MIDDLESEX WATER CO (MSEX)

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

The following discussion should be read in conjunction
with the 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 providing an essential water utility service 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
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 61,000 retail customers in New Castle, Kent and Sussex
Counties, Delaware. Tidewater’s subsidiary, White Marsh, services approximately 4,300 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.

Management Update

Upon the retirements of President and Chief Executive
Officer Dennis W. Doll, and Senior Vice President, Treasurer and Chief Financial Officer A. Bruce O’Connor, the Company
named Nadine Leslie its new President and Chief Executive Officer effective March 1, 2024 and Mohammed G. Zerhouni its
new Senior Vice President,

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Treasurer and Chief Financial Officer effective June 24, 2024.  Ms. Leslie was also appointed to
the Board of Directors effective March 1, 2024.

In December 2024, the Company named Gregory Sorensen
its new Vice President and Chief Operating Officer. His responsibilities include water and wastewater operations, capital program planning
and delivery, safety and security, sustainability, and growth initiatives.

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 Delaware Public Service Commission (DEPSC). Ocean View serves
approximately 900 customers in Sussex County, Delaware. Tidewater currently provides water service to most residents of Ocean View other
that the 900 customers currently served by Ocean View. Closing on this purchase is expected by April 2025.

United States Environmental Protection Agency
(USEPA) Issues Final Perfluoroalkyl (PFAS) Regulations

In April 2024, the USEPA finalized drinking water
regulations for PFAS, establishing maximum contaminant levels (MCLs) for three PFAS compounds (Regulated PFAS) that are lower than the
current New Jersey Department of Environmental Protection MCLs adhered to by the Company. Under the new USEPA regulations effective April
2024, water systems must monitor for Regulated PFAS and have three years to complete initial monitoring (by April 2027), followed by ongoing
compliance monitoring. Water systems must also provide the public with information on the levels of Regulated PFAS in their drinking water
beginning in 2027. Water systems have five years (by April 2029) to implement solutions that reduce Regulated PFAS if monitoring shows
that drinking water levels exceed these MCLs.

Beginning in April 2029, water systems that have
Regulated PFAS in drinking water which exceeds one or more of these MCLs must take action to reduce levels of these PFAS compounds in
their drinking water and must provide notification to the public of the violation.

In anticipation of these new USEPA standards,
in 2023, the Company began implementing its strategy to meet these lower MCLs for Regulated PFAS and is currently performing preliminary
engineering studies to ensure that effective PFAS treatment approaches are implemented.

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 $93 million in 2025 in connection with this plan for projects that include, but are not limited to:

Strategy for Growth

Our strategy for selective and sustainable growth is focused on the
following key areas:

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Rates

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 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.

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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.

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%.

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 2025. As operating costs are anticipated to increase in 2025 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.

Our investments in system infrastructure continue
to grow significantly and our operating costs are anticipated to increase in 2025 and 2026 in a variety of categories. These factors,
among others, may require a base rate increase request by Middlesex in mid 2025.

Overall, organic residential customer growth continues
in our Tidewater system (approximately 3.5% in 2024).

The Company has projected to spend approximately
$387 million for the 2025-2027 capital investment program, including approximately $105 million for upgrading our Carl J. Olson Surface
Water Treatment Plant (CJO Plant) to integrate PFAS removal from source water, $34 million on the RENEW Program, which is our ongoing
initiative to replace water mains in the Middlesex System, $15 million for replacement of a transmission main in Metuchen in our Middlesex
System and $12 million for elevated storage tanks in our Tidewater System.

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 years ended December 31, 2024, 2023 and
2022, respectively, and approximately 94%, 92% and 93% of net income for the years ended December 31, 2024, 2023 and 2022, respectively.
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.

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Results of Operations for 2024 as Compared to 2023

Operating Revenues

Operating revenues for the year ended December
31, 2024 increased $25.6 million from the same period in 2023 due to the following factors:

Operation and Maintenance Expense

Operation and maintenance expenses for the year
ended December 31, 2024 increased $9.2 million from the same period in 2023 due to increased legal, financial and regulatory matter costs,
increased labor costs due to annual wage increases, an enhanced water treatment process at Middlesex’s Park Avenue Plant, and higher
energy costs due to increased water demand.

