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Employee Benefit Plans

12 Months Ended

Dec. 31, 2011

Note 7 - Employee Benefit Plans

Pension Benefits

The Company’s Pension Plan covers substantially all active employees hired prior to March 31, 2007. Employees hired after March 31, 2007 are not eligible to participate in this plan, but can participate in a defined contribution plan that provides an annual contribution at the discretion of the Company, based upon a percentage of the participants’ compensation. In order to be eligible for contribution, the eligible employee must be employed by the Company on December 31^st of the year to which the award relates. In addition, the Company maintains an unfunded supplemental plan for its executive officers. The Accumulated Benefit Obligation for the Company’s Pension Plan at December 31, 2011 and 2010 was $46.5 million and $33.8 million, respectively.

Other Benefits

The Company’s Other Benefits Plan covers substantially all of its retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance. Accrued retirement benefit costs are recorded each year.

The Company has recognized a deferred regulatory asset relating to the difference between the accrued retirement benefit costs and actual cash paid for plan premiums in years prior to 1998. Included in the regulatory asset is a transition obligation from adopting Statement of Financial Accounting Standard No.106, “Employers’ Accounting for Postretirement Benefits Other than Pensions,” on January 1, 1993. In addition to the recognition of annual accrued retirement benefit costs in rates, Middlesex is also recovering the transition obligation over 15 years. The regulatory asset related to this transition obligation at December 31, 2011 and 2010 was $0.1 million and $0.2 million, respectively.

Regulatory Treatment of Over/Underfunded Retirement Obligations

Because the Company is subject to regulation in the states in which it operates, it is required to maintain its accounts in accordance with the regulatory authority’s rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows the guidance of ASC 980, Regulated Operations. Based on prior regulatory practice, and in accordance with the guidance in ASC 980, Regulated Operations, the Company records underfunded Pension Plan and Other Benefits Plan obligations, which otherwise would be recognized as Other Comprehensive Income under ASC 715, Compensation – Retirement Benefits, as a Regulatory Asset, and expects to recover those costs in rates charged to customers.

The Company uses a December 31 measurement date for all of its employee benefit plans. The table below sets forth information relating to the Company’s Pension Plan and Other Benefits Plan for 2011 and 2010.

	December 31, (Thousands of Dollars)
	Pension Plan						Other Benefits Plan
	2011			2010			2011			2010
Change in Projected Benefit Obligation:
Beginning Balance	$	42,138		$	38,311		$	29,605		$	22,736
Service Cost		1,574			1,396			1,306			1,025
Interest Cost		2,261			2,228			1,604			1,335
Actuarial Loss		12,047			2,022			11,121			5,032
Benefits Paid		(1,819	)		(1,819	)		(515	)		(523	)
Ending Balance	$	56,201		$	42,138		$	43,121		$	29,605
Change in Fair Value of Plan Assets:
Beginning Balance	$	29,989		$	25,298		$	12,890		$	9,680
Actual Return on Plan Assets		470			3,054			177			910
Employer Contributions		3,556			3,456			3,265			2,823
Benefits Paid		(1,819	)		(1,819	)		(515	)		(523	)
Ending Balance	$	32,196		$	29,989		$	15,817		$	12,890

Funded Status	$	(24,005	)	$	(12,149	)	$	(27,304	)	$	(16,715	)

Amounts Recognized in the Consolidated Balance Sheets consist of:
Current Liability		(303	)		(302	)		-			-
Noncurrent Liability		(23,702	)		(11,847	)		(27,304	)		(16,715	)
Net Liability Recognized	$	(24,005	)	$	(12,149	)	$	(27,304	)	$	(16,715	)

	Years Ended December 31, (Thousands of Dollars)
	Pension Plan									Other Benefits Plan
	2011			2010			2009			2011			2010			2009
Components of Net Periodic Benefit Cost
Service Cost	$	1,575		$	1,396		$	1,372		$	1,306		$	1,025		$	891
Interest Cost		2,261			2,228			2,101			1,604			1,335			1,086
Expected Return on Plan Assets		(2,283	)		(2,020	)		(1,602	)		(1,026	)		(759	)		(595	)
Amortization of Net Transition Obligation		-			-			-			135			135			135
Amortization of Net Actuarial Loss		565			506			615			878			531			493
Amortization of Prior Service Cost		10			10			10			-			-			-
Net Periodic Benefit Cost	$	2,128		$	2,120		$	2,496		$	2,897		$	2,267		$	2,010

