SEC Filing - Middlesex Water Company

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MIDDLESEX WATER COMPANY

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022

OR

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

	For the transition period from ___________to ___________

Commission File Number 0-422

MIDDLESEX WATER COMPANY

(Exact name of registrant as specified in its charter)

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

485C Route One South, Iselin, New Jersey08830

(Address of principal executive offices, including zip code)

(732) 634-1500

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	MSEX	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, non-accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐
	Smaller reporting company ☐		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☒

The number of shares outstanding of each of the registrant's classes of Common Stock, as of July 29, 2022: Common Stock, No Par Value: 17,609,794 shares outstanding.

INDEX

	PAGE
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited):	1
Condensed Consolidated Statements of Income	1
Condensed Consolidated Balance Sheets	2
Condensed Consolidated Statements of Cash Flows	3
Condensed Consolidated Statements of Capital Stock and Long-Term Debt	4
Condensed Consolidated Statements of Common Stockholders’ Equity	5
Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.Quantitative and Qualitative Disclosures of Market Risk	26

Item 4.Controls and Procedures	27

PART II.OTHER INFORMATION

Item 1.Legal Proceedings	28

Item 1A.Risk Factors	28

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.Defaults upon Senior Securities	28

Item 4.Mine Safety Disclosures	28

Item 5.Other Information	28

Item 6.Exhibits	29

SIGNATURES	30

Index

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands except per share amounts)

	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021			2022		2021

Operating Revenues	$	39,683	$	36,701		$	75,879	$	69,242

Operating Expenses:
Operations and Maintenance		19,557		17,959			38,695		36,315
Depreciation		5,670		5,187			11,292		10,019
Other Taxes		4,368		3,741			8,512		7,460

Total Operating Expenses		29,595		26,887			58,499		53,794

Gain on Sale of Subsidiary		-		-			5,232		-

Operating Income		10,088		9,814			22,612		15,448

Other Income (Expense):
Allowance for Funds Used During Construction		548		768			926		2,031
Other Income (Expense), net		1,396		790			2,773		1,564

Total Other Income, net		1,944		1,558			3,699		3,595

Interest Charges		2,369		2,070			4,219		3,808

Income before Income Taxes		9,663		9,302			22,092		15,235

Income Taxes		795		(1,621	)		1,124		(2,593	)

Net Income		8,868		10,923			20,968		17,828

Preferred Stock Dividend Requirements		30		30			60		60

Earnings Applicable to Common Stock	$	8,838	$	10,893		$	20,908	$	17,768

Earnings per share of Common Stock:
Basic	$	0.50	$	0.62		$	1.19	$	1.02
Diluted	$	0.50	$	0.62		$	1.18	$	1.01

Average Number of Common Shares Outstanding:
Basic		17,583		17,488			17,560		17,482
Diluted		17,698		17,603			17,675		17,597

See Notes to Condensed Consolidated Financial Statements.

Index

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

		June 30,		December 31,
ASSETS		2022		2021
UTILITY PLANT:	Water Production	$	244,593	$	247,286
	Transmission and Distribution		703,360		697,200
	General		95,782		95,658
	Construction Work in Progress		41,974		24,947
	TOTAL		1,085,709		1,065,091
	Less Accumulated Depreciation		206,781		199,723
	UTILITY PLANT - NET		878,928		865,368

CURRENT ASSETS:	Cash and Cash Equivalents		4,320		3,533
	Accounts Receivable, net of allowance for uncollectible accounts of $2,656 and $2,574, respectively		14,629		15,311
	Unbilled Revenues		10,289		7,273
	Materials and Supplies (at average cost)		5,707		5,358
	Prepayments		4,075		2,880
	TOTAL CURRENT ASSETS		39,020		34,355

OTHER ASSETS:	Operating Lease Right of Use Asset		4,161		4,503
	Preliminary Survey and Investigation Charges		2,639		3,540
	Regulatory Assets		102,023		100,738
	Non-utility Assets - Net		11,155		11,428
	Other		92		83
	TOTAL OTHER ASSETS		120,070		120,292
	TOTAL ASSETS	$	1,038,018	$	1,020,015

CAPITALIZATION AND LIABILITIES
CAPITALIZATION:	Common Stock, No Par Value	$	229,037	$	221,919
	Retained Earnings		156,531		145,807
	TOTAL COMMON EQUITY		385,568		367,726
	Preferred Stock		2,084		2,084
	Long-term Debt		305,411		306,520
	TOTAL CAPITALIZATION		693,063		676,330

