MIDDLESEX WATER CO 10-K

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, 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 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. 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 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. 42 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 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. Income Tax Accounting for Non-Routine Transaction Critical Audit Matter Description As described in Notes 1 and 2 to the consolidated financial statements, the Company executed a non-routine litigation settlement agreement in 2023. Management estimated and recorded the income tax effects of this non-routine transaction. We 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. How We Addressed the Matter in Our Audit The 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 We have served as the Company's auditor since 2006. Philadelphia , Pennsylvania February 29, 2024 43 MIDDLESEX WATER COMPANY CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) Years Ended December 31, 2023 2022 2021 Operating Revenues $ 166,274 $ 162,434 $ 143,141 Operating Expenses: Operations and Maintenance 83,113 79,096 73,671 Depreciation 25,194 23,029 21,109 Other Taxes 18,744 18,208 15,150 Total Operating Expenses 127,051 120,333 109,930 Gain on Sale of Subsidiary — 5,232 — Operating Income 39,223 47,333 33,211 Other Income (Expense): Allowance for Funds Used During Construction 2,433 2,314 2,653 Other Income (Expense), net 4,052 5,389 3,305 Total Other Income, net 6,485 7,703 5,958 Interest Charges 13,143 9,367 8,114 Income before Income Taxes 32,565 45,669 31,055 Income Taxes 1,041 3,240 ( 5,488 ) Net Income 31,524 42,429 36,543 Preferred Stock Dividend Requirements 120 120 120 Earnings Applicable to Common Stock $ 31,404 $ 42,309 $ 36,423 Earnings per share of Common Stock: Basic $ 1.77 $ 2.40 $ 2.08 Diluted $ 1.76 $ 2.39 $ 2.07 Average Number of Common Shares Outstanding : Basic 17,732 17,597 17,492 Diluted 17,847 17,712 17,607 See Notes to Consolidated Financial Statements. 44 MIDDLESEX WATER COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) December 31, December 31, ASSETS 2023 2022 UTILITY PLANT: Water Production $ 303,791 $ 249,153 Transmission and Distribution 809,862 735,138 General 100,593 97,581 Construction Work in Progress 19,636 53,570 TOTAL 1,233,882 1,135,442 Less Accumulated Depreciation 235,540 214,891 UTILITY PLANT - NET 998,342 920,551 CURRENT ASSETS: Cash and Cash Equivalents 2,390 3,828 Accounts Receivable, net of allowance for uncollectible accounts of $ 2,137 and $ 2,326 , respectively 18,172 16,018 Litigation Settlement Receivable 69,872 — Unbilled Revenues 9,297 8,659 Materials and Supplies (at average cost) 6,972 6,177 Prepayments 1,833 2,624 TOTAL CURRENT ASSETS 108,536 37,306 OTHER ASSETS: Operating Lease Right of Use Asset 3,185 3,826 Preliminary Survey and Investigation Charges 1,932 2,806 Regulatory Assets 90,694 90,046 Non-utility Assets - Net 11,522 11,207 Employee Benefit Plans 21,779 8,689 Other 62 19 TOTAL OTHER ASSETS 129,174 116,593 TOTAL ASSETS $ 1,236,052 $ 1,074,450 CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock, No Par Value $ 246,764 $ 233,054 Retained Earnings 176,227 167,274 TOTAL COMMON EQUITY 422,991 400,328 Preferred Stock 2,084 2,084 Long-term Debt 358,153 290,280 TOTAL CAPITALIZATION 783,228 692,692 CURRENT Current Portion of Long-term Debt 7,740 17,462 LIABILITIES: Notes Payable 42,750 55,500 Accounts Payable 27,618 24,847 Litigation Settlement Payable 6,237 — Accrued Taxes 10,535 12,162 Accrued Interest 3,138 2,535 Unearned Revenues and Advanced Service Fees 1,390 1,365 Other 4,421 3,988 TOTAL CURRENT LIABILITIES 103,829 117,859 COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) OTHER LIABILITIES: Customer Advances for Construction 21,313 21,382 Lease Obligations 3,063 3,706 Accumulated Deferred Income Taxes 88,736 77,783 Regulatory Liabilities 113,021 46,734 Other 592 919 TOTAL OTHER LIABILITIES 226,725 150,524 CONTRIBUTIONS IN AID OF CONSTRUCTION 122,270 113,375 TOTAL CAPITALIZATION AND LIABILITIES $ 1,236,052 $ 1,074,450 See Notes to Consolidated Financial Statements. 