MIDDLESEX WATER CO 10-K/A

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Middlesex Water Company: Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets and consolidated statements of capital stock and long-term debt of Middlesex Water Company (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, common stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. In our report dated February 24, 2023, we expressed an unqualified opinion on the effectiveness of internal control over financial reporting as of December 31, 2022. Subsequent to February 24, 2023, a material weakness was identified in the Company’s internal control over financial reporting. Management revised its assessment of internal control over financial reporting due to the identification of a material weakness, as described below. Accordingly, our opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 expressed herein is different from that expressed in our previous report. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in the accompanying Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A: There were ineffective information technology general controls (ITGCs) in the areas of user access and change management over certain information technology (IT) systems that support the Company’s financial reporting processes. Those controls were found to be deficient because of a lack of sufficient IT control processes designed to prevent or detect unauthorized changes to applications and data in selected IT environments. As a result, automated and manual process controls dependent on those ITGCs were also not effective. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 9 We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Baker Tilly US, LLP We have served as the Company’s auditor since 2006. Philadelphia , Pennsylvania February 24, 2023, except as to the effect of the material weakness as described in Management’s Annual Report on Internal Control over Financial Reporting, which is dated November 8, 2023 10 MIDDLESEX WATER COMPANY CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) Years Ended December 31, 2022 2021 2020 Operating Revenues $ 162,434 $ 143,141 $ 141,592 Operating Expenses: Operations and Maintenance 79,096 73,671 70,796 Depreciation 23,029 21,109 18,472 Other Taxes 18,208 15,150 14,904 Total Operating Expenses 120,333 109,930 104,172 Gain on Sale of Subsidiary 5,232 - - Operating Income 47,333 33,211 37,420 Other Income (Expense): Allowance for Funds Used During Construction 2,314 2,653 4,016 Other Income (Expense), net 5,389 3,305 363 Total Other Income, net 7,703 5,958 4,379 Interest Charges 9,367 8,114 7,493 Income before Income Taxes 45,669 31,055 34,306 Income Taxes 3,240 ( 5,488 ) ( 4,119 ) Net Income 42,429 36,543 38,425 Preferred Stock Dividend Requirements 120 120 120 Earnings Applicable to Common Stock $ 42,309 $ 36,423 $ 38,305 Earnings per share of Common Stock: Basic $ 2.40 $ 2.08 $ 2.19 Diluted $ 2.39 $ 2.07 $ 2.18 Average Number of Common Shares Outstanding : Basic 17,597 17,492 17,459 Diluted 17,712 17,607 17,574 See Notes to Consolidated Financial Statements. 11 MIDDLESEX WATER COMPANY CONSOLIDATED BALANCE SHEETS (In thousands) December 31, December 31, ASSETS 2022 2021 UTILITY PLANT: Water Production $ 249,153 $ 247,286 Transmission and Distribution 735,138 697,200 General 97,581 95,658 Construction Work in Progress 53,570 24,947 TOTAL 1,135,442 1,065,091 Less Accumulated Depreciation 214,891 199,723 UTILITY PLANT - NET 920,551 865,368 CURRENT ASSETS: Cash and Cash Equivalents 3,828 3,533 Accounts Receivable, net of allowance for uncollectible accounts of $ 2,326 and $ 2,574 , respectively 16,018 15,311 Unbilled Revenues 8,659 7,273 Materials and Supplies (at average cost) 6,177 5,358 Prepayments 2,624 2,880 TOTAL CURRENT ASSETS 37,306 34,355 OTHER ASSETS: Operating Lease Right of Use Asset 3,826 4,503 Preliminary Survey and Investigation Charges 2,806 3,540 Regulatory Assets 90,046 100,738 Non-utility Assets - Net 11,207 11,428 Employee Benefit Plans 8,689 - Other 19 83 TOTAL OTHER ASSETS 116,593 120,292 TOTAL ASSETS $ 1,074,450 $ 1,020,015 CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock, No Par Value $ 233,054 $ 221,919 Retained Earnings 167,274 145,807 TOTAL COMMON EQUITY 400,328 367,726 Preferred Stock 2,084 2,084 Long-term Debt 290,280 306,520 TOTAL CAPITALIZATION 692,692 676,330 CURRENT Current Portion of Long-term Debt 17,462 6,731 LIABILITIES: Notes Payable 55,500 13,000 Accounts Payable 24,847 21,125 Accrued Taxes 12,162 8,621 Accrued Interest 2,535 1,986 Unearned Revenues and Advanced Service Fees 1,365 1,330 Other 3,988 3,826 TOTAL CURRENT LIABILITIES 117,859 56,619 COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) OTHER LIABILITIES: Customer Advances for Construction 21,382 23,529 Lease Obligations 3,706 4,367 Accumulated Deferred Income Taxes 77,783 69,500 Employee Benefit Plans - 11,290 Regulatory Liabilities 46,734 49,431 Other 919 1,086 TOTAL OTHER LIABILITIES 150,524 159,203 CONTRIBUTIONS IN AID OF CONSTRUCTION 113,375 127,863 TOTAL CAPITALIZATION AND LIABILITIES $ 1,074,450 $ 1,020,015 See Notes to Consolidated Financial Statements. 12 MIDDLESEX WATER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended December 31, 2022 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 42,429 $ 36,543 $ 38,425 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 27,475 26,799 20,838 Provision for Deferred Income Taxes ( 5,334 ) ( 10,989 ) ( 13,490 ) Equity Portion of Allowance for Funds Used During Construction (AFUDC) ( 1,387 ) ( 1,505 ) ( 2,503 ) Cash Surrender Value of Life Insurance 401 ( 136 ) ( 391 ) Stock Compensation Expense 1,630 1,338 1,096 Gain on Sale of Subsidiary ( 5,232 ) Changes in Assets and Liabilities: Accounts Receivable ( 707 ) ( 742 ) ( 2,661 ) Unbilled Revenues ( 1,386 ) ( 208 ) 118 Materials & Supplies ( 819 ) ( 246 ) 333 Prepayments 256 6 ( 519 ) Accounts Payable 3,722 ( 9,318 ) 7,137 Accrued Taxes 3,541 ( 1,517 ) 2,503 Accrued Interest 549 ( 151 ) 106 Employee Benefit Plans ( 4,266 ) ( 2,645 ) ( 1,377 ) Unearned Revenue & Advanced Service Fees 35 75 44 Other Assets and Liabilities 454 ( 4,276 ) 3,696 NET CASH PROVIDED BY OPERATING ACTIVITIES 61,361 33,028 53,355 CASH FLOWS FROM INVESTING ACTIVITIES: Utility Plant Expenditures, Including AFUDC of $ 927 in 2022, $ 1,148 in 2021 and $ 1,513 in 2020 ( 91,335 ) ( 79,378 ) ( 105,619 ) Proceeds from Sale of Subsidiary 3,122 - - NET CASH USED IN INVESTING ACTIVITIES ( 88,213 ) ( 79,378 ) ( 105,619 ) CASH FLOWS FROM FINANCING ACTIVITIES: Redemption of Long-term Debt ( 7,423 ) ( 52,691 ) ( 7,472 ) Proceeds from Issuance of Long-term Debt 2,662 86,595 50,316 Net Short-term Bank Borrowings 42,500 11,000 ( 18,000 ) Deferred Debt Issuance Expense ( 624 ) ( 994 ) ( 148 ) Common Stock Issuance Expense ( 32 ) - ( 37 ) Proceeds from Issuance of Common Stock 10,335 3,837 1,230 Payment of Common Dividends ( 20,810 ) ( 19,373 ) ( 18,178 ) Payment of Preferred Dividends ( 120 ) ( 120 ) ( 120 ) Construction Advances and Contributions-Net 659 11,225 8,578 NET CASH PROVIDED BY FINANCING ACTIVITIES 27,147 39,479 16,169 NET CHANGES IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 295 ( 6,871 ) ( 36,095 ) CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 3,533 10,404 46,499 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 3,828 $ 3,533 $ 10,404 SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY: Utility Plant received as Construction Advances and Contributions $ 6,252 $ 4,750 $ 5,080 Long-term Debt Deobligation $ - $ 64 $ 258 Non-Cash Consideration for Sale of Subsidiary $ 2,100 $ - $ - SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash Paid During the Year for: Interest $ 9,251 $ 8,546 $ 7,644 Interest Capitalized $ 927 $ 1,148 $ 1,513 Income Taxes $ 3,230 $ 3,335 $ 2,509 See Notes to Consolidated Financial Statements. 13 MIDDLESEX WATER COMPANY CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND LONG-TERM DEBT (In thousands) December 31, December 31, 2022 2021 Common Stock, No Par Value Shares Authorized - 40,000 Shares Outstanding - 2022 - 17,642 ; 2021 - 17,522 $ 233,054 $ 221,919 Retained Earnings 167,274 145,807 TOTAL COMMON EQUITY $ 400,328 $ 367,726 Cumulative Preferred Stock, No Par Value: Shares Authorized - 120 Shares Outstanding - 20 Convertible: Shares Outstanding, $7.00 Series - 10 $ 1,005 $ 1,005 Nonredeemable: Shares Outstanding, $7.00 Series - 1 79 79 Shares Outstanding, $4.75 Series - 10 1,000 1,000 TOTAL PREFERRED STOCK $ 2,084 $ 2,084 Long-term Debt: First Mortgage Bonds, 0.00 %- 5.50 %, due 2023-2059 $ 252,269 $ 203,892 Amortizing Secured Notes, 3.94 %- 7.05 %, due 2028-2046 44,918 47,613 State Revolving Trust Notes, 2.00 %- 4.22 %, due 2025-2038 9,200 7,510 Construction Loans, 0.00 % - 52,131 SUBTOTAL LONG-TERM DEBT 306,387 311,146 Add: Premium on Issuance of Long-term Debt 6,873 7,271 Less: Unamortized Debt Expense ( 5,518 ) ( 5,166 ) Less: Current Portion of Long-term Debt ( 17,462 ) ( 6,731 ) TOTAL LONG-TERM DEBT $ 290,280 $ 306,520 See Notes to Consolidated Financial Statements. 14 MIDDLESEX WATER COMPANY CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS’ EQUITY (In thousands) Common Common Stock Stock Retained Shares Amount Earnings Total Balance at January 1, 2020 17,434 $ 215,125 $ 108,667 $ 323,792 Net Income - $ - $ 38,425 $ 38,425 Dividend Reinvestment & Common Stock Purchase Plan 19 1,230 - 1,230 Restricted Stock Award - Net - Employees 16 851 - 851 Stock Award - Board Of Directors 4 245 - 245 Cash Dividends on Common Stock ($ 1.041 per share) - - ( 18,178 ) ( 18,178 ) Cash Dividends on Preferred Stock - - ( 120 ) ( 120 ) Common Stock Expenses - - ( 37 ) ( 37 ) Balance at December 31, 2020 17,473 $ 217,451 $ 128,757 $ 346,208 Net Income - $ - $ 36,543 $ 36,543 Dividend Reinvestment & Common Stock Purchase Plan 40 3,837 - 3,837 Restricted Stock Award - Net - Employees 6 350 - 350 Stock Award - Board Of Directors 3 281 - 281 Cash Dividends on Common Stock ($ 1.108 per share) - - ( 19,373 ) ( 19,373 ) Cash Dividends on Preferred Stock - - ( 120 ) ( 120 ) Balance at December 31, 2021 17,522 $ 221,919 $ 145,807 $ 367,726 Net Income - $ - $ 42,429 $ 42,429 Dividend Reinvestment & Common Stock Purchase Plan 114 10,335 - 10,335 Restricted Stock Award - Net - Employees 3 520 - 520 Stock Award - Board Of Directors 3 280 - 280 Cash Dividends on Common Stock ($ 1.1825 per share) - - ( 20,810 ) ( 20,810 ) Cash Dividends on Preferred Stock - - ( 120 ) ( 120 ) Common Stock Expenses - - ( 32 ) ( 32 ) Balance at December 31, 2022 17,642 $ 233,054 $ 167,274 $ 400,328 See Notes to Consolidated Financial Statements. 