MIDDLESEX WATER CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of Middlesex Water Company (Middlesex or the Company) included elsewhere herein and with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Forward-Looking Statements Certain statements contained in this periodic report and in the documents incorporated by reference constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Some of these forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “projects,” “strategy,” or “anticipates,” or the negative of those words or other comparable terminology. The Company intends that these statements be covered by the safe harbors created under those laws. They include, but are not limited to statements as to: - expected financial condition, performance, prospects and earnings of the Company; - strategic plans for growth; - the amount and timing of rate increases and other regulatory matters, including the recovery of certain costs recorded as regulatory assets; - the Company’s expected liquidity needs during the upcoming fiscal year and beyond and the sources and availability of funds to meet its liquidity needs; - expected customer rates, consumption volumes, service fees, revenues, margins, expenses and operating results; - financial projections; - the expected amount of cash contributions to fund the Company’s retirement benefit plans, anticipated discount rates and rates of return on plan assets; - the ability of the Company to pay dividends; - the Company’s compliance with environmental laws and regulations and estimations of the materiality of any related costs; - the safety and reliability of the Company’s equipment, facilities and operations; - the Company’s plans to renew municipal franchises and consents in the territories it serves; - trends; and - the availability and quality of our water supply. These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from anticipated results and outcomes include, but are not limited to: - effects of general economic conditions; - increases in competition for growth in non-franchised markets; - ability of the Company to adequately control selected operating expenses which are necessary to maintain safe and proper utility services, and which may be beyond the Company’s control; - availability of adequate supplies of quality water; - actions taken by government regulators, including decisions on rate increase requests; - new or modified water quality standards and compliance with related legal and regulatory requirements; - weather variations, including climate variability, and other natural phenomena impacting utility operations; - financial and operating risks associated with acquisitions and/or privatizations; - acts of war or terrorism; - cyber-attacks; - changes in the pace of real estate development; - availability and cost of capital resources; - timely availability of materials and supplies for operations and for critical infrastructure projects; - effectiveness of internal control over financial reporting; and - other factors discussed elsewhere in this report. Many of these factors are beyond the Company’s ability to control or predict. Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements, which only speak to the Company’s understanding as of the date of this report. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws. 17 Table of Contents For an additional discussion of factors that may affect the Company’s business and results of operations, see Item 1A. - Risk Factors in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Overview Middlesex Water Company (Middlesex or the Company) has operated as a water utility in New Jersey since 1897 and in Delaware through our wholly-owned subsidiary, Tidewater Utilities, Inc. (Tidewater), since 1992. We are in the business of providing an essential water utility service for domestic, commercial, municipal, industrial and fire protection purposes. We operate water and wastewater systems under contract for governmental entities and private entities primarily in New Jersey and Delaware and provide regulated wastewater services in New Jersey. We are regulated by state public utility commissions as to rates charged to customers for water and wastewater services, as to the quality of water and wastewater service we provide and as to certain other matters in the states in which our regulated subsidiaries operate. Only our Utility Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy), Inc. (USA-PA) and White Marsh Environmental Services, Inc. (White Marsh) subsidiaries are not regulated public utilities as related to rates and services quality. All municipal or commercial entities whose utility operations are managed by these entities, however, are subject to environmental regulation at the federal and state levels. Our principal New Jersey water utility system (the Middlesex System) provides water services to approximately 61,000 retail customers, primarily in central New Jersey. The Middlesex System also provides water sales under contract to municipalities in central New Jersey with a total population of over 0.2 million. Prior to April 1, 2026, Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands) provided water and wastewater services to approximately 2,500 customers in Southampton Township, New Jersey. Effective April 1, 2026, Pinelands was merged into Middlesex and those customers are now served by Middlesex. Our Delaware subsidiaries, Tidewater and Southern Shores Water Company, LLC, provide water services to approximately 65,000 retail customers in New Castle, Kent and Sussex Counties, Delaware. Tidewater’s subsidiary, White Marsh, serves