UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
10-Q





(Mark
One)


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





For
the quarterly period ended June 30, 2008





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
              (State
      of incorporation)
            22-1114430
              (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)





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 þ     No
 ̈





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
number of shares outstanding of each of the registrant's classes of common
stock, as of August4, 2008: Common Stock, No Par Value: 13,281,961shares
outstanding.




















INDEX








PART I.
            FINANCIAL INFORMATION
            PAGEItem 1.
            Financial Statements:Condensed Consolidated Statements of Income
            1Condensed Consolidated Balance Sheets
            2Condensed Consolidated Statements of Cash
    Flows
            3Condensed Consolidated Statements of Capital Stock and
      Long-term Debt
            4Notes to Unaudited Condensed Consolidated Financial
      Statements
            5Item 2.
            Management's Discussion and
      Analysis of FinancialCondition and Results of
      Operations
            13Item 3.
            Quantitative and Qualitative Disclosures of Market
      Risk
            19Item 4.
            Controls and Procedures
            20PART II.
            OTHER INFORMATIONItem 1.
            Legal Proceedings
            21Item 1A.
            Risk Factors
            21Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            21Item 3.
            Defaults upon Senior Securities
            21Item 4.
            Submission of Matters to a Vote of Security
      Holders
            21Item 5.
            Other Information
            22Item 6.
            Exhibits
            22SIGNATURES
            22











MIDDLESEX WATER COMPANYCONDENSED
      CONSOLIDATED STATEMENTS OF INCOME(Unaudited)(In
      thousands except per share amounts)Three
      Months Ended June 30,
              
              
              Six
      Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Operating
      Revenues
              
              $
              23,035
              
              
              $
              21,745
              
              
              $
              43,890
              
              
              $
              40,732Operating
      Expenses:Operations
              
              
              10,617
              
              
              
              10,143
              
              
              
              21,719
              
              
              
              20,335Maintenance
              
              
              1,110
              
              
              
              1,037
              
              
              
              2,107
              
              
              
              2,015Depreciation
              
              
              1,955
              
              
              
              1,875
              
              
              
              3,885
              
              
              
              3,720Other
      Taxes
              
              
              2,528
              
              
              
              2,411
              
              
              
              5,008
              
              
              
              4,662Total
      Operating Expenses
              
              
              16,210
              
              
              
              15,466
              
              
              
              32,719
              
              
              
              30,732Operating
      Income
              
              
              6,825
              
              
              
              6,279
              
              
              
              11,171
              
              
              
              10,000Other
      Income (Expense):Allowance
      for Funds Used During Construction
              
              
              162
              
              
              
              140
              
              
              
              265
              
              
              
              252Other
      Income
              
              
              277
              
              
              
              282
              
              
              
              518
              
              
              
              508Other
      Expense
              
              
              (113
              )
              
              
              (8
              )
              
              
              (158
              )
              
              
              (12
              )Total
      Other Income, net
              
              
              326
              
              
              
              414
              
              
              
              625
              
              
              
              748Interest
      Charges
              
              
              1,806
              
              
              
              1,698
              
              
              
              3,323
              
              
              
              3,081Income
      before Income Taxes
              
              
              5,345
              
              
              
              4,995
              
              
              
              8,473
              
              
              
              7,667Income
      Taxes
              
              
              1,780
              
              
              
              1,682
              
              
              
              2,904
              
              
              
              2,583Net
      Income
              
              
              3,565
              
              
              
              3,313
              
              
              
              5,569
              
              
              
              5,084Preferred
      Stock Dividend Requirements
              
              
              62
              
              
              
              62
              
              
              
              124
              
              
              
              124Earnings
      Applicable to Common Stock
              
              $
              3,503
              
              
              $
              3,251
              
              
              $
              5,445
              
              
              $
              4,960Earnings
      per share of Common Stock:Basic
              
              $
              0.26
              
              
              $
              0.25
              
              
              $
              0.41
              
              
              $
              0.38Diluted
              
              $
              0.26
              
              
              $
              0.24
              
              
              $
              0.41
              
              
              $
              0.37Average
      Number ofCommon
      Shares Outstanding :Basic
              
              
              13,269
              
              
              
              13,191
              
              
              
              13,262
              
              
              
              13,184Diluted
              
              
              13,600
              
              
              
              13,522
              
              
              
              13,593
              
              
              
              13,515Cash
      Dividends Paid per Common Share
              
              $
              0.1750
              
              
              $
              0.1725
              
              
              $
              0.3500
              
              
              $
              0.3450
  See
      Notes to Condensed Consolidated Financial Statements.


1


MIDDLESEX
      WATER COMPANYCONDENSED
      CONSOLIDATED  BALANCE SHEETS(Unaudited)(In
      thousands)June
      30,
              
              
              December
      31,ASSETS
              
              
              2008
              
              
              2007UTILITY
      PLANT:
              Water
      Production
              
              $
              100,211
              
              
              $
              98,942Transmission
      and Distribution
              
              
              270,764
              
              
              
              264,939General
              
              
              26,453
              
              
              
              24,874Construction
      Work in Progress
              
              
              15,299
              
              
              
              9,833TOTAL
              
              
              412,727
              
              
              
              398,588Less
      Accumulated Depreciation
              
              
              67,721
              
              
              
              64,736UTILITY
      PLANT - NET
              
              
              345,006
              
              
              
              333,852CURRENT
      ASSETS:
              Cash
      and Cash Equivalents
              
              
              3,724
              
              
              
              2,029Accounts
      Receivable, net
              
              
              8,688
              
              
              
              8,227Unbilled
      Revenues
              
              
              5,691
              
              
              
              4,609Materials
      and Supplies (at average cost)
              
              
              1,451
              
              
              
              1,205Prepayments
              
              
              1,657
              
              
              
              1,363TOTAL
      CURRENT ASSETS
              
              
              21,211
              
              
              
              17,433DEFERRED
      CHARGES
              Unamortized
      Debt Expense
              
              
              2,943
              
              
              
              2,884AND
      OTHER ASSETS:
              Preliminary
      Survey and Investigation Charges
              
              
              6,187
              
              
              
              5,283Regulatory
      Assets
              
              
              15,754
              
              
              
              16,090Operations
      Contracts Fees Receivable
              
              
              4,216
              
              
              
              4,184Restricted
      Cash
              
              
              6,113
              
              
              
              6,418Non-utility
      Assets - Net
              
              
              6,277
              
              
              
              6,183Other
              
              
              330
              
              
              
              348TOTAL
      DEFERRED CHARGES AND OTHER ASSETS
              
              
              41,820
              
              
              
