MSEX

Business Context and Reporting Period

Company: Middlesex Water Company (Middlesex)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 1997
Business Overview: Middlesex is a regulated utility providing water and wastewater services, primarily in New Jersey and Delaware. The company operates as a parent to several subsidiaries, including Tidewater Utilities, Inc., Pinelands Water Company, and Utility Service Affiliates, Inc.

Key Financial Metrics

Liquidity: The company maintains $20 million in available short-term credit lines. Cash and cash equivalents decreased by approximately $1.03 million during the nine-month period.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased by $1.4 million (5.0%) for the nine months ended September 30, 1997, compared to the prior year. This was driven by higher consumption due to favorable weather, rate increases for Pinelands Companies, and customer growth in Delaware.
• Expense Increases: Total operating expenses rose 4.3% year-over-year. Increases were attributed to higher operations and maintenance costs (purchased water, labor, benefits) and taxes. Federal income taxes increased 21.9% due to higher taxable income.
• Profitability: Net income increased by $532,577 (13.5%) to $4.49 million. Earnings per share rose from $0.92 to $1.03.
• Capital Spending: Utility plant expenditures surged to $7.26 million from $4.11 million in the prior year, primarily due to the upgrade of the Carl J. Olsen Water Treatment Plant (CJO Plant).
• Acquisition: On July 31, 1997, the company acquired Public Water Supply Company, Inc., for $2.3 million, issuing 20,000 shares of convertible preferred stock. This transaction is not expected to materially impact net income.

Outlook, Risks, and Management Commentary

• Regulatory Matters: Middlesex filed a petition with the New Jersey Board of Public Utilities (BPU) in late 1996 seeking a $4.6 million (13.3%) base rate increase. A decision is expected by the end of 1997. This request includes recovery of costs for the CJO Plant upgrade and postretirement benefits.
• Financing Plans: On September 26, 1997, the company filed to issue $23 million in tax-exempt first mortgage bonds to finance the CJO Plant project (total cost estimated at $30 million). Financing is expected to be completed in Q2 1998. The company may require a common equity offering in late 1998 to fund the remaining balance.
• Capital Program: The revised 1997 capital program is estimated at $11.7 million, split between $5.5 million for routine expenditures and $6.2 million for special plant additions.
• Legal Contingency: A fire at a warehouse in the service territory has led to claims against the company for alleged insufficient water pressure. The company asserts it has substantial defenses, and the claim amounts are unspecified.
• Stock Offering: The company plans to offer common stock at a 5% discount to Dividend Reinvestment Plan participants between January 2, 1998, and June 1, 1998, limited to the first 100,000 shares.

Investor Verification Checklist

• Verify the outcome of the pending $4.6 million rate increase petition with the New Jersey BPU.
• Monitor the status of the $23 million bond issuance for the CJO Plant project scheduled for Q2 1998.
• Assess the potential financial impact of the warehouse fire litigation, though the company currently views the risk as low.
• Review the final 1997 capital expenditure totals against the $11.7 million estimate to ensure alignment with cash flow projections.
• Confirm the timing and necessity of any potential common equity offering in late 1998.