45 MIDDLESEX WATER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended December 31, 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 31,524 $ 42,429 $ 36,543 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 29,442 27,475 26,799 Provision for Deferred Income Taxes ( 5,599 ) ( 5,334 ) ( 10,989 ) Equity Portion of Allowance for Funds Used During Construction (AFUDC) ( 1,458 ) ( 1,387 ) ( 1,505 ) Cash Surrender Value of Life Insurance ( 300 ) 401 ( 136 ) Stock Compensation Expense 2,214 1,630 1,338 Gain on Sale of Subsidiary — ( 5,232 ) — Changes in Assets and Liabilities: Accounts Receivable ( 2,154 ) ( 707 ) ( 742 ) Unbilled Revenues ( 638 ) ( 1,386 ) ( 208 ) Materials & Supplies ( 795 ) ( 819 ) ( 246 ) Prepayments 791 256 6 Accounts Payable 2,771 3,722 ( 9,318 ) Accrued Taxes ( 1,627 ) 3,541 ( 1,517 ) Accrued Interest 603 549 ( 151 ) Employee Benefit Plans ( 1,340 ) ( 4,266 ) ( 2,645 ) Unearned Revenue & Advanced Service Fees 25 35 75 Other Assets and Liabilities ( 677 ) 454 ( 4,276 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 52,782 61,361 33,028 CASH FLOWS FROM INVESTING ACTIVITIES: Utility Plant Expenditures, Including AFUDC of $ 975 in 2023, $ 927 in 2022 and $ 1,148 in 2021 ( 90,179 ) ( 91,335 ) ( 79,378 ) Proceeds from Sale of Subsidiary — 3,122 — NET CASH USED IN INVESTING ACTIVITIES ( 90,179 ) ( 88,213 ) ( 79,378 ) CASH FLOWS FROM FINANCING ACTIVITIES: Redemption of Long-term Debt ( 17,463 ) ( 7,423 ) ( 52,691 ) Proceeds from Issuance of Long-term Debt 75,812 2,662 86,595 Net Short-term Bank Borrowings ( 12,750 ) 42,500 11,000 Deferred Debt Issuance Expense ( 131 ) ( 624 ) ( 994 ) Common Stock Issuance Expense ( 10 ) ( 32 ) — Payment of Grantee Withholding Taxes in Exchange for Restricted Stock ( 619 ) — — Proceeds from Issuance of Common Stock 12,115 10,335 3,837 Payment of Common Dividends ( 22,441 ) ( 20,810 ) ( 19,373 ) Payment of Preferred Dividends ( 120 ) ( 120 ) ( 120 ) Construction Advances and Contributions-Net 1,566 659 11,225 NET CASH PROVIDED BY FINANCING ACTIVITIES 35,959 27,147 39,479 NET CHANGES IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 1,438 ) 295 ( 6,871 ) CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 3,828 3,533 10,404 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 2,390 $ 3,828 $ 3,533 SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY: Utility Plant received as Construction Advances and Contributions $ 7,259 $ 6,252 $ 4,750 Long-term Debt Deobligation $ — $ — $ 64 Non-Cash Consideration for Sale of Subsidiary $ — $ 2,100 $ — Litigation Settlement Receivable $ 69,872 $ — $ — Litigation Settlement Payable $ 6,237 $ — $ — SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash Paid During the Year for: Interest $ 12,762 $ 9,251 $ 8,546 Interest Capitalized $ 975 $ 927 $ 1,148 Income Taxes $ 2,962 $ 3,230 $ 3,335 See Notes to Consolidated Financial Statements. 46 MIDDLESEX WATER COMPANY CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND LONG-TERM DEBT (In thousands) December 31, December 31, 2023 2022 Common Stock, No Par Value Shares Authorized - 40,000 Shares Outstanding - 2023 - 17,821 ; 2022 - 17,642 $ 246,764 $ 233,054 Retained Earnings 176,227 167,274 TOTAL COMMON EQUITY $ 422,991 $ 400,328 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 2024-2059 $ 278,374 $ 252,269 Amortizing Secured Notes, 3.94 %- 7.05 %, due 2028-2046 69,724 44,918 State Revolving Trust Notes, 2.00 %- 4.03 %, due 2025-2044 16,638 9,200 SUBTOTAL LONG-TERM DEBT 364,736 306,387 Add: Premium on Issuance of Long-term Debt 6,529 6,873 Less: Unamortized Debt Expense ( 5,372 ) ( 5,518 ) Less: Current Portion of Long-term Debt ( 7,740 ) ( 17,462 ) TOTAL LONG-TERM DEBT $ 358,153 $ 290,280 See Notes to Consolidated Financial Statements. 47 MIDDLESEX WATER COMPANY CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (In thousands) Common Common Stock Stock Retained Shares Amount Earnings Total Balance at January 1, 2021 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 Issuance Expenses — — ( 32 ) ( 32 ) Balance at December 31, 2022 17,642 $ 233,054 $ 167,274 $ 400,328 Net Income — $ — $ 31,524 $ 31,524 Dividend Reinvestment & Common Stock Purchase Plan 167 12,115 — 12,115 Restricted Stock Award - Net - Employees 7 1,235 — 1,235 Stock Award - Board Of Directors 5 360 — 360 Cash Dividends on Common Stock ($ 1.2625 per share) — — ( 22,441 ) ( 22,441 ) Cash Dividends on Preferred Stock — — ( 120 ) ( 120 ) Common Stock Issuance Expenses — — ( 10 ) ( 10 ) Balance at December 31, 2023 17,821 $ 246,764 $ 176,227 $ 422,991 See Notes to Consolidated Financial Statements. 