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Rate and Regulatory Matters | 12 Months Ended
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Dec. 31, 2024
Rate and Regulatory Matters [Abstract] |
Rate and Regulatory Matters | Note 2 - Rate and Regulatory Matters Rate Matters Middlesex – The approval by the NJBPU in February 2024 of the negotiated settlement of the Middlesex 2023 base rate case is expected to increase annual operating revenues by $15.4 million, effective March 1, 2024. The approved tariff rates were designed to recover increased operating costs as well as a return on invested capital of $563.1 million, based on an authorized return on common equity of 9.6%. Middlesex has made capital infrastructure investments to ensure prudent upgrade and replacement of its utility assets to support continued regulatory compliance, resilience and overall quality of service. In August 2023, Middlesex and 3M Company (3M) executed a settlement agreement (Settlement Agreement) to resolve a lawsuit Middlesex previously initiated claiming 3M introduced Perfluoroalkyl Substances (PFAS) into the Company’s water supply for its Park Avenue Wellfield Treatment Plant (Park Avenue Plant). The rate case settlement provided that the net proceeds from the 3M Settlement Agreement were to be used to mitigate the increase in customer rates and reimburse Middlesex for previously incurred costs for the construction of the Park Avenue Plant PFAS treatment upgrades, including depreciation and carrying costs. This resulted in the reclassification of $48.3 million from Regulatory Liabilities to Contributions in Aid of Construction from the December 31, 2023 balance sheet. In 2024, the Company also recognized the recovery of $0.9 million for depreciation and $4.1 million for carrying costs associated with the Park Avenue Plant PFAS treatment upgrades, as well as the recovery of $2.6 million of previously incurred operating treatment costs while the Park Avenue Plant PFAS treatment upgrades were in process. The Middlesex Lead Service Line Replacement (LSLR) Plan, which was approved by the NJBPU in January 2024, has commenced and Middlesex is currently recovering $1.2 million of costs for replacing customer-owned lead service lines incurred through June 2024, which are being recovered between September 2024 and February 2025. Costs of $0.6 million for replacing customer-owned lead service lines incurred between July 2024 through December 2024 will be recovered beginning in March 2025 through August 2025. The LSLR surcharge is required to be reset every six months over the life of the LSLR Plan. Cost recovery for replacing Company-owned lead service lines are recoverable through traditional rate making in connection with general rate case filings. In October 2023, the NJBPU approved Middlesex’s petition for a Distribution System Improvement Charge (DSIC) Foundation Filing, which is a prerequisite to implementing a DSIC rate that allows water utilities to recover investments in, and generate a return on, qualifying capital improvements to their water distribution system made between base rate proceedings. Middlesex is authorized to recover DSIC revenues up to five percent (5%) of total revenues established in Middlesex’s 2021 base rate proceeding, or approximately $5.5 million. Semi-annually, beginning in April 2024, the Company must file for a change in its DSIC rate seeking recovery for DSIC-eligible investments made during the period. DSIC rates remain in effect until Middlesex’s next base rate case increase subsequent to the March 1, 2024 increase. Under the terms of the Foundational Filing, the Company is required to file a base rate petition before November 2026. In May 2024, the NJBPU approved a DSIC rate, effective May 26, 2024, that is expected to result in $0.5 million of annual revenue. In November 2024, the NJBPU approved a DSIC rate, effective November 26, 2024, that is expected to result in an additional $0.6 million of annual revenue. Middlesex expects to file for an additional DSIC rate increase in April 2025. In February 2025, the NJBPU approved Middlesex’s petition to reset its Purchased Water Adjustment Clause (PWAC) tariff rate to recover additional annual costs of $0.5 million, primarily for the purchase of treated water from a non-affiliated water utility regulated by the NJBPU. A PWAC is a rate mechanism that allows for the recovery of increased purchased water costs between base rate case filings. The PWAC is reset to zero once those increased costs are included in base rates. The new PWAC rate will be effective March 1, 2025. Tidewater – In August 2024, Tidewater filed an application with the DEPSC to increase its general rates for water service. In the application, Tidewater seeks an overall increase in annual operating revenue of $10.3 million or 25.66% over current revenue. The request for rate increases will allow Tidewater to recover prudently incurred investments made in the last ten years to support continued regulatory compliance, enhanced water quality, service reliability, security and resiliency of the water utility infrastructure assets. Effective October 30, 2024, Tidewater received approval of the DEPSC to suspend its DSIC rate and implement an interim rate increase, which is expected to result in approximately $2.5 million of annual revenues, subject to refund pending the outcome of the rate case application. In September 2024, the DEPSC approved Tidewater’s petition to recover up to $2.1 million of costs associated with Tidewater’s obligation to identify and inventory lead service lines throughout Tidewater’s service area, as required by federal law and Delaware regulations. Recovery of these costs began February 1, 2025 and is expected to continue through January 2028. Through December 31, 2024, Tidewater