CURRENT	Current Portion of Long-term Debt		7,814		6,731
LIABILITIES:	Notes Payable		27,500		13,000
	Accounts Payable		24,249		21,125
	Accrued Taxes		12,514		8,621
	Accrued Interest		2,155		1,986
	Unearned Revenues and Advanced Service Fees		1,495		1,330
	Other		3,102		3,826
	TOTAL CURRENT LIABILITIES		78,829		56,619

COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)

OTHER LIABILITIES:	Customer Advances for Construction		22,919		23,529
	Lease Obligations - Operating		4,036		4,367
	Accumulated Deferred Income Taxes		74,471		69,500
	Employee Benefit Plans		9,143		11,290
	Regulatory Liabilities		46,418		49,431
	Other		1,082		1,086
	TOTAL OTHER LIABILITIES		158,069		159,203

CONTRIBUTIONS IN AID OF CONSTRUCTION			108,057		127,863
	TOTAL CAPITALIZATION AND LIABILITIES	$	1,038,018	$	1,020,015

See Notes to Condensed Consolidated Financial Statements.

Index

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended June 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	20,968		$	17,828
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization		13,401			12,900
Provision for Deferred Income Taxes and Investment Tax Credits		(3,256	)		(7,852	)
Equity Portion of Allowance for Funds Used During Construction (AFUDC)		(532	)		(1,171	)
Cash Surrender Value of Life Insurance		445			(109	)
Stock Compensation Expense		909			760
Gain on Sale of Subsidiary		(5,232	)		-
Changes in Assets and Liabilities:
Accounts Receivable		682			1,289
Unbilled Revenues		(3,016	)		(1,752	)
Materials & Supplies		(349	)		451
Prepayments		(1,195	)		(1,572	)
Accounts Payable		3,124			(7,343	)
Accrued Taxes		3,893			2,082
Accrued Interest		170			31
Employee Benefit Plans		(1,310	)		790
Unearned Revenue & Advanced Service Fees		165			149
Other Assets and Liabilities		(2,006	)		(1,902	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		26,861			14,579
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures, Including AFUDC of $394 in 2022 and $860 in 2021		(39,343	)		(46,500	)
Proceeds from Sale of Subsiary		3,122			-
NET CASH USED IN INVESTING ACTIVITIES		(36,221	)		(46,500	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt		(2,162	)		(2,332	)
Proceeds from Issuance of Long-term Debt		2,287			1,595
Net Short-term Bank Borrowings		14,500			29,500
Deferred Debt Issuance Expense		(82	)		(14	)
Proceeds from Issuance of Common Stock		7,039			596
Payment of Common Dividends		(10,184	)		(9,527	)
Payment of Preferred Dividends		(60	)		(60	)
Construction Advances and Contributions-Net		(1,191	)		7,946

NET CASH PROVIDED BY FINANCING ACTIVITIES		10,147			27,704
NET CHANGES IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		787			(4,217	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD		3,533			10,406
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	4,320		$	6,189


SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
Utility Plant received as Construction Advances and Contributions	$	4,321		$	3,357
Non-Cash Consideration for Sale of Subsidiary	$	2,100		$	-

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest	$	4,245		$	3,975
Interest Capitalized	$	394		$	860
Income Taxes	$	575		$	2,320

See Notes to Condensed Consolidated Financial Statements.

Index

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND LONG-TERM DEBT

(Unaudited)

(In thousands)

	June 30,			December 31,
	2022			2021
Common Stock, No Par Value
Shares Authorized - 40,000
Shares Outstanding - 2022 - 17,604; 2021 - 17,522	$	229,037		$	221,919

Retained Earnings		156,531			145,807
TOTAL COMMON EQUITY	$	385,568		$	367,726

Cumulative Preferred Stock, No Par Value:
Shares Authorized - 120
Shares Outstanding - 20
Convertible:
Shares Outstanding, $7.00 Series - 10	$	1,005		$	1,005
Nonredeemable:
Shares Outstanding, $7.00 Series - 1		79			79
Shares Outstanding, $4.75 Series - 10		1,000			1,000
TOTAL PREFERRED STOCK	$	2,084		$	2,084

Long-term Debt:
First Mortgage Bonds, 0.00% - 5.50%, due 2023 - 2059	$	255,641		$	203,892
Amortizing Secured Notes, 3.94% - 7.05%, due 2028 - 2046		46,266			47,613
State Revolving Trust Notes, 2.00% - 4.22%, due 2022 - 2041		9,365			7,510
Construction Loans, 0.00%		-			52,131
SUBTOTAL LONG-TERM DEBT		311,272			311,146
Add: Premium on Issuance of Long-term Debt		7,072			7,271
Less: Unamortized Debt Expense		(5,119	)		(5,166	)
Less: Current Portion of Long-term Debt		(7,814	)		(6,731	)
TOTAL LONG-TERM DEBT	$	305,411		$	306,520

See Notes to Condensed Consolidated Financial Statements.

