Middlesex Water Company

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Middlesex Water Company

1500 Ronson Road
Iselin, New Jersey 08830-3020
U.S.A
Telephone: (732) 634-1500
Fax: (732) 750-5981
Web site: http://www.middlesexwater.com

Public Company
Incorporated: 1897
Employees: 183
Sales: $54.5 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: MSEX
NAIC: 221310 Water Supply and Irrigation Systems

Operating out of Iselin, New Jersey, Middlesex Water Company provides water services on both a retail and wholesale basis. Most of its 75,000 retail customers are located in a 57-square-mile area in New Jersey’s Middlesex County, which is located across from the southern tip of the New York City borough of Staten Island. In addition, water is sold on a wholesale contract basis to other New Jersey communities in an area that encompasses about 140 square miles with a population of 267,000. Middlesex Water also owns and operates two acquired water systems as subsidiaries: Pinelands Water Company in southern New Jersey and Tidewater Utilities, Inc. in Delaware. In recent years the company has expanded into wastewater services as well as the management of municipal water systems.

Establishing Middlesex Water Company in 1897

From the American Colonial period into the 1800s, New Jersey was primarily an agricultural state. In the Middlesex area, water was drawn from wells or surface sources and there was no need for a centralized system. With an increase in population and the rise of industrialization in the years following the Civil War, however, it became apparent that available supplies of water would not be adequate to maintain the state’s rate of growth. Moreover, industry brought pollution of surface waters, creating an even greater need for water that could be treated using the new filtration methods being developed by the rising field of sanitary engineering. Further north in Hackensack, New Jersey, which was located across from Manhattan and home to many of that city’s business leaders and bankers, the need for establishing an organized system of supplying water was realized much sooner. Hackensack Water received a state charter in 1869. It was not until 1896 that William H. Corbin founded Middlesex Water Company in order to supply water to the northeastern part of Middlesex County. A Jersey City lawyer and politically well connected, he was involved in real estate, banking, and other investments. He was also familiar with the water business through his legal work in the 1880s for the city of Jersey City when it acquired a distant reservoir to ensure the purity of its water supply. Corbin recognized the potential of Middlesex Water to service industries situated along Staten Island Sound. Although he proved successful in recruiting these businesses as potential customers, he failed to find a supply of water, and essentially allowed Middlesex Water to lay dormant for a year, neither drilling for wells nor raising much money. Instead, Corbin turned his attention to the 1896 incorporation of Midland Water Company, in which he was an investor along with Frank Bergen, who sold to the company property that held proven reserves of water and who was subsequently named president. Midland raised $50,000 in order to sell water in Union, Middlesex, and Somerset Counties. Because Middlesex Water had the customers through Corbin and Midland had a source of water through Bergen, the two companies consolidated operations in 1897. Although it was the Middlesex name that was retained, the new entity was in reality the Midland board, and so Bergen became president of the water company. Like Corbin he combined legal and business careers, first becoming involved in the water business when he invested in the Plainfield Water Supply Company in 1890 and was then named its president. In addition, he served as general counsel for New Jersey’s largest utility, Public Service Corporation, which operated franchises in gas, electricity, and street cars.

Despite his many responsibilities, and lack of training in engineering, Bergen was very much involved in all aspects of establishing Middlesex Water, especially by keeping a tight rein on Robert M. Kellogg, the superintendent he hired to manage day-today affairs. In 1898 the company dug wells and laid a main some 15 miles in length to factories located along Staten Island Sound. Steadily the system expanded and Bergen added more customers. By 1907 Middlesex Water was pumping more than 1.3 million gallons of water per day and boasted assets in excess of $400,000 while posting a $56,000 profit. The demand for water, however, would soon outstrip the company’s ability to supply it.

Because groundwater and pumping alone would not alleviate the shortage, Bergen realized that Middlesex Water needed to build a reservoir. Late in 1905 a site was selected, and with additional business customers lined up, the company decided to move forward on what became known as the Robinsons Branch Project. Rather than fund the reservoir through debt, it issued $300,000 in new stock. Bergen also negotiated a contract with the Elizabethtown Water Company to supply it with water on a contract basis at $10,000 a year. In 1907 Middlesex Water began acquiring the necessary property and equipment, but soon it became apparent the company would fall short of funds. The Consumers Aqueduct Company was then formed in order to sell additional stock and serve as a hedge against failure; it was understood that once the reservoir was successfully completed that the new company would merge with Middlesex Water. Indeed, the arrangement worked, the companies were joined in the fall of 1907, and in May 1908 the “Corbin Reservoir” began providing water to customers of Middlesex Water as well as Elizabethtown Water. More and more, Bergen, who continued to be involved in a number of business interests, came to rely on his new superintendent, Ambrose Mundy, who replaced Kellogg in 1908.

