess".
-4-
(b) If the quantity of water taken in a 24-hour period shall exceed the
Daily Minimum or the Revised Daily Minimum by more than 50%, ("Daily Peaking
Excess"), Rahway shall pay for such Daily Peaking Excess at a rate (the "Daily
Peaking Rate") determined by the following formula:
(i) A fraction (the numerator of which is the actual
daily usage; and the denominator of which is the
applicable Daily Minimum or Revised Daily Minimum
then in effect multiplied by 1.5) multiplied by the
Contract Rate. For example, if the actual daily usage
is .25 million gallons, and the Daily Minimum is .10
million gallons and the Contract Rate is
$1,500.00:
.25 x Contract Rate
---------
.10 x 1.5
1.67 x $1,500.00 = $2,505.00 (Daily
Peaking
Rate)
In this example, the charge for the Daily Peaking
Excess would be $250.00 calculated as follows:
.25 - .15 (Allowable Excess) = .10 (Daily Peaking
Excess)
.10 x $2,505.00 = $250.50
(c) If the quantity of water supplied in the maximum peak hour
multiplied by 24 shall exceed the Daily Minimum or the Revised Daily Minimum by
more than 100%, ("Hourly Peaking Excess") Rahway shall pay for such Hourly
Peaking Excess with a charge (the "Hourly Peaking Charge") determined by the
following formula:
(i) A fraction (the numerator of which is the
quantity of water supplied in the maximum
peak hour multiplied by 24; and the
denominator of which is the applicable Daily
Minimum or Revised Daily Minimum then in
effect multiplied by 2.0) multiplied by the
----------
Contract Rate.
For example, if the quantity of water
supplied in the maximum peak hour multiplied
by 24 equals .30 million gallons; and the
-5-
Daily Minimum is .10 million gallons and the
Contract Rate is
$1,500.00:
.30 x Contract Rate
---------
.10 x 2
1.50 x $1,500.00 = $2,250.00
(Hourly Peaking Charge)
In this example, the charge for such Hourly
Peaking Excess would be calculated as
follows:
300,000 gal. / 24 = 12,500
200,000 gal. / 24 = 8,333
Calculated maximum
Peak hour excess =
12,500 - 8,333 = 4,167 gal.
Hourly Peaking Charge x Calculated Max. Peak
Hour Excess
$2,250 mgd 4,167 gal.
$2,250 mgd x .004167
= $9.375 for such Hourly Peaking Excess
A similar calculation would be made for each
day there is an Hourly Peaking Excess, but
there shall not be more than one such Hourly
Peaking Charge in each 24-hour period.
(d) In no instance, and under no conditions, shall the daily 24-hour
quantity of water supplied and purchased under this Agreement exceed One (1)
million gallons, nor shall the maximum hourly flow exceed the rate of Two (2)
million gallons per day, unless otherwise agreed in writing by the parties.
(e) Notwithstanding anything herein to the contrary, the obligation of
Middlesex to supply water under this Agreement beyond the Daily Minimum or the
Revised Daily Minimum, as the case may be, is subject to Middlesex having the
supply and capacity to provide such amounts.
9. Exceptions for Special Circumstances
------------------------------------
Notwithstanding anything to the contrary herein, the parties recognize
that at different times during the year, Rahway experiences a problem with
excess chloride in its
-6-
water (the "Chloride Issue"). In addition, at different times during the year,
Rahway experiences an additional passing flow problem whereby it is required to
cease taking, or decrease the amount of, water which it may legally take from
the Rahway River (the "Passing Flow Issue").
In the event that Rahway is experiencing either of these problems
throughout the year and properly notifies Middlesex of such problems, and the
expected duration of the same, then and in such event, Middlesex agrees that
Rahway shall be obligated to pay for the amount of water needed to address each
such problem according to the following schedule:
(a) For the daily amount of water used for the Chloride Issue during
the period from October 1 - April 30, Rahway shall pay for such water at the
Contract Rate set forth herein without regard to any additional Peaking Charges
as set forth in paragraph 8 hereof.
(b) For the daily amount of water used for the Passing Flow Issue
during the period from October 1 - April 30, Rahway shall pay for such water at
the Contract Rate set forth herein without regard to any additional Peaking
Charges as set forth in paragraph 8 hereof.
(c) For the daily amount of water used for the Chloride Issue during
the period from May 1 - September 30, Rahway shall pay for such water at the
Contract Rate set forth herein without regard to any additional Peaking Charges
as set forth in paragraph 8 hereof, provided that the amount of water used for
the Chloride Issue does not exceed one million gallons per day. For any amounts
of water used in excess of one million gallons per day, Rahway shall pay for
such excess at a Daily Peaking Rate as determined under paragraph 8 hereof.
(d) For the daily amount of water used for the Passing Flow Issue
during the period from May 1 - September 30, Rahway shall pay for such water in
accordance with the provisions of paragraphs 7 and 8 herein, except that the
amount charged as the Daily Peaking Rate shall not exceed and shall be capped at
the rate for one million gallons under the Consumption Charges as set forth in
Rate Schedule No. 1 - General Water Service - GS (the "Retail Rate") then in
effect under the applicable Middlesex Tariff. As
-7-
of the date of the Agreement, the Retail Rate is the equivalent of $2,938.70 per
million gallons of water used.