15 MIDDLESEX WATER COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 – Organization, Summary of Significant Accounting Policies and Recent Developments (a) Organization - Middlesex Water Company (Middlesex or the Company) is the parent company and sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), Utility Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy) Inc. (USA-PA) and Twin Lakes Utilities, Inc. (Twin Lakes). Southern Shores Water Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc. (White Marsh) are wholly-owned subsidiaries of Tidewater. Middlesex has operated as a water utility in New Jersey since 1897 and in Delaware, through our wholly-owned subsidiary, Tidewater, since 1992. We are in the business of collecting, treating, distributing and selling water for domestic, commercial, municipal, industrial and fire protection purposes. We also operate New Jersey municipal water, wastewater and storm water systems under contract and provide unregulated water and wastewater services in New Jersey and Delaware through our subsidiaries. Our rates charged to customers for water and wastewater services, the quality of services we provide and certain other matters are regulated in New Jersey and Delaware by the New Jersey Board of Public Utilities (NJBPU) and the Delaware Public Service Commission (DEPSC), respectively. Our USA, USA-PA and White Marsh subsidiaries are not regulated utilities. (b) Principles of Consolidation – The financial statements for Middlesex and its wholly-owned subsidiaries (the Company) are reported on a consolidated basis. All significant intercompany accounts and transactions have been eliminated. Other financial investments in which the Company holds a 50 % or less voting interest and cannot exercise control over the operation and policies of the investments are accounted for under the equity method of accounting. Under the equity method of accounting, the Company records its investment interests in Non-Utility Assets and its percentage share of the earnings or losses of the investees in Other Income (Expense). (c) System of Accounts – The Company’s regulated utilities maintain their accounts in accordance with the Uniform System of Accounts prescribed by the NJBPU and DEPSC. (d) Regulatory Accounting - We maintain our books and records in accordance with accounting principles generally accepted in the United States of America. Middlesex and certain of its subsidiaries, which account for 93 % of Operating Revenues and 99 % of Total Assets, are subject to regulation in the state in which they operate. Those companies are required to maintain their accounts in accordance with regulatory authorities’ rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows the guidance provided in Accounting Standards Codification (ASC) 980, Regulated Operations . In accordance with ASC 980, Regulated Operations , costs and obligations are deferred if it is probable that these items will be recognized for rate-making purposes in future rates. Accordingly, we have recorded costs and obligations, which will be amortized over various future periods. Any change in the assessment of the probability of rate-making treatment will require us to change the accounting treatment of the deferred item. We have no reason to believe any of the deferred items that are recorded will be treated differently by the regulators in the future. For additional information, see Note 2 – Rate and Regulatory Matters . (e) Retirement Benefit Plans - We maintain a noncontributory defined benefit pension plan (Pension Plan), which covers all active employees who were hired prior to April 1, 2007, as well as a defined contribution plan in which all employees are eligible to participate. In addition, the Company maintains an unfunded supplemental plan for certain of its executive officers. The Company has a retirement benefit plan other than pensions (Other Benefits Plan) for substantially all of its retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance. The Company’s costs for providing retirement benefits are dependent upon numerous factors, including actual plan experience and assumptions of future experience. Retirement benefit plan obligations and expense are determined 16 based on investment performance, discount rates and various other demographic factors related to the population participating in the Company’s retirement benefit plans, all of which can change significantly in future years. For more information on the Company’s Retirement Benefit Plans, see Note 7 – Employee Benefit Plans . (f) Utility Plant – Utility Plant is stated at original cost as defined for regulatory purposes. Property accounts are charged with the cost of betterments and major replacements of property. Cost includes direct material, labor and indirect charges for pension benefits and payroll taxes. The cost of labor, materials, supervision and other expenses incurred in making repairs and minor replacements and in maintaining the properties is charged to the appropriate expense accounts. At December 31, 2022, there was no event or change in circumstance that would indicate that the carrying amount of any long-lived asset was not recoverable. (g) Depreciation – Depreciation is computed by each regulated member of the Company utilizing a rate approved by the applicable regulatory authority. The accumulated provision for depreciation is charged with the cost of property retired, less salvage. The following table sets forth the range of depreciation rates for the major utility plant categories used to calculate depreciation for the years ended December 31, 2022, 2021 and 2020. These rates have been approved by the NJBPU or DEPSC: Source of Supply 1.15 % - 3.44 % Transmission and Distribution (T&D): Pumping 2.00 % - 5.39 % T&D – Mains 1.10 % - 3.13 % Water Treatment 1.65 % - 7.09 % T&D – Services 2.12 % - 3.16 % General Plant 2.08 % - 17.84 % T&D – Other 1.61 % - 4.63 % Wastewater Collection 1.42 % - 1.81 % Non-regulated fixed assets consist primarily of office buildings, furniture and fixtures, and transportation equipment. These assets are recorded at original cost and depreciation is calculated based on the estimated useful lives, ranging from 3 to 42 years. (h) Preliminary Survey and Investigation (PS&I) Costs – In the design of water and wastewater systems that the Company ultimately intends to construct, own and operate, certain expenditures are incurred to advance those project activities. These PS&I costs are recorded as deferred charges on the balance sheet as these costs are expected to be recovered through future rates charged to customers as the underlying project assets are placed into service as utility plant. If it is subsequently determined that costs for a project recorded as PS&I are not recoverable through rates charged to our customers, the applicable PS&I costs are recorded as Other Expense on the Statement of Income at that time. (i) Customers’ Advances for Construction (CAC) – Utility plant and/or cash advances are provided to the Company by customers, real estate developers and builders in order to extend utility service to their properties. These transactions are recorded as CAC. Contractual Refunds of CACs in the form of cash are made by the Company and are based on either additional operating revenues generated from new customers or, as new customers are connected to the respective system. After all refunds are made and/or contract terms have expired, any remaining balance is transferred to Contributions in Aid of Construction. Contributions in Aid of Construction (CIAC) – CIAC include direct non-refundable contributions of utility plant and/or cash and the portion of CAC that becomes non-refundable. In accordance with regulatory requirements, CAC and CIAC are not depreciated. In addition, these amounts reduce the investment base for purposes of setting rates. (j) Allowance for Funds Used During Construction (AFUDC) - Middlesex and its regulated subsidiaries capitalize AFUDC, which represents the cost of financing projects during construction. AFUDC is added to the construction costs of individual projects exceeding specific cost and construction period thresholds established for each company and then depreciated with the utility plant direct costs over the underlying assets’ estimated useful life. AFUDC is calculated using each company’s weighted cost of debt and equity as approved in their most recent 17 respective regulatory rate order. The AFUDC rates for the years ended December 31, 2022, 2021 and 2020 for Middlesex and Tidewater are as follows: 2022 2021 2020 Middlesex 6.35 % 6.50 % 6.50 % Tidewater 7.92 % 7.92 % 7.92 % (k) Accounts Receivable – We record bad debt expense based on a variety of factors such as our customers’ payment history, current economic conditions and trending reasonable and supportable forecasts on expected collectability of accounts receivable. The allowance for doubtful accounts was $ 2.3 million and $ 2.6 million as of December 31, 2022 and 2021, respectively. For the years ended December 31, 2022, 