================================================================================


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)
    |X|      QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2006

                                       OR

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

For the transition period from _________________ to______________________

Commission File Number     0-422

                             MIDDLESEX WATER COMPANY
             (Exact name of registrant as specified in its charter)


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

                       1500 Ronson Road, Iselin, NJ 08830
          (Address of principal executive offices, including zip code)

                                 (732) 634-1500
              (Registrant's telephone number, including area code)

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 |X| No |_|

Indicate by check mark whether the  registrant is large  accelerated  filer,  an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

Large accelerated filer |_|   Accelerated filer |X|    Non-accelerated filer |_|

The number of shares outstanding of each of the registrant's classes of common
stock, as of October 27, 2006: Common Stock, No Par Value: 11,661,332 shares
outstanding.

================================================================================

<PAGE>

                                      INDEX


    PART I.     FINANCIAL INFORMATION                                       PAGE
                                                                            ----

    Item 1.     Financial Statements:

                Condensed Consolidated Statements of Income                  1

                Condensed Consolidated Balance Sheets                        2

                Condensed Consolidated Statements of Cash Flows              3

                Condensed Consolidated Statements of Capital Stock
                  and Long-term Debt                                         4

                Notes to Unaudited Condensed Consolidated
                  Financial Statements                                       5

    Item 2.     Management's Discussion and Analysis of Financial
                Condition and Results of Operations                         13

    Item 3.     Quantitative and Qualitative Disclosures of Market Risk     19

    Item 4.     Controls and Procedures                                     20

    PART II.    OTHER INFORMATION

    Item 1.     Legal Proceedings                                           20

    Item 1A.    Risk Factors                                                20

    Item 2.     Changes in Securities                                       20

    Item 3.     Defaults Upon Senior Securities                             20

    Item 4.     Submission of Matters to a Vote of Security Holders         21

    Item 5.     Other Information                                           21

    Item 6.     Exhibits                                                    21

SIGNATURE                                                                   22


<PAGE>
<TABLE>
<CAPTION>

                                               MIDDLESEX WATER COMPANY
                                     CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                                     (Unaudited)

                                                 Three Months Ended September 30,     Nine Months Ended September 30,
                                                       2006            2005                 2006            2005
--------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>                   <C>             <C>
Operating Revenues                                $ 22,631,975    $ 20,832,448          $ 61,899,176    $ 56,006,102
--------------------------------------------------------------------------------------------------------------------

Operating Expenses:
   Operations                                       10,446,019      10,065,706            30,104,046      28,516,810
   Maintenance                                         907,554         765,422             2,440,786       2,643,226
   Depreciation                                      1,882,544       1,635,403             5,263,677       4,803,610
   Other Taxes                                       2,537,462       2,352,781             7,109,987       6,599,435
--------------------------------------------------------------------------------------------------------------------

      Total Operating Expenses                      15,773,579      14,819,312            44,918,496      42,563,081
--------------------------------------------------------------------------------------------------------------------

Operating Income                                     6,858,396       6,013,136            16,980,680      13,443,021
--------------------------------------------------------------------------------------------------------------------

Other Income:
   Allowance for Funds Used During Construction        170,148         109,009               398,173         459,915
   Other Income                                         41,393          63,368               140,171         154,530
   Other Expense                                        (6,372)         (1,879)              (20,630)        (26,348)
--------------------------------------------------------------------------------------------------------------------

Total Other Income, net                                205,169         170,498               517,714         588,097
--------------------------------------------------------------------------------------------------------------------

Interest Charges                                     1,889,572       1,624,145             5,212,687       4,584,315
--------------------------------------------------------------------------------------------------------------------

Income before Income Taxes                           5,173,993       4,559,489            12,285,707       9,446,803
--------------------------------------------------------------------------------------------------------------------

Income Taxes                                         1,796,998       1,535,061             4,128,512       3,096,545
--------------------------------------------------------------------------------------------------------------------

Net Income                                           3,376,995       3,024,428             8,157,195       6,350,258

Preferred Stock Dividend Requirements                   61,947          61,947               185,840         189,340
--------------------------------------------------------------------------------------------------------------------

Earnings Applicable to Common Stock               $  3,315,048    $  2,962,481          $  7,971,355    $  6,160,918
--------------------------------------------------------------------------------------------------------------------

Earnings per share of Common Stock:
   Basic                                          $       0.29    $       0.26          $       0.69    $       0.54
   Diluted                                        $       0.28    $       0.26          $       0.68    $       0.54

Average Number of
   Common Shares Outstanding :
   Basic                                            11,629,681      11,466,024            11,611,427      11,409,182
   Diluted                                          11,960,821      11,805,164            11,942,567      11,750,989

Cash Dividends Paid per Common Share              $     0.1700    $     0.1675          $     0.5100    $     0.5025

</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                                       1