As Middlesex County grew, so did Middlesex Water. The county’s population, which was nearly 80,000 in 1900, grew to more than 114,000 in 1910 and 130,000 by 1920. In addition to Elizabethtown Water, the company agreed to sell water on a contract basis to Plainfield-Union Water Company, requiring further expansion of the system. In 1916 more wells were dug to meet increased demand and a new pumping station was constructed. Nevertheless, after World War I Middlesex Water had to confront a regional water shortage. Although the company had enough water to supply its local customers, the towns it serviced on a contract basis were fast growing and placed a strain on the system, resulting in poor water pressure. The problem became so acute that water could not reach the second floor of many houses and fire departments had trouble using their hoses on fires. As a result, relations with customers soured.

Fight with Regulators Leading to 1927 Supreme Court Case

Clearly, what was required was better pumps and a larger main, but these improvements would be expensive, and Bergen contended that New Jersey regulators, the Board of Public Utility Commissioners (established in 1911), hindered his ability to borrow money. By law the BPUC ruled on rate increases, but only to sustain operations, not as a way to fund improvements. The ultra-conservative Bergen was a critic of all government intrusion, and he aggressively took on the commission in the 1920s. He requested a 36 percent rate hike, to which he knew that the BPUC would never agree. The matter was litigated, eventually ending up in the United States Supreme Court in 1927. Although the BPUC would win on technical grounds, the New Jersey state legislature forced the two parties to reach a compromise. Middlesex Water was granted a rate increase that split the difference between the two sides. In the end, Bergen was able to sell bonds and raise enough money to upgrade the water system and improve service.

Although the advent of the Great Depression of the 1930s slowed the growth of its system, Middlesex Water continued to be profitable. Almost 83 years old, Bergen died of a heart attack in 1934, and although Mundy had been essentially running the company for a number of years, Judge William H. Speer became the new president. Diplomatic by nature, Speer was chosen by the company’s directors because he was familiar with utilities and could repair relations with the BPUC. He guided Middlesex Water through the Depression, while successfully refinancing the company’s bond debt. On the eve of World War II, a meter repair shop was destroyed when a building in the nearby United Railway and Signal Company complex exploded, killing or mortally wounding a total of 13 people, including a meter repairman. Although presumed an accident, the explosion was suspicious enough for Speer to invest in insurance to cover war-related damages. Wide-scale domestic sabotage, however, did not materialize during World War II. The war effort for Middlesex Water consisted of finding additional sources of water to adequately supply major army camps and war industries. By the end of the war Middlesex Water was no longer a wholesaler of water and was, in fact, now buying water from other sources to meet its needs.

The postwar years saw a population explosion in the areas around New York City, including Middlesex County, and both residential and commercial demand for water increased dramatically. Middlesex Water laid new pipe on a continuing basis, but the demand outpaced the system’s capacity to deliver, and once again the company suffered from low water pressure and inadequate supply. Efforts at long-term planning to address these problems began in the late 1950s. Engineering consultants were hired and a plan developed, which called for larger transmission mains to be installed, as well as the drilling of two new wells and the construction of a new standpipe. Arranging the financing of the work, however, took some time. Speers, at the age of 90, managed to lay the groundwork when he died in 1959. He was replaced as president by longtime Superintendent Ambrose Mundy who, at the age of 83, was only slightly younger.

Company Perspectives:

Middlesex Water Company is committed to helping its customers use water wisely, economically and efficiently. Our aim is to meet the needs of our customers and the community through quick response, cooperation, effective communication and by striving for excellence in everything we do.

Not only did Mundy have the responsibility of overseeing the improvements to the company’s water system, he served in the midst of a severe drought in 1960. Less than two years into his term as president, just as the capital plan was nearing completion, Mundy died of a heart attack. He was replaced by 62-year-old Carl J. Olsen, the company’s first formally trained civil engineer, who had been with Middlesex Water since 1926. Continuity of leadership would prove important as the Northeast suffered through an extended period of drought in the early 1960s. Unlike other state water companies, including Hackensack Water and Elizabethtown Water, Middlesex did not have a reservoir that could provide a reliable supply of water without steady replenishment from rainfall. Olsen saw a long-term solution to the supply problem by negotiating a deal with the state to purchase water from the Delaware and Raritan Canal. Originally built before the Civil War for barges transporting Pennsylvania coal to New York, the canal was superseded by railroads, abandoned in 1934, and eventually gained landmark status. After arranging a state grant to the water, Middlesex Water constructed a new pumping station and treatment plant, which were completed in December 1969, ushering in a new era for the company, which now for the first time in many years had an abundant supply of water. The state-of-the-art treatment plant, considered a modern marvel, was renamed the Carl J. Olsen Water Treatment Plant in 1973.