              41,390TOTAL
      ASSETS
              
              $
              408,037
              
              
              $
              392,675CAPITALIZATION
      AND LIABILITIESCAPITALIZATION:
              Common
      Stock, No Par Value
              
              $
              106,392
              
              
              $
              105,668Retained
      Earnings
              
              
              28,245
              
              
              
              27,441Accumulated
      Other Comprehensive Income, net of tax
              
              
              -
              
              
              
              69TOTAL
      COMMON EQUITY
              
              
              134,637
              
              
              
              133,178Preferred
      Stock
              
              
              3,958
              
              
              
              3,958Long-term
      Debt
              
              
              116,675
              
              
              
              131,615TOTAL
      CAPITALIZATION
              
              
              255,270
              
              
              
              268,751CURRENT
              Current
      Portion of Long-term Debt
              
              
              17,807
              
              
              
              2,723LIABILITIES:
              Notes
      Payable
              
              
              17,000
              
              
              
              6,250Accounts
      Payable
              
              
              4,982
              
              
              
              6,477Accrued
      Taxes
              
              
              8,106
              
              
              
              7,611Accrued
      Interest
              
              
              2,177
              
              
              
              1,916Unearned
      Revenues and Advanced Service Fees
              
              
              787
              
              
              
              758Other
              
              
              1,283
              
              
              
              1,274TOTAL
      CURRENT LIABILITIES
              
              
              52,142
              
              
              
              27,009COMMITMENTS
      AND CONTINGENT LIABILITIES (Note 7)DEFERRED
      CREDITS
              Customer
      Advances for Construction
              
              
              21,585
              
              
              
              21,758AND
      OTHER LIABILITIES:
              Accumulated
      Deferred Investment Tax Credits
              
              
              1,421
              
              
              
              1,461Accumulated
      Deferred Income Taxes
              
              
              18,305
              
              
              
              17,940Employee
      Benefit Plans
              
              
              14,243
              
              
              
              13,333Regulatory
      Liability - Cost of Utility Plant Removal
              
              
              5,979
              
              
              
              5,726Other
              
              
              1,265
              
              
              
              459TOTAL
      DEFERRED CREDITS AND OTHER LIABILITIES
              
              
              62,798
              
              
              
              60,677CONTRIBUTIONS
      IN AID OF CONSTRUCTION
              
              
              37,827
              
              
              
              36,238TOTAL
      CAPITALIZATION AND LIABILITIES
              
              $
              408,037
              
              
              $
              392,675See
      Notes to Condensed Consolidated Financial Statements.


2
  MIDDLESEX
      WATER COMPANYCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In
      thousands)Six
      Months Ended June 30,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Income
              
              $
              5,569
              
              
              $
              5,084Adjustments
      to Reconcile Net Income toNet
      Cash Provided by Operating Activities:Depreciation
      and Amortization
              
              
              4,208
              
              
              
              4,029Provision
      for Deferred Income Taxes and ITC
              
              
              317
              
              
              
              235Equity
      Portion of AFUDC
              
              
              (138
              )
              
              
              (121
              )Cash
      Surrender Value of Life Insurance
              
              
              115
              
              
              
              (205
              )Gain
      on Disposal of Equity Investments
              
              
              (86
              )
              
              
              -Gain
      on Sale of Real Estate
              
              
              -
              
              
              
              (212
              )Changes
      in Assets and Liabilities:Accounts
      Receivable
              
              
              (493
              )
              
              
              (1,555
              )Unbilled
      Revenues
              
              
              (1,082
              )
              
              
              (1,546
              )Materials
      & Supplies
              
              
              (246
              )
              
              
              (139
              )Prepayments
              
              
              (294
              )
              
              
              (407
              )Other
      Assets
              
              
              (183
              )
              
              
              (194
              )Accounts
      Payable
              
              
              (559
              )
              
              
              2,011Accrued
      Taxes
              
              
              531
              
              
              
              1,312Accrued
      Interest
              
              
              261
              
              
              
              32Employee
      Benefit Plans
              
              
              1,207
              
              
              
              1,300Unearned
      Revenue & Advanced Service Fees
              
              
              29
              
              
              
              106Other
      Liabilities
              
              
              (123
              )
              
              
              186NET
      CASH PROVIDED BY OPERATING ACTIVITIES
              
              
              9,033
              
              
              
              9,916CASH
      FLOWS FROM INVESTING ACTIVITIES:Utility
      Plant Expenditures, Including AFUDC of $127 in 2008 and $131 in
      2007
              
              
              (13,539
              )
              
              
              (8,774
              )Restricted
      Cash
              
              
              340
              
              
              
              647Proceeds
      from Real Estate Dispositions
              
              
              -
              
              
              
              273Preliminary
      Survey & Investigation Charges
              
              
              (905
              )
              
              
              (1,590
              )NET
      CASH USED IN INVESTING ACTIVITIES
              
              
              (14,104
              )
              
              
              (9,444
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Redemption
      of Long-term Debt
              
              
              (795
              )
              
              
              (711
              )Proceeds
      from Issuance of Long-term Debt
              
              
              939
              
              
              
              133Net
      Short-term Bank Borrowings
              
              
              10,750
              
              
              
              800Deferred
      Debt Issuance Expenses
              
              
              (158
              )
              
              
              (30
              )Common
      Stock Issuance Expense
              
              
              -
              
              
              
              (15
              )Restricted
      Cash
              
              
              (35
              )
              
              
              (23
              )Proceeds
      from Issuance of Common Stock
              
              
              724
              
              
              
              705Payment
      of Common Dividends
              
              
              (4,640
              )
              
              
              (4,547
              )Payment
      of Preferred Dividends
              
              
              (124
              )
              
              
              (124
              )Construction
      Advances and Contributions-Net
              
              
              105
              
              
              
              33NET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
              
              
              6,766
              
              
              
              (3,779
              )NET
      CHANGES IN CASH AND CASH EQUIVALENTS
              
              
              1,695
              
              
              
              (3,307
              )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
              
              
              2,029
              
              
              
              5,826CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              3,724
              
              
              $
              2,519SUPPLEMENTAL
      DISCLOSURE OF NON-CASH ACTIVITY:Utility
      Plant received as Construction Advances and Contributions
              
              $
              1,312
              
              
              $
              2,811Transfer of Equity
      Investments to Employee Retirement Benefit Plans
              
              $
              132
              
              
              
              -SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWS INFORMATION:Cash
      Paid During the Year for:Interest
              
              $
              3,101
              
              
              $
              3,098Interest
      Capitalized
              
              $
              (127
              )
              
              $
              (131
              )Income
      Taxes
              
              $
              2,707
              
              
              $
              1,518See
      Notes to Condensed Consolidated Financial Statements.