2021 and 2020, bad debt expense was $ 0.5 million, $ 0.9 million and $ 1.1 million, respectively. For the years ended December 31, 2022, 2021 and 2020, write-offs were $ 0.7 million, $ 0.4 million and $ 0.5 million, respectively. (l) Revenues - The Company’s revenues are primarily generated from regulated tariff-based sales of water and wastewater services and non-regulated operation and maintenance contracts for services on water and wastewater systems owned by others. Revenue from contracts with customers is recognized when control of a promised good or service is transferred to customers at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services. The Company’s regulated revenue results from tariff-based sales from the provision of water and wastewater services to residential, industrial, commercial, fire-protection and wholesale customers. Residential customers are billed quarterly while most industrial, commercial, fire-protection and wholesale customers are billed monthly. Payments by customers are due between 15 to 30 days after the invoice date. Revenue is recognized as the water and wastewater services are delivered to customers as well as from accrual of unbilled revenues estimated from the last meter reading date to the end of the accounting period utilizing factors such as historical customer data, regional weather indicators and general economic conditions in the relevant service territories. Unearned Revenues and Advance Service Fees include fixed service charge billings in advance to Tidewater customers recognized as service is provided to the customer. Non-regulated service contract revenues consist of base service fees as well as fees for additional billable services provided to customers. Fees are billed monthly and are due within 30 days after the invoice date. The Company considers the amounts billed to represent the value of these services provided to customers. These contracts expire at various times through 2032 and contain remaining performance obligations for which the Company expects to recognize revenue in the future. These contracts also contain customary termination provisions. Substantially all of the amounts included in operating revenues and accounts receivable are from contracts with customers. The Company records its allowance for doubtful accounts based on historical write-offs combined with an evaluation of current economic conditions within its service territories. The Company’s contracts do not contain any significant financing components. 18 The Company’s operating revenues are comprised of the following: (In Thousands) Years Ended December 31, 2022 2021 2020 Regulated Tariff Sales Residential $ 84,950 $ 77,699 $ 76,798 Commercial 22,689 16,715 15,448 Industrial 11,152 8,990 9,512 Fire Protection 12,726 12,608 12,374 Wholesale 18,769 14,590 15,187 Non-Regulated Contract Operations 12,006 12,391 12,130 Total Revenue from Contracts with Customers $ 162,292 $ 142,993 $ 141,449 Other Regulated Revenues 831 929 532 Other Non-Regulated Revenues 440 427 415 Inter-segment Elimination ( 1,129 ) ( 1,208 ) ( 804 ) Total Revenue $ 162,434 $ 143,141 $ 141,592 (m) Unamortized Debt Expense and Premiums on Long-Term Debt - Unamortized Debt Expense and Premiums on Long-Term Debt, included on the consolidated balance sheet in long-term debt, are amortized over the lives of the related debt issues. (n) Income Taxes - Middlesex files a consolidated federal income tax return for the Company and income taxes are allocated based on the separate return method. Certain income and expense items are accounted for in different time periods for financial reporting than for income tax reporting purposes. Deferred income taxes are provided on differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements. Investment tax credits have been deferred and are amortized over the estimated useful life of the related property. In the event that there are interest and penalties associated with income tax adjustments from income tax authority examinations, these amounts will be reported under interest expense and other expense, respectively. For more information on income taxes, see Note 3 – Income Taxes . (o) Cash and Cash Equivalents - For purposes of reporting cash flows, the Company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents. Cash and cash equivalents represent bank balances and money market funds with investments maturing in less than 90 days. (p) Restricted Cash – Restricted cash includes cash proceeds from loan transactions entered into through government financing programs and are held in trusts for specific capital expenditures or debt service. (q) Use of Estimates - Conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. (r) Recent Accounting Pronouncements - There are no new adopted or proposed accounting guidance that the Company is aware of that could have a material impact on the Company’s consolidated financial statements. (s) Coronavirus (COVID-19) Pandemic – In January 2023, the United States Secretary of Health and Human Services renewed the determination that a nationwide health emergency exists as a result of the COVID-19 Pandemic with an announced end to the declared health emergency on May 11, 2023. While the Company’s operations and capital construction program have not been materially disrupted to date from the pandemic, the COVID-19 impact on economic conditions nationally and areas the Company operated continues to be uncertain and could affect the Company’s results of operations, financial condition and liquidity in the future. In New Jersey, the declared COVID-19 State of Emergency Order ended in March 2022. In Delaware, the declared COVID-19 State of Emergency Order ended in July 2021 . 19 The NJBPU and the DEPSC have approved the tracking of COVID-19 related incremental costs for potential recovery in customer rates in future rate proceedings. Neither jurisdiction has established a timetable or definitive formal procedures for seeking cost recovery . The Company’s allowance for doubtful accounts was increased for expected increases in accounts receivable write-offs due to the financial impact of COVID-19 on customers. The Company has not deferred any COVID-19 related incremental costs. We will continue to monitor the effects of COVID-19. (t) Regulatory Notice of Non-Compliance – In September 2021, the New Jersey Department of Environmental Protection (NJDEP) issued a Notice of Non-Compliance (Notice) to Middlesex based on self-reporting by Middlesex that the level of Perfluorooctanoic Acid (PFOA) in water treated at its Park Avenue Wellfield Treatment Plant in South Plainfield, New Jersey exceeded a recently promulgated NJDEP standard effective in 2021. The NJDEP standard for PFOA was developed based on a Health-based Maximum Contaminant Level of 14 parts per trillion. Neither the NJDEP nor Middlesex has characterized this exceedance as an acute health threat. However, Middlesex was required to notify its affected customers and complied in November 2021 as required by the regulation. The Notice further required the Company to take any action necessary to comply with the new standard by September 7, 2022. Prior to 2021, the Company began design for construction of an enhanced treatment process at the Park Avenue Wellfield Treatment Plant to comply with the new standard prior to the regulation being enacted. Since completion was not expected until mid-2023, in December 2021, the Company implemented an interim solution to meet the Notice requirements. The Park Avenue Wellfield Treatment Plant was temporarily taken off-line and alternate sources of supply were obtained. Simultaneously, the Company accelerated a portion of the enhanced treatment project to allow a restart of the Park Avenue Wellfield Treatment Plant ahead of historical higher water demand periods during the summer months. In June 2022, a portion of the enhanced treatment process was completed, placed into service and is effectively treating the ground water in compliance with all state and federal drinking water standards. On September 13, 2022, the Company entered into an Administrative Consent Order (ACO) with the NJDEP, which requires the Company to take whatever actions are necessary to achieve and maintain compliance with the Safe Drinking Water Act, N.J.S.A, 58:12A-1 et seq., and the Safe Drinking Water Act regulations N.J.A.C. 7:10-1 et seq., including applicable public notifications. The Company’s agreement to enter into an ACO avoided any further Notice regarding the fact that the permanent treatment solution was not in service by September 7, 2022. The Company issued the public notifications in February 2023 and will continue to update and distribute public information as prescribed in the ACO. In addition, in accordance with the ACO: ● On or before June 30, 2023, the Company shall complete the permanent construction of the Park Avenue Wellfield treatment upgrades, place the treatment upgrades into operation, and all water at the Park Avenue Wellfield Treatment Plant shall be treated to comply with the PFOA NJDEP standards. ● The Company must perform required sample testing and reporting for PFOA subsequent to completion of the Park Avenue Wellfield treatment upgrades. ● The Company shall submit to the NJDEP quarterly progress reports detailing the Company’s compliance with the ACO. The Company’s failure to comply with the compliance schedule and/or progress reporting requirements of the ACO could lead to penalties up to $ 500 per day. In addition, the NJDEP could penalize the Company for other violations, if any, of the ACO. In November 2021, the Company was served with two PFOA-related class action lawsuits seeking restitution for medical, water replacement and other claimed related costs. These lawsuits are in the early stages of the legal process and their ultimate resolution