<PAGE>
<TABLE>
<CAPTION>
                                                   MIDDLESEX WATER COMPANY
                                            CONDENSED CONSOLIDATED BALANCE SHEETS
                                                         (Unaudited)

                                                                                           September 30,         December 31,
ASSETS                                                                                         2006                  2005
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>                  <C>
UTILITY PLANT:                Water Production                                             $  94,139,767        $  91,403,549
                              Transmission and Distribution                                  230,308,569          217,098,466
                              General                                                         23,915,030           23,292,087
                              Construction Work in Progress                                   12,374,501            6,127,634
                              ------------------------------------------------------------------------------------------------
                              TOTAL                                                          360,737,867          337,921,736
                              Less Accumulated Depreciation                                   58,624,098           54,960,290
                              ------------------------------------------------------------------------------------------------
                              UTILITY PLANT - NET                                            302,113,769          282,961,446

------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS:               Cash and Cash Equivalents                                        1,410,258            2,983,762
                              Accounts Receivable, net                                         9,571,383            8,074,929
                              Unbilled Revenues                                                5,110,991            3,737,627
                              Materials and Supplies (at average cost)                         1,630,298            1,259,935
                              Prepayments                                                      1,703,998              927,254
                              ------------------------------------------------------------------------------------------------
                              TOTAL CURRENT ASSETS                                            19,426,928           16,983,507

------------------------------------------------------------------------------------------------------------------------------
DEFERRED CHARGES              Unamortized Debt Expense                                         3,033,125            3,164,043
AND OTHER ASSETS:             Preliminary Survey and Investigation Charges                     3,112,458            1,774,817
                              Regulatory Assets                                                7,516,015            7,469,190
                              Restricted Cash                                                  5,053,792            5,782,705
                              Non-utility Assets - Net                                         6,208,215            5,727,806
                              Other                                                              643,032              519,610
                              ------------------------------------------------------------------------------------------------
                              TOTAL DEFERRED CHARGES AND OTHER ASSETS                         25,566,637           24,438,171
                              ------------------------------------------------------------------------------------------------
                              TOTAL ASSETS                                                 $ 347,107,334        $ 324,383,124
                              ------------------------------------------------------------------------------------------------

CAPITALIZATION AND LIABILITIES
------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION:               Common Stock, No Par Value                                   $  77,343,106        $  76,160,949
                              Retained Earnings                                               25,679,691           23,638,301
                              Accumulated Other Comprehensive Loss, net of tax                  (167,951)            (206,925)
                              ------------------------------------------------------------------------------------------------
                              TOTAL COMMON EQUITY                                            102,854,846           99,592,325
                              ------------------------------------------------------------------------------------------------
                              Preferred Stock                                                  3,958,062            3,958,062
                              Long-term Debt                                                 126,337,662          128,174,944
                              ------------------------------------------------------------------------------------------------
                              TOTAL CAPITALIZATION                                           233,150,570          231,725,331

------------------------------------------------------------------------------------------------------------------------------
CURRENT                       Current Portion of Long-term Debt                                2,441,885            1,930,617
LIABILITIES:                  Notes Payable                                                   18,200,000            4,000,000
                              Accounts Payable                                                 7,044,871            6,038,060
                              Accrued Taxes                                                    8,021,684            6,466,531
                              Accrued Interest                                                   908,690            1,868,962
                              Unearned Revenues and Advanced Service Fees                        567,430              473,627
                              Other                                                              831,552              707,446
                              ------------------------------------------------------------------------------------------------
                              TOTAL CURRENT LIABILITIES                                       38,016,112           21,485,243

------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 6)

------------------------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS              Customer Advances for Construction                              18,178,585           17,180,962
AND OTHER LIABILITIES:        Accumulated Deferred Investment Tax Credits                      1,558,987            1,617,949
                              Accumulated Deferred Income Taxes                               14,937,828           14,296,620
                              Employee Benefit Plans                                           6,951,355            6,650,724
                              Regulatory Liability - Cost of Utility Plant Removal             6,104,208            5,647,757
                              Other                                                              749,749              793,857
                              ------------------------------------------------------------------------------------------------
                              TOTAL DEFERRED CREDITS AND OTHER LIABILITIES                    48,480,712           46,187,869

------------------------------------------------------------------------------------------------------------------------------
CONTRIBUTIONS IN AID OF CONSTRUCTION                                                          27,459,940           24,984,681
------------------------------------------------------------------------------------------------------------------------------
                              TOTAL CAPITALIZATION AND LIABILITIES                         $ 347,107,334        $ 324,383,124
                              ------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Condensed Consolidated Financial Statements.
                                                              2
<PAGE>
<TABLE>
<CAPTION>

                                           MIDDLESEX WATER COMPANY
                               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (Unaudited)