3
  MIDDLESEX
      WATER COMPANYCONDENSED
      CONSOLIDATED STATEMENTS OF CAPITAL STOCKAND
      LONG-TERM DEBT(Unaudited)(In
      thousands)
  June
      30,
              
              
              December
      31,2008
              
              
              2007Common
      Stock, No Par ValueShares
      Authorized    -
              40,000Shares
      Outstanding  -
              2008
      - 13,278
              
              
              $
              106,392
              
              
              $
              105,6682007
      - 13,246Retained
      Earnings
              
              
              
              
              
              
              28,245
              
              
              
              27,441Accumulated
      Other Comprehensive Income (Loss), net of tax
              
              
              
              -
              
              
              
              69TOTAL
      COMMON EQUITY
              
              
              $
              134,637
              
              
              $
              133,178Cumulative
      Preference Stock, No Par Value:Shares
      Authorized - 100Shares
      Outstanding - NoneCumulative
      Preferred Stock, No Par ValueShares
      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
      Debt8.05%,
      Amortizing Secured Note, due December 20, 2021
              
              
              $
              2,749
              
              
              $
              2,8006.25%,
      Amortizing Secured Note, due May 22, 2028
              
              
              
              8,365
              
              
              
              8,5756.44%,
      Amortizing Secured Note, due August 25, 2030
              
              
              
              6,207
              
              
              
              6,3476.46%,
      Amortizing Secured Note, due September 19, 2031
              
              
              
              6,487
              
              
              
              6,6274.22%,
      State Revolving Trust Note, due December 31, 2022
              
              
              
              674
              
              
              
              6913.30%
      to 3.60%, State Revolving Trust Note, due May 1, 2025
              
              
              
              3,678
              
              
              
              3,1683.49%,
      State Revolving Trust Note, due January 25, 2027
              
              
              
              667
              
              
              
              6034.03%,
      State Revolving Trust Note, due December 1, 2026
              
              
              
              957
              
              
              
              9743.64%,
      State Revolving Trust Note, due July 1, 2028
              
              
              
              211
              
              
              
              -3.64%,
      State Revolving Trust Note, due January 1, 2028
              
              
              
              140
              
              
              
              -4.00%
      to 5.00%, State Revolving Trust Bond, due September 1,
2021
              
              
              
              695
              
              
              
              6950.00%,
      State Revolving Fund Bond, due September 1, 2021
              
              
              
              528
              
              
              
              538First 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
              
              
              
              582
              
              
              
              5914.25%
      to 4.63%, Series Y, due September 1, 2018
              
              
              
              765
              
              
              
              7650.00%,
      Series Z, due September 1, 2019
              
              
              
              1,317
              
              
              
              1,3425.25%
      to 5.75%, Series AA, due September 1, 2019
              
              
              
              1,785
              
              
              
              1,7850.00%,
      Series BB, due September 1, 2021
              
              
              
              1,656
              
              
              
              1,6854.00%
      to 5.00%, Series CC, due September 1, 2021
              
              
              
              1,995
              
              
              
              1,9955.10%,
      Series DD, due January 1, 2032
              
              
              
              6,000
              
              
              
              6,0000.00%,
      Series EE, due September 1, 2024
              
              
              
              7,004
              
              
              
              7,1123.00%
      to 5.50%, Series FF, due September 1, 2024
              
              
              
              8,385
              
              
              
              8,3850.00%,
      Series GG, due September 1, 2026
              
              
              
              1,685
              
              
              
              1,7104.00%
      to 5.00%, Series HH, due August 1, 2026
              
              
              
              1,950
              
              
              
              1,9500.00%,
      Series II, due August 1, 2027
              
              
              
              1,750
              
              
              
              1,7503.40%
      to 5.00%, Series JJ, due August 1, 2027
              
              
              
              1,750
              
              
              
              1,750SUBTOTAL
      LONG-TERM DEBT
              
              
              
              134,482
              
              
              
              134,338Less:
      Current Portion of Long-term Debt
              
              
              
              (17,807
              )
              
              
              (2,723
              )TOTAL LONG-TERM
    DEBT
              
              
              $
              116,675
              
              
              $
              131,615See
      Notes to Condensed Consolidated Financial Statements.





4











MIDDLESEX
WATER COMPANY


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Note
1 – Basis of Presentation





Middlesex
Water Company (Middlesex or the Company) 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.





The
consolidated notes within the 2007 Form 10-K are applicable to these financial
statements and, in the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments necessary
(including normal recurring accruals) to present fairly the financial position
as of June 30, 2008, the results of operations for the three month and six month
periods ended June 30, 2008 and 2007, and cash flows for the six month periods
ended June 30, 2008 and 2007. Information included in the Condensed Consolidated
Balance Sheet as of December 31, 2007, has been derived from the Company’s
audited financial statements for the year ended December 31, 2007.





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





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. Adoption of SFAS 157 for financial assets and
financial liabilities did not have a material impact on its financial
statements. The Company does not anticipate that adoption of FSP 157-2 will
have a material impact on its financial statements.





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
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”  This Statement identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements.  This Statement is effective 60
days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles.”  The Company is
currently evaluating the potential impact the new pronouncement will have on its
consolidated financial statements.





5


In June
2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, “Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.”  This FSP clarifies that all outstanding
unvested share-based payment awards that contain rights to nonforfeitable
dividends participate in undistributed earnings with common
shareholders.  Awards of this nature are considered participating
securities and the two-class method of computing basic and diluted earnings per
share must be applied.  This FSP is effective for fiscal years
beginning after December 15, 2008.  The Company is currently
evaluating the potential impact the new pronouncement will have on its
consolidated financial statements.





Note 2–Rate
Matters





On April
29, 2008 Pinelands Water and Pinelands Wastewater filed with the New Jersey
Board of Public Utilities (BPU) for base rate increases of 19.8% and 22.9%,
respectively.  These combined increase requests represent $0.3 million
of additional revenues needed to cover higher operations and maintenance costs
of those systems.  We cannot predict whether the BPU will ultimately
approve, deny, or reduce the amount of our requests.





Effective
January 1, 2008, Tidewater received approval from the Delaware Public Service
Commission (PSC) to increase their Distribution System Improvement Charge (DSIC)
from 0.17% to 1.62%.  The DSIC increase is expected to generate
additional annual revenue of approximately $0.2 million.





Effective
July 1, 2008, Tidewater received approval from the PSC to further increase their
DSIC from 1.62% to 2.94%.  The DSIC increase is designed to generate
additional annual revenue of approximately $0.2 million.





In
accordance with the tariff established for Southern Shores, an annual rate
increase of 3% was implemented on January 1, 2008. The increase cannot exceed
the lesser of the regional Consumer Price Index or 3%. The contracted rate
schedule is set to expire on December 31, 2009.