Depreciation

Depreciation expense for the year ended December 31, 2024 decreased
$0.8 million from the same period in 2023 due to recovery of prior year depreciation related to upgrades at the Park Avenue Plant partially
offset by a higher level of utility plant in service. The conclusion of Middlesex’s base rate increase request allowed proceeds
from the 3M Settlement Agreement to reimburse Middlesex for previously incurred costs for the construction of the Park Avenue Plant PFAS
treatment upgrades (for further discussion of the 3M Settlement Agreement, see Rates, Middlesex above).

Other Taxes

Other taxes for the year ended December 31, 2024
increased $3.1 million from the same period in 2023 primarily due to higher gross receipts taxes on higher revenue in Middlesex and higher
payroll related taxes on increased labor costs.

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Other Income, net

Other Income, net for the year ended December
31, 2024 increased $5.6 million from the same period in 2023 primarily due to the recovery of carrying costs on the PFAS treatment upgrades
at the Park Avenue Plant and higher actuarially-determined retirement benefit plans non-service benefit offset by lower allowance for
funds used during construction on capital projects in construction.

Interest Charges

Interest charges for the year ended December 31,
2024 increased $0.9 million from the same period in 2023 due to higher average debt outstanding and higher average interest rates.

Income Taxes

Income taxes for the year ended December 31, 2024
increased by $5.9 million from the same period in 2023, primarily due to higher pre-tax income and
lower income tax benefits associated with decreased repair expenditures on tangible property in the Middlesex System offset by the recovery
of income taxes on the taxable portion of the proceeds from the 3M Settlement Agreement.

Results of Operations for 2023 as Compared to 2022

Operating Revenues

Operating revenues for the year ended December
31, 2023 increased $3.8 million from the same period in 2022 due to the following factors:

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Operation and Maintenance Expense

Operation and maintenance expenses for the year
ended December 31, 2023 increased $4.0 million from the same period in 2022 due to increased variable production costs due to weather-driven
changes in water quality and higher chemical prices, higher outside service costs due to production instrumentation calibration activities,
increases in labor costs due to wage increases and higher bad debt expense due to higher anticipated customer receivable write-offs. Partially
offsetting these increases was lower weather-related main break activity in our Middlesex System during the winter months.

Depreciation

Depreciation expense for the year ended December
31, 2023 increased $2.2 million from the same period in 2022 due to a higher level of utility plant in service.

Other Taxes

Other taxes for the year ended December 31, 2023
increased $0.5 million from the same period in 2022 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, 2023 decreased $1.2 million from the same period in 2022 primarily due to lower actuarially-determined retirement benefit plans non-service
benefit.

Interest Charges

Interest charges for the year ended December 31,
2023 increased $3.8 million from the same period in 2022 due to higher average debt outstanding and higher average interest rates in 2023
as compared to 2022.

Income Taxes

Income taxes for the year ended December 31, 2023
decreased by $2.2 million from the same period in 2022, primarily due to greater income tax benefits associated
with increased repair expenditures on tangible property in the Middlesex System and lower pretax income due to gain on the sale of a subsidiary
in 2022.

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, 2024, cash flows
from operating activities increased $5.9 million to $58.7 million. The increase in cash flows from operating activities primarily resulted
from the impact of higher weather-driven customer demand and Middlesex’s approved base rate increase effective March 1, 2024.

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. .

Cash Flows from Investing Activities

For the year ended December 31, 2024, cash flows
used in investing activities decreased $15.6 million to $74.6 million due to decreased utility plant expenditures in 2024. In 2023, the
Company had significant utility plant

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expenditures for the construction of a facility to provide an enhanced treatment process at the
Company’s Park Avenue Plant to comply with new state water quality regulations relative to PFAS.