cannot be predicted at this time. The Company’s insurance provider has 20 acknowledged coverage of potential liability which may result from these lawsuits. In May 2022, the Company impleaded 3M Company (3M) as a third-party defendant in one of these class action lawsuits. The Company had previously initiated a separate lawsuit against 3M seeking to hold 3M accountable for introduction of perfluoroalkyl substances, which include PFOA, into the Company’s water supply at its Park Avenue Wellfield facility. In January 2022, the Company filed a petition with the NJBPU seeking to establish a regulatory asset and deferred accounting treatment until its next base rate setting proceeding for all costs associated with the interim solution to comply with the Notice. The Company is currently awaiting a decision on this matter from the NJBPU. (u) Sale of Subsidiary –– In January 2022, Middlesex closed on the DEPSC approved sale of 100 % of the common stock of its subsidiary Tidewater Environmental Services, Inc. for $ 6.4 million in cash and other consideration, resulting in a $ 5.2 million pre-tax gain. The Company will continue to own and operate its regulated water utilities in Delaware as well as its non-regulated operations and maintenance contract business. Note 2 - Rate and Regulatory Matters Rate Matters Middlesex - In December 2021, Middlesex’s petition to the NJBPU seeking permission to increase its base water rates was concluded, based on a negotiated settlement, resulting in an expected increase in annual operating revenues of $ 27.7 million. The approved tariff rates were designed to recover increased operating costs, as well as a return on invested capital of $ 513.5 million, based on an authorized return on common equity of 9.6 %. The increase was implemented in two phases with $ 20.7 million of the increase effective January 1, 2022 and the remaining $ 7.0 million effective January 1, 2023. As part of the negotiated settlement, the Purchased Water Adjustment Clause (PWAC), which is a rate mechanism that allows for recovery of increased purchased water costs between base rate case filings, was reset to zero. In September 2022, the NJBPU approved Middlesex's Emergency Relief Motion to reset its PWAC tariff rate to recover additional costs of $ 2.7 million for the purchase of treated water from a non-affiliated regulated water utility. The increase, effective October 1, 2022, is on an interim basis and subject to refund with interest, pending final resolution of this matter, which is expected in the second quarter of 2023. In March 2021, the NJBPU approved Middlesex’s annual petition to reset its PWAC tariff rate to recover additional costs of $ 1.1 million for the purchase of treated water from a non-affiliated regulated water utility. The new PWAC rate became effective April 4, 2021. Tidewater – On August 31, 2022, the DEPSC issued an Order requiring Tidewater to reduce its base rates charged to general metered and private fire customers by 6 %, effective for service rendered on and after September 1, 2022. In June 2022, the Delaware Division of the Public Advocate filed a petition with the DEPSC requesting that Tidewater’s rates be reduced based on the claim that Tidewater had been earning above its authorized rate of return. The rate reduction is expected to reduce annual revenues by approximately $ 2.2 million. In March 2021, Tidewater was notified by the DEPSC that it had determined Tidewater’s earned rate of return exceeded the rate of return authorized by the DEPSC. Consequently, Tidewater reset its Distribution System Improvement Charge (DSIC) rate to zero effective April 1, 2021 and refunded approximately $ 1.0 million to customers primarily in the form of an account credit for DSIC revenue previously billed between April 1, 2020 and March 31, 2021. A DSIC is a rate-mechanism that allows water utilities to recover investments in, and generate a return on, qualifying capital improvements made between base rate proceedings. Pinelands – In September 2022, Pinelands Water and Pinelands Wastewater filed separate petitions with the NJBPU seeking permission to increase base rates by approximately $ 0.6 million and $ 0.4 million per year, respectively. These requests were necessitated by capital infrastructure investments both companies have made, or have committed to make, and increased operations and maintenance costs. We cannot predict whether the NJBPU will ultimately approve, deny, or reduce the amount of the requests. A decision by the NJBPU in both matters is expected in the first quarter of 2023. 21 Southern Shores - Effective January 1, 2020, the DEPSC approved the renewal of a multi-year agreement for water service to a 2,200 unit condominium community we serve in Sussex County, Delaware. Under the agreement, current rates were to remain in effect until December 31, 2024, unless there are unanticipated capital expenditures or regulatory related changes in operating expenses exceeding certain thresholds during this time period. In 2022, capital expenditures did exceed the established threshold and rates were increased by 5.39 %, effective January 1, 2023. Beginning in 2025 and thereafter, inflation based rate increases cannot exceed the lesser of the regional Consumer Price Index or, 3 %. Inflation based increases are in addition to the threshold rate increases. This agreement expires on December 31, 2029 . Twin Lakes Utilities, Inc. (Twin Lakes) - Twin Lakes provides water services to approximately 115 residential customers in Shohola, Pennsylvania. Pursuant to the Pennsylvania Public Utility Code, Twin Lakes filed a petition requesting the Pennsylvania Public Utilities Commission (PAPUC) to order the acquisition of Twin Lakes by a capable public utility. The PAPUC assigned an Administrative Law Judge (ALJ) to adjudicate the matter and submit a recommended decision (Recommended Decision) to the PAPUC. As part of this legal proceeding the PAPUC also issued an Order in January 2021 appointing a large Pennsylvania based investor-owned water utility as the receiver (the Receiver Utility) of the Twin Lakes system until the petition is fully adjudicated by the PAPUC. In November 2021, the PAPUC issued an Order affirming the ALJ’s Recommended Decision, ordering the Receiver Utility to acquire the Twin Lakes water system and for Middlesex to submit $ 1.7 million into an escrow account within 30 days. Twin Lakes immediately filed a Petition For Review (PFR) with the Commonwealth Court of Pennsylvania (the Pennsylvania Court) seeking reversal and vacation of the escrow requirement on the grounds that it violates the Pennsylvania Public Utility Code as well as the United States Constitution. In addition, Twin Lakes filed an emergency petition for stay of the PAPUC Order pending the Pennsylvania Court’s review of the merits arguments contained in Twin Lakes’ PFR. In December 2021, the Pennsylvania Court granted Twin Lakes’ emergency petition, pending its review. In August 2022, the Commonwealth Court issued an opinion upholding PAPUC’s November 2021 Order in its entirety. In September 2022, Twin Lakes filed a Petition For Allowance of Appeal to the Supreme Court of Pennsylvania seeking reversal of the Commonwealth Court’s decision to uphold the escrow requirement on the grounds that the Pennsylvania Court erred in failing to address Twin Lakes’ constitutional claims. The timing of the final decision by the Supreme Court of Pennsylvania and the final adjudication of this matter cannot be predicted at this time. The financial results, total assets and financial obligations of Twin Lakes are not material to Middlesex. Regulatory Matters We have recorded certain costs as regulatory assets because we expect full recovery of, or are currently recovering, these costs in the rates we charge customers. These deferred costs have been excluded from rate base and, therefore, we are not earning a return on the unamortized balances. These items are detailed as follows: (Thousands of Dollars) December 31, Remaining Regulatory Assets 2022 2021 Recovery Periods Retirement Benefits $ 9,214 $ 24,926 Various Income Taxes 74,422 70,427 Various Rate Cases, Tank Painting, and Other 6,410 5,385 2 - 10 years Total $ 90,046 $ 100,738 Retirement benefits include pension and other retirement benefits that have been recorded on the Consolidated Balance Sheet in accordance with the guidance provided in ASC 715 , Compensation – Retirement Benefits. These amounts represent obligations in excess of current funding, which the Company believes will be fully recovered in rates set by the regulatory authorities. 