Note
3 – Capitalization





Common Stock
–During the six months ended June 30, 2008, there were 31,707 common shares
(approximately $0.6 million) issued under the Company’s Dividend Reinvestment
and Common Stock Purchase Plan (DRP).





Long-term Debt–Middlesex received approval from the BPU to issue up to $4.0 million of
first mortgage bonds through the New Jersey Environmental Infrastructure Trust
under the New Jersey State Revolving Fund (SRF) program. The Company expects to
complete the transaction in November 2008.  Proceeds from this
financing will be used for the ongoing main cleaning and lining project in
2009.





Long-term
Debt decreased $15.0 million during 2008 for First Mortgage Bond Series U, which
matures on February 1, 2009.  There was an equal and offsetting
increase in the Current Portion of Long-term Debt for the Series U
bond.





Note
4 – Earnings Per Share





Basic earnings per share (EPS) are
computed on the basis of the weighted average number of shares outstanding
during the period presented.  Diluted EPS assumes the conversion of
both the Convertible Preferred Stock $7.00 Series and the Convertible Preferred
Stock $8.00 Series.


6





(In
      Thousands Except per Share Amounts)
              Three
      Months Ended June 30,Basic:
            
            2008
            
            
            Shares
            
            
            2007
            
            
            SharesNet
      Income
            
            $
            3,565
            
            
            
            13,269
            
            
            $
            3,313
            
            
            
            13,191Preferred
      Dividend
            
            
            (62
            )
            
            
            
            
            
            
            (62
            )Earnings
      Applicable to Common Stock
            
            $
            3,503
            
            
            
            13,269
            
            
            $
            3,251
            
            
            
            13,191Basic
      EPS
            
            $
            0.26
            
            
            
            
            
            
            $
            0.25Diluted:Earnings
      Applicable to Common Stock
            
            $
            3,503
            
            
            
            13,269
            
            
            $
            3,251
            
            
            
            13,191$7.00
      Series Preferred Dividend
            
            
            24
            
            
            
            167
            
            
            
            24
            
            
            
            167$8.00
      Series Preferred Dividend
            
            
            24
            
            
            
            164
            
            
            
            24
            
            
            
            164Adjusted
      Earnings Applicable to  Common Stock
            
            $
            3,551
            
            
            
            13,600
            
            
            $
            3,299
            
            
            
            13,522Diluted
      EPS
            
            $
            0.26
            
            
            
            
            
            
            $
            0.24








Six
      Months Ended June 30,Basic:
            
            2008
            
            
            Shares
            
            
            2007
            
            
            SharesNet
      Income
            
            $
            5,569
            
            
            
            13,262
            
            
            $
            5,084
            
            
            
            13,184Preferred
      Dividend
            
            
            (124
            )
            
            
            
            
            
            (124
            )Earnings
      Applicable to Common Stock
            
            $
            5,445
            
            
            
            13,262
            
            
            $
            4,960
            
            
            
            13,184Basic
      EPS
            
            $
            0.41
            
            
            
            
            
            
            $
            0.38Diluted:Earnings
      Applicable to Common Stock
            
            $
            5,445
            
            
            
            13,262
            
            
            $
            4,960
            
            
            
            13,184$7.00
      Series Preferred Dividend
            
            
            49
            
            
            
            167
            
            
            
            49
            
            
            
            167$8.00
      Series Preferred Dividend
            
            
            48
            
            
            
            164
            
            
            
            48
            
            
            
            164Adjusted
      Earnings Applicable to  Common Stock
            
            $
            5,542
            
            
            
            13,593
            
            
            $
            5,057
            
            
            
            13,515Diluted
      EPS
            
            $
            0.41
            
            
            
            
            
            
            $
            0.37





Note
5 – 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 services 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.


7








(In
      Thousands)Three
      Months Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,Operations
      by Segments:
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Revenues:Regulated
            
            $
            20,538
            
            
            $
            19,776
            
            
            $
            38,960
            
            
            $
            36,462Non
      – Regulated
            
            
            2,607
            
            
            
            2,081
            
            
            
            5,091
            
            
            
            4,427Inter-segment
      Elimination
            
            
            (110
            )
            
            
            (112
            )
            
            
            (161
            )
            
            
            (157
            )Consolidated
      Revenues
            
            $
            23,035
            
            
            $
            21,745
            
            
            $
            43,890
            
            
            $
            40,732Operating
      Income:Regulated
            
            $
            6,346
            
            
            $
            5,951
            
            
            $
            10,236
            
            
            $
            9,416Non
      – Regulated
            
            
            479
            
            
            
            328
            
            
            
            935
            
            
            
            584Consolidated
      Operating Income
            
            $
            6,825
            
            
            $
            6,279
            
            
            $
            11,171
            
            
            $
            10,000Net
      Income:Regulated
            
            $
            3,260
            
            
            $
            3,140
            
            
            $
            4,961
            
            
            $
            4,777Non
      – Regulated
            
            
            305
            
            
            
            173
            
            
            
            608
            
            
            
            307Consolidated
      Net Income
            
            $
            3,565
            
            
            $
            3,313
            
            
            $
            5,569
            
            
            $
            5,084Capital
      Expenditures:Regulated
            
            $
            6,973
            
            
            $
            5,024
            
            
            $
            13,284
            
            
            $
            8,549Non
      – Regulated
            
            
            239
            
            
            
            130
            
            
            
            255
            
            
            
            225Total
      Capital Expenditures
            
            $
            7,212
            
            
            $
            5,154
            
            
            $
            13,539
            
            
            $
            8,774




As
      of
              June
      30,
              2008
            
            
            As
      of
              December
      31,
              2007Assets:Regulated
            
            $
            401,693
            
            
            $
            387,931Non
      – Regulated
            
            
            10,366
            
            
            
            8,157Inter-segment
      Elimination
            
            
            (4,022
            )
            
            
            (3,413
            )Consolidated
      Assets
            
            $
            408,037
            
            
            $
            392,675





Note
6 – Short-term Borrowings





As of
June 30, 2008, the Company has established lines of credit aggregating $33.0
million. At June 30, 2008, the outstanding borrowings under these credit lines
were $17.0 million at a weighted average interest rate of 3.30%.





The
weighted average daily amounts of borrowings outstanding under the Company’s
credit lines and the weighted average interest rates on those amounts were $13.1
million and $0.2 million at 3.71% and 6.62% for the three months ended June 30,
2008 and 2007, respectively. The weighted average daily amounts of borrowings
outstanding under the Company’s credit lines and the weighted average interest
rates on those amounts were $10.3 million and $0.1 million at 4.11% and 6.62%
for the six months ended June 30, 2008 and 2007, respectively.





