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Capitalization

9 Months Ended

Sep. 30, 2017

Note 3 – Capitalization

Common Stock

During the nine months ended September 30, 2017 and 2016, there were 24,154 common shares (approximately $0.9 million) and 35,350 common shares (approximately $1.2 million), respectively, issued under the Middlesex Water Company Investment Plan.

Long-term Debt

In January 2017, the NJBPU approved Middlesex’s request to borrow up to $37.0 million under the New Jersey State Revolving Fund (SRF) program to fund the construction of a large-diameter transmission pipeline from the Carl J. Olsen water treatment plant and interconnect with our distribution system. Middlesex currently expects to close on the SRF construction loan in the first quarter of 2018 with funding requisitions occurring primarily throughout 2018 and 2019.

Middlesex closed on a $9.5 million NJBPU approved SRF construction loan in August 2017. The proceeds will be used to fund the RENEW 2017 project. RENEW is an ongoing program to eliminate all unlined water distribution mains in the Middlesex system. Funding requisitions are expected to occur primarily throughout the remainder of 2017.

Middlesex closed on a $2.3 million NJBPU approved SRF construction loan in May 2017. The proceeds will be used to fund the upgrade of a booster station at one of its well fields. Funding requisitions are expected to occur through early 2018.

In November 2017, Middlesex is scheduled to close out three of its active New Jersey SRF construction loans (booster station upgrade, RENEW 2015 and RENEW 2016 projects) by issuing first mortgage bonds designated as Series XX (approximately $11.1 million) and Series YY (approximately $3.7 million). The interest rate on the Series XX bond will be zero and the interest rate on the Series YY bond will be determined at the time of closing using the credit rating of the State of New Jersey. The final maturity date for both bonds will be August 1, 2047.

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 First Mortgage and SRF Bonds (collectively, the Bonds) issued by Middlesex 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 notes payable and the Bonds in the table below are classified as Level 2 measurements. The carrying amount and fair value of the Bonds were as follows:

	(In Thousands)
	September 30, 2017				December 31, 2016
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Bonds	$	80,203	$	82,573	$	82,786	$	84,821

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 $64.1 million and $59.7 million at September 30, 2017 and December 31, 2016, respectively. Customer advances for construction have carrying amounts of $21.3 million and $20.8 million at September 30, 2017 and December 31, 2016, 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.