22 The recovery period for income taxes is dependent upon when the temporary differences between the tax and book treatment of various items reverse. The 2017 Tax Act reduced the statutory corporate federal income tax rate from 35 % to 21 %. The tariff rates charged to customers effective prior to 2018 in the Company’s regulated companies include recovery of income taxes at the statutory rate in effect at the time those rates were approved by the respective state public utility commissions. As of December 31, 2022 and 2021, the Company has recorded regulatory liabilities of $ 29.0 million and $ 30.4 million, respectively for excess income taxes collected through rates due to the lower income tax rate under the 2017 Tax Act. These regulatory liabilities are overwhelmingly related to utility plant depreciation deduction timing differences, which are subject to Internal Revenue Service (IRS) normalization rules. The IRS rules limit how quickly the excess taxes attributable to accelerated taxes can be returned to customers. The current base rates for Middlesex and Pinelands customers became effective after 2017 and reflect the impact of the 2017 Tax Act on their revenue requirements. As part of Middlesex’s March 2018 base water rate settlement with the NJBPU, Middlesex received approval for regulatory accounting treatment of income tax benefits associated with the adoption of tangible property regulations issued by the IRS, and, as of December 31, 2022 and 2021, the Company has recorded $ 0.0 and $ 3.0 million of related regulatory liabilities, respectively, The Company uses composite depreciation rates for its regulated utility assets, which is currently an acceptable method under generally accepted accounting principles and is widely used in the utility industry. Historically, under the composite depreciation method, the anticipated costs of removing assets upon retirement are provided for over the life of those assets as a component of depreciation expense. The Company recovers certain asset retirement costs through rates charged to customers as an approved component of depreciation expense. As of December 31, 2022 and 2021, the Company has approximately $ 17.7 million and $ 16.1 million, respectively, of expected costs of removal recovered currently in rates in excess of actual costs incurred as regulatory liabilities. Note 3 – Income Taxes Income tax (benefit) expense differs from the amount computed by applying the statutory rate on book income subject to tax for the following reasons: (Thousands of Dollars) Years Ended December 31, 2022 2021 2020 Income Tax at Statutory Rate $ 9,590 $ 6,521 $ 7,204 Tax Effect of: Utility Plant Related ( 1,106 ) ( 1,290 ) ( 1,356 ) Tangible Property Repairs ( 6,767 ) ( 12,281 ) ( 11,298 ) State Income Taxes – Net 1,296 1,499 1,364 Other 227 63 ( 33 ) Total Income Tax Expense (Benefit) $ 3,240 $ ( 5,488 ) $ ( 4,119 ) 23 Income tax expense (benefit) is comprised of the following: (Thousands of Dollars) Years Ended December 31, 2022 2021 2020 Current: Federal $ 425 $ ( 8,247 ) $ ( 4,281 ) State 1,381 1,467 2,598 Deferred: Federal 1,242 933 ( 1,490 ) State 260 431 ( 871 ) Investment Tax Credits ( 68 ) ( 72 ) ( 75 ) Total Income Tax (Benefit) Expense $ 3,240 $ ( 5,488 ) $ ( 4,119 ) As part of Middlesex’s March 2018 base water rate settlement with the NJBPU, Middlesex received approval for regulatory accounting treatment of income tax benefits associated with the adoption of tangible property regulations issued by the IRS (fully amortized as of March 31, 2022) as well as prospective recognition of the income tax benefits for the immediate deduction of repair costs on tangible property. This results in significant reductions in the Company’s effective income tax rate, current income tax expense (benefit) and deferred income tax expense (benefit). Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. The components of the net deferred tax liability are as follows: (Thousands of Dollars) December 31, 2022 2021 Utility Plant Related $ 72,996 $ 65,107 Customer Advances ( 3,568 ) ( 3,595 ) Employee Benefits 7,380 7,091 Investment Tax Credits 304 373 Other 671 524 Total Accumulated Deferred Income Taxes $ 77,783 $ 69,500 The Company’s federal income tax returns for the tax years 2014 through 2017 were selected for examination by the IRS, which included the tax year in which the Company had adopted the final IRS tangible property regulations and changed its accounting method for the tax treatment of expenditures that qualified as deductible repairs. As a result of the audit examination, the Company agreed to certain modifications of its accounting method for expenditures that qualify as deductible repairs. In 2019, the Company paid $ 2.7 million in income taxes and $ 0.1 million in interest in connection with the conclusion of the 2014 through 2017 federal income tax return audits. The statutory review period for 2018 and prior federal income tax returns has now closed, and as such, in the third quarter of 2022 the Company reversed the December 31, 2021 income tax reserve provision and interest expense liability of $ 0.5 million and $ 0.2 million, respectively. The statutory review periods for federal income tax returns for the years prior to 2019 have been closed. There are no unrecognized tax benefits resulting from prior period tax positions. 24 Note 4 - Commitments and Contingent Liabilities Water Supply - Middlesex has an agreement with the New Jersey Water Supply Authority (NJWSA) for the purchase of untreated water through November 30, 2023 , which provides for an average purchase of 27.0 million gallons a day (mgd). Pricing is set annually by the NJWSA through a public rate making process. The agreement has provisions for additional pricing in the event Middlesex overdrafts or exceeds certain monthly and annual thresholds. Middlesex also has an agreement with a non-affiliated NJBPU-regulated water utility for the purchase of treated water. This agreement, which expires February 27, 2026 , provides for the minimum purchase of 3.0 mgd of treated water with provisions for additional purchases if needed. Tidewater contracts with the City of Dover, Delaware to purchase treated water of 15.0 million gallons annually. Purchased water costs are shown below: (Millions of Dollars) Years Ended December 31, 2022 2021 2020 Untreated $ 3.2 $ 3.3 $ 3.4 Treated 3.9 3.6 3.6 Total Costs $ 7.1 $ 6.9 $ 7.0 Leases - The Company determines if an arrangement is a lease at the inception of the lease. Generally, a lease agreement exists if the Company determines that the arrangement gives the Company control over the use of an identified asset and obtains substantially all of the benefits from the identified asset. The Company has entered into an operating lease of office space for administrative purposes, expiring in 2030. The Company has not entered into any finance leases. The exercise of a lease renewal option for the Company’s administrative offices is solely at the discretion of the Company. The right-of-use (ROU) asset recorded represents the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s operating lease does not provide an implicit discount rate and as such the Company used an estimated incremental borrowing rate ( 4.03 %) based on the information available at commencement date in determining the present value of lease payments. Given the impacts of accounting for regulated operations, and the resulting recognition of expense at the amounts recovered in customer rates, expenditures for operating leases are consistent with lease expense and was $ 0.8 million for each of the years ended December 31, 2022, 2021 and 2020. Information related to operating lease ROU assets is as follows: (In Millions) December 31, 2022 2021 ROU Asset at Lease Inception $ 7.3 $ 7.3 Accumulated Amortization ( 3.5 ) ( 2.8 ) Current ROU Asset $ 3.8 $ 4.5 25 The Company’s future minimum operating lease commitments as of December 31, 2022 are as follows: (In Millions) December 31, 2022 2023 0.8 2024 0.8 2025 0.8 2026 0.9 2027 0.9 Thereafter 1.8 Total Lease Payments $ 6.0 Imputed Interest ( 1.6 ) Present Value of Lease Payments 4.4 Less Current Portion* ( 0.7 ) Non-Current Lease Liability $ 3.7 * Included in Other Current Liabilities Construction –The Company has projected to spend approximately $ 102 million in 2023, $ 86 million in 2024 and $ 78 million in 2025 on its construction program. The Company has entered into several contractual construction agreements that in total obligate it to expend an estimated $ 16.8 million in the future. The actual amount and timing of capital expenditures is dependent on the need for replacement of existing infrastructure, customer growth, residential new home construction and sales, project scheduling, supply chain issues and continued refinement of project scope and costs and could be impacted if the effects of the COVID-19 pandemic continues for an extended period of time (for further discussion of the impact of COVID-19 on the Company, see Note 1(s) COVID-19 ). There is no assurance that projected customer growth and residential new home construction and sales will occur. Contingencies – Based on our operations in the heavily-regulated water and wastewater industries, the Company is routinely involved in disputes, claims, lawsuits and other regulatory and legal matters, including responsibility for fines and penalties relative to regulatory compliance. At this time, Management does not believe the final resolution of any such matters, whether asserted or unasserted, will have a material adverse effect on the Company’s financial position, results of operations or cash flows. In addition, the Company maintains business insurance coverage that may mitigate the effect of any current or future loss contingencies. PFOA Matter - In November 2021, the Company was served with two PFOA-related class action lawsuits seeking restitution for medical, water replacement and other related costs and economic damages. These lawsuits are in the early stages of the legal process and their ultimate resolution cannot be predicted at this time. The Company’s insurance provider has acknowledged coverage of potential liability resulting from these lawsuits (for further discussion of this matter, see Note 1(t) Regulatory Notice of Non-Compliance ). Change in Control Agreements – The Company has Change in Control Agreements with its executive officers that provide compensation and benefits in the event of termination of employment in connection with a change in control of the Company. 