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


8





Note
7 – Commitments and Contingent Liabilities





Guarantees
- USA-PA operates the City of Perth Amboy, New Jersey (Perth Amboy) water and
wastewater systems under contract 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 in addition, a variable fee based on increased
system billing. Scheduled fixed fee payments for 2008 are $8.0 million. The
fixed fees will increase over the term of the contract to $10.2 million per
year.





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
June 30, 2008, approximately $22.6 million of the Series C Serial Bonds remained
outstanding.





Middlesex
is 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, Perth Amboy is
required to reimburse the Company. There are other provisions in the agreement
that make it unlikely that we would be required to perform under the guarantee,
such as scheduled annual rate increases for water and wastewater services as
well as rate increases that may be implemented at anytime by Perth Amboy. 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 per 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:





(In
      Thousands)Three
      Months Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Purchased
      WaterTreated
            
            $
            529
            
            
            $
            539
            
            
            $
            1,050
            
            
            $
            999Untreated
            
            
            516
            
            
            
            529
            
            
            
            1,121
            
            
            
            1,128Total
      Costs
            
            $
            1,045
            
            
            $
            1,068
            
            
            $
            2,171
            
            
            $
            2,127





Construction
– The Company expects to spend approximately $32.7 million on its construction
program in 2008.


9





Litigation
– 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.





Change in
Control Agreements – The Company has Change in Control Agreements with 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
8 – Employee Retirement Benefit Plans





Pension –The
Company has a noncontributory defined benefit pension plan, which covers all
employees with more than 1,000 hours of service hired before April 1,
2007.   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 to which the award pertains.





During
the second quarter the Company contributed $0.1 million in equity securities to
the plan.  The Company contributed $2.1 million of cash to the plan on
July 29, 2008.  No further contributions are anticipated to be made in
2008. The Company also maintains an unfunded supplemental retirement benefit
plan for certain active and retired company officers and currently pays $0.3
million in annual benefits to the retired participants.





Postretirement Benefits
Other Than Pensions – The Company maintains a postretirement benefit plan
other than pensions for substantially all of its retired employees and active
employees hired before April 1, 2007.  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. The Company contributed $0.3 million of cash to the plan on
July 29, 2008.  The Company expects to make additional cash
contributions to the plan of approximately $1.0 million over the remainder of
the current year.





The
following table sets forth information relating to the Company’s periodic costs
for its retirement plans.








(In
      Thousands)Pension Benefits
            
            
            Other BenefitsThree
      Months Ended June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Service
      Cost
            
            $
            312
            
            
            $
            320
            
            
            $
            194
            
            
            $
            205Interest
      Cost
            
            
            488
            
            
            
            453
            
            
            
            252
            
            
            
            224Expected
      Return on Assets
            
            
            (484
            )
            
            
            (456
            )
            
            
            (145
            )
            
            
            (120
            )Amortization
      of Unrecognized Losses
            
            
            -
            
            
            
            66
            
            
            
            72
            
            
            
            84Amortization
      of Unrecognized Prior Service Cost
            
            
            2
            
            
            
            2
            
            
            
            -
            
            
            
            -Amortization
      of Transition Obligation
            
            
            -
            
            
            
            -
            
            
            
            34
            
            
            
            34Net
      Periodic Benefit Cost
            
            $
            318
            
            
            $
            385
            
            
            $
            407
            
            
            $
            427





10





Pension Benefits
            
            
            Other BenefitsSix
      Months Ended June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Service
      Cost
            
            $
            624
            
            
            $
            639
            
            
            $
            387
            
            
            $
            411Interest
      Cost
            
            
            975
            
            
            
            907
            
            
            
            505
            
            
            
            448Expected
      Return on Assets
            
            
            (969
            )
            
            
            (913
            )
            
            
            (291
            )
            
            
            (241
            )Amortization
      of Unrecognized Losses
            
            
            -
            
            
            
            131
            
            
            
            144
            
            
            
            169Amortization
      of Unrecognized Prior Service Cost
            
            
            5
            
            
            
            -
            
            
            
            -
            
            
            
            -Amortization
      of Transition Obligation
            
            
            -
            
            
            
            5
            
            
            
            68
            
            
            
            68Net
      Periodic Benefit Cost
            
            $
            635
            
            
            $
            769
            
            
            $
            813
            
            
            $
            855





Note
9 – 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 received shareholders approval of a stock-based
compensation plan called the 2008 Restricted Stock Plan at its May 21, 2008
annual meeting of shareholders. The Company received approval from the BPU for
the plan on May 9, 2008.  The maximum number of shares authorized for
grant under the 2008 Restricted Stock Plan is 300,000 shares.





The
Company has also filed a petition with the BPU requesting approval of a
stock-based compensation plan for non-employee members of the Board of Directors
called the Director Stock Compensation Plan.  The Company received
shareholder approval for the new plan at its May 21, 2008 annual meeting of
shareholders.  The Company received approval from the BPU for the plan
on July 30, 2008.  The maximum number of shares authorized for grant
under the plan is 100,000 shares.





The
Company recognizes compensation expense at fair value for its restricted stock
awards in accordance with SFAS 123(R), “Shared 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. Compensation expense for the three months ended June 30, 2008 and 2007
was $0.1 million.  Compensation expense for the six months ended June
30, 2008 and 2007 was $0.1 million. Total unearned compensation related to
restricted stock was $0.7 million at both June 30, 2008 and 2007,
respectively.














11





Note
10 – Comprehensive Income





Comprehensive
income was as follows:





(In
      Thousands)Three
      Months Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      Income
            
            $
            3,565
            
            
            $
            3,313
            
            
            $
            5,569
            
            
            $
            5,084Other
      Comprehensive Income (Loss):Change
      in Value of Equity Investments, Net of Income Tax
            
            
            ---
            
            
            
            (23
            )
            
            
            (12
            )
            
            
            (14
            )Less:
      Adjustment for Gain Included in Net Income
            
            
            (57
            )
            
            
            ---
            
            
            
            (57
            )
            
            
            ---Other Comprehensive
      Income (Loss):
            
            
            (57
            )
            
            
            (23
            )
            
            
            (69
            )
            
            
            (14
            )Comprehensive
      Income
            
            $
            3,508
            
            
            $
            3,290
            
            
            $
            5,500
            
            
            $
            5,070


























12





Item
2.   Management’s Discussion and Analysis of
Financial Condition and Results of Operations


The
following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements of the Company included
elsewhere herein and with the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2007.





Forward-Looking
Statements


Certain
statements contained in this periodic 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
      regarding expectations and events concerning capital
      expenditures;


-
            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 quarterly
  report.


