MIDDLESEX WATER CO (MSEX) FY 2022 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction
with the Company’s consolidated financial statements and related notes.

Operations

Middlesex Water Company (Middlesex or the Company)
has operated as a water utility in New Jersey since 1897 and in Delaware through our wholly-owned subsidiary, Tidewater Utilities, Inc.
(Tidewater), since 1992. We are in the business of collecting, treating and distributing water for domestic, commercial, municipal, industrial
and fire protection purposes. We operate water and wastewater systems under contract for governmental entities and private entities primarily
in New Jersey and Delaware and also provide regulated wastewater services in New Jersey. We are regulated by state public utility commissions
as to rates charged to customers for water and wastewater services, as to the quality of water and wastewater services we provide and
as to certain other matters in the states in which our regulated subsidiaries operate. Only our Utility Service Affiliates, Inc. (USA),
Utility Service Affiliates (Perth Amboy), Inc. (USA-PA) and White Marsh Environmental Services, Inc. (White Marsh) subsidiaries are not
regulated public utilities as related to rates and services quality. All municipal or commercial entities whose utility operations are
managed by these entities however, are subject to environmental regulation at the federal and state levels.

Our principal New Jersey water utility system (the
Middlesex System) provides water services to approximately 61,000 retail customers, primarily in central New Jersey. The Middlesex System
also provides water sales under contract to municipalities in central New Jersey with a total population of over 0.2 million. Our Bayview
System provides water services in Downe Township, New Jersey. Our other New Jersey subsidiaries, Pinelands Water Company (Pinelands Water)
and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), provide water and wastewater services to approximately
2,500 customers in Southampton Township, New Jersey.

Our Delaware subsidiaries, Tidewater and Southern
Shores Water Company, LLC (Southern Shores), provide water services to approximately 56,000 retail customers in New Castle, Kent and Sussex
Counties, Delaware. Tidewater’s subsidiary, White Marsh, services approximately 4,500 customers in Kent and Sussex Counties through
various operations and maintenance contracts.

USA-PA operates the water
and wastewater systems for the City of Perth Amboy, New Jersey (Perth Amboy) under a 10-year operations and maintenance contract expiring
in 2028. In addition to performing day-to day operations, USA-PA is also responsible for emergency response and management of capital
projects funded by Perth Amboy.

USA operates the Borough
of Avalon, New Jersey’s (Avalon) water utility, sewer utility and storm water system under a 10-year operations and maintenance
contract expiring in 2032. USA also operates the Borough of Highland Park, New Jersey’s (Highland Park) water and wastewater
systems under a 10-year operations and maintenance contract expiring in 2030. In addition to performing day-to-day service operations,
USA is responsible for emergency response and management of capital projects funded by Avalon and Highland Park. Under a marketing agreement
with HomeServe USA Corp. (HomeServe) expiring in 2031, USA offers residential customers in New Jersey and Delaware water and wastewater
related services and home maintenance programs. HomeServe is a leading national provider of such home maintenance service programs. USA
receives a service fee for the billing, cash collection and other administrative matters associated with HomeServe’s service contracts.
USA also provides unregulated water and wastewater services under contract with several New Jersey municipalities.

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Regulatory Notice of Non-Compliance

In September 2021, the New Jersey Department of Environmental
Protection (NJDEP) issued a Notice of Non-Compliance (Notice) to Middlesex based on self-reporting by Middlesex that the level of Perfluorooctanoic
Acid (PFOA) in water treated at its Park Avenue Wellfield Treatment Plant in South Plainfield, New Jersey exceeded a NJDEP standard that
became effective in 2021.

Prior to 2021, the Company began design for
construction of an enhanced treatment process at the Park Avenue Wellfield Treatment Plant to comply with the new standard prior to
the regulation being enacted. Since completion was not expected until mid-2023, the Company implemented an interim solution to meet
the Notice requirements.

In June 2022, a portion of the enhanced treatment
process was completed, placed into service and is effectively treating the ground water in compliance with all state and federal drinking
water standards.

In September 2022, the Company entered into an Administrative
Consent Order (ACO) with the NJDEP with respect to the Notice, which voided any further notice regarding the fact that the permanent treatment
solution was not in service by September 7, 2022 as required by the Notice. The Company must comply with several other requirements of
the ACO or face penalties.