48 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 49 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, 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 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, 2023, 2022, and 2021. 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 50 respective regulatory rate order. The AFUDC rates for the years ended December 31, 2022, 2021 and 2020 for Middlesex and Tidewater are as follows: 2023 2022 2021 Middlesex 6.35 % 6.35 % 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 $ 2.1 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 million, $ 0.7 million and $ 0.4 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. 51 The Company’s operating revenues are comprised of the following: (In Thousands) Years Ended December 31, 2023 2022 2021 Regulated Tariff Sales Residential $ 86,581 $ 84,950 $ 77,699 Commercial 23,945 22,689 16,715 Industrial 11,586 11,152 8,990 Fire Protection 12,582 12,726 12,608 Wholesale 19,117 18,769 14,590 Non-Regulated Contract Operations 12,320 12,006 12,391 Total Revenue from Contracts with Customers $ 166,131 $ 162,292 $ 142,993 Other Regulated Revenues 806 831 929 Other Non-Regulated Revenues 453 440 427 Inter-segment Elimination ( 1,116 ) ( 1,129 ) ( 1,208 ) Total Revenue $ 166,274 $ 162,434 $ 143,141 (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) 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 (Park Avenue Plant) in South Plainfield, New Jersey exceeded a NJDEP standard that became effective in 2021. 52 Prior to 2021, the Company began design for construction of an enhanced treatment process at the Park Avenue Plant to comply with the new standard prior to the regulation being enacted. Since 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 process was completed, placed into service and is effectively treating the ground water in compliance with all state and federal drinking water standards. 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; and ● 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 time. Note 2 - Rate and Regulatory Matters Rate Matters 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. 53 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 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. As 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 2023. 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 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. 54 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 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, 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. 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. On January 31, 2024, Middlesex filed a Notice of Appeal of the District Court’s decision with the United States Court of Appeals for the Third Circuit. We are currently awaiting the Court’s decision. The financial results, total assets and financial obligations of Twin Lakes are not material to Middlesex. 55 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 2023 2022 Recovery Periods Retirement Benefits $ — $ 9,214 Various Income Taxes 84,419 74,422 Various Rate Cases, Tank Painting, and Other 6,275 6,410 2 - 10 years Total $ 90,694 $ 90,046 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 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 $ 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, 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. 56 Note 3 – Income Taxes Income tax expense (benefit) 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, 2023 2022 2021 Income Tax at Statutory Rate $ 6,839 $ 9,590 $ 6,521 Tax Effect of: Utility Plant Related ( 1,495 ) ( 1,106 ) ( 1,290 ) Tangible Property Repairs ( 5,475 ) ( 6,767 ) ( 12,281 ) State Income Taxes – Net 1,117 1,296 1,499 Other 55 227 63 Total Income Tax Expense (Benefit) $ 1,041 $ 3,240 $ ( 5,488 ) Income tax expense (benefit) is comprised of the following: (Thousands of Dollars) Years Ended December 31, 2023 2022 2021 Current: Federal $ 2,952 $ 425 $ ( 8,247 ) State 1,066 1,381 1,467 Deferred: Federal ( 3,261 ) 1,242 933 State 348 260 431 Investment Tax Credits ( 64 ) ( 68 ) ( 72 ) Total Income Tax Expense (Benefit) $ 1,041 $ 3,240 $ ( 5,488 ) 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). 