10-Q: Middlesex Water Company Reports Q1 2025 Results, Revenue Up on Rate Increases and Customer Growth

Middlesex Water Company's Q1 2025 revenue increased due to rate hikes and customer expansion, though net income declined compared to the previous year.

Summary

• Middlesex Water Company's operating revenues for the three months ended March 31, 2025, increased by $3.8 million compared to the same period in 2024, reaching $44.301 million.
• The increase in revenue was primarily driven by a $3.4 million increase in Middlesex System revenues due to base rate increases, DSIC rate increases, and increased customer demand.
• Tidewater System revenues also contributed with a $0.6 million increase due to customer growth and an interim rate increase.
• Non-regulated revenues decreased by $0.2 million due to lower supplemental contract services.
• Operating expenses increased by $0.6 million, mainly due to increased variable production costs and weather-driven main break activity.
• Depreciation expense increased by $1.1 million due to higher average utility plant in service.
• Other income, net, decreased by $3.6 million due to lower actuarially-determined retirement benefit plans non-service benefit and a one-time recovery in 2024.
• Interest charges decreased by $0.6 million due to lower average debt outstanding and lower average interest rates.
• Net income decreased from $10.682 million in Q1 2024 to $9.479 million in Q1 2025.
• Capital expenditures for the quarter totaled $18.911 million.
• The company plans to invest approximately $93 million in 2025 in capital projects.
• Tidewater completed the acquisition of the water utility assets of the Town of Ocean View, Delaware, for approximately $4.6 million in April 2025.
• Middlesex filed a third DSIC rate application expected to result in $1.9 million of annual revenues starting June 2025.
• Middlesex's PWAC tariff rate was reset to recover additional annual costs of $0.5 million, effective March 1, 2025.
• Tidewater's application for a $10.3 million rate increase is under review, with an interim rate increase of $2.5 million already in effect.

Sentiment

Score: 6

Explanation: The report presents a mixed picture with revenue growth offset by decreased net income and increased expenses; while strategic initiatives like acquisitions and rate increases are positive, the challenges related to PFAS compliance and cost management temper the overall sentiment.

Positives

• Operating revenues increased due to rate increases and customer growth.
• Middlesex secured a new DSIC rate application expected to generate additional revenue.
• Tidewater completed a strategic acquisition to expand its service area.
• The company is actively investing in infrastructure upgrades and replacements.
• Tidewater received approval for an interim rate increase of approximately $2.5 million annually.

Negatives

• Net income decreased compared to the same period last year.
• Non-regulated revenues decreased due to lower supplemental contract services.
• Other income, net, decreased due to lower actuarially-determined retirement benefit plans non-service benefit and a one-time recovery in 2024.
• Operating expenses increased due to higher production costs and main break activity.

Risks

• Weather patterns can impact customer demand and revenues.
• The company's ability to increase operating income and net income is based significantly on weather, adequate and timely rate relief, effective cost management and customer growth.
• The company faces risks related to adequate supplies of quality water.
• Actions taken by government regulators, including decisions on rate increase requests, can impact financial performance.
• New or modified water quality standards and compliance with related legal and regulatory requirements can increase costs.
• The company is exposed to financial and operating risks associated with acquisitions and/or privatizations.
• Cyber-attacks and acts of war or terrorism pose a risk to operations.
• Changes in the pace of new housing development can impact customer growth.
• The availability and cost of capital resources can affect the company's ability to fund its capital program.
• Timely availability of materials and supplies for operations and critical infrastructure projects is essential.
• The company's effectiveness of internal control over financial reporting is important for accurate financial reporting.

Future Outlook

The company's ability to increase operating income and net income is based significantly on weather, adequate and timely rate relief, effective cost management and customer growth; operating costs are anticipated to increase in 2025 and 2026, potentially requiring a base rate increase request by Middlesex in mid-2025; the company's strategy for selective and sustainable growth is focused on investing in utility infrastructure, timely recovery of infrastructure investments, selective acquisitions, and operation of municipal and industrial water and wastewater systems on a contract basis.

Management Comments

• As operating costs are anticipated to increase in 2025 in a variety of categories, we continue to implement plans to further streamline operations and further reduce and mitigate increases in operating costs.
• 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.

Industry Context

The announcement reflects the ongoing challenges and opportunities in the water utility industry, including the need for infrastructure investment, regulatory compliance (particularly regarding PFAS), and managing costs while seeking rate increases to maintain profitability; the acquisition of smaller water systems and the provision of contract services to municipalities are common strategies for growth in this sector.

Comparison to Industry Standards

• Aqua America (now Essential Utilities) and American Water Works Company are comparable companies in the regulated water utility sector.
• These companies also face similar challenges related to infrastructure upgrades, regulatory compliance, and rate case proceedings.
• The level of capital expenditure is consistent with the industry trend of investing in aging infrastructure.
• The focus on acquisitions and contract operations aligns with the strategies employed by other water utilities to expand their service areas and revenue streams.
• The company's efforts to address PFAS contamination are in line with the industry's response to evolving water quality standards.

Legal Proceedings

• The parties to the Vera and Lonsk PFOA-related class action lawsuits entered into a signed Class Action Settlement Agreement that was subsequently filed with the Superior Court of New Jersey, Law Division (Middlesex County) on April 16, 2025 together with a Motion For Preliminary Approval of the Class Action Settlement Agreement.
• The Company does not believe that the now-executed and filed Class Settlement Agreement has any material financial or operational impact to Middlesex.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and earnings per share.
• Customers may experience rate increases as the company seeks to recover infrastructure investments and operating costs.
• Employees may be affected by efforts to streamline operations and manage costs.
• The company's investments in infrastructure and compliance with water quality standards benefit customers and the environment.

Next Steps

• Continue implementing plans to streamline operations and mitigate increases in operating costs.
• Pursue rate increase requests to recover infrastructure investments and operating costs.
• Monitor and comply with evolving water quality standards, including PFAS regulations.
• Continue to evaluate and pursue selective acquisitions of investor and municipally-owned water and wastewater utilities.
• Manage capital expenditures and funding sources to maintain a balanced capital structure.

Key Dates

Keywords

water utility, regulated, revenue, rate increase, capital expenditures, acquisition, Middlesex Water Company, Tidewater, DSIC, PFAS