In November 2021, the Company was served with two
PFOA-related class action lawsuits seeking restitution for medical, water replacement and other claimed related costs. These lawsuits
are in the early stages of the legal process and their ultimate resolution cannot be predicted at this time. The Company’s insurance
provider has acknowledged coverage of potential liability which may result from these lawsuits. In May 2022, the Company impleaded 3M
Company (3M) as a third-party defendant in one of these class action lawsuits. The Company has has also initiated a separate lawsuit against
3M seeking to hold 3M accountable for introduction of perfluoroalkyl substances (PFAS), which include PFOA, into the Company’s water
supply at its Park Avenue Wellfield facility.

Capital Construction
Program

The Company’s multi-year
capital construction program encompasses numerous projects designed to upgrade and replace utility infrastructure as well as enhance the
integrity and reliability of assets to better serve the current and future generations of water and wastewater customers. The Company
plans to invest approximately $102 million in 2023 in connection with this plan for projects that include, but are not limited to:

Sale of Subsidiary

In January 2022, Middlesex
closed on the Delaware Public Service Commission (DEPSC) approved sale of 100% of the common stock
of its subsidiary Tidewater Environmental Services, Inc. for $6.4 million in cash and other consideration, resulting in a $5.2 million
pre-tax gain. The Company will continue to own and operate its regulated water utilities in Delaware as well as its non-regulated
operations and maintenance contract business.

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Coronavirus (COVID-19) Pandemic

In January 2023, the United States Secretary of Health
and Human Services renewed the determination that a nationwide health emergency exists as a result of the COVID-19 Pandemic with an announced
end to the nationwide health emergency on May 11, 2023. While the Company’s operations and
capital construction program have not been materially disrupted to date from the pandemic, the COVID-19 impact on economic conditions
nationally continues to be uncertain and could affect the Company’s results of operations, financial condition and liquidity in
the future. In New Jersey, the declared COVID-19 State of Emergency Order ended in March 2022. In
Delaware, the declared COVID-19 State of Emergency Order ended in July 2021.

The New Jersey
Board of Public Utilities (the NJBPU) and the DEPSC have approved the tracking of COVID-19
related incremental costs for potential recovery in customer rates in future rate proceedings. Neither jurisdiction has established a
timetable or definitive formal procedures for seeking cost recovery. The Company has
increased its allowance for doubtful accounts for expected increases in accounts receivable write-offs due to the financial impact of
COVID-19 on customers. The Company has not deferred any COVID-19 related incremental costs. We
will continue to monitor the effects of COVID-19 and evaluate its impact on the Company’s results of operations, financial condition
and liquidity.

Strategy for Growth

Our strategy for profitable growth is focused on the following key areas:

Rates

Middlesex – In December 2021, Middlesex’s
petition to the NJBPU seeking permission to increase its base water rates was concluded, based on a negotiated settlement, resulting in
an expected increase in annual operating revenues of $27.7 million. The approved tariff rates were designed to recover increased operating
costs, as well as a return on invested capital of $513.5 million, based on an authorized return on common equity of 9.6%. The increase
was implemented in two phases with $20.7 million of the increase effective January 1, 2022 and the remaining $7.0 million effective January
1, 2023. As part of the negotiated settlement, the Purchased Water Adjustment Clause (PWAC), which is a rate mechanism that allows for
recovery of increased purchased water costs between base rate case filings, was reset to zero.

In September 2022, the NJBPU approved Middlesex's
Emergency Relief Motion to reset its PWAC tariff rate to recover additional costs of $2.7 million for the purchase of treated water from
a non-affiliated regulated water utility. The increase, effective October 1, 2022, is on an interim basis and subject to refund with interest,
pending final resolution expected in the second quarter of 2022.

In March 2021, the NJBPU approved Middlesex’s
annual petition to reset its PWAC tariff rate to recover additional costs of $1.1 million for the purchase of treated water from a non-affiliated
regulated water utility.  The new PWAC rate became effective April 4, 2021.

Tidewater – On August 31, 2022,
the DEPSC issued an Order requiring Tidewater to reduce its base rates charged to general metered and private fire customers by 6%, effective
for service rendered on and after September 1, 2022. In June 2022, the Delaware Division of the Public Advocate had filed a petition with
the DEPSC requesting that Tidewater’s rates be reduced based on the claim that Tidewater had been earning above its authorized rate
of return. The rate reduction is expected to reduce annual revenues by approximately $2.2 million.

