AGM 2021

May 25, 2021

Good morning, ladies and gentlemen, and welcome to Middlesex Water Company's Annual Meeting of Shareholders. I would like to introduce to you Dennis W. Dahl, Chairman of the Board, President and CEO of Middlesex Water Company. Mr. Dahl, you may begin. Thank you, Peter. Good morning, everyone. We apologize for this delay. We continue to struggle a bit with the technology in this virtual environment. So we appreciate your patience and we will now move into the agenda. So once again, I'm Dennis Dahl, Chairman of the Board of Middlesex Water Company, and it's my pleasure to welcome all of you. While conditions related to the pandemic are improving, giving the lingering health threat to ensure the safety of our shareholders. As you're all well aware, this annual meeting is being delivered virtually through this live audio webcast. It's a bit after 11 o'clock, but in accordance with the notice of the meeting, I would like to call to order the annual meeting of shareholders of Middlesex Water Company. Jay Cooper, Vice President, General Counsel and Secretary of Middlesex Water Company will serve as Secretary of the meeting. A copy of the agenda for the meeting is posted on this meeting website. It is our intention to conduct this meeting in accordance with that agenda. You will note that an opportunity is provided for questions. I would now like to recognize our directors, all of whom are participating in our meeting today. Our newest Director, although a long time shareholder attending his 1st annual meeting as a Director is Doctor. Joshua Bershad, Executive Vice President of Physician Services of RWJBarnabas Health and Chief Medical Officer of Rutgers Athletic. Welcome, Josh. James Cosgrove, Vice President, Principal of Kleinfelder Kim Hanneman, Senior Vice President and Chief Operating Officer of Public Service Electric and Gas Company. Although announced only yesterday, effective June 30th, Kim will assume the title of both President and COO of PSE and G. So we would like to congratulate Kim on this great news, both for you and certainly for your company. Stephen Klein, President and Chief Executive Officer of Northfield Bancorp and its subsidiary, Northfield Bank Amy Mansu, President and Chief Executive Officer of Inspira Health Ann Noble, Financial Consultant Walter Reinhard, retired partner of the law firm of Norris McLaughlin and Marcus and your Lead Director of the Middlesex Water Company Board. You can see their photos, which are posted in the virtual meeting room. I'd also like to introduce members of the Middlesex Water Company management team. They are Bruce O'Connor, Senior Vice President, Chief Financial Officer and Treasurer Jay Cooper, Vice President, General Counsel and Secretary Bernadette Solar, Vice President, Corporate Affairs Lori Gimmigah, Vice President, Human Resources Robert Fullager, Vice President, Operations Georgia Simpson, Vice President, Information Technology and Chris Andresen, Vice President, Enterprise Engineering. The management team's photos are all posted in the virtual meeting room. In addition to myself, Jay and Bruce will also be speaking during this meeting. I'd also like to acknowledge that we have numerous guests in attendance today, including from the New Jersey Board of Public Utilities, the New Jersey Division of Rate Council, representatives from Broadridge Corporate Issuer Solutions and Jay Kutz, partner representing our auditing firm, Baker Tilly US LLP. Peter Deskovich of IOE Services Inc. Has been appointed today's Inspector of Election. The Inspector of Election has executed the oath of the Inspector Election and that oath will be appended to the minutes of this meeting. Peter will report the voting results later in the meeting. I'll now turn the meeting over to Jay Cooper to begin the formal matters to be discussed. The Secretary will give a report with respect to the following: the record date for the meeting, notice of the meeting, presence of a certified list of shareholders, the presence of a quorum and the oaths of the proxies. Thank you, Dennis. We are conducting this meeting in accordance with our bylaws and the annual meeting conduct of meeting guidelines. These guidelines are also available on this meeting website. Under the U. S. Securities and Exchange Commission rules, allowing us to furnish proxy materials to shareholders over the Internet, a notice of Internet availability of proxy materials was mailed to some shareholders. Others who have not chosen to receive these materials in electronic form received a full set of proxy materials in paper form as in the past. The company's annual report to shareholders is also available on this meeting website, the company website and a copy will be filed with the records of this meeting. As a reminder, shareholders attending the virtual meeting can vote their shares online from now through the closing of the polls by logging into the meeting website as a shareholder and clicking the vote here button on your screen. If you have previously voted by proxy and do not wish to change your vote, your vote will be cast as you previously instructed and no further action is required. We will begin by attending to the formal business of the meeting. The Board of Directors on January 29, 2021, by resolution, fixed the close of business on March 29, 2021 as the record date for the determination of shareholders entitled to notice of and to vote at the