26 Note 5 – Short-term Borrowings Information regarding the Company’s short-term borrowings for the years ended December 31, 2022 and 2021 is summarized below: (Millions of Dollars) 2022 2021 Average Amount Outstanding $ 28.9 $ 23.7 Weighted Average Interest Rate 3.34 % 1.12 % Notes Payable at Year-End $ 55.5 $ 13.0 Weighted Average Interest Rate at Year-End 5.17 % 1.04 % The Company maintains bank lines of credit aggregating $ 140.0 million. (Millions) As of December 31, 2022 Line of Credit Outstanding Available Maximum Credit Type Renewal Date Bank of America $ 15.0 $ 45.0 $ 60.0 Uncommitted January 25, 2024 PNC Bank 39.5 28.5 68.0 Committed January 31, 2024 CoBank, ACB (CoBank) 1.0 11.0 12.0 Committed November 30, 2023 $ 55.5 $ 84.5 $ 140.0 The Bank of America line of credit is renewed on an annual basis and was increased from $ 30 million to $ 60 million in January 2022. The maturity dates for the Notes Payable as of December 31, 2022 are in January 2023 through March 2023 and are extendable at the discretion of the Company. The interest rates for borrowings under the Bank of America and PNC Bank lines of credit are set using the Bloomberg Short-Term Bank Yield Index and adding a credit spread, which varies by financial institution. The interest rate for borrowings under the CoBank line of credit are set weekly using CoBank’s internal cost of funds index that is similar to the Standard Overnight Financing Rate and adding a credit spread. There is no requirement for a compensating balance under any of the established lines of credit. Note 6 - Capitalization All the transactions discussed below related to the issuance of securities were approved by either the NJBPU or DEPSC, except where otherwise noted. Common Stock The Company issues shares of its common stock in connection with its Middlesex Water Company Investment Plan (the Investment Plan), a direct share purchase and dividend reinvestment plan for the Company’s common stock. The Company raised approximately $ 10.3 million under the Investment Plan during 2022. On March 1, 2023, the Company will begin offering shares of its common stock for purchase at a 3 % discount to participants in the Investment Plan. The discount offering will continue until 200,000 shares are purchased at the discounted price or December 1, 2023, whichever event occurs first. The discount applies to all common stock purchases made under the Investment Plan, whether by optional cash payment or by dividend reinvestment. Since the inception of the Investment Plan and its predecessor plan, the Company has periodically replenished the level of authorized shares in the plans. Currently, 0.2 million shares remain registered with the United States Securities and Exchange Commission for the Investment Plan and available for potential issuance to participants. Middlesex has filed a 27 petition with the NJBPU seeking to increase the number of authorized shares under the Investment Plan by 0.7 million shares. The Company issues common shares under a restricted stock plan for certain management employees, which is described in Note 7 – Employee Benefit Plans . The Company maintains a stock plan for its independent Directors as a component of outside members of the Board of Directors compensation. For the years ended December 31, 2022, 2021 and 2020, 2,664 , 3,444 and 4,074 shares, respectively, of Middlesex common stock were granted and issued to the Company’s independent Directors under the plan. The maximum number of shares authorized for grant under the plan is 100,000 , of which 46,461 shares remain available for future awards. In the event dividends on the preferred stock are in arrears, no dividends may be declared or paid on the common stock of the Company. Preferred Stock At December 31, 2022 and 2021, there were 120,000 shares of preferred stock authorized and less than 21,000 shares of preferred stock outstanding. There were no preferred stock dividends in arrears. The Company may not pay any dividends on its common stock unless full cumulative dividends to the preceding dividend date for all outstanding shares of preferred stock have been paid or set aside for payment. If four or more quarterly dividends are in arrears, the preferred shareholders, as a class, are entitled to elect two members to the Board of Directors in addition to Directors elected by holders of the common stock. In addition, if Middlesex were to liquidate, holders of preferred stock would be paid back the stated value of their preferred shares before any distributions could be made to common stockholders. The conversion feature of the no par $ 7.00 Series Cumulative and Convertible Preferred Stock allows the security holders to exchange one convertible preferred share for twelve shares of the Company's common stock. In addition, the Company may redeem up to 10 % of the outstanding convertible stock in any calendar year at a price equal to the fair value of twelve shares of the Company's common stock for each share of convertible stock redeemed. Long-term Debt Subject to regulatory approval, the Company periodically issues long-term debt to fund its investments in utility plant. To the extent possible and fiscally prudent, the Company finances qualifying capital projects under State Revolving Fund (SRF) loan programs in New Jersey and Delaware. These government programs provide financing at interest rates typically below rates available in the broader financial markets. A portion of the borrowings under the New Jersey SRF is interest-free. Under the New Jersey SRF program, borrowers first enter into a construction loan agreement with the New Jersey Infrastructure Bank (NJIB) at a below market interest rate. The interest rate on the Company’s current construction loan borrowings is zero percent ( 0 %). When construction on the qualifying project is substantially complete, NJIB will coordinate the conversion of the construction loan into a long-term securitized loan with a portion of the principal balance having a stated interest rate of zero percent ( 0 %) and a portion of the principal balance at a market interest rate at the time of closing using the credit rating of the State of New Jersey. The term of the long-term loans currently offered through the NJIB is up to thirty years. In May 2022, Middlesex repaid two outstanding NJIB construction loans by issuing First Mortgage Bonds (FMBs) to the NJIB under two loan agreements. The total amount of FMBs issued is $ 52.2 million and designated as Series 2022A ($ 16.2 million) and Series 2022B ($ 36.0 million). The interest rate on the Series 2022A bond is zero and the interest rate on the Series 2022B bond ranges between 2.7 % and 3.0 %. The final maturity date for both FMBs is August 1, 2056, with scheduled debt service payments over the life of these loans. The NJIB has changed the SRF program for project funding priority ranking, the proportions of interest free loans and market interest rate loans and overall loan limits on interest free loan balances to investor-owned water utilities. These changes affect SRF projects for which the construction loan closes after September 2018. Under the new 28 guidelines, the principal balance having a stated interest rate of zero percent ( 0 %) is 25 % of the loan balance with the remaining portion of 75 % having a market based interest rate. This is limited to the first $ 10.0 million of the loan. Loan amounts above $ 10.0 million do not participate in the 0 % rate program, but do participate at the market based interest rate. As a result of all these changes, the Company’s future capital funding plan currently does not include participating in the NJIB SRF program. In June 2021, Middlesex received approval from the NJBPU to redeem up to $ 45.5 million of outstanding FMBs, specifically Series RR ($ 22.5 million) and Series SS ($ 23.0 million), and issue replacement FMBs at an overall lower cost of debt. In November 2021, Middlesex closed on a $ 45.5 million, 2.90 % private placement of FMBs, designated as Series 2021B with a 2051 maturity date to effectuate the redemptions. In May 2020, Middlesex received approval from the NJBPU to borrow up to $ 100 million, in one or more private placement transactions through December 31, 2023 to help fund Middlesex’s multi-year capital construction program. In connection with this approval: ● In November 2021, Middlesex closed on a $ 19.5 million, 2.79 % private placement of FMBs with a 2041 maturity date designated as Series 2021A. Proceeds were used to reduce the Company’s outstanding balances under its lines of credit.; and ● In November 2020, Middlesex closed on a $ 40.0 million, 2.90 % private placement of FMBs with a 2050 maturity date designated as Series 2020A. Proceeds were used to reduce the Company’s outstanding balances under its lines of credit and for the Company’s 2020 capital program. In December 2021, Tidewater closed on the DEPSC approved $ 5.0 million Delaware SRF Program loan and began receiving disbursements in January 2022. Tidewater has borrowed $ 2.6 million under this loan with borrowing expected to continue through mid-2023. The final maturity date on the loan is 2044 . In September 2021, Tidewater completed its $ 20 million secured borrowing with CoBank, at an interest rate of 3.94 % with a 2046 maturity date. Proceeds from the loan were used to pay off its outstanding balances under its lines of credit. The aggregate annual principal repayment obligations for all long-term debt over the next five years and thereafter are shown below: Year (Millions of Dollars) Annual Maturities 2023 $ 17.5 2024 $ 7.4 2025 $ 6.9 2026 $ 6.7 2027 $ 6.4 Thereafter $ 261.5 The weighted average interest rate on all long-term debt at December 31, 2022 and 2021 was 2.98 % and 2.83 %, respectively. Except for the FMB Series 2020 ($ 40.0 million), FMB Series 2021 ($ 65.0 million) and Amortizing Secured Notes ($ 44.9 million), all of the Company’s outstanding long-term debt has been issued through the NJEDA ($ 63.6 million), the NJIB SRF program ($ 83.7 million) and the Delaware SRF program ($ 9.2 million). Substantially all of the utility plant of the Company is subject to the lien of its mortgage, which includes debt service and capital ratio covenants. The Company is in compliance with all of its mortgage covenants and restrictions. 