What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-03-01 · 256 added, 370 removed, 334 unchanged (65% of the section changed)

1 unchanged sentence

The following discussion should be read in conjunction

with the Company’s consolidated financial statements and related notes.

with the consolidated financial statements and related notes.

Middlesex Water Company (Middlesex or the Company)

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(Tidewater), since 1992.

We are in the business of collecting, treating and distributing water for domestic, commercial, municipal, industrial

We are in the business of providing an essential water utility service for domestic, commercial, municipal, industrial

and fire protection purposes.

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System also provides water sales under contract to municipalities in central New Jersey with a total population of over 0.2 million.

Fortescue System provides water services in Downe Township, New Jersey.

Our other New Jersey subsidiaries, Pinelands Water Company (Pinelands

Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), provide water and wastewater services to approximately

2,500 customers in Southampton Township, New Jersey.

other New Jersey subsidiaries, Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively,

Pinelands), provide water and wastewater services to approximately 2,500 customers in Southampton Township, New Jersey.

Our Delaware subsidiaries, Tidewater and Southern

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receives a service fee for the billing, cash collection and other administrative matters associated with HomeServe’s service contracts.

USA also provides unregulated water and wastewater services under contract with several New Jersey municipalities.

Middlesex President and Chief Executive Officer Retirement Announcement

and Replacement

In May 2023, President and Chief Executive

Management Update

Upon the retirements of President and Chief Executive

Officer Dennis W.

Doll announced a plan to retire upon turning age 65.

On January 23, 2024, the Company named Nadine Leslie as

its new President and Chief Executive Officer effective March 1, 2024.

Leslie will also be appointed to the Board

of Directors effective March 1, 2024.

will remain Chairman of the Company’s Board of Directors through the expiration

of his current term as a Director as of the May 21, 2024 Annual Meeting of Shareholders.

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 standard promulgated in a NJDEP regulation that became effective in 2021.

Middlesex was required by the regulation

to notify its affected customers and complied within the required Notice period in November 2021.

The Notice further required the Company to take

any action necessary to comply with the new standard by September 7, 2022.

Consequently, in November 2021, the Company implemented an

interim solution to meet the Notice requirements, which included putting the Park Avenue Wellfield Treatment Plant in off-line status

and obtaining alternate sources of supply.

In June 2022, the Company accelerated the in-service date for a portion of the enhanced treatment

project based on engineering analysis that allowed a restart of the Park Avenue Wellfield Treatment Plant to ensure continued compliance

with all state and federal drinking water standards.

In September 2022, the Company entered into an

Administrative Consent Order (ACO) with the NJDEP, which required the Company to take whatever actions necessary to achieve and maintain

compliance with applicable regulations.

As prescribed in the ACO, the Company was to issue periodic public notifications until the ACO

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 and to be implemented March 1, 2024 (for further discussion of Middlesex’s

base rate increase, see Rates, 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 in 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.

Doll, and Senior Vice President, Treasurer and Chief Financial Officer A.

Bruce O’Connor, the Company

named Nadine Leslie its new President and Chief Executive Officer effective March 1, 2024 and Mohammed G.

new Senior Vice President,

Treasurer and Chief Financial Officer effective June 24, 2024.

Leslie was also appointed to

the Board of Directors effective March 1, 2024.

In December 2024, the Company named Gregory Sorensen

its new Vice President and Chief Operating Officer.

His responsibilities include water and wastewater operations, capital program planning

and delivery, safety and security, sustainability, and growth initiatives.

Tidewater Acquisition of the Water Utility

Assets of the Town of Ocean View, Delaware

In February 2025, Tidewater and the Town of Ocean

View, Delaware’s (Ocean View) joint application for Tidewater’s purchase of all of the rights, title, and interest in the

water utility assets of Ocean View for $4.6 million was approved by the Delaware Public Service Commission (DEPSC).

Ocean View serves

approximately 900 customers in Sussex County, Delaware.

Tidewater currently provides water service to most residents of Ocean View other

that the 900 customers currently served by Ocean View.

Closing on this purchase is expected by April 2025.

United States Environmental Protection Agency

(USEPA) Issues Final Perfluoroalkyl (PFAS) Regulations

In April 2024, the USEPA finalized drinking water

regulations for PFAS, establishing maximum contaminant levels (MCLs) for three PFAS compounds (Regulated PFAS) that are lower than the

current New Jersey Department of Environmental Protection MCLs adhered to by the Company.