Amounts that are expected to be amortized from Regulatory Assets into Net Periodic Benefit Cost in 2012 are as follows:

	(Thousands of Dollars)
	Pension Plan		Other Benefits Plan
Actuarial Loss	$	1,549	$	1,765
Prior Service Cost		10		-
Transition Obligation		-		135

The discount rate and compensation increase rate for determining our postretirement benefit plans’ benefit obligations and costs as of December 31, 2011, 2010 and 2009, respectively, are as follows:

	Pension Plan									Other Benefits Plan
	2011			2010			2009			2011			2010			2009
Weighted Average Assumptions:
Expected Return on Plan Assets		7.50	%		7.50	%		8.00	%		7.50	%		7.50	%		7.50	%
Discount Rate for:
Benefit Obligation		4.37	%		5.48	%		5.95	%		4.37	%		5.48	%		5.95	%
Benefit Cost		5.48	%		5.95	%		6.17	%		5.48	%		5.95	%		6.12	%
Compensation Increase for:
Benefit Obligation		3.00	%		3.00	%		3.50	%		3.00	%		3.00	%		3.50	%
Benefit Cost		3.00	%		3.00	%		3.50	%		3.00	%		3.00	%		3.50	%

The compensation increase assumption for the Other Benefits Plan is attributable to life insurance provided to qualifying employees upon their retirement. The insurance coverage will be determined based on the employee’s base compensation as of their retirement date.

For the 2011 valuation, costs and obligations for our Other Benefits Plan assumed a 9.0% annual rate of increase in the per capita cost of covered healthcare benefits in 2012 with a decline of 1.0% per year for 2013-2015 and 0.5% per year for 2016-2017, resulting in an annual rate of increase in the per capita cost of covered healthcare benefits of 5% by year 2017.

A one-percentage point change in assumed healthcare cost trend rates would have the following effects on the Other Benefits Plan:

	(Thousands of Dollars) 1 Percentage Point
	Increase		Decrease
Effect on Current Year’s Service and Interest Cost	$	555	$	(437	)
Effect on Projected Benefit Obligation	$	7,948	$	(6,236	)

The following benefit payments, which reflect expected future service, are expected to be paid:

	(Thousands of Dollars)
Year	Pension Plan		Other Benefits Plan
2012	$	1,829	$	753
2013		1,913		904
2014		1,904		1,054
2015		1,904		1,196
2016		1,955		1,339
2017-2021		12,024		8,905
Totals	$	21,529	$	14,151

Benefit Plans Assets

The allocation of plan assets at December 31, 2011 and 2010 by asset category is as follows:

	Pension Plan						Other Benefits Plan
Asset Category	2011			2010			2011			2010			Target			Range
Equity Securities		61.6	%		64.0	%		37.0	%		42.3	%		60	%		30-65%
Debt Securities		31.3	%		31.7	%		57.8	%		53.8	%		38	%		25-70%
Cash		6.9	%		4.0	%		4.6	%		3.1	%		2	%		0-10%
Commodities		0.2	%		0.3	%		0.6	%		0.8	%		0	%		0%
Total		100.0	%		100.0	%		100.0	%		100.0	%

Two outside investment firms each manage a portion of the Pension Plan asset portfolio. One of those investment firms also manages the Other Benefits Plan asset portfolio. Quarterly meetings are held between the Company’s Pension Committee of the Board of Directors and the investment managers to review their performance and asset allocation. If the actual asset allocation is outside the targeted range, the Pension Committee reviews current market conditions and advice provided by the investment managers to determine the appropriateness of rebalancing the portfolio.

The objective of the Company is to maximize the long-term return on retirement plan assets, relative to a reasonable level of risk, maintain a diversified investment portfolio and maintain compliance with the Employee Retirement Income Security Act of 1974. The expected long-term rate of return is based on the various asset categories in which plan assets are invested and the current expectations and historical performance for these categories.

Equity securities include Middlesex common stock in the amounts of $0.7 million (2.3% of total plan assets) and $0.7 million (2.4 % of total pension plan assets) at December 31, 2011 and 2010, respectively.

Fair Value Measurements

Accounting guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:

Level 1 – Inputs to the valuation methodology are unadjusted quoted market prices for identical assets or liabilities in accessible active markets.

