MSEX

Business Context and Reporting Period

Company: Middlesex Water Company (Middlesex)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2005
Business Overview: Middlesex operates as a regulated water utility in New Jersey and Delaware, providing water and wastewater services to residential, commercial, and industrial customers. The company also operates non-regulated contract services for municipal and private systems. As of May 2, 2005, there were 11,380,682 shares of common stock outstanding.

Key Financial Metrics

Dividends: Cash dividends paid per common share were $0.1675 for Q1 2005 compared to $0.1650 in Q1 2004.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased by $0.9 million (5.5%) year-over-year. This was driven by a $0.9 million increase in New Jersey water sales due to base rate increases and a $0.5 million increase in Delaware revenues from customer growth and rate adjustments.
• Expense Increases: Total operating expenses rose by $0.6 million (4.3%). Increases were attributed to higher payroll, benefits, insurance, and corporate governance fees ($0.3 million), as well as higher water treatment costs in Delaware ($0.2 million). These were partially offset by a $0.5 million reduction in costs related to the completion of meter services contracts in the USA subsidiary.
• Profitability: Net income increased by 33.5% to $1.4 million. Operating income rose by $0.28 million.
• Capital Expenditures: Utility plant expenditures increased to $4.2 million in Q1 2005 from $2.9 million in Q1 2004.
• Liquidity: Cash and cash equivalents decreased by approximately $2.3 million, primarily due to net cash used in financing activities (dividend payments and debt repayments) and investing activities.

Guidance, Outlook, and Risks

• Rate Matters:
  • New Jersey: The Middlesex subsidiary anticipates filing for a base rate increase in Q2 2005 to recover costs for a $9.7 million raw water pipeline and other expenses.
  • Delaware: Tidewater implemented a second-phase rate increase of $0.5 million effective April 27, 2005. Southern Shores implemented a 3% annual rate increase on January 1, 2005.
• Capital Program: The 2005 capital program is estimated at $28.5 million, focusing on Delaware system additions, a new raw water line in New Jersey, and the RENEW Program for main rehabilitation. Future projections for 2006-2007 estimate expenditures of approximately $45.9 million.
• Financing: Tidewater filed an application to finance up to $16.0 million in long-term debt. The company has $30.5 million of remaining borrowing capacity under its $40.0 million lines of credit.
• Risks and Contingencies:
  • Legal: A 1998 lawsuit regarding a water line break and electric cable damage is in binding arbitration. The company has accrued $0.3 million for the maximum exposure.
  • Operational: Revenues are highly dependent on weather conditions and customer growth. The non-regulated meter services venture (USA) has not secured new contracts for 2005.
  • Regulatory: Future earnings depend on the timing and approval of rate increase requests by state regulators.

Investor Verification Checklist

• Verify the approval and effective date of the pending New Jersey base rate increase filing expected in Q2 2005.
• Monitor the outcome of the binding arbitration regarding the 1998 water line/electric cable lawsuit (maximum exposure $0.3 million).
• Track the status of the $16.0 million long-term debt financing application filed by Tidewater with the Delaware PSC.
• Assess the impact of weather conditions on water consumption volumes in both New Jersey and Delaware service territories.
• Review the progress of the USA subsidiary in securing new meter services contracts to replace those completed in late 2004.