annual meeting. This meeting is held pursuant to the notice of annual meeting that we began mailing to shareholders on April 12, 2021. I have been provided with a complete certified list of stockholders of Middlesex Water Company entitled to vote at this meeting. This list of shareholders can be found on this meeting website. We have received an affidavit of mailing from Broadridge indicating that notice of the meeting has been duly given a copy of which will be appended to the minutes of this meeting. A copy of our proxy statement is available on this meeting website, on Middlesex Water's Company's website and the Securities and Exchange Commission's website at www.sec.gov. The Inspector of Election has confirmed that proxies have been received from more than 86% of the nearly 17, 478, 098 shares of Middlesex Water common stock entitled to vote as of the record date of March 29, 2021. I declare that there is a quorum present. The oaths of James Cosgrove and Walter Reinhard, who will serve as proxies Grove and Walter Reinhard, who will serve as proxies have been presented. Accordingly, the meeting is duly constituted and we may now proceed with the business of the meeting. As I have previously noted, the polls are open for voting. Thank you, Jade. As I assume you're all aware, the principal items of business to be voted on at this meeting are set forth in the notice of annual meeting to shareholders. The first item of business to be considered and voted on by shareholders is the election of 4 directors. The nominees for election as directors and set forth in the proxy statement for this meeting are myself, Dennis Dahl, Kim Hanneman and Anne Noble, all in Class I for a term of 3 years and Doctor. Joshua Bershad in Class III for an initial term of 2 years, which is consistent with the expiration of the terms of the other directors in Class 3. The Board of Directors recommends a vote for the approval of this proposal. The second item of business to be considered and voted on by the shareholders is to obtain a non binding advisory vote approving or disapproving the compensation of our named executive officers, as defined under Securities and Exchange Commission regulations. Such compensation is detailed in the proxy materials. As I've reminded the participants in our annual shareholder meetings in the past, with respect to proposal number 2, this is a provision under which the Securities and Exchange Commission requires a shareholder advisory vote and related disclosures pursuant to legislation known as the Dodd Frank Act. Under the act, public companies such as Middlesex are required to provide shareholders with an advisory vote at least once every 3 years to approve or disapprove executive compensation of what are termed the named executive officers. This provision is also known as the say on payroll. As our proxy indicates, this shareholder vote is advisory only and is nonbinding. As an additional reminder, your Board determined when this regulation was enacted back in 2010 to put this vote before the shareholders not every 3 years, but every year. The Board of Directors recommends a vote for the approval of this proposal. The 3rd item of business is to ratify the recommendation of the Audit Committee of the Board of Directors, which was followed by approval of the full Board of Directors of Baker Tilly US LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2021. The Board of Directors recommends a vote for the approval of this proposal. That concludes the presentation of the items of business that you've been asked to vote on at today's meeting. Therefore, the polls are now closed. While the votes are being counted by the inspector, our Senior Vice President, Bruce O'Connor and I would like to provide a brief overview of company performance over the past year. You may answer any questions in the area provided on this meeting website, and we will answer questions following our remarks. You should just be aware that if you are logged into the website as a guest and not as a registered shareholder using the control number in your proxy, you will not have the ability to type in the question. So now that we've addressed the initial item decisions, I'd like to spend a few minutes talking about some company performance over the past year, a little less formal than the opening remarks. So you can see on the screen our forward looking statement. So this slide, as everybody is well aware, COVID-nineteen has had a dramatic impact on operations of companies of all shapes and sizes. And certainly, our company has not been immune to the impacts of COVID-nineteen. The theme of our annual report this year was prepare for the unexpected. So this is not just about COVID. This is really about our company's and our industry's resiliency, our ability to maintain quality service under any emergency conditions, not the least of which has been COVID. But you can see from the list of bulleted items on this slide the key elements of business continuity and safety. Certainly, with respect to our employees and our customers, health and safety is absolutely paramount. Extensive safety measures have been implemented relative to COVID-nineteen. Some of these, in fact, we will continue to maintain beyond the pandemic. We have provided our Board and certainly our management with frequent updates with respect to our progress on all these issues throughout the past nearly 15 months now. What was