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

Cash Flows from Financing Activities

For the year ended December 31, 2024, cash flows
from financing activities decreased $18.2 million to $17.7 million. The decrease in cash flows provided by financing activities is due
to lower proceeds from the issuance of common stock under the Middlesex Water Company Investment Plan (Investment Plan) and long-term
debt offset by proceeds received from a litigation settlement.

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 2025-2027.

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.

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To fund our capital program in 2025, we estimate we will utilize some
or all of the following:

Sources of Liquidity

Short-term
Debt - The Company has available lines of credit of $140 million. The outstanding borrowings under the credit lines at December 31,
2024 were $23.0 million, at a weighted average interest rate of 5.63%.

The weighted average daily amounts of borrowings
outstanding under the credit lines and the weighted average interest rates on those amounts were $38.7 million and $35.7 million at 6.33%
and 6.13% for the years ended December 31, 2024 and 2023, 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.

Middlesex has received approval from the NJBPU
to borrow up to $300.0 million from the New Jersey SRF Program, the New Jersey Economic Development Authority, private placement and other
financial institutions as needed through December 31, 2025. The Company expects to issue debt securities in a series of one or more transaction
offerings to help fund Middlesex’s multi -year capital construction program.

In September 2024, Tidewater closed on a $2.2
million Delaware SRF loan with a 0.0% interest rate with an expected maturity date in 2044. This loan is for costs associated with Tidewater’s
obligation, as required by federal law and Delaware regulations, to identify and inventory lead service lines throughout Tidewater’s
service area. Tidewater has drawn down $1.7 million as of December 31, 2024.

In May 2024, Tidewater closed on four DEPSC-approved
Delaware SRF loans totaling $5.6 million, all at interest rates of 2.0% with expected maturity dates in 2044. These loans are for the
construction, relocation, improvement, and/or interconnection of transmission mains and construction of a water treatment facility. Tidewater
has drawn down less than $0.1 million on these loans as of December 31, 2024. Each project has its own construction timetable with the
last spending set to occur in 2026.

Tidewater also has two active construction projects
funded by Delaware SRF loans totaling $8.3 million with remaining availability of funds for borrowing. These loans are for the construction
of a one-million gallon elevated storage tank and construction, relocation, improvement, and interconnection of transmission mains. Tidewater
has drawn a total of $4.9 million through December 31, 2024 and expects that the requisitions will continue through the second quarter
of 2025.

In July 2023, Pinelands Water and Pinelands Wastewater
closed on $3.9 million and $3.6 million CoBank, ACB (CoBank) amortizing mortgage type loans, respectively, with an interest rate of 6.17%
and a final maturity date of 2043 for each loan. Proceeds were used to pay off outstanding intercompany loans with Middlesex and for ongoing
capital projects.

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In May 2023, Tidewater closed on a $20.0 million
loan from CoBank with an interest rate of 5.71% and a 2033 maturity date and fully drew all funds by June 30, 2023. Proceeds from the
loan were used to pay off Tidewater’s outstanding balances under its bank lines of credit and for other general corporate purposes.

In April 2023, Tidewater closed on two DEPSC-approved
Delaware SRF loans totaling $6.9 million, all at interest rates of 2.0% with maturity dates in 2043 and 2044. These loans are for the
construction, relocation, improvement, and/or interconnection of transmission mains. Tidewater has fully drawn on these loans.

In March 2023, Middlesex closed on a $40.0 million,
5.24% private placement of First Mortgage Bonds (FMBs) with a 2043 maturity date designated as Series 2023A. Proceeds were used to reduce
the Company’s outstanding balances under its bank lines of credit.

In May 2022, Middlesex repaid its two outstanding
New Jersey Infrastructure Bank (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.

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.

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 $1.0 million through the issuance of shares under the Investment Plan during 2024. In May
2023, Middlesex received approval from the NJBPU to increase the number of authorized shares under the Investment Plan by 0.7 million
shares. Currently, 0.7 million shares remain registered with the United States Securities and Exchange Commission and available for issuance
to participants under the Investment Plan.

