UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
      DC 20549


FORM
      10-K


(Mark
      One)


þ
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934


For
      the fiscal year ended December 31, 2007




OR




 ̈
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




For
      the
      transition period from _________________ to______________________




Commission
      File Number     0-422




MIDDLESEX
      WATER COMPANY


(Exact
      name of registrant as specified in its charter)




New
                Jersey
            
            22-1114430(State
                of Incorporation)
            
            (IRS
                employer identification no.)





1500
      Ronson Road, Iselin NJ  08830


(Address
      of principal executive offices, including zip code)




(732)
      634-1500


(Registrant's
      telephone number, including area code)




Securities
      registered pursuant to Section 12(b) of the Act:


Title
                of Each Class:
            
            Name
                of each exchange on which registered:None
            
            None




Securities
      registered pursuant to Section 12(g) of the Act:


Common
      Stock, No par
      Value


(Title
      of
      Class)






Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.  Yes  ̈No þ




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.  Yes  ̈No þ




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.   Yes þNo  ̈





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of the registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.  þ




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting
      company.


Large
                accelerated filer  ̈
            Accelerated
                filer þ
            Non-accelerated
                filer  ̈
            Smaller
                reporting company  ̈






Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).


Yes  ̈No þ






The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant at June 30, 2007 was $244,022,786 based on the closing market price
      of $19.21 per share.




The
      number of shares outstanding for each of the registrant's classes of common
      stock, as of March 3, 2008:




Common
      Stock, No par Value 13,262,182
      shares outstanding




Documents
      Incorporated by
      Reference


Proxy
      Statement to be filed in connection with the Registrant’s Annual Meeting of
      Shareholders to be held on May 21, 2008, which will be filed with the Securities
      and Exchange Commission within 120 days, is incorporated as to Part
      III.







MIDDLESEX
      WATER COMPANY


FORM
      10-K





INDEX





PAGEForward-Looking
                  Statements
              
              1PART
                  IItem
                  1.
              
              Business:Overview
              
              2Financial
                  Information
              
              4Water
                  Supplies and Contracts
              
              4Employees
              
              5Competition
              
              5Regulation
              
              6Management
              
              8Item
                  1A.
              
              Risk
                  Factors
              
              10Item
                  1B.
              
              Unresolved
                  Staff Comments
              
              14Item
                  2.
              
              Properties
              
              14Item
                  3.
              
              Legal
                  Proceedings
              
              16Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              
              16PART
                  IIItem
                  5.
              
              Market
                  for the Registrant's Common Equity and Related Stockholder
                  Matters
              
              16Item
                  6.
              
              Selected
                  Financial Data
              
              18Item
                  7.
              
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              18Item
                  7A.
              
              Qualitative
                  and Quantitative Disclosure About Market Risk
              
              26Item
                  8.
              
              Financial
                  Statements and Supplementary Data
              
              27Item
                  9.
              
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              
              50Item
                  9A.
              
              Controls
                  and Procedures
              
              51Item
                  9B.
              
              Other
                  Information
              
              53PART
                  IIIItem
                  10.
              
              Directors,
                  Executive Officers and Corporate Governance
              
              54Item
                  11.
              
              Executive
                  Compensation
              
              54Item
                  12.
              
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              
              54Item
                  13.
              
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              
              54Item
                  14.
              
              Principal
                  Accountant Fees and Services
              
              54PART
                  IVItem
                  15.
              
              Exhibits
                  and Financial Statement Schedules
              
              54Signatures
              
              56Exhibit
                  Index
              
              57







Forward-Looking
      Statements




Certain
      statements contained in this annual report and in the documents incorporated
      by
      reference constitute “forward-looking statements” within the meaning of Section
      21E of the Securities Exchange Act of 1934 and Section 27A of the Securities
      Act
      of 1933.  The Company intends that these statements be covered by the
      safe harbors created under those laws.  These statements include, but
      are not limited to:




-
            statements
                as to expected financial condition, performance, prospects and earnings
                of
                the Company;


-
            statements
                regarding strategic plans for
                growth;


-
            statements
                regarding the amount and timing of rate increases and other regulatory
                matters;


-
            statements
                as to the Company’s expected liquidity needs during fiscal 2008 and beyond
                and statements as to the sources and availability of funds to meet
                its
                liquidity needs;


-
            statements
                as to expected rates, consumption volumes, service fees, revenues,
                margins, expenses and operating
                results;


-
            statements
                as to the Company’s compliance with environmental laws and regulations and
                estimations of the materiality of any related
                costs;


-
            statements
                as to the safety and reliability of the Company’s equipment, facilities
                and operations;


-
            statements
                as to financial projections;


-
            statements
                as to the ability of the Company to pay
                dividends;


-
            statements
                as to the Company’s plans to renew municipal franchises and consents in
                the territories it serves;


-
            expectations
                as to the amount of cash contributions to fund the Company’s retirement
                benefit plans, including statements as to anticipated discount rates
                and
                rates of return on plan assets;


-
            statements
                as to trends; and


-
            statements
                regarding the availability and quality of our water
                supply.




These
      forward-looking statements are subject to risks, uncertainties and other factors
      that could cause actual results to differ materially from future results
      expressed or implied by the forward-looking statements.  Important
      factors that could cause actual results to differ materially from anticipated
      results and outcomes include, but are not limited to:




-
            the
                effects of general economic
                conditions;


-
            increases
                in competition in the markets served by the
                Company;


-
            the
                ability of the Company to control operating expenses and to achieve
                efficiencies in its operations;


-
            the
                availability of adequate supplies of
                water;


-
            actions
                taken by government regulators, including decisions on base rate
                increase
                requests;


-
            new
                or additional water quality
                standards;


-
            weather
                variations and other natural
                phenomena;


-
            the
                existence of attractive acquisition candidates and the risks involved
                in
                pursuing those acquisitions;


-
            acts
                of war or terrorism;


-
            significant
                changes in the housing starts in
                Delaware;


-
            the
                availability and cost of capital resources;
                and


-
            other
                factors discussed elsewhere in this
                prospectus.




Many
      of
      these factors are beyond the Company’s ability to control or
      predict.  Given these uncertainties, readers are cautioned not to
      place undue reliance on any forward-looking statements, which only speak to
      the
      Company’s understanding as of the date of this report. The Company does not
      undertake any obligation to release publicly any revisions to these
      forward-looking statements to reflect events or circumstances after the date
      of
      this prospectus or to reflect the occurrence of unanticipated events, except
      as
      may be required under applicable securities laws.




For
      an
      additional discussion of factors that may affect the Company’s business and
      results of operations, see Item 1A - Risk Factors.




1




PART
      I




Item
                1.
            Business.




Overview





Middlesex
      Water Company (“Middlesex”) was incorporated as a water utility company in 1897
      and owns and operates regulated water utility and wastewater systems
      in  New Jersey and Delaware. The Company also operates water and
      wastewater systems under contract on behalf of municipal and private clients
      in
      New Jersey and Delaware.





The
      terms
“the Company,” “we,” “our,” and “us” refer to Middlesex Water Company and its
      subsidiaries, including Tidewater Utilities, Inc. (Tidewater) and Tidewater’s
      wholly-owned subsidiaries, Southern Shores Water Company, LLC (Southern Shores)
      and White Marsh Environmental Systems, Inc. (White Marsh). The Company’s other
      subsidiaries are Pinelands Water Company (Pinelands Water) and Pinelands
      Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), Utility
      Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy) Inc.,
      (USA-PA) and Tidewater Environmental Services, Inc. (TESI).





Middlesex
      principal executive offices are located at 1500 Ronson Road, Iselin, New Jersey
      08830. Our telephone number is (732) 634-1500. Our internet website address
      is
      http://www.middlesexwater.com. We make available, free of charge through our
      internet website, reports and amendments filed or furnished pursuant to Section
      13(a) or 15(d) of the Securities Exchange Act of 1934, after such material
      is
      electronically filed with or furnished to the Securities and Exchange Commission
      (SEC).




Middlesex
      System




The
      Middlesex System in New Jersey provides water services to approximately 59,400
      retail customers, primarily in eastern Middlesex County, New Jersey and provides
      water under wholesale contracts to the City of Rahway, Township of Edison,
      the
      Boroughs of Highland Park and Sayreville and both the Old Bridge and the
      Marlboro Township Municipal Utilities Authorities. The Middlesex System treats,
      stores and distributes water for residential, commercial, industrial and fire
      prevention purposes. The Middlesex System also provides water treatment and
      pumping services to the Township of East Brunswick under contract. The Middlesex
      System, through its retail and contract sales, produced approximately 64% of
      2007 revenue.





The
      Middlesex System’s retail customers are located in an area of approximately 55
      square miles in Woodbridge Township, the City of South Amboy, the Boroughs
      of
      Metuchen and Carteret, portions of the Township of Edison and the Borough of
      South Plainfield in Middlesex County and, to a minor extent, a portion of the
      Township of Clark in Union County. Retail customers include a mix of residential
      customers, large industrial concerns and commercial and light industrial
      facilities. These customers are located in generally well-developed areas of
      central New Jersey. The contract customers of the Middlesex System comprise
      an
      area of approximately 146 square miles with a population of approximately
      303,000. Contract sales to Edison, Sayreville, Old Bridge, Marlboro and Rahway
      are supplemental to the existing water systems of these customers. The State
      of
      New Jersey in the mid-1980’s approved plans to increase available surface water
      supply to the South River Basin area of the state to facilitate a reduction
      in
      groundwater use in this area. The Middlesex System provides treated surface
      water under long-term agreements to East Brunswick, Marlboro, Old Bridge and
      Sayreville consistent with the state-approved plan.





Middlesex
      provides water service to approximately 300 customers in Cumberland County,
      New
      Jersey.  This system is referred to as Bayview and is not physically
      interconnected with the Middlesex system. Bayview produced less than 1% of
      our
      total revenue in 2007.





2




Tidewater
      System





Tidewater,
      together with its wholly-owned subsidiary, Southern Shores, provides water
      services to approximately 31,600 retail customers for domestic, commercial
      and
      fire protection purposes in over 300 separate community water systems in New
      Castle, Kent and Sussex Counties, Delaware. An additional wholly-owned
      subsidiary, White Marsh, operates water and wastewater systems under contract
      for approximately 5,100 residential customers and also owns the office building
      that Tidewater uses as its business office. White Marsh’s rates for water and
      wastewater operations are not regulated by the Delaware Public Service
      Commission (PSC). The Tidewater System produced approximately 23% of total
      revenue in 2007.





Utility
      Service Affiliates-Perth Amboy





USA-PA
      operates the City of Perth Amboy, NJ’s water and wastewater systems under a
      20-year agreement, which expires in 2018.  USA-PA serves approximately
      9,700 customers, most of whom are served by both systems. The agreement was
      effected under New Jersey’s Water Supply Public-Private Contracting Act and the
      New Jersey Wastewater Public/Private Contracting Act and requires USA-PA to
      lease from Perth Amboy all of its employees who currently work on the Perth
      Amboy water and wastewater systems. Under the agreement, USA-PA receives both
      fixed and variable fees.  The variable position is based on customer
      billing. Fixed fee revenues were $7.8 million in 2007 and are to increase over
      the term of the 20-year contract to $10.2 million based upon a schedule of
      rates. USA-PA produced approximately 9% of total revenue in 2007.





In
      connection with the agreement, Middlesex guaranteed a series of Perth Amboy’s
      municipal bonds in the principal amount of approximately $26.3 million, of
      which
      approximately $22.6 million remains outstanding. In connection with the
      agreement with Perth Amboy, USA-PA entered into a 20-year subcontract with
      a
      wastewater operating company for the operation and maintenance of the Perth
      Amboy wastewater system. The subcontract provides for the sharing of certain
      fixed and variable fees and operating expenses.





Pinelands
      System





Pinelands
      Water provides water services to approximately 2,500 residential customers
      in
      Burlington County, New Jersey. Pinelands Water produced less than 1% of total
      revenue in 2007.  Pinelands Water is not physically interconnected
      with the Middlesex System.





Pinelands
      Wastewater provides wastewater services to approximately 2,500 primarily
      residential retail customers. Under contract, it also services one municipal
      wastewater system in Burlington County, New Jersey with about 200 residential
      customers.  Pinelands Wastewater produced approximately 1% of total
      revenue in 2007.





Utility
      Service Affiliates, Inc.





USA
      provides residential customers a service line maintenance program called
      LineCareSM.
      LineCareSM
      is an
      affordable maintenance program that covers all parts, material and labor
      required to repair or replace specific elements of the customer’s water service
      line and customer shut-off valve in the event of a failure. USA produced less
      than 1% of total revenue in 2007.




TESI
      System





TESI,
      which was formed in 2005, provides wastewater services to approximately 1,400
      residential retail customers in Delaware. TESI produced less than 1% of our
      total revenue in 2007.





3





Financial
      Information





Consolidated
      operating revenues and operating income are as follows:





(Thousands
                of Dollars)Years
                Ended December 31,2007
            
            
            2006
            
            
            2005Operating
                Revenues
            
            $
            86,114
            
            
            $
            81,061
            
            
            $
            74,613Operating
                Income
            
            $
            22,671
            
            
            $
            21,318
            
            
            $
            17,218





Operating
      revenues were earned from the following sources:





Years
                Ended December 31,2007
            
            
            2006
            
            
            2005Residential
            
            
            45.0
            %
            
            
            42.6
            %
            
            
            41.9
            %Commercial
            
            
            9.7
            
            
            
            10.0
            
            
            
            9.8Industrial
            
            
            9.9
            
            
            
            10.7
            
            
            
            11.0Fire
                Protection
            
            
            10.3
            
            
            
            10.7
            
            
            
            10.4Contract
                Sales
            
            
            12.5
            
            
            
            12.3
            
            
            
            13.4Contract
                Operations
            
            
            10.3
            
            
            
            11.0
            
            
            
            10.8Other
            
            
            2.3
            
            
            
            2.7
            
            
            
            2.7TOTAL
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %





Water
      Supplies and Contracts




Our
      New
      Jersey and Delaware water supply systems are physically separate and are not
      interconnected. In New Jersey, the Pinelands System and Bayview System are
      not
      interconnected with the Middlesex System or each other. We believe that we
      have
      adequate sources of water supply to meet the current service requirements of
      our
      present customers in New Jersey and Delaware.





Middlesex
      System




Our
      Middlesex System, which produced approximately 16.8 billion gallons in 2007,
      obtains water from surface sources and wells, or groundwater sources. In 2007,
      surface sources of water provided approximately70%
      of the Middlesex System’s water supply, groundwater sources provided
      approximately 23% from 31 wells and the balance was purchased from a
      non-affiliated water utility. Middlesex System’s distribution storage facilities
      are used to supply water to customers at times of peak demand, outages and
      emergencies.





The
      principal source of surface water for the Middlesex System is the Delaware
&
Raritan Canal, which is owned by the State of New Jersey and operated as a
      water
      resource by the New Jersey Water Supply Authority.  Middlesex is under
      contract with the New Jersey Water Supply Authority, which expires November
      30,
      2023. The contract provides for average purchases of 27 million gallons per
      day
      (mgd) of untreated water from the Delaware & Raritan Canal, augmented by the
      Round Valley/Spruce Run Reservoir System. Surface water is pumped to, and
      treated, at the Middlesex Carl J. Olsen (CJO) Plant. Middlesex also has an
      agreement with a non-affiliated regulated water utility for the purchase of
      treated water. This long-term agreement, which expires February 27, 2011,
      provides for minimum purchase of 3 mgd of treated water with provisions for
      additional purchases.





4





Tidewater
      System




Our
      Tidewater System, which produced approximately 2.1 billion gallons in 2007,
      obtains 100% of its groundwater sources from 193 wells. In 2007, 11 new wells
      were placed into service.  We deactivated, sealed and abandoned 20
      wells for either water quality reasons or for the purpose of consolidating
      production facilities for more cost-efficient operation. Tidewater continues
      to
      submit applications to Delaware regulatory authorities for the approval of
      additional wells as growth, demand and water quality warrants. The Tidewater
      System does not have a central treatment facility but has several regional
      treatment plants. Several of its water systems in New Castle, Kent and Sussex
      Counties, Delaware have interconnected transmission systems.





Pinelands
      System




Water
      supply to our Pinelands System is derived from groundwater sources from four
      wells which provided overall system delivery of 206 million gallons in 2007.
      The
      pumping capacity of the four wells is 2.2 million gallons per day.




Bayview
      System




Water
      supply to Bayview customers is derived from groundwater water sources from
      two
      wells, which delivered approximately 11 million gallons in 2007.





Pinelands
      Wastewater System




The
      Pinelands Wastewater System discharges into the South Branch of the Rancocas
      Creek through a tertiary treatment plant that provides clarification,
      sedimentation, filtration and disinfection. The total capacity of the plant
      is
      0.5 mgd, and the system provided overall treatment to 109 million gallons in
      2007.





TESI
      System




The
      TESI
      System owns and operates six wastewater treatment systems in Southern Delaware.
      The treatment plants provide clarification, sedimentation, and disinfection.
      The
      combined total treatment capacity of the plants is 0.6 mgd. Current average
      flow
      is approximately 0.2 mgd.





Employees




As
      of
      December 31, 2007, we had a total of 254 employees. In addition, we lease 19
      full-time employees under the USA-PA contract with the City of Perth Amboy,
      New
      Jersey. No employees are represented by a union except the leased employees
      who
      are subject to a collective bargaining agreement with the City of Perth Amboy.
      We believe our employee relations are good. Wages and benefits, other than
      for
      leased employees, are reviewed annually and are considered competitive within
      both the industry and the regions where we operate.





Competition




Our
      business in our franchised service area is substantially free from direct
      competition with other public utilities, municipalities and other entities.
      However, our ability to provide contract water supply and wastewater services
      and operations and maintenance services is subject to competition from other
      public utilities, municipalities and other entities. Although Tidewater has
      been
      granted an exclusive franchise for each of its existing community water systems,
      its ability to expand service areas can be affected by the PSC awarding
      franchises to other regulated water utilities with whom we compete for such
      franchises and for projects.





5





Regulation




We
      are
      regulated as to rates charged to customers for water and wastewater services
      in
      New Jersey and Delaware, as to the quality of the services we provide and as
      to
      certain other matters. Our USA, USA-PA and White Marsh subsidiaries are not
      regulated utilities. We are subject to environmental and water quality
      regulation by the United States Environmental Protection Agency (EPA), and
      the
      New Jersey Department of Environmental Protection (DEP) with respect to
      operations in New Jersey and by Department of Natural Resources and
      Environmental Control (DNREC), the Delaware Department of Health and Social
      Services-Division of Public Health (DPH), and the Delaware River Basin
      Commission (DRBC) with respect to operations in Delaware. In addition, our
      issuances of securities are subject to the prior approval of the SEC and the
      New
      Jersey Board of Public Utilities (BPU) or the PSC.




Regulation
      of Rates and Services




New
      Jersey water and wastewater service operations (excluding the operations of
      USA
      and USA-PA) are subject to regulation by the BPU. Similarly, our Delaware water
      and wastewater operations (excluding the operations of White Marsh) are subject
      to regulation by the PSC. These regulatory authorities have jurisdiction with
      respect to rates, service, the issuance of securities and other matters of
      utility companies operating within the States of New Jersey and Delaware,
      respectively. For ratemaking purposes, we account separately for operations
      in
      New Jersey and Delaware to facilitate independent ratemaking by the BPU for
      New
      Jersey operations and the PSC for Delaware operations.




In
      determining our rates, the BPU and the PSC consider the income, expenses, rate
      base of property used and useful in providing service to the public and a fair
      rate of return on investments within their separate jurisdictions. Rate
      determinations by the BPU do not guarantee particular rates of return to us
      for
      our New Jersey operations nor do rate determinations by the PSC guarantee
      particular rates of return for our Delaware operations.  Thus, we may
      not achieve the rates of return permitted by the BPU or the PSC.





Effective
      October 26, 2007, Middlesex
      received approval from the New Jersey Board of Public Utilities (BPU) for a
      9.1%, or $5.0 million increase in its base water rates.  The increase
      was predicated on a rate base of $164.4 million and an authorized return on
      equity of 10.0%.  Middlesex had originally filed for an $8.9 million
      or 16.5% base rate increase with the BPU on April 18, 2007.  The rate
      increase is intended to recover increased costs of operations, maintenance,
      labor and benefits, purchased power, purchased water and taxes, as well as
      capital investment of approximately $23.0 million since June
      2005.





On
      April
      28, 2006, Tidewater filed for a $5.5 million, or 38.6%, base rate increase
      with
      the Delaware Public Service Commission (PSC). The request was intended to
      recover increased costs of operations, maintenance and taxes, as well as capital
      investment of approximately $23.8 million since rates were last established
      in
      March 2005. Since June 27, 2006, Tidewater had been billing and recognizing
      additional revenues through a 15% interim rate increase subject to refund as
      allowed under PSC regulations. A settlement was reached amongst the parties
      which concluded that a 26.9% overall increase in base rates would be
      implemented.  The PSC approved the settlement and the remaining 11.9%
      increase was put into effect on February 28, 2007.  The combined
      effect of the interim and final rate increases was $3.9 million in additional
      annual operating revenues.





Effective
      April 13, 2006, Pinelands Water and Pinelands Wastewater received approval
      from
      the New Jersey Board of Public Utilities (BPU) for base rate increases of 7.02%
      and 0.98%, respectively. These increases represent a total base rate increase
      of
      approximately $0.1 million for Pinelands to offset increased costs associated
      with capital improvements and the operation and maintenance of their
      systems.





6





In
      accordance with the tariff established for Southern Shores, an annual rate
      increase of 3% was implemented on January 1, 2008.  Under the terms of
      a contract with Southern Shores Homeowners Association, the increase cannot
      exceed the lesser of the regional Consumer Price Index or 3%.





There
      can
      be no assurance that any future rate increases will be granted or, if granted,
      that they will be in the amounts requested.





Water
      Quality and Environmental Regulations




Both
      the
      EPA and the DEP regulate our operations in New Jersey with respect to water
      supply, treatment and distribution systems and the quality of the water, as
      do
      the EPA, DNREC, DPH and DRBC with respect to operations in
      Delaware.




Federal,
      New Jersey and Delaware regulations adopted relating to water quality require
      us
      to perform expanded types of testing to ensure that our water meets state and
      federal water quality requirements. In addition, environmental regulatory
      agencies are reviewing current regulations governing the limits of certain
      organic compounds found in the water as byproducts of treatment. We participate
      in industry-related research to identify the various types of technology that
      might reduce the level of organic, inorganic and synthetic compounds found
      in
      the water. The cost to water companies of complying with the proposed water
      quality standards depends in part on the limits set in the regulations and
      on
      the method selected to implement such reduction. We believe the CJO Plant
      capabilities put us in a strong position to meet any such future standards
      with
      regard to our Middlesex System.  We regularly test our water to
      determine compliance with existing federal, New Jersey and Delaware primary
      water quality standards.




Well
      water treatment in our Tidewater System is by chlorination for disinfection
      purposes and, in some cases, pH correction and filtration for nitrate and iron
      removal.





