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Capitalization

9 Months Ended

Sep. 30, 2016

Note 3 – Capitalization

Common Stock

During the nine months ended September 30, 2016 and 2015, there were 35,350 common shares (approximately $1.2 million) and 48,414 common shares (approximately $1.1 million), respectively, issued under the Middlesex Water Company Investment Plan.

Long-term Debt

In February 2016, Tidewater closed on a $1.2 million loan with the Delaware State Revolving Fund (SRF) program which allows, but does not obligate, Tidewater to draw against a General Obligation Note to fund the replacement of the water distribution system in a manufactured home community. The interest rate on all draws is 2.0% with a final repayment maturity date of February 1, 2036. Through September 30, 2016, Tidewater has drawn $1.1 million on this loan and expects to draw down the remainder of the loan proceeds during the fourth quarter of 2016.

In March 2016, the NJBPU approved Middlesex’s request to borrow up to $16.0 million through the New Jersey Environmental Infrastructure Trust (NJEIT) under the New Jersey SRF long-term loan program utilizing first mortgage bonds. The proceeds will be used to fund the current year RENEW Program, which is an ongoing initiative to eliminate all unlined water distribution mains in the Middlesex system. Under the SRF program, borrowers first enter into a construction loan with the NJEIT, for which Middlesex closed on an $11.8 million zero percent (0%) arrangement on June 28, 2016. Through September 30, 2016, Middlesex has drawn down $2.8 million and expects to draw down the remaining proceeds during the fourth quarter of 2016. When construction on a qualifying project is substantially complete, the NJEIT will coordinate the conversion of the construction loan into a twenty year long-term securitized loan with 75% of the principal balance having a stated interest rate of zero percent (0%) and 25% of the principal balance at a market interest rate at the time of closing using the credit rating of the State of New Jersey. The NJEIT generally schedules its long-term debt financings in November and May.

In July 2016, the NJBPU approved Middlesex’s request to borrow up to $4.0 million under the New Jersey SRF program to fund the upgrade of a booster station at one of its well fields. Based on the current construction schedule, Middlesex expects to close on the SRF construction loan in December 2016 with proceeds requisitions occurring through September 2017.

In 2016, the NJEIT de-obligated principal payments of $0.5 million on several series of SRF loans.

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments for which it is practicable to estimate that value. The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, trade receivables, accounts payable and notes payable approximate their respective fair values due to the short-term maturities of these instruments. The fair value of the Company’s long-term debt relating to First Mortgage and SRF Bonds (Bonds) is based on quoted market prices for similar issues. Under the fair value hierarchy, the fair value of cash and cash equivalents is classified as a Level 1 measurement and the fair value of the Bonds in the table below are classified as Level 2 measurements. The carrying amount and fair value of the Company’s bonds were as follows:

	September 30, 2016				December 31, 2015
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
First Mortgage Bonds	$	82,407	$	86,236	$	85,143	$	87,972
SRF Bonds	$	379	$	381	$	457	$	459

For other long-term debt for which there was no quoted market price and there is not an active trading market, it was not practicable to estimate their fair value (for details, including carrying value, interest rate and due date on these series of long-term debt, please refer to those series noted as “Amortizing Secured Note”, “State Revolving Trust Note” and “Construction Loans” on the Condensed Consolidated Statements of Capital Stock and Long-Term Debt). The carrying amount of these instruments was $56.0 million and $54.7 million at September 30, 2016 and December 31, 2015, respectively. Customer advances for construction have carrying amounts of $20.9 million and $20.5 million at September 30, 2016 and December 31, 2015, respectively. Their relative fair values cannot be accurately estimated since future refund payments depend on several variables, including new customer connections, customer consumption levels and future rate increases.