What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-01 compared with 2023-02-24 · 545 added, 486 removed, 784 unchanged (57% of the section changed)

2 unchanged sentences

To the Stockholders and the Board of Directors of Middlesex Water Company:

Opinions on the Financial Statements and Internal Control over Financial

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

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 maintained, in all material respects, effective internal

control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework:

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, 2023 and 2022, the related consolidated statements of income, common stockholders' equity, and cash flows for each of

the three years in the period ended December 31, 2023, 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, 2023, 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, 2023 and 2022, and the results of their operations

and their cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally

accepted in the United States of America.

Also in our opinion, because of the effect of the material weaknesses described below on the

achievement of the objectives of the control criteria, the Company has not maintained, in all material respects, effective internal control

over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013)

issued by COSO.

A material weakness is a deficiency, or a combination of deficiencies,

in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s

annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been

identified and included in the accompanying Management’s Report on Internal Control Over Financial Reporting appearing under Item

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.

As a result, automated and manual process controls dependent

on those ITGCs were also not effective.

There were ineffective controls related

to income tax accounting for a non-routine transaction.

We considered the material weaknesses in determining the nature, timing,

and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and our opinion regarding the effectiveness

of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

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.

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

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

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

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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.

4 unchanged sentences

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.

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

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

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.

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

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.

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

(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.

The critical audit matter communicated

below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated

to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved

our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our

opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate

opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Tax Accounting for Non-Routine Transaction

Audit Matter Description

described in Notes 1 and 2 to the consolidated financial statements, the Company executed a non-routine litigation settlement agreement

Management estimated and recorded the income tax effects of this non-routine transaction.

identified management’s assessment, accounting and financial statement presentation and disclosure of income taxes for this non-routine

transaction as a critical audit matter.

Auditing management’s assessment, accounting, presentation and disclosure required a high

degree of judgment and subjectivity and the use of individuals with specialized knowledge.

We Addressed the Matter in Our Audit

primary procedures we performed to address this critical audit matter included:

§ Testing the effectiveness of controls relating to income taxes, including controls over the determination

of the accounting and presentation for the non-routine transaction.

§ Testing management’s process for determining the accounting for income taxes.

Due to the non-routine

nature of the transaction, we evaluated the appropriateness of the facts and circumstances relating to the transaction and the applicable

tax regulations and financial reporting requirements.

§ Utilizing internal tax specialists to assist in evaluating the appropriateness of the income tax accounting

impact from the significant non-routine transaction and in assessing the presentation and disclosure in the consolidated financial statements.

§ Evaluating whether the amounts and assumptions used in the calculation were reasonable.

/s/ Baker Tilly US, LLP

24 unchanged sentences

Common Shares Outstanding :

See Notes to Consolidated Financial Statements.

See Notes to Consolidated

Financial Statements.

MIDDLESEX WATER COMPANY

BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS

(In thousands)

8 unchanged sentences

Accounts Receivable, net of allowance for uncollectible accounts of $ 2,137 and $ 2,326 , respectively

Litigation Settlement Receivable

Unbilled Revenues

19 unchanged sentences

Accounts Payable

Litigation Settlement Payable

Accrued Taxes

7 unchanged sentences

Accumulated Deferred Income Taxes

Employee Benefit Plans

Regulatory Liabilities

37 unchanged sentences

Common Stock Issuance Expense

Payment of Grantee Withholding Taxes in Exchange for Restricted Stock

Proceeds from Issuance of Common Stock

10 unchanged sentences

Non-Cash Consideration for Sale of Subsidiary

Litigation Settlement Receivable

Litigation Settlement Payable

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

23 unchanged sentences

State Revolving Trust Notes, 2.00 %- 4.03 %, due 2025-2044

Construction Loans, 0.00 %

SUBTOTAL LONG-TERM DEBT

3 unchanged sentences

TOTAL LONG-TERM DEBT

See Notes to Consolidated

Financial Statements.

See Notes to Consolidated Financial Statements.

MIDDLESEX WATER COMPANY

7 unchanged sentences

Cash Dividends on Preferred Stock

Common Stock Expenses

Balance at December 31, 2021

4 unchanged sentences

Cash Dividends on Preferred Stock

Common Stock Issuance Expenses

Balance at December 31, 2022

4 unchanged sentences

Cash Dividends on Preferred Stock

Common Stock Expenses

Common Stock Issuance Expenses

Balance at December 31, 2023

See Notes to Consolidated Financial Statements.