13





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 report 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 in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2007.





Overview


The
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
residential, irrigation, 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. Our utility companies are regulated as to rates
charged to customers for water and wastewater services in New Jersey and
Delaware, as to the quality of service provided and as to certain other matters.
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 59,600 retail, commercial and fire service 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. Through our subsidiary, USA-PA, we operate the water
supply system and wastewater collection system for the City of Perth Amboy, New
Jersey. Pinelands Water and Pinelands Wastewater provide water and wastewater
services to residents in Southampton Township, New Jersey.





Tidewater
and Southern Shores provide water services to approximately 32,100 retail
customers in New Castle, Kent, and Sussex Counties, Delaware. Our TESI
subsidiary provides regulated wastewater service to approximately 1,500
residential retail customers. White Marsh serves approximately 5,700 customers
under unregulated operating contracts with various owners of small water and
wastewater systems in Kent and Sussex Counties.





USA
provides customers both inside and outside of our service territories a water
service line maintenance program called LineCareSM. We
offer a similar program for wastewater service lines called LineCare+SM.





The
majority of our revenue is generated from regulated water services to customers
in our franchise 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 since the end of 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.




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 with prior
periods.


14





We are
seeking to increase customer growth outside our existing service territories,
primarily in the mid-Atlantic region.  The business opportunities we
are looking to develop are both regulated and non-regulated.  We incur
costs in connection with the preliminary surveying and investigation (PSI) of
potential water and wastewater projects.  We cannot guarantee we will
successfully obtain any of these projects.  Non-regulated project PSI
costs are expensed as incurred and regulated project PSI costs are deferred
until the project is acquired or abandoned.  Abandoned project costs
are expensed when identified.





Recent
Developments





Rate Increases


On April
29, 2008 Pinelands Water and Pinelands Wastewater filed with the New Jersey
Board of Public Utilities (BPU) for base rate increases of 19.8% and 22.9%,
respectively.  These combined increase requests represent $0.3 million
of additional revenues needed to cover higher operations and maintenance costs
of those companies.  We cannot predict whether the BPU will ultimately
approve, deny, or reduce the amount of our requests.





Effective
January 1, 2008, Tidewater received approval from the Delaware Public Service
Commission (PSC) to increase their Distribution System Improvement Charge (DSIC)
from 0.17% to 1.62%.  The DSIC increase is designed to generate
additional annual revenue of approximately $0.2 million.





Effective
July 1, 2008, Tidewater received approval from the PSC to further increase their
DSIC from 1.62% to 2.94%.  The DSIC increase is designed to generate
additional annual revenue of approximately $0.2 million.





In
accordance with the tariff established for Southern Shores, an annual rate
increase of 3% was implemented on January 1, 2008. The increase cannot exceed
the lesser of the regional Consumer Price Index or 3%. The contracted rate
schedule is set to expire on December 31, 2009.





Operating
Results by Segment





The
Company has two operating segments, Regulated and Non-Regulated. Our Regulated
segment contributed 89% of total revenues and 89% of net income for the six
months ended June 30, 2008 and 91% of total revenues and 95% of net income for
the six months ended June 30, 2007. 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 consist of the following
companies: Regulated-Middlesex, Tidewater, Pinelands, Southern Shores, and TESI;
Non-Regulated- USA, USA-PA, and White Marsh.





15








Results
of Operations – Three Months Ended June 30, 2008





(In
      Thousands)
              Three Months Ended
      June 30,2008
            
            
            2007Regulated
            
            
            Non-
              Regulated
            
            
            Total
            
            
            Regulated
            
            
            Non-
              Regulated
            
            
            TotalRevenues
            
            $
            20,538
            
            
            $
            2,497
            
            
            $
            23,035
            
            
            $
            19,776
            
            
            $
            1,969
            
            
            $
            21,745Operations
      and maintenance expenses
            
            
            9,796
            
            
            
            1,931
            
            
            
            11,727
            
            
            
            9,631
            
            
            
            1,549
            
            
            
            11,180Depreciation
      expense
            
            
            1,926
            
            
            
            29
            
            
            
            1,955
            
            
            
            1,842
            
            
            
            33
            
            
            
            1,875Other
      taxes
            
            
            2,470
            
            
            
            58
            
            
            
            2,528
            
            
            
            2,352
            
            
            
            59
            
            
            
            2,411Operating
      income
            
            
            6,346
            
            
            
            479
            
            
            
            6,825
            
            
            
            5,951
            
            
            
            328
            
            
            
            6,279Other
      income
            
            
            239
            
            
            
            87
            
            
            
            326
            
            
            
            414
            
            
            
            --
            
            
            
            414Interest
      expense
            
            
            1,752
            
            
            
            54
            
            
            
            1,806
            
            
            
            1,672
            
            
            
            26
            
            
            
            1,698Income
      taxes
            
            
            1,573
            
            
            
            207
            
            
            
            1,780
            
            
            
            1,553
            
            
            
            129
            
            
            
            1,682Net
      income
            
            $
            3,260
            
            
            $
            305
            
            
            $
            3,565
            
            
            $
            3,140
            
            
            $
            173
            
            
            $
            3,313





Operating
revenues for the three months ended June 30, 2008 increased $1.3 million, or
5.9%, from the same period in 2007.  Revenues in our Middlesex system
increased $1.3 million as a result of a 9.1% base rate increase implemented on
October 26, 2007. Middlesex revenues decreased by $0.6 million due to lower
consumption by our customers in 2008.  Revenues improved $0.1 million
in our Tidewater system, of which $0.1 million was the result of the additional
1.62% DSIC rate increase that went into effect at the beginning of
2008.    Customer growth contributed $0.1 million to the
increase.  Fees charged for initial connection to our Delaware Water
system were $0.1 million lower in 2008 as new residential and commercial
development has slowed in our Delaware service
territories.   USA-PA’s fees for managing the Perth Amboy water
and wastewater systems were $0.2 million higher than the same period in 2007 due
mostly to higher pass-through charges.  There was on equal and
offsetting amount of higher expenses connected with this management
contract.  Revenues from non-regulated contract operations in Delaware
increased $0.1 million due to growth in contract customers and increased sales
of additional services.  Revenues from our regulated wastewater
operations in Delaware increased $0.1 million due to customer
growth.  All other operations accounted for $0.1 million of additional
revenues.





While we
anticipate continued organic customer and consumption growth, particularly in
our Delaware systems, such growth and increased consumption cannot be
guaranteed. Revenues from 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 2008 operating revenues
to reflect the full effect of the October 2007 Middlesex $5.0 million rate
increase.