Well
      water treatment in the Pinelands and Bayview Systems (disinfection only) is
      done
      at individual well sites.





The
      DEP
      and the DPH monitor our activities and review the results of water quality
      tests
      that are performed for adherence to applicable regulations. Other regulations
      applicable to us include the Lead and Copper Rule, the maximum contaminant
      levels established for various volatile organic compounds, the Federal Surface
      Water Treatment Rule and the Total Coliform Rule.





7





Management




This
      table lists information concerning our executive management team:




Name
            
            Age
            
            Principal
                Position(s)Dennis
                W. Doll
            
            49
            
            President
                and Chief Executive OfficerA.
                Bruce O’Connor
            
            49
            
            Vice
                President and Chief Financial OfficerRonald
                F. Williams
            
            58
            
            Vice
                President-Operations and Chief Operating OfficerKenneth
                J. Quinn
            
            60
            
            Vice
                President-General Counsel, Secretary and TreasurerJames
                P. Garrett
            
            61
            
            Vice
                President–Human ResourcesRichard
                M. Risoldi
            
            51
            
            Vice
                President–Subsidiary OperationsBernadette
                M. Sohler
            
            47
            
            Vice
                President-Corporate AffairsGerard
                L. Esposito
            
            56
            
            President,
                Tidewater Utilities, Inc.





Dennis
      W. Doll– Mr. Doll
      joined the Company in November 2004 as Executive Vice President. He was elected
      President and Chief Executive Officer and became a Director of Middlesex
      effective January 1, 2006. Prior to joining the Company, Mr. Doll was employed
      by Elizabethtown Water Company since 1985, serving most recently as a member
      of
      the senior leadership team of the Northeast Region of American Water, comprised
      of various regulated utilities and other non-regulated subsidiaries in the
      water
      and wastewater fields. Mr. Doll is a director of the New Jersey Utilities
      Association and the National Association of Water Companies.





A.
      Bruce O’Connor– Mr.
      O’Connor, a Certified Public Accountant, joined the Company in 1990 as Assistant
      Controller and was elected Controller in 1992 and Vice President in 1995. He
      was
      elected Vice President and Chief Financial Officer in 1996.  He is
      responsible for financial reporting, customer service, rate cases, cash
      management and financings. He is Treasurer and a Director of Tidewater
      Utilities, Inc., Tidewater Environmental Services, Inc., Utility Service
      Affiliates, Inc., and White Marsh Environmental Systems, Inc.  He is
      Vice President, Treasurer and a Director of Utility Service Affiliates (Perth
      Amboy) Inc., Pinelands Water Company and Pinelands Wastewater
      Company.




Ronald
      F. Williams– Mr.
      Williams joined the Company in 1995 as Assistant Vice President–Operations,
      responsible for the Company’s Engineering and Distribution Departments. He was
      elected Vice President–Operations in October 1995 and designated Chief Operating
      Officer in 2004. Mr. Williams was elected to the additional posts of Assistant
      Secretary and Assistant Treasurer for Middlesex in 2004.  He was
      formerly employed by Garden State Water Company as President and Chief Executive
      Officer. He is a Director and President of Utility Service Affiliates (Perth
      Amboy) Inc.




Kenneth
      J. Quinn– Mr. Quinn
      joined the Company in 2002 as General Counsel and was elected Assistant
      Secretary in 2003.  In 2004, Mr. Quinn was elected Vice President,
      Secretary and Treasurer for Middlesex and Secretary and Assistant Treasurer
      for
      all subsidiaries of Middlesex.  Prior to joining the Company he had
      been employed in private law practice. Prior to that, Mr. Quinn spent 10 years
      as in-house counsel to two major banking institutions located in New Jersey.
      In
      May 2003, he was elected Assistant Secretary of Tidewater Utilities, Inc.,
      Pinelands Water Company, Pinelands Wastewater Company, Utility Service
      Affiliates (Perth Amboy) Inc., Bayview Water Company and White Marsh
      Environmental Systems, Inc. He is a member of the New Jersey State Bar
      Association and is also a member of the Public Utility Law Section of the
      Bar.





James
      P. Garrett– Mr.
      Garrett, a licensed attorney, joined the Company in 2003 as Assistant Vice
      President–Human Resources. In May 2004, he was elected Vice President- Human
      Resources and is responsible for all human resources and information technology
      throughout the Company.  Prior to his hire, Mr. Garrett was employed
      by a national retail chain as Director of Organizational
      Development.





8





Richard
      M. Risoldi– Mr.
      Risoldi joined the Company in 1989 as Director of Production, responsible for
      the operation and maintenance of the Company’s treatment and pumping
      facilities.  He was appointed Assistant Vice President of Operations
      in 2003. He was elected Vice President in May 2004-Subsidiary Operations,
      responsible for regulated subsidiary operations and business development. He
      is
      a Director of Tidewater Utilities, Inc., Tidewater Environmental Services,
      Inc.,
      White Marsh Environmental Systems Inc and USA-PA.  He also serves as
      Director and President of Pinelands Water Company, Pinelands Wastewater Company
      and Utility Service Affiliates, Inc.





Bernadette
      M. Sohler –Ms.
      Sohler joined the Company in 1994 and was named Director of Communications
      in
      2003 and promoted to Vice President-Corporate Affairs in March 2007 with
      responsibilities for corporate, investor and employee communications, media
      and
      government relations, marketing, community affairs and corporate philanthropic
      activities.  She also serves as Vice President of Utilities Service
      Affiliates, Inc.





Gerard
      L. Esposito– Mr.
      Esposito joined Tidewater Utilities, Inc. in 1998 as Executive Vice
      President.  He was elected President of Tidewater and White Marsh
      Environmental Systems, Inc. in 2003 and elected President of Tidewater
      Environmental Services, Inc. in January 2005. Prior to joining the Company
      he
      worked in various executive positions for Delaware environmental protection
      and
      water quality governmental agencies. He is a Director of Tidewater Utilities,
      Inc., Tidewater Environmental Services, Inc., and White Marsh Environmental
      Systems, Inc.





9





Item
                1A.
            Risk
                Factors.





Our
      revenue and earnings depend on the rates we charge our customers. We cannot
      raise utility rates in our regulated businesses without filing a petition with
      the appropriate governmental agency. If these agencies modify, delay, or deny
      our petition, our revenues will not increase and our earnings will decline
      unless we are able to reduce costs.





The
      BPU
      regulates our public utility companies in New Jersey with respect to rates
      and
      charges for service, classification of accounts, awards of new service
      territory, acquisitions, financings and other matters. That means, for example,
      that we cannot raise the utility rates we charge to our customers without first
      filing a petition with the BPU and going through a lengthy administrative
      process. In much the same way, the PSC regulates our public utility companies
      in
      Delaware. We cannot give assurance of when we will request approval for any
      such
      matter, nor can we predict whether the BPU or PSC will approve, deny or reduce
      the amount of such requests.





Certain
      costs of doing business are not completely within our control. The failure
      to
      obtain any rate increase would prevent us from increasing our revenues and,
      unless we are able to reduce costs, would result in reduced
      earnings.





We
      are subject to environmental laws and regulations, including water quality
      and
      wastewater effluent quality regulations, as well as other state and local
      regulations. Compliance with those laws and regulations requires us to incur
      costs and we are subject to fines or other sanctions for
      non-compliance





The
      EPA
      and DEP regulate our operations in New Jersey with respect to water supply,
      treatment and distribution systems and the quality of the water.  Our
      operations in Delaware are regulated by the EPA, DNREC, DPH, and DRBC with
      respect to water supply, treatment and distribution systems and the quality
      of
      water. Federal, New Jersey and Delaware regulations relating to water quality
      require us to perform expanded types of testing to ensure that our water meets
      state and federal water quality requirements. We are subject to EPA regulations
      under the Federal Safe Drinking Water Act, which include the Lead and Copper
      Rule, the maximum contaminant levels established for various volatile organic
      compounds, the Federal Surface Water Treatment Rule and the Total Coliform
      Rule.
      There are also similar state regulations by the DEP in New Jersey. The DEP
      and
      DPH monitor our activities and review the results of water quality tests that
      we
      perform for adherence to applicable regulations. In addition, environmental
      regulatory agencies are continually reviewing regulations governing the limits
      of certain organic compounds found in the water as byproducts of
      treatment.





We
      are
      also subject to regulations related to fire protection services.  In
      Delaware, fire protection is regulated statewide by the Office of State Fire
      Marshal.  In New Jersey there is no state-wide fire protection
      regulatory agency.  However, state regulations exist as to the size of
      piping required regarding the provision of fire protection
      services.





The
      cost
      of compliance with the water and wastewater effluent quality standards depends
      in part on the limits set in the regulations and on the method selected to
      implement them. If new or more restrictive standards are imposed, the cost
      of
      compliance could be very high and have an adverse impact on our revenues and
      results of operations if we cannot recover those costs through our rates that
      we
      charge our customers.  The cost of compliance with fire protection
      requirements could also be high and make us less profitable if we cannot recover
      those costs through our rates charged to our customers.




In
      addition, if we fail to comply with environmental or other laws and regulations
      to which our business is subject, we could be fined or subject to other
      sanctions, which could adversely impact our business or results of
      operations.




10




We
      depend upon our ability to raise money in the capital markets to finance some
      of
      the costs of complying with laws and regulations, including environmental laws
      and regulations or to pay for some of the costs of improvements to or the
      expansion of our utility system assets. Our regulated utility companies cannot
      issue debt or equity securities without regulatory approval.





We
      require financing to fund the ongoing capital program for the improvement of
      our
      utility system assets and for planned expansion of those systems. We expect
      to
      spend between $122 million and $159 million for capital projects through
      2010.  We must obtain regulatory approval to sell debt or equity
      securities to raise money for these projects. If sufficient capital is not
      available or the cost of capital is too high, or if the regulatory authorities
      deny a petition of ours to sell debt or equity securities, we may not be able
      to
      meet the costs of complying with environmental laws and regulations or the
      costs
      of improving and expanding our utility system assets to the level we believe
      necessary.  This might result in the imposition of fines or
      restrictions on our operations and may curtail our ability to improve upon
      and
      expand our utility system assets.





Weather
      conditions and overuse of underground aquifers may interfere with our sources
      of
      water, demand for water services and our ability to supply water to
      customers.





Our
      ability to meet the existing and future water demands of our customers depends
      on an adequate supply of water. Unexpected conditions may interfere with our
      water supply sources. Drought and overuse of underground aquifers may limit
      the
      availability of ground and/or surface water. Freezing weather may also
      contribute to water transmission interruptions caused by pipe and/or main
      breakage. Any interruption in our water supply could cause a reduction in our
      revenue and profitability. These factors might adversely affect our ability
      to
      supply water in sufficient quantities to our customers. Governmental drought
      restrictions might result in decreased use of water services and can adversely
      affect our revenue and earnings.





Our
      business is subject to seasonal fluctuations, which could affect demand for
      our
      water service and our revenues.





Demand
      for our water during the warmer months is generally greater than during cooler
      months due primarily to additional consumption of water in connection with
      irrigation systems, swimming pools, cooling systems and other outside water
      use.
      Throughout the year, and particularly during typically warmer months, demand
      may
      vary with temperature and rainfall levels.  In the event that
      temperatures during the typically warmer months are cooler than normal, or
      if
      there is more rainfall than normal, the demand for our water may decrease and
      adversely affect our revenues.





Our
      water sources may become contaminated by naturally-occurring or man-made
      compounds and events. This may cause disruption in services and impose costs
      to
      restore the water to required levels of quality.





Our
      sources of water may become contaminated by naturally-occurring or man-made
      compounds and events. In the event that our water supply is contaminated, we
      may
      have to interrupt the use of that water supply until we are able to install
      treatment equipment or substitute the flow of water from an uncontaminated
      water
      source through our transmission and distribution systems. We may also incur
      significant costs in treating the contaminated water through the use of our
      current treatment facilities, or development of new treatment methods. Our
      inability to substitute water supply from an uncontaminated water source, or
      to
      adequately treat the contaminated water source in a cost-effective manner may
      reduce our revenues and make us less profitable.





We
      face competition from other water and wastewater utilities and service providers
      which might hinder our growth and reduce our profitability.





11





We
      face
      risks of competition from other utilities authorized by federal, state or local
      agencies. Once a state utility regulator grants a franchise to a utility to
      serve a specific territory, that utility has an exclusive right to service
      that
      territory. Although a new franchise offers some protection against competitors,
      the pursuit of franchises is competitive, especially in Delaware where new
      franchises may be awarded to utilities based upon competitive negotiation.
      Competing utilities have challenged, and may in the future challenge, our
      applications for new franchises. Also, third parties entering into long-term
      agreements to operate municipal systems might adversely affect us and our
      long-term agreements to supply water on a contract basis to municipalities,
      which adversely affect our operating results.





We
      have a long-term contractual obligation for water and wastewater system
      operation and maintenance under which we may incur costs in excess of payments
      received.





Middlesex
      Water Company and USA-PA operate and maintain the water and wastewater systems
      of the City of Perth Amboy, New Jersey under a 20-year contract expiring in
      2018. This contract does not protect us against incurring costs in excess of
      revenues we earn pursuant to the contract. There can be no absolute assurance
      that we will not experience losses resulting from this contract. Losses under
      this contract or our failure or inability to perform may have a material adverse
      effect on our financial condition and results of operations. Also, in connection
      with the contract, Perth Amboy, through the Middlesex County Improvement
      Authority, issued approximately $68.0 million in three series of
      bonds.  Middlesex guaranteed one of those series of bonds, designated
      the Series C Serial Bonds, in the principal amount of approximately $26.3
      million. As of December 31, 2007, approximately $22.6 million of the Series
      C
      Serial Bonds remain outstanding. If Perth Amboy defaults on its obligations
      to
      pay the bonds we have guaranteed, we would have to raise funds to meet our
      obligations under that guarantee.





An
      important element of our growth strategy is the acquisition of water and
      wastewater assets, operations, contracts or companies. Any pending or future
      acquisitions we decide to undertake may involve risks.





The
      acquisition and/or operation of water and wastewater systems is an important
      element in our growth strategy. This strategy depends on identifying suitable
      opportunities and reaching mutually agreeable terms with acquisition candidates
      or contract partners. These negotiations, as well as the integration of acquired
      businesses, could require us to incur significant costs and cause diversion
      of
      our management’s time and resources. Further, acquisitions may result in
      dilution of our equity securities, incurrence of debt and contingent
      liabilities, fluctuations in quarterly results and other related expenses.
      In
      addition, the assets, operations, contracts or companies we acquire may not
      achieve the sales and profitability expected.





The
      current concentration of our business in central New Jersey and Delaware makes
      us susceptible to any adverse development in local regulatory, economic,
      demographic, competitive and weather conditions.





Our
      New
      Jersey water and wastewater businesses provide services to customers who are
      located primarily in eastern Middlesex County, New Jersey. Water service is
      provided under wholesale contracts to the Township of Edison, the Boroughs
      of
      Highland Park and Sayreville, both the Old Bridge and the Marlboro Township
      Municipal Utilities Authorities, and the City of Rahway in Union County, New
      Jersey.  We also provide water and wastewater services to customers in
      the State of Delaware.  Our revenues and operating results are
      therefore subject to local regulatory, economic, demographic, competitive and
      weather conditions in a relatively concentrated geographic area.  A
      change in any of these conditions could make it more costly or difficult for
      us
      to conduct our business.  In addition, any such change would have a
      disproportionate effect on us, compared to water utility companies that do
      not
      have such a geographic concentration.





12





The
      necessity for increased security has and may continue to result in increased
      operating costs.





Since
      the
      September 11, 2001 terrorist attacks and the continuing threats to the health
      and security of the United States of America, we have taken steps to increase
      security measures at our facilities and heighten employee awareness of threats
      to our water supply. We have tightened our security measures regarding the
      delivery and handling of certain chemicals used in our business. We are at
      risk
      for terrorist attacks and have incurred, and will continue to incur costs for
      security precautions to protect our facilities, operations and supplies from
      such risks.





Our
      ability to achieve growth is somewhat dependent on the residential building
      market in the territories we serve.  If housing starts decline
      significantly, our rate of growth may not meet our expectations.





We
      expect
      our revenues to increase from customer growth for our regulated water and
      wastewater operations   as a result of the anticipated
      construction and sale of new housing units in the territories we
      serve.  Although the residential building market in Delaware has
      experienced growth in recent years, this growth may not continue in the
      future.  If housing starts in the territories we serve decline
      significantly as a result of economic conditions or otherwise, our revenue
      growth may not meet our expectations and our financial results could be
      negatively impacted.





We
      have restrictions on our dividends. There can also be no assurance that we
      will
      continue to pay dividends in the future or, if dividends are paid, that they
      will be in amounts similar to past dividends.





Our
      Restated Certificate of Incorporation and our Indenture of Mortgage dated as
      of
      April 1, 1927, as supplemented, impose conditions on our ability to pay
      dividends. We have paid dividends on our common stock each year since 1912
      and
      have increased the amount of dividends paid each year since 1973.




Our
      earnings, financial condition, capital requirements, applicable regulations
      and
      other factors, including the timeliness and adequacy of rate increases, will
      determine both our ability to pay dividends on common stock and the amount
      of
      those dividends. There can be no assurance that we will continue to pay
      dividends in the future or, if dividends are paid, that they will be in amounts
      similar to past dividends.




If
      we are unable to pay the principal and interest on our indebtedness as it comes
      due or we default under certain other provisions of our loan documents, our
      indebtedness could be accelerated and our results of operations and financial
      condition could be adversely affected.





Our
      ability to pay the principal and interest on our indebtedness as it comes due
      will depend upon our current and future performance.  Our performance
      is affected by many factors, some of which are beyond our control.  We
      believe that our cash generated from operations, and, if necessary, borrowings
      under our existing credit facilities, will be sufficient to enable us to make
      our debt payments as they become due.  If, however, we do not generate
      sufficient cash, we may be required to refinance our obligations or sell
      additional equity, which may be on terms that are not as favorable to
      us.





No
      assurance can be given that any refinancing or sale or equity will be possible
      when needed or that we will be able to negotiate acceptable terms.  In
      addition, our failure to comply with certain provisions contained in our trust
      indentures and loan agreements relating to our outstanding indebtedness could
      lead to a default under these documents, which could result in an acceleration
      of our indebtedness.





We
      depend significantly on the services of the members of our senior management
      team, and the departure of any of those persons could cause our operating
      results to suffer.





13





Our
      success depends significantly on the continued individual and collective
      contributions of our senior management team.  If we lose the services
      of any member of our senior management or are unable to hire and retain
      experienced management personnel, it could affect our operating
      results.





We
      are subject to anti-takeover measures that may be used by existing management
      to
      discourage, delay or prevent changes of control that might benefit
      non-management shareholders.





Subsection
      10A of the New Jersey Business Corporation Act, known as the New Jersey
      Shareholders Protection Act, applies to us. The Shareholders Protection Act
      deters merger proposals, tender offers or other attempts to effect changes
      in
      control that are not approved by our Board of Directors. In addition, we have
      a
      classified Board of Directors, which means only one-third of the Directors
      are
      elected each year. A classified Board can make it harder for an acquirer to
      gain
      control by voting its candidates onto the Board of Directors and may also deter
      merger proposals and tender offers. Our Board of Directors also has the ability,
      subject to obtaining BPU approval, to issue one or more series of preferred
      stock having such number of shares, designation, preferences, voting rights,
      limitations and other rights as the Board of Directors may fix. This could
      be
      used by the Board of Directors to discourage, delay or prevent an acquisition
      that might benefit non-management shareholders.





Item
                1B.
            Unresolved
                Staff Comments.





None.




Item
                2.
            Properties.





Utility
      Plant




The
      water
      utility plant in our systems consist of source of supply, pumping, water
      treatment, transmission and distribution, general facilities and all
      appurtenances, including all connecting pipes.




Middlesex
      System




The
      Middlesex System’s principal source of surface supply is the Delaware &
Raritan Canal owned by the State of New Jersey and operated as a water resource
      by the New Jersey Water Supply Authority.




Water
      is
      withdrawn from the Delaware & Raritan Canal at New Brunswick, New Jersey
      through our intake and pumping station, located on state-owned land bordering
      the canal.  Water is transported through two raw water pipelines for
      treatment and distribution at our CJO Plant in Edison, New Jersey.





The
      CJO
      Plant includes chemical storage and chemical feed equipment, two dual rapid
      mixing basins, four upflow clarifiers which are also called superpulsators,
      four
      underground reinforced chlorine contact tanks, twelve rapid filters containing
      gravel, sand and anthracite for water treatment and a steel washwater tank.
      The
      CJO Plant also includes a computerized Supervisory Control and Data Acquisitions
      system to monitor and control the CJO Plant and the water supply and
      distribution system in the Middlesex System.  There is an on-site
      State certified laboratory capable of performing bacteriological, chemical,
      process control and advanced instrumental chemical sampling and analysis. The
      firm design capacity of the CJO Plant is 45 mgd (60 mgd maximum capacity).
      The
      main pumping station at the CJO Plant has a design capacity of 90 mgd. The
      four
      electric motor-driven, vertical turbine pumps presently installed have an
      aggregate capacity of 72 mgd.





14





In
      addition, there is a 15 mgd auxiliary pumping station located at the CJO Plant
      location. It has a dedicated substation and emergency power supply provided
      by a
      diesel-driven generator. It pumps from the 10 million gallon distribution
      storage reservoir directly into the distribution system.





The
      transmission and distribution system is comprised of 732 miles of mains and
      includes 23,200 feet of 48-inch reinforced concrete transmission main connecting
      the CJO Plant to our distribution pipe network and related storage facilities.
      Also included is a 58,600 foot transmission main and a 38,800 foot transmission
      main, augmented with a long-term, non-exclusive agreement with the East
      Brunswick system to transport water to several of our contract
      customers.





Middlesex
      System’s storage facilities consist of a 10 million gallon reservoir at the CJO
      Plant, 5 million gallon and 2 million gallon reservoirs in Edison (Grandview),
      a
      5 million gallon reservoir in Carteret (Eborn) and a 2 million gallon reservoir
      at the Park Avenue Well Field.




In
      New
      Jersey, we own the properties on which Middlesex System’s 31 wells are located,
      the properties on which our storage tanks are located as well as the property
      where the CJO Plant is located.  We also own our headquarters complex
      located at 1500 Ronson Road, Iselin, New Jersey, consisting of a 27,000 square
      foot office building and an adjacent 16,500 square foot maintenance
      facility.





Tidewater
      System




The
      Tidewater System is comprised of 91 production plants that vary in pumping
      capacity from 26,000 gallons per day to 2.0 mgd. Water is transported to our
      customers through 562 miles of transmission and distribution mains. Storage
      facilities include 49 tanks, with an aggregate capacity of 6.0 million gallons.
      Our Delaware operations are managed from Tidewater’s offices in Dover, Delaware
      and Millsboro, Delaware. Tidewater’s Dover, Delaware office property, located on
      property owned by White Marsh, consists of a 6,800 square foot office building
      situated on an eleven-acre lot.