                                                                            Nine Months Ended September 30,
                                                                              2006                  2005
                                                                           ---------------------------------
<S>                                                                          <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                                 $ 8,157,195          $ 6,350,258
Adjustments to Reconcile Net Income to
      Net Cash Provided by Operating Activities:
          Depreciation and Amortization                                      5,817,307            5,320,479
          Provision for Deferred Income Taxes and ITC                          240,838               61,268
          Allowance for Funds Used During Construction                        (398,173)            (459,915)
      Changes in Assets and Liabilities:
          Accounts Receivable                                               (1,496,454)          (1,402,349)
          Unbilled Revenues                                                 (1,373,364)          (1,001,815)
          Materials & Supplies                                                (370,363)            (344,115)
          Prepayments                                                         (776,744)            (209,502)
          Other Assets                                                        (383,147)            (130,128)
          Accounts Payable                                                   1,006,811           (1,384,541)
          Accrued Taxes                                                      1,535,075              602,410
          Accrued Interest                                                    (960,272)            (851,448)
          Employee Benefit Plans                                               300,631              416,723
          Unearned Revenue & Advanced Service Fees                              93,803              102,371
          Other Liabilities                                                     79,998             (116,096)

------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                   11,473,141            6,953,600
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Utility Plant Expenditures*                                          (20,700,359)         (17,684,593)
      Cash Surrender Value & Other Investments                                (154,527)            (189,951)
      Restricted Cash                                                          745,078            6,763,292
      Preliminary Survey & Investigation Charges                            (1,337,641)            (790,524)

------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                                      (21,447,449)         (11,901,776)
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Redemption of Long-term Debt                                          (1,647,282)          (1,003,768)
      Proceeds from Issuance of Long-term Debt                                 321,268           14,637,070
      Net Short-term Bank Borrowings (Repayments)                           14,200,000           (6,000,000)
      Deferred Debt Issuance Expenses                                           (1,390)            (131,777)
      Common Stock Issuance Expense                                             (9,939)                  --
      Restricted Cash                                                          (16,165)                  --
      Proceeds from Issuance of Common Stock                                 1,182,157            2,599,335
      Payment of Common Dividends                                           (5,920,026)          (5,728,156)
      Payment of Preferred Dividends                                          (185,840)            (189,340)
      Construction Advances and Contributions-Net                              478,021              938,606
------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                    8,400,804            5,121,970
------------------------------------------------------------------------------------------------------------
NET CHANGES IN CASH AND CASH EQUIVALENTS                                    (1,573,504)             173,794
------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                             2,983,762            4,034,768
------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                 $ 1,410,258          $ 4,208,562
------------------------------------------------------------------------------------------------------------

*Excludes Allowance for Funds Used During Construction.

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
      Utility Plant received as Construction Advances and Contributions    $ 2,994,862          $   901,531

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
   Cash Paid During the Year for:
      Interest                                                             $ 6,152,560          $ 5,394,714
      Interest Capitalized                                                 $  (398,173)         $  (459,915)
      Income Taxes                                                         $ 3,110,550          $ 2,822,000
------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                                      3

<PAGE>
<TABLE>
<CAPTION>

                                           MIDDLESEX WATER COMPANY
                             CONDENSED CONSOLIDATED STATEMENTS OF CAPITAL STOCK
                                             AND LONG-TERM DEBT
                                                 (Unaudited)

                                                                         September 30,         December 31,
                                                                             2006                  2005
------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                   <C>
Common Stock, No Par Value:
     Shares Authorized   -  20,000,000
     Shares Outstanding  -  2006 - 11,638,581                           $  77,343,106         $  76,160,949
                            2005 - 11,584,499

Retained Earnings                                                          25,679,691            23,638,301
Accumulated Other Comprehensive Loss, net of tax                             (167,951)             (206,925)
------------------------------------------------------------------------------------------------------------
        TOTAL COMMON EQUITY                                             $ 102,854,846         $  99,592,325
------------------------------------------------------------------------------------------------------------

Cumulative Preference Stock, No Par Value:
     Shares Authorized - 100,000
     Shares Outstanding - None
Cumulative Preferred Stock, No Par Value
     Shares Authorized - 139,497
   Convertible:
     Shares Outstanding, $7.00 Series - 13,881                          $   1,457,505         $   1,457,505
     Shares Outstanding, $8.00 Series - 12,000                              1,398,857             1,398,857
   Nonredeemable:
     Shares Outstanding, $7.00 Series -   1,017                               101,700               101,700
     Shares Outstanding, $4.75 Series - 10,000                              1,000,000             1,000,000
------------------------------------------------------------------------------------------------------------
        TOTAL PREFERRED STOCK                                           $   3,958,062         $   3,958,062
------------------------------------------------------------------------------------------------------------