Index

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands)

	Common		Common
	Stock		Stock			Retained
	Shares		Amount			Earnings			Total

For the Three Months Ended June 30, 2021
Balance at April 1, 2021		17,478	$	217,977		$	130,873		$	348,850
Net Income		-		-			10,923			10,923
Dividend Reinvestment & Common Stock Purchase Plan		3		272			-			272
Restricted Stock Award - Net - Employees		6		(394	)		-			(394	)
Restricted Stock Award - Board of Directors		3		245			-			245
Cash Dividends on Common Stock ($0.2725 per share)		-		-			(4,768	)		(4,768	)
Cash Dividends on Preferred Stock		-		-			(30	)		(30	)
Balance at June 30, 2021		17,490	$	218,100		$	136,998		$	355,098

For the Six Months Ended June 30, 2021
Balance at January 1, 2021		17,473	$	217,451		$	128,757		$	346,208
Net Income		-		-			17,828			17,828
Dividend Reinvestment & Common Stock Purchase Plan		8		596			-			596
Restricted Stock Award - Net - Employees		6		(192	)		-			(192	)
Restricted Stock Award - Board of Directors		3		245						245
Cash Dividends on Common Stock ($0.5450 per share)		-		-			(9,527	)		(9,527	)
Cash Dividends on Preferred Stock		-		-			(60	)		(60	)
Balance at June 30, 2021		17,490	$	218,100		$	136,998		$	355,098

For the Three Months Ended June 30, 2022
Balance at April 1, 2022		17,551	$	225,092		$	152,790		$	377,882
Net Income		-		-			8,868			8,868
Dividend Reinvestment & Common Stock Purchase Plan		47		4,134			-			4,134
Restricted Stock Award - Net - Employees		3		(469	)		-			(469	)
Restricted Stock Award - Board of Directors		3		280			-			280
Cash Dividends on Common Stock ($0.2900 per share)		-		-			(5,097	)		(5,097	)
Cash Dividends on Preferred Stock		-		-			(30	)		(30	)
Balance at June 30, 2022		17,604	$	229,037		$	156,531		$	385,568

For the Six Months Ended June 30, 2022
Balance at January 1, 2022		17,522	$	221,919		$	145,807		$	367,726
Net Income		-		-			20,968			20,968
Dividend Reinvestment & Common Stock Purchase Plan		76		7,039			-			7,039
Restricted Stock Award - Net - Employees		3		(201	)		-			(201	)
Restricted Stock Award - Board of Directors		3		280			-			280
Cash Dividends on Common Stock ($0.5800 per share)		-		-			(10,184	)		(10,184	)
Cash Dividends on Preferred Stock		-		-			(60	)		(60	)
Balance at June 30, 2022		17,604	$	229,037		$	156,531		$	385,568

See Notes to Condensed Consolidated Financial Statements.

Index

MIDDLESEX WATER COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation and Recent Developments

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

The consolidated notes within the 2021 Annual Report on Form 10-K (the 2021 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 June 30, 2022, the results of operations for the three month and six month periods ended June 30, 2022 and 2021 and cash flows for the six month periods ended June 30, 2022 and 2021. Information included in the Condensed Consolidated Balance Sheet as of December 31, 2021, has been derived from the Company’s December 31, 2021 audited financial statements included in the 2021 Form 10-K.

Recent Developments

Regulatory Notice of Non-Compliance – In September 2021, the New Jersey Department of Environmental Protection (NJDEP) issued a Notice of Non-Compliance (Notice) to Middlesex based on self-reporting by Middlesex that the level of Perfluorooctanoic Acid (PFOA) in water treated at its Park Avenue Wellfield Treatment Plant in South Plainfield, New Jersey exceeded a recently promulgated NJDEP standard effective in 2021. Neither the NJDEP nor Middlesex has characterized this exceedance as an acute health threat. However, Middlesex was required to notify its affected customers and complied in November 2021 as required by the regulation. Further, the Notice required the Company to take any action necessary to comply with the new standard by September 7, 2022. Middlesex has provided current sampling results to the NJDEP indicating compliance with the new standard and is awaiting confirmation from the NJDEP.