See Notes to Consolidated

Financial Statements.

MIDDLESEX WATER COMPANY

12 unchanged sentences

(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.

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,

15 unchanged sentences

the earnings or losses of the investees in Other Income (Expense).

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

Company’s regulated utilities maintain their accounts in accordance with the Uniform System of Accounts prescribed by the NJBPU

(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.

28 unchanged sentences

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

(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.

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, 2023, 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

19 unchanged sentences

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.

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)

17 unchanged sentences

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 accordance with regulatory requirements, CAC

and CIAC are not depreciated.

In addition, these amounts reduce the investment base for purposes of setting rates.

6 unchanged sentences

The AFUDC rates for the years ended December 31, 2022, 2021 and 2020 for Middlesex and Tidewater are as follows:

(k) Accounts Receivable – We record bad

debt expense based on a variety of factors such as our customers’ payment history, current economic conditions and trending reasonable

and supportable forecasts on expected collectability of accounts receivable.

The allowance for doubtful accounts was $ 2.3 million and

$ 2.6 million as of December 31, 2022 and 2021, respectively.

For the years ended December 31, 2022, 2021 and 2020, bad debt expense was

$ 0.5 million, $ 0.9 million and $ 1.1 million, respectively.

(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 $ 2.1 million

and $ 2.3 million as of December 31, 2023 and 2022, respectively.

For the years ended December 31, 2023, 2022 and 2021, bad debt expense

was $ 1.0 million, $ 0.5 million and $ 0.9 million, respectively.

For the years ended December 31, 2023, 2022 and 2021, write-offs were $ 1.2

6 unchanged sentences

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

Residential customers are billed quarterly while most industrial, commercial, fire-protection and wholesale customers are billed

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.

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

8 unchanged sentences

write-offs combined with an evaluation of current economic conditions within its service territories.

The Company’s contracts do not contain any significant

financing components.

The Company’s contracts do not contain any

significant financing components.

The Company’s operating revenues are comprised

10 unchanged sentences

Total Revenue

(m) Unamortized Debt Expense and Premiums on Long-Term

Debt - Unamortized Debt Expense and Premiums on Long-Term Debt, included on the consolidated balance sheet in long-term debt, are

amortized over the lives of the related debt issues.

(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

14 unchanged sentences

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.

(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.

1 unchanged sentence

or proposed accounting guidance that the Company is aware of that could have a material impact on the Company’s consolidated financial

(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.

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 .

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 –

(s) 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.

Plant (Park Avenue Plant) in South Plainfield, New Jersey exceeded a NJDEP standard that became effective in 2021.

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.

of an enhanced treatment process at the Park Avenue Plant to comply with the new standard prior to the regulation being enacted.

completion was not expected until mid-2023, the Company implemented an interim solution to meet the Notice requirements.

In June 2022, a portion of the enhanced treatment

1 unchanged sentence

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.

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

● 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

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.

In September 2022, the Company entered into an

Administrative Consent Order (ACO) with the NJDEP with respect to the Notice, which voided any further notice regarding the fact that

the permanent treatment solution was not in service by September 7, 2022 as required by the Notice.

As prescribed in the ACO, the Company

was to issue periodic public notifications until the ACO was closed.

In June 2023, the Company completed the permanent

construction of the entire Park Avenue Plant treatment upgrades and placed the upgrades into operation in full compliance with the NJDEP

PFOA standards.

In October 2023, the Company received confirmation from the NJDEP that it has complied with all requirements of the ACO

and consequently, the ACO has been closed.

The Company had previously initiated a lawsuit against

3M Company (3M), in connection with the Company’s claim that 3M introduced perfluoroalkyl substances (commonly known as “PFAS”),

which include PFOA, into the Company’s water supply at its Park Avenue Plant.

On August 29, 2023, Middlesex and 3M executed

a settlement agreement (the Settlement Agreement) to resolve the lawsuit.

The Settlement Agreement provides that:

● 3M will pay $ 93.2 million in two installments, one payment of $ 23.3 million received in December 2023

and one payment of $ 69.9 million in July 2024.