Pinelands
      System




Pinelands
      Water owns well site and storage properties in Southampton Township, New Jersey.
      The Pinelands Water storage facility is a 1.2 million gallon standpipe. Water
      is
      transported to our customers through 18 miles of transmission and distribution
      mains.




Pinelands
      Wastewater System




Pinelands
      Wastewater owns a 12 acre site on which its 0.5 million gallons per day capacity
      tertiary treatment plant and connecting pipes are located. Its wastewater
      collection system is comprised of approximately 25 miles of main.




Bayview
      System




Bayview
      owns two well sites, which are located in Downe Township, Cumberland County,
      New
      Jersey. Water is transported to its customers through our 4.2 mile distribution
      system.





TESI
      System




The
      TESI
      System owns and operates six wastewater treatment systems in Southern Delaware.
      The treatment plants provide clarification, sedimentation, and disinfection.
      The
      combined total capacity of the plants is 0.6 mgd.





15





USA-PA,
      USA and White Marsh





Our
      non-regulated subsidiaries, namely USA-PA, USA and White Marsh, do not own
      utility plant property.





Item
                3.
            Legal
                Proceedings.





In
      July
      2005, Tidewater received a notice of violation and request for corrective action
      issued by the Delaware State Fire Marshal regarding the alleged failure of
      one
      of the community water systems operated by Tidewater to meet Delaware fire
      protection requirements.  Tidewater appealed the Fire Marshal’s
      decision with the Delaware State Fire Prevention Commission (the “SFPC”) and, in
      November 2005, the SFPC denied Tidewater’s appeal.  In October 2007,
      Tidewater agreed to dismiss its appeal of the SFPC’s decision with the Sussex
      County Superior Court in Delaware of the notice of violation and request for
      corrective action issued by the Fire Marshal.  In return for the
      dismissal both parties have agreed that 15 of the original 67 community water
      systems previously identified will require certain modifications over a ten-year
      period in order to provide full fire protection. The expected capital investment
      to comply with the settlement is $12.0 to $14.0 million and will be expended
      ratably over the ten-year period.  We will apply to the PSC to
      increase base rates to recover the costs of any such modifications. Although
      these types of modifications have routinely been included in previous rate
      matters, the PSC may not approve a portion or all of the costs associated with
      the fire protection upgrades.





The
      Company is a defendant in lawsuits in the normal course of business. We believe
      the resolution of pending claims and legal proceedings will not have a material
      adverse effect on the Company’s consolidated financial statements.





Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders.





None.


PART
      II





Item
                5.
            Market
                for the Registrant's Common Equity and Related Stockholder
                Matters.





The
      Company’s common stock is traded on the NASDAQ Stock Market, under the symbol
      MSEX. The following table shows the range of high and low share prices per
      share
      for the common stock and the dividend paid to shareholders in such
      quarter.  As of December 31, 2007, there were 1,975 holders of
      record.





2007
            
            High
            
            
            Low
            
            
            DividendFourth
                Quarter
            
            $
            19.25
            
            
            $
            18.10
            
            
            $
            0.1750Third
                Quarter
            
            
            20.24
            
            
            
            18.05
            
            
            
            0.1725Second
                Quarter
            
            
            19.48
            
            
            
            18.12
            
            
            
            0.1725First
                Quarter
            
            
            19.07
            
            
            
            17.75
            
            
            
            0.1725





2006
            
            High
            
            
            Low
            
            
            DividendFourth
                Quarter
            
            $
            19.50
            
            
            $
            17.96
            
            
            $
            0.1725Third
                Quarter
            
            
            20.50
            
            
            
            17.58
            
            
            
            0.1700Second
                Quarter
            
            
            19.34
            
            
            
            16.50
            
            
            
            0.1700First
                Quarter
            
            
            19.72
            
            
            
            17.03
            
            
            
            0.1700




16




The
      Company has paid dividends on its common stock each year since 1912. Although
      it
      is the present intention of the Board of Directors of the Company to continue
      to
      pay regular quarterly cash dividends on its common stock, the payment of future
      dividends is contingent upon the future earnings of the Company, its financial
      condition and other factors deemed relevant by the Board of Directors at its
      discretion.





If
      four
      or more quarterly dividends are in arrears, the preferred shareholders, as
      a
      class, are entitled to elect two members to the Board of Directors in addition
      to Directors elected by holders of the common stock. In the event dividends
      on
      the preferred stock are in arrears, no dividends may be declared or paid on
      the
      common stock of the Company. Substantially all of the Utility Plant of the
      Company is subject to the lien of its mortgage, which also includes certain
      restrictions as to cash dividend payments and other distributions on common
      stock.





The
      Company maintains an escrow account for 71,253 shares of the Company's common
      stock which were awarded under the 1997 Restricted Stock Plan, which has
      expired. Such stock is subject to an agreement requiring forfeiture by the
      employee in the event of termination of employment within five years of the
      award other than as a result of retirement, death, disability or change in
      control. The Company filed a petition with the BPU requesting approval of
      stock-based compensation plan called the 2008 Restricted Stock
      Plan.  The Company intends to seek shareholder approval for the new
      plan at its May 21, 2008 annual meeting of shareholders.  The maximum
      number of shares authorized for grant under the proposed plan is 300,000
      shares.





Set
      forth
      below is a line graph comparing the yearly change in the cumulative total return
      (which includes reinvestment of dividends) of a $100 investment for the
      Company’s common stock, a peer group of investor-owned water utilities, and the
      Dow Jones Wilshire 5000 Stock Index for the period of five years commencing
      December 31, 2002.  The current peer group includes American States
      Water Company, Aqua America Inc., Artesian Resources Corp., California Water
      Service Company, Connecticut Water Service, Inc., Pennichuck Corp., SJW Corp.,
      Southwest Water Company, York Water Company and the Company.  The Dow
      Jones Wilshire 5000 Stock Index measures the performance of all U.S.
      headquartered equity securities with readily available price
      data.


Graph


2002
            
            
            2003
            
            
            2004
            
            
            2005
            
            
            2006
            
            
            2007Middlesex
                Water Company
            
            
            100.00
            
            
            
            133.47
            
            
            
            128.85
            
            
            
            122.12
            
            
            
            136.78
            
            
            
            143.58Dow
                Jones Wilshire 5000
            
            
            100.00
            
            
            
            131.64
            
            
            
            148.26
            
            
            
            157.64
            
            
            
            182.66
            
            
            
            193.13Peer
                Group
            
            
            100.00
            
            
            
            127.98
            
            
            
            147.66
            
            
            
            193.41
            
            
            
            193.90
            
            
            
            186.27




17


Item
                6.
            Selected
                Financial Data.


CONSOLIDATED
                  SELECTED FINANCIAL
                  DATA(In
                  Thousands except per Share
                  Amounts)2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Operating
                  Revenues
              
              $
              86,114
              
              
              $
              81,061
              
              
              $
              74,613
              
              
              $
              70,991
              
              
              $
              64,111Operating
                  Expenses:Operations
                  and
                  Maintenance
              
              
              46,240
              
              
              
              43,345
              
              
              
              42,156
              
              
              
              39,984
              
              
              
              36,195Depreciation
              
              
              7,539
              
              
              
              7,060
              
              
              
              6,460
              
              
              
              5,846
              
              
              
              5,363Other
                  Taxes
              
              
              9,664
              
              
              
              9,338
              
              
              
              8,779
              
              
              
              8,228
              
              
              
              7,816Total
                  Operating Expenses
              
              
              63,443
              
              
              
              59,743
              
              
              
              57,395
              
              
              
              54,058
              
              
              
              49,374Operating
                  Income
              
              
              22,671
              
              
              
              21,318
              
              
              
              17,218
              
              
              
              16,933
              
              
              
              14,737Other
                  Income,
                  Net
              
              
              1,527
              
              
              
              774
              
              
              
              740
              
              
              
              795
              
              
              
              358Interest
                  Charges
              
              
              6,619
              
              
              
              7,012
              
              
              
              6,245
              
              
              
              5,468
              
              
              
              5,227Income
                  Taxes
              
              
              5,736
              
              
              
              5,041
              
              
              
              3,237
              
              
              
              3,814
              
              
              
              3,237Net
                Income
              
              
              11,843
              
              
              
              10,039
              
              
              
              8,476
              
              
              
              8,446
              
              
              
              6,631Preferred
                  Stock
                  Dividend
              
              
              248
              
              
              
              248
              
              
              
              251
              
              
              
              255
              
              
              
              255Earnings
                  Applicable to Common
                  Stock
              
              $
              11,595
              
              
              $
              9,791
              
              
              $
              8,225
              
              
              $
              8,191
              
              
              $
              6,376Earnings
                  per
                  Share:Basic
              
              $
              0.88
              
              
              $
              0.83
              
              
              $
              0.72
              
              
              $
              0.74
              
              
              $
              0.61Diluted
              
              $
              0.87
              
              
              $
              0.82
              
              
              $
              0.71
              
              
              $
              0.73
              
              
              $
              0.61Average
                  Shares
                  Outstanding:Basic
              
              
              13,203
              
              
              
              11,844
              
              
              
              11,445
              
              
              
              11,080
              
              
              
              10,475Diluted
              
              
              13,534
              
              
              
              12,175
              
              
              
              11,784
              
              
              
              11,423
              
              
              
              10,818Dividends
                  Declared and
                  Paid
              
              $
              0.693
              
              
              $
              0.683
              
              
              $
              0.673
              
              
              $
              0.663
              
              
              $
              0.649Total
                  Assets
              
              $
              392,675
              
              
              $
              370,267
              
              
              $
              324,383
              
              
              $
              305,634
              
              
              $
              267,956Convertible
                  Preferred
                  Stock
              
              $
              2,856
              
              
              $
              2,856
              
              
              $
              2,856
              
              
              $
              2,961
              
              
              $
              2,961Long-term
                  Debt
              
              $
              131,615
              
              
              $
              130,706
              
              
              $
              128,175
              
              
              $
              115,281
              
              
              $
              97,377




Item
                7.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operation.





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





Overview





Middlesex
      Water Company has operated as a water utility in New Jersey since 1897, and
      in
      Delaware, through our wholly-owned subsidiary, Tidewater, since
      1992.  We are in the business of collecting, treating, distributing
      and selling water for domestic, commercial, municipal, industrial and fire
      protection purposes. We also operate a New Jersey municipal water and wastewater
      system under contract and provide wastewater services in New Jersey and Delaware
      through our subsidiaries.  We are regulated as to rates charged to
      customers for water and wastewater services, as to the quality of water service
      we provide and as to certain other matters in New Jersey and in Delaware. Only
      our USA, USA-PA and White Marsh subsidiaries are not regulated
      utilities.




Our
      New
      Jersey water utility system (the Middlesex System) provides water services
      to
      approximately 59,400 retail customers, primarily in central New Jersey. The
      Middlesex System also provides water service under contract to municipalities
      in
      central New Jersey with a total population of approximately 303,000. In
      partnership with our subsidiary, USA-PA, we operate the water supply system
      and
      wastewater system for the City of Perth Amboy, New Jersey. Our other New Jersey
      subsidiaries, Pinelands Water and Pinelands Wastewater, provide water and
      wastewater services to residents in Southampton Township, New
      Jersey.




Our
      Delaware subsidiaries, Tidewater and Southern Shores, provide water services
      to
      approximately 31,600 retail customers in New Castle, Kent and Sussex Counties,
      Delaware. Our TESI subsidiary provides wastewater services to approximately
      1,400 residential retail customers. Our other Delaware subsidiary, White Marsh,
      services an additional 5,100 customers in Kent and Sussex Counties through
      62
      operations and maintenance contracts.


18




The
      majority of our revenue is generated from retail and contract water services
      to
      customers in our service areas.  We record water service revenue as
      such service is rendered and include estimates for amounts unbilled at the
      end
      of the period for services provided after the last billing cycle. Fixed service
      charges are billed in advance by our subsidiary, Tidewater, and are recognized
      in revenue as the service is provided.




We
      expect
      the growth of our regulated wastewater business in Delaware will eventually
      become a more significant component of our operations.





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. These factors are evident in the discussions
      below which compare our results of operations from prior years.





Operating
      Results by Segment





The
      Company has two operating segments, Regulated and Non-Regulated. Our Regulated
      segment contributed 90%, 89% and 89% of total revenues, and 94%, 94% and 95%
      of
      net income for the years ended December 31, 2007, 2006 and 2005, 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, Southern Shores, and TESI; Non-Regulated-
      USA,
      USA-PA, and White Marsh.




Results
      of Operations in 2007 Compared to 2006








(Millions
                of Dollars)Years
                ended December 31,2007
            
            
            2006Regulated
            
            
            Non-Regulated
            
            
            Total
            
            
            Regulated
            
            
            Non-Regulated
            
            
            TotalRevenues
            
            $
            77.1
            
            
            $
            9.0
            
            
            $
            86.1
            
            
            $
            71.9
            
            
            $
            9.2
            
            
            $
            81.1Operations
                and maintenance
            
            
            38.8
            
            
            
            7.4
            
            
            
            46.2
            
            
            
            35.7
            
            
            
            7.7
            
            
            
            43.4Depreciation
            
            
            7.4
            
            
            
            0.1
            
            
            
            7.5
            
            
            
            7.0
            
            
            
            0.1
            
            
            
            7.1Other
                taxes
            
            
            9.5
            
            
            
            0.2
            
            
            
            9.7
            
            
            
            9.1
            
            
            
            0.2
            
            
            
            9.3Operating
                income
            
            
            21.4
            
            
            
            1.3
            
            
            
            22.7
            
            
            
            20.1
            
            
            
            1.2
            
            
            
            21.3Other
                income (expense)
            
            
            1.5
            
            
            
            -
            
            
            
            1.5
            
            
            
            0.9
            
            
            
            (0.1
            )
            
            
            0.8Interest
                expense
            
            
            6.6
            
            
            
            -
            
            
            
            6.6
            
            
            
            7.0
            
            
            
            -
            
            
            
            7.0Income
                taxes
            
            
            5.2
            
            
            
            0.6
            
            
            
            5.8
            
            
            
            4.6
            
            
            
            0.5
            
            
            
            5.1Net
                income
            
            $
            11.1
            
            
            $
            0.7
            
            
            $
            11.8
            
            
            $
            9.4
            
            
            $
            0.6
            
            
            $
            10.0




19




Operating
      revenues for the year rose $5.0 million, or 6.2% over the same period in 2006.
      Revenues improved by $3.7 million in our Tidewater System, of which $2.4 million
      was a result of a base rate increase that was granted to
      Tidewater.  The rate increase was implemented in two parts; a 15%
      interim rate increase in June 2006 and an additional 12% final increase on
      February 28, 2007.  Customer growth and higher consumption contributed
      $1.9 million of increased revenues. Our Tidewater System experienced record
      water production and consumption billed due to extended favorable weather during
      the spring and summer.  Fees charged to new customers for initial
      connection to our Delaware water systems were lower by $0.6 million as new
      residential and commercial development has slowed in our Delaware service
      territories.   Revenues in our Middlesex system increased by $0.7
      million as a result of a 9.1% base rate increase implemented on October 26,
      2007.  Middlesex revenues also increased by $0.3 million due to
      increased sales to our contract customers.  TESI revenues increased by
      $0.3 million, as we connected new customers to our existing and new wastewater
      systems in Delaware.





While
      we
      anticipate continued organic customer and consumption growth among our Delaware
      systems, such growth and increased consumption cannot be guaranteed. Our water
      systems are highly dependent on the effects of weather, which may adversely
      impact future consumption despite customer growth. Appreciable organic customer
      and consumption growth is less likely in our New Jersey systems due to the
      extent to which our service territory is developed.  The Company
      expects its 2008 operating revenues to reflect the full effect of the October
      2007 Middlesex $5.0 million rate increase.





Operation
      and maintenance expenses increased $2.8 million, or 6.5%. Labor costs were
      $1.3
      million higher due to wage increases and increased headcount to meet the needs
      of the growing Delaware customer base, risk management, training and
      safety.  As expected, electric generation costs for our Middlesex
      system increased due to the renewal in late 2006 of our contract with the power
      purveyor.  That factor accounted for most of the $0.6 million in
      additional power costs.  Pumping and water treatment costs increased a
      combined $0.2 million due to higher costs for chemicals and disposal of
      residuals. Costs for water main breaks in our New Jersey system and
      transportation fuel were $0.2 million higher than the same period in 2006 due
      to
      the number and size of the breaks and higher gasoline prices. The cost to
      operate our TESI regulated wastewater facilities in Delaware increased by $0.2
      million as we acquired the Milton, Delaware wastewater system during the
      year.  All other operating costs increased by $0.3
      million.





Electric
      generation costs for our Middlesex system are expected to increase in 2008
      due
      to the renewal in late 2007 of our power contract that reflects an 18%
      increase.  Payroll and related employee benefit costs are expected to
      be higher in 2007 due to headcount increase. However, the unit cost for our
      employee’s health benefits will not increase until December 2008.





Depreciation
      expense for 2007 increased by $0.4 million, or 5.6%, due to a higher level
      of
      utility plant in service. As our investments in utility plant and operating
      expenses increase, we continue to seek timely rate relief through base rate
      filings as discussed above.





Other
      taxes increased by $0.4 million generally reflecting additional taxes on higher
      taxable gross revenues, payroll and real estate.





20





Other
      income increased $0.7 million, primarily due to a gain of $0.2 million on the
      sale of non-utility real property in New Jersey and a gain of $0.4 million
      on
      the sale of certain water service rights in Delaware.





Interest
      expense decreased by $0.4 million, or 5.7%, as a result of a lower level of
      average short-term debt outstanding when compared to 2006.





Income
      tax expense based on our current year operating results was $0.9 million higher
      than 2006 and reflects the increased revenues due to higher water rates in
      New
      Jersey and Delaware, the record customer usage in Delaware and the sale of
      non-essential assets.  This was partially offset by $0.2 million of
      solar tax credits recorded during 2007.





Net
      income increased to $11.8 million from $10.0 million in the prior year, and
      basic earnings per share increased from $0.83 to $0.88. Diluted earnings per
      share increased from $0.82 to $0.87.





Results
      of Operations in 2006 Compared to 2005





(Millions
                of Dollars)Years
                ended December 31,2006
            
            
            2005Regulated
            
            
            Non-Regulated
            
            
            Total
            
            
            Regulated
            
            
            Non-Regulated
            
            
            TotalRevenues
            
            $
            71.9
            
            
            $
            9.2
            
            
            $
            81.1
            
            
            $
            66.3
            
            
            $
            8.3
            
            
            $
            74.6Operations
                and maintenance
            
            
            35.7
            
            
            
            7.7
            
            
            
            43.4
            
            
            
            35.0
            
            
            
            7.2
            
            
            
            42.2Depreciation
            
            
            7.0
            
            
            
            0.1
            
            
            
            7.1
            
            
            
            6.3
            
            
            
            0.1
            
            
            
            6.4Other
                taxes
            
            
            9.1
            
            
            
            0.2
            
            
            
            9.3
            
            
            
            8.6
            
            
            
            0.2
            
            
            
            8.8Operating
                income
            
            
            20.1
            
            
            
            1.2
            
            
            
            21.3
            
            
            
            16.4
            
            
            
            0.8
            
            
            
            17.2Other
                income (expense)
            
            
            0.9
            
            
            
            (0.1
            )
            
            
            0.8
            
            
            
            0.7
            
            
            
            --
            
            
            
            0.7Interest
                expense
            
            
            7.0
            
            
            
            --
            
            
            
            7.0
            
            
            
            6.2
            
            
            
            --
            
            
            
            6.2Income
                taxes
            
            
            4.6
            
            
            
            0.5
            
            
            
            5.1
            
            
            
            2.9
            
            
            
            0.3
            
            
            
            3.2Net
                income
            
            $
            9.4
            
            
            $
            0.6
            
            
            $
            10.0
            
            
            $
            8.0
            
            
            $
            0.5
            
            
            $
            8.5





Operating
      revenues for the year rose $6.5 million, or 8.7% over the same period in 2005.
      Water sales improved by $2.8 million in our Middlesex System, of which $4.1
      million was a result of base rate increase that was granted to Middlesex on
      December 8, 2005.  This increase was somewhat offset by lower
      consumption revenues of $1.3 million due to unfavorable weather from mid-July
      through the late fall of 2006 as compared to the prior year. Customer growth
      of
      7.07% in Delaware provided additional water consumption sales, facility charges
      and connection fees of $0.9 million, higher base rates provided $1.0 million
      and
      increased consumption for existing customers provided an additional $0.6
      million. New unregulated wastewater contracts in Delaware provided $0.4 million
      in additional revenues. Revenues from our operations and maintenance contract
      with the City of Perth Amboy increased by $0.4 million due to scheduled fixed
      fee adjustments under the agreement. USA had increased revenues for its
      LineCareSMmaintenance
      program of $0.1 million. TESI revenues increased by $0.1
      million, as we connected new customers to our wastewater systems in
      Delaware.  All other operations contributed $0.2 million of additional
      revenues.





Operation
      and maintenance expenses increased $1.2 million or 2.8% as compared to the
      same
      period in 2005. Continued growth of our Delaware water and wastewater operations
      led to higher costs of $1.1 million. Despite lower water production volume
      of
      3.2% for our Middlesex System, costs increased by $0.3 million due to increased
      unit costs for electricity, chemicals and residuals removal. Costs for providing
      services under our contract with the City of Perth Amboy increased by $0.1
      million and costs for providing services under our




21




contracts
      in Delaware increased by $0.2 million. Audit fees declined by $0.3 million
      as
      the Company changed independent accounting firms beginning with the 2006 audit
      period.  Labor and benefits expenses fell by $0.3 million due to
      vacant positions and improved performance on investments. All other operating
      costs increased by $0.1 million.




Depreciation
      expense for 2006 increased by $0.7 million, or 10.9%, due to a higher level
      of
      utility plant in service. As our investments in utility plant and operating
      expenses increase, we continue to seek timely rate relief through base rate
      filings as discussed above.





Other
      taxes increased by $0.5 million generally reflecting additional taxes on higher
      taxable gross revenues, payroll and real estate.





Other
      income decreased $0.1 million, primarily due to higher Allowance for Funds
      Used
      During Construction (AFUDC) as capital spending increased compared to the prior
      year.





Interest
      expense increased by $0.8 million, or 12.9%, as a result of a higher level
      of
      long-term debt, and higher average interest rates and increased weighted average
      short-term borrowings as compared to the prior year period.





Income
      tax expense based on the 2006 operating results was $1.9 million higher than
      2005 and reflects the increased revenues due to higher water rates in New Jersey
      and Delaware and increased water consumption in Delaware.





Net
      income increased to $10.0 million from $8.5 million in the prior year, and
      basic
      earnings per share increased from $0.72 to $0.83. Diluted earnings per share
      increased from $0.71 to $0.82.





Outlook





In
      addition to factors previously discussed under “Results of Operations in 2007
      Compared to 2006,” our revenues are expected to increase in 2008 from
      anticipated customer growth in Delaware for our regulated water operations
      and,
      to a lesser degree, from growth in our regulated wastewater operations in
      Delaware.   We also expect revenues to increase as a result of
      the settlement of our 2007 Middlesex rate case effective October 26,
      2007.  The approved increase of 9.1% is expected to generate $5.0
      million of revenues on an annual basis assuming actual market conditions are
      consistent with our projections.





