Middlesex Water Company — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Middlesex provides regulated water and wastewater services in New Jersey and Delaware, alongside non-regulated system operations and maintenance services.
Financial results
Amounts are in millions except per-share data and percentages. Comparisons are with Q1 2020.
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $32.5 | $31.8 | +2.4% |
| Operating income | $5.6 | $6.5 | -13.7% |
| Operating margin | 17.3% | 20.5% | -3.2 percentage points |
| Net income | $6.9 | $7.7 | -9.9% |
| Common earnings per share, basic and diluted | $0.39 | $0.44 | -11.4% |
| Operating cash flow | $9.4 | $16.1 | -$6.7 |
| Utility plant expenditures | $22.0 | $25.1 | -$3.1 |
- Revenue growth reflected higher Middlesex customer demand, Tidewater customer additions, and the Highland Park operating contract. Regulated segment revenue was $29.4 million; non-regulated contract revenue was $3.2 million.
- Operating and maintenance expense rose $1.2 million, led by winter main-break costs, wage increases, and higher production costs. Depreciation increased $0.4 million as utility plant in service grew.
- Other income increased $0.5 million, primarily from higher allowance for funds used during construction and lower non-service retirement-benefit expense. Interest charges rose $0.1 million.
- Income tax was a $1.0 million benefit in Q1 2021 versus a $1.3 million benefit in Q1 2020. The filing attributes the smaller benefit mainly to lower repair-related tax benefits.
- Operating cash flow fell mainly because of the timing of vendor payments, including a $6.0 million cash outflow from accounts payable changes. Capital spending exceeded operating cash flow.
Balance sheet, debt, and liquidity
- At March 31, 2021, total assets were $986.2 million, up from $976.5 million at year-end 2020. Net utility plant was $815.2 million.
- Cash and cash equivalents were $4.0 million, with another $0.2 million of restricted cash. Current assets were $31.4 million versus current liabilities of $65.8 million. The company had $13.0 million of short-term borrowings, compared with $2.0 million at December 31, 2020.
- Long-term debt was $272.7 million, with $7.2 million classified as current. Including short-term notes payable, these reported debt categories totaled approximately $292.8 million. Total capitalization was $623.6 million.
- The company maintained $110 million of credit lines, of which $97 million was available at quarter-end. Outstanding borrowings carried a 1.09% weighted-average rate and were due in April 2021, with extensions at the company’s discretion.
- Financing cash flow was $6.4 million, including $11.0 million of net short-term bank borrowing and $4.8 million of common dividends paid. The quarterly common dividend was $0.2725 per share.
Material developments, outlook, and risks
- Capital program: The company estimated approximately $121 million of 2021 capital investment and projected approximately $193 million for 2022 and 2023. Projects include water-treatment upgrades, PFAS treatment, water-main replacement, and a wastewater treatment plant in Delaware. Approximately $17 million of construction contracts were outstanding.
- Rates and regulation: Middlesex expects to file a water-rate increase request in Q2 2021, citing substantial infrastructure investment, anticipated operating-cost increases, and expiration of certain repair-tax benefits in April 2022. Its last water rates were reset in April 2018. A $1.1 million purchased-water cost adjustment became effective April 4, 2021.
- Tidewater adjustment: Tidewater reset its distribution-system improvement charge to zero effective April 1, 2021 after the Delaware regulator found its earned return exceeded the authorized level. It recorded a $0.8 million after-tax reserve for customer credits covering charges billed from April 2020 through March 2021; credits were expected in Q2 2021.
- Financing: Tidewater entered into a $20 million CoBank loan agreement, with borrowing available through September 29, 2021. Middlesex also petitioned to refinance up to $45.5 million of first mortgage bonds at lower rates; regulatory approval was pending, with a decision expected in Q2 2021.
- COVID-19: Operations and construction had not been materially disrupted, but the economic impact remained uncertain. Regulators approved tracking incremental pandemic-related costs for potential future rate recovery, without setting a recovery timetable. New Jersey’s service-termination moratorium was then in effect through June 30, 2021; the company also cited increased expected customer-account write-offs.
- Other uncertainty: An administrative law judge recommended that a potential Twin Lakes acquisition be conditioned on Middlesex contributing $1.7 million to escrow for future capital spending. The company disputed parts of the recommendation; the regulator’s decision was pending. Management stated Twin Lakes’ financial results and obligations were not material to Middlesex.
- Management identifies weather, timely rate relief, cost control, customer growth, water supply, regulatory decisions, capital availability, and economic conditions among factors that may affect results. The company provided no specific earnings or EPS guidance.
Investor facts to verify
- Whether Middlesex files its anticipated rate case and the timing and outcome of regulatory decisions, including the proposed $45.5 million refinancing.
- Whether the Tidewater customer credits are completed as expected and how the DSIC reset affects revenue.
- Progress, cost, and funding of the approximately $121 million 2021 capital program and projected 2022–2023 spending.
- Cash generation, vendor-payment timing, short-term borrowing levels, and availability or use of the CoBank loan.
- Changes in customer delinquencies, COVID-related cost recovery, and the Twin Lakes proceeding, including any escrow requirement.