Middlesex Water Company — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Middlesex is a regulated water and wastewater utility operating primarily in New Jersey and Delaware, with a smaller non-regulated contract-services business. Financial amounts below are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Operating revenue | $38.2 | $36.2 | +5.4% |
| Operating income | $7.5 | $12.5 | −40.2% |
| Net income | $5.9 | $12.1 | −51.5% |
| Common EPS, basic | $0.33 | $0.69 | −52.2% |
| Operating cash flow | $16.0 | $14.0 | +$2.0 |
| Utility plant expenditures | $24.5 | $16.6 | +$7.9 |
Revenue growth reflected the final phase of Middlesex’s 2021 rate-case increase and higher contract-customer demand, partly offset by lower Tidewater revenue. Regulated revenue was $35.0 million versus $33.3 million; non-regulated revenue was $3.3 million versus $2.9 million.
Operating expenses increased to $30.7 million from $28.9 million, including higher operations and maintenance, depreciation, and other taxes. Operating margin was approximately 19.6%, compared with 34.6% in Q1 2022; the comparison is significantly affected by the prior-year $5.2 million gain on sale of a subsidiary. Excluding that gain, prior-year operating income was approximately $7.3 million.
Cash used in investing was $24.5 million, versus $13.5 million, reflecting higher utility-plant spending and prior-year sale proceeds. Financing provided $9.6 million, mainly reflecting debt issuance and reduced short-term borrowing. Cash and cash equivalents were $4.9 million at quarter-end. Current assets were $39.5 million and current liabilities $96.0 million.
At March 31, 2023, long-term debt was $329.6 million, current maturities of long-term debt were $17.4 million, and notes payable were $28.5 million. The company had $111.5 million of available capacity under $140 million of credit lines; outstanding short-term borrowings carried a 5.65% weighted-average rate. Interest expense rose to $2.6 million from $1.9 million, reflecting higher average debt and short-term rates.
Material changes and financing
- Revenue increased, but earnings fell sharply against Q1 2022, which included the $5.2 million sale gain. Higher operating costs, interest charges, and income taxes also weighed on results.
- Capital spending increased year over year. Utility plant net rose to $942.0 million from $920.6 million at year-end 2022; construction work in progress increased to $72.6 million from $53.6 million.
- In March 2023, Middlesex issued $40 million of 5.24% first mortgage bonds due 2043, using proceeds to reduce bank-line borrowings. In April, regulators authorized up to $300 million of additional borrowing and up to 1.0 million common shares through December 31, 2025 to support the capital program.
- Common dividends paid were $5.5 million; the declared dividend rate reflected in the equity statement was $0.3125 per share, versus $0.2900 in Q1 2022.
Outlook, risks, and contingencies
- Management forecast approximately $111 million of 2023 construction spending; about $25 million had been spent through March 31. The projected 2023–2025 capital program is approximately $274 million, including PFAS treatment, lead-service-line compliance, water-main replacement, and storage projects. The filing does not provide earnings guidance.
- Management identified weather, timely and adequate rate relief, cost management, and customer growth as key drivers of results. It expected to seek base-rate increases for Middlesex in May 2023 and Tidewater in the second half of 2023. Pinelands received approval for a combined $1.0 million base-rate increase effective April 15, 2023.
- The NJDEP Administrative Consent Order requires completion and operation of permanent Park Avenue Wellfield treatment upgrades by June 30, 2023, along with testing, reporting, and public notifications. Noncompliance with the schedule or reporting requirements could result in penalties of up to $500 per day. The company reported that the plant was effectively treating groundwater to applicable standards. Two PFOA-related class actions remain unresolved; the insurer has acknowledged coverage of potential liability.
- A separate Twin Lakes matter concerns a $1.7 million escrow requirement connected with the ordered acquisition of the system by a receiver utility. The Pennsylvania Supreme Court denied an appeal petition in March 2023; Middlesex subsequently filed a federal complaint challenging the order on constitutional grounds. Twin Lakes is not material to Middlesex’s financial results, assets, or obligations, according to the filing.
- Other identified risks include regulatory decisions and cost recovery, water quality and supply, weather, inflation and interest rates, capital availability and construction costs, customer growth, supplier performance, and customer credit losses. Management said it did not expect the ultimate resolution of other routine disputes and contingencies to materially adversely affect financial position, results, or cash flows.
Important facts for investors to verify
- Whether permanent PFOA treatment upgrades were completed and operating by the June 30, 2023 ACO deadline, and the status of related lawsuits and regulatory-cost recovery.
- Actual 2023–2025 capital spending, project timing, financing mix, and resulting debt and share dilution.
- Outcomes and timing of the anticipated Middlesex and Tidewater rate filings, including the status of the interim $2.7 million purchased-water adjustment that was subject to refund.
- Whether higher interest, labor, production, and infrastructure costs are recovered through rates, and how these affect earnings and operating cash flow.
- Changes in customer growth, housing activity, water demand, and cash availability relative to management’s plans.