Revenues
      and earnings will also be influenced by weather. Changes in these factors,
      as
      well as increases in capital expenditures and operating costs are the primary
      factors that determine the need for rate increase filings.





We
      continue to explore viable plans to streamline operations and reduce costs
      in
      all aspects of our business.





We
      expect
      our interest expense to increase during 2008 as a result of higher expected
      average borrowings against the short-term credit facilities in order to finance
      a portion of our capital expenditures during the coming year (see Liquidity
      and
      Capital Resources).





Our
      strategy includes continued revenue growth through acquisitions, internal
      expansion, contract operations and when necessary, rate relief. We will continue
      to pursue opportunities in both the regulated and non-regulated sectors that
      are
      financially sound, complement existing operations and increase shareholder
      value.





Liquidity
      and Capital Resources





22





Cash
      flows from operations are largely based on three factors: weather, adequate
      and
      timely rate increases, and customer growth. The effect of those factors on
      net
      income is discussed in results of operations. For 2007, cash flows from
      operating activities increased $2.7 million to $18.8 million, as compared to
      the
      prior year. This increase was primarily attributable to higher net income and
      depreciation. The $18.8 million of net cash flow from operations enabled us
      to
      fund approximately 86% of our utility plant expenditures for the period
      internally, with the remainder funded with proceeds from equity issued under
      our
      Dividend Reinvestment Plan, long-term borrowings and short-term
      borrowings.





For
      2006,
      cash flows from operating activities increased $2.6 million to $16.1 million,
      as
      compared to the prior year. This increase was primarily attributable to higher
      net income, depreciation and the timing of collection of customer billings.
      These decreases in cash flows were partially offset by receipts of advance
      service fees and the timing of payments for interest and employee benefit plans.
      The $16.1 million of net cash flow from operations allowed us to fund
      approximately 52% of our utility plant expenditures for the period internally,
      with the remainder funded with proceeds from equity issued under a formal
      offering in November 2006 and our Dividend Reinvestment Plan and both short-term
      and long-term borrowings.





Increases
      in certain operating costs will impact our liquidity and capital resources.
      As
      described in our results of operations discussion, during 2007 we received
      rate
      relief for Tidewater and Middlesex. We continually monitor the need for timely
      rate filing to minimize any regulatory lag between increasing operating and
      capital costs and appropriate rate relief.  There is no certainty,
      however, that the BPU or PSC will approve any or all future requested
      increases.





Sources
      of Liquidity





Short-term
      Debt. The Company has established lines of credit aggregating $40.0
      million. At December 31, 2007, the outstanding borrowings under these credit
      lines was $6.3 million at a weighted average interest rate of
      5.79%.





The
      weighted average daily amounts of borrowings outstanding under the Company’s
      credit lines and the weighted average interest rates on those amounts were
      $2.6
      million and $9.5 million at 6.36% and 6.13% for the years ended December 31,
      2007 and 2006, respectively.





Long-term
      Debt.Subject to regulatory approval, the Company periodically finances capital
      projects under State Revolving Fund (SRF) loan programs in New Jersey and
      Delaware. These government programs provide financing at interest rates that
      are
      typically below rates available in the financial markets. A portion of the
      borrowings under the New Jersey SRF is interest free. We participated in the
      Delaware and New Jersey SRF loan programs during 2007 and expect to participate
      in the 2008 New Jersey SRF program for up to $3.5 million.





During
      2007, Middlesex closed on $3.5 million of first mortgage bonds through the
      New
      Jersey Environmental Infrastructure Trust (NJEIT) under the New Jersey SRF
      loan
      program in order to finance our 2008 RENEW program. The proceeds of these bonds
      and any interest earned are held by a trustee, and are classified as Restricted
      Cash on the Consolidated Balance Sheet.





During
      2007, Tidewater closed on a $1.1 million loan with the Delaware
      SRF.  The proceeds will be used to fund two specific projects of the
      2007 capital program in Delaware.





Substantially
      all of the Utility Plant of the Company is subject to the lien of its mortgage,
      which also includes debt service and capital ratio covenants, certain
      restrictions as to cash dividend payments and other distributions on common
      stock. The Company is in compliance with all of its mortgage covenants and
      restrictions.





23





Common
      Stock. The Company periodically issues shares of common stock in
      connection with its Dividend Reinvestment and Common Stock Purchase Plan (the
      Plan). The Company raised $1.1 million through the issuance of shares under
      the
      Plan during 2007. Periodically, the Company may issue additional equity to
      reduce short-term indebtedness and for other general corporate purposes. 
The last public offering of its common stock closed in November
      2006.  The majority of the net proceeds of approximately $26.2 million
      from that common stock offering of 1,495,000 shares were used to repay all
      of
      the Company’s short-term borrowings outstanding at that time.





Capital
      Expenditures and Commitments





Under
      our
      capital program for 2008, we plan to expend $14.3 million for additions and
      improvements for our Delaware water systems, which include the construction
      of
      several storage tanks and the creation of new wells and interconnections. We
      expect to spend approximately $3.8 million for construction of wastewater
      systems in Delaware. We expect to spend $2.9 million as we begin to implement
      a
      Company-wide information system upgrade. We expect to spend $3.5 million for
      our
      RENEW program, which is our program to clean and cement line unlined mains
      in
      the Middlesex System. There remains a total of approximately 112 miles of
      unlined mains in the 730-mile Middlesex System.  In 2007, eight miles
      of unlined mains were cleaned and cement lined. The capital program also
      includes $12.4 million for scheduled upgrades to our existing systems in New
      Jersey. The scheduled upgrades consist of $4.3 million for improvements to
      existing plant, $5.2 million for mains, $0.6 million for service lines, $0.4
      million for meters, $0.3 million for hydrants, and $1.6 million for other
      infrastructure needs.




To
      pay
      for our capital program in 2008, we will utilize internally generated funds
      and
      funds available and held in trust under existing NJEIT loans (currently, $3.7
      million) and Delaware SRF loans (currently, $3.1 million). The SRF programs
      provide low cost financing for projects that meet certain water quality and
      system improvement benchmarks. If necessary, we will also utilize short-term
      borrowings through $40.0 million of available lines of credit with several
      financial institutions.  As of December 31, 2007, we had $6.3 million
      outstanding against the lines of credit.




Going
      forward into 2009 through 2010, we currently project that we may be required
      to
      expend between $88.4 million and $121.8 million for capital projects. The exact
      amount is dependent on customer growth, residential housing sales and project
      scheduling. In particular, Middlesex has filed a prudency review application
      with the BPU for a proposed major transmission pipeline designed to strengthen
      its existing transmission network and provide system
      redundancy.  Initial estimates to construct the pipeline are $26.2
      million.  The duration and outcome of the BPU review process may
      affect the construction schedule as well as the project viability.





To
      the
      extent possible and because of favorable interest rates available to regulated
      water utilities, we expect to finance our capital expenditures under the SRF
      loan programs. We also expect to use internally generated funds and proceeds
      from the sale of common stock through the Dividend Reinvestment and Common
      Stock
      Purchase Plan.  It may also be necessary to sell shares of our Common
      Stock through a public offering.





Contractual
      Obligations





In
      the
      course of normal business activities, the Company enters into a variety of
      contractual obligations and commercial commitments. Some of these items 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 other underlying consolidated financial statements.





The
      table
      below presents our known contractual obligations for the periods specified
      as of
      December 31, 2007.




24





(Millions
                of Dollars)
              Payment
                Due by PeriodTotal
            
            
            Less
                than
              1
                Year
            
            
            1-3
                Years
            
            
            4-5
              Years
            
            
            More
                than
              5
                YearsLong-term
                Debt
            
            $
            134.3
            
            
            $
            2.7
            
            
            $
            21.3
            
            
            $
            6.5
            
            
            $
            103.8Notes
                Payable
            
            
            6.3
            
            
            
            6.3
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---Interest
                on Long-term Debt
            
            
            98.1
            
            
            
            6.5
            
            
            
            11.0
            
            
            
            10.3
            
            
            
            70.3Purchased
                Water Contracts
            
            
            44.2
            
            
            
            4.2
            
            
            
            8.4
            
            
            
            5.1
            
            
            
            26.5Wastewater
                Operations
            
            
            51.7
            
            
            
            4.1
            
            
            
            8.5
            
            
            
            9.0
            
            
            
            30.1Employee
                Retirement Plans (1)
            
            
            3.6
            
            
            
            3.6
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---Total
            
            $
            338.2
            
            
            $
            27.4
            
            
            $
            49.2
            
            
            $
            30.9
            
            
            $
            230.7(1) Amount
                not determinable after one year.




Guarantees





USA-PA
      operates the City of Perth Amboy’s (Perth Amboy) water and wastewater systems
      under a service contract agreement through June 30, 2018. The agreement was
      effected under New Jersey’s Water Supply Public/Private Contracting Act and the
      New Jersey Wastewater Public/Private Contracting Act. Under the agreement,
      USA-PA receives a fixed fee and a variable fee based on increased system
      billing. Scheduled fixed fee payments were $7.8 million in 2007 and will
      increase over the term of the contract to $10.2 million by the end of the
      contract.




In
      connection with the agreement, Perth Amboy, through the Middlesex County
      Improvement Authority, issued approximately $68.0 million in three series of
      bonds. Middlesex guaranteed one of those series of bonds, designated the Series
      C Serial Bonds, in the principal amount of approximately $26.3 million. Perth
      Amboy guaranteed the two other series of bonds. The Series C Serial Bonds have
      various maturity dates with the final maturity date on September 1, 2015. As
      of
      December 31, 2007, approximately $22.6 million of the Series C Serial Bonds
      remained outstanding.




We
      are
      obligated to perform under the guarantee in the event notice is received from
      the Series C Serial Bonds trustee of an impending debt service deficiency.
      If
      Middlesex funds any debt service obligations as guarantor, there is a provision
      in the agreement that requires Perth Amboy to reimburse us. There are other
      provisions in the agreement that we believe make it unlikely that we will be
      required to perform under the guarantee, such as scheduled annual rate increases
      for the water and wastewater services as well as rate increases due to
      unforeseen circumstances. In the event revenues from customers could not satisfy
      the reimbursement requirements, Perth Amboy has Ad Valorem taxing powers, which
      could be used to raise the needed amount.




Critical
      Accounting Policies and Estimates




The
      application of accounting policies and standards often requires the use of
      estimates, assumptions and judgments. Changes in these variables may lead to
      significantly different financial statement results. Our critical accounting
      policies 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, which account for 90% of Operating Revenues and
      98%
      of Total Assets, 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


25




guidance
      provided in the Financial Accounting Standards Board (FASB), Statement of
      Financial Accounting Standards (SFAS) No. 71, “Accounting For the Effects of
      Certain Types of Regulation” (SFAS 71).




In
      accordance with SFAS No. 71, 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 will 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 would be treated differently by the regulators in the
      future.





Revenues





Revenues
      from metered customers include amounts billed on a cycle basis and unbilled
      amounts estimated from the last meter reading date to the end of the accounting
      period. The estimated unbilled amounts are determined by utilizing factors
      which
      include historical consumption usage and current climate conditions. Differences
      between estimated revenues and actual billings are recorded in a subsequent
      period.




Revenues
      from unmetered customers are billed at a fixed tariff rate in advance at the
      beginning of each service period and are recognized in revenue ratably over
      the
      service period.




Revenues
      from the Perth Amboy management contract are comprised of fixed and variable
      fees. Fixed fees, which have been set for the life of the contract, are billed
      monthly and recorded as earned. Variable fees, which are based on billings
      and
      other factors and are not significant, are recorded upon approval of the amount
      by Perth Amboy.




Pension
      Plan




We
      maintain a noncontributory defined benefit pension plan which covers
      substantially all employees with more than 1,000 hours of service and who were
      hired prior to March 31, 2007.





The
      discount rate utilized for determining future pension obligations has increased
      from 5.52% at December 31, 2005 to 5.89% at December 31, 2006 and increased
      to
      6.59% at December 31, 2007. Lowering the discount rate by 0.5% would have
      increased the net periodic pension cost by $1.3 million in 2007. Lowering the
      expected long-term rate of return on the pension plans by 0.5% (from 8.0% to
      7.5%) would have increased the net periodic pension cost in 2007 by
      approximately $1.1 million.




The
      discount rate for determining future pension obligations is determined based
      on
      market rates for long-term, high-quality corporate bonds at our December 31
      measurement date. The expected long-term rate of return for pension assets
      is
      determined based on historical returns and our asset allocation.





Future
      pension expense will depend on future investment performance, changes in future
      discount rates and various other demographic factors related to the population
      participating in the pension plan.




Recent
      Accounting Standards




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





Item
                7A.
            Qualitative
                and Quantitative Disclosures About Market
                Risk.





26





The
      Company is subject to the risk of fluctuating interest rates in the normal
      course of business.  Our policy is to manage interest rates through
      the use of fixed rate long-term debt and, to a lesser extent, short-term
      debt.  The Company’s interest rate risk related to existing fixed
      rate, long-term debt is not material due to the term of the majority of our
      First Mortgage Bonds, which have final maturity dates ranging from 2009 to
      2038.  Over the next twelve months, approximately $2.7 million of the
      current portion of 18 existing long-term debt instruments will mature. Applying
      a hypothetical change in the rate of interest charged by 10% on those
      borrowings, would not have a material effect on our earnings.





Item
                8.
            Financial
                Statements and Supplementary Data.


REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To
        the
        Board of Directors and Stockholders of Middlesex Water Company
 
 We
        have
        audited the accompanying consolidated balance sheets and consolidated statements
        of capital stock and long-term debt of Middlesex Water Company and subsidiaries
        (the Company) as of December 31, 2007 and 2006, and the related consolidated
        statements of income, stockholders' equity and comprehensive income, and
        cash
        flows for the years then ended.  The Company's management is
        responsible for these consolidated financial statements.  Our
        responsibility is to express an opinion on these financial statements based
        on
        our audits.
  We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States).  Those standards require
        that we plan and perform the audit to obtain reasonable assurance about whether
        the consolidated financial statements are free of material misstatement.
        An
        audit includes examining, on a test basis, evidence supporting the amounts
        and
        disclosures in the financial statements.  An audit also includes
        assessing the accounting principles used and significant estimates made by
        management, as well as evaluating the overall financial statement
        presentation.  We believe that our audits provide a reasonable basis
        for our opinion.
  In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of the Company as of December
        31, 2007 and 2006, and the results of its operations and its cash flows for
        the
        years then ended in conformity with accounting principles generally accepted
        in
        the United States of America.
  As
        discussed in Note 7 to the consolidated financial statements, the Company
        changed its method of accounting for defined benefit pension and other
        postretirement plans in 2006.
  We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), Middlesex Water Company’s  internal
        control over financial reporting as of December  31, 2007, based on
        criteria established in Internal Control – Integral
        Frameworkissued by the Committee of Sponsoring Organizations of the
        Treadway Commission (COSO), and our report dated March 10, 2008 expressed
        an
        unqualified opinion.
 
  /s/
        Beard
        Miller Company LLP
  Beard
          Miller Company LLP
 Reading
          Pennsylvania
 March
          10,
          2008


27




REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To
        the
        Board of Directors and Stockholders of Middlesex Water Company:
  We
        have
        audited the consolidated statements of income, common stockholders' equity
        and
        comprehensive income, and cash flows of Middlesex Water Company and subsidiaries
        (the “Company”) for the year ended December 31, 2005.  These financial
        statements are the responsibility of the Company's management.  Our
        responsibility is to express an opinion on the financial statements and
        financial statement schedules based on our audit.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States).  Those standards require that
        we plan and perform the audit to obtain reasonable assurance about whether
        the
        financial statements are free of material misstatement.  An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements, assessing the accounting principles used and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation.  We believe that our audit provides a
        reasonable basis for our opinion.
  In
        our
        opinion, such consolidated financial statements present fairly, in all material
        respects, the results of their operations and their cash flows for the year
        ended December 31, 2005 of the Company, in conformity with accounting principles
        generally accepted in the United States of America.
  /s/
        DELOITTE & TOUCHE LLP
 Parsippany,
        New Jersey
 March
        16,
        2006





28





MIDDLESEX
      WATER COMPANY


CONSOLIDATED  BALANCE
      SHEETS


(In
      thousands)




December
                31,
            
            
            December 31,ASSETS
            
            
            2007
            
            
            2006UTILITY
                PLANT:
            Water
                Production
            
            $
            98,942
            
            
            $
            95,324Transmission
                and Distribution
            
            
            264,939
            
            
            
            243,959General
            
            
            24,874
            
            
            
            25,153Construction
                Work in Progress
            
            
            9,833
            
            
            
            6,131TOTAL
            
            
            398,588
            
            
            
            370,567Less
                Accumulated Depreciation
            
            
            64,736
            
            
            
            59,694UTILITY
                PLANT - NET
            
            
            333,852
            
            
            
            310,873CURRENT
                ASSETS:
            Cash
                and Cash Equivalents
            
            
            2,029
            
            
            
            5,826Accounts
                Receivable, net
            
            
            8,227
            
            
            
            8,538Unbilled
                Revenues
            
            
            4,609
            
            
            
            4,013Materials
                and Supplies (at average cost)
            
            
            1,205
            
            
            
            1,306Prepayments
            
            
            1,363
            
            
            
            1,229TOTAL
                CURRENT ASSETS
            
            
            17,433
            
            
            
            20,912DEFERRED
                CHARGES
            Unamortized
                Debt Expense
            
            
            2,884
            
            
            
            3,014AND
                OTHER ASSETS:
            Preliminary
                Survey and Investigation Charges
            
            
            5,283
            
            
            
            3,436Regulatory
                Assets
            
            
            16,090
            
            
            
            18,342Operations
                Contracts Fees Receivable
            
            
            4,184
            
            
            
            607Restricted
                Cash
            
            
            6,418
            
            
            
            6,850Non-utility
                Assets - Net
            
            
            6,183
            
            
            
            5,648Other
            
            
            348
            
            
            
            585TOTAL
                DEFERRED CHARGES AND OTHER ASSETS
            
            
            41,390
            
            
            
            38,482TOTAL
                ASSETS
            
            $
            392,675
            
            
            $
            370,267CAPITALIZATION
                AND LIABILITIESCAPITALIZATION:
            Common
                Stock, No Par Value
            
            $
            105,668
            
            
            $
            104,248Retained
                Earnings
            
            
            27,441
            
            
            
            25,001Accumulated
                Other Comprehensive Income, net of tax
            
            
            69
            
            
            
            94TOTAL
                COMMON EQUITY
            
            
            133,178
            
            
            
            129,343Preferred
                Stock
            
            
            3,958
            
            
            
            3,958Long-term
                Debt
            
            
            131,615
            
            
            
            130,706TOTAL
                CAPITALIZATION
            
            
            268,751
            
            
            
            264,007CURRENT
            Current
                Portion of Long-term Debt
            
            
            2,723
            
            
            
            2,501LIABILITIES:
            Notes
                Payable
            
            
            6,250
            
            
            
            -Accounts
                Payable
            
            
            6,477
            
            
            
            5,491Accrued
                Taxes
            
            
            7,611
            
            
            
            6,684Accrued
                Interest
            
            
            1,916
            
            
            
            1,880Unearned
                Revenues and Advanced Service Fees
            
            
            758
            
            
            
            601Other
            
            
            1,274
            
            
            
            984TOTAL
                CURRENT LIABILITIES
            
            
            27,009
            
            
            
            18,141COMMITMENTS
                AND CONTINGENT LIABILITIES (Note 4)DEFERRED
                CREDITS
            Customer
                Advances for Construction
            
            
            21,758
            
            
            
            19,246AND
                OTHER LIABILITIES:
            Accumulated
                Deferred Investment Tax Credits
            
            
            1,461
            
            
            
            1,813Accumulated
                Deferred Income Taxes
            
            
            17,940
            
            
            
            15,779Employee
                Benefit Plans
            
            
            13,333
            
            
            
            16,388Regulatory
                Liability - Cost of Utility Plant Removal
            
            
            5,726
            
            
            
            6,200Other
            
            
            459
            
            
            
            527TOTAL
                DEFERRED CREDITS AND OTHER LIABILITIES
            
            
            60,677
            
            
            
            59,953CONTRIBUTIONS
                IN AID OF CONSTRUCTION
            
            
            
            36,238
            
            
            
            28,166TOTAL
                CAPITALIZATION AND LIABILITIES
            
            $
            392,675
            
            
            $
            370,267




See
        Notes
        to Consolidated Financial Statements.


29








MIDDLESEX
      WATER COMPANY


CONSOLIDATED
      STATEMENTS OF INCOME


(In
      thousands except per share amounts)





Years
                Ended December 31,2007
            
            
            2006
            
            
            2005Operating
                Revenues
            
            $
            86,114
            
            
            $
            81,061
            
            
            $
            74,613Operating
                Expenses:Operations
            
            
            42,117
            
            
            
            39,799
            
            
            
            38,636Maintenance
            
            
            4,123
            
            
            
            3,546
            
            
            
            3,520Depreciation
            
            
            7,539
            
            
            
            7,060
            
            
            
            6,460Other
                Taxes
            
            
            9,664
            
            
            
            9,338
            
            
            
            8,779Total
                Operating Expenses
            
            
            63,443
            
            
            
            59,743
            
            
            
            57,395Operating
                Income
            
            
            22,671
            
            
            
            21,318
            
            
            
            17,218Other
                Income (Expense):Allowance
                for Funds Used During Construction
            
            
            537
            
            
            
            632
            
            
            
            548Other
                Income
            
            
            1,153
            
            
            
            160
            
            
            
            220Other
                Expense
            
            
            (163
            )
            
            
            (18
            )
            
            
            (28
            )Total
                Other Income, net
            
            
            1,527
            
            
            
            774
            
            
            
            740Interest
                Charges
            
            
            6,619
            
            
            
            7,012
            
            
            
            6,245Income
                before Income Taxes
            
            
            17,579
            
            
            
            15,080
            
            
            
            11,713Income
                Taxes
            
            
            5,736
            
            
            
            5,041
            
            
            
            3,237Net
                Income
            
            
            11,843
            
            
            
            10,039
            
            
            
            8,476Preferred
                Stock Dividend Requirements
            
            
            248
            
            
            
            248
            
            
            
            251Earnings
                Applicable to Common Stock
            
            $
            11,595
            
            
            $
            9,791
            
            
            $
            8,225Earnings
                per share of Common Stock:Basic
            
            $
            0.88
            
            
            $
            0.83
            
            
            $
            0.72Diluted
            
            $
            0.87
            
            
            $
            0.82
            
            
            $
            0.71Average
                Number ofCommon
                Shares Outstanding :Basic
            
            
            13,203
            
            
            
            11,844
            
            
            
            11,445Diluted
            
            
            13,534
            
            
            
            12,175
            
            
            
            11,784Cash
                Dividends Paid per Common Share
            
            $
            0.693
            
            
            $
            0.683
            
            
            $
            0.673




See
        Notes
        to Consolidated Financial Statements.