Long-term Debt:
   8.05%, Amortizing Secured Note, due December 20, 2021                $   2,918,493         $   2,983,384
   6.25%, Amortizing Secured Note, due May 22, 2028                         9,100,000             9,415,000
   6.44%, Amortizing Secured Note, due August 25, 2030                      6,696,667             6,906,667
   6.46%, Amortizing Secured Note, due September 19, 2031                   6,976,667             7,000,000
   4.22%, State Revolving Trust Note, due December 31, 2022                   738,772               754,164
   3.30% to 3.60%, State Revolving Trust Note, due May 1, 2025              3,019,522             3,018,254
   3.49%, State Revolving Trust Note, due January 25, 2027                    598,144               278,144
   4.00% to 5.00%, State Revolving Trust Bond, due September 1, 2021          730,000               760,000
   0.00%, State Revolving Fund Bond, due September 1, 2021                    577,222               614,436
   First Mortgage Bonds:
      5.20%, Series S, due October 1, 2022                                 12,000,000            12,000,000
      5.25%, Series T, due October 1, 2023                                  6,500,000             6,500,000
      6.40%, Series U, due February 1, 2009                                15,000,000            15,000,000
      5.25%, Series V, due February 1, 2029                                10,000,000            10,000,000
      5.35%, Series W, due February 1, 2038                                23,000,000            23,000,000
      0.00%, Series X, due September 1, 2018                                  646,897               700,280
      4.25% to 4.63%, Series Y, due September 1, 2018                         820,000               870,000
      0.00%, Series Z, due September 1, 2019                                1,454,749             1,567,367
      5.25% to 5.75%, Series AA, due September 1, 2019                      1,890,000             1,990,000
      0.00%, Series BB, due September 1, 2021                               1,804,982             1,926,956
      4.00% to 5.00%, Series CC, due September 1, 2021                      2,090,000             2,185,000
      5.10%, Series DD, due January 1, 2032                                 6,000,000             6,000,000
      0.00%, Series EE, due September 1, 2024                               7,482,432             7,715,909
      3.00% to 5.50%, Series FF, due September 1, 2024                      8,735,000             8,920,000
------------------------------------------------------------------------------------------------------------
        SUBTOTAL LONG-TERM DEBT                                           128,779,547           130,105,561
------------------------------------------------------------------------------------------------------------
                           Less: Current Portion of Long-term Debt         (2,441,885)           (1,930,617)
------------------------------------------------------------------------------------------------------------
                              TOTAL LONG-TERM DEBT                      $ 126,337,662         $ 128,174,944
------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                                     4
<PAGE>
                             MIDDLESEX WATER COMPANY
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Organization - 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).  On January 1, 2006,  the  Company's
Bayview Water Company  subsidiary  was merged into  Middlesex.  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 2005  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 September  30, 2006 and the results of  operations  for the three
and nine month periods ended September 30, 2006 and 2005, and cash flows for the
nine month periods ended  September 30, 2006 and 2005.  Information  included in
the Balance  Sheet as of December 31, 2005 has been  derived from the  Company's
audited financial statements for the year ended December 31, 2005.

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

Recent  Accounting  Pronouncements  - In July  2006,  the  Financial  Accounting
Standards  Board (FASB) issued FASB  Interpretation  No. 48 (FIN 48) "Accounting
for Uncertainty in Income Taxes - an  interpretation of FASB Statement No. 109,"
to clarify certain aspects of accounting for uncertain tax positions,  including
recognition  and  measurement of those tax  positions.  This  interpretation  is
effective for fiscal years  beginning after December 15, 2006. The Company is in
the process of evaluating the impact of the adoption of this  interpretation  on
the Company's results of operations and financial condition.

In September 2006, the FASB issued  Statement of Financial  Accounting  Standard
(SFAS) No. 158,  "Employers'  Accounting for Defined  Benefit  Pension and Other
Postretirement  Plans,"  (SFAS  158).  SFAS  158  requires  recognition  of  the
overfunded  or  underfunded   status  of  defined   benefit  pension  and  other
postretirement  plans  as an  asset  or  liability  on  the  balance  sheet  and
recognition  of changes in that  funded  status in the year in which the changes
occur through  comprehensive  income.  For an underfunded  plan, the incremental
liability to be recorded would be equal to the difference  between the projected
benefit  obligation and the fair value of plan assets.  SFAS No. 87, "Employers'
Accounting for Pensions" (SFAS 87) and SFAS No. 106, "Employers'  Accounting for
Postretirement  Benefits  Other Than  Pensions"  (SFAS 106) allowed for deferred
recognition of this liability through amortization of this difference over time.
Under SFAS 158,  actuarial  gains and losses and prior service costs and credits
that arise during the period but,  pursuant to SFAS 87 and SFAS 106 were not yet
recognized as components of net periodic  benefit cost,  will be recognized as a
component of Other  Comprehensive  Income (net of tax). SFAS 158 also recognizes
an adjustment to the beginning balance of retained earnings (net of tax) for any
transition obligation remaining from the initial application of SFAS 87 and SFAS
106. Such amounts  subsequently will be amortized as a component of net periodic
benefit cost.