approximately 3,700 households in Kent and Sussex Counties through various operations and maintenance contracts. USA-PA operates the water and wastewater systems for the City of Perth Amboy, New Jersey (Perth Amboy) under a 10-year operations and maintenance contract expiring in 2028. In addition to performing day-to day operations, USA-PA is also responsible for emergency response and management of capital projects funded by Perth Amboy. USA operates the Borough of Avalon, New Jersey’s (Avalon) water utility, sewer utility and storm water system under a ten-year operations and maintenance contract expiring in 2032. USA also operates the Borough of Highland Park, New Jersey’s (Highland Park) water and wastewater systems under a 10-year operations and maintenance contract expiring in 2030. In addition to performing day-to-day service operations, USA is responsible for emergency response and management of capital projects funded by Avalon and Highland Park. Under a marketing agreement with HomeServe USA Corp. (HomeServe) expiring in 2031, USA offers residential customers in New Jersey and Delaware water and wastewater related services and home maintenance programs. HomeServe is a leading national provider of such home maintenance service programs. USA 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. Recent Developments Perfluoroalkyl Substances (PFAS) Multi-District Litigation Settlement - Multiple Company utility subsidiaries are parties to a multi-district litigation (MDL) lawsuit against manufacturers of certain PFAS for damages, contribution and reimbursement of costs incurred and continuing to be incurred to address the presence of such PFAS in public water supply systems owned and operated by these utility subsidiaries and throughout their service areas. Settlements with several defendants in the MDL have received final approval by the MDL court. The Company timely submitted to the MDL court its Phase One claim forms under settlement agreements with defendants 3M Company, DuPont de Nemours, Inc., Tyco Fire Products LP and BASF Corporation. The settlement payments received by the Company will ultimately be refunded to customers. As of March 31, 2026, the Company received $6.0 million and anticipates receiving additional settlement payments during the remainder of 2026 from the defendants named above. 18 Table of Contents Rates and Regulatory Matters Middlesex - In February 2026, the New Jersey Board of Public Utilities (NJBPU) approved: • $14.5 million of base rate increases for Middlesex and Pinelands, effective February 23, 2026; • A Resiliency and Environmental System Improvement Charge (RESIC) Foundational Filing, which allows for the recovery of certain costs of future Middlesex and Pinelands investments related to compliance with requirements to address existing and emerging chemical elements or compounds, installation of new plant or equipment or replacement of existing plant or equipment to further maintain, enhance, or improve resiliency, health, safety or environmental protection; and • A Distribution System Improvement System Charge (DSIC) Foundational Filing, which allows for the recovery of future Middlesex and Pinelands Water investments in qualifying capital improvements to their water distribution system. In January 2026, the NJBPU approved the merger of Pinelands into Middlesex through a corporate reorganization, which was completed April 1, 2026. Tidewater - In January 2026, Tidewater completed the acquisitions of the water utility assets of Pinewood Acres, LLC, as authorized by the Delaware Public Service Commission (DEPSC). See Note 2, Rates and Regulatory Matters for more details about our rates and regulatory activity in Delaware and New Jersey. United States Environmental Protection Agency (USEPA) Issues 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. The USEPA has announced its plans to issue a proposed rule extending the compliance date to 2031. Beginning in April 2029 and absent an extension by the USEPA, 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 designing and implementing the most effective PFAS treatment approach. Capital Construction Program - The Company’s multi-year capital construction program encompasses numerous projects designed to upgrade and replace utility infrastructure as well as enhance the integrity and reliability of assets to better serve current and future generations of water and wastewater customers. The Company plans to invest approximately $126 million in 2026 in connection with this plan for projects that include, but are not limited to: • Upgrade of the Carl J. Olson Surface Water Treatment Plant (CJO Plant) to integrate PFAS removal from source water and CJO Plant finished water pump electrical distribution system improvements in our Middlesex System; • Construction of new water treatment facilities, distribution system improvements and PFAS treatment facilities in Delaware; and • Various water main replacements and improvements. 