30








MIDDLESEX
      WATER COMPANY


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(In
      thousands)





Years
                Ended December 31,2007
            
            
            2006
            
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                Income
            
            $
            11,843
            
            
            $
            10,039
            
            
            $
            8,476Adjustments
                to Reconcile Net Income toNet
                Cash Provided by Operating Activities:Depreciation
                and Amortization
            
            
            8,176
            
            
            
            7,761
            
            
            
            7,160Provision
                for Deferred Income Taxes and ITC
            
            
            399
            
            
            
            897
            
            
            
            165Allowance for Funds Used During Construction
            
            
            -
            
            
            
            -
            
            
            
            (548
            )Equity
                Portion of AFUDC
            
            
            (255
            )
            
            
            (259
            )
            
            
            -Cash
                Surrender Value of Life Insurance
            
            
            (271
            )
            
            
            (155
            )
            
            
            -Gain
                on Sale of Real Estate
            
            
            (267
            )
            
            
            -
            
            
            
            -Changes
                in Assets and Liabilities:Accounts
                Receivable
            
            
            (2,752
            )
            
            
            (463
            )
            
            
            (1,758
            )Unbilled
                Revenues
            
            
            (596
            )
            
            
            (276
            )
            
            
            (165
            )Materials
                and Supplies
            
            
            101
            
            
            
            (46
            )
            
            
            (56
            )Prepayments
            
            
            (134
            )
            
            
            (301
            )
            
            
            (103
            )Other
                Assets
            
            
            (9
            )
            
            
            (485
            )
            
            
            (151
            )Accounts
                Payable
            
            
            986
            
            
            
            (538
            )
            
            
            (18
            )Accrued
                Taxes
            
            
            941
            
            
            
            197
            
            
            
            (323
            )Accrued
                Interest
            
            
            36
            
            
            
            11
            
            
            
            166Employee
                Benefit Plans
            
            
            239
            
            
            
            (84
            )
            
            
            710Unearned
                Revenue and Advanced Service Fees
            
            
            157
            
            
            
            127
            
            
            
            86Other
                Liabilities
            
            
            224
            
            
            
            (299
            )
            
            
            (144
            )NET
                CASH PROVIDED BY OPERATING ACTIVITIES
            
            
            18,818
            
            
            
            16,126
            
            
            
            13,497CASH
                FLOWS FROM INVESTING ACTIVITIES:Utility
                Plant Expenditures, Including AFUDC of $ 282 in 2007, $373 in 2006,
                and
                $0  in 2005
            
            
            (21,930
            )
            
            
            (30,734
            )
            
            
            (25,288
            )Cash
                Surrender Value & Other Investments
            
            
            -
            
            
            
            -
            
            
            
            (294
            )Restricted
                Cash
            
            
            444
            
            
            
            (1,036
            )
            
            
            7,637Proceeds
                from Real Estate Dispositions
            
            
            273
            
            
            
            -
            
            
            
            -Preliminary
                Survey and Investigation Charges
            
            
            (1,847
            )
            
            
            (1,661
            )
            
            
            (743
            )NET
                CASH USED IN INVESTING ACTIVITIES
            
            
            (23,060
            )
            
            
            (33,431
            )
            
            
            (18,688
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Redemption
                of Long-term Debt
            
            
            (2,501
            )
            
            
            (1,915
            )
            
            
            (1,215
            )Proceeds
                from Issuance of Long-term Debt
            
            
            3,632
            
            
            
            5,016
            
            
            
            14,948Net
                Short-term Bank Borrowings
            
            
            6,250
            
            
            
            (4,000
            )
            
            
            (7,000
            )Deferred
                Debt Issuance Expenses
            
            
            (50
            )
            
            
            (28
            )
            
            
            (166
            )Common
                Stock Issuance Expense
            
            
            (15
            )
            
            
            (238
            )
            
            
            -Restricted
                Cash
            
            
            (12
            )
            
            
            (32
            )
            
            
            (163
            )Proceeds
                from Issuance of Common Stock
            
            
            1,420
            
            
            
            28,088
            
            
            
            4,076Payment
                of Common Dividends
            
            
            (9,141
            )
            
            
            (8,190
            )
            
            
            (7,690
            )Payment
                of Preferred Dividends
            
            
            (248
            )
            
            
            (248
            )
            
            
            (251
            )Construction
                Advances and Contributions-Net
            
            
            1,110
            
            
            
            1,694
            
            
            
            1,601NET
                CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            445
            
            
            
            20,147
            
            
            
            4,140NET
                CHANGES IN CASH AND CASH EQUIVALENTS
            
            
            (3,797
            )
            
            
            2,842
            
            
            
            (1,051
            )CASH
                AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            5,826
            
            
            
            2,984
            
            
            
            4,035CASH
                AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            2,029
            
            
            $
            5,826
            
            
            $
            2,984SUPPLEMENTAL
                DISCLOSURE OF NON-CASH ACTIVITY:Utility
                Plant received as Construction Advances and Contributions
            
            $
            8,960
            
            
            $
            3,543
            
            
            $
            5,150SUPPLEMENTAL
                DISCLOSURE OF CASH FLOWS INFORMATION:Cash
                Paid During the Year for:Interest
            
            $
            6,542
            
            
            $
            6,937
            
            
            $
            5,990Interest
                Capitalized
            
            $
            (282
            )
            
            $
            (373
            )
            
            $
            (548
            )Income
                Taxes
            
            $
            4,534
            
            
            $
            4,352
            
            
            $
            3,792




See
        Notes
        to Consolidated Financial Statements.


31








MIDDLESEX
      WATER COMPANY


CONSOLIDATED
      STATEMENTS OF CAPITAL STOCK


AND
      LONG-TERM DEBT


(In
      thousands)


December 31,
              
              
              December 31,2007
              
              
              2006Common
                  Stock, No Par ValueShares
                  Authorized - 40,000Shares
                  Outstanding -2007
                  - 13,246
              
              $
              105,668
              
              
              $
              104,2482006
                  - 13,168Retained
                  Earnings
              
              
              27,441
              
              
              
              25,001Accumulated
                  Other Comprehensive Income, net of tax
              
              
              69
              
              
              
              94TOTAL
                  COMMON EQUITY
              
              $
              133,178
              
              
              $
              129,343Cumulative
                  Preference Stock, No Par Value:Shares
                  Authorized -100Shares
                  Outstanding - NoneCumulative
                  Preferred Stock, No Par Value:Shares
                  Authorized -139Shares
                  Outstanding -37Convertible:Shares
                  Outstanding, $7.00 Series - 14
              
              
              1,457
              
              
              
              1,457Shares
                  Outstanding, $8.00 Series - 12
              
              
              1,399
              
              
              
              1,399Nonredeemable:Shares
                  Outstanding, $7.00 Series -   1
              
              
              102
              
              
              
              102Shares
                  Outstanding, $4.75 Series - 10
              
              
              1,000
              
              
              
              1,000TOTAL
                  PREFERRED STOCK
              
              $
              3,958
              
              
              $
              3,958Long-term
                  Debt:8.05%,
                  Amortizing Secured Note, due December 20, 2021
              
              $
              2,800
              
              
              $
              2,8966.25%,
                  Amortizing Secured Note, due May 22, 2028
              
              
              8,575
              
              
              
              8,9956.44%,
                  Amortizing Secured Note, due August 25, 2030
              
              
              6,347
              
              
              
              6,6276.46%,
                  Amortizing Secured Note, due September 19, 2031
              
              
              6,627
              
              
              
              6,9074.22%,
                  State Revolving Trust Note, due December 31, 2022
              
              
              691
              
              
              
              7393.30%
                  to 3.60%, State Revolving Trust Note, due May 1, 2025
              
              
              3,168
              
              
              
              3,1003.49%,
                  State Revolving Trust Note, due January 25, 2027
              
              
              603
              
              
              
              5984.03%,
                  State Revolving Trust Note, due December 1, 2026
              
              
              974
              
              
              
              9144.00%
                  to 5.00%, State Revolving Trust Bond, due September 1,
                  2021
              
              
              695
              
              
              
              7300.00%,
                  State Revolving Fund Bond, due September 1, 2021
              
              
              538
              
              
              
              577First
                  Mortgage Bonds:5.20%,
                  Series S, due October 1, 2022
              
              
              12,000
              
              
              
              12,0005.25%,
                  Series T, due October 1, 2023
              
              
              6,500
              
              
              
              6,5006.40%,
                  Series U, due February 1, 2009
              
              
              15,000
              
              
              
              15,0005.25%,
                  Series V, due February 1, 2029
              
              
              10,000
              
              
              
              10,0005.35%,
                  Series W, due February 1, 2038
              
              
              23,000
              
              
              
              23,0000.00%,
                  Series X, due September 1, 2018
              
              
              591
              
              
              
              6474.25%
                  to 4.63%, Series Y, due September 1, 2018
              
              
              765
              
              
              
              8200.00%,
                  Series Z, due September 1, 2019
              
              
              1,342
              
              
              
              1,4555.25%
                  to 5.75%, Series AA, due September 1, 2019
              
              
              1,785
              
              
              
              1,8900.00%,
                  Series BB, due September 1, 2021
              
              
              1,685
              
              
              
              1,8054.00%
                  to 5.00%, Series CC, due September 1, 2021
              
              
              1,995
              
              
              
              2,0905.10%,
                  Series DD, due January 1, 2032
              
              
              6,000
              
              
              
              6,0000.00%,
                  Series EE, due September 1, 2024
              
              
              7,112
              
              
              
              7,4823.00%
                  to 5.50%, Series FF, due September 1, 2024
              
              
              8,385
              
              
              
              8,7350.00%,
                  Series GG, due August 1, 2026
              
              
              1,710
              
              
              
              1,7504.00%
                  to 5.00%, Series HH, due August 1, 2026
              
              
              1,950
              
              
              
              1,9500.00%,
                  Series II, due August 1, 2027
              
              
              1,750
              
              
              
              -3.40%
                  to 5.00%, Series JJ, due August 1, 2027
              
              
              1,750
              
              
              
              -SUBTOTAL
                  LONG-TERM DEBT
              
              
              134,338
              
              
              
              133,207Less:
                  Current Portion of Long-term Debt
              
              
              (2,723
              )
              
              
              (2,501
              )TOTAL
                  LONG-TERM DEBT
              
              $
              131,615
              
              
              $
              130,706
 
 See
        Notes
        to Consolidated Financial Statements.





32




MIDDLESEX
      WATER COMPANY


CONSOLIDATED
      STATEMENTS OF COMMON STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME





(in
      thousands)


AccumulatedCommon
              
              
              Common
              
              
              
              
              
              OtherStock
              
              
              Stock
              
              
              Retained
              
              
              ComprehensiveShares
              
              
              Amount
              
              
              Earnings
              
              
              Income
                  (Loss)
              
              
              TotalBalance
                  at January 1, 2005
              
              
              11,358
              
              
              $
              71,980
              
              
              $
              23,103
              
              
              $
              45
              
              
              $
              95,128Net
                  Income
              
              
              
              
              
              
              
              
              
              
              8,476
              
              
              
              
              
              
              
              8,476Minimum
                  Pension Liability, Net of $135 Income Tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (262
              )
              
              
              (262
              )Change
                  in Value of Equity Investments, Net of $5 Income Tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10
              
              
              
              10Comprehensive
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,224Dividend
                  Reinvestment & Common Stock Purchase Plan
              
              
              195
              
              
              
              3,640
              
              
              
              
              
              
              
              
              
              
              
              3,640Restricted
                  Stock Award - Net
              
              
              19
              
              
              
              436
              
              
              
              
              
              
              
              
              
              
              
              436Preferred
                  Stock Conversion
              
              
              12
              
              
              
              105
              
              
              
              
              
              
              
              
              
              
              
              105Cash
                  Dividends on Common Stock
              
              
              
              
              
              
              
              
              
              
              (7,690
              )
              
              
              
              
              
              
              (7,690
              )Cash
                  Dividends on Preferred Stock
              
              
              
              
              
              
              
              
              
              
              (251
              )
              
              
              
              
              
              
              (251
              )Balance
                  at December 31, 2005
              
              
              11,584
              
              
              
              76,161
              
              
              
              23,638
              
              
              
              (207
              )
              
              
              99,592Net
                  Income
              
              
              
              
              
              
              
              
              
              
              10,039
              
              
              
              
              
              
              
              10,039Minimum
                  Pension Liability, Net of $135 Income Tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              262
              
              
              
              262Change
                  in Value of Equity Investments, Net of $20 Income Tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              39
              
              
              
              39Comprehensive
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,340Dividend
                  Reinvestment & Common Stock Purchase Plan
              
              
              70
              
              
              
              1,321
              
              
              
              
              
              
              
              
              
              
              
              1,321Restricted
                  Stock Award - Net
              
              
              19
              
              
              
              275
              
              
              
              
              
              
              
              
              
              
              
              275Issuance
                  of Common Stock
              
              
              1,495
              
              
              
              26,491
              
              
              
              
              
              
              
              
              
              
              
              26,491Cash
                  Dividends on Common Stock
              
              
              
              
              
              
              
              
              
              
              (8,190
              )
              
              
              
              
              
              
              (8,190
              )Cash
                  Dividends on Preferred Stock
              
              
              
              
              
              
              
              
              
              
              (248
              )
              
              
              
              
              
              
              (248
              )Common
                  Stock Expenses
              
              
              
              
              
              
              
              
              
              
              (238
              )
              
              
              
              
              
              
              (238
              )Balance
                  at December 31, 2006
              
              
              13,168
              
              
              
              104,248
              
              
              
              25,001
              
              
              
              94
              
              
              
              129,343Net
                  Income
              
              
              
              
              
              
              
              
              
              
              11,843
              
              
              
              
              
              
              
              11,843Change
                  in Value of Equity Investments, Net of $13 Income Tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (25
              )
              
              
              (25
              )Comprehensive
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,818Dividend
                  Reinvestment & Common Stock Purchase Plan
              
              
              61
              
              
              
              1,147
              
              
              
              
              
              
              
              
              
              
              
              1,147Restricted
                  Stock Award - Net
              
              
              17
              
              
              
              273
              
              
              
              
              
              
              
              
              
              
              
              273Cash
                  Dividends on Common Stock
              
              
              
              
              
              
              
              
              
              
              (9,141
              )
              
              
              
              
              
              
              (9,141
              )Cash
                  Dividends on Preferred Stock
              
              
              
              
              
              
              
              
              
              
              (248
              )
              
              
              
              
              
              
              (248
              )Common
                  Stock Expenses
              
              
              
              
              
              
              
              
              
              
              (15
              )
              
              
              
              
              
              
              (15
              )Other
              
              
              
              
              
              
              
              
              
              
              1
              
              
              
              
              
              
              
              1Balance
                  at December 31, 2007
              
              
              13,246
              
              
              $
              105,668
              
              
              $
              27,441
              
              
              $
              69
              
              
              $
              133,178
 
 See
        Notes
        to Consolidated Financial Statements.





33




Middlesex
      Water Company




Notes
      to Consolidated Financial Statements





Note
      1 - Summary of Significant Accounting Policies





(a)
      Organization - Middlesex
      Water Company (Middlesex) is the parent company and sole shareholder of
      Tidewater Utilities, Inc. (Tidewater), Tidewater Environmental Services, Inc.
      (TESI), Pinelands Water Company (Pinelands Water) and Pinelands Wastewater
      Company (Pinelands Wastewater) (collectively, Pinelands), Utility Service
      Affiliates, Inc. (USA) and Utility Service Affiliates (Perth Amboy) Inc.
      (USA-PA).  Southern Shores Water Company, LLC (Southern Shores) and
      White Marsh Environmental Systems, Inc. (White Marsh), are wholly-owned
      subsidiaries of Tidewater. The financial statements for Middlesex and its
      wholly-owned subsidiaries (the Company) are reported on a consolidated basis.
      All significant intercompany accounts and transactions have been
      eliminated.





Middlesex
      Water Company has operated as a water utility in New Jersey since 1897, and
      in
      Delaware, through our wholly-owned subsidiary, Tidewater, since
      1992.  We are in the business of collecting, treating, distributing
      and selling water for domestic, commercial, municipal, industrial and fire
      protection purposes. We also operate a New Jersey municipal water and wastewater
      system under contract and provide wastewater services in New Jersey and Delaware
      through our subsidiaries. We are regulated as to rates charged to customers
      for
      water and wastewater services in New Jersey and Delaware, as to the quality
      of
      services we provide and as to certain other matters. Only our USA, USA-PA and
      White Marsh subsidiaries are not regulated utilities.




Certain
      reclassifications have been made to the prior year financial
      statements to conform with current period presentation.





(b)
      System of Accounts -
      Middlesex, Pinelands Water and Pinelands Wastewater maintain their accounts
      in
      accordance with the Uniform System of Accounts prescribed by the Board of Public
      Utilities of the State of New Jersey (BPU). Tidewater, TESI and Southern Shores
      maintain their accounts in accordance with the Public Service Commission of
      Delaware (PSC) requirements.





(c)
      Utility Plant is stated at
      original cost as defined for regulatory purposes. Property accounts are charged
      with the cost of betterments and major replacements of property. Cost includes
      direct material, labor and indirect charges for pension benefits and payroll
      taxes. The cost of labor, materials, supervision and other expenses incurred
      in
      making repairs and minor replacements and in maintaining the properties is
      charged to the appropriate expense accounts. At December 31, 2007, there was
      no
      event or change in circumstance that would indicate that the carrying amount
      of
      any long-lived asset was not recoverable.





(d)
      Depreciation is computed
      by each regulated member of the Company utilizing a rate approved by the
      applicable regulatory authority. The Accumulated Provision for Depreciation
      is
      charged with the cost of property retired, less salvage.  The
      following table sets forth the range of depreciation rates for the major utility
      plant categories used to calculate depreciation for the years ended December
      31,
      2007, 2006 and 2005. These rates have been approved by either the BPU or
      PSC:





Source
                of Supply
            1.15%
                -   3.44%
            Transmission
                and Distribution (T&D):Pumping
            2.87%
                -   5.04%
            T&D
                – Mains
            1.10%
                - 3.13%Water
                Treatment
            2.71%
                -   7.64%
            T&D
                – Services
            2.12%
                - 2.81%General
                Plant
            2.08%
                - 17.84%
            T&D
                – Other
            1.61%
                - 4.63%





Non-regulated
      fixed assets consist primarily of an office building, furniture and fixtures,
      and transportation equipment. These assets are recorded at original cost and
      depreciation is calculated based on the estimated useful lives, ranging from
      3
      to 40 years.





34




(e)Customers’
Advances
      for
      Construction–Water
      utility plant and/or cash advances are contributed to the Company by customers,
      real estate developers and builders in order to extend water service to their
      properties.   These contributions are recorded as Customers’
Advances for Construction. Refunds on these advances are made by the Company
      in
      accordance with agreements with the contributing party and are based on either
      additional operating revenues related to the utility plant or as new customers
      are connected to and take service from the utility plant.  After all
      refunds are made, any remaining balance is transferred to Contributions in
      Aid
      of Construction.





Contributions
      in Aid of Construction – Contributions in Aid of Construction include direct
      non-refundable contributions of water utility plant and/or cash and the portion
      of Customers’ Advances for Construction that become non-refundable.





Advances
      and Contributions are not depreciated in accordance with BPU and PSC
      requirements.  In addition, these amounts reduce the investment base
      for purposes of setting rates.





(f)
      Allowance for Funds Used
      During Construction (AFUDC) - Middlesex and its regulated subsidiaries
      capitalize AFUDC, which represents the cost of financing projects during
      construction. AFUDC is added to the construction costs of individual projects
      exceeding specific cost and construction period thresholds established for
      each
      company and then depreciated along with the rest of the utility plant’s costs
      over its estimated useful life. For the years ended December 31, 2007, 2006
      and
      2005 approximately $0.5 million, $0.6 million and $0.5 million, respectively
      of
      AFUDC was added to the cost of construction projects.  AFUDC is
      calculated using each company’s weighted cost of debt and equity as approved in
      their most recent respective regulatory rate order. The average AFUDC rate
      for
      the years ended December 31, 2007, 2006 and 2005 for Middlesex and Tidewater
      were 7.45% and 7.94%, respectively.





(g)
      Accounts Receivable – We
      record bad debt expense based on historical write-offs. The allowance for
      doubtful accounts was $0.3 million at December 31, 2007, $0.3 million at
      December 31, 2006, and $0.2 million at December 31, 2005. The corresponding
      expense for the year ended December 31, 2007, 2006 and 2005 was $0.1 million,
      $0.3 million and $0.2 million, respectively.





(h)
      Revenues - General metered
      customer’s bills for regulated water service are typically comprised of two
      components; a fixed service charge and a volumetric or consumption charge.
      Revenues from general metered service water customers, except Tidewater, include
      amounts billed in arrears on a cycle basis and unbilled amounts estimated from
      the last meter reading date to the end of the accounting period. The estimated
      unbilled amounts are determined by utilizing factors which include historical
      consumption usage and current climate conditions. Actual billings may differ
      from our estimates. Revenues are adjusted in the period that the difference
      is
      identified. Tidewater customers are billed in advance for their fixed service
      charge and these revenues are recognized as the service is provided to the
      customer.





Southern
      Shores is an unmetered system. Customers are billed a fixed service charge
      in
      advance at the beginning of each month and revenues are recognized as
      earned.  Revenues from the City of Perth Amboy management contract are
      comprised of fixed and variable fees. Fixed fees, which have been set for the
      life of the contract, are billed monthly and recorded as earned. Variable fees,
      which are not significant, are recorded upon approval of the amount by the
      City
      of Perth Amboy.





USA
      bills
      customers on a quarterly or annual basis for its LineCareSM
      service
      line maintenance program. Quarterly amounts billed are recognized as earned.
      Amounts that are billed on an annual basis are deferred and recognized as
      revenue ratably over the year.





35




(i)
      Deferred Charges and Other
      Assets - Unamortized Debt Expense is amortized over the lives of the related
      issues. Restricted Cash represents proceeds from loans entered into through
      state financing programs and is held in trusts. The proceeds are restricted
      for
      specific capital expenditures and debt service requirements.





(j)
      Income Taxes - Middlesex
      files a consolidated federal income tax return for the Company and income taxes
      are allocated based on the separate return method.  Investment tax
      credits have been deferred and are amortized over the estimated useful life
      of
      the related property.





(k)
      Statements of Cash Flows -
      For purposes of reporting cash flows, the Company considers all highly liquid
      investments with original maturity dates of three months or less to be cash
      equivalents. Cash and cash equivalents represent bank balances and money market
      funds with investments maturing in less than 90 days.





(l)
      Use of Estimates -
      Conformity with accounting principles generally accepted in the United States
      of
      America requires management to make estimates and assumptions that affect the
      reported amounts in the financial statements.  Actual results could
      differ from those estimates.