On September 13, 2006, the Securities and Exchange Commission "SEC" issued Staff
Accounting Bulleting No. 108 ("SAB 108"). SAB 108 provides interpretive guidance
on how the effects of the  carryover  or  reversal  of prior year  misstatements
should be considered in quantifying a potential current year misstatement. Prior
to SAB 108,  Companies  might evaluate the  materiality  of  financial-statement
misstatements using either the income statement or balance sheet approach,  with
the income statement approach focusing on new misstatements added in the current
year,  and the  balance  sheet  approach  focusing on the  cumulative  amount of
misstatement  present in a company's balance sheet.  Misstatements that would be
material  under  one  approach  could be  viewed  as  immaterial  under  another
approach,  and not be  corrected.  SAB  108 now  requires  that  companies  view
financial statement  misstatements as material if they are material according to
either the income statement or balance sheet approach.  The Company has analyzed
SAB 108 and determined that upon adoption it will have no impact on the reported
results of operations or financial conditions.

                                       5
<PAGE>

This  statement  is  effective  as of the end of the fiscal  year  ending  after
December 15, 2006 (December 31, 2006 for the Company). Because we are subject to
regulation  in the states in which we operate,  we are  required to maintain our
accounts in accordance  with the regulatory  authority's  rules and  guidelines,
which may differ from other authoritative  accounting  pronouncements.  In those
instances,  the Company follows the guidance of SFAS No. 71, "Accounting for the
Effects of Certain Types of  Regulation,"  (SFAS 71). Based on prior  regulatory
practice,  and in accordance with the guidance  provided by SFAS 71, the Company
will   record   approximately   $13.5   million  of   underfunded   pension  and
postretirement  obligations,  which  otherwise  would  be  recognized  as  Other
Comprehensive  Income as of December  31,  2006 under SFAS 158, as a  Regulatory
Asset, and expect to recover those costs in our rates charged to customers.  The
Company  does not  anticipate  that the  adoption of this  standard  will have a
material  impact on its  financial  position,  results of  operations,  and cash
flows, except as described above.

Note 2 - Rate Matters

On April 28,  2006,  Tidewater  filed for a $5.5  million,  or 38.6%,  base rate
increase  with the Delaware  Public  Service  Commission  (PSC).  The request is
intended to recover  increased  costs of operations,  maintenance  and taxes, as
well as capital investment of approximately  $23.8 million since rates were last
established  in March 2005. We cannot  predict  whether the PSC will  ultimately
approve,  deny,  or reduce the amount of the request.  Concurrent  with the rate
filing,  Tidewater  also  submitted a request for a 15%  interim  rate  increase
subject to refund as allowed  under PSC  regulations.  The interim rates of $1.6
million on an annualized basis, went into effect on June 27, 2006.

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

In accordance with the tariff  established for Southern  Shores,  an annual rate
increase of 3% was implemented on January 1, 2006. Under the terms of a contract
with Southern  Shores  Homeowners  Association,  the increase  cannot exceed the
lesser of the regional  Consumer  Price Index or 3%. The rates are set to expire
on December 31, 2006 and the Company is currently negotiating a new agreement.

Note 3 - Capitalization

Common Stock -During the nine months ended September 30, 2006, there were 54,082
common shares  (approximately  $1.2 million) issued under the Company's Dividend
Reinvestment  and Common Stock  Purchase  Plan.  On October 6, 2006,  we filed a
registration  statement with the United States  Securities  Exchange  Commission
("SEC") on Form S-3 for an offering of 1,495,000  (including the  over-allotment
option)  shares of our common stock.  We anticipate the  registration  statement
will be declared effective in November 2006.

Long-term Debt - On July 19, 2006,  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 close on the financing in November 2006.

On April 25, 2006, Tidewater received approval from the PSC to borrow up to $1.0
million  under the Delaware SRF program.  The Delaware SRF program  allows,  but
does not  obligate,  Tidewater to draw against a General  Obligation  Note for a
specific  project over a two-year  period ending in April 2008. On May 31, 2006,
the Company closed on the loan with an established interest rate of 4.03%.

                                       6
<PAGE>

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.