Level 2 – Inputs to the valuation methodology that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. If the asset or liability has a specified contractual term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Certain investments in cash and cash equivalents, equity securities, and commodities are valued based on quoted market prices in active markets and are classified as Level 1 investments. Certain investments in cash and cash equivalents, equity securities and fixed income securities are valued using prices received from pricing vendors that utilize observable inputs and are therefore classified as Level 2 investments.

The following table presents Middlesex’s Pension Plan assets measured and recorded at fair value within the fair value hierarchy as of December 31, 2011 (amounts in thousands):

	Level 1		Level 2		Level 3		Total
Common Trust-Large Cap	$	-	$	7,641	$	-	$	7,641
Mutual Funds:
Mid Cap Growth		655		-		-		655
Mid Cap Value		356		-		-		356
Foreign Small Mid Growth		214		-		-		214
Foreign Large Core		97		-		-		97
Foreign Large Blend		586		-		-		586
Diversified Emerging Markets		281		-		-		281
Preferred Stock Index		74		-		-		74
Money Market Funds:
Cash		1,389		1,281		-		2,670
Equity Securities:
Non-Financial Services		189		-		-		189
Financial Services		1,289		-		-		1,289
Utilities		1,629		-		-		1,629
Consumer Growth		1,685		-		-		1,685
Consumer Staples		956		-		-		956
Consumer Cyclicals		853		-		-		853
Industrial Resources		159		-		-		159
Capital Equipment		651		-		-		651
Technology		1,345		-		-		1,345
Energy		1,160		-		-		1,160
Other		40		-		-		40
Corporate Bonds		-		2,324		-		2,324
Mortgage-Backed Securities⁽¹⁾		-		2,527		-		2,527
Asset-Backed Securities⁽¹⁾		-		27		-		27
Agency/US/State/Municipal Debt		129		4,532		-		4,661
Sovereign/Non-US Debt		-		75		-		75
Commodities		52		-		-		52
Total Investments	$	13,789	$	18,407	$	-	$	32,196

(1) Mortgage-backed securities represent AAA rated securities and substantially all of the asset-backed securities are highly-rated (Standard & Poor's rating of AA+), secured primarily by credit card, auto loan and home equity receivables

The following table presents Middlesex’s Pension Plan assets measured and recorded at fair value within the fair value hierarchy as of December 31, 2010 (amounts in thousands):

	Level 1		Level 2		Level 3		Total
Common Trust Fund-Large Cap	$	-	$	6,844	$	-	$	6,844
Mutual Funds:
Mid Cap Growth		717		-		-		717
Mid Cap Value		374		-		-		374
Foreign Small Mid Growth		255		-		-		255
Foreign Large Blend		599		-		-		599
Foreign Large Core		114		-		-		114
Foreign Large Growth		207		-		-		207
Diversied Emerging Markets		398		-		-		398
Preferred Stock Index		80		-		-		80
Money Market Funds:
Cash		553		643		-		1,196
Equity Securities:
Non-Financial Services		209		-		-		209
Financial Services		976		-		-		976
Utilities		1,555		-		-		1,555
Consumer Growth		1,447		-		-		1,447
Consumer Staples		937		-		-		937
Consumer Cyclicals		998		-		-		998
Industrial Resources		498		-		-		498
Capital Equipment		729		-		-		729
Technology		1,188		-		-		1,188
Energy		1,033		-		-		1,033
Other		25		-		-		25
Corporate Bonds		-		2,915		-		2,915
Mortgage-Backed Securities (1)		-		2,323		-		2,323
Asset-Backed Securities (1)		-		93		-		93
Agency/US/State/Municipal Debt		129		3,864		-		3,993
Sovereign/Non-US Debt		-		191		-		191
Commodities		95		-		-		95
Total Investments	$	13,116	$	16,873	$	-	$	29,989

(1) Mortgage-backed securities represent AAA rated securities and substantially all of the asset-backed securities are highly-rated (Standard & Poor’s rating of AA+), secured primarily by credit card, auto loan, and home equity receivables

The following table presents Middlesex’s Other Benefits Plan assets measured and recorded at fair value within the fair value hierarchy as of December 31, 2011 (amounts in thousands):