57 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, 2023 2022 Utility Plant Related $ 84,330 $ 72,996 Customer Advances ( 3,546 ) ( 3,568 ) Employee Benefits 7,100 7,380 Investment Tax Credits 240 304 Other 612 671 Total Accumulated Deferred Income Taxes $ 88,736 $ 77,783 Note 4 - Commitments and Contingent Liabilities 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 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 up to 60.0 million gallons annually. Purchased water costs are shown below: (Millions of Dollars) Years Ended December 31, 2023 2022 2021 Untreated $ 3.2 $ 3.2 $ 3.3 Treated 5.3 3.9 3.6 Total Costs $ 8.5 $ 7.1 $ 6.9 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. 58 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: (In Millions) December 31, 2023 2022 ROU Asset at Lease Inception $ 7.3 $ 7.3 Accumulated Amortization ( 4.1 ) ( 3.5 ) Current ROU Asset $ 3.2 $ 3.8 The Company’s future minimum operating lease commitments as of December 31, 2023 are as follows: (In Millions) December 31, 2023 2024 0.8 2025 0.8 2026 0.9 2027 0.9 2028 0.9 Thereafter 0.9 Total Lease Payments $ 5.2 Imputed Interest ( 1.5 ) Present Value of Lease Payments 3.7 Less Current Portion* ( 0.6 ) Non-Current Lease Liability $ 3.1 *Included in Other Current Liabilities Construction –The Company has projected to spend approximately $ 75 million in 2024, $ 81 million in 2025 and $ 70 million in 2026 on its construction program. 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 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. 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 ). 59 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 Information regarding the Company’s short-term borrowings for the years ended December 31, 2023 and 2022 is summarized below: (In Millions) 2023 2022 Average Amount Outstanding $ 35.7 $ 28.9 Weighted Average Interest Rate 6.13 % 3.34 % Notes Payable at Year-End $ 42.8 $ 55.5 Weighted Average Interest Rate at Year-End 6.50 % 5.17 % The Company maintains bank lines of credit aggregating $ 140.0 million. (In Millions) As of December 31, 2023 Line of Credit Outstanding Available Maximum Credit Type Renewal Date Bank of America $ — $ 60.0 $ 60.0 Uncommitted January 24, 2025 PNC Bank 39.8 28.2 68.0 Committed January 31, 2026 CoBank, ACB (CoBank) 3.0 9.0 12.0 Committed May 20, 2026 $ 42.8 $ 97.2 $ 140.0 The maturity 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 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. 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 $ 12.1 million under the Investment Plan during 2023. On March 1, 2023, the Company began offering shares of its common stock for purchase at a 3 % discount to participants in the Investment Plan. 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. Currently, 0.7 million shares remain 60 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 plan. 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, 2023, 2022 and 2021, 4,608 , 2,664 and 3,444 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 41,853 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, 2023 and 2022, 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. 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. 61 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 . Proceeds from the loan were used to pay off Tidewater’s outstanding balances under its bank lines of credit and for other general corporate purposes. 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 projects. 62 The aggregate annual principal repayment obligations as of December 31, 2023 for all long-term debt over the next five years and thereafter are shown below: Year (Millions of Dollars) Annual Maturities 2024 $ 7.7 2025 $ 7.6 2026 $ 7.4 2027 $ 7.2 2028 $ 6.9 Thereafter $ 327.9 The weighted average interest rate on all long-term debt at December 31, 2023 and 2022 was 3.65 % and 2.98 %, respectively. 