The NJDEP standard for PFOA was developed based on a Health-based Maximum Contaminant Level of 14 parts per trillion. Construction of an enhanced treatment process at the Park Avenue Wellfield Treatment Plant to comply with the new standard had already begun prior to the regulation being enacted. Since completion is not expected until mid-2023, in December 2021, the Company implemented an interim solution to meet the Notice requirements. The Park Avenue Wellfield Treatment Plant was taken off-line and alternate sources of supply have been obtained. Simultaneously, the Company began design of an acceleration of a portion of the Park Avenue Wellfield treatment upgrades to meet anticipated increases in the historical higher water demand periods during the summer months.

In June 2022, Phase 1 construction of an advanced treatment facility at its Park Avenue Wellfield was completed and the treatment facility is effectively treating ground water to ensure compliance with all state and federal drinking water standards. Working in coordination with the NJDEP, Middlesex has begun a phased, start-up of its Park Avenue Wellfield and is successfully introducing treated water into the distribution system. Water being delivered to customers is in compliance with all USEPA and NJDEP drinking water standards, including the newly established water quality standard for PFOA. The Park Avenue wells had been turned off since December 2021 when the Company had begun providing additional water from its surface water treatment plant and other sources. This plan to turn on, and treat, certain wells to support normal heightened seasonal demand was met with full approval from state regulatory agencies.

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

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

While the Company believes monetary penalties are unlikely, the issuance of the Notice does not preclude the State of New Jersey or any of its agencies from initiating formal administrative and/or judicial enforcement action, including assessment of penalties of up to $25,000 per day per offense if the Company is unable to maintain compliance with the requirements of the Notice by September 7, 2022.

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

Coronavirus (COVID-19) Pandemic – On April 13, 2022, the United States Secretary of Health and Human Services renewed the determination that a nationwide health emergency exists as a result of the COVID-19 Pandemic. While the Company’s operations and capital construction program have not been materially disrupted to date from the pandemic, the COVID-19 impact on economic conditions nationally continues to be uncertain and could affect the Company’s results of operations, financial condition and liquidity in the future. In New Jersey, the declared COVID-19 State of Emergency ended in March 2022. In Delaware, the declared COVID-19 State of Emergency Order ended in July 2021.

The NJBPU and the DEPSC have approved the tracking of COVID-19 related incremental costs for potential recovery in customer rates in future rate proceedings. Neither jurisdiction has established a timetable or definitive formal procedures for seeking cost recovery. Since March 2020, the Company has increased its allowance for doubtful accounts for expected increases in accounts receivable write-offs due to the financial impact of COVID-19 on customers. Since the ultimate rate treatment to be determined by the NJBPU and the DEPSC regarding incremental costs related to COVID-19 is not definitively known at this time, the Company has not deferred any such costs. We will continue to monitor the effects of COVID-19 and evaluate its impact on the Company’s results of operations, financial condition and liquidity.

Index

Recent Accounting Guidance

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

Note 2 – Rate and Regulatory Matters

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

In March 2022, Middlesex filed a petition with the NJBPU seeking approval to set its PWAC tariff rate to recover additional costs of $3.7 million for the purchase of treated water from a non-affiliated water utility regulated by the NJBPU. We cannot predict whether the NJBPU will ultimately approve, deny or reduce the amount of our request.

Tidewater – On June 23, 2022, the Delaware Division of the Public Advocate filed a petition with the DEPSC requesting that Tidewater’s rates be reduced based on the claim that Tidewater has been earning above its authorized rate of return. Tidewater intends to vigorously defend against this proposed rate reduction based on current and near-term anticipated increases in operating costs and capital investments. Tidewater cannot predict whether the DEPSC will ultimately approve, deny or reduce the amount of the requested rate reduction.

In June 2022, Tidewater notified the DEPSC of its intention to likely file for a base water rate increase in the first quarter of 2023 based on projected increases in operational expenses and capital spending.

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

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

Index

Note 3 – Capitalization

Common Stock –During the six months ended June 30, 2022 and 2021, there were 76,550 common shares (approximately $7.0 million) and 7,787 common shares (approximately $0.6 million) respectively, issued under the Middlesex Water Company Investment Plan (the Investment Plan). The 3% purchase discount offering period on the Company’s common stock through the Investment Plan is set to expire on August 1, 2022. 200,000 shares were originally allocated to the offering and there remains approximately 93,000 shares available as of June 30, 2022. The discount applies to all common stock purchases made under the Investment Plan during the discount period, whether by optional cash payment or by dividend reinvestment.