Under the new USEPA regulations effective April

2024, water systems must monitor for Regulated PFAS and have three years to complete initial monitoring (by April 2027), followed by ongoing

compliance monitoring.

Water systems must also provide the public with information on the levels of Regulated PFAS in their drinking water

beginning in 2027.

Water systems have five years (by April 2029) to implement solutions that reduce Regulated PFAS if monitoring shows

that drinking water levels exceed these MCLs.

Beginning in April 2029, water systems that have

Regulated PFAS in drinking water which exceeds one or more of these MCLs must take action to reduce levels of these PFAS compounds in

their drinking water and must provide notification to the public of the violation.

In anticipation of these new USEPA standards,

in 2023, the Company began implementing its strategy to meet these lower MCLs for Regulated PFAS and is currently performing preliminary

engineering studies to ensure that effective PFAS treatment approaches are implemented.

Capital Construction Program

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plans to invest approximately $93 million in 2025 in connection with this plan for projects that include, but are not limited to:

● Replacement of approximately 17,200 linear feet of cast iron 6" water main in the Port Reading and

Carteret sections of Woodbridge, New Jersey;

● Replacement of control room and electrical distribution equipment at our The Carl J.

Olsen Surface Water

Treatment Plant (CJO Plant);

● Supply and storage improvements and installation of emergency generators at several of our Tidewater facilities;

● Construction of residual removal equipment and chemical feed improvements, pumps and a surge mitigation

tank as well as other improvements and upgrades at our Park Avenue Plant;

● Upgrades and improvements to our Enterprise Resource Planning System;

Replacement of 19,550 linear feet of cast iron main in Woodbridge Township in our Middlesex System;

Construction of new elevated water tanks in Delaware;

Various water main replacements and improvements.

Strategy for Growth

Our strategy for profitable growth is focused on the following key

● Invest in projects, products and services that complement our core water and wastewater competencies;

● Timely and adequate recovery of infrastructure investments and other costs to maintain service quality;

● Prudent acquisitions of investor and municipally-owned water and wastewater utilities;

Our strategy for selective and sustainable growth is focused on the

following key areas:

Invest in our utility infrastructure to build system resiliency and meet compliance requirements;

Timely and adequate recovery of infrastructure investments and other costs to maintain and continually improve service quality;

Selective acquisitions of investor and municipally-owned water and wastewater utilities;

Operation of municipal and industrial water and wastewater systems on a contract basis which meet our risk profile.

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 Contributions in Aid of Construction

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.

further information on the 3M Settlement Agreement, see 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.

Middlesex - The approval by the NJBPU in

February 2024 of the negotiated settlement of the Middlesex 2023 base rate case 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.

In August 2023, Middlesex and 3M Company (3M) executed a settlement agreement (Settlement Agreement) to resolve

a lawsuit Middlesex previously initiated claiming 3M introduced Perfluoroalkyl Substances (PFAS) into the Company’s water supply

for its Park Avenue Wellfield Treatment Plant (Park Avenue Plant).

The rate case settlement provided that the net proceeds from

the 3M Settlement Agreement were to be used to mitigate the increase in customer rates and reimburse Middlesex for previously incurred

costs for the construction of the Park Avenue Plant PFAS treatment upgrades, including depreciation and carrying costs.

This resulted

in the reclassification of $48.3 million from Regulatory Liabilities to Contributions in Aid of Construction from the December 31, 2023

balance sheet.

In 2024, the Company also recognized the recovery of $0.9 million for depreciation and $4.1 million for carrying costs

associated with the Park Avenue Plant PFAS treatment upgrades, as well as the recovery of $2.6 million of previously incurred operating

treatment costs while the Park Avenue Plant PFAS treatment upgrades were in process.

The Middlesex Lead Service Line Replacement (LSLR)

Plan, which was approved by the NJBPU in January 2024, has commenced and Middlesex is currently recovering $1.2 million of costs for replacing

customer-owned lead service lines incurred through June 2024, which are being recovered between September 2024 and February 2025.

of $0.6 million for replacing customer-owned lead service lines incurred between July 2024 through December 2024 will be recovered beginning

in March 2025 through August 2025.

The LSLR surcharge is required to be reset every six months over the life of the LSLR Plan.

Cost recovery

for replacing Company-owned lead service lines are recoverable through traditional rate making in connection with general rate case filings.

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

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.

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

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

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.