                                        (In Thousands Except per Share Amounts)
                                            Three Months Ended September 30,

Basic:                                    2006      Shares      2005     Shares
-------------------------------------------------------------------------------
Net Income                              $ 3,377     11,630    $ 3,024    11,466
Preferred Dividend                          (62)                  (62)
                                        -------    -------    -------   -------
Earnings Applicable to Common Stock     $ 3,315     11,630    $ 2,962    11,466

Basic EPS                               $  0.29               $  0.26

-------------------------------------------------------------------------------
Diluted:
-------------------------------------------------------------------------------
Earnings Applicable to Common Stock       3,315     11,630    $ 2,962    11,466
$7.00 Series Preferred Dividend              24        167         24       175
$8.00 Series Preferred Dividend              24        164         24       164
                                        -------    -------    -------   -------
Adjusted Earnings Applicable to
  Common Stock                          $ 3,363     11,961    $ 3,010    11,805

Diluted EPS                             $  0.28               $  0.26


                                             Nine Months Ended September 30,
Basic:                                    2006      Shares      2005     Shares
-------------------------------------------------------------------------------
Net Income                              $ 8,157     11,611    $ 6,350    11,409
Preferred Dividend                         (186)                 (189)
                                        -------    -------    -------   -------
Earnings Applicable to Common Stock     $ 7,971     11,611    $ 6,161    11,409

Basic EPS                               $  0.69               $  0.54

-------------------------------------------------------------------------------
Diluted:
-------------------------------------------------------------------------------
Earnings Applicable to Common Stock     $ 7,971     11,611    $ 6,161    11,409
$7.00 Series Dividend                        73        167         76       178
$8.00 Series Dividend                        72        164         72       164
                                        -------    -------    -------   -------
Adjusted Earnings Applicable to
  Common Stock                          $ 8,116     11,942    $ 6,309    11,751

Diluted EPS                             $  0.68               $  0.54

                                       7
<PAGE>

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 the
operations of a regulated  wastewater  systems in New Jersey and  Delaware.  The
entities comprising this segment are subject to regulation as to rates,  service
and other  matters by the States of New Jersey and  Delaware.  The other segment
primarily  includes  non-regulated  contract  services  for  the  operation  and
maintenance of municipal and private water and wastewater  systems in New Jersey
and  Delaware.  The  accounting  policies of the  segments are the same as those
described in the summary of significant  accounting policies in the Consolidated
Notes to the Financial  Statements in the Company's Annual Report for the period
ended December 31, 2005 filed on Form 10-K. 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.  These  inter-segment
transactions are eliminated in the Company's consolidated financial statements.

                                                  (In Thousands)
                                    Three Months Ended        Nine Months Ended
                                       September 30,            September 30,
Operations by Segments:              2006        2005        2006         2005
--------------------------------------------------------------------------------
Revenues:
   Regulated                       $ 20,388    $ 18,701    $ 55,051    $ 49,852
   Non - Regulated                    2,330       2,161       6,994       6,244
Inter-segment Elimination               (86)        (30)       (146)        (90)
                                   --------------------------------------------
Consolidated Revenues              $ 22,632    $ 20,832    $ 61,899    $ 56,006
                                   --------------------------------------------

Operating Income:
   Regulated                       $  6,597    $  5,746    $ 16,046    $ 12,813
                                        261         267         935         630
                                   --------------------------------------------
Consolidated Operating Income      $  6,858    $  6,013    $ 16,981    $ 13,443
                                   --------------------------------------------

Net Income:
   Regulated                       $  3,255    $  2,878    $  7,662    $  6,018
   Non - Regulated                      122         146         495         332
                                   --------------------------------------------
Consolidated Net Income            $  3,377    $  3,024    $  8,157    $  6,350
                                   --------------------------------------------

Capital Expenditures:
   Regulated                       $  8,799    $  6,004    $ 20,478    $ 17,450
   Non - Regulated                        5          88         222         235
                                   --------------------------------------------
Total Capital Expenditures         $  8,804    $  6,092    $ 20,700    $ 17,685
                                   --------------------------------------------

                                     As of        As of
                                 September 30,  December 31,
                                      2006         2005
                                      ----         ----
Assets:
   Regulated                       $ 342,772    $ 320,889
   Non - Regulated                     6,899        5,912
Inter-segment Elimination             (2,564)      (2,418)
                                   ----------------------
Consolidated Assets                $ 347,107    $ 324,383
                                   ----------------------

                                       8
<PAGE>

Note 6 - Short-term Borrowings

As  of  September  30,  2006,  the  Company  has  established  lines  of  credit
aggregating  $37.0 million.  At September 30, 2006, the  outstanding  borrowings
under these credit lines were $18.2 million at a weighted  average interest rate
of 5.67%.  As of that date, the Company had borrowing  capacity of $18.8 million
under its credit lines.

The weighted average daily amounts of borrowings outstanding under the Company's
credit lines and the weighted average interest rates on those amounts were $15.4
million  and  $10.9  million  at 6.22% and  4.72%  for the  three  months  ended
September 30, 2006 and 2005, 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 $10.1  million and $10.9 million at 6.05%
and 4.29% for the nine months ended September 30, 2006 and 2005, respectively.

Note 7 - Commitments and Contingent Liabilities

Guarantees - USA-PA  operates the City of Perth Amboy's  (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 2006 are $7.6  million.  The
fixed fees will increase over the term of the contract to $10.2 million.