Middlesex is obligated to pay 30 % of the proceeds received plus reimbursable out-of-pocket

legal expenses to its lawyers as legal fees, or $ 29.5 million in total;

● Proceeds received from the Settlement Agreement are being used to mitigate the impact of the increase

in Middlesex’s customer rates approved by the NJBPU, which is to be implemented March 1, 2024 (for further discussion of Middlesex’s

base rate increase, see Note 2, Rate Matters, Middlesex below);

● Middlesex, by nature of its status as a U.S.

water purveyor impacted by PFAS, was automatically included

in a Multi-District Litigation Settlement before the United States District Court for the District of South Carolina in which 3M and other

companies (Non-3M Companies) are participants.

Middlesex agreed as part of the Settlement Agreement to remain a member of the plaintiff

class in order to be eligible to obtain future additional compensation from 3M and the Non-3M Companies for any future remediation which

may be required of its water treatment facilities;

● Middlesex and 3M agreed to enter into a joint mediation which occurred November 2023, to resolve two PFOA-related

class action lawsuits against Middlesex seeking restitution for medical, water replacement and other claimed related costs.

Both Middlesex

and 3M are defendants in these lawsuits.

These lawsuits remain in the legal process and their ultimate resolution is not known at this

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 %.

was implemented in two phases with $ 20.7 million of the increase effective January 1, 2022 and the remaining $ 7.0 million effective January

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.

Middlesex – In February 2024, Middlesex’s

petition to the NJBPU, filed in May 2023, seeking permission to increase its base water rates was concluded, based on a negotiated settlement

that is expected to increase annual operating revenues by $ 15.4 million effective March 1, 2024.

The approved tariff rates were

designed to recover increased operating costs as well as a return on invested capital of $ 563.1 million, based on an authorized return

on common equity of 9.6 %.

Middlesex has made capital infrastructure investments to ensure prudent upgrade and replacement of its

utility assets to support continued regulatory compliance, resilience and overall quality of service.

Net proceeds from the 3M Settlement

Agreement were used to recover costs for the construction of the Park Avenue Plant PFAS treatment upgrades, including depreciation and

carrying costs.

The rate case settlement will result in the

reclassification of $ 48.3 million from Regulatory Liabilities to CIAC in the March 31, 2024 balance sheet.

The Company will

also record in the first quarter of 2024 the recovery of $ 0.7 million and $ 2.4 million of prior year depreciation and carrying

costs, respectively, as well as the recovery of $ 1.4 million of prior year costs which were associated with the interim solution to

comply with the Notice, all of which were approved in the rate case settlement.

For further information on the 3M Settlement

Agreement, see Note 1(s) - Regulatory Notice of Non-Compliance above.

In January 2024, the NJBPU approved Middlesex’s

petition for the proposed cost recovery of its Lead Service Line Replacement (LSLR) Plan and cost recovery of project costs associated

with replacing Middlesex customer-owned lead service lines.

Replacement of Middlesex and Middlesex customer-owned lead service lines is

required by the New Jersey LSLR Law.

Under this legislation, the costs associated with replacing customer-owned lead service lines are

recoverable through future customer surcharges.

Cost recovery for replacing Company-owned lead service lines are recoverable through traditional

base rate case filings.

The current estimates for replacement of Middlesex and Middlesex customer-owned lead service lines are approximately

$ 46 million to $ 77 million over a nine-year period.

In October 2023, the NJBPU approved Middlesex’s

petition for a Distribution System Improvement Charge (DSIC) Foundation Filing, which is a prerequisite to implementing a DSIC rate that

allows water utilities to recover investments in, and generate a return on, qualifying capital improvements to their water distribution

system made between base rate proceedings.

Middlesex is authorized to recover DSIC revenues up to five percent ( 5 %) of total revenues

established in Middlesex’s 2021 base rate proceeding, or approximately $ 5.5 million.

Semi-annually, beginning in April 2024, the

Company must file for a change in its DSIC rate seeking recovery for DSIC-eligible investments made during the period.

DSIC rates remain

in effect until Middlesex’s next base rate case increase subsequent to the March 1, 2024 increase.

Under the terms of the Foundational

Filing, the Company is required to file a base rate petition before October 2026.

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

The rate reduction is expected to reduce annual revenues by approximately $ 2.2 million.

Emergency Relief Motion to reset its Purchased Water Adjustment Clause (PWAC) tariff rate to recover additional costs of $ 2.7 million

for the purchase of treated water from a non-affiliated water utility.

A PWAC is a rate mechanism that allows for recovery of increased

purchased water costs between base rate case filings.

The increase, effective October 1, 2022, was on an interim basis and subject to

refund with interest, pending final resolution of this matter, which the NJBPU provided in August 2023.