really gratifying is we had not been we had not anticipated having so many of our employees working remotely. We classify them as essential versus nonessential workers. I continue to say that that's a term that I don't like, but it does make it easy for us to distinguish between those who need to be at their normal work locations every day versus those who may have an ability to perform some of their job functions remotely. I continue to give great kudos to our IT department, who has really done a phenomenal job in enabling us to work remotely to ensure that we can get all of the critical activities performed that we need to in order to maintain service for our customers. Many may be aware that there is a suspension of shutoffs, customer shutoffs relative to nonpayment of bills, which is currently expected to be or anticipated to expire on June 30. We are awaiting Governor Murphy's for Governor Murphy in New Jersey. Whatever changes may be made to that, we don't know yet what the ultimate outcome would be. But as of now, the moratorium on shutoffs for nonpayment is scheduled to end June 30 this year. Another key element of how we performed during the pandemic was that bullet that indicates we continued critical construction while adhering to safety protocols. As many are aware, we are in the middle still of the largest construction program in our company's history, and we had many large high profile projects in progress as the pandemic struck. We made the conscious decision at that time that we would do our best to continue with our construction program for a variety of reasons. 1, we were able to satisfy ourselves that we were able to keep our employees and our contractors and our customers safe with all the various construction projects that were ongoing. We also thought it was critical to maintain employment for those contractors as best we could. Part of the concern was that if we stopped those projects, we would not be able to get those contractors back when we needed them. So we continued, we moved forward, we got some really critical projects done throughout 2020, and we continue to move forward with that large capital program to date. And then we supported the various communities we serve, our employees did in the company with respect to different COVID relief efforts, which is really gratifying to see that we're able positively impact the lives of a number of our customers and those living and working in our service territory. And we continue to say that public health is absolutely critical to everything we do. Some of us in the industry continue to say, we're not in the water business, we're in the public health business because if we mess that up, frankly, nothing else matters. So public health is at the top of our list all the time. Couple of those high profile projects that I referenced. This is a $52, 000, 000 investment in a 4.5 mile supplementary transmission main in New Jersey. That went into service in April 2020, and it may not look like much from that photograph, but look at the size of that piece of pipe, that 30 inches diameter pipe, where that pipe was laid 4.5 miles through a densely populated area of the most densely populated state, just an incredible engineering and operational feat to get that project done on time and on budget, not to mention the fact that we did have some operational challenges toward the middle of 2020, where that pipeline has already proved its value by being able to provide through our network to be able to keep customers in service, while we had other pipe that needed to be taken out for repairs. Just an incredible project, and our people and our contractors did a phenomenal job. Another very high profile project, which is not yet complete, but very close, dollars 72, 000, 000 project to introduce ozone as the primary disinfectant in our water treatment process at our largest water treatment plant in New Jersey. That project not only included ozone, but also included electrical upgrades, additional backup power. Prior to this project, we only had an ability to provide backup power to about 50% of the plant. With these upgrades, we now have the ability to power 100% of the plant under emergency backup power. Our electrical facilities were subject to outages relative to storms and other anomalies. That equipment was long outdated and needed to be replaced. And so that project is well on its way and again another engineering marvel and operational feat as well. Many of you who have joined us in the past are familiar with our RENEW program, which is our annual program to continue to invest in the infrastructure in various parts of our service territory in New Jersey. You can see from the bulleted list there the investments that we're making in various towns. It includes not only replacement of water mains, but also replacement of service lines, valves, hydrants and all the appertunances, I always struggle with that word, associated with the water main. And this work will improve fire flows and continue an overall service quality. Another project that we started a couple of years ago, installing exterior meter pits. This is where we would install a pit at the curb and remove the meter from the customer's home and put it in the pit. There are a variety of operational and financial benefits to that approach, not the least of which is access to the meters when there may be an issue and also making sure that we can keep