(m)
      Recent Accounting
      Pronouncements – In September 2006, the Financial Accounting Standards Board
      (FASB) issued SFAS 157, Fair Value Measurements, which establishes a framework
      for measuring fair value and expands disclosures about fair value
      measurements.  SFAS 157 is effective for fiscal years beginning after
      November 15, 2007 and interim periods within those fiscal years. In February
      2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB
      Statement No. 157, which deferred the effective date of SFAS 157 to fiscal
      years
      beginning after November 15, 2008 for nonfinancial assets and nonfinancial
      liabilities.  The Company does not expect that the adoption of SFAS
      157 will have a  material impact on its financial
      statements.





In
      February 2007, the FASB issued FSP FAS 158-1, “Conforming Amendments
      to the Illustrations in FASB Statements No. 87, No. 88, and No 106 and
      to the Related Staff Implementation Guides.” This FSP makes conforming
      amendments to other FASB statements and staff implementation guides and provides
      technical corrections to SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans.” The conforming amendments in
      this FSP did not have a material impact on the Company’s consolidated
      financial statements or disclosures.





FASB
      statement No. 141 (R) “Business Combinations” was issued in December of 2007.
      This Statement establishes principles and requirements for how the acquirer
      of a
      business recognizes and measures in its financial statements the identifiable
      assets acquired, the liabilities assumed, and any noncontrolling interest in
      the
      acquiree. The Statement also provides guidance for recognizing and measuring
      the
      goodwill acquired in the business combination and determines what information
      to
      disclose to enable users of the financial statements to evaluate the nature
      and
      financial effects of the business combination. The guidance will become
      effective as of the beginning of a company’s fiscal year beginning after
      December 15, 2008. This new pronouncement will impact the Company’s accounting
      for business combinations completed beginning January 1, 2009.





In
      May
      2007, the FASB issued FSP FIN 48-1 “Definition of Settlement in FASB
      Interpretation No. 48” (FSP FIN 48-1). FSP FIN 48-1 provides guidance on how to
      determine whether a tax position is effectively settled for the purpose of
      recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective
      retroactively to January 1, 2007. The implementation of this standard did not
      have a material impact on our consolidated financial position or results of
      operations.





In
      July
      2006, the FASB issued FASB Interpretation No. 48 (FIN 48) “Accounting for
      Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,”
to clarify certain aspects of accounting for uncertain tax


36




positions,
      including recognition and measurement of those tax positions. This
      interpretation is effective for fiscal years beginning after December 15,
      2006. The adoption of this interpretation did not materially impact the
      Company’s results of operations and financial condition.




(n)
      Other Comprehensive Income
– Total comprehensive income includes changes in equity that are excluded from
      the consolidated statements of income and are recorded into a separate section
      of capitalization on the consolidated balance sheets. The Company’s accumulated
      other comprehensive income shown on the consolidated balance sheets consists
      of
      unrealized gains on investment holdings.





(o)
      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, which account for 90% of Operating Revenues and
      98%
      of Total Assets, are subject to regulation in the state 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 provided in SFAS No. 71, “Accounting for the
      Effects of Certain Types of Regulation.”





(p)
      Pension Plan - We maintain
      a noncontributory defined benefit pension plan which covers substantially all
      employees with more than 1,000 hours of service, and who were hired as of March
      31, 2007. The discount rate utilized for determining pension costs decreased
      from 5.88% for the year ended December 31, 2005 to 5.52% for the year ended
      December 31, 2006 and increased to 5.89% for the year ended December 31, 2007.
      Future




37




actual
      pension expense will depend on future investment performance, changes in future
      discount rates and various other factors related to the population participating
      in the pension plans.




Note
      2 - Rate and Regulatory Matters





Effective
      October 26, 2007, Middlesex received approval from the New Jersey Board of
      Public Utilities (BPU) for a 9.1%, or $5.0 million increase in its base water
      rates.  The increase was predicated on a rate base of $164.4 million
      and an authorized return on equity of 10.0%.  Middlesex had originally
      filed for an $8.9 million or 16.5% base rate increase with the BPU on April
      18,
      2007.  The rate increase is intended to recover increased costs of
      operations, maintenance, labor and benefits, purchased power, purchased water
      and taxes, as well as capital investment of approximately $23.0 million since
      June 2005.





On
      April
      28, 2006, Tidewater filed for a $5.5 million, or 38.6%, base rate increase
      with
      the Delaware Public Service Commission (PSC). The request is intended to recover
      increased costs of operations, maintenance and taxes, as well as capital
      investment of approximately $23.8 million since rates were last established
      in
      March 2005. Since June 27, 2006, Tidewater has been billing and recognizing
      additional revenues through a 15% interim rate increase subject to refund as
      allowed under PSC regulations. A settlement was reached amongst the parties
      which concluded that a 26.9% overall increase in base rates would be
      implemented.  The PSC approved the settlement and the remaining 11.9%
      increase was put into effect on February 28, 2007.





Effective
      April 13, 2006, Pinelands Water and Pinelands Wastewater received approval
      from
      the New Jersey Board of Public Utilities (BPU) for base rate increases of 7.02%
      and 0.98%, respectively. These increases represent a total base rate increase
      of
      approximately $0.1 million for Pinelands to offset increased costs associated
      with capital improvements, and the operation and maintenance of their
      systems.





In
      accordance with the tariff established for Southern Shores, an annual rate
      increase of 3% was implemented on January 1, 2008.  Under the terms of
      a contract with Southern Shores Homeowners Association, the increase cannot
      exceed the lesser of the regional Consumer Price Index or 3%.





We
      have
      recorded certain costs as regulatory assets because we expect full recovery
      of,
      or are currently recovering, these costs in the rates we charge customers.
      These
      deferred costs have been excluded from rate base and, therefore, we are not
      earning a return on the unamortized balances.  These items are
      detailed as follows:





(Thousands
                of Dollars)December
                31,Regulatory
                Assets
            
            2007
            
            
            2006
            
            Remaining
              Recovery
              PeriodsPostretirement
                Benefits
            
            $
            7,279
            
            
            $
            11,130
            
            VariousIncome
                Taxes
            
            
            8,222
            
            
            
            6,813
            
            VariousTank
                Painting
            
            
            225
            
            
            
            275
            
            3-8
                yearsRate
                Cases and Other
            
            
            364
            
            
            
            124
            
            Up
                to 2 yearsTotal
            
            $
            16,090
            
            
            $
            18,342





Postretirement
      benefits include pension and other postretirement benefits that have been
      recorded on the Consolidated Balance Sheet upon adoption of SFAS 158. These
      amounts represent obligations in excess of current funding, which the Company
      believes will be fully recovered in rates set by the regulatory
      authorities.





38




The
      recovery period for income taxes is dependent upon when the temporary
      differences between the tax and book treatment of various items
      reverse.





The
      Company uses composite depreciation rates for its regulated utility assets,
      which is currently an acceptable method under generally accepted accounting
      principles and is widely used in the utility industry. Historically, under
      the
      composite depreciation method, the anticipated costs of removing assets upon
      retirement are provided for over the life of those assets as a component of
      depreciation expense. The Company recovers certain asset retirement costs
      through rates charged to customers as an approved component of depreciation
      expense. As of December 31, 2007 and 2006, the Company has approximately $5.7
      million and $6.2 million, respectively, of expected costs of removal recovered
      currently in rates in excess of actual costs incurred. These amounts are
      recorded as regulatory liabilities.





The
      Company is recovering in current rates acquisition premiums totaling $0.8
      million over the remaining lives of the underlying Utility Plant. These deferred
      costs have been included in rate base as utility plant and a return is being
      earned on the unamortized balances during the recovery periods.




Note
      3 - Income Taxes







Income
      tax expense differs from the amount computed by applying the statutory rate
      on
      book income subject to tax for the following reasons:





Years
                Ended December 31,(Thousands
                of Dollars)2007
            
            
            2006
            
            
            2005Income
                Tax at Statutory Rate
            
            $
            6,021
            
            
            $
            5,155
            
            
            $
            3,982Tax
                Effect of:Utility
                Plant Related
            
            
            (595
            )
            
            
            (338
            )
            
            
            (899
            )State
                Income Taxes – Net
            
            
            350
            
            
            
            257
            
            
            
            176Employee
                Benefits
            
            
            (49
            )
            
            
            (48
            )
            
            
            (25
            )Other
            
            
            9
            
            
            
            15
            
            
            
            3Total
                Income Tax Expense
            
            $
            5,736
            
            
            $
            5,041
            
            
            $
            3,237





Income
      tax expense is comprised of the following:





Current:Federal
            
            $
            4,894
            
            
            $
            3,846
            
            
            $
            2,889State
            
            
            413
            
            
            
            298
            
            
            
            183Deferred:Federal
            
            
            634
            
            
            
            884
            
            
            
            160State
            
            
            117
            
            
            
            92
            
            
            
            84Investment
                Tax Credits
            
            
            (322
            )
            
            
            (79
            )
            
            
            (79
            )Total
                Income Tax Expense
            
            $
            5,736
            
            
            $
            5,041
            
            
            $
            3,237





The
      statutory review period for income tax returns for the years prior to 2004
      has
      been closed.  Federal income tax returns for 2005 and 2006 are
      currently under review by the Internal Revenue Service.  Although the
      review is still in process, no material adjustments have been proposed by the
      examiner.  In the event that there are interest and penalties
      associated with income tax adjustments, these amounts would be reported under
      interest expense and other expense, respectively.





39




Deferred
      income taxes reflect the net tax effect of temporary differences between the
      carrying amounts of assets and liabilities for financial purposes and the
      amounts used for income tax purposes.  The components of the net
      deferred tax liability are as follows:





December
                31,(Thousands
                of Dollars)2007
            
            
            2006Utility
                Plant Related
            
            $
            24,892
            
            
            $
            23,656Customer
                Advances
            
            
            (4,117
            )
            
            
            (4,189
            )Employee
                Benefits
            
            
            (2,544
            )
            
            
            (3,515
            )Other
            
            
            (291
            )
            
            
            (173
            )Total
                Deferred Tax Liability
            
            $
            17,940
            
            
            $
            15,779





Note
      4 - Commitments and Contingent Liabilities





Guarantees
      -USA-PA operates
      the City of Perth Amboy’s (Perth Amboy) water and wastewater systems under a
      service contract agreement through June 30, 2018. The agreement was effected
      under New Jersey’s Water Supply Public/Private Contracting Act and the New
      Jersey Wastewater Public/Private Contracting Act.  Under the
      agreement, USA-PA receives a fixed fee and a variable fee based on increased
      system billing. Scheduled fixed fee payments for 2007, 2006 and 2005 were $7.8
      million, $7.6 million and $7.4 million, respectively.  The fixed fees
      will increase over the term of the contract to $10.2 million.





In
      connection with the agreement, Perth Amboy, through the Middlesex County
      Improvement Authority, issued approximately $68.0 million in three series of
      bonds. Middlesex guaranteed one of those series of bonds, designated the Series
      C Serial Bonds, in the principal amount of approximately $26.3 million. Perth
      Amboy guaranteed the two other series of bonds. The Series C Serial Bonds have
      various maturity dates with the final maturity date on September 1, 2015. As
      of
      December 31, 2007, approximately $22.6 million of the Series C Serial Bonds
      remained outstanding.





We
      are
      obligated to perform under the guarantee in the event notice is received from
      the Series C Serial Bonds trustee of an impending debt service deficiency.
      If
      Middlesex funds any debt service obligations as guarantor, there is a provision
      in the agreement that requires Perth Amboy to reimburse us. There are other
      provisions in the agreement that we believe make it unlikely that we will be
      required to perform under the guarantee, such as scheduled annual rate increases
      for water and wastewater services as well as rate increases due to unforeseen
      circumstances. In the event revenues from customers could not satisfy the
      reimbursement requirements, Perth Amboy has Ad Valorem taxing powers, which
      could be used to raise the needed amount.





Water
      Supply - Middlesex has
      an agreement with the New Jersey Water Supply Authority (NJWSA) for the purchase
      of untreated water through November 30, 2023, which provides for an average
      purchase of 27 million gallons a day (mgd). Pricing is set annually by the
      NJWSA
      through a public rate making process. The agreement has provisions for
      additional pricing in the event Middlesex overdrafts or exceeds certain monthly
      and annual thresholds.





Middlesex
      also has an agreement with a non-affiliated regulated water utility for the
      purchase of treated water. This agreement, which expires February 27, 2011,
      provides for the minimum purchase of 3 mgd of treated water with provisions
      for
      additional purchases.





Purchased
      water costs are shown below:





40




(Millions
                of Dollars)Years
                Ended December 31,Purchased
                Water
            
            2007
            
            
            2006
            
            
            2005Untreated
            
            $
            2.4
            
            
            $
            2.3
            
            
            $
            2.3Treated
            
            
            2.1
            
            
            
            1.9
            
            
            
            1.9Total
                Costs
            
            $
            4.5
            
            
            $
            4.2
            
            
            $
            4.2





Construction–The
      Company may
      spend up to $36.9 million in 2008, $76.9 million in 2009 and $44.9 million
      in
      2010 on its construction program.  The
      development of these estimates is based in part upon projected housing
      development and sales in Delaware.





Litigation–
In
      July 2005,
      Tidewater received a notice of violation and request for corrective action
      issued by the Delaware State Fire Marshal regarding the alleged failure of
      one
      of the community water systems operated by Tidewater to meet Delaware fire
      protection requirements.  Tidewater appealed the Fire Marshal’s
      decision with the Delaware State Fire Prevention Commission (the “SFPC”) and, in
      November 2005, the SFPC denied Tidewater’s appeal.  In October 2007,
      Tidewater agreed to dismiss its appeal of the SFPC’s decision with the Sussex
      County Superior Court in Delaware of the notice of violation and request for
      corrective action issued by the Fire Marshal.  In return for the
      dismissal both parties have agreed that 15 of the original 67 community water
      systems previously identified will require certain modifications over a ten-year
      period in order to provide full fire protection. The expected capital investment
      to comply with the settlement is $12.0 to $14.0 million and will be expended
      ratably over the ten-year period.  We will apply to the PSC to
      increase base rates to recover the costs of any such modifications. Although
      these types of modifications have routinely been included in previous rate
      matters, the PSC may not approve a portion or all of the costs associated with
      the fire protection upgrades.





Change
      in Control Agreements–
The Company has Change in Control Agreements with certain of its officers
      that
      provide compensation and benefits in the event of termination of employment
      in
      connection with a change in control of the Company.





Note
      5 – Short-term Borrowings





Information
      regarding the Company’s short-term borrowings for the years ended December 31,
      2007 and 2006 is summarized below:








(Millions
                of Dollars)2007
            
            
            2006Established
                Lines at Year-End
            
            $
            40.0
            
            
            $
            37.0Maximum
                Amount Outstanding
            
            
            6.6
            
            
            
            18.2Average
                Outstanding
            
            
            2.6
            
            
            
            9.5Notes
                Payable at Year-End
            
            
            6.3
            
            
            NoneWeighted
                Average Interest Rate
            
            
            6.36
            %
            
            
            6.13
            %Weighted
                Average Interest Rate at Year-End
            
            
            5.79
            %
            
            None





The
      maturity date for the $6.3 million borrowing, with an interest rate of 5.79%,
      outstanding as of December 31, 2007 was January 7, 2008.





Interest
      rates for short-term borrowings are below the prime rate with no requirement
      for
      compensating balances.





41




Note
      6 - Capitalization




All
      the
      transactions discussed below related to the issuance of securities were approved
      by either the BPU or PSC, except where otherwise noted.





Common
      Stock


In
      June
      2007, the number of shares authorized under the Dividend Reinvestment and Common
      Stock Purchase Plan (DRP) increased from 1,700,000 shares to 2,300,000
      shares.  The cumulative number of shares issued under the DRP at
      December 31, 2007, is 1,642,877. The Company also has shares authorized and
      outstanding under a restricted stock plan, which is described in Note 7 –
Employee Benefit Plans.





In
      November 2006, the Company sold and issued 1,495,000 shares of its common stock
      in a public offering that was priced at $18.46. The majority of the net proceeds
      of approximately $26.2 million were used to repay all of the Company’s
      short-term borrowings outstanding at that time.  Remaining proceeds
      from the public offering were used to fund a portion of the 2007 capital
      program.





In
      the
      event dividends on the preferred stock are in arrears, no dividends may be
      declared or paid on the common stock of the Company.  At December 31,
      2007, no preferred stock dividends were in arrears.





Preferred
      Stock


If
      four
      or more quarterly dividends are in arrears, the preferred shareholders, as
      a
      class, are entitled to elect two members to the Board of Directors in addition
      to Directors elected by holders of the common stock. At December 31, 2007 and
      2006, 36,898 shares of preferred stock presently authorized were outstanding
      and
      there were no dividends in arrears.





The
      conversion feature of the no par $7.00 Series Cumulative and Convertible
      Preferred Stock allows the security holders to exchange one convertible
      preferred share for twelve shares of the Company's common stock.  In
      addition, the Company may redeem up to 10% of the outstanding convertible stock
      in any calendar year at a price equal to the fair market value of twelve shares
      of the Company's common stock for each share of convertible stock redeemed.
      During September 2005, 1,000 shares of the no par $7.00 Series Cumulative and
      Convertible Preferred Stock was converted into 12,000 of common
      stock.





The
      conversion feature of the no par $8.00 Series Cumulative and Convertible
      Preferred Stock allows the security holders to exchange one convertible
      preferred share for 13.714 shares of the Company's common stock.  The
      preferred shares are convertible into common stock at the election of the
      security holder or Middlesex.





Long-term
      Debt


In
      December 2007, Tidewater closed on a $1.1 million loan with the Delaware State
      Revolving Fund (SRF).  This loan allows, but does not obligate,
      Tidewater to draw down against a General Obligation Note for two specific
      projects no later than July 31, 2008. The interest rate on any draw-down will
      be
      set at 3.64% with a final maturity of July 1, 2028 on the amount actually
      borrowed.





In
      November 2007, Middlesex issued $3.5 million of first mortgage bonds through
      the
      New Jersey Environmental Infrastructure Trust under the New Jersey SRF program.
      The Company closed on the first mortgage bonds designated as Series II and
      JJ on
      November 8, 2007.





In
      November 2006, Middlesex issued $3.7 million of first mortgage bonds through
      the
      New Jersey Environmental Infrastructure Trust under the New Jersey SRF program.
      The Company closed on the first mortgage bonds designated as Series GG and
      HH on
      November 4, 2006.





42




In
      May
      2006, Tidewater closed on a $1.0 million loan with the Delaware State Revolving
      Fund (SRF).  The proceeds were used to fund capital improvements for
      one specific community water system in Delaware.  The interest rate on
      the loan is 4.03% and will have a final maturity on December 1,
      2026.





First
      Mortgage Bonds Series S through W and Series DD are term bonds with single
      maturity dates. With the exception of $15.0 million for repayment for the First
      Mortgage Bond Series U due in 2009, principal repayments for the First Mortgage
      Bonds extend beyond 2012.  The aggregate annual principal repayment
      obligations for all other long-term debt are shown below:








(Millions
                of Dollars)Year
            Annual
                Maturities2008
            $2.72009
            $3.12010
            $3.22011
            $3.22012
            $3.3




The
      weighted average interest rate on all long-term debt at December 31, 2007 and
      2006 was 5.20% and 5.28%, respectively. Except for the Amortizing Secured Notes
      and Series U First Mortgage Bonds, all of the Company’s outstanding debt has
      been issued through the New Jersey Economic Development Authority ($57.5
      million), the New Jersey Environmental Infrastructure Trust program ($32.1
      million) and the SRF program ($5.4 million).




Restricted
      cash includes proceeds from the Series Y, AA, BB, CC, EE, FF, GG, HH, II and
      JJ
      First Mortgage Bonds and State Revolving Trust Bonds issuances. These funds
      are
      held in trusts and restricted for specific capital expenditures and debt service
      requirements. Series GG and HH proceeds can only be used for the 2007 main
      cleaning and cement lining program. Series II and JJ proceeds can only be used
      for the 2008 main cleaning and cement lining program.  All other bond
      issuance balances in restricted cash are for debt service
      requirements.




Substantially
      all of the Utility Plant of the Company is subject to the lien of its mortgage,
      which also includes debt service and capital ratio covenants, certain
      restrictions as to cash dividend payments and other distributions on common
      stock. The Company is in compliance with all of its mortgage covenants and
      restrictions.




Earnings
      Per Share


The
      following table presents the calculation of basic and diluted earnings per
      share
      (EPS) for the three years ended December 31, 2007.  Basic EPS is
      computed on the basis of the weighted average number of shares
      outstanding.  Diluted EPS assumes the conversion of both the
      Convertible Preferred Stock $7.00 Series and $8.00 Series.








(In
                Thousands, Except per Share Amounts)2007
            
            
            2006
            
            
            2005Basic:
            
            Income
            
            
            Shares
            
            
            Income
            
            
            Shares
            
            
            Income
            
            
            SharesNet
                Income
            
            $
            11,843
            
            
            
            13,203
            
            
            $
            10,039
            
            
            
            11,844
            
            
            $
            8,476
            
            
            
            11,445Preferred
                Dividend
            
            
            (248
            )
            
            
            
            
            
            
            (248
            )
            
            
            
            
            
            
            (251
            )Earnings
                Applicable to Common Stock
            
            $
            11,595
            
            
            
            13,203
            
            
            $
            9,791
            
            
            
            11,844
            
            
            $
            8,225
            
            
            
            11,445Basic
                EPS
            
            $
            0.88
            
            
            
            
            
            
            $
            0.83
            
            
            
            
            
            
            $
            0.72Diluted:Earnings
                Applicable to Common Stock
            
            $
            11,595
            
            
            
            13,203
            
            
            $
            9,791
            
            
            
            11,844
            
            
            $
            8,225
            
            
            
            11,445$7.00
                Series Dividend
            
            
            97
            
            
            
            167
            
            
            
            97
            
            
            
            167
            
            
            
            101
            
            
            
            175$8.00
                Series Dividend
            
            
            96
            
            
            
            164
            
            
            
            96
            
            
            
            164
            
            
            
            96
            
            
            
            164Adjusted
                Earnings Applicable to Common Stock
            
            $
            11,788
            
            
            
            13,534
            
            
            $
            9,984
            
            
            
            12,175
            
            
            $
            8,422
            
            
            
            11,784Diluted
                EPS
            
            $
            0.87
            
            
            
            
            
            
            $
            0.82
            
            
            
            
            
            
            $
            0.71








43








Fair
      Value of Financial Instruments


The
      following methods and assumptions were used by the Company in estimating its
      fair value disclosure for financial instruments for which it is practicable
      to
      estimate that value. The carrying amounts reflected in the consolidated balance
      sheets for cash and cash equivalents, marketable securities, and trade
      receivables and payables approximate their respective fair values due to the
      short-term maturities of these instruments. The fair value of the Company’s
      long-term debt relating to first mortgage bonds is based on quoted market prices
      for similar issues.  The carrying amount and fair market value of the
      Company’s bonds were as follows:




(Thousands
                of Dollars)At
                December 31,2007
            
            
            2006Carrying
            
            
            Fair
            
            
            Carrying
            
            
            FairAmount
            
            
            Value
            
            
            Amount
            
            
            ValueFirst
                Mortgage Bonds
            
            $
            103,322
            
            
            $
            104,681
            
            
            $
            101,124
            
            
            $
            103,083State
                Revolving Bonds
            
            $
            1,233
            
            
            $
            1,272
            
            
            $
            1,307
            
            
            $
            1,340





For
      other
      long-term debt for which there was no quoted market price, it was not
      practicable to estimate their fair value. The carrying amount of these
      instruments at December 31, 2007 and 2006 was $29.8 million and $30.8 million,
      respectively. Customer advances for construction have a carrying amount of
      $21.8
      million and $19.2 million at December 31, 2007 and 2006, respectively. Their
      relative fair values cannot be accurately estimated since future refund payments
      depend on several variables, including new customer connections, customer
      consumption levels and future rate increases.