29 Earnings Per Share The following table presents the calculation of basic and diluted earnings per share (EPS) for the years ended December 31, 2022, 2021 and 2020. Basic EPS is computed on the basis of the weighted average number of shares outstanding. Diluted EPS assumes the conversion of the Convertible Preferred Stock $ 7.00 Series. (In Thousands, Except Per Share Amounts) 2022 2021 2020 Basic: Income Shares Income Shares Income Shares Net Income $ 42,429 17,597 $ 36,543 17,492 $ 38,425 17,459 Preferred Dividend ( 120 ) ( 120 ) ( 120 ) Earnings Applicable to Common Stock $ 42,309 17,597 $ 36,423 17,492 $ 38,305 17,459 Basic EPS $ 2.40 $ 2.08 $ 2.19 Diluted: Earnings Applicable to Common Stock $ 42,309 17,597 $ 36,423 17,492 $ 38,305 17,459 $ 7.00 Series Dividend 67 115 67 115 67 115 Adjusted Earnings Applicable to Common Stock $ 42,376 17,712 $ 36,490 17,607 $ 38,372 17,574 Diluted EPS $ 2.39 $ 2.07 $ 2.18 Fair Value of Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments for which it is practicable to estimate that value. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and notes payable approximate their respective fair values due to the short-term maturities of these instruments. The fair value of FMBs and SRF Bonds (collectively, the Bonds) issued by Middlesex is based on quoted market prices for similar issues. Under the fair value hierarchy, the fair value of cash and cash equivalents is classified as a Level 1 measurement and the fair value of notes payable and the Bonds in the table below are classified as Level 2 measurements. The carrying amount and fair value of the Bonds were as follows: (Thousands of Dollars) At December 31, 2022 2021 Carrying Fair Carrying Fair Amount Value Amount Value FMBs $ 147,269 $ 138,756 $ 98,828 $ 107,781 It was not practicable to estimate their fair value on our outstanding long-term debt for which there is no quoted market price and there is not an active trading market. For details, including carrying value, interest rate and due date on these series of long-term debt, please refer to those series of long-term debt titled “Amortizing Secured Notes”, “State Revolving Trust Notes”, “State Revolving Fund Bond” and “Construction Loans” on the Consolidated Statements of Capital Stock and Long-Term Debt. The carrying amount of these instruments was $ 159.1 million and $ 212.3 million at December 31, 2022 and 2021, respectively. Customer advances for construction have carrying amounts of $ 21.4 million and $ 23.5 million at December 31, 2022 and 2021, respectively. Their relative fair values cannot be accurately estimated since future refund payments depend on several variables, including new customer connections, customer consumption levels and future rate increases. 30 Note 7 - Employee Benefit Plans Pension Benefits The Company’s Pension Plan covers all active employees hired prior to April 1, 2007. Employees hired after March 31, 2007 are not eligible to participate in this plan, but can participate in a defined contribution profit sharing plan that provides an annual contribution at the discretion of the Company, based upon a percentage of the participants’ annual paid compensation. In order to be eligible for contribution, the eligible employee must be employed by the Company on December 31 st of the year to which the contribution relates. The Company maintains an unfunded supplemental plan for a limited number of its executive officers. The Accumulated Benefit Obligation for the Company’s Pension Plan at December 31, 2022 and 2021 was $ 79.4 million and $ 100.4 million, respectively. Other Benefits The Company’s Other Benefits Plan covers substantially all of its current retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance. Regulatory Treatment of Over/Underfunded Retirement Obligations Because the Company is subject to rate regulation in the states in which it operates, it is required to maintain its accounts in accordance with the regulatory authority’s rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows the guidance of ASC 980, Regulated Operations . Based on prior regulatory practice, and in accordance with the guidance in ASC 980, Regulated Operations , the Company records underfunded Pension Plan and Other Benefits Plan obligation costs, which otherwise would be recognized in Other Comprehensive Income under ASC 715, Compensation – Retirement Benefits , as a Regulatory Asset, and expects to recover those costs in rates charged to customers. The Company uses a December 31 measurement date for all of its employee benefit plans. The tables below set forth information relating to the Company’s Pension Plan and Other Benefits Plan for 2022 and 2021. ( Thousands of Dollars) Pension Plan Other Benefits Plan December 31, 2022 2021 2022 2021 Change in Projected Benefit Obligation: Beginning Balance $ 113,710 $ 115,861 $ 49,396 $ 52,776 Service Cost 2,362 2,696 799 917 Interest Cost 3,042 2,706 1,325 1,236 Actuarial (Gain) Loss ( 27,850 ) ( 4,185 ) ( 17,761 ) ( 4,705 ) Benefits Paid ( 3,476 ) ( 3,368 ) ( 850 ) ( 828 ) Ending Balance $ 87,788 $ 113,710 $ 32,909 $ 49,396 31 ( Thousands of Dollars) Pension Plan Other Benefits Plan December 31, 2022 2021 2022 2021 Change in Fair Value of Plan Assets: Beginning Balance $ 100,750 $ 88,921 $ 50,668 $ 44,892 Actual Return on Plan Assets ( 14,346 ) 11,798 ( 6,639 ) 5,776 Employer Contributions 1,900 3,400 850 828 Benefits Paid ( 3,476 ) ( 3,369 ) ( 850 ) ( 828 ) Ending Balance $ 84,828 $ 100,750 $ 44,029 $ 50,668 Funded Status $ ( 2,960 ) $ ( 12,960 ) $ 11,120 $ 1,272 ( Thousands of Dollars) Pension Plan Other Benefits Plan December 31, 2022 2021 2022 2021 Amounts Recognized in the Consolidated Balance Sheets consist of: Current Liability $ 529 $ 398 $ - $ - Noncurrent Liability (Asset) 2,431 12,562 ( 11,120 ) ( 1,272 ) Net Liability (Asset) Recognized $ 2,960 $ 12,960 $ ( 11,120 ) $ ( 1,272 ) (Thousands of Dollars) Pension Plan Other Benefits Plan Years Ended December 31, 2022 2021 2020 2022 2021 2020 Components of Net Periodic Benefit Cost Service Cost $ 2,363 $ 2,696 $ 2,434 $ 799 $ 917 $ 993 Interest Cost 3,042 2,706 3,099 1,325 1,236 1,699 Expected Return on Plan Assets ( 7,041 ) ( 6,225 ) ( 5,635 ) ( 3,547 ) ( 3,142 ) ( 2,853 ) Amortization of Net Actuarial Loss 1,673 2,868 2,059 - 527 1,352 Net Periodic Benefit Cost* $ 37 $ 2,045 $ 1,957 $ ( 1,423 ) $ ( 462 ) $ 1,191 * Service cost is included in Operations and Maintenance expense on the consolidated statements of income; all other amounts are included in Other Income (Expense), net. Amounts that are expected to be amortized from Regulatory Assets into Net Periodic Benefit Cost in 2023 are as follows: (Thousands of Dollars) Pension Plan Other Benefits Plan Actuarial Loss (Gain) $ 658 $ ( 191 ) 32 The discount rate and compensation increase rate for determining our postretirement benefit plans’ benefit obligations and costs as of and for the years ended December 31, 2022, 2021 and 2020, respectively, are as follows: Pension Plan Other Benefits Plan 2022 2021 2020 2022 2021 2020 Weighted Average Assumptions: Expected Return on Plan Assets 7.00 % 7.00 % 7.00 % 7.00 % 7.00 % 7.00 % Discount Rate for: Benefit Obligation 4.98 % 2.72 % 2.37 % 4.98 % 2.72 % 2.37 % Benefit Cost 2.72 % 2.37 % 3.12 % 2.72 % 2.37 % 3.12 % Compensation Increase for: Benefit Obligation 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % Benefit Cost 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % The compensation increase assumption for the Other Benefits Plan is attributable to life insurance provided to qualifying employees upon their retirement. The insurance coverage will be determined based on the employee’s base compensation as of their retirement date. The Company utilizes the Society of Actuaries’ mortality table (Pri-2012) (Mortality Improvement Scale MP2021 for the 2022 valuation). For the 2022 valuation, costs and obligations for our Other Benefits Plan assumed a 7.5 % annual rate of increase in the per capita cost of covered healthcare benefits in 2022 with the annual rate of increase declining 0.5 % per year for 2023-2028, resulting in an annual rate of increase in the per capita cost of covered healthcare benefits of 4.5 % by year 2029. A one-percentage point change in assumed healthcare cost trend rates would have the following effects on the Other Benefits Plan: (Thousands of Dollars) 1 Percentage Point Increase Decrease Effect on Current Year Service and Interest Costs $ 435 $ ( 334 ) Effect on Projected Benefit Obligation $ 4,239 $ ( 3,448 ) The following benefit payments, which reflect expected future service, are expected to be paid: (Thousands of Dollars) Year Pension Plan Other Benefits Plan 2023 $ 4,153 $ 1,262 2024 4,961 1,423 2025 5,349 1,550 2026 5,344 1,645 2027 5,437 1,699 2028-2032 28,483 9,363 Totals $ 53,727 $ 16,942 33 Benefit Plans Assets The allocation of plan assets at December 31, 2022 and 2021 by asset category is as follows: Pension Plan Other Benefits Plan Asset Category 2022 2021 Target 2022 2021 Target Equity Securities 53.6 % 59.6 % 55 % 55.2 % 66.8 % 43 % Debt Securities 40.9 % 37.9 % 38 % 24.7 % 30.7 % 50 % Cash 3.9 % 1.0 % 2 % 20.1 % 2.5 % 2 % Real Estate/Commodities 1.6 % 1.5 % 5 % 0.0 % 0.0 % 5 % Total 100.0 % 100.0 % 100.0 % 100.0 % Two outside investment firms each manage a portion of the Pension Plan asset portfolio. One of those investment firms also manages the Other Benefits Plan asset portfolio. Quarterly meetings are held between the Company’s Pension Committee of the Board of Directors and the investment managers to review their performance and asset allocation. If the actual asset allocation is outside the targeted range, the Pension Committee reviews current market conditions and advice provided by the investment managers to determine the appropriateness of rebalancing the portfolio. The objective of the Company is to maximize the long-term return on retirement plan assets, relative to a reasonable level of risk, maintain a diversified investment portfolio and maintain compliance with the Employee Retirement Income Security Act of 1974. The expected long-term rate of return is based on the various asset categories in which plan assets are invested and the current expectations and historical performance for these categories. Fair Value Measurements Accounting guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows: ● Level 1 – Inputs to the valuation methodology are unadjusted quoted market prices for identical assets or liabilities in accessible active markets. ● Level 2 – Inputs to the valuation methodology that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. If the asset or liability has a specified contractual term, the Level 2 input must be observable for substantially the full term of the asset or liability. ● Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Certain investments in cash and cash equivalents, equity securities, and commodities are valued based on quoted market prices in active markets and are classified as Level 1 investments. Certain investments in cash and cash equivalents, equity securities and fixed income securities are valued using prices received from pricing vendors that utilize observable inputs and are therefore classified as Level 2 investments. 