In order to fully fund the ongoing capital investment
program and maintain a balanced capital structure required 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. Common stock offerings will occur as needed to maintain a balanced
capital structure as we continue on a parallel path with future debt offerings.

In April 2023, Middlesex received approval from
the NJBPU to issue and sell up to 1.0 million shares of its common stock, without par value, through December 31, 2025. Sales of additional
shares of common stock are part of the Company’s comprehensive financing plan to fund its multi-year utility plant infrastructure
investment program. As described above in “Long-term Debt”, the NJBPU also approved the debt funding component of the financing
plan.

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.

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The table below presents our known contractual obligations for the
periods specified as of December 31, 2024.

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 2024, the Company contributed $3.7 million to its
retirement benefit plans and expects to contribute approximately $1.8 million in 2025.

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.

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.

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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:

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, 2024 are as follows:

For the 2024 valuation, costs and obligations
for our Other Benefits Plan assumed an 8.0% annual rate of increase in the per capita cost of covered healthcare benefits in 2025 with
the annual rate of increase declining 0.15% per year for 2026-2045, resulting in an annual rate of increase in the per capita cost of
covered healthcare benefits of 5.0% by year 2045.

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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(q) of the Notes to Consolidated Financial
Statements for a discussion of recent accounting pronouncements.

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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
Fortescue 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 59,000 retail customers in New Castle, Kent and Sussex
Counties, Delaware. Tidewater’s subsidiary, White Marsh, services approximately 4,300 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.

Middlesex President and Chief Executive Officer Retirement Announcement
and Replacement

In May 2023, President and Chief Executive
Officer, Dennis W. Doll announced a plan to retire upon turning age 65. On January 23, 2024, the Company named Nadine Leslie as
its new President and Chief Executive Officer effective March 1, 2024.  Ms. Leslie will also be appointed to the Board
of Directors effective March 1, 2024. Mr. Doll

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will remain Chairman of the Company’s Board of Directors through the expiration
of his current term as a Director as of the May 21, 2024 Annual Meeting of Shareholders.

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 (Park Avenue Plant) in South Plainfield,
New Jersey exceeded a standard promulgated in a NJDEP regulation that became effective in 2021. Middlesex was required by the regulation
to notify its affected customers and complied within the required Notice period in November 2021.

The Notice further required the Company to take
any action necessary to comply with the new standard by September 7, 2022. Consequently, in November 2021, the Company implemented an
interim solution to meet the Notice requirements, which included putting the Park Avenue Wellfield Treatment Plant in off-line status
and obtaining alternate sources of supply. In June 2022, the Company accelerated the in-service date for a portion of the enhanced treatment
project based on engineering analysis that allowed a restart of the Park Avenue Wellfield Treatment Plant to ensure continued compliance
with all state and federal drinking water standards.

In September 2022, the Company entered into an
Administrative Consent Order (ACO) with the NJDEP, which required the Company to take whatever actions necessary to achieve and maintain
compliance with applicable regulations. As prescribed in the ACO, the Company was to issue periodic public notifications until the ACO
was closed.

In June 2023, the Company completed the permanent
construction of the entire Park Avenue Plant treatment upgrades and placed the upgrades into operation in full compliance with the NJDEP
PFOA standards. In October 2023, the Company received confirmation from the NJDEP that it has complied with all requirements of the ACO
and consequently, the ACO has been closed.

The Company had previously initiated a lawsuit against
3M Company (3M), in connection with the Company’s claim that 3M introduced perfluoroalkyl substances (commonly known as “PFAS”),
which include PFOA, into the Company’s water supply at its Park Avenue Plant.