Note
      7 - Employee Benefit Plans




Pension


The
      Company has a noncontributory defined benefit pension plan, which covers
      substantially all employees with more than 1,000 hours of service. Employees
      hired after March 31, 2007 are not eligible to participate in this plan, but
      do
      participate in a defined contribution plan that provides an annual contribution
      at the discretion of the Company based upon a percentage of the participants’
compensation. In order to be eligible for an annual contribution, the eligible
      employee must be employed by the Company on December 31st
      of the
      year the award pertains to. In addition, the Company maintains an unfunded
      supplemental pension plan for its executive officers.  The Accumulated
      Benefit Obligation for all pension plans at December 31, 2007 and 2006 was
      $21.6
      million and $22.1 million, respectively.





Postretirement
      Benefits Other Than Pensions


The
      Company has a postretirement benefit plan other than pensions for substantially
      all of its retired employees. Employees hired after March 31, 2007 are not
      eligible to participate in this plan. Coverage includes healthcare and life
      insurance. Retiree contributions are dependent on credited years of
      service.  Accrued retirement benefit costs are recorded each
      year.





44




The
      Company has recognized a deferred regulatory asset relating to the difference
      between the accrued retirement benefit costs and actual cash paid for plan
      premiums in years prior to 1998. Included in the regulatory asset is a
      transition obligation from adopting SFAS No.106, “Employers’ Accounting for
      Postretirement Benefits Other than Pensions,” on January 1, 1993. In addition to
      the recognition of annual accrued retirement benefit costs in rates, Middlesex
      is also recovering the transition obligation over 15 years. The regulatory
      assets at December 31, 2007 and 2006 were $0.4 million and $0.5 million,
      respectively.





The
      Company adopted SFAS 158 on December 31, 2006.  Because the Company is
      subject to regulation in the states in which it operates, it is required to
      maintain its accounts in accordance with the regulatory authority’s rules and
      guidelines, which may differ from other authoritative accounting pronouncements.
      In those instances, the Company follows the guidance of SFAS No. 71, “Accounting
      for the Effects of Certain Types of Regulation,” (SFAS 71). Based on prior
      regulatory practice, and in accordance with the guidance provided by SFAS 71,
      the Company records underfunded pension and postretirement obligations, which
      otherwise would be recognized as Other Comprehensive Income as of under
      SFAS 158, as a Regulatory Asset, and expects to recover those costs in rates
      charged to customers. The adoption of this standard had no impact on results
      of
      operations or cash flows.





The
      Company uses a December 31 measurement date for all of its employee benefit
      plans. The table below sets forth information relating to the Company’s pension
      plans and other postretirement benefits for 2007 and 2006.








(Thousands
                of Dollars)December
                31,Pension
                Benefits
            
            
            Other
                Benefits2007
            
            
            2006
            
            
            2007
            
            
            2006Reconciliation
                of Projected Benefit ObligationBeginning
                Balance
            
            $
            31,728
            
            
            $
            29,666
            
            
            $
            14,698
            
            
            $
            15,247Service
                Cost
            
            
            1,296
            
            
            
            1,311
            
            
            
            821
            
            
            
            756Interest
                Cost
            
            
            1,807
            
            
            
            1,703
            
            
            
            895
            
            
            
            804Actuarial
                (Gain)/Loss
            
            
            (3,081
            )
            
            
            544
            
            
            
            (852
            )
            
            
            (1,655
            )Benefits
                Paid
            
            
            (1,583
            )
            
            
            (1,496
            )
            
            
            (495
            )
            
            
            (454
            )Ending
                Balance
            
            $
            30,167
            
            
            $
            31,728
            
            
            $
            15,067
            
            
            $
            14,698Reconciliation
                of Plan Assets at Fair ValueBeginning
                Balance
            
            $
            23,028
            
            
            $
            20,338
            
            
            $
            6,701
            
            
            $
            4,666Actual
                Return on Plan Assets
            
            
            1,315
            
            
            
            2,578
            
            
            
            324
            
            
            
            1,045Employer
                Contributions
            
            
            1,808
            
            
            
            1,608
            
            
            
            495
            
            
            
            1,444Benefits
                Paid
            
            
            (1,583
            )
            
            
            (1,496
            )
            
            
            (495
            )
            
            
            (454
            )Ending
                Balance
            
            $
            24,568
            
            
            $
            23,028
            
            
            $
            7,025
            
            
            $
            6,701Funded
                Status
            
            $
            (5,599
            )
            
            $
            (8,700
            )
            
            $
            (8,042
            )
            
            $
            (
              7,997
            )Amounts
                Recognized in the Consolidated Balance Sheets consist of:Current
                Liability
            
            
            (308
            )
            
            
            (308
            )
            
            
            -
            
            
            
            -Noncurrent
                Liability
            
            
            (5,291
            )
            
            
            (8,392
            )
            
            
            (8,042
            )
            
            
            (7,997
            )Net
                Liability Recognized
            
            $
            (5,599
            )
            
            $
            (8,700
            )
            
            $
            (8,042
            )
            
            $
            (7,997
            )




45




(Thousands
                of Dollars)Years
                Ended December 31,Pension
                Benefits
            
            
            Other
                Benefits2007
            
            
            2006
            
            
            2005
            
            
            2007
            
            
            2006
            
            
            2005Components
                of Net Periodic Benefit CostService
                Cost
            
            $
            1,296
            
            
            $
            1,311
            
            
            $
            1,126
            
            
            $
            821
            
            
            $
            756
            
            
            $
            622Interest
                Cost
            
            
            1,807
            
            
            
            1,703
            
            
            
            1,559
            
            
            
            895
            
            
            
            804
            
            
            
            771Expected
                Return on Plan Assets
            
            
            (1,819
            )
            
            
            (1,608
            )
            
            
            (1,547
            )
            
            
            (481
            )
            
            
            (330
            )
            
            
            (275
            )Amortization
                of Net Transition Obligation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            135
            
            
            
            135
            
            
            
            135Amortization
                of Net Actuarial (Gain)/Loss
            
            
            75
            
            
            
            258
            
            
            
            49
            
            
            
            337
            
            
            
            443
            
            
            
            482Amortization
                of Prior Service Cost
            
            
            10
            
            
            
            11
            
            
            
            92
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
                Periodic Benefit Cost
            
            $
            1,369
            
            
            $
            1,675
            
            
            $
            1,279
            
            
            $
            1,707
            
            
            $
            1,808
            
            
            $
            1,735




Amounts
        that are expected to be amortized from Regulatory Assets into Net Periodic
        Benefit Cost in 2008 are as follows:
 
 (Thousands
                  of Dollars)Pension
                Benefits
              
              
              Other
                Benefits2008
              
              
              2008Actuarial
                  (Gain)/Loss
              
              $
              -
              
              
              $
              232Prior
                  Service Cost
              
              
              10
              
              
              
              -Transition
                  Obligation
              
              
              -
              
              
              
              135


2007
            
            
            2006
            
            
            2005
            
            
            2007
            
            
            2006
            
            
            2005Weighted
                Average Assumptions:Expected
                Return on Plan Assets
            
            
            8.00
            %
            
            
            8.00
            %
            
            
            8.00
            %
            
            
            7.50
            %
            
            
            7.50
            %
            
            
            7.50
            %Discount
                Rate for:Benefit
                Obligation
            
            
            6.59
            %
            
            
            5.89
            %
            
            
            5.52
            %
            
            
            6.59
            %
            
            
            5.89
            %
            
            
            5.52
            %Benefit
                Cost
            
            
            5.89
            %
            
            
            5.52
            %
            
            
            5.88
            %
            
            
            5.89
            %
            
            
            5.52
            %
            
            
            5.88
            %Compensation
                Increase for:Benefit
                Obligation
            
            
            3.50
            %
            
            
            3.50
            %
            
            
            3.50
            %
            
            
            3.50
            %
            
            
            3.50
            %
            
            
            3.50
            %Benefit
                Cost
            
            
            3.50
            %
            
            
            3.50
            %
            
            
            3.50
            %
            
            
            3.50
            %
            
            
            3.50
            %
            
            
            3.50
            %





The
      compensation increase assumption for Other Benefits is attributable to life
      insurance provided to qualifying employees upon their retirement.  The
      insurance coverage will be determined based on the employee’s base compensation
      as of their retirement date.





A
      9.0%
      annual rate of increase in the per capita cost of covered healthcare benefits
      was assumed for 2007 and assumed to decline by 1.0% per year through 2010 and
      by
      0.5% per year to 5% by year 2013. A one-percentage point change in assumed
      healthcare cost trend rates would have the following effects:




(Thousands
                of Dollars)1
                Percentage PointIncrease
            
            
            DecreaseEffect
                on Current Year’s Service and Benefit Cost
            
            $
            399
            
            
            $
            (301
            )Effect
                on Benefit Obligation
            
            
            2,767
            
            
            
            (2,159
            )





The
      following benefit payments, which reflect expected future service, are expected
      to be paid:





Year
            
            
            Pension
                Benefits
            
            
            Other
                Benefits2008
            
            
            $
            1,606
            
            
            $
            5652009
            
            
            
            1,577
            
            
            
            5822010
            
            
            
            1,586
            
            
            
            6062011
            
            
            
            1,652
            
            
            
            6562012
            
            
            
            1,655
            
            
            
            6942013-2017
            
            
            
            9,784
            
            
            
            4,146Totals
            
            
            $
            17,860
            
            
            $
            7,249




46




Benefit
      Plans Assets





The
      allocation of plan assets at December 31, 2007 and 2006 by asset category is
      as
      follows:





Pension
                Plan
            
            
            Other
                BenefitsAsset
                Category
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            Target
            
            
            RangeEquity
                Securities
            
            
            59.7
            %
            
            
            60.0
            %
            
            
            47.0
            %
            
            
            48.5
            %
            
            
            60
            %
            
            
            30-65
            %Debt
                Securities
            
            
            37.8
            
            
            
            36.9
            
            
            
            50.6
            
            
            
            33.0
            
            
            
            38
            %
            
            
            25-70
            %Cash
            
            
            2.5
            
            
            
            3.1
            
            
            
            2.4
            
            
            
            18.5
            
            
            
            2
            %
            
            
            0-10
            %Total
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %





Two
      outside investment firms each manage a portion of the pension plan asset
      portfolio. One of those investment firms also manages the other postretirement
      benefits assets. Quarterly meetings are held between the Company’s Pension
      Committee of the Board of Directors and the investment managers to review their
      performance and asset allocation. If the actual asset allocation is outside
      the
      targeted range, the Pension Committee reviews current market conditions and
      advice provided by the investment managers to determine the appropriateness
      of
      rebalancing the portfolio.





The
      objective of the Company is to maximize the long-term return on benefit plan
      assets, relative to a reasonable level of risk, maintain a diversified
      investment portfolio and maintain compliance with the Employee Retirement Income
      Security Act of 1974. The expected long-term rate of return is based on the
      various asset categories in which plan assets are invested and the current
      expectations and historical performance for these categories.





Equity
      securities include Middlesex common stock in the amounts of $0.7 million (3.0%
      of total plan assets) and $0.7 million (3.2 % of total plan assets) at December
      31, 2007 and 2006, respectively.





For
      the
      pension plan, Middlesex made total cash contributions of $1.8 million in 2007
      and expects to make cash contributions of approximately $2.0 million in
      2008.





For
      the
      postretirement health benefit plan, Middlesex made total cash contributions
      of
      $0.5 million in 2007 and expects to make contributions of approximately
      $2.4 million in 2008.





401(k)
      Plan


The
      Company has a 401(k) defined contribution plan, which covers substantially
      all
      employees with more than 1,000 hours of service. Under the terms of the Plan,
      the Company matches 100% of a participant’s contributions, which do not exceed
      1% of a participant’s compensation, plus 50% of a participant’s contributions
      exceeding 1%, but not more than 6%.  The Company’s matching
      contributions were $0.4 million for each of the years ended December 31, 2007,
      2006 and 2005.





For
      those employees hired after March 31, 2007 and still employed on December 31,
      2007, the Company approved a discretionary contribution that was based on 5%
      of
      eligible compensation. The Company expects to fund the contribution of less
      than
      $0.1 million in March 2008.





Stock-Based
      Compensation


The
      Company maintains an escrow account for 71,253 shares of the Company's common
      stock which were awarded under the 1997 Restricted Stock Plan, which has
      expired. Such stock is subject to an agreement requiring forfeiture by the
      employee in the event of termination of employment within five years of the
      award other than as a result of retirement, death, disability or change in
      control. The Company filed a petition with the


47




BPU
      requesting approval of stock-based compensation plan called the 2008 Restricted
      Stock Plan.  The Company intends to seek shareholder approval for the
      new plan at its May 21, 2008 annual meeting of shareholders.  The
      maximum number of shares authorized for grant under the proposed plan is 300,000
      shares.




The
      Company recognizes compensation expense at fair value for the restricted stock
      awards in accordance with SFAS No.123(R), “Share-Based Payment.”
Compensation expense is determined by the market value of the stock on the
      date
      of the award and is being amortized over a five-year period.





The
      following table presents information on the Restricted Stock Plan:





(In
                Thousands Except Grant Price)Shares
            
            
            Unearned
              Compensation
            
            
            Weighted
              Average
              Grant
                PriceBalance,
                January 1, 2005
            
            
            65
            
            
            $
            606Granted
            
            
            19
            
            
            
            436
            
            
            $
            22.95Vested
            
            
            (28
            )Amortization
                of Compensation Expense
            
            
            
            
            
            
            (342
            )Balance,
                December 31, 2005
            
            
            56
            
            
            $
            700Granted
            
            
            21
            
            
            
            405
            
            
            $
            19.24Vested
            
            
            (11
            )Forfeited
            
            
            (2
            )
            
            
            (38
            )Amortization
                of Compensation Expense
            
            
            
            
            
            
            (271
            )Balance,
                December 31, 2006
            
            
            64
            
            
            $
            796Granted
            
            
            18
            
            
            
            344
            
            
            $
            19.10Vested
            
            
            (10
            )Forfeited
            
            
            (1
            )
            
            
            (3
            )Amortization
                of Compensation Expense
            
            
            
            
            
            
            (276
            )Balance,
                December 31, 2007
            
            
            71
            
            
            $
            861







Note
      8 – Business Segment Data




The
      Company has identified two reportable segments. One is the regulated business
      of
      collecting, treating and distributing water on a retail and wholesale basis
      to
      residential, commercial, industrial and fire protection customers in parts
      of
      New Jersey and Delaware. This segment also includes regulated wastewater systems
      in New Jersey and Delaware. The Company is subject to regulations as to its
      rates, services and other matters by the states of New Jersey and Delaware
      with
      respect to utility service within these states. The other segment is primarily
      comprised of non-regulated contract services for the operation and maintenance
      of municipal and private water and wastewater systems in New Jersey and
      Delaware. Inter-segment transactions relating to operational costs are treated
      as pass-through expenses. Finance charges on inter-segment loan activities
      are
      based on interest rates that are below what would normally be charged by a
      third
      party lender.





48




(Thousands
                of Dollars)Years
                Ended December 31,Operations
                by Segments:
            
            2007
            
            
            2006
            
            
            2005Revenues:Regulated
            
            $
            77,113
            
            
            $
            71,948
            
            
            $
            66,317Non
                – Regulated
            
            
            9,392
            
            
            
            9,317
            
            
            
            8,416Inter-segment
                Elimination
            
            
            (391
            )
            
            
            (204
            )
            
            
            (120
            )Consolidated
                Revenues
            
            $
            86,114
            
            
            $
            81,061
            
            
            $
            74,613Operating
                Income:Regulated
            
            $
            21,351
            
            
            $
            20,062
            
            
            $
            16,390Non
                – Regulated
            
            
            1,320
            
            
            
            1,256
            
            
            
            828Consolidated
                Operating Income
            
            $
            22,671
            
            
            $
            21,318
            
            
            $
            17,218Depreciation:Regulated
            
            $
            7,408
            
            
            $
            6,936
            
            
            $
            6,357Non
                – Regulated
            
            
            131
            
            
            
            124
            
            
            
            103Consolidated
                Depreciation
            
            $
            7,539
            
            
            $
            7,060
            
            
            $
            6,460Other
                Income, Net:Regulated
            
            $
            1,643
            
            
            $
            951
            
            
            $
            836Non
                – Regulated
            
            
            ---
            
            
            
            (78
            )
            
            
            ---Inter-segment
                Elimination
            
            
            (116
            )
            
            
            (99
            )
            
            
            (96
            )Consolidated
                Other Income, Net
            
            $
            1,527
            
            
            $
            774
            
            
            $
            740Interest
                Expense:Regulated
            
            $
            6,619
            
            
            $
            7,012
            
            
            $
            6,245Non
                – Regulated
            
            
            116
            
            
            
            99
            
            
            
            96Inter-segment
                Elimination
            
            
            (116
            )
            
            
            (99
            )
            
            
            (96
            )Consolidated
                Interest Charges
            
            $
            6,619
            
            
            $
            7,012
            
            
            $
            6,245Net
                Income:Regulated
            
            $
            11,120
            
            
            $
            9,417
            
            
            $
            8,037Non
                – Regulated
            
            
            723
            
            
            
            622
            
            
            
            439Consolidated
                Net Income
            
            $
            11,843
            
            
            $
            10,039
            
            
            $
            8,476


Capital
                Expenditures:Regulated
            
            $
            21,586
            
            
            $
            30,492
            
            
            $
            25,016Non
                – Regulated
            
            
            344
            
            
            
            242
            
            
            
            272Total
                Capital Expenditures
            
            $
            21,930
            
            
            $
            30,734
            
            
            $
            25,288


49




As
                of
              December 31,
            
            
            As
                of
              December 31,2007
            
            
            2006Assets:Regulated
            
            
            
            
            
            $
            387,931
            
            
            $
            366,149Non
                – Regulated
            
            
            
            
            
            
            8,157
            
            
            
            6,808Inter-segment
                Elimination
            
            
            
            
            
            
            (3,413
            )
            
            
            (2,690
            )Consolidated
                Assets
            
            
            
            
            
            $
            392,675
            
            
            $
            370,267




Note
      9 - Quarterly Operating Results - Unaudited





Operating
      results for each quarter of 2007 and 2006 are as follows:





(Thousands
                of Dollars, Except per Share Data)1st
            
            
            2nd
            
            
            3rd
            
            
            4th
            
            
            Total2007Operating
                Revenues
            
            $
            18,988
            
            
            $
            21,745
            
            
            $
            24,135
            
            
            $
            21,246
            
            
            $
            86,114Operating
                Income
            
            
            3,722
            
            
            
            6,279
            
            
            
            7,729
            
            
            
            4,941
            
            
            
            22,671Net
                Income
            
            
            1,769
            
            
            
            3,313
            
            
            
            4,158
            
            
            
            2,603
            
            
            
            11,843Basic
                Earnings per Share
            
            $
            0.13
            
            
            $
            0.25
            
            
            $
            0.31
            
            
            $
            0.19
            
            
            $
            0.88Diluted
                Earnings per Share
            
            $
            0.13
            
            
            $
            0.24
            
            
            $
            0.31
            
            
            $
            0.19
            
            
            $
            0.872006Operating
                Revenues
            
            $
            18,230
            
            
            $
            21,037
            
            
            $
            22,632
            
            
            $
            19,162
            
            
            $
            81,061Operating
                Income
            
            
            3,973
            
            
            
            6,149
            
            
            
            6,858
            
            
            
            4,338
            
            
            
            21,318Net
                Income
            
            
            1,812
            
            
            
            2,968
            
            
            
            3,377
            
            
            
            1,882
            
            
            
            10,039Basic
                Earnings per Share
            
            $
            0.15
            
            
            $
            0.25
            
            
            $
            0.29
            
            
            $
            0.14
            
            
            $
            0.83Diluted
                Earnings per Share
            
            $
            0.15
            
            
            $
            0.25
            
            
            $
            0.28
            
            
            $
            0.14
            
            
            $
            0.82





The
      information above, in the opinion of the Company, includes all adjustments
      consisting only of normal recurring accruals necessary for a fair presentation
      of such amounts. The business of the Company is subject to seasonal fluctuation
      with the peak period usually occurring during the summer months.





Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure.





Deloitte
      & Touche LLP (D&T) was previously the independent registered public
      accounting firm for Middlesex Water Company (the Company). On March 31, 2006,
      the Audit Committee of the Registrant’s Board of Directors agreed to engage
      Beard Miller Company LLP (BMC) as its independent registered public accounting
      firm to replace D&T, effective for fiscal year 2006, including the Company’s
      audit for the year ended December 31, 2006.  The change was made after
      the Audit Committee reviewed proposals from three independent accounting firms,
      including D&T.





D&T’s
      audit reports on the Company's consolidated financial statements for each of
      the
      two fiscal years ended December 31, 2005 and December 31, 2004 did not contain
      any adverse opinions or disclaimers of opinion, nor were such reports qualified
      or modified as to uncertainty, audit scope or accounting principles. The audit
      report


50




of
      D&T on management's assessment of internal control over financial reporting
      and the effectiveness of internal control over financial reporting as of
      December 31, 2005 did not contain an adverse opinion or disclaimer of opinion,
      and was not qualified or modified as to uncertainty, audit scope or accounting
      principles.




During
      the two most recent fiscal years ended December 31, 2005 and 2004, and through
      April 5, 2006, there were no disagreements with D&T on any matter of
      accounting principles or practices, financial statement disclosure, or auditing
      scope or procedures, which disagreements, if not resolved to D&T’s
      satisfaction would have caused them to make reference to the subject matter
      of
      the disagreement in connection with the audit reports of the financial
      statements for such years. During the two fiscal years ended December 31, 2005
      and 2004, and through April 5, 2006, there was one reportable
      event.   On November 9, 2005, the Company informed D&T of an
      identified material weakness in internal controls related to recording and
      reporting construction advances and contributions for utility
      plant.  Subsequent to the notification, the Company filed an amended
      Form 10-K for the year ended December 31, 2004 and Form 10-Q’s for the quarters
      ended March 31, 2005 and June 30, 2005.  The material weakness
      identified is discussed in Item 9A of the Company’s Form 10-K/A for the year
      ended December 31, 2004.





We
      provided D&T with a copy of the foregoing disclosures and requested from
      them a letter indicating whether they agree with these disclosures.  A
      copy of their letter dated April 5, 2006 is included as Exhibit 16 to this
      Form
      10-K.