has spent $1.8 million, which is included in Regulatory Assets. Tidewater Acquisition of the Water Utility Assets of the Town of Ocean View, Delaware – In February 2025, Tidewater and the Town of Ocean View, Delaware’s (Ocean View) joint application for Tidewater’s purchase of all of the rights, title, and interest in the water utility assets of Ocean View for $4.6 million was approved by the DEPSC. Ocean View serves approximately 900 customers in Sussex County, Delaware. Tidewater currently provides water service to most residents of Ocean View other than the 900 customers currently served by Ocean View. Closing on this purchase is expected by April 2025. Southern Shores - Southern Shores provides water service to a 2,200 unit condominium community in Sussex County, Delaware under a DEPSC-approved agreement expiring December 31, 2029. Under the agreement, rates are increased when there are unanticipated capital expenditures or regulatory related changes in operating expenses exceed certain thresholds. In 2024, capital expenditures did exceed the established threshold. In addition, rates are increased annually by the lesser of the regional Consumer Price Index or 3%. Effective January 1, 2025, Southern Shores rates were increased $0.1 million or 6.51%. Twin Lakes – Twin Lakes provides water services to approximately 115 residential customers in Shohola, Pennsylvania. In January 2021, the Pennsylvania Public Utility Commission (PAPUC) appointed a large Pennsylvania based investor-owned utility as the receiver (the Receiver Utility) of the Twin Lakes system. In November 2021, the PAPUC issued an Order ordering the Receiver Utility to acquire the Twin Lakes water system and for Middlesex, the parent company of Twin Lakes, to submit $1.7 million into an escrow account within 30 days. In January 2025, the United States Court of Appeals for the Third Circuit (Third Circuit Court) upheld the PAPUC Order. Following the Third Circuit Court’s decision, Middlesex will not pursue further litigation in the federal courts and intends to submit the required escrow payment to complete the Receiver Utility’s acquisition of the Twin Lakes system. The estimated loss recorded by the Company related to this matter, and the financial results, total assets and financial obligations of Twin Lakes are not material to Middlesex. Regulatory Matters We have recorded certain costs as regulatory assets because we expect full recovery of, or are currently recovering, these costs in the rates we charge customers. These deferred costs have been excluded from rate base and, therefore, we are not earning a return on the unamortized balances. We record regulatory liabilities for amounts expected to be refunded to customers in the rate making process. These items are detailed as follows:
|  | (In Thousands)
|  | December 31,
Regulatory Assets |  | 2024 |  | 2023
Income Taxes (a) |  | $ | 89,825 |  |  | $ | 84,419 |
Other (b) |  |  | 11,958 |  |  |  | 6,275 |
Total |  | $ | 101,783 |  |  | $ | 90,694 |
Regulatory Liabilities |  |  |  |  |  |  |  |
Income Taxes (c) |  | $ | 27,380 |  |  | $ | 28,188 |
Cost of Removal (d) |  |  | 20,595 |  |  |  | 19,727 |
Employee Benefit Plans (e) |  |  | 9,435 |  |  |  | 1,471 |
Lawsuit Settlement (f) |  |  | 5,334 |  |  |  | 63,635 |
New Jersey Revenue Taxes (g) |  |  | 1,813 |  |  |  | — |
Total |  | $ | 64,557 |  |  | $ | 113,021 |
(a) The recovery period for income taxes is dependent upon when the temporary differences between the tax and book treatment of various items reverse. (b) Other primarily includes deferred costs for rate cases and tank painting. (c) The 2017 Tax Act reduced the statutory corporate federal income tax rate from 35% to 21%. The tariff rates charged to customers effective prior to 2018 in the Company’s regulated companies include recovery of income taxes at the statutory rate in effect at the time those rates were approved by the respective state public utility commissions. The Company has recorded regulatory liabilities for excess income taxes collected through rates due to the lower income tax rate under the 2017 Tax Act. These regulatory liabilities are overwhelmingly related to utility plant depreciation deduction timing differences, which are subject to Internal Revenue Service (IRS) normalization rules. The IRS rules limit how quickly the excess taxes attributable to accelerated taxes can be returned to customers. The current base rates for Middlesex and Pinelands customers became effective after 2017 and reflect the impact of the 2017 Tax Act. (d) The Company uses composite depreciation rates for its regulated utility assets, which is currently an acceptable method under GAAP and is widely used in the utility industry. Historically, under the composite depreciation method, the anticipated costs of removing assets upon retirement are provided for over the life of those assets as a component of depreciation expense. The Company recovers certain asset retirement costs through rates charged to customers as an approved component of depreciation expense. (e) Retirement benefits include pension and other retirement benefits that have been recorded on the Consolidated Balance Sheet in accordance with the guidance provided in ASC 715, Compensation – Retirement Benefits. These amounts represent obligations less than current funding. (f) The net proceeds available to Middlesex from the 3M Settlement Agreement were recorded as a regulatory liability and are being used for future related operating and maintenance costs. (g) Revenue related taxes paid by the Company's New Jersey Regulated subsidiaries, and reflected in those subsidiaries current base rates, were above enacted rates and will be refunded back to customers in a future rate proceeding.

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