Operation
and maintenance expenses for the three months ended June 30, 2008 increased $0.5
million or 4.9%.  Water Production costs were $0.1 million higher due
to higher costs for water, electric power, chemicals and disposal of residuals
in New Jersey.  The costs to operate our TESI regulated wastewater
facilities in Delaware increased $0.1 million due to acquisition of the Milton,
Delaware municipal wastewater system during 2007 and an increased number of
wastewater treatment facilities in operation in
Delaware.   Operating costs for USA-PA increased $0.2 million due
to higher pass through-charges.  All other expense categories
increased $0.1 million.


16


Depreciation
expense increased $0.1 million, or 4.3%, primarily as a result of a higher level
of utility plant in service since June 30, 2007.





Other
taxes increased $0.1 million, generally reflecting additional taxes on higher
gross revenues in our Middlesex system.





Total
Other Income, net decreased $0.1 million, primarily due to costs associated with
business development activities on the Delmarva Peninsula.





Interest
expense increased $0.1 millioncommensurate with higher
short-term borrowings compared to the prior year period.  Lower
interest rates reduced the level of the interest expense
increase.  The weighted average interest rate for the quarter was
almost 3% lower than the quarter ended June 30, 2007.





Income
taxes increased $0.1 million as a result of increased operating income as
compared to the prior year.





Net
income increased 7.6% from $3.3 million to $3.6 million.  Basic
earnings per share grew  4% to $0.26 for the three months ended June
30, 2008 compared to $0.25 for the same period in 2007.  Diluted
earnings per share were $0.26 and $0.24 for three months ended June 30, 2008 and
2007, respectively.





Results
of Operations – Six Months Ended June 30, 2008





(In
      Thousands)
              Six Months Ended June
      30,2008
            
            
            2007Regulated
            
            
            Non-
              Regulated
            
            
            Total
            
            
            Regulated
            
            
            Non-
              Regulated
            
            
            TotalRevenues
            
            $
            38,960
            
            
            $
            4,930
            
            
            $
            43,890
            
            
            $
            36,462
            
            
            $
            4,270
            
            
            $
            40,732Operations
      and maintenance expenses
            
            
            20,005
            
            
            
            3,821
            
            
            
            23,826
            
            
            
            18,846
            
            
            
            3,504
            
            
            
            22,350Depreciation
      expense
            
            
            3,827
            
            
            
            58
            
            
            
            3,885
            
            
            
            3,656
            
            
            
            64
            
            
            
            3,720Other
      taxes
            
            
            4,892
            
            
            
            116
            
            
            
            5,008
            
            
            
            4,544
            
            
            
            118
            
            
            
            4,662Operating
      income
            
            
            10,236
            
            
            
            935
            
            
            
            11,171
            
            
            
            9,416
            
            
            
            584
            
            
            
            10,000Other
      income
            
            
            416
            
            
            
            209
            
            
            
            625
            
            
            
            748
            
            
            
            ---
            
            
            
            748Interest
      expense
            
            
            3,198
            
            
            
            125
            
            
            
            3,323
            
            
            
            3,030
            
            
            
            51
            
            
            
            3,081Income
      taxes
            
            
            2,493
            
            
            
            411
            
            
            
            2,904
            
            
            
            2,357
            
            
            
            226
            
            
            
            2,583Net
      income
            
            $
            4,961
            
            
            $
            608
            
            
            $
            5,569
            
            
            $
            4,777
            
            
            $
            307
            
            
            $
            5,084





Operating
revenues for the six months ended June 30, 2008 increased $3.2 million or 7.8%
from the same period in 2007.  Revenues in our Middlesex system
increased $2.4 million as a result of a 9.1% base rate increase implemented on
October 26, 2007.  Middlesex revenues decreased $0.4 million due to
lower consumption by our customers during 2008. Water sales improved $0.6
million in our Delaware water systems, of which $0.4 million was a result of an
additional 12% base rate increase that was granted to Tidewater on February 28,
2007 and a DSIC rate increase of 1.62% that went into effect January 1,
2008.  Fees charged to new customers for initial connection to our
Delaware water systems were down $0.2 million for the reasons described
above.   USA-PA’s fees for managing the Perth Amboy water and
wastewater systems were $0.3 million higher than the same period in 2007 due
mostly to higher pass-through charges.  There was an equal and
offsetting amount of higher expenses connected with this management
contract.  Revenues from our regulated


17


wastewater
operations in Delaware increased $0.2 million due to customer
growth.  All other operations accounted for $0.3 million of additional
revenues.





Operation
and maintenance expenses increased $1.5 million or 6.6%.  Water
Production costs increased $0.4 million due to higher costs for water, electric
power, chemicals and disposal of residuals.  Labor and benefits costs
increased $0.4 million due to wage increases and an increased number of
employees to meet the needs of the increased Delaware customer
base.  The costs to operate our TESI regulated wastewater facilities
in Delaware increased $0.3 million due to acquisition of the Milton, Delaware
municipal wastewater system during 2007 and an increased number of wastewater
treatment facilities in operation in Delaware.   Operating costs
for USA-PA increased $0.3 million due to higher pass-through
charges.  All other expense categories increased $0.1
million.





Depreciation
expense increased $0.2 million or 4.4% due to the higher level of utility plant
in service.





Other
taxes increased $0.3 million, generally reflecting additional taxes on higher
gross revenues in our Middlesex system.





Total
Other Income, net decreased $0.1 million primarily due to costs associated with
business development activities on the Delmarva Peninsula.





Interest
expense increased $0.2 millioncommensurate with higher
short-term borrowings compared to the prior year period.  Lower
interest rates reduced the level of the interest expense
increase.  The weighted average interest rate for the year was almost
2.5% lower than the year ended June 30, 2007.





Income
taxes increased $0.3 million as a result of increased operating income as
compared to the prior year.





Net
income increased $0.5 million or 9.5%. Basic earnings per share increased 7.9%
to $0.41 for the six months ended June 30, 2008 compared to $0.38 for the same
period in 2007.  Diluted earnings per share were $0.41 and $0.37 for
six months ended June 30, 2008 and 2007.





Liquidity
and Capital Resources





Cash
flows from operations are largely dependent on three factors: the impact of
weather on water sales, adequate and timely rate increases, and customer growth.
The effect of those factors on net income is discussed in results of operations.
For the six months ended June 30, 2008, cash flows from operating activities
were $9.0 million, a decrease of $0.9 million from the prior year. The decrease
includes $2.6 million attributable to a decrease in Accounts Payable due to the
timing of payments.  This decrease in cash flows was partially offset
by increased net income and a decrease in customer accounts
receivable.  The $9.0 million of net cash flow from operations enabled
us to fund 66% of our utility plant expenditures internally for the period, with
the remainder funded with proceeds from requisitions under the Delaware State
Revolving Fund (SRF) program loans and short-term borrowings.