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In March 2021, Tidewater was notified by the DEPSC
that it had determined Tidewater’s earned rate of return exceeded the rate of return authorized by the DEPSC. Consequently, Tidewater
reset its Distribution System Improvement Charge (DSIC) rate to zero effective April 1, 2021 and refunded approximately $1.0 million to
customers principally in the form of an account credit for DSIC revenue previously billed between April 1, 2020 and March 31, 2021. A
DSIC is a rate-mechanism that allows water utilities to recover investments in, and generate a return on, qualifying capital improvements
made between base rate proceedings.

Pinelands - In September 2022, Pinelands Water
and Pinelands Wastewater filed separate petitions with the NJBPU seeking permission to increase base rates by approximately $0.6 million
and $0.4 million per year, respectively. These requests were necessitated by capital infrastructure investments both companies have made,
or have committed to make, and increased operations and maintenance costs. We cannot predict whether the NJBPU will ultimately approve,
deny, or reduce the amount of the requests. A decision by the NJBPU in both matters is expected in the first quarter of 2023.

Southern Shores - Effective January
1, 2020, the DEPSC approved the renewal of a multi-year agreement for water service to a 2,200 unit condominium community we serve in
Sussex County, Delaware.  Under the agreement, current rates were to remain in effect until December 31, 2024, unless there are unanticipated
capital expenditures or regulatory related changes in operating expenses exceeding certain thresholds during this time period. In 2022,
capital expenditures did exceed the established threshold and rates were increased by 5.39% effective January 1, 2023. Beginning in 2025
and thereafter, inflation based rate increases cannot exceed the lesser of the regional Consumer Price Index or 3%. Inflation based increases
are in addition to the threshold rate increases. The agreement expires on December 31, 2029.

Outlook

Our ability to increase operating income and net income
is based significantly on four factors: weather, adequate and timely rate relief, effective cost management and customer growth (which
are evident in comparison discussions in the Results of Operations section below). Weather patterns which can result in lower customer
demand for water may occur in 2023. As operating costs are anticipated to increase in 2023 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.

The DEPSC issued an Order requiring Tidewater to reduce
its base rates charged to general metered and private fire customers by 6% (for further discussion of the impact of this on the Company,
see Rates, Tidewater above). Our investments in system infrastructure continue to grow significantly and our operating costs are
anticipated to increase in 2023 and 2024 in a variety of categories. These factors, among others, will likely require Middlesex and Tidewater
to file base rate increase requests as early as the second quarter of 2023.

Overall, organic residential customer growth continues
in our Tidewater system (approximately 5% in 2022). However, current and evolving economic market conditions may challenge the growth
level. Builders and developers in Tidewater’s service areas are experiencing lower home starts and longer home sales closing cycles
due to supply chain issues, which may be further affected by inflationary trends on housing construction materials and mortgage interest
rates.

The Company has projected to spend approximately $266
million for the 2023-2025 capital investment program, including approximately $22 million for PFAS-related treatment upgrades, $18 million
for Lead and Copper Rule compliance in the Middlesex System, $34 million on the RENEW Program, which is our ongoing initiative to replace
water mains in the Middlesex System and $8 million for construction of elevated storage tanks in our Tidewater and Middlesex Systems.

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Operating Results by Segment

The Company has two operating segments, Regulated
and Non-Regulated. Our Regulated segment contributed approximately 93% of total revenues for the year ended December 31, 2022 and 91%
for each of the years ended December 31, 2021 and 2020 and approximately 95% of net income for the year ended December 31, 2022 and 93%
of net income for each of the years ended December 31, 2021, and 2020. The discussion of the Company’s results of operations is
on a consolidated basis and includes significant factors by subsidiary. The segments in the tables included below are comprised of the
following companies: Regulated- Middlesex, Tidewater, Pinelands and Southern Shores; Non-Regulated- USA, USA-PA, and White Marsh.

Results of Operations for 2022 as Compared to 2021

Operating Revenues

Operating revenues for the year ended December 31,
2022 increased $19.3 million from the same period in 2021 due to the following factors:

Operation and Maintenance Expense

Operation and maintenance expenses for the year ended
December 31, 2022 increased $5.4 million from the same period in 2021 due to the following factors:

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Depreciation

Depreciation expense for the year ended December 31,
2022 increased $1.9 million from the same period in 2021 due to a higher level of utility plant in service.