In connection  with the  agreement  Perth Amboy,  through the  Middlesex  County
Improvement  Authority,  issued  approximately  $68.0 million in three series of
bonds. Middlesex guaranteed one of those series of bonds,  designated the Series
C Serial Bonds, in the principal  amount of approximately  $26.3 million.  Perth
Amboy  guaranteed the two other series of bonds.  The Series C Serial Bonds have
various  maturity dates with the final maturity date on September 1, 2015. As of
September  30, 2006,  approximately  $23.4  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 by Perth Amboy due to
unforeseen circumstances. In the event revenues from customers could not satisfy
the reimbursement requirements,  Perth Amboy has Ad Valorem taxing powers, which
could be used to raise the needed amount.

Water  Supply - Middlesex  has an  agreement  with the New Jersey  Water  Supply
Authority (NJWSA) for the purchase of untreated water through November 30, 2023,
which  provides  for an average  purchase  of 27 million  gallons 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.

                                       9
<PAGE>

Purchased water costs are shown below:
                                                (In Millions)
                                   Three Months Ended    Nine Months Ended
                                      September 30,        September 30,
                                     2006     2005         2006     2005
                                    -------------------------------------

      Purchased Water
       Treated                      $  0.6   $  0.7       $  1.7   $  1.7
       Untreated                       0.5      0.5          1.3      1.4
                                    -------------------------------------
        Total Costs                 $  1.1   $  1.2       $  3.0   $  3.1
                                    -------------------------------------

Construction - The Company expects to spend  approximately  $29.3 million on its
construction program in 2006.

Litigation - In July 2005,  Tidewater received a notice of violation and request
for corrective  action issued by the Delaware Fire Marshal regarding the alleged
failure of one of the  community  water  systems  operated by  Tidewater to meet
Delaware fire  protection  requirements.  Tidewater  appealed the Fire Marshal's
decision with the Delaware State Fire Prevention Commission (the "SFPC") and, in
November 2005, the SFPC denied Tidewater's  appeal. In December 2005,  Tidewater
filed an appeal of the SFPC's  decision with the Sussex County Superior Court in
Delaware,  which is still  pending.  There  are  approximately  67 of our  other
systems that may not meet the Delaware Fire Marshal's recent  interpretation  of
the fire protection requirements.  If the Delaware Fire Marshal's interpretation
of the regulations is upheld upon appeal, we may be required to make corrections
to the system at issue and the  Delaware  Fire  Marshal  could issue  notices of
violation  and  requests  for   corrective   action  for  some  or  all  of  the
approximately  67 other community  systems.  At this time, we cannot predict how
many community water systems would ultimately  require  corrective action if our
appeal  is  unsuccessful  nor can we  predict  the  timing  and the  cost of any
required  corrective actions. We will apply to the PSC to increase base rates to
recover the costs of any such corrective actions. However, if corrective actions
need to be  taken  at  several  community  water  systems,  our  costs  could be
significant, and to the extent the PSC does not approve rate increases to offset
these costs, or if there is a significant  delay in receiving  approval for such
rate increases, such costs could have a material adverse effect on our operating
results.

The Company is a defendant in various 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
certain of its Officers that provide  compensation  and benefits in the event of
termination of employment in connection with a change in control of the Company.

                                       10
<PAGE>

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.  The  Company
contributed  $1.3  million of cash to the plan in July 2006.  In  addition,  the
Company  maintains  an  unfunded  supplemental  pension  plan for seven  company
officers.

Postretirement   Benefits  Other  Than  Pensions  -  The  Company   maintains  a
postretirement  benefit plan other than  pensions for  substantially  all of its
retired  employees.  Coverage  includes  healthcare and life insurance.  Retiree
contributions are dependent on credited years of service. The Company expects to
make a cash contributions of approximately $1.0 million in the fourth quarter of
2006.

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

<TABLE>
<CAPTION>
                                                               (In Thousands)
                                                   Pension Benefits       Other Benefits
                                                   ----------------       --------------
                                                       Three Months Ended September 30,
                                                    2006       2005       2006      2005
                                                  ----------------------------------------
<S>                                               <C>        <C>        <C>        <C>
Service Cost                                      $   328    $   281    $   189    $   156

Interest Cost                                         426        390        201        193

Expected Return on Assets                            (402)      (387)       (83)       (69)

Amortization of Unrecognized Losses                    64         12        111        120

Amortization of Unrecognized Prior Service Cost         3         23         --         --

Amortization of Transition Obligation                  --         --         34         34
                                                  ----------------------------------------
Net Periodic Benefit Cost                         $   419    $   319    $   452    $   434
                                                  ----------------------------------------
<CAPTION>

                                                               (In Thousands)
                                                   Pension Benefits       Other Benefits
                                                   ----------------       --------------
                                                       Nine Months Ended September 30,
                                                    2006       2005       2006      2005
                                                  ----------------------------------------
<S>                                               <C>        <C>        <C>        <C>
Service Cost                                      $   972    $   844    $   555    $   466