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, 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. (In Thousands, Except Per Share Amounts) 2023 2022 2021 Basic: Income Shares Income Shares Income Shares Net Income $ 31,524 17,732 $ 42,429 17,597 $ 36,543 17,492 Preferred Dividend ( 120 ) ( 120 ) ( 120 ) Earnings Applicable to Common Stock $ 31,404 17,732 $ 42,309 17,597 $ 36,423 17,492 Basic EPS $ 1.77 $ 2.40 $ 2.08 Diluted: Earnings Applicable to Common Stock $ 31,404 17,732 $ 42,309 17,597 $ 36,423 17,492 Convertible Preferred $ 7.00 Series Dividend 67 115 67 115 67 115 Adjusted Earnings Applicable to Common Stock $ 31,471 17,847 $ 42,376 17,712 $ 36,490 17,607 Diluted EPS $ 1.76 $ 2.39 $ 2.07 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 63 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, 2023 2022 Carrying Fair Carrying Fair Amount Value Amount Value FMBs $ 133,374 $ 131,745 $ 147,269 $ 138,756 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. 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” 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 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, 2023 and 2022 was $ 83.7 million and $ 79.4 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. 64 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 2023 and 2022. ( Thousands of Dollars) Pension Plan Other Benefits Plan Years Ended December 31, 2023 2022 2023 2022 Change in Projected Benefit Obligation: Beginning Balance $ 87,788 $ 113,710 $ 32,909 $ 49,396 Service Cost 1,551 2,362 391 799 Interest Cost 4,270 3,042 1,608 1,325 Actuarial (Gain) Loss 1,966 ( 27,850 ) ( 5,968 ) ( 17,761 ) Benefits Paid ( 3,722 ) ( 3,476 ) ( 940 ) ( 850 ) Ending Balance $ 91,853 $ 87,788 $ 28,000 $ 32,909 ( Thousands of Dollars) Pension Plan Other Benefits Plan Years Ended December 31, 2023 2022 2023 2022 Change in Fair Value of Plan Assets: Beginning Balance $ 84,828 $ 100,750 $ 44,029 $ 50,668 Actual Return on Plan Assets 10,840 ( 14,346 ) 4,323 ( 6,639 ) Employer Contributions 400 1,900 940 850 Benefits Paid ( 3,722 ) ( 3,476 ) ( 940 ) ( 850 ) Ending Balance $ 92,346 $ 84,828 $ 48,352 $ 44,029 Funded Status $ 494 $ ( 2,960 ) $ 20,352 $ 11,120 ( Thousands of Dollars) Pension Plan Other Benefits Plan As of December 31, 2023 2022 2023 2022 Amounts Recognized in the Consolidated Balance Sheets consist of: Current Liability $ 933 $ 529 $ — $ — Noncurrent Liability (Asset) ( 1,427 ) 2,431 ( 20,352 ) ( 11,120 ) Net Liability (Asset) Recognized $ ( 494 ) $ 2,960 $ ( 20,352 ) $ ( 11,120 ) 65 (Thousands of Dollars) Pension Plan Other Benefits Plan Years Ended December 31, 2023 2022 2021 2023 2022 2021 Components of Net Periodic Benefit Cost Service Cost $ 1,551 $ 2,362 $ 2,696 $ 391 $ 799 $ 917 Interest Cost 4,270 3,042 2,706 1,608 1,325 1,236 Expected Return on Plan Assets ( 5,865 ) ( 7,041 ) ( 6,225 ) ( 3,082 ) ( 3,547 ) ( 3,142 ) Amortization of Net Actuarial Loss (Gain) 658 1,674 2,868 ( 191 ) — 527 Net Periodic Benefit Cost* $ 614 $ 37 $ 2,045 $ ( 1,274 ) $ ( 1,423 ) $ ( 462 ) * 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 2024 are as follows: (Thousands of Dollars) Pension Plan Other Benefits Plan Actuarial Loss (Gain) $ 153 $ ( 1,098 ) 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: Pension Plan Other Benefits Plan 2023 2022 2021 2023 2022 2021 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 4.79 % 4.98 % 2.72 % 4.79 % 4.98 % 2.72 % Benefit Cost 4.98 % 2.72 % 2.37 % 4.98 % 2.72 % 2.37 % 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 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. 66 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 $ 308 $ ( 246 ) Effect on Projected Benefit Obligation $ 3,264 $ ( 2,676 ) The following benefit payments, which reflect expected future service, are expected to be paid: (Thousands of Dollars) Year Pension Plan Other Benefits Plan 2024 $ 5,078 $ 1,181 2025 5,457 1,310 2026 5,444 1,377 2027 5,522 1,417 2028 5,638 1,445 2029-2033 29,349 8,104 Totals $ 56,488 $ 14,834 Benefit Plans Assets The allocation of plan assets at December 31, 2023 and 2022 by asset category is as follows: Pension Plan Other Benefits Plan Asset Category 2023 2022 Target 2023 2022 Target Equity Securities 58.1 % 53.6 % 55 % 60.9 % 55.2 % 43 % Debt Securities 39.6 % 40.9 % 38 % 36.1 % 24.7 % 50 % Cash 0.7 % 3.9 % 2 % 3.0 % 20.1 % 2 % Real Estate/Commodities 1.6 % 1.6 % 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: 67 ● 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. 