10. Payment.
-------
The terms are net cash on presentation of invoice.
11. Combined Charge.
---------------
Payments for water (in excess of the Daily Minimum or the Revised Daily
Minimum and adjustments of the Daily Minimum or the Revised Daily Minimum under
paragraph 7) shall be determined on the basis of the combined total daily
quantity of water supplied through all the Meter Stations as determined by meter
readings at said Meter Stations.
12. Meter Readings.
--------------
Middlesex will read the meters daily (at a regular hour determined by
Middlesex) for all water supplied to Rahway at each connection then in
operation.
13. Definitions.
-----------
Where the words "daily" or "24 hours" are used in this contract, they
shall refer to the 24-hour period between the daily meter readings.
14. Quality.
-------
All water delivered to Rahway by Middlesex under this Agreement is
intended to comply with all Federal and State primary requirements for safe
drinking water.
15. Scheduling.
----------
Middlesex shall have the right to modify its rate of delivery to manage
its system requirements in accordance with accepted operating procedures. Rahway
shall give Middlesex reasonable advance notice of any anticipated departures
from its then normal usage.
16. Exceptions for Emergencies.
--------------------------
The Daily Minimum or Revised Daily Minimum payment obligation shall not
be affected in the event that the amount of water supplied by Middlesex to
Rahway exceeds the daily or hourly limitations established herein for not more
than twenty-four (24) hours in case of documented fire or main break emergencies
experienced by Rahway and for not more that five (5) days in the case of other
exceptional circumstances experienced by Rahway requiring an emergency supply of
water, provided Middlesex is promptly
-8-
notified that any such emergency exists. It is at the sole reasonable discretion
of Middlesex to determine if such requests meet the criteria of an emergency as
contemplated in this Agreement.
17. Excused Performance.
-------------------
Middlesex agrees to provide a continuous, regular and uninterrupted
supply of water at the Meter Stations, subject to delays in initiating service
or interruptions in service by reasons of acts of God, accident, strike, legal
process, or other cause beyond its control, or failure, refusal, or delay on the
part of any governmental or regulatory body having jurisdiction in issuing
permits, approvals, authorizations, licenses, rights-of-way or the like.
Middlesex shall not be liable for damages to Rahway by reason of inadequate
pressure or volume or quality or failure to provide water for any cause
whatsoever provided that the same does not arise out of the negligence of
Middlesex. In the event of an interruption in service Middlesex agrees to act
diligently within the bounds of normal operating procedures to return service to
normal.
18. Indemnification.
---------------
Rahway shall completely indemnify, protect and save harmless Middlesex
from any and all costs, expenses, liability, losses, claims, suits and
proceedings of any nature whatsoever arising out of the water service by Rahway.
However, as to claims involving water quality, this paragraph is intended not to
apply to water until after it is delivered to Rahway system, i.e., after water
is supplied through points of delivery referred to in paragraph 5.
Middlesex shall completely indemnify, protect and save harmless Rahway
from all costs, expenses, liability, losses, claims, suits and proceedings of
any nature whatsoever caused by any breach by Middlesex of its obligations under
this Agreement.
Notwithstanding anything herein to the contrary, each party's aggregate
liability to the other arising out of or in connection with this Agreement shall
not exceed an amount equal to two times one year's gross revenues required to be
paid by Rahway to Middlesex based upon the Daily Minimum or Revised Daily
Minimum in effect at the time of the occurrence giving rise to the liability,
and each party hereby releases the other from any liability in excess thereof.
This paragraph is not intended to limit either party's liability to third
parties.
-9-
19. Regulatory Approvals.
--------------------
This Agreement shall be filed with and subject to approval by the BPU
and the New Jersey Department of Environmental Protection as may be required by
law.
Middlesex shall expeditiously initiate the said filings for the said
approvals. Both parties agree to cooperate and act in good faith in connection
with obtaining these and any other regulatory authorizations.
20. Miscellaneous.
-------------
To the extent not inconsistent with this Agreement, all other
provisions of Middlesex's tariff shall be deemed to govern service hereunder.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New Jersey.
-10-
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first written above.
MIDDLESEX WATER COMPANY
ATTEST:
By: /s/ Dennis W. Doll
-------------------
Dennis W. Doll
President
/s/ Kenneth J. Quinn
- --------------------
Kenneth J. Quinn
Secretary
CITY OF RAHWAY
ATTEST:
By: /s/ James J. Kennedy
--------------------
/s/ Jean D. Kuc James J. Kennedy
- ---------------
Jean D. Kuc Mayor
City Clerk
-11-
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 quarterly report on Form 10-Q 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 At 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: May 8, 2006
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 quarterly report on Form 10-Q 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 At 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: May 8, 2006
Exhibit 32
SECTION 906 CERTIFICATION PURSUANT TO 18 U.S.C. ss.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: May 8, 2006
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. ss.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: May 8, 2006
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.