19 Table of Contents Strategy for Growth 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; and • Operation of municipal and industrial water and wastewater systems on a contract basis which meet our risk profile. Outlook The Company has projected to spend approximately $506 million for the 2026-2028 capital investment program, including approximately $255 million for upgrading our 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, $17 million for replacement of a transmission main in Metuchen in our Middlesex System, $8 million for booster station generator replacement and electrical improvements, $9 million for construction of the Bethany Bay new water treatment facility in the Tidewater System and $12 million for elevated storage tanks in our Tidewater System. The Company utilizes semi-annual DSIC and RESIC filings between general rate case filings to timely recover costs for qualified capital investments related to its utility systems as well as compliance with requirements to address existing and emerging chemical elements or compounds, installation of new plant or equipment or replacement of existing plant or equipment to further maintain and enhance resiliency, health, safety or environmental protection investments. Overall, organic residential customer growth continues in our Tidewater system (approximately 3.0% in 2025) through expansion of our franchise area. However, current and evolving market conditions may challenge that growth. The Company continues to seek "tuck-in" acquisition opportunities for small water systems near our current service areas that are easily integrated into our Company, such as the recent acquisitions of the water utility assets of the Town of Ocean View and Pinewood Acres, LLC in Delaware. Our ability to increase operating income and net income is based significantly on four factors: weather, adequate and timely rate relief, effective cost management and customer growth. Weather patterns which can result in lower customer demand for water may occur at any time. Changes in customer water usage habits, as well as increases in capital expenditures and operating costs, are significant factors in determining the timing and extent of rate increase requests. Operating Results by Segment The discussion of the Company’s operating results is on a consolidated basis and includes significant factors by subsidiary. The Company has two operating segments, Regulated and Non-Regulated. The operations of the Regulated segment are subject to regulations promulgated by state public utility commissions as to rates and level of service. Rates and level of service in the Non-Regulated segment are subject to the terms of individually-negotiated and executed contracts with municipal, industrial and other clients. Both segments are subject to federal and state environmental, water and wastewater quality and other associated legal and regulatory requirements. The segments in the tables included below are comprised of the following companies: Regulated - Middlesex, Tidewater, Pinelands and Southern Shores; Non-Regulated - USA, USA-PA, and White Marsh. 20 Table of Contents Results of Operations – Three Months Ended March 31, 2026 (In Thousands) Three Months Ended September 30, 2026 2025 Regulated Non- Regulated Total Regulated Non- Regulated Total Operating Revenues $ 45,745 $ 2,969 $ 48,714 $ 41,468 $ 2,833 $ 44,301 Operations and Maintenance Expense 20,774 2,238 23,012 19,253 1,856 21,109 Depreciation 6,963 73 7,036 6,464 63 6,527 Other Taxes 5,496 68 5,564 5,050 58 5,108 Operating Income $ 12,512 $ 590 $ 13,102 $ 10,701 $ 856 $ 11,557 Other Income, net 1,977 25 2,002 1,742 55 1,797 Interest Charges 3,214 — 3,214 2,713 — 2,713 Income Taxes 1,073 212 1,285 872 290 1,162 Net Income $ 10,202 $ 403 $ 10,605 $ 8,858 $ 621 $ 9,479 Operating Revenues Operating revenues for the three months ended March 31, 2026 increased $4.4 million from the same period in 2025 due to the following factors: • Middlesex System revenues increased $3.4 million due to increased wholesale customer demand, customer consumption and base rate increases effective February 23, 2026 (see Note 2, Rates and Regulatory Matters ); • Tidewater System revenues increased $0.8 million due to customer growth, increased customer consumption and rate increases (see Note 2, Rates and Regulatory Matters ); • Non-regulated revenues increased $0.1 million, primarily due to higher supplemental contract services; and • All other operating revenue categories increased $0.1 million. Operations and Maintenance Expense Operations and Maintenance Expense for the three months ended March 31, 2026 increased $1.9 million from the same period in 2025 due to increased variable production costs from higher production and higher labor cost due to wage and employee headcount increases, partially offset by higher capitalizable costs. Depreciation Depreciation expense for the three months ended March 31, 2026 increased $0.5 million from the same period in 2025 due to higher average utility plant in service. Other Taxes Other Taxes for the three months ended March 31, 2026 increased $0.5 million from the same period in 2025 primarily due to higher gross receipts taxes on higher revenues in our Middlesex system. Other Income, net Other Income, net for the three months ended March 31, 2026 increased $0.2 million from the same period in 2025 due to higher Allowance for Funds Used During Construction from increased capital expenditures. 