The
capital spending program for 2008 is currently estimated to be $32.7 million.
which is lower by $4.2 million than the amount previously reported in our 2007
Annual Report on Form 10-K.  This decrease is due primarily to the
slowing of new residential and commercial development in our Delaware service
territories.  Through June 30, 2008, we have expended $13.6
million.  For the remainder of 2008 we expect to incur $19.1 million
of costs.  We expect to spend an additional $5.4 million for additions
and improvements to our Delaware water systems; $1.9 million for infrastructure
additions for our Delaware wastewater systems; $1.1


18


million
towards implementation of a Company-wide information system upgrade; and $3.0
million for the RENEW program to complete the cleaning and cement lining of
approximately nine miles of unlined water mains in the Middlesex system. There
remains a total of approximately 112 miles of unlined mains in the 730-mile
Middlesex system. The capital program also includes an additional $7.7 million
to be incurred over the remainder of 2008 for scheduled upgrades to our existing
systems in New Jersey.  The remaining spending for scheduled upgrades
includes $3.2 million for improvements to existing utility plant, $2.3 million
for mains, $0.3 million for service lines, $0.2 million for meters, $0.1 million
for hydrants and $1.6 million for other infrastructure needs.





To fund
our capital program in 2008, we will utilize internally generated funds and
funds available under existing New Jersey SRF program loans (currently, $3.5
million) and Delaware SRF program loans (currently, $2.2 million). These
programs provide low cost financing for projects that meet certain water quality
and system improvement benchmarks. If needed, we will also borrow funds through
$33.0 million of available lines of credit with several financial institutions.
As of June 30, 2008, $17.0 million was outstanding against the lines of
credit.





We
periodically issue shares of common stock in connection with our dividend
reinvestment and stock purchase plan (DRP).  From time to time, we may
issue additional equity to reduce short-term indebtedness, fund our capital
program, and for other general corporate purposes.





We
currently project that we may be required to expend between $73.3 million and
$93.4 million for capital projects in 2009 and 2010 combined. The exact amount
is dependent on customer growth, residential housing sales and project
scheduling.  In particular, Middlesex has filed a prudence review
application with the BPU for a proposed major transmission pipeline designed to
strengthen its existing transmission network and provide further system
reliability.  Initial estimates to construct the pipeline are $26.2
million.  Evidentiary hearings are scheduled for the end of August
2008.  The duration and outcome of the BPU review process may affect
the construction schedule as well as the project viability.




We
have a $15.0 million first mortgage bond (Series U) that will be maturing on
February 1, 2009. It is our intention to refund and refinance Series U with a
long-term first mortgage bond. The timing and terms of this refinancing are
dependent on financial market conditions and other identified capital need at
that time.





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.





In
addition to the effect of weather conditions on revenues, increases in certain
operating costs will impact our liquidity and capital resources. We received
rate relief for Middlesex in October 2007,  for Tidewater in January
2008 and July 2008, and for Southern Shores on January 1,
2008.  Changes in operating costs and timing of capital projects will
have an impact on revenues, earnings, and cash flows and will also impact the
timing of filings for future rate increases.





Recent Accounting
Pronouncements – See Note 1 of the Notes to Unaudited Condensed
Consolidated Financial Statements for a discussion of recent accounting
pronouncements.





Item
3.  Quantitative andQualitative Disclosures of Market
Risk





The
Company is subject to the risk of fluctuating interest rates in the normal
course of business.  Our capital program is partially financed with
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 Amortizing Secured Notes and
First Mortgage Bonds, which have final maturity dates ranging


19


from 2009
to 2038.  Over the next twelve months, approximately $17.8 million of
the current portion of twenty-one existing long-term debt instruments will
mature. Applying a hypothetical change in the rate of interest of 10% on those
borrowings would not have a material effect on earnings.





Item
      4.
                Controls and Procedures
  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. 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 for Long-term Debt and the
Current Portion of Long-term Debt were not effective. As a result of this
conclusion, the Company performed additional review and analysis to ensure the
condensed 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.
 
 On August
1, 2008 the Company implemented additional procedures and controls related to
the evaluation and review of maturity dates for Long-term Debt to ensure proper
classification of debt maturing in less than one year to the Current Portion of
Long-term Debt in the future.
 
 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.











20


PART
II.  OTHER INFORMATION








Item
      1.
            Legal
      Proceedings





Reference
is made to the Company’s Annual Report on Form 10-K for the year ended December
31, 2007 and Quarterly Report on Form 10-Q filed for the period ended June 30,
2008.  Note 7 to the unaudited Condensed Consolidated Financial
Statements for the period ended June 30, 2008, included in Part I of this
Quarterly Report on Form 10-Q, is hereby incorporated by reference.





Item1A.
            Risk
      Factors





We expect
our revenues to increase from customer growth in Delaware for our regulated
water operations and, to a lesser degree, our regulated 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 Delaware territories we serve
decline significantly as a result of economic conditions or otherwise, revenue
growth may not meet our expectations and our financial results could be
impacted.





Except as
described above, information about risk factors for the six months ended June
30, 2008 does not differ materially from those set forth in Part I, Item 1A. of
the Company’s Annual Report on Form 10-K for the year ended December 31,
2007.





Item 2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds





None.





Item 3.
            Defaults
      Upon Senior Securities





None.





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





1.
            ELECTION
      OF DIRECTORS:


Nominees
for Class III term expiring 2011





FOR
            %
            WITHHOLD
            %John
      R. Middleton, M.D.
            10,202,350
            92.8
            789,288
            7.2Jeffries
      Shein
            10,535,807
            95.9
            455,831
            4.1J.
      Richard Tompkins
            9,098,808
            82.8
            1,892,830
            17.2





2.
            Approval
      of the new 2008 Restricted Stock
Plan





FOR
            %
            AGAINST
            %
            ABSTAIN
            %6,106.228
            92.5
            498,479
            7.5
            150,948
            0.0





3.
            Approval
      of the outside Director Stock Compensation
Plan





FOR
            %
            AGAINST
            %
            ABSTAIN
            %6,006,178
            91.7
            543,555
            8.3
            205,922
            0.0









21







Item 5.
            Other
      Information





None.








Item 6.
            Exhibits





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, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.





32.1
            Section
      906 Certification by A. Bruce O’Connor pursuant to 18 U.S.C. §1350, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.








SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.





MIDDLESEX
      WATER COMPANYBy:
            /s/ A. Bruce
      O’ConnorA.
      Bruce O’ConnorVice
      President andChief
      Financial Officer








Date:
August 6, 2008




22