In connection with the full recovery

of the $ 2.7 million of additional costs, Middlesex reset its PWAC rate to zero in October 2023.

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.

part of the negotiated settlement, the PWAC was reset to zero.

Tidewater – In December 2023, the

DEPSC approved Tidewater’s application to implement a new DSIC.

Effective January 1, 2024, Tidewater implemented a DSIC rate of

3.71 %, which is expected to generate revenue of approximately $ 1.3 million annually.

A Delaware DISC is subject to a semi-annual reset

with an overall maximum rate of 7.5 %.

In October 2023, the DEPSC issued an Order that

made a temporary base rate reduction permanent.

The initial DEPSC order required Tidewater to reduce its base rates charged to general

metered and private fire customers by 6.0 %, effective for service rendered on and after September 1, 2022.

The rate reduction was ordered

as a result of Tidewater earning in excess of its authorized return, and resulted in reduced annual revenues of approximately $ 2.1 million

In March 2021, Tidewater was notified by the DEPSC

1 unchanged sentence

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.

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.

reset its 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.

Pinelands – In April 2023,

Pinelands Water and Pinelands Wastewater concluded their base rate case matters when the NJBPU approved a combined $ 1.0 million increase

in annual base rates, effective April 15, 2023.

The requests were necessitated by capital infrastructure investments the companies have

made as well as increased operations and maintenance costs.

Southern Shores - Effective January

20 unchanged sentences

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

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

In November 2021, the PAPUC issued an Order affirming the ALJ’s Recommended Decision, ordering

the Receiver Utility to acquire the Twin Lakes water system and for Middlesex, the parent company of Twin Lakes, to submit $ 1.7 million

into an escrow account within 30 days.

Twin Lakes immediately filed a Petition For Review (PFR) with the Commonwealth Court of Pennsylvania

(the Commonwealth Court) seeking reversal and vacation of the escrow requirement on the grounds that it violates the Pennsylvania Public

Utility Code as well as the United States Constitution.

In addition, Twin Lakes filed an emergency petition for stay of the PAPUC Order

pending the Commonwealth Court’s review of the merits arguments contained in Twin Lakes’ PFR.

In December 2021, the Commonwealth

Court granted Twin Lakes’ emergency petition, pending its review.

In August 2022, the Commonwealth Court issued an opinion upholding

PAPUC’s November 2021 Order in its entirety.

In September 2022, Twin Lakes filed a Petition For Allowance of Appeal (Appeal Petition)

to the Supreme Court of Pennsylvania seeking reversal of the Commonwealth Court’s decision to uphold the escrow requirement on the

grounds that the Commonwealth Court erred in failing to address Twin Lakes’ claims that because the $ 1.7 million escrow requirement

placed on Middlesex violated Middlesex’s constitutional rights, Middlesex’s refusal to submit this escrow payment would jeopardize

the relief Twin Lakes was otherwise entitled to in the appointment of the Receiver Utility.

In March 2023, the Supreme Court of Pennsylvania

issued a decision denying Twin Lakes’ Appeal Petition without addressing this claim on the merits.

As a result of the Pennsylvania

Courts’ failure to address Twin Lakes’ claim, Middlesex subsequently filed a Complaint with the United States District Court

for the Middle District of Pennsylvania to address the issue of whether the PAPUC’s Order violated Middlesex’s rights under

the United States Constitution.

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.

On January 18, 2024, the District Court issued an Order dismissing Middlesex’s Complaint without

addressing the issue of whether the PAPUC’s Order violated Middlesex’s rights under the United States Constitution.

31, 2024, Middlesex filed a Notice of Appeal of the District Court’s decision with the United States Court of Appeals for the Third

We are currently awaiting the Court’s decision.

The financial results, total assets and financial

obligations of Twin Lakes are not material to Middlesex.

Regulatory Matters

9 unchanged sentences

Rate Cases, Tank Painting, and Other

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.

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 (regulatory asset) or less

than current funding (regulatory liability, which was $ 1.5 million as of December 31, 2023), which the Company believes will be fully

recovered or refunded in rates set by the regulatory authorities.

The recovery period for income taxes is dependent

upon when the temporary differences between the tax and book treatment of various items reverse.

The 2017 Tax Act reduced the statutory corporate federal

income tax rate from 35 % to 21 %.