On August 29, 2023, Middlesex and 3M executed
a settlement agreement (the Settlement Agreement) to resolve the lawsuit. The Settlement Agreement provides that:

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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 $75 million in 2024 in connection with this plan for projects that include, but are not limited to:

Strategy for Growth

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

Rates

Middlesex - In February 2024, Middlesex’s
petition to the NJBPU, filed in May 2023, seeking permission to increase its base water rates was concluded, based on a negotiated settlement
that 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.  Net proceeds from the 3M
Settlement Agreement were used to recover costs for the construction of the Park Avenue Plant PFAS treatment upgrades, including depreciation
and carrying costs. The rate case settlement will result in the reclassification of $48.3 million from Regulatory Liabilities to Contributions in Aid of Construction
in the March 31, 2024 balance sheet.  The Company will also record in the first quarter of 2024 the recovery of $0.7 million and
$2.4 million of prior year depreciation and carrying costs, respectively, as well as the recovery of $1.4 million of prior year costs
which were associated with the interim solution to comply with the Notice, all of which were approved in the rate case settlement. For
further information on the 3M Settlement Agreement, see Regulatory Notice of Non-Compliance above.

In January 2024, the NJBPU approved Middlesex’s
petition for the proposed cost recovery of its Lead Service Line Replacement (LSLR) Plan and cost recovery of project costs associated
with replacing Middlesex customer-owned lead service lines. Replacement of Middlesex and Middlesex customer-owned lead service lines is
required by the New Jersey LSLR Law. Under this legislation, the costs associated with replacing customer-owned lead service lines are
recoverable through future customer surcharges. Cost recovery for replacing Company-owned lead service lines are recoverable through traditional
base rate case filings. The current estimates for replacement of Middlesex and Middlesex customer-owned lead service lines are approximately
$46 million to $77 million over a nine-year period.

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

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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 September 2022, the NJBPU approved Middlesex's
Emergency Relief Motion to reset its Purchased Water Adjustment Clause (PWAC) tariff rate to recover additional costs of $2.7 million
for the purchase of treated water from a non-affiliated water utility. A PWAC is a rate mechanism that allows for recovery of increased
purchased water costs between base rate case filings. The increase, effective October 1, 2022, was on an interim basis and subject to
refund with interest, pending final resolution of this matter, which the NJBPU provided in August 2023. In connection with the full recovery
of the $2.7 million of additional costs, Middlesex reset its PWAC rate to zero in October 2023.

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 PWAC was reset to zero.

Tidewater - In December 2023, the DEPSC
approved Tidewater’s application to implement a new DSIC. Effective January 1, 2024, Tidewater implemented a DSIC rate of 3.71%,
which is expected to generate revenue of approximately $1.3 million annually. A Delaware DISC is subject to a semi-annual reset with an
overall maximum rate of 7.5%.

In October 2023, the DEPSC issued an Order that
made a temporary base rate reduction permanent. The initial DEPSC order required Tidewater to reduce its base rates charged to general
metered and private fire customers by 6.0%, effective for service rendered on and after September 1, 2022. The rate reduction was ordered
as a result of Tidewater earning in excess of its authorized return, and resulted in reduced annual revenues of approximately $2.1 million
in 2023.

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 DSIC rate to zero effective April 1, 2021 and refunded approximately $1.0 million to customers primarily in the form of an account
credit for DSIC revenue previously billed between April 1, 2020 and March 31, 2021.

Pinelands - In April 2023, Pinelands Water
and Pinelands Wastewater concluded their base rate case matters when the NJBPU approved a combined $1.0 million increase in annual base
rates, effective April 15, 2023. The requests were necessitated by capital infrastructure investments the companies have made as well
as increased operations and maintenance costs.

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.

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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 2024. As operating costs are anticipated to increase in 2024 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.

Our investments in system infrastructure continue
to grow significantly and our operating costs are anticipated to increase in 2024 and 2025 in a variety of categories. These factors,
among others, may require base rate increase requests filings by Tidewater, Pinelands Water and Pinelands Wastewater later in 2024.

Overall, organic residential customer growth continues
in our Tidewater system (approximately 4% in 2023). However, current and evolving economic market conditions may challenge that growth.