21 Table of Contents Interest Charges Interest Charges for the three months ended March 31, 2026 increased $0.5 million from the same period in 2025 primarily due to higher average debt outstanding. Income Taxes Income Taxes for the three months ended March 31, 2026 increased by $0.1 million from the same period in 2025, primarily due to higher pre-tax income. Liquidity and Capital Resources Operating Cash Flows Cash flows from operations are largely based on four factors: weather, adequate and timely rate increases, effective cost management and customer growth. The effect of those factors on net income is discussed in Results of Operations above. For the three months ended March 31, 2026, cash flows from operating activities decreased $2.1 million to $11.7 million. The decrease in cash flows from operating activities primarily resulted from higher vendor payments offset by the impact of Middlesex’s approved base rate increase effective February 23, 2026 and Tidewater's base rate increase effective July 3, 2025. Investing Cash Flows For the three months ended March 31, 2026, cash flows used in investing activities increased $1.7 million to $20.6 million due to increased utility plant expenditures in 2026. For further discussion on the Company’s future capital expenditures and expected funding sources, see Capital Expenditures and Commitments below. Financing Cash Flows For the three months ended March 31, 2026, cash flows from financing activities increased $4.6 million to $8.2 million. The increase in cash flows provided by financing activities is due to higher long-term and short-term debt borrowings and the proceeds from the issuance of common stock under Middlesex’s At-the-Market (ATM) equity offering program (for further information on Middlesex’s ATM equity offering program, see below under Capital Expenditures and Commitments) partially offset by increased redemption of long-term-debt. Capital Expenditures and Commitments To fund our capital program, we use internally generated funds, short-term and long-term debt borrowings, proceeds from sales of common stock under the Middlesex Water Company Investment Plan and the ATM equity offering program, and when market conditions are favorable, proceeds from sales to the public of our common stock. 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. The NJBPU has approved Middlesex's petition to borrow up to $260.0 million during the period January 2026 through December 2028, in one or more negotiated transactions in the form of notes and/or first mortgage bonds through loans from the New Jersey SRF Program, the New Jersey Economic Development Authority, private placement and other financial institutions as needed. In September 2024, Tidewater closed on a $2.2 million Delaware SRF loan with a 0.0% interest rate with maturity dates 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 $1.8 million as of March 31, 2026 and expects that the requisitions will continue through 2026. In May 2024, Tidewater closed on four Delaware SRF loans totaling $5.6 million, all at interest rates of 2.0% with maturity dates in 2044. These loans are for the construction, relocation, improvement, and/or interconnection of transmission mains 22 Table of Contents and construction of a water treatment facility. In December 2025, Tidewater closed on an additional $1.0 million, 2.0% SRF loan with a maturity date of 2045 related to these projects. Tidewater has drawn down $2.1 million on these loans as of March 31, 2026. Each project has its own construction timetable with the last spending set to occur in 2027. In December 2025, Southern Shores closed on a $0.4 million Delaware SRF loan with a 0.0% interest rate with a maturity date in 2045. This loan is for costs associated with Southern Shore’s obligation, as required by federal law and Delaware regulations, to identify and inventory lead service lines in its service area. Southern Shores has drawn down $0.2 million on these loans as of March 31, 2026 and does not anticipate any further draws. In February 2026, Pinelands Water and Pinelands Wastewater repaid in full $3.7 million and $3.4 million, respectively, of their amortizing secured notes. The interest rates and due dates on both of these notes were 6.17% and 2043, respectively. In April 2026, Tidewater filed a petition with the DEPSC seeking approval to issue up to $25 million of long-term debt through CoBank, ACB. Proceeds will be used to reduce Tidewater's Notes Payable and finance Tidewater's on-going capital program. In order to fully fund the ongoing investment program in our utility plant infrastructure and maintain a balanced capital structure consistent with regulators’ expectations for a regulated water utility, Middlesex may offer for sale additional shares of its common stock. The amount, timing and method of sale of common stock is dependent on the timing of construction expenditures, the level of additional debt financing and financial market conditions. The NJBPU has approved Middlesex's petition to issue and sell up to 2.5 million shares of its common stock during the period January 2026 through December 2028, in one or more offerings through a traditional underwritten public offering and/or an ATM offering. In May 2025, Middlesex entered into an ATM Equity Offering Sales Agreement (Equity Sales Agreement) with BofA Securities, Inc., Robert W. Baird & Co. Incorporated, and Janney Montgomery Scott (Janney), pursuant to which Middlesex may offer and sell shares of its common stock, no par value per share, from time to time in “at-the-market” offerings, having an aggregate gross sales price of up to $110.0 million. As of February 20, 2026, the Equity Sales Agreement was amended, replacing Janney with Huntington Securities, Inc. as a sales agent. The Company intends to use the net proceeds from these sales, after deducting commissions and offering expenses, to fund our capital expenditures, to purchase and maintain plant equipment, as well as for other general corporate purposes. For the three months ended March 31, 2026, Middlesex issued and sold a total of 49,305 shares of common stock, at a weighted average price of $54.82 per share, and received $2.7 million in net proceeds, under the Equity Sales Agreement. As of March 31, 2026, the Company has $77.3 million of aggregate gross sales remaining under the Equity Sales Agreement. Recent Accounting Pronouncements – See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements and guidance.