The tariff rates charged to customers effective prior to 2018 in the Company’s regulated

companies include recovery of income taxes at the statutory rate in effect at the time those rates were approved by the respective state

public utility commissions.

The net proceeds available to Middlesex from the

3M Settlement Agreement, after excluding legal fees, $ 63.6 million, were recorded as a regulatory liability,

as of December 31, 2023.

For further information on the 3M Settlement Agreement, see Rates, Note 1(s) - Regulatory Notice of Non-Compliance

and Rate Matters, Middlesex above.

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, 2023 and 2022, the Company has recorded regulatory liabilities of $ 28.2 million and

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.

$ 29.0 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.

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.

The Company recovers certain asset retirement

costs through rates charged to customers as an approved component of depreciation expense.

As of December 31, 2023 and 2022, the Company

has approximately $ 19.7 million and $ 17.7 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

Income tax expense (benefit) differs from the

amount computed by applying the statutory rate on book income subject to tax for the following reasons:

11 unchanged sentences

Investment Tax Credits

Total Income Tax (Benefit) Expense

Total Income Tax Expense (Benefit)

As part of Middlesex’s March 2018 base water

14 unchanged sentences

Total Accumulated Deferred Income Taxes

The Company’s federal income tax returns for

the tax years 2014 through 2017 were selected for examination by the IRS, which included the tax year in which the Company had adopted

the final IRS tangible property regulations and changed its accounting method for the tax treatment of expenditures that qualified as

deductible repairs.

As a result of the audit examination, the Company agreed to certain modifications of its accounting method for expenditures

that qualify as deductible repairs.

In 2019, the Company paid $ 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.

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.

Water Supply – Middlesex’s

agreement with the New Jersey Water Supply Authority (NJWSA) for the purchase of untreated water expires November 30, 2048 .

NJSWA provides

for an average purchase of 27.0 million gallons a day (mgd), with a peak up to 47.0 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

3 unchanged sentences

Tidewater contracts with the City of Dover, Delaware

to purchase treated water of 15.0 million gallons annually.

to purchase treated water of up to 60.0 million gallons annually.

Purchased water costs are shown below:

5 unchanged sentences

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 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.

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, 2023, 2022 and 2021.

Information related to operating lease ROU assets is as follows:

3 unchanged sentences

Current ROU Asset

The Company’s future minimum operating lease commitments as of December

31, 2022 are as follows:

The Company’s future minimum operating lease commitments as of

December 31, 2023 are as follows:

(In Millions)

8 unchanged sentences

Company has projected to spend approximately $ 75 million in 2024, $ 81 million in 2025 and $ 70 million in 2026 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.

As of December 31, 2023, the Company has entered into several contractual construction agreements that in total obligate it to expend

an estimated $ 6.7 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.

There is no assurance that projected customer growth and residential new home construction

and sales will occur.

Contingencies – Based on our operations

9 unchanged sentences

economic damages.

These lawsuits are in the early stages of the legal process and their ultimate resolution cannot be predicted at this

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.

Middlesex and 3M agreed to enter into a joint mediation on these lawsuits (for further discussion of this matter, see

Note 1(s) 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.

Note 5 – Short-term Borrowings

1 unchanged sentence

borrowings for the years ended December 31, 2023 and 2022 is summarized below:

(Millions of Dollars)

(In Millions)

Average Amount Outstanding

4 unchanged sentences

$ 140.0 million.

(In Millions)

As of December 31, 2023

4 unchanged sentences

CoBank, ACB (CoBank)

November 30, 2023

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.

dates for the Notes Payable as of December 31, 2023 are extendable at the discretion of the Company.

The interest rates are set for borrowings under

the Bank of America and PNC Bank lines of credit using the Secured Overnight Financing Rate (SOFR) and then adding a specific financial

institution credit spread.

The interest rate for borrowings under the CoBank line of credit are set weekly using CoBank’s internal

cost of funds index that is similar to the 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.

cost of funds index that is similar to the SOFR and adding a credit spread.

There is no requirement for a compensating balance under any

of the established lines of credit.

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.

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.

All the transactions discussed below related to

the issuance of securities were approved by either the NJBPU or DEPSC, except where otherwise noted.

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 $ 12.1 million under the Investment Plan during 2023.

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

The discount offering will continue until 200,000 shares are purchased at the discounted price or December 1, 2023, whichever event

occurs first.

The discount applies to all common stock purchases made under the Investment Plan, whether by optional cash payment

or by dividend reinvestment.