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
$226 million for the 2024-2026 capital investment program, including approximately $15 million for replacement of a thirty inch main in
our Middlesex System, $9 million for LSLR compliance in the Middlesex System, $34 million on the RENEW Program, which is our ongoing initiative
to replace water mains in the Middlesex System, $6 million for evaluation of PFAS treatment at our CJO Plant and $7 million for control
room and electrical distribution equipment at our CJO Plant.

Operating Results by Segment

The Company has two operating segments, Regulated
and Non-Regulated. Our Regulated segment contributed approximately 93%, 93% and 91% of total revenues for the years ended December 31,
2023, 2022 and 2021, respectively, and approximately 92%, 93% and 93% of net income for the years ended December 31, 2023, 2022 and 2021,
respectively . 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 2023 as Compared to 2022

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Operating Revenues

Operating revenues for the year ended December
31, 2023 increased $3.8 million from the same period in 2022 due to the following factors:

Operation and Maintenance Expense

Operation and maintenance expenses for the year
ended December 31, 2023 increased $4.0 million from the same period in 2022 due to the following factors:

Depreciation

Depreciation expense for the year ended December
31, 2023 increased $2.2 million from the same period in 2022 due to a higher level of utility plant in service.

Other Taxes

Other taxes for the year ended December 31, 2023
increased $0.5 million from the same period in 2022 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, 2023 decreased $1.2 million from the same period in 2022 primarily due to lower actuarially-determined retirement benefit plans non-service
benefit.

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Interest Charges

Interest charges for the year ended December 31,
2023 increased $3.8 million from the same period in 2022 due to higher average debt outstanding and higher average interest rates in 2023
as compared to 2022.

Income Taxes

Income taxes for the year ended December 31, 2023
decreased by $2.2 million from the same period in 2022, primarily due to greater income tax benefits associated
with increased repair expenditures on tangible property in the Middlesex System and lower pretax income due to gain on the sale of a subsidiary
in 2022.

Net Income and Earnings Per Share

Net income for the year ended December 31, 2023
decreased $10.9 million as compared with the same period in 2022. Basic earnings per share were $1.77 and $2.40 for the years ended December
31, 2023 and 2022, respectively. Diluted earnings per share were $1.76 and $2.39 for the years ended December 31, 2023 and 2022, respectively.

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:

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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:

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 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 average debt outstanding 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.

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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
(for further discussion of Middlesex’s 2022 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, 2023, cash flows
from operating activities decreased $8.6 million to $52.8 million. The decrease in cash flows from operating activities primarily resulted
from lower net income and higher interest payments.

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, 2023, cash flows
used in investing activities increased $2.0 million to $90.2 million, which was attributable to cash received
from the sale of Middlesex’s regulated wastewater subsidiary in January 2022 partially offset by lower utility plant expenditures.

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

Cash Flows from Financing Activities

For the year ended December 31, 2023, cash flows
provided by financing activities increased $8.8 million to $36.0 million. The increase in cash flows provided by financing activities
is due to an increase in net borrowings and higher proceeds from the issuance of common stock under the Investment Plan partially offset
by increased common stock dividend payments.

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.

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The table below summarizes our estimated capital expenditures for the
years 2024-2026.

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.

To pay for our capital program in 2024, we estimate we will utilize
some or all of the following:

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, 2023 were $42.8 million, at a weighted average interest rate of 6.50%.

The weighted average daily amounts of borrowings
outstanding under the credit lines and the weighted average interest rates on those amounts were $35.7 million and $28.9 million at 6.13%
and 3.34 % for the years ended December 31, 2023 and 2022, respectively.

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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. 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. As a result of revised project funding priority ranking for the NJIB SRF Program, the Company has no current
projects in the NJIB SRF program. However, it is seeking to have Middlesex’s LSLR Project added to the qualified list in order to
borrow under the NJIB SRF program.

Under the Delaware SRF program, borrowers typically
1) enter into a long-term note agreement for a term not to exceed twenty years, 2) submit requisitions for cost reimbursements during
the construction period for up to two years after the agreement is executed and 3) as the proceeds are received from the requisitions,
Tidewater records a corresponding debt obligation amount.