Naming J. Richard Tompkins Fifth President in 1980

Middlesex Water prospered through the 1970s, ending the decade as one of the best water stock investments in New Jersey. Olsen retired at the end of 1980 at the age of 80, the first time that the company’s president did not die in office. This time the board named a much younger man as the fifth president of Middlesex Water: 42-year-old J. Richard Tompkins. Despite his age, he was well qualified for the position, an engineering graduate who was familiar with Middlesex Water and its business from his employment as a consultant with Associated Utility Services, having worked with the company for 14 years on rate case presentations and planning and development projects.

Under Tompkins, Middlesex Water began to expand its service area and product offerings. With a plentiful supply of water the company was able to now service the South River Basin area of New Jersey, a move that required additional improvements and funding. In 1990 Tompkins recognized a chance to acquire Tidewater Utilities, Inc., which serviced more than 3,000 customers in 60 Delaware communities. The deal was finalized in 1992. Middlesex Water then branched into the wastewater treatment business when in 1995 it acquired Pinelands Water Company and Pinelands Wastewater Company in Southampton Township, New Jersey. Also in that year Middlesex Water created a subsidiary, Utility Service Affiliates, Inc., in order to operate the water system of the City of South Amboy under a 20-year contract. In 1997 Tidewater Utilities acquired a wholly owned subsidiary, Public Water Supply Company, Inc., as well as Midway Utility Corporation in southern Delaware. Now 100 years old, Middlesex Water raised more than $37 million in bonds and common stock, its largest financing ever to fund its expansion and the upgrading of the Carl J. Olsen Water Treatment Plant.

No matter how aggressive its moves in the 1990s, a period of deregulation in utilities, Middlesex Water remained a small water company, with annual revenues around $50 million, especially when compared with other New Jersey water companies. Hackensack Water evolved into United Water Resources and had been operating municipal water and wastewater systems for years. It also forged a relationship with the giant French water company Lyonnaise des Eaux-Dumez. The 1990s was a period of consolidation as well as privatization. Lyonnaise des Eaux and another French company, Compagnie de Suez, merged and acquired United Water Resources outright, yet it was still only second in size to the rival French firm of Vivendi. Both were enthusiastically looking for opportunities in the United States, where 85 percent of all water systems were municipally owned and whose infrastructures were in drastic need of upgrading.

After Suez Lyonnaise des Eaux acquired United Water Resources in 1999, Middlesex Water was rumored to be ripe for acquisition by one of the new mammoth water companies, causing its stock to soar in value by more than 30 percent. When a buyout failed to materialize, however, the price quickly dropped. Not surprisingly, the future for a company the size of Middlesex Water remained uncertain. In 2001, with Tompkins now serving as chairman of the board and Dennis G. Sullivan installed as president and chief operating officer, the company acquired another water system, Fortescue Realty Company of Cumberland County, New Jersey. It was then transferred to a newly formed subsidiary, Bay view Water Company. In September 2001 Middlesex Water entered into negotiations to sell Tidewater Utilities to Artesian Resources Corporation, a Delaware public water utility. Because of its proximity to Artesian’s other operations, Tidewater was a good fit. Middlesex Water, on the other hand, would be able to focus on the New Jersey region. It remained to be seen, however, whether the economics of a new era in the water business would allow a small company such as Middlesex Water to operate independently, or if it would have to align itself with one of the larger utility concerns in order to prosper in a new century.

Key Dates:

1897:: The company is incorporated in New Jersey.
1908:: The Corbin Reservoir opens.
1927:: Rate case reaches the U.S. Supreme Court.
1934:: The company’s first president, octogenarian Frank Bergen, dies in office.
1959:: William H. Speer, the company’s second president, dies in office at the age of 90.
1962:: Third President and octogenarian Ambrose Mundy dies in office.
1969:: A modern pumping station and treatment plant opens.
1980:: Carl J. Olsen retires as president, replaced by J. Richard Tompkins.
1992:: Tidewater Utilities is acquired.
1995:: Pinelands Water Company and Pinelands Wastewater Company are acquired.
1997:: Public Water Supply Company and Midway Utility Corporation are acquired.
2001:: Fortescue Realty Company is acquired.