34 The following tables present Middlesex’s Pension Plan assets measured and recorded at fair value within the fair value hierarchy: (Thousands of Dollars) As of December 31, 2022 Level 1 Level 2 Level 3 Total Mutual Funds $ 71,559 $ - $ - $ 71,559 Money Market Funds 3,271 - - 3,271 Common Equity Securities 9,998 - - 9,998 Total Investments $ 84,828 $ - $ - $ 84,828 (Thousands of Dollars) As of December 31, 2021 Level 1 Level 2 Level 3 Total Mutual Funds $ 87,687 $ - $ - $ 87,687 Money Market Funds 1,057 - - 1,057 Common Equity Securities 12,006 - - 12,006 Total Investments $ 100,750 $ - $ - $ 100,750 The following tables present Middlesex’s Other Benefits Plan assets measured and recorded at fair value within the fair value hierarchy: (Thousands of Dollars) As of December 31, 2022 Level 1 Level 2 Level 3 Total Mutual Funds $ 23,660 $ - $ - $ 23,660 Money Market Funds 8,623 - - 8,623 Agency/US/State/Municipal Debt - 10,592 - 10,592 Other 1,154 - - 1,154 Total Investments $ 33,437 $ 10,592 $ - $ 44,029 (Thousands of Dollars) As of December 31, 2021 Level 1 Level 2 Level 3 Total Mutual Funds $ 33,844 $ - $ - $ 33,844 Money Market Funds 1,291 - - 1,291 Agency/US/State/Municipal Debt - 15,533 - 15,533 Total Investments $ 35,135 $ 15,533 $ - $ 50,668 Benefit Plans Contributions For the Pension Plan, Middlesex made total cash contributions of $ 1.9 million in 2022 and expects to make approximately $ 2.0 million of cash contributions in 2023. For the Other Benefits Plan, Middlesex made total cash contributions of $ 0.9 million in 2022 and expects to make approximately $ 0.9 million of cash contributions in 2023. 35 401(k) Plan The Company maintains a 401(k) defined contribution plan, which covers substantially all employees with more than 1,000 hours of service. Under the terms of the Plan, the Company matches 100 % of a participant’s contributions, which do not exceed 1 % of a participant’s compensation, plus 50 % of a participant’s contributions exceeding 1 %, but not more than 6 %. The Company’s matching contribution was $ 0.7 million for each of the years ended December 31, 2022, 2021 and 2020. Employees hired after March 31, 2007 are not eligible to participate in the Pension Plan and are generally eligible to participate in a discretionary profit sharing plan administered through the 401(k) plan. In December each year, the Board of Directors may approve that a stated percentage of eligible compensation be contributed to the account of the employee participant in the first quarter of the following year. For those employees still actively employed on December 31, 2022 or retired during the current year, the Company will fund a discretionary contribution of $ 0.9 million before April 1, 2023, which represents 5.0 % of eligible 2022 compensation. For the years ended December 31, 2021 and 2020, the Company made qualifying discretionary contributions totaling $ 0.8 million and $ 0.7 million, respectively. Stock-Based Compensation The Company maintains a long-term incentive compensation plan for certain management employees where awards are made in the form of restricted common stock. Shares of restricted stock issued under the plan are subject to forfeiture by the employee in the event of termination of employment for any reason within five years of the award other than as a result of retirement at normal retirement age, death, disability or change in control. The maximum number of shares authorized for award under the plan is 300,000 shares, of which approximately 80 % remain available for award. The Company recognizes compensation expense at fair value for the plan awards in accordance with ASC 718, Compensation – Stock Compensation . Compensation expense is determined by the market value of the stock on the date of the award and is being amortized over the expected vesting period. The following table presents awarded but not yet vested share information for the plan: Shares(thousands) Unearned Compensation (thousands) Weighted Average Granted Price Balance, January 1, 2020 97 1,706 Granted 16 982 $ 60.12 Vested ( 27 ) - Amortization of Compensation expense - ( 851 ) Balance, December 31, 2020 86 1,837 Granted 15 1,151 $ 79.02 Vested ( 18 ) Amortization of Compensation expense - ( 1,057 ) Balance, December 31, 2021 83 1,931 Granted 11 1,151 $ 105.17 Vested ( 17 ) - Amortization of Compensation expense - ( 1,350 ) Balance, December 31, 2022 77 $ 1,732 36 Note 8 – Business Segment Data The Company has identified two reportable segments. One is the regulated business of collecting, treating and distributing water on a retail and wholesale basis to residential, commercial, industrial and fire protection customers in parts of New Jersey and Delaware. This segment also includes regulated wastewater systems in New Jersey and Delaware. The Company is subject to regulations as to its rates, services and other matters by the states of New Jersey and Delaware with respect to utility service within these states. The other segment is primarily comprised of non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in New Jersey and Delaware. Inter-segment transactions relating to operational costs are treated as pass-through expenses. Finance charges on inter-segment loan activities are based on interest rates that are below what would normally be charged by a third party lender. (Thousands of Dollars) Years Ended December 31, Operations by Segments: 2022 2021 2020 Revenues: Regulated $ 151,117 $ 131,531 $ 129,851 Non – Regulated 12,446 12,818 12,545 Inter-segment Elimination ( 1,129 ) ( 1,208 ) ( 804 ) Consolidated Revenues $ 162,434 $ 143,141 $ 141,592 Operating Income: Regulated $ 44,257 $ 29,577 $ 34,043 Non – Regulated 3,076 3,634 3,377 Consolidated Operating Income $ 47,333 $ 33,211 $ 37,420 Depreciation: Regulated $ 22,783 $ 20,897 $ 18,264 Non – Regulated 246 212 208 Consolidated Depreciation $ 23,029 $ 21,109 $ 18,472 Other Income (Expense), Net: Regulated $ 7,898 $ 6,112 $ 4,605 Non – Regulated 279 279 130 Inter-segment Elimination ( 474 ) ( 433 ) ( 356 ) Consolidated Other Income (Expense), Net $ 7,703 $ 5,958 $ 4,379 Interest Expense: Regulated $ 9,833 $ 8,529 $ 7,780 Non – Regulated 7 17 70 Inter-segment Elimination ( 473 ) ( 432 ) ( 357 ) Consolidated Interest Expense $ 9,367 $ 8,114 $ 7,493 Income Taxes: Regulated $ 2,084 $ ( 6,723 ) $ ( 5,139 ) Non – Regulated 1,156 1,235 1,020 Consolidated Income Taxes $ 3,240 $ ( 5,488 ) $ ( 4,119 ) Net Income: Regulated $ 40,229 $ 33,849 $ 35,951 Non – Regulated 2,200 2,694 2,474 Consolidated Net Income $ 42,429 $ 36,543 $ 38,425 Capital Expenditures: Regulated $ 91,054 $ 79,195 $ 105,091 Non – Regulated 281 183 528 Total Capital Expenditures $ 91,335 $ 79,378 $ 105,619 37 As of December 31, 2022 As of December 31, 2021 Assets: Regulated $ 1,079,180 $ 1,022,116 Non – Regulated 6,999 7,811 Inter-segment Elimination ( 11,729 ) ( 9,912 ) Consolidated Assets $ 1,074,450 $ 1,020,015 Note 9 - Quarterly Data - Unaudited Financial information for each quarter of 2022 and 2021 is as follows: (Thousands of Dollars, Except per Share Data) 2022 1 st 2 nd 3 rd 4 th Total Operating Revenues $ 36,196 $ 39,683 $ 47,732 $ 38,823 $ 162,434 Gain on Sale of Subsidiary 5,232 - - - 5,232 Operating Income 12,523 10,088 16,575 8,146 47,332 Net Income 12,100 8,868 14,291 7,169 42,428 Basic Earnings per Share $ 0.69 $ 0.50 $ 0.81 $ 0.40 $ 2.40 Diluted Earnings per Share $ 0.68 $ 0.50 $ 0.81 $ 0.40 $ 2.39 Common Dividend Per Share $ 0.2900 $ 0.2900 $ 0.2900 $ 0.3125 $ 1.1825 High/Low Common Stock Price $ 94.56 /$ 121.10 $ 75.77 /$ 108.27 $ 77.08 /$ 96.19 $ 74.20 /$ 95.82 2021 1 st 2 nd 3 rd 4 th Total Operating Revenues $ 32,541 $ 36,701 $ 39,874 $ 34,025 $ 143,141 Operating Income 5,634 9,814 11,424 6,339 33,211 Net Income 6,907 10,923 11,476 7,237 36,543 Basic Earnings per Share $ 0.39 $ 0.62 $ 0.65 $ 0.42 $ 2.08 Diluted Earnings per Share $ 0.39 $ 0.62 $ 0.65 $ 0.41 $ 2.07 Common Dividend Per Share $ 0.2725 $ 0.2725 $ 0.2725 $ 0.2900 $ 1.1075 High/Low Common Stock Price $ 85.92 /$ 67.09 $ 88.61 /$ 77.31 $ 116.40 /$ 81.02 $ 119.37 /$ 98.12 The information above, in the opinion of the Company, includes all adjustments consisting only of normal recurring accruals necessary for a fair presentation of such amounts. The business of the Company is subject to seasonal fluctuation with the peak period usually occurring during the summer months. The quarterly earnings per share amounts above may differ slightly from previous filings due to the effects of rounding. 38