In April 2023, Middlesex received approval from
the NJBPU to borrow up to $300.0 million from the New Jersey SRF Program, the New Jersey Economic Development Authority, private placement
and other financial institutions as needed through December 31, 2025. The Company may issue debt securities in a series of one or more
transaction offerings to help fund Middlesex’s multi-year capital construction program.

In March 2023, Middlesex closed on a $40.0 million,
5.24% private placement of First Mortgage Bonds (FMBs) with a 2043 maturity date designated as Series 2023A. Proceeds were used to reduce
the Company’s outstanding balances under its bank lines of credit.

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.

In November 2021, Middlesex closed on a $19.5
million, 2.79% private placement of FMBs with a 2041 maturity date designated as Series 2021A. Proceeds were used to reduce the Company’s
outstanding balances under its lines of credit.

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 2023, Tidewater closed on a $20.0 million
loan from CoBank, ACB (CoBank) with an interest rate of 5.71% and a 2033 maturity date and fully drew all funds by June 30, 2023. Proceeds
from the loan were used to pay off Tidewater’s outstanding balances under its bank lines of credit and for other general corporate
purposes.

In April 2023, Tidewater closed on three DEPSC-approved
Delaware SRF loans totaling $10.2 million, all at interest rates of 2.0% with maturity dates in 2043 and 2044. These loans are for the
construction, relocation, improvement, and/or interconnection of transmission mains. Tidewater has drawn a total of $6.1 million through
December 31, 2023 and expects that the requisitions will continue through mid-2025.

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In December 2021, Tidewater closed on a DEPSC-approved
$5.0 million Delaware SRF loan at an interest rate of 2.0%. The loan was for construction of a one million gallon elevated storage tank.
Through December 31, 2023, Tidewater has drawn a total of $4.8 million and expects that the requisitions will continue through the first
quarter of 2024. 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% and a 2046 maturity date. Proceeds from the loan were used to pay
off its outstanding balances under its bank lines of credit.

In July 2023, Pinelands Water and Pinelands Wastewater
closed on $3.9 million and $3.6 million CoBank amortizing mortgage type loans, respectively, with an interest rate of 6.17% and a final
maturity date of 2043 for each loan. Proceeds were used to pay off outstanding intercompany loans with Middlesex and for ongoing capital
projects.

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

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 $12.1 million through the issuance of shares under the Investment Plan during 2023. In
May 2023, Middlesex received approval from the NJBPU to increase the number of authorized shares under the Investment Plan by 0.7 million
shares. Currently, 0.7 million shares remain registered with the United States Securities and Exchange Commission and available for issuance
to participants under the Investment Plan. On March 1, 2023, the Company began offering shares of its common stock for purchase at a 3%
discount to participants in the Investment Plan. The discount offering ended December 1, 2023.  The discount applied to all
common stock purchases made under the Investment Plan during that time period, 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 required 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. Common stock offerings will occur as needed to maintain a balanced
capital structure as we continue on a parallel path with future debt offerings.

In April 2023, Middlesex received approval from
the NJBPU to issue and sell up to 1.0 million shares of its common stock, without par value, through December 31, 2025. Sales of additional
shares of common stock are part of the Company’s comprehensive financing plan to fund its multi-year utility plant infrastructure
investment program. As described above in “Long-term Debt”, the NJBPU also approved the debt funding component of the financing
plan.

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.

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The table below presents our known contractual obligations for the
periods specified as of December 31, 2023.

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 2023, the Company contributed
$1.3 million to its retirement benefit plans and expects to contribute approximately $1.8 million in 2024.

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.

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.

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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:

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, 2023 are as follows:

For the 2023 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 2024 with
the annual rate of increase declining 0.5% per year for 2025-2030, resulting in an annual rate of increase in the per capita cost of covered
healthcare benefits of 4.5% by year 2030.

39

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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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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Index

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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Index

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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Index

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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Index

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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Index

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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Index

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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Index

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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Index

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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Index

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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Index

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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Index

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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Index

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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Index

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