Other Taxes

Other taxes for the year ended December 31, 2022 increased
$3.0 million from the same period in 2021 primarily due to higher revenue related taxes on increased revenues in our Middlesex system.

Gain on Sale of Subsidiary

Middlesex recognized a $5.2 million gain on the sale
of its regulated Delaware wastewater subsidiary in January 2022.

Other Income, net

Other Income, net for the year ended December 31,
2022 increased $1.8 million from the same period in 2021 primarily due to higher actuarially-determined retirement benefit plans non-service
benefit partially offset by lower Allowance for Funds Used During Construction (AFUDC) resulting from a reduced level of capital projects
under construction.

Interest Charges

Interest charges for the year ended December 31, 2022
increased $1.3 million from the same period in 2021 due to higher long-term and short-term debt outstanding in 2022 as compared to 2021
and higher average interest rates in 2022 as compared to 2021.

Income Taxes

Income taxes for the year ended December 31, 2022
increased by $8.7 million from the same period in 2021, primarily due to income taxes on the gain on the
sale of a subsidiary and the expiration of income tax benefits associated with the adoption of Internal Revenue Service tangible property
regulations as Middlesex was required by the NJBPU to account for the benefit of adopting these regulations over 48 months beginning in
2018. Partially offsetting these increases were greater income tax benefits associated with increased repair expenditures on tangible
property in the Middlesex system.

Net Income and Earnings Per Share

Net income for the year ended December 31, 2022 increased
$5.9 million as compared with the same period in 2021. Basic earnings per share were $2.40 and $2.08 for the years ended December 31,
2022 and 2021, respectively. Diluted earnings per share were $2.39 and $2.07 for the years ended December 31, 2022 and 2021, respectively.

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Results of Operations for 2021 as Compared to 2020

Operating Revenues

Operating revenues for the year ended December 31,
2021 increased $1.5 million from the same period in 2020 due to the following factors:

Operation and Maintenance Expense

Operation and maintenance expenses for the year ended
December 31, 2021 increased $2.9 million from the same period in 2020 due to the following factors:

Depreciation

Depreciation expense for the year ended December 31,
2021 increased $2.6 million from the same period in 2020 due to a higher level of utility plant in service.

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Other Taxes

Other taxes for the year ended December 31, 2021 increased
$0.2 million from the same period in 2020 primarily due to higher payroll taxes on increased labor costs.

Other Income, net

Other Income, net for the year ended December 31,
2021 increased $1.6 million from the same period in 2020 primarily due to lower actuarially-determined retirement benefit plans non-service
expense offset by lower AFUDC on a lower average level of capital construction projects under construction.

Interest Charges

Interest charges for the year ended December 31, 2021
increased $0.6 million from the same period in 2020 due to higher long-term and short-term debt outstanding in 2021 as compared to 2020
partially offset by lower average interest rates on short term borrowings year-over-year.

Income Taxes

The benefit from income taxes for the year ended December
31, 2021 increased by $1.4 million from the same period in 2020 primarily due to lower pre-tax income.

Net Income and Earnings Per Share

Net income for the year ended December 31, 2021 decreased
$1.9 million as compared with the same period in 2020. Basic earnings per share were $2.08 and $2.19 for the years ended December 31,
2021 and 2020, respectively. Diluted earnings per share were $2.07 and $2.18 for the years ended December 31, 2021 and 2020, respectively.
In anticipation of this expected decrease, in 2021, Middlesex filed and settled a base rate increase request with the NJBPU, with rate
increases becoming effective on January 1, 2022 and January 1, 2023 (for further discussion of Middlesex’s rate increase, see Rates,
Middlesex above).

Liquidity and Capital Resources

Cash Flows from Operating Activities

Cash flows from operating activities are largely influenced
by four factors: weather, adequate and timely rate increases, effective cost management and customer growth. The effect of those factors
on net income is discussed in the Results of Operations section above.

For the year ended December 31, 2022, cash flows from
operating activities increased $28.3 million to $61.4 million. The increase in cash flows from operating activities primarily resulted
from higher operating revenues from Middlesex’s January 1, 2022 rate increase and the timing of payments
to vendors and to income tax authorities.

Increases in certain operating costs impact our liquidity
and capital resources. We continually monitor the need for timely rate filing to minimize the lag between the time we experience increased
operating costs and capital expenditures and the time we receive appropriate rate relief. There can be no assurances however that our
regulated subsidiaries’ respective utility commissions will approve base water and/or wastewater rate increase requests in whole
or in part or when the decisions will be rendered.