During
      the Company’s two fiscal years
      ended December 31, 2005 and 2004, and through March 31, 2006, the Company did
      not consult with BMC regarding either (1) the application of accounting
      principles to a specified transaction, either completed or proposed, or the
      type
      of audit opinion that might be rendered on the Company’s financial statements,
      or (2) any matter that was either the subject of disagreement or reportable
      events.





Item
                9A.
            Controls
                and Procedures





(1)
      Disclosure controls and procedures are controls and other procedures that are
      designed to ensure that information required to be disclosed in Company reports
      filed or submitted under the Exchange Act is recorded, processed, summarized
      and
      reported, within the time periods specified in the Securities and Exchange
      Commission’s rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed in Company reports filed under the Exchange Act is
      accumulated and communicated to management, including the Company’s Chief
      Executive Officer and Chief Financial Officer as appropriate, to allow timely
      decisions regarding disclosure.





As
      required by Rule 13a-15 under the Exchange Act, an evaluation of the
      effectiveness of the design and operation of the Company’s disclosure controls
      and procedures was conducted by the Company’s Chief Executive Officer along with
      the Company’s Chief Financial Officer for the quarter ended December 31, 2007.
      Based upon that evaluation the Company’s Chief Executive Officer and the
      Company’s Chief Financial Officer concluded that the Company’s disclosure
      controls and procedures were effective as of the end of the period covered
      by
      this report. Accordingly, management believes the consolidated financial
      statements included in this report fairly present in all material respects
      our
      financial condition, results of operations and cash flows for the periods
      presented.





(2)Management’s Report on Internal
      Control Over Financial Reporting





The
      management of Middlesex Water Company (Middlesex or the Company) is responsible
      for establishing and maintaining adequate internal control over financial
      reporting as defined in Exchange Act Rule 13A-15(f) and 15d-15(f). Middlesex’s
      internal control system was designed to provide reasonable assurance to the
      Company’s


51




management
      and Board of Directors of adequate preparation and fair presentation of the
      published financial statements.




All
      internal control systems, no matter how well designed, have inherent
      limitations. Therefore, even those systems determined to be effective can
      provide only reasonable assurance with respect to the adequacy of financial
      statement preparation and presentation. Middlesex’s management assessed the
      effectiveness of the Company’s internal control over financial reporting as of
      December 31, 2007. In making this assessment, management used the criteria
      set
      forth by the Committee of Sponsoring Organizations of the Treadway Commission
      (COSO) in Internal Control-
      Integrated Framework. Based on our assessment, we believe that as of
      December 31, 2007, the Company’s internal control over financial reporting is
      operating as designed and is effective based on those criteria.





Middlesex’s
      independent registered public accounting firm has audited the effectiveness
      of
      our internal control over financial reporting as of December 31, 2007 as stated
      in their report which is included herein.








/s/
                Dennis W. Doll
            
            /s/
                A. Bruce O’ConnorDennis
                W. Doll
            
            A.
                Bruce O’ConnorPresident
                and Chief
            
            Vice
                President and ChiefExecutive
                Officer
            
            Financial
                Officer





Iselin,
      New Jersey


March
      10,
      2008





52




(3)
Report
      of Independent Registered
      Public Accounting Firm




Report
        of Independent Registered Public Accounting Firm
  To
        the
        Board of Directors and
 Stockholders
        of Middlesex Water Company
 
 
 We
        have
        audited Middlesex Water Company’s (the Company) internal control over financial
        reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated
        Frameworkissued by the Committee of Sponsoring Organizations of the
        Treadway Commission (COSO).  The Company's management is responsible
        for maintaining effective internal control over financial reporting and for
        its
        assessment of the effectiveness of internal control over financial reporting
        included in the accompanying Management’s Report on Internal Control over
        Financial Reporting.  Our responsibility is to express an opinion on
        the Company's internal control over financial reporting based on our
        audit.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States).  Those standards require
        that we plan and perform the audit to obtain reasonable assurance about whether
        effective internal control over financial reporting was maintained in all
        material respects. Our audit of internal control over financial reporting
        included obtaining an understanding of internal control over financial
        reporting, assessing the risk that a material weakness exists, and testing
        and
        evaluating the design and operating effectiveness of internal control based
        on
        the assessed risk.  Our audit also included performing such other
        procedures as we considered necessary in the circumstances. We believe that
        our
        audit provides a reasonable basis for our opinion.
  A
        company's internal control over financial reporting is a process designed
        to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles.  A company's internal
        control over financial reporting includes those policies and procedures that
        (1)
        pertain to the maintenance of records that, in reasonable detail, accurately
        and
        fairly reflect the transactions and dispositions of the assets of the company;
        (2) provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the company
        are
        being made only in accordance with authorizations of management and directors
        of
        the company; and (3) provide reasonable assurance regarding prevention or
        timely
        detection of unauthorized acquisition, use, or disposition of the company's
        assets that could have a material effect on the financial
        statements.
  Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.
  In
        our
        opinion, the Company maintained, in all material respects, effective internal
        control over financial reporting as of December 31, 2007, based on criteria
        established in Internal
        Control—Integrated Frameworkissued by the Committee of Sponsoring
        Organizations of the Treadway Commission (COSO).
  We
        have
        also audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the consolidated balance sheets and
        consolidated statements of capital stock and long-term debt of the Company
        as of
        December 31, 2007 and 2006 and the related consolidated
        statements of income, stockholders' equity and comprehensive income, and
        cash
        flows for the years then ended.  Our report dated March 10, 2008
        expressed an unqualified opinion on these consolidated financial
        statements.
   /s/
        Beard
        Miller Company LLP
 Beard
        Miller Company LLP
 Reading,
        Pennsylvania
 March
        10,
        2008





Item
                9B.
            Other
                Information.





None.





53




PART
      III





Item
                10.
            Directors,
                Executive Officers and Corporate
                Governance.





Information
      with respect to Directors of Middlesex Water Company is included in Middlesex
      Water Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders and
      is incorporated herein by reference.





Information
      regarding the Executive Officers of Middlesex Water Company is included under
      Item 1. in Part I of this Annual Report.





Item
                11.
            Executive
                Compensation.





This
      Information for Middlesex Water Company is included in Middlesex Water Company’s
      Proxy Statement for the 2008 Annual Meeting of Stockholders and is incorporated
      herein by reference.





Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters.





This
      information for Middlesex Water Company is included in Middlesex Water Company’s
      Proxy Statement for the 2008 Annual Meeting of Stockholders and is incorporated
      herein by reference.





Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence.





This
      information for Middlesex Water Company is included in Middlesex Water Company’s
      Proxy Statement for the 2008 Annual Meeting of Stockholders and is incorporated
      herein by reference.





Item
                14.
            Principal
                Accounting Fees and Services.





This
      information for Middlesex Water Company is included in Middlesex Water Company’s
      Proxy Statement for the 2008 Annual Meeting of Stockholders and is incorporated
      herein by reference.





PART
      IV





Item
                15.
            Exhibits
                and Financial Statement Schedules.





10.
            The
                following Financial Statements and Supplementary Data are included
                in Part
                II- Item 8. of this annual report:





Consolidated
      Balance Sheets at December 31, 2007 and 2006.





Consolidated
      Statements of Income for each of the three years in the period
      ended


December
      31, 2007, 2006 and 2005.





Consolidated
      Statements of Cash Flows for each of the three years in the period
      ended


December
      31, 2007, 2006 and 2005.





Consolidated
      Statements of Capital Stock and Long-term Debt at December 31, 2007


and
      2006.





Consolidated
      Statements of Common Stockholders Equity and Comprehensive Income
      for


54




each
      of
      the three years in the period ended December 31, 2007, 2006 and
      2005.




Notes
      to
      Consolidated Financial Statements.





2.
            Financial
                Statement
                Schedules





All
      Schedules are omitted because of the absence of the conditions under which
      they
      are required or because the required information is shown in the financial
      statements or notes thereto.





10.
            Exhibits





See
      Exhibit listing immediately
      following the signature page.





55




SIGNATURES




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities and Exchange Act
      of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.





MIDDLESEX
      WATER COMPANY





By:
            
            /s/
                Dennis W. DollDennis
                W. DollPresident,
                Chief Executive Officer and DirectorDate:
            
            March
                10, 2008




Pursuant
      to the requirements of the Securities and Exchange Act of 1934, this report
      has
      been signed below by the following persons, on behalf of the registrant and
      in
      the capacities on March 13, 2007.


By:
              
              /s/
                  A. Bruce O’ConnorA.Bruce
                  O’ConnorVice
                  President and Chief Financial OfficerBy:
              
              /s/
                  Dennis W. DollDennis
                  W. DollPresident,
                  Chief Executive Officer and DirectorBy:
              
              /s/
                  J. Richard TompkinsJ.
                  Richard TompkinsChairman
                  of the Board and DirectorBy:
              
              /s/
                  Annette CatinoAnnette
                  CatinoDirectorBy:
              
              /s/
                  John C. CuttingJohn
                  C. CuttingDirectorBy:
              
              /s/
                  John R. MiddletonJohn
                  R. MiddletonDirectorBy:
              
              /s/
                  John P. MulkerinJohn
                  P. MulkerinDirectorBy:
              
              /s/
                  Walter G. ReinhardWalter
                  G. ReinhardDirectorBy:
              
              /s/
                  Jeffries SheinJeffries
                  SheinDirector





56





EXHIBIT
      INDEX





Exhibits
      designated with an asterisk (*) are filed herewith. The exhibits not so
      designated have heretofore been filed with the Commission and are incorporated
      herein by reference to the documents indicated in the previous filing columns
      following the description of such exhibits. Exhibits designated with a dagger
      (t) are management contracts or compensatory plans.




Exhibit
                No.
            
            Document
                Description
            
            Previous
              Registration
              No.
            
            Filing’s
              Exhibit
              No.3.1
            
            Certificate
                of Incorporation of the Company, as amended, filed as Exhibit 3.1
                of 1998
                Form 10-K.3.2
            
            Bylaws
                of the Company, as amended, filed as Exhibit 3.2 of 2005 Form
                10-K.3.3
            
            Certificate
                of Correction of Middlesex Water Company filed with the State of
                New
                Jersey on April 30, 1999, filed as Exhibit 3.3 of 2003 Form
                10-K/A-2.3.4
            
            Certificate
                of Amendment to the Restated Certificate of Incorporation Middlesex
                Water
                Company, filed with the State of New Jersey on February 17, 2000,
                filed as
                Exhibit 3.4 of 2003 Form 10-K/A-2.3.5
            
            Certificate
                of Amendment to the Restated Certificate of Incorporation Middlesex
                Water
                Company, filed with the State of New Jersey on June 5, 2002, filed
                as
                Exhibit 3.5 of 2003 Form 10-K/A-2.4.1
            
            Form
                of Common Stock Certificate.
            
            2-55058
            
            2(a)4.2
            
            Registration
                Statement, Form S-3, under Securities Act of 1933 filed February
                3, 1987,
                relating to the Dividend Reinvestment and Common Stock Purchase
                Plan.
            
            33-117174.3
            
            Revised
                Prospectus relating to the Dividend Reinvestment and Common Stock
                Purchase
                Plan, Submitted to the Securities and Exchange Commission, January
                20,
                2000.
            
            33-117174.4
            
            Post
                Effective Amendments No. 7, Form S-3, under Securities Act of 1933
                filed
                February 1, 2002, relating to the Dividend Reinvestment and Common
                Stock
                Purchase Plan.
            
            33-1171710.1
            
            Copy
                of Purchased Water Agreement between the Company and Elizabethtown
                Water
                Company, filed as Exhibit 10 of 2006 First Quarter Form
                10-Q.10.2
            
            Copy
                of Mortgage, dated April 1, 1927, between the Company and Union County
                Trust Company, as Trustee, as supplemented by Supplemental Indentures,
                dated as of October 1, 1939 and April 1, 1949.
            
            2-15795
            
            4(a)-4(f)10.3
            
            Copy
                of Supplemental Indenture, dated as of July 1, 1964 and June 15,
                1991,
                between the Company and Union County Trust Company, as
                Trustee.
            
            33-54922
            
            10.4-10.910.4
            
            Copy
                of Supply Agreement, dated as of November 17, 1986, between the Company
                and the Old Bridge Municipal Utilities Authority.
            
            33-31476
            
            10.1210.5
            
            Copy
                of Supply Agreement, dated as of July 14, 1987, between the Company
                and
                the Marlboro Township Municipal Utilities Authority, as
                amended.
            
            33-31476
            
            10.13




57




EXHIBIT
      INDEX




Exhibit
                No.
            
            Document
                Description
            
            Previous
              Registration
              No.
            
            Filing’s
              Exhibit
              No.10.6
            
            Copy
                of Supply Agreement, dated as of February 11, 1988, with modifications
                dated February 25, 1992, and April 20, 1994, between the Company
                and the
                Borough of Sayreville filed as Exhibit No. 10.11 of 1994 First Quarter
                Form 10-Q.10.7
            
            Copy
                of Water Purchase Contract, dated as of
              September
                25, 2003, between the Company and the New Jersey Water Supply Authority,
                filed as Exhibit No. 10.7 of 2003 Form 10-K.10.8
            
            Copy
                of Treating and Pumping Agreement, dated April 9, 1984, between the
                Company and the Township of East Brunswick.
            
            33-31476
            
            10.1710.9
            
            Copy
                of Supply Agreement, dated June 4, 1990, between the Company and
                Edison
                Township.
            
            33-54922
            
            10.2410.10
            
            Copy
                of amended Supply Agreement, between the Company and the Borough
                of
                Highland Park, filed as Exhibit No. 10.1 of 2006 First Quarter Form
                10-Q.(t)10.11
            
            Copy
                of Supplemental Executive Retirement Plan, filed as Exhibit 10.13
                of 1999
                Third Quarter Form 10-Q.(t)10.12
            
            Copy
                of 1989 Restricted Stock Plan, filed as Appendix B to the Company’s
                Definitive Proxy Statement, dated and filed
              April
                25, 1997.
            
            33-31476
            
            10.22(t)10.13(a)
            
            Employment
                Agreement between Middlesex Water Company and Dennis W. Doll, filed
                as
                Exhibit 10.13(i) of 2004 Form 10-K.(t)10.13(b)
            
            Employment
                Agreement between Middlesex Water Company and A. Bruce O’Connor, filed as
                Exhibit 10.15© of 1999 Third Quarter Form 10-Q.(t)10.13©
            
            Employment
                Agreement between Middlesex Water Company and Ronald F. Williams,
                as filed
                as Exhibit 10.15(g) of 1999 Third Quarter Form 10-Q.(t)10.13(d)
            
            Employment
                Agreement between Middlesex Water Company and Richard M. Risoldi,
                filed as
                Exhibit 10.13(d) of 2003 Form 10-K.(t)10.13(e)
            
            Employment
                Agreement between Middlesex Water Company and Kenneth J. Quinn, filed
                as
                Exhibit 10.13(e) of 2003 Form 10-K.(t)10.13(f)
            
            Employment
                Agreement between Middlesex Water Company and James P. Garrett, filed
                as
                Exhibit 10.13(f) of 2003 Form 10-K.(t)10.13(g)
            
            Employment
                Agreement between Tidewater Utilities, Inc. and Gerard L. Esposito,
                filed
                as Exhibit 10.13(g) of 2003 Form 10-K.(t)10.13(h)
            
            Consulting
                Agreement between Middlesex Water Company and J. Richard Tompkins,
                filed
                as Exhibit 10.13(h) of 2005 Form 10-K.




58




EXHIBIT
      INDEX





Exhibit
                No.
            
            Document
                Description
            
            Previous
              Registration
              No.
            
            Filing’s
              Exhibit
              No.10.14
            
            Copy
                of Transmission Agreement, dated October 16, 1992, between the Company
                and
                the Township of East Brunswick.
            
            33-54922
            
            10.2310.15
            
            Copy
                of Supplemental Indentures, dated September 1, 1993, (Series S & T)
                and January 1, 1994, (Series U & V), between the Company and United
                Counties Trust Company, as Trustee, filed as Exhibit No. 10.22 of
                1993
                Form 10-K.10.16
            
            Copy
                of Trust Indentures, dated September 1, 1993, (Series S & T) and
                January 1, 1994, (Series V), between the New Jersey Economic Development
                Authority and First Fidelity Bank (Series S & T), as Trustee, and
                Midlantic National Bank (Series V), as Trustee, filed as Exhibit
                No. 10.23
                of 1993 Form 10-K.10.17
            
            Copy
                of Supplemental Indenture dated October 15, 1998 between Middlesex
                Water
                Company and First Union National Bank, as Trustee.  Copy of Loan
                Agreement dated November 1, 1998 between the New Jersey and Middlesex
                Water Company (Series X), filed as Exhibit No. 10.22 of the 1998
                Third
                Quarter Form 10-Q.10.18
            
            Copy
                of Supplemental Indenture dated October 15, 1998 between Middlesex
                Water
                Company and First Union National Bank, as Trustee.  Copy of Loan
                Agreement dated November 1, 1998 between the State of New Jersey
                Environmental Infrastructure Trust and Middlesex Water Company (Series
                Y),
                filed as Exhibit No. 10.23 of the 1998 Third Quarter Form
                10-Q.10.19
            
            Copy
                of Operation, Maintenance and Management Services Agreement dated
                January
                1, 1999 between the Company City of Perth Amboy, Middlesex County
                Improvement Authority and Utility Service Affiliates, Inc.
            
            333-66727
            
            10.2410.20
            
            Copy
                of  Supplemental Indenture dated October 15, 1999 between
                Middlesex Water Company and First Union National Bank, as Trustee
                and copy
                of Loan Agreement dated November 1, 1999 between the State of New
                Jersey
                and Middlesex Water Company (Series Z), filed as Exhibit No. 10.25
                of the
                1999 Form 10-K.10.21
            
            Copy
                of Supplemental Indenture dated October 15, 1999 between Middlesex
                Water
                Company and First Union National Bank, as Trustee and copy of Loan
                Agreement dated November 1, 1999 between the New Jersey Environmental
                Infrastructure Trust and Middlesex Water Company (Series AA), filed
                as
                Exhibit No. 10.26 of the 1999 Form 10-K.





59




EXHIBIT
      INDEX





Exhibit
                No.
            
            Document
                Description
            
            Previous
              Registration
              No.
            
            Filing’s
              Exhibit
              No.10.22
            
            Copy
                of Supplemental Indenture dated October 15, 2001 between Middlesex
                Water
                Company and First Union National Bank, as Trustee and copy of Loan
                Agreement dated November 1, 2001 between the State of New Jersey
                and
                Middlesex Water Company (Series BB).  Filed as Exhibit No. 10.22
                of the 2001 Form 10-K.10.23
            
            Copy
                of Supplemental Indenture dated October 15, 2001 between Middlesex
                Water
                Company and First Union National Bank, as Trustee and copy of Loan
                Agreement dated November 1, 2001 between the New Jersey Environmental
                Infrastructure Trust and Middlesex Water Company (Series
                CC).  Filed as Exhibit No. 10.22 of the 2001 Form
                10-K.10.24
            
            Copy
                of Supplemental Indenture dated January 15, 2002 between Middlesex
                Water
                Company and First Union National Bank, as Trustee and copy of Loan
                Agreement dated January 1, 2002 between the New Jersey Economic
                Development Authority and Middlesex Water Company (Series DD), filed
                as
                Exhibit No. 10.24 of the 2001 Form 10-K.10.25
            
            Copy
                of Supplemental Indenture dated March 1, 1998 between Middlesex Water
                Company and First Union National Bank, as Trustee.  Copy of
                Trust Indenture dated March 1, 1998 between the New Jersey Economic
                Development Authority and PNC Bank, National Association, as Trustee
                (Series W), filed as Exhibit No. 10.21 of the 1998 Third Quarter
                Form
                10-Q.10.26
            
            Copy
                of Supplemental Indenture dated October 15, 2004 between Middlesex
                Water
                Company and Wachovia Bank, as Trustee and copy of Loan Agreement
                dated
                November 1, 2004 between the State of New Jersey and Middlesex Water
                Company (Series EE), filed as Exhibit No. 10.26 of the 2004 Form
                10-K.10.27
            
            Copy
                of Supplemental Indenture dated October 15, 2004 between Middlesex
                Water
                Company and Wachovia Bank, as Trustee and copy of Loan Agreement
                dated
                November 1, 2004 between the New Jersey Environmental Infrastructure
                Trust
                and Middlesex Water Company (Series FF), filed as Exhibit No. 10.27
                of the
                2004 Form 10-K.10.29
            
            Copy
                of Supply Agreement, between the Company and the City of Rahway,
                filed as
                Exhibit No. 10.2 of 2006 First Quarter Form 10-Q.




60




EXHIBIT
      INDEX





Exhibit
                No.
            
            Document
                Description
            
            Previous
              Registration
              No.
            
            Filing’s
              Exhibit
              No.10.30
            
            Copy
                of Supplemental Indenture dated October 15, 2006 between Middlesex
                Water
                Company and U.S. Bank National Association, as Trustee and copy of
                Loan
                Agreement dated November 1, 2006 between the State of New Jersey
                and
                Middlesex Water Company (Series GG), filed as Exhibit No. 10.30of
                the 2006
                Form 10-K.10.31
            
            Copy
                of Supplemental Indenture dated October 15, 2006 between Middlesex
                Water
                Company and U.S. Bank National Association, as Trustee and copy of
                Loan
                Agreement dated November 1, 2006 between the New Jersey Environmental
                Infrastructure Trust and Middlesex Water Company (Series HH), filed
                as
                Exhibit No. 10.31 of the 2006 Form 10-K.*10.32
            
            Copy
                of Loan Agreement By and Between New Jersey Environmental Infrastructure
                Trust and Middlesex Water Company dated as of November 1, 2007 (Series
                II).*10.33
            
            Copy
                of Loan Agreement By and Between The State of New Jersey, Acting
                By and
                Through The New Jersey Department of Environmental Protection, and
                Middlesex Water Company dated as of November 1, 2007 (Series
                JJ).16
            
            Letter
                of Deloitte & Touche LLP regarding change in certifying accountant
                filed as Exhibit No. 16 of Form 8-K filed on April 5,
                2006.*21
            
            Middlesex
                Water Company Subsidiaries.*23.1
            
            Consent
                of Independent Registered Public Accounting Firm, Beard Miller Company
                LLP.*23.2
            
            Consent
                of Independent Registered Public Accounting Firm, Deloitte & Touche,
                LLP.*31
            
            Section
                302 Certification by Dennis W. Doll pursuant to Rules 13a-14 and
                15d-14 of
                the Securities Exchange Act of 1934.*31.1
            
            Section
                302 Certification by A. Bruce O’Connor pursuant to Rules 13a-14 and 15d-14
                of the Securities Exchange Act of 1934.*32
            
            Section
                906 Certification by Dennis W. Doll pursuant to 18
                U.S.C.§1350.*32.1
            
            Section
                906 Certification by A. Bruce O’Connor pursuant to 18
                U.S.C.§1350.






61