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

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.

The agreement expires on December 31, 2029.

In May 2024, the NJBPU approved a DSIC rate, effective

May 26, 2024, that is expected to result in $0.5 million of annual revenue.

In November 2024, the NJBPU approved a DSIC rate, effective

November 26, 2024, that is expected to result in an additional $0.6 million of annual revenue.

Middlesex expects to file for an additional

DSIC rate increase in April 2025.

In February 2025, the NJBPU approved Middlesex’s

petition to reset its Purchased Water Adjustment Clause (PWAC) tariff rate to recover additional annual costs of $0.5 million, primarily

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

A PWAC is a rate mechanism that allows for

the recovery of increased purchased water costs between base rate case filings.

The PWAC is reset to zero once those increased costs are

included in base rates.

The new PWAC rate will be effective March 1, 2025.

Tidewater - In September 2024, the DEPSC

approved Tidewater’s petition to recover up to $2.1 million of costs associated with Tidewater’s obligation to identify and

inventory lead service lines throughout Tidewater’s service area, as required by federal law and Delaware regulations.

of these costs began February 1, 2025 and is expected to continue through January 2028.

Through December 31, 2024, Tidewater has spent

$1.8 million, which is included in Regulatory Assets.

In August 2024, Tidewater filed an application

with the DEPSC to increase its general rates for water service.

In the application, Tidewater seeks an overall increase in annual operating

revenue of $10.3 million or 25.66% over current revenue.

The request for rate increases will allow Tidewater to recover prudently incurred

investments made in the last ten years to support continued regulatory compliance, enhanced water quality, service reliability, security

and resiliency of the water utility infrastructure assets.

Effective October 30, 2024, Tidewater received approval of the DEPSC to suspend

its DSIC rate and implement an interim rate increase, which is expected to result in approximately $2.5 million of annual revenues, subject

to refund pending the outcome of the rate case application.

Southern Shores - Southern Shores

provides water service to a 2,200 unit condominium community in Sussex County, Delaware under a DEPSC-approved agreement expiring December

Under the agreement, rates are increased when there are unanticipated capital expenditures or regulatory related changes

in operating expenses exceed certain thresholds.

In 2024, capital expenditures did exceed the established threshold.

In addition, rates

are increased annually by the lesser of the regional Consumer Price Index or 3%.

Effective January 1, 2025, Southern Shores rates were

increased $0.1 million or 6.51%.

Our ability to increase operating income and net

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These factors,

among others, may require base rate increase requests filings by Tidewater, Pinelands Water and Pinelands Wastewater later in 2024.

among others, may require a base rate increase request by Middlesex in mid 2025.

Overall, organic residential customer growth continues

in our Tidewater system (approximately 3.5% in 2024).

However, current and evolving economic market conditions may challenge that growth.

Builders and developers in Tidewater’s service

areas are experiencing lower home starts and longer home sales closing cycles due to supply chain issues, which may be further affected

by inflationary trends on housing construction materials and mortgage interest rates.

The Company has projected to spend approximately

$226 million for the 2024-2026 capital investment program, including approximately $15 million for replacement of a thirty inch main in

our Middlesex System, $9 million for LSLR compliance in the Middlesex System, $34 million on the RENEW Program, which is our ongoing initiative

to replace water mains in the Middlesex System, $6 million for evaluation of PFAS treatment at our CJO Plant and $7 million for control

room and electrical distribution equipment at our CJO Plant.

$387 million for the 2025-2027 capital investment program, including approximately $105 million for upgrading our Carl J.

Olson Surface

Water Treatment Plant (CJO Plant) to integrate PFAS removal from source water, $34 million on the RENEW Program, which is our ongoing

initiative to replace water mains in the Middlesex System, $15 million for replacement of a transmission main in Metuchen in our Middlesex

System and $12 million for elevated storage tanks in our Tidewater System.

Operating Results by Segment

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and Non-Regulated.

Our Regulated segment contributed approximately 93%, 93% and 91% of total revenues for the years ended December 31,

2023, 2022 and 2021, respectively, and approximately 92%, 93% and 93% of net income for the years ended December 31, 2023, 2022 and 2021,

respectively .

The discussion of the Company’s results of operations is on a consolidated basis and includes significant factors

by subsidiary.

Our Regulated segment contributed approximately 93% of total revenues for the years ended December 31, 2024, 2023 and

2022, respectively, and approximately 94%, 92% and 93% of net income for the years ended December 31, 2024, 2023 and 2022, respectively.