Since the inception of the Investment Plan and its predecessor plan, the Company has periodically replenished

the level of authorized shares in the plans.

Currently, 0.2 million shares remain registered with the United States Securities and Exchange

Commission for the Investment Plan and available for potential issuance to participants.

Middlesex has filed a

petition with the NJBPU

seeking to increase the number of authorized shares under the Investment Plan by 0.7 million shares.

On March 1, 2023, the Company began offering shares of its common stock for purchase at a 3 % discount to participants in the Investment

The discount offering ended December 1, 2023.

The discount applied to all common stock purchases made under the Investment

Plan during that time period, 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.

In May 2023, Middlesex

received approval from the NJBPU to increase the number of authorized shares under the Investment Plan by 0.7 million shares.

0.7 million shares remain

registered with the United States Securities and Exchange Commission and available for issuance to participants

under the Investment Plan.

In April 2023, Middlesex received approval from

the NJBPU to issue and sell up to 1.0 million shares of its common stock, without par value, through December 31, 2025.

Sales of additional

shares of common stock are part of the Company’s comprehensive financing plan to fund its multi-year utility plant infrastructure

investment program.

As described below in “Long-term Debt”, the NJBPU also approved the debt funding component of the financing

The Company issues common shares under a restricted

7 unchanged sentences

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.

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

24 unchanged sentences

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

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.

of the long-term loans currently offered through the NJIB is up to thirty years.

In May 2022, Middlesex repaid two outstanding NJIB

construction loans by issuing First Mortgage Bonds (FMBs) to the NJIB under two loan agreements.

The total amount of FMBs issued is $ 52.2

million and designated as Series 2022A ($ 16.2 million) and Series 2022B ($ 36.0 million).

The interest rate on the Series 2022A bond is

zero and the interest rate on the Series 2022B bond ranges between 2.7 % and 3.0 %.

The final maturity date for both FMBs is August 1, 2056,

with scheduled debt service payments over the life of these loans.

The NJIB has changed the SRF program for project funding

priority ranking, the proportions of interest free loans and market interest rate loans and overall loan limits on interest free loan

balances to investor-owned water utilities.

These changes affect SRF projects for which the construction loan closes after September 2018.

Under the new

guidelines, the principal balance having a stated interest rate of zero percent ( 0 %) is 25 % of the loan balance with the

remaining portion of 75 % having a market based interest rate.

This is limited to the first $ 10.0 million of the loan.

Loan amounts above

$ 10.0 million do not participate in the 0 % rate program, but do participate at the market based interest rate.

As a result of all these

changes, the Company’s future capital funding plan currently does not include participating in the NJIB SRF program.

In June 2021, Middlesex received approval from the

NJBPU to redeem up to $ 45.5 million of outstanding FMBs, specifically Series RR ($ 22.5 million) and Series SS ($ 23.0 million), and issue

replacement FMBs at an overall lower cost of debt.

In November 2021, Middlesex closed on a $ 45.5 million, 2.90 % private placement of FMBs,

designated as Series 2021B with a 2051 maturity date to effectuate the redemptions.

In May 2020, Middlesex received

approval from the NJBPU to borrow up to $ 100 million, in one or more private placement transactions through December 31, 2023 to help

fund Middlesex’s multi-year capital construction program.

In connection with this approval:

● In 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.;

● 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

Under the New Jersey SRF program, borrowers first

enter into a construction loan agreement with the New Jersey Infrastructure Bank (NJIB) at a below market interest rate.

When construction

on the qualifying project is substantially complete, NJIB will coordinate the conversion of the construction loan into a long-term securitized

loan with a portion of the principal balance having a stated interest rate of zero percent ( 0 %) and a portion of the principal balance

at a market interest rate at the time of closing using the credit rating of the State of New Jersey.

As a result of revised project funding

priority ranking for the NJIB SRF Program, the Company has no current projects in the NJIB SRF program.

However, it is seeking to have

Middlesex’s LSLR Project added to the qualified list in order to borrow under the NJIB SRF program.

Under the Delaware SRF program, borrowers 1) enter

into a long-term note agreement for a term not to exceed twenty years, 2) submit requisitions for cost reimbursements during the construction

period for up to two years after the agreement is executed and 3) as the proceeds are received from the requisitions, borrowers record

a corresponding debt obligation amount.

In April 2023, Middlesex received approval from

the NJBPU to borrow up to $ 300.0 million from the New Jersey SRF Program, the New Jersey Economic Development Authority, private placement

and other financial institutions as needed through December 31, 2025.