our customers not only in service, but be able to read those meters as timely as we possibly can. And then we can see at the bottom right there, dollars 10, 200, 000 investment in Metuchen, New Jersey alone out of that $14, 000, 000 We've been doing a lot of work in Metuchen, but that project is coming together very nicely. Some other highlights in 2020, and some of these top priorities for 2020 also continue into 2021 and beyond. As I referenced earlier, employee safety, absolutely critical. We continue to develop our people. We continue to train them. It could be a dangerous business, certain aspects of the business, training, safety, OSHA compliance, all those things are absolutely critical. And 1 of the things that has risen further up on the priority list in recent years is succession planning, certainly for key roles. As many may be aware, it's an aging workforce in the utility industry, not just water, but other utilities as well. So ensuring that we have a deep enough bench to ensure that we can keep our customers in service and be provide reliable service is absolutely critical. Diversity, Equity and Inclusion, everybody, I believe, is well aware from all we have seen in recent years with respect to a I'll call it a more of a focus on the aspects of diversity, equity and inclusion. We always believed within our company that we were diverse, equitable and inclusive, But we've now put more of a concerted effort into ensuring that the words that we put out to our employees and to the outside world are actually what we are truly practicing in reality. And so that's been very beneficial to us in terms of further developing that program, and we will continue to do more, not only in 2021, but beyond. Risk management, also key. Risk management as it relates to ESG, I'm sure everybody on this call is well aware of the acronym by now, environmental, social and governance risks. We have a huge focus on ESG. Some may be aware of our inaugural corporate sustainability report issued not too long ago and a lot of additional disclosure we put in our proxy this year about what we're doing. We continue to have various projects in progress to develop our metrics further with respect to our impact on climate and other items associated with the various ESG metrics. Cybersecurity, as we all know, has been in the media a great deal, particularly lately with various ransomware attacks and other anomalies that have occurred in different places around the country. Our IT team as well as outside contractors put a lot of time and energy into cybersecurity. As we all know, no organization is completely protected from these types of events, but we believe we're doing everything reasonably possible to ensure that our data and our customers' data is as secure as it needs to be. And then culture and connectivity, that's all about just making sure that we pay attention to what's going on in our company. We take the pulse of our employees and our customers, the municipal officials who we network with and we serve to make sure that we're viewed as a valued and trusted resource in not only in our company, but in the industry. We actively participate in various trade associations and other events throughout the industry, and we're very proud of that record, and we continue to keep a keen focus on that as well. And then some other news. At the Board level, you may recall at this meeting last year, Walter G. Reinhart, our was named our Lead Director upon the retirement of Jeffrey Schein, our longtime Board member. Our newest Board member, who I introduced earlier in this meeting, Joshua Bershad, MD. Josh joined the Board in December, and as you're aware, he is standing for election at this meeting. And then you can see a variety of awards that we achieved and honors that we achieved throughout 2020. We're extraordinarily proud of those accomplishments, not only for what we've achieved in New Jersey, but Delaware as well. Just really great work by our people, and it's all about the work that they've done to enable us to receive those honors. Then in the lower right there, you can see that we did we signed a 10 year agreement with the borough of Highland Park, New Jersey, to operate their water and wastewater systems under contract, under our in our non regulated business. So that's just a few of the highlights. I could go on for an hour or more with all the other things going on in the company, but that was just to give you a bit of an overview on the operational side. And now I'm going to hand it over to Bruce O'Connor, who's going to share with you some of the 2020 financial highlights. Thank you, Dennis, and good morning, all. As you can see with this slide that's up, our 2020 results provided new highs for revenues, net income and earnings per share. More recently, we released our Q1 results for 2021. Unfortunately, there were no new records to highlight for you, but what I would like to share is how we arrived here and what plans there are to move forward. Approximately 91% of our revenue are from regulated operations. Further breakout of that statistic is that 2 thirds of regulated revenue is from New Jersey, mostly Middlesex Water. For Delaware, mostly Tidewater Utilities Inc, it accounts for the other onethree of the revenue. On this slide, we show the revenue by class. Each year, residential customer revenues make up more and more of the total revenues. Revenues for the residential class