The discussion of the Company’s results of operations is on a consolidated basis and includes significant factors by subsidiary.

The segments in the tables included below are comprised of the following companies:

Regulated- Middlesex, Tidewater, Pinelands

and Southern Shores;

Regulated- Middlesex, Tidewater, Pinelands and Southern

Non-Regulated- USA, USA-PA, and White Marsh.

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Depreciation expense

Gain on Sale of Subsidiary

Operating income

Other income (expense), net

Other income, net

Interest expense

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31, 2024 increased $25.6 million from the same period in 2023 due to the following factors:

● Middlesex System revenues increased by $4.2 million due to the implementation of the final phase of the

2021 base rate case increase on January 1, 2023 and the PWAC rate increase offset by lower weather-driven demand across all customer classes

(for further discussion of Middlesex’s 2021 base and PWAC rate increases, see Rates, Middlesex above);

● Tidewater System revenues decreased by $0.9 million due to a DEPSC ordered rate reduction in September

2022, lower customer connection fees and lower weather-driven customer demand partially offset by an increase in customers (for further

information on the Tidewater rate reduction, see Rates, Tidewater above ) ;

● Pinelands System revenues increased $0.2 million due to the implementation of a base rate increase effective

April 15, 2023 (for further discussion of Pinelands 2023 base rate increase, see Rates, Pinelands above) ;

Middlesex System revenues increased by $19.9 million due to the base rate case increase on March 1, 2024, increased weather-driven customer demand, higher commercial and industrial customer billing and the implementation of the 2024 DSIC mechanism;

Tidewater System revenues increased by $4.5 million due to customer growth and higher weather-driven customer demand;

Pinelands System revenues increased $0.5 million due to scheduled rate increases from Pinelands 2023 NJBPU Order and increased weather-driven customer demand;

Non-regulated revenues increased $0.7 million, primarily due to higher supplemental contract services.

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Operation and maintenance expenses for the year

ended December 31, 2023 increased $4.0 million from the same period in 2022 due to the following factors:

● Variable production costs increased $2.9 million primarily due to weather-driven changes in water quality

and higher chemical prices;

● Outside service costs rose by $0.9 million primarily due to production instrumentation calibration activities;

● Labor cost increased $0.7 million due to wage increases;

● Bad debt expense increased $0.4 million due to higher anticipated customer receivable write-offs;

● Non-regulated expenses increased $0.2 million due to additional billable supplemental service expenses;

● Lower weather-related main break activity in our Middlesex System during the winter months resulted in

$0.8 million of decreased non-labor costs;

● All other operation and maintenance expense categories decreased $0.3 million.

Depreciation expense for the year ended December

31, 2023 increased $2.2 million from the same period in 2022 due to a higher level of utility plant in service.

ended December 31, 2024 increased $9.2 million from the same period in 2023 due to increased legal, financial and regulatory matter costs,

increased labor costs due to annual wage increases, an enhanced water treatment process at Middlesex’s Park Avenue Plant, and higher

energy costs due to increased water demand.

Depreciation expense for the year ended December 31, 2024 decreased

$0.8 million from the same period in 2023 due to recovery of prior year depreciation related to upgrades at the Park Avenue Plant partially

offset by a higher level of utility plant in service.

The conclusion of Middlesex’s base rate increase request allowed proceeds

from the 3M Settlement Agreement to reimburse Middlesex for previously incurred costs for the construction of the Park Avenue Plant PFAS

treatment upgrades (for further discussion of the 3M Settlement Agreement, see Rates, Middlesex above).

Other taxes for the year ended December 31, 2024

increased $0.5 million from the same period in 2022 primarily due to higher revenue related taxes on increased revenues in our Middlesex

Gain on Sale of Subsidiary

Middlesex recognized a $5.2 million gain on the

sale of its regulated Delaware wastewater subsidiary in January 2022.

increased $3.1 million from the same period in 2023 primarily due to higher gross receipts taxes on higher revenue in Middlesex and higher

payroll related taxes on increased labor costs.

Other Income, net

Other Income, net for the year ended December

31, 2023 decreased $1.2 million from the same period in 2022 primarily due to lower actuarially-determined retirement benefit plans non-service

31, 2024 increased $5.6 million from the same period in 2023 primarily due to the recovery of carrying costs on the PFAS treatment upgrades

at the Park Avenue Plant and higher actuarially-determined retirement benefit plans non-service benefit offset by lower allowance for

funds used during construction on capital projects in construction.