Cash Flows from Investing Activities

For the year ended December 31, 2022, cash flows used
in investing activities increased $8.8 million to $88.2 million, which was attributable to higher utility plant expenditures partially
offset by cash received from the sale of Middlesex’s regulated wastewater subsidiary in January 2022.

For further discussion on the Company’s future
capital expenditures and expected funding sources, see “Capital Expenditures and Commitments” below.

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Cash Flows from Financing Activities

For the year ended December 31, 2022, cash flows provided
by financing activities decreased $12.3 million to $27.1 million. The decrease in cash flows provided by financing activities is due to
a decrease in net long-term borrowings, lower net customer advances and contributions and higher
common stock dividends offset by higher proceeds from the issuance of common stock and higher short-term borrowing.

For further discussion on the Company’s short-term
and long-term debt, see “Sources of Liquidity” below.

Capital Expenditures and Commitments

To fund our capital program, we use internally generated
funds, short-term and long-term debt borrowings, proceeds from sales of common stock under the Investment Plan and, when market conditions
are favorable, proceeds from sales to the public of our common stock.

The table below summarizes our estimated capital expenditures
for the years 2023-2025.

Our estimated capital expenditures for the items listed
above are primarily comprised of the following:

The actual amount and timing of capital expenditures
is dependent on the need for replacement of existing infrastructure, customer growth, residential new home construction and sales, project
scheduling and continued refinement of project scope and costs and, could be impacted if significant effects of the COVID-19 pandemic
further arise and continue for an extended period of time.

To pay for our capital program in 2023, we estimate we will utilize some
or all of the following:

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Sources of Liquidity

Short-term Debt
- In January 2022, the Company increased available lines of credit from $110 million to $140 million. The outstanding borrowings under
the credit lines at December 31, 2022 were $55.5 million, at a weighted average interest rate of 5.17%.

The weighted average daily amounts of borrowings outstanding
under the credit lines and the weighted average interest rates on those amounts were $28.9 million and $23.7 million at 3.34% and 1.12
% for the years ended December 31, 2022 and 2021, respectively.

Long-term Debt - Subject to regulatory approval,
the Company periodically issues long-term debt to fund investments in utility plant. To the extent possible and fiscally prudent,
the Company finances qualifying capital projects under SRF loan programs in New Jersey and Delaware. These government programs
provide financing at interest rates typically below rates available in the broader financial markets. A portion of the borrowings
under the New Jersey SRF is interest-free. Under the New Jersey SRF program, borrowers first enter into a construction loan
agreement with the New Jersey Infrastructure Bank (NJIB) and submit requisitions for cost reimbursements over the life of the
construction period. The interest rate on the Company’s current construction loan borrowings is near zero percent. When
construction on the qualifying project is substantially complete, NJIB will coordinate the conversion of the construction loan into
a long-term securitized loan with a portion of the principal balance having a stated interest rate of zero percent (0%) and a
portion 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 term of the long-term loans currently offered through the NJIB is up to thirty years. Under the Delaware SRF program,
borrowers typically enter into a long-term note agreement for a term not to exceed twenty years and submit requisitions for cost
reimbursements for up to two years after the agreement is executed.

In May 2022, Middlesex repaid its two outstanding
NJIB construction loans by issuing FMBs to the NJIB under two loan agreements. The total amount of FMBs issued is $52.2 million and designated
as Series 2022A ($16.2 million) and Series 2022B ($36.0 million). The interest rate on the Series 2022A bond is zero and the interest
rate on the Series 2022B bond ranges between 2.7% and 3.0%. The final maturity date for both FMBs is August 1, 2056, with scheduled debt
service payments over the life of these loans.

The NJIB has changed the SRF program for project funding
priority ranking, the proportions of interest free loans and market interest rate loans and overall loan limits on interest free loan
balances to investor-owned water utilities. Under the new guidelines, the principal balance having a stated interest rate of zero percent
(0%) is 25% of the loan balance with the remaining portion of 75% having a market based interest rate. This is limited to the first $10.0
million of the loan. Loan amounts above $10.0 million do not participate in the 0% rate program, but do participate at the market based
interest rate. As a result of all these changes, the Company’s future capital funding plan currently does not include participating
in the NJIB SRF program.