is almost fifty-fifty split for New Jersey and Delaware now. Delaware's share of net income is around 36% and growing, And here's why its share of income is growing. With roughly 48, 000 customers in January 2018, our Delaware systems grew to 56, 000 customers through December 2020 or about 5% per year. That trend is continuing into 2021, and we expect similar growth going forward as affordable housing and low taxes continue to attract folks from nearby high cost of living states. Based on existing development build out schedules and signed future developments, our customer base is expected to be 70, 000 customers in Delaware and more development is expected. Much of this customer growth in Delaware has been in existing developments where infrastructure is already in place. This is the reason Tidewater has not had a base rate increase filing in Delaware since 2013, and we are currently we currently have no plans to file in the foreseeable future. Moving beyond 2021, there's a large project to replace an aging wastewater treatment plant, which will likely require a base rate filing for TESI, our Delaware wastewater company, in 2022. For New Jersey, where our franchise area is highly developed and mostly built out, you can see on this slide, our customer count grows at a very small rate. There are 66, 000 customers in our New Jersey systems with a well represented fire protection, commercial industrial class load as well as wholesale customers, and you saw that on the pie chart in the earlier slide. As Dennis has just described for you, we're investing a lot of money today for Water for Tomorrow, which is our aptly named multiyear infrastructure program. That spending has caught up to the base rates established for Middlesex in 2018. We filed our base rate increase request with the New Jersey Board of Public Utilities last week. The $267, 000, 000 spent on prudent utility infrastructure is the primary driver for rate relief in this case and makes up about $26, 000, 000 of request. Statutorily, it's a 9 month legal process to set rates in New Jersey. This is not a financially complicated filing as utility plant investment is front and center to the filing. But as we progress through the Middlesex rate case, we will continue to make the necessary investments in 2021, both in New Jersey and in Delaware. This slide shows the external financing, primarily debt financing that will be acquired in addition to the cash funding generated from operations. And the final slide I have today provides a snapshot of our projected capital structure at the end of 2021. With the continued future spending on utility plant, as shown in my earlier slides, there will be a need to balance the debt financing with a negative financing to ensure a reasonable capital structure. I hope that you found this information useful and beneficial. Thank you. Okay. Thank you, Bruce. So as we indicated earlier in the meeting, we have allotted a portion of time to answer questions posed by our shareholders, and we will attempt to address in the time that's allowed. 1 question I see is, what is the outlook for capital expenditures into the future? Many may be aware that it's an SEC requirement that we disclose in our 10 ks, 3 years' worth of capital expenditures. And we did disclose in the most recently issued 10 ks that for 2021, we expect to spend about $134, 000, 000 2022, that will come down a bit to $97, 000, 000 in 2023, dollars 83, 000, 000 still large numbers based on a historical basis. As you might imagine, a company formed in 18/97. We have a lot of old pipe in the ground. We've been diligent about replacing pipe year in and year out, and we will continue to do that. And it's not just about pipe. There are a number of peripheral systems, whether it be technology, treatment and other systems, which will continue to be a part of the capital program for the foreseeable future. Next question I see is, how is the company transforming to ESG? Does it make sense for the company financially to do this? And are there any ESG opportunities such as in the wastewater or in the hydrogen area? Well, as many may be aware, as I alluded earlier, ESG has gotten much more attention by investors in recent years. Everything I see and read is it's only going to continue to grow. I spend a fair amount of time speaking with institutional investors periodically, and I'm seeing more recently that more and more questions are coming to the company about our approach to ESG. So ESG investing is something that's clearly very important to a number of shareholders and a growing number of shareholders. As you may have seen in 1 of the earlier slides, Middlesex had achieved the prime designation by ISS, which means that we are viewed as a sustainable investment. So ESG is being more recognized as something the company is focused on. Whether or not it makes sense financially, that's not a question for me to answer. That is a question for investors. Certainly, there are different schools of thought as to the value of ESG investing. But 1 thing is very clear that there is more and more data becoming available that links the ESG focus to financial performance. And that's something we're going to pay very close attention to certainly in our company. We do not forget that we have a critical responsibility, a fiduciary obligation to our customers and to our shareholders to make sure we produce adequate returns despite the fact that we