Interest Charges

Interest charges for the year ended December 31,

2023 increased $3.8 million from the same period in 2022 due to higher average debt outstanding and higher average interest rates in 2023

as compared to 2022.

2024 increased $0.9 million from the same period in 2023 due to higher average debt outstanding and higher average interest rates.

Income taxes for the year ended December 31, 2024

decreased by $2.2 million from the same period in 2022, primarily due to greater income tax benefits associated

with increased repair expenditures on tangible property in the Middlesex System and lower pretax income due to gain on the sale of a subsidiary

Net Income and Earnings Per Share

Net income for the year ended December 31, 2023

decreased $10.9 million as compared with the same period in 2022.

Basic earnings per share were $1.77 and $2.40 for the years ended December

31, 2023 and 2022, respectively.

Diluted earnings per share were $1.76 and $2.39 for the years ended December 31, 2023 and 2022, respectively.

increased by $5.9 million from the same period in 2023, primarily due to higher pre-tax income and

lower income tax benefits associated with decreased repair expenditures on tangible property in the Middlesex System offset by the recovery

of income taxes on the taxable portion of the proceeds from the 3M Settlement Agreement .

Results of Operations for 2023 as Compared to 2022

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31, 2023 increased $3.8 million from the same period in 2022 due to the following factors:

● Middlesex System revenues increased by $21.6 million due to the approved 2022 base rate and PWAC rate

increases and higher weather driven demand across all customer classes (for further discussion of Middlesex’s 2021 base rate and

PWAC rate increases see Rates, Middlesex above);

● Tidewater System revenues increased $0.9 million due to additional customers and a one-time customer credit

issued in 2021 partially offset by a DEPSC ordered 2022 rate reduction (for further information on the one-time credit and rate reduction,

see Rates, Tidewater above ) ;

● The sale of our regulated Delaware wastewater subsidiary in January 2022 reduced revenues by $2.7 million;

● Non-regulated revenues decreased $0.4 million, primarily due to lower supplemental contract services;

● All other revenue categories decreased $0.1 million.

Middlesex System revenues increased by $4.2 million due to the implementation of the final phase of the 2021 base rate case increase on January 1, 2023 and the PWAC rate increase offset by lower weather-driven demand across all customer classes;

Tidewater System revenues decreased by $0.9 million due to a DEPSC ordered rate reduction in September 2022, lower customer connection fees and lower weather-driven customer demand partially offset by an increase in customers;

Pinelands System revenues increased $0.2 million due to the implementation of a base rate increase effective April 15, 2023;

Non-regulated revenues increased $0.5 million, primarily due to higher supplemental contract services.

Operation and Maintenance Expense

Operation and maintenance expenses for the year

ended December 31, 2022 increased $5.4 million from the same period in 2021 due to the following factors:

● Labor cost increased $1.5 million due to wage increases;

● Variable production costs increased $1.2 million primarily due to increased

production, weather-driven changes in water quality and higher chemical prices ;

● Costs for employee benefits increased $1.0 million due to market fluctuations in the cash surrender value of life insurance policies

and higher health insurance premiums;

● Higher weather-related main break activity in our Middlesex system during

the winter months resulted in $0.6 million of additional non-labor costs;

● Equipment repairs and maintenance costs increased by $0.5 million;

● Transportation expenses increased $0.3 million due to higher fuel prices;

● Costs associated with the NJDEP PFOA customer notification process resulted in $0.2 million of additional

expense (for further information on this matter, see Regulatory Notice of Non-Compliance above ) ;

● All other operation and maintenance expense categories increased $0.1 million.

ended December 31, 2023 increased $4.0 million from the same period in 2022 due to increased variable production costs due to weather-driven

changes in water quality and higher chemical prices, higher outside service costs due to production instrumentation calibration activities,

increases in labor costs due to wage increases and higher bad debt expense due to higher anticipated customer receivable write-offs.

offsetting these increases was lower weather-related main break activity in our Middlesex System during the winter months.

Depreciation expense for the year ended December

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Other Income, net for the year ended December

31, 2022 increased $1.8 million from the same period in 2021 primarily due to higher actuarially-determined retirement benefit plans non-service

benefit partially offset by lower AFUDC resulting from a reduced level of capital projects under construction.