The Company may issue debt securities in a series of one or more

transaction offerings to help fund Middlesex’s multi-year capital construction program.

In March 2023, Middlesex closed on a $ 40.0 million,

5.24 % private placement of First Mortgage Bonds (FMBs) with a 2043 maturity date designated as Series 2023A.

Proceeds were used to reduce

the Company’s outstanding balances under its bank lines of credit.

In May 2022, Middlesex repaid its two outstanding

NJIB construction loans by issuing 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, 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.

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 2023, Tidewater closed on a $ 20.0 million

loan from CoBank, ACB (CoBank) with an interest rate of 5.71 % and a 2033 maturity date and fully drew all funds by June 30, 2023 .

from the loan were used to pay off Tidewater’s outstanding balances under its bank lines of credit and for other general corporate

In April 2023, Tidewater closed on three DEPSC-approved

Delaware SRF loans totaling $ 10.2 million, all at interest rates of 2.0 % with maturity dates in 2043 and 2044.

These loans are for the

construction, relocation, improvement, and/or interconnection of transmission mains.

Tidewater has drawn a total of $ 6.1 million through

December 31, 2023 and expects that the requisitions will continue through mid-2025.

In December 2021, Tidewater closed on a DEPSC-approved

$ 5.0 million Delaware SRF loan at an interest rate of 2.0 %.

The loan was for construction of a one million gallon elevated storage tank.

Through December 31, 2023, Tidewater has drawn a total of $ 4.8 million and expects that the requisitions will continue through the first

quarter of 2024.

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 % and a 2046 maturity date.

Proceeds from the loan were used to pay

off its outstanding balances under its lines of credit.

In July 2023, Pinelands Water and Pinelands Wastewater

closed on $ 3.9 million and $ 3.6 million CoBank amortizing mortgage type loans, respectively, with an interest rate of 6.17 % and a final

maturity date of 2043 for each loan.

Proceeds were used to pay off outstanding intercompany loans with Middlesex and for ongoing capital

The aggregate annual principal repayment obligations

for all long-term debt over the next five years and thereafter are shown below:

as of December 31, 2023 for all long-term debt over the next five years and thereafter are shown below:

The weighted average interest rate on all long-term

debt at December 31, 2023 and 2022 was 3.65 % and 2.98 %, 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.

Substantially all of the utility plant of the

Company is subject to the lien of its mortgage, which includes debt service and capital ratio covenants.

The Company is in compliance

with all of its mortgage covenants and restrictions.

Earnings Per Share

The following table presents the calculation of basic

and diluted earnings per share (EPS) for the years ended December 31, 2022, 2021 and 2020.

Basic EPS is computed on the basis of the weighted

average number of shares outstanding.

The following table presents the calculation of

basic and diluted earnings per share (EPS) for the years ended December 31, 2023, 2022 and 2021.

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.

3 unchanged sentences

Earnings Applicable to Common Stock

$ 7.00 Series Dividend

Convertible Preferred $ 7.00 Series Dividend

Adjusted Earnings Applicable to Common Stock

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 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.

carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and

3 unchanged sentences

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 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:

1 unchanged sentence

At December 31,

It was not practicable to estimate their fair value

It was not practicable to estimate the fair value

on our outstanding long-term debt for which there is no quoted market price and there is not an active trading market.

1 unchanged sentence

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.

Secured Notes” and “State Revolving Trust Notes” on the Consolidated Statements of Capital Stock and Long-Term Debt.

The carrying amount of these instruments was $ 231.3 million and $ 159.1 million at December 31, 2023 and 2022, respectively.

Customer advances

for construction have carrying amounts of $ 21.3 million and $ 21.4 million at December 31, 2023 and 2022, respectively.

Their relative

fair values cannot be accurately estimated since future refund payments depend on several variables, including new customer connections,

customer consumption levels and future rate increases.

Note 7 - Employee Benefit Plans

12 unchanged sentences

Other Benefits

The Company’s Other Benefits Plan covers substantially

all of its current retired employees.

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.

Coverage includes healthcare and life insurance.