In November 2022, Middlesex filed a petition with
the NJBPU for approval to borrow up to $300.0 million, in one or more negotiated
transactions in the form of notes and/or FMBs through loans from the New Jersey SRF Program, the New Jersey Economic Development Authority,
private placement and other financial institutions as needed in

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order to fund portions of its capital program and for other funding requirements.
The Company expects to issue debt securities in a series of one or more transaction offerings over a multi-year period to align with the
Company’s construction timetable.

In June 2021, Middlesex received approval from the
NJBPU to redeem up to $45.5 million of outstanding FMBs, specifically Series RR ($22.5 million) and Series SS ($23.0 million), and issue
replacement FMBs at an overall lower cost of debt. In November 2021, Middlesex closed on a $45.5 million, 2.90% private placement of FMBs,
designated as Series 2021B with a 2051 maturity date to effectuate the redemptions.

In May 2020, Middlesex received
approval from the NJBPU to borrow up to $100 million, in one or more private placement transactions through December 31, 2023 to help
fund Middlesex’s multi-year capital construction program. In connection with this approval:

In February 2023, Tidewater filed three applications
with the DEPSC seeking approval to borrow up to $10.2 million in total at an interest rate of 2.0% as set by the Delaware SRF Program
for construction of several water transmission projects. If approved by the DEPSC, Tidewater expects to close on these loans in April
2023 and construct the projects in 2023 and 2024. Under the Delaware SRF Program, borrowers submit reimbursement requisitions during the
construction period. Once the proceeds are received, Tidewater will record the debt obligation.

Tidewater expects to file an application with
the DEPSC in late February 2023 seeking approval to borrow up to $20.0 million from CoBank, ACB (CoBank) with a term of up to 25
years and an interest rate to be determined at the loan’s closing. If approved by the DEPSC, Tidewater expects to close on this loan
in April 2023 with the ability to draw the funds in one or more transactions until December 31, 2023. The interest rate will be set
at the time of the individual draw. Proceeds from the loan would be used to pay off Tidewater’s outstanding balances under its
lines of credit and for other general corporate purposes.

In December 2021, Tidewater closed on the DEPSC approved
$5.0 million Delaware SRF Program loan and began receiving disbursements in January 2022. Tidewater has borrowed $2.6 million under this
loan with expected borrowings to continue through mid-2023. The final maturity date on the loan is 2044.

In September 2021, Tidewater completed its $20 million
secured borrowing with CoBank, at an interest rate of 3.94% with a 2046 maturity date. Proceeds from the loan were used to pay off its
outstanding balances under its lines of credit.

In November 2022, Pinelands Water and Pinelands
Wastewater filed petitions with the NJBPU for approval to borrow up to $4.9 million each from CoBank with terms up to 25 years and
with interest rates to be determined at the loans’ closings. If approved by the NJBPU, Pinelands expects to close on these
loans in the second quarter of 2023. Proceeds from the loan would be used to pay off Pinelands’ outstanding Note Payable
balances and partially fund future capital expenditures.

Substantially all of the utility plant of the Company
is subject to the lien of its mortgage, which includes debt service and capital ratio covenants. The Company is in compliance with all
of its mortgage covenants and restrictions.

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Common Stock - The Company issues shares of its common
stock in connection with the Investment Plan, a direct share purchase and dividend reinvestment plan for the Company’s common stock.
The Company raised approximately $10.3 million through the issuance of shares under the Investment Plan during 2022. Middlesex has filed
a petition with the NJBPU seeking to increase the number of authorized shares under the Investment Plan by 0.7 million shares. On March
1, 2023, the Company will begin offering shares of its common stock for purchase at a 3% discount to participants in the Investment Plan.
The discount offering will continue until 200,000 shares are purchased at the discounted price or December 1, 2023, whichever event occurs
first.  The discount applies to all common stock purchases made under the Investment Plan, whether by optional cash payment
or by dividend reinvestment.

In order to fully fund the ongoing capital investment
program and maintain a balanced capital structure for a regulated water utility, Middlesex may offer for sale additional shares of its
common stock. The amount, the timing and the sales method of the common stock is dependent on the timing of the construction expenditures,
the level of additional debt financing and financial market conditions. In October 2022, Middlesex filed a petition with the NJBPU for
approval to issue and sell up to 1.0 million shares of its common stock. A decision on the matter is expected in the second quarter of
2023. Common stock offerings will occur as needed to maintain a balanced capital structure and continue on a parallel path with future
debt offerings.