31, 2023 decreased $1.2 million from the same period in 2022 primarily due to lower actuarially-determined retirement benefit plans non-service

Interest Charges

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Income taxes for the year ended December 31, 2023

2022 increased by $8.7 million from the same period in 2021, primarily due to income taxes on the gain on the sale of a subsidiary and

the expiration of income tax benefits associated with the adoption of Internal Revenue Service tangible property regulations as Middlesex

was required by the NJBPU to account for the benefit of adopting these regulations over 48 months beginning in 2018.

Partially offsetting

these increases were greater income tax benefits associated with increased repair expenditures on tangible property in the Middlesex

Net Income and Earnings Per Share

Net income for the year ended December 31, 2022

increased $5.9 million as compared with the same period in 2021.

Basic earnings per share were $2.40 and $2.08 for the years ended December

31, 2022 and 2021, respectively.

Diluted earnings per share were $2.39 and $2.07 for the years ended December 31, 2022 and 2021, respectively

(for further discussion of Middlesex’s 2022 rate increase, see Rates, Middlesex above).

decreased by $2.2 million from the same period in 2022, primarily due to greater income tax benefits associated

with increased repair expenditures on tangible property in the Middlesex System and lower pretax income due to gain on the sale of a subsidiary

Liquidity and Capital Resources

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For the year ended December 31, 2024, cash flows

from operating activities decreased $8.6 million to $52.8 million.

The decrease in cash flows from operating activities primarily resulted

from lower net income and higher interest payments.

from operating activities increased $5.9 million to $58.7 million.

The increase in cash flows from operating activities primarily resulted

from the impact of higher weather-driven customer demand and Middlesex’s approved base rate increase effective March 1, 2024.

Increases in certain operating costs impact our

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increased operating costs and capital expenditures and the time we receive appropriate rate relief.

There can be no assurances however

that our regulated subsidiaries’ respective utility commissions will approve base water and/or wastewater rate increase requests

in whole or in part or when the decisions will be rendered.

Cash Flows from Investing Activities

For the year ended December 31, 2024, cash flows

used in investing activities increased $2.0 million to $90.2 million, which was attributable to cash received

from the sale of Middlesex’s regulated wastewater subsidiary in January 2022 partially offset by lower utility plant expenditures.

used in investing activities decreased $15.6 million to $74.6 million due to decreased utility plant expenditures in 2024.

Company had significant utility plant

expenditures for the construction of a facility to provide an enhanced treatment process at the

Company’s Park Avenue Plant to comply with new state water quality regulations relative to PFAS.

For further discussion on the Company’s

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For the year ended December 31, 2024, cash flows

provided by financing activities increased $8.8 million to $36.0 million.

The increase in cash flows provided by financing activities

is due to an increase in net borrowings and higher proceeds from the issuance of common stock under the Investment Plan partially offset

by increased common stock dividend payments.

from financing activities decreased $18.2 million to $17.7 million.

The decrease in cash flows provided by financing activities is due

to lower proceeds from the issuance of common stock under the Middlesex Water Company Investment Plan (Investment Plan) and long-term

debt offset by proceeds received from a litigation settlement.

For further discussion on the Company’s

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years 2025-2027.

(In Millions)

Distribution/Network System

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listed above are primarily comprised of the following:

● Distribution/Network System - Includes projects associated with replacement, installation and relocation

of water mains and service lines and wastewater collection systems, construction of water storage tanks, installation and replacement

of hydrants, meters and meter pits and the RENEW Program.

Distribution/Network System - Includes projects associated with replacement, installation and relocation of water mains and service lines and wastewater collection systems, construction of water storage tanks, installation and replacement of hydrants, meters and meter pits and the RENEW Program.

RENEW is our ongoing initiative to replace water mains in the Middlesex System.

In connection with RENEW, we expect to spend approximately $11 million in each of 2025 and 2026, and $12 million in 2027.

● Production System - Includes projects associated with our treatment plants, including approximately

$2.0 million of expenditures for PFAS treatment upgrades and $6.8 million for replacement of existing motor control center and electrical

distribution equipment in our Middlesex system, and $3.6 million of various treatment projects in our Tidewater system in 2024.

● Information Technology (IT) Systems - Includes further upgrade of our enterprise resource planning

system and hardware and software purchases for other IT systems.