Regulatory Treatment of Over/Underfunded Retirement Obligations

13 unchanged sentences

Other Benefits Plan

Years Ended December 31,

Change in Projected Benefit Obligation:

6 unchanged sentences

Other Benefits Plan

Years Ended December 31,

Change in Fair Value of Plan Assets:

7 unchanged sentences

Other Benefits Plan

As of December 31,

Amounts Recognized in the Consolidated

9 unchanged sentences

Expected Return on Plan Assets

Amortization of Net Actuarial Loss

Amortization of Net Actuarial Loss (Gain)

Net Periodic Benefit Cost*

2 unchanged sentences

Income (Expense), net.

Amounts that are expected to be amortized from Regulatory Assets into Net

Periodic Benefit Cost in 2023 are as follows:

Amounts that are expected to be amortized from Regulatory Assets into

Net Periodic Benefit Cost in 2024 are as follows:

(Thousands of Dollars)

Benefits Plan

Actuarial Loss (Gain)

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

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, 2023, 2022 and 2021, respectively,

are as follows:

Other Benefits Plan

10 unchanged sentences

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

mortality table (Pri-2012) (Mortality Improvement Scale MP2021).

For the 2023 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 2023 with

the annual rate of increase declining 0.5 % per year for 2024-2029, resulting in an annual rate of increase in the per capita cost of covered

healthcare benefits of 4.5 % by year 2030.

A one-percentage point change in assumed healthcare cost trend rates would

have the following effects on the Other Benefits Plan:

A one-percentage point change in assumed healthcare cost trend rates

would have the following effects on the Other Benefits Plan:

(Thousands of Dollars)

7 unchanged sentences

Benefit Plans Assets

The allocation of plan assets at December 31, 2022 and 2021 by asset category

is as follows:

The allocation of plan assets at December 31, 2023 and 2022 by asset

category is as follows:

Other Benefits Plan

11 unchanged sentences

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.

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

19 unchanged sentences

pricing vendors that utilize observable inputs and are therefore classified as Level 2 investments.

The following tables present Middlesex’s Pension Plan assets measured

and recorded at fair value within the fair value hierarchy:

The following tables present Middlesex’s Pension Plan assets

measured and recorded at fair value within the fair value hierarchy:

(Thousands of Dollars)

2 unchanged sentences

Common Equity Securities

Corporate Bonds

Agency/US Debt

Sovereign/Non-US Debt

Total Investments

4 unchanged sentences

Total Investments

The following tables present Middlesex’s Other Benefits Plan assets

measured and recorded at fair value within the fair value hierarchy:

The following tables present Middlesex’s Other Benefits Plan

assets measured and recorded at fair value within the fair value hierarchy:

(Thousands of Dollars)

9 unchanged sentences

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

For the Pension Plan, Middlesex made total

cash contributions of $ 0.4 million in 2023 and expects to make cash contributions of approximately $ 0.9 million in 2024.

For the Other Benefits Plan, Middlesex made

cash contributions of $ 0.9 million in 2023 and expects to make approximately $ 0.9 million of cash contributions in 2024.

4 unchanged sentences

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.

The Company’s matching contribution was $ 0.8 million, $ 0.7 million and $ 0.7 million

for the years ended December 31, 2023, 2022 and 2021, respectively.

Employees hired after March 31, 2007 are not eligible

6 unchanged sentences

1, 2024, which represents 5.0 % of eligible 2023 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.

For the years ended December 31, 2022 and 2021, the Company made qualifying

discretionary contributions totaling $ 0.9 million and $ 0.8 million, respectively.

Stock-Based Compensation

3 unchanged sentences

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.

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 .

shares authorized for award under the plan is 300,000 shares, of which approximately 75 % remain available for issuance.

The Company recognizes compensation expense at

fair value for the plan awards in accordance with ASC 718, Compensation – Stock Compensation .

Compensation expense is determined

3 unchanged sentences

Shares(thousands)

Weighted Average

Granted Price

Average Granted

Balance, January 1, 2021

21 unchanged sentences

Years Ended December 31,

Operations by Segments:

Operation by Segments

Non – Regulated

7 unchanged sentences

Consolidated Depreciation

Other Income (Expense), Net:

Other Income, Net:

Non – Regulated

Inter-segment Elimination

Consolidated Other Income (Expense), Net

Consolidated Other Income, Net

Interest Expense:

10 unchanged sentences

Total Capital Expenditures

(Thousands of Dollars)

December 31, 2023

7 unchanged sentences

Operating Revenues

Gain on Sale of Subsidiary

Operating Income

8 unchanged sentences

Operating Revenues

Gain on Sale of Subsidiary

Operating Income

14 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data