Contractual Obligations

In the course of normal business activities, the Company
enters into a variety of contractual obligations and commercial commitments. Some result in direct obligations on the Company’s
balance sheet while others are commitments, some firm and some based on uncertainties, which are disclosed in the Company’s consolidated
financial statements.

The table below presents our known contractual obligations for the periods
specified as of December 31, 2022.

The table above does not reflect any anticipated cash
payments for retirement benefit plan obligations. The effect on the timing and amount of these payments resulting from potential changes
in actuarial assumptions and returns on plan assets cannot be estimated. In 2022, the Company contributed $2.8 million to its retirement
benefit plans and expects to contribute approximately $2.9 million in 2023.

We do not currently have, nor have we ever had, any
relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special
purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements, or for other contractually
narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts.

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Critical Accounting Policies and Estimates

The application of accounting policies and standards
often requires the use of estimates, assumptions and judgments. The Company regularly evaluates these estimates, assumptions and judgments,
including those related to the calculation of pension and other retirement benefits, unbilled revenues, and the recoverability of certain
assets, including regulatory assets. The Company bases its estimates, assumptions and judgments on historical experience and current operating
environment. Changes in any of the variables that are used for the Company’s estimates, assumptions and judgments may lead to significantly
different financial statement results.

Our critical accounting policies and estimates are set forth below.

Regulatory Accounting

We maintain our books and records in accordance with
accounting principles generally accepted in the United States of America. Middlesex and certain of its subsidiaries are subject to regulation
in the states in which they operate. Those companies are required to maintain their accounts in accordance with regulatory authorities’
rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows the
guidance in the Financial Accounting Standards Board Accounting Standards Codification Topic 980 Regulated Operations (Regulatory
Accounting).

In accordance with Regulatory Accounting, costs and
obligations are deferred if it is probable that these items will be recognized for rate-making purposes in future rates. Accordingly,
we have recorded costs and obligations, which will be amortized over various future periods. Any change in the assessment of the probability
of rate-making treatment would require us to change the accounting treatment of the deferred item. We have no reason to believe any of
the deferred items that are recorded will be treated differently by the regulators in the future.

Revenues

Revenues from our regulated customers, which include
amounts billed quarterly to residential customers and monthly to industrial, commercial, fire-protection and wholesale customers, also
include unbilled amounts based upon estimated usage from the date of the last meter reading to the end of the accounting period. While
actual usage for customers may differ from the estimate, we believe the overall total estimate of consumption and revenue for the fiscal
period will not differ materially from actual consumption.

Retirement Benefit Plans

We maintain a noncontributory defined benefit pension
plan (Pension Plan) which covers all currently active employees hired prior to April 1, 2007. In addition, the Company maintains an unfunded
supplemental plan for certain executive officers.

The Company has a retirement benefit plan other than
pensions (Other Benefits Plan) for substantially all of its retired employees. Employees hired after March 31, 2007 are not eligible to
participate in the Other Benefits Plan. Coverage includes healthcare and life insurance.

The costs for providing retirement benefits are dependent
upon numerous factors, including actual plan experience and assumptions of future experience. Future retirement benefit plan obligations
and expense will depend on future investment performance, changes in future discount rates and various other demographic factors related
to the population participating in the Company’s retirement benefit plans, all of which can change significantly in future years.

The primary assumptions used for determining future retirement benefit
plans’ obligations and costs, which are reviewed and revised as needed each year, are as follows:

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The discount rate, compensation increase rate and long-term rate of return
used to determine future obligations of our retirement benefit plans as of December 31, 2022 are as follows:

For the 2022 valuation, costs and obligations for
our Other Benefits Plan assumed an 7.5% annual rate of increase in the per capita cost of covered healthcare benefits in 2023 with the
annual rate of increase declining 0.5% per year for 2024-2029, resulting in an annual rate of increase in the per capita cost of covered
healthcare benefits of 4.5% by year 2029.

The following is a sensitivity analysis for certain actuarial assumptions
used in determining projected benefit obligations (PBO) and expenses for our retirement benefit plans:

Pension Plan

Other Benefits Plan

Recent Accounting Standards

See Note 1(r) of the Notes to Consolidated Financial
Statements for a discussion of recent accounting pronouncements.

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