	Level 1		Level 2		Level 3		Total
Mutual Funds:
Small Cap Core	$	90	$	-	$	-	$	90
Mid Cap Core		48		-		-		48
Mid Cap Growth		253		-		-		253
Mid Cap Value		288		-		-		288
Large Cap Core		3,406		-		-		3,406
Large Cap Growth		398		-		-		398
Large Cap Value		349		-		-		349
Foreign Small Mid Growth		225		-		-		225
Foreign Large Core		279		-		-		279
Foreign Large Growth		247		-		-		247
Diversified Emerging Markets		163		-		-		163
Preferred Stock Index		107		-		-		107
Money Market Funds:
Cash		-		818		-		818
Agency/US/State/Municipal Debt		424		8,622		-		9,046
Commodities		100		-		-		100
Total Investments	$	6,377	$	9,440	$	-	$	15,817

The following table presents Middlesex’s Other Benefits Plan assets measured and recorded at fair value within the fair value hierarchy as of December 31, 2010 (amounts in thousands):

	Level 1		Level 2		Level 3		Total
Mutual Funds:
Small Cap Core	$	95	$	-	$	-	$	95
Mid Cap Growth		277		-		-		277
Mid Cap Value		259		-		-		259
Large Cap Core		3,002		-		-		3,002
Large Cap Growth		365		-		-		365
Large Cap Value		298		-		-		298
Foreign Small Mid Growth		246		-		-		246
Foreign Large Core		276		-		-		276
Foreign Large Growth		306		-		-		306
Diversified Emerging Markets		217		-		-		217
Preferred Stock Index		116		-		-		116
Money Market Funds:
Cash		-		399		-		399
Agency/US/State/Municipal Debt		765		6,170		-		6,935
Commodities		99		-		-		99
Total Investments	$	6,321	$	6,569	$	-	$	12,890

Benefit Plans Contributions

For the Pension Plan, Middlesex made total cash contributions of $3.6 million in 2011 and expects to make cash contributions of approximately $4.1 million in 2012.

For the Other Benefits Plan, Middlesex made total cash contributions of $3.3 million in 2011 and expects to make contributions of approximately $4.8 million in 2012.

401(k) Plan

The Company has a 401(k) defined contribution plan, which covers substantially all employees with more than 1,000 hours of service. Under the terms of the Plan, the Company matches 100% of a participant’s contributions, which do not exceed 1% of a participant’s compensation, plus 50% of a participant’s contributions exceeding 1%, but not more than 6%. The Company’s matching contributions were $0.5 million for each of the years ended December 31, 2011, 2010 and 2009.

For those employees hired after March 31, 2007 and still employed on December 31, 2011, the Company approved and will fund discretionary contribution of $0.2 million, which was based on 5.0% of eligible 2011 compensation. For the years ended December 31, 2010 and 2009, the Company made discretionary contributions of $0.2 million and $0.1 million, respectively, for those employees hired after March 31, 2007.

Stock-Based Compensation

The Company has a stock compensation plan for certain management employees (the 2008 Restricted Stock Plan). The Company maintains an escrow account for 0.1 million shares of the Company's common stock for the 2008 Restricted Stock Plan. Such stock is subject to an agreement requiring forfeiture by the employee in the event of termination of employment within five years of the award other than as a result of retirement, death, disability or change in control. The maximum number of shares authorized for grant under the 2008 Restricted Stock Plan is 0.3 million shares, for which 0.2 million remain as unissued shares.

The Company recognizes compensation expense at fair value for the restricted stock awards in accordance with ASC 718, Compensation – Stock Compensation. Compensation expense is determined by the market value of the stock on the date of the award and is being amortized over a five-year period.

The following table presents information on the 2008 Restricted Stock Plan:

	Shares (thousands)			Unearned Compensation (thousands)			Weighted Average Grant Price
Balance, January 1, 2009		81		$	928
Granted		30			448		$	15.11
Vested		(17	)		-
Forfeited		(1	)		(6	)
Amortization of Compensation Expense		-			(380	)
Balance, December 31, 2009		93		$	990
Granted		14			239		$	16.97
Vested		(13	)		-
Forfeited		-			-
Amortization of Compensation Expense		-			(338	)
Balance, December 31, 2010		94		$	891
Granted		30			518		$	16.97
Vested		(15	)		-
Forfeited		(1	)		(7	)
Amortization of Compensation Expense		-			(323	)
Balance, December 31, 2011		108		$	1,079

The fair value of vested restricted shares was $0.2 million for each of the years ended December 31, 2011, 2010 and 2009.