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, 2023 Level 1 Level 2 Level 3 Total Mutual Funds $ 71,236 $ — $ — $ 71,236 Money Market Funds 663 — — 663 Common Equity Securities 12,544 — — 12,544 Corporate Bonds 5,091 — — 5,091 Agency/US Debt 1,854 — — 1,854 Sovereign/Non-US Debt 958 — — 958 Total Investments $ 92,346 $ — $ — $ 92,346 (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 68 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, 2023 Level 1 Level 2 Level 3 Total Mutual Funds $ 29,437 $ — $ — $ 29,437 Money Market Funds 1,429 — — 1,429 Agency/US/State/Municipal Debt — 17,486 — 17,486 Total Investments $ 30,866 $ 17,486 $ — $ 48,352 (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 Benefit Plans Contributions 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. 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 $ 0.8 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 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, 2023 or retired during the current year, the Company will fund a discretionary contribution of $ 0.9 million before April 1, 2024, which represents 5.0 % of eligible 2023 compensation. 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 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 69 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 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 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, 2021 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 Granted 15 1,165 $ 77.63 Vested ( 18 ) — Amortization of Compensation expense — ( 1,854 ) Balance, December 31, 2023 74 $ 1,043 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. 70 (Thousands of Dollars) Years Ended December 31, Operation by Segments 2023 2022 2021 Revenues: Regulated $ 154,617 $ 151,117 $ 131,531 Non – Regulated 12,773 12,446 12,818 Inter-segment Elimination ( 1,116 ) ( 1,129 ) ( 1,208 ) Consolidated Revenues $ 166,274 $ 162,434 $ 143,141 Operating Income: Regulated $ 35,820 $ 44,257 $ 29,577 Non – Regulated 3,403 3,076 3,634 Consolidated Operating Income $ 39,223 $ 47,333 $ 33,211 Depreciation: Regulated $ 24,931 $ 22,783 $ 20,897 Non – Regulated 263 246 212 Consolidated Depreciation $ 25,194 $ 23,029 $ 21,109 Other Income, Net: Regulated $ 6,637 $ 7,898 $ 6,112 Non – Regulated 214 279 279 Inter-segment Elimination ( 366 ) ( 474 ) ( 433 ) Consolidated Other Income, Net $ 6,485 $ 7,703 $ 5,958 Interest Expense: Regulated $ 13,508 $ 9,833 $ 8,529 Non – Regulated — 7 17 Inter-segment Elimination ( 365 ) ( 473 ) ( 432 ) Consolidated Interest Expense $ 13,143 $ 9,367 $ 8,114 Income Taxes: Regulated $ ( 146 ) $ 2,084 $ ( 6,723 ) Non – Regulated 1,187 1,156 1,235 Consolidated Income Taxes $ 1,041 $ 3,240 $ ( 5,488 ) Net Income: Regulated $ 29,094 $ 40,229 $ 33,849 Non – Regulated 2,430 2,200 2,694 Consolidated Net Income $ 31,524 $ 42,429 $ 36,543 Capital Expenditures: Regulated $ 90,047 $ 91,054 $ 79,195 Non – Regulated 132 281 183 Total Capital Expenditures $ 90,179 $ 91,335 $ 79,378 71 (Thousands of Dollars) As of As of December 31, 2023 December 31, 2022 Assets: Regulated 1,235,549 $ 1,079,180 Non – Regulated 8,068 6,999 Inter-segment Elimination ( 7,565 ) ( 11,729 ) Consolidated Assets $ 1,236,052 $ 1,074,450 Note 9 - Quarterly Data - Unaudited Financial information for each quarter of 2023 and 2022 is as follows: (Thousands of Dollars, Except per Share Data) 2023 1 st 2 nd 3 rd 4 th Total Operating Revenues $ 38,156 $ 42,801 $ 46,715 $ 38,602 $ 166,274 Operating Income 7,490 10,669 12,822 8,242 39,223 Net Income 5,868 9,901 9,990 5,765 31,524 Basic Earnings per Share $ 0.33 $ 0.56 $ 0.56 $ 0.32 $ 1.77 Diluted Earnings per Share $ 0.33 $ 0.55 $ 0.56 $ 0.32 $ 1.76 Common Dividend Per Share $ 0.3125 $ 0.3125 $ 0.3125 $ 0.3250 $ 1.2625 High/Low Common Stock Price $ 72.64 /$ 90.56 $ 66.51 /$ 84.38 $ 65.37 /$ 84.35 $ 61.34 /$ 73.47 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 8,147 47,333 Net Income 12,100 8,868 14,291 7,170 42,429 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 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. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . None. 72