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

In November 2021, Tidewater received approval from the DEPSC to borrow up to $5.0 million under the Delaware State Revolving Fund (SRF) Program for construction of a one million gallon elevated storage tank. Tidewater closed on the $5.0 million loan at an interest rate of 2.0% in December 2021 and began receiving disbursements in January 2022. Through June 30, 2022, Tidewater has drawn a total of $2.2 million and expects borrowing under this loan to continue through mid-2023. The final maturity date on the loan is 2044.

Index

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

	(Thousands of Dollars)
	June 30, 2022		December 31, 2021
	Carrying	Fair	Carrying	Fair
	Amount	Value	Amount	Value
FMBs	$150,642	$149,500	$98,828	$107,781

It was not practicable to estimate their fair value on our outstanding long-term debt for which there is no quoted market price and there is not an active trading market. For details, including carrying value, interest rates and due dates on these series of long-term debt, please refer to those series noted as “Amortizing Secured Note”, “State Revolving Trust Note”, “State Revolving Trust Bond”, “Construction Loans” on the Condensed Consolidated Statements of Capital Stock and Long-Term Debt). The carrying amount of these instruments was $160.6 million and $212.3 million at June 30, 2022 and December 31, 2021, respectively. Customer advances for construction have carrying amounts of $22.9 million and $23.5 million at June 30, 2022 and December 31, 2021, respectively. Their relative fair values cannot be accurately estimated since future refund payments depend on several variables, including new customer connections, customer consumption levels and future rate increases.

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

Note 4 – Earnings Per Share

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

Index

	(In Thousands Except per Share Amounts)
	Three Months Ended June 30,
	2022					2021
Basic:	Income			Shares		Income			Shares
Net Income	$	8,868			17,583	$	10,923			17,488
Preferred Dividend		(30	)				(30	)
Earnings Applicable to Common Stock	$	8,838			17,583	$	10,893			17,488

Basic EPS	$	0.50				$	0.62

Diluted:
Earnings Applicable to Common Stock	$	8,838			17,583	$	10,893			17,488
$7.00 Series Preferred Dividend		17			115		17			115
Adjusted Earnings Applicable to Common Stock	$	8,855			17,698	$	10,910			17,603

Diluted EPS	$	0.50				$	0.62

	(In Thousands Except per Share Amounts)
	Six Months Ended June 30,
	2022					2021
Basic:	Income			Shares		Income			Shares
Net Income	$	20,968			17,560	$	17,828			17,482
Preferred Dividend		(60	)				(60	)
Earnings Applicable to Common Stock	$	20,908			17,560	$	17,768			17,482

Basic EPS	$	1.19				$	1.02

Diluted:
Earnings Applicable to Common Stock	$	20,908			17,560	$	17,768			17,482
$7.00 Series Preferred Dividend		34			115		34			115
Adjusted Earnings Applicable to Common Stock	$	20,942			17,675	$	17,802			17,597

Diluted EPS	$	1.18				$	1.01

Note 5 – Business Segment Data

The Company has identified two reportable segments. One is the regulated business of collecting, treating and distributing water on a retail and wholesale basis to residential, commercial, industrial and fire protection customers in parts of New Jersey and Delaware. This segment also includes regulated wastewater systems in New Jersey and Delaware. The Company is subject to regulations as to its rates, services and other matters by New Jersey and Delaware with respect to utility services within these states. The other segment is primarily comprised of non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in New Jersey and Delaware. Inter-segment transactions relating to operational costs are treated as pass-through expenses. Finance charges on inter-segment loan activities are based on interest rates that are below what would normally be charged by a third party lender.

Index

	(In Thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
Operations by Segments:	2022			2021			2022			2021
Revenues:
Regulated	$	37,037		$	33,609		$	70,361		$	63,030
Non – Regulated		2,875			3,405			5,885			6,662
Inter-segment Elimination		(229	)		(313	)		(367	)		(450	)
Consolidated Revenues	$	39,683		$	36,701		$	75,879		$	69,242

Operating Income:
Regulated	$	9,336		$	8,711		$	21,043		$	13,427
Non – Regulated		752			1,103			1,569			2,021
Consolidated Operating Income	$	10,088		$	9,814		$	22,612		$	15,448

Net Income:
Regulated	$	8,314		$	10,108		$	19,814		$	16,347
Non – Regulated		554			815			1,154			1,481
Consolidated Net Income	$	8,868		$	10,923		$	20,968		$	17,828

Capital Expenditures:
Regulated	$	22,549		$	24,391		$	39,134		$	46,354
Non – Regulated		163			76			209			146
Total Capital Expenditures	$	22,712		$	24,467