● Other - Includes purchase of transportation equipment, tools, furniture, laboratory equipment,

security systems and other general infrastructure needs including improvements to field and inventory management facilities in Iselin,

Also, we plan to replace a transmission main in Metuchen in our Middlesex System for approximately $8 million and $7 million in 2026 and 2027, respectively.

In addition, we expect to invest $2 million and $10 million in 2025 and 2026, respectively, for elevated storage tanks in our Tidewater System.

Production System - Includes projects associated with our treatment plants, including approximately $3 million, $25 million and $77 million of expenditures in 2025, 2026 and 2027, respectively to install PFAS treatment at our CJO Plant.

Information Technology (IT) Systems - Includes further upgrade of our enterprise resource planning system and hardware and software purchases for other IT systems, including approximately $2 million in both 2026 and 2027 for upgrades of our customer information system.

Other - Includes purchase of transportation equipment, tools, furniture, laboratory equipment, security systems and other general infrastructure needs including improvements to field and inventory management facilities in Iselin, New Jersey.

The actual amount and timing of capital expenditures

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scheduling and continued refinement of project scope and costs.

To pay for our capital program in 2024, we estimate we will utilize

some or all of the following:

To fund our capital program in 2025, we estimate we will utilize some

or all of the following:

Internally generated funds;

● Short-term borrowings, as needed, through $140 million of available lines of credit with several financial

institutions.

As of December 31, 2023, $42.8 million was outstanding under these lines of credit (see discussion under “ Sources

of Liquidity-Short-term Debt ” below);

Short-term borrowings, as needed, through $140 million of available lines of credit with several financial institutions.

As of December 31, 2024, $23.0 million was outstanding under these lines of credit (see discussion under “ Sources of Liquidity-Short-term Debt ” below);

Proceeds from the Delaware State Revolving Fund (SRF) Program.

SRF programs provide low cost financing

for projects meeting certain water quality and system improvement benchmarks (see discussion under “ Sources of Liquidity-Long-term

Debt ” below);

● Proceeds from other long-term borrowings (see discussion under “ Sources of Liquidity-Long-term

Debt ” below);

● Proceeds from common stock sales through the Middlesex Water Company Investment Plan (the Investment Plan)

(see discussion under “ Sources of Liquidity-Common Stock ” below).

SRF programs provide lower cost financing for projects meeting certain water quality and system improvement benchmarks (see discussion under “ Sources of Liquidity-Long-term Debt ” below);

Proceeds from other long-term borrowings (see discussion under “ Sources of Liquidity-Long-term Debt ” below);

Proceeds from common stock sales through the Investment Plan and proceeds from sales to the public of our common stock when market conditions are favorable (see discussion under “ Sources of Liquidity-Common Stock ” below).

Sources of Liquidity

Debt - In January 2022, the Company increased available lines of credit from $110 million to $140 million.

The outstanding borrowings

under the credit lines at December 31, 2023 were $42.8 million, at a weighted average interest rate of 6.50%.

Debt - The Company has available lines of credit of $140 million.

The outstanding borrowings under the credit lines at December 31,

2024 were $23.0 million, at a weighted average interest rate of 5.63%.

The weighted average daily amounts of borrowings

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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) and submit requisitions for cost reimbursements

over the life of the construction period.

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 typically

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,

Tidewater records 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.

Middlesex has 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 expects to issue debt securities in a series of one or more transaction

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

In September 2024, Tidewater closed on a $2.2

million Delaware SRF loan with a 0.0% interest rate with an expected maturity date in 2044.

This loan is for costs associated with Tidewater’s

obligation, as required by federal law and Delaware regulations, to identify and inventory lead service lines throughout Tidewater’s

service area.

Tidewater has drawn down $1.7 million as of December 31, 2024.

In May 2024, Tidewater closed on four DEPSC-approved

Delaware SRF loans totaling $5.6 million, all at interest rates of 2.0% with expected maturity dates in 2044.

These loans are for the

construction, relocation, improvement, and/or interconnection of transmission mains and construction of a water treatment facility.

has drawn down less than $0.1 million on these loans as of December 31, 2024.

Each project has its own construction timetable with the

last spending set to occur in 2026.

Tidewater also has two active construction projects

funded by Delaware SRF loans totaling $8.3 million with remaining availability of funds for borrowing.

These loans are for the construction

of a one-million gallon elevated storage tank and construction, relocation, improvement, and interconnection of transmission mains.

has drawn a total of $4.9 million through December 31, 2024 and expects that the requisitions will continue through the second quarter

In July 2023, Pinelands Water and Pinelands Wastewater

closed on $3.9 million and $3.6 million CoBank, ACB (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.