may have a large ESG focus. Next item I have here is, I saw the company file for a rate increase. What is the likelihood in a pandemic that you get what you filed for? We just filed last week for a request before the New Jersey Port of Public Utilities for an increase in customers' rates of 38%. That is a very large number. But as you heard from Bruce's remarks, we have invested an awful lot of capital in a lot of critical infrastructure projects, which are absolutely necessary to continue to be able to provide reliable service to our customers. So that is we will certainly go through that process as we normally do, and we will make sure that we achieve the best possible outcome for both shareholders and for customers. Next item, how would you define the regulatory climate in New Jersey and Delaware? Well, over a long period of time, we have prided ourselves on the relationships that we've developed with our regulators, both at the staff level and the commission level. We like to believe that we're known as a trustworthy and forthright company. We try to be transparent as best we can with respect to our operational performance and our financial performance. We have great respect for the work that the staffs do at the various commissions where we operate. They are the people on the ground day in and day out who do the hard work and working with them and respecting them and giving them what they need is certainly the approach that our company has taken over a long period of time and will continue to do so. Next item, what inning is Tidewater in? Is it still a Cub and are there boundless opportunities for this part of Middlesex? How is the company handling increased data as well as preventing leakage, new tech helping? Well, this is a long term industry. Certainly, we don't believe the water industry itself is going anywhere anytime soon. People continue to flush toilets and take showers. And as long as they do that, I think the business will be strong. And Tidewater is certainly no different in that regard. So in terms of what inning it's in, I would say it's in its infancy in terms of the early innings in the game. So as you heard from Bruce's comments, a dramatic amount of growth continues in Delaware Even since the financial crisis of 2, 008, we have continued to see large number of customers added every year from both infill on existing community development projects and new projects. And so we don't see any end in sight at this point. I mean, never say never, but the prospects certainly look good for Delaware and Tidewater. And how is the company handling increased data as well as preventing leakage? Well, we certainly have an ongoing leak detection program. We are continuing to implement technology to help with leakage. There's a lot of really good stuff out there these days, putting sensors on hydrants, for example, and being able to listen for leaks on fire hydrants and solving the problem before they become a larger issue. So we're doing all the things that others in our industry are doing with respect to leak detection. And another item I have here is, how secure is the dividend? Well, many long time shareholders are probably aware that we have provided an increase in the dividend every year for the last 48 years. We truly recognize how important the dividend is to our shareholders. We can never make any guarantees with respect to the continuation of the dividend or increases in dividend, but we do recognize its importance, and your management team works very hard every day to ensure that we're in a position to not only keep the dividend going, but also to increase it, and we will continue to do that. I don't see any other questions on the Board. So with there being no further questions, I believe the Inspector of Elections, Peter Daskovich, is now ready to report on the results of the voting. The preliminary voting results based on the proxies I have received as of the opening of the polls at today's meeting are as follows: Proposal 1, the election of 4 directors, Dennis Dole, Kim Heyman and Anne Noble to a 3 year term and Doctor. Joshua Burchard to a 2 year term. This proposal received more than a majority of the votes cast in favor and has been approved. Proposal to obtain a nonbinding advisory vote approving the compensation of the company's executive offices. This proposal received more than a majority of the votes cast in favor of Proposal 3 to ratify the company's independent registered as the company's independent registered account firm for the year ending December 31, 2021. This proposal received more than a in favor and has been approved. All votes are subject to final certified count. Thank you, Peter. Congratulations to all of the directors for being elected. We'll report the final vote results on a Form 8 ks to be filed with yesterday in 4 business days for the business days from today, and that's in accordance with the Northeast Whitney's regulation. I'd like to thank all of you for your vote of confidence in this Board and this management leadership team by your approval of these proposals. I'd also like to thank our Inspector of Election, Peter Daskovich, Broadridge in Q4 for this annual meeting with shareholders. This meeting replay will be archived on our website at www.middlesexwater.com. There being no further business, the annual meeting of shareholders of Middlesex Water Company is now formally adjourned. Thank you all and be safe.