In May 2023, Tidewater closed on a $20.0 million

loan from 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 two DEPSC-approved

Delaware SRF loans totaling $6.9 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 fully drawn on these loans.

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

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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 bank 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

New Jersey Infrastructure Bank (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.

Substantially all of the utility plant of the

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The Company raised approximately $1.0 million through the issuance of shares under the Investment Plan during 2024.

May 2023, Middlesex received approval from the NJBPU to increase the number of authorized shares under the Investment Plan by 0.7 million

2023, Middlesex received approval from the NJBPU to increase the number of authorized shares under the Investment Plan by 0.7 million

Currently, 0.7 million shares remain registered with the United States Securities and Exchange Commission and available for issuance

to participants under the Investment Plan.

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.

In order to fully fund the ongoing capital investment

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Contractual Obligations

In the course of normal business activities,

the Company enters into a variety of contractual obligations and commercial commitments.

In the course of normal business activities, the

Company enters into a variety of contractual obligations and commercial commitments.

Some result in direct obligations on the Company’s

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Commercial Office Leases

The table above does not reflect any

anticipated cash payments for retirement benefit plan obligations.

The effect on the timing and amount of these payments resulting

from potential changes in actuarial assumptions and returns on plan assets cannot be estimated.

In 2023, the Company contributed

$1.3 million to its retirement benefit plans and expects to contribute approximately $1.8 million in 2024.

The table above does not reflect any anticipated

cash payments for retirement benefit plan obligations.

The effect on the timing and amount of these payments resulting from potential

changes in actuarial assumptions and returns on plan assets cannot be estimated.

In 2024, the Company contributed $3.7 million to its

retirement benefit plans and expects to contribute approximately $1.8 million in 2025.

We do not currently have, nor have we ever had,

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plans’ obligations and costs, which are reviewed and revised as needed each year, are as follows:

● Discount Rate - calculated based on market rates for long-term, high-quality corporate bonds specific

to the expected duration of our Pension Plan and Other Benefits Plan’s liabilities;

Discount Rate - calculated based on market rates for long-term, high-quality corporate bonds specific to the expected duration of our Pension Plan and Other Benefits Plan’s liabilities;

Compensation Increase - based on management projected future employee compensation increases;

● Long-Term Rate of Return - determined based on expected returns from our asset allocation for our Pension

Plan and Other Benefits Plan assets;

● Mortality - The Company utilizes the Society of Actuaries’ mortality table (Pri-2012) (Mortality

Improvement Scale MP-2021);

Long-Term Rate of Return - determined based on expected returns from our asset allocation for our Pension Plan and Other Benefits Plan assets;

Mortality - The Company utilizes the Society of Actuaries’ mortality table (Pri-2012) (Fully Generational, IRS Adjusted, Mortality Improvement Scale MP-2021);

Healthcare Cost Trend Rate - based on management projected future healthcare costs.

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for our Other Benefits Plan assumed an 8.0% annual rate of increase in the per capita cost of covered healthcare benefits in 2025 with

the annual rate of increase declining 0.5% per year for 2025-2030, resulting in an annual rate of increase in the per capita cost of covered

healthcare benefits of 4.5% by year 2030.

the annual rate of increase declining 0.15% per year for 2026-2045, resulting in an annual rate of increase in the per capita cost of

covered healthcare benefits of 5.0% by year 2045.

The following is a sensitivity analysis for certain actuarial assumptions

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Recent Accounting Standards

See Note 1(r) of the Notes to Consolidated Financial

See Note 1(q) of the Notes to Consolidated Financial

Statements for a discussion of recent accounting pronouncements.

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charged by 10% on those fixed- and variable-rate borrowings would not have a material effect on our earnings.

Fixed rate long-term debt

and variable rate short-term debt agreements were not entered into for trading purposes.

Our risks associated with commodity price increases

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can impact the Company's retirement benefit plan expense, funded status and future minimum funding requirements.

Risk is mitigated through

our ability to recover retirement benefit plan costs through customer rates.

Our exposure to market

price risk in our retirement benefit plan assets is managed through our ability to recover retirement benefit plan costs through customer

There were no material changes to our primary market risk exposures or how such exposures are managed in 2024 nor are there expected

to be in the future.

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 7. Management’s Discussion and Analysis