Interest Cost                                       1,281      1,169        620        578

Expected Return on Assets                          (1,219)    (1,160)      (256)      (206)

Amortization of Unrecognized Losses                   184         36        351        361

Amortization of Unrecognized Prior Service Cost         6         69         --         --

Amortization of Transition Obligation                  --         --        101        102
                                                  ----------------------------------------
Net Periodic Benefit Cost                         $ 1,224    $   958    $ 1,371    $ 1,301
                                                  ----------------------------------------
</TABLE>

Note 9 - Stock Based Compensation

The Company  recognizes  compensation  expense at fair value for its  restricted
stock awards in  accordance  with SFAS 123(R).  The adoption of this standard on
January 1, 2006 did not have any  impact on the  Company's  financial  position,
results of operations, or cash flows.

The Company  maintains a Restricted Stock Plan, under which 56,067 shares of the
Company's  common  stock are held in escrow by the Company as of  September  30,
2006 for key  employees.  Such stock is subject to forfeiture by the employee in
the event of termination of employment within five years of the award other than

                                       11
<PAGE>

as a result of retirement,  death,  disability or change in control. The maximum
number of shares  authorized for grant under this plan is 240,000 shares.  There
were no grants,  vesting or  forfeitures  of  restricted  stock  during the nine
months ended September 30, 2006.

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 September 30, 2006 and 2005 was $0.1 million.
Compensation  expense for the nine months ended  September 30, 2006 and 2005 was
$0.2 million.  Total unearned  compensation related to restricted stock was $0.5
million at September 30, 2006.

Note 10 - Other Comprehensive Income

Comprehensive income was as follows:

                                                      (In Thousands)
                                         Three Months Ended    Nine Months Ended
                                            September 30,        September 30,
                                           2006      2005       2006      2005
                                         --------------------------------------
Net Income                               $ 3,377   $ 3,024    $ 8,157   $ 6,350

Other Comprehensive Income:
Change in Value of Equity Investments,
  Net of Income Tax                           39        (1)        39         8
                                         --------------------------------------
     Other Comprehensive Income               39        (1)        39         8

                                         --------------------------------------
Comprehensive Income                     $ 3,416   $ 3,023    $ 8,196   $ 6,358
                                         --------------------------------------


                                       12
<PAGE>

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, 2005.

Forward-Looking Statements

Certain  statements  contained  in this  quarterly  report are  "forward-looking
statements"  within the meaning of federal  securities laws. 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,   cash  flows,
            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  2006  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  pension  plan,  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
<PAGE>

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  quarterly  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 quarterly 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, 2005.

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  59,125  retail  customers,  primarily in central New
Jersey.  The  Middlesex  System also provides  water  service under  contract to
municipalities  in central New Jersey with a total  population of  approximately
294,000. 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  29,700
retail customers in New Castle,  Kent, and Sussex Counties,  Delaware.  Our TESI
subsidiary provides regulated wastewater service to approximately 80 residential
retail  customers.  White  Marsh  serves  approximately  5,000  customers  under
unregulated   operating  contracts  with  various  owners  of  small  water  and
wastewater systems in Kent and Sussex Counties.

Our USA subsidiary provides customers within the Middlesex System a service line
maintenance program called LineCareSM.

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
<PAGE>

Recent Developments

Rate Increases

Tidewater  filed for a $5.5  million,  or 38.6%,  base  rate  increase  with the
Delaware  Public  Service  Commission  (PSC) on April 28,  2006.  The  requested
increase is intended to recover  increased costs of operations,  maintenance and
taxes, as well as capital investment of approximately  $23.8 million since rates
were last  established  in March 2005.  We cannot  predict  whether the PSC will
ultimately approve,  deny, or reduce the amount of the request.  Concurrent with
the rate  filing,  Tidewater  also  submitted a request  for a 15% interim  rate
increase subject to refund, as allowed under PSC regulations. The interim rates,
$1.6  million  on an  annualized  basis,  went  into  effect  on June 27,  2006.
Evidentiary hearings are scheduled for mid-November 2006.

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

In accordance with the tariff  established for Southern  Shores,  an annual rate
increase of 3% was implemented on January 1, 2006. Under the terms of a contract
with the Southern Shores Homeowners Association,  the increase cannot exceed the
lesser of the regional  Consumer  Price Index or 3%. The rates are set to expire
on December 31, 2006, and the Company is currently negotiating a new agreement.

Merger of Bayview Water Company into Middlesex Water Company

In December 2005, the BPU approved a merger of Bayview into the Middlesex system
effective  January  1,  2006.  As part of the BPU's  stipulation  approving  the
merger,  the water  service  rates for the customers of Bayview are to remain at
their  current  levels until the water  service  rates for  Middlesex  customers
exceed the current Bayview rates.

Operating Results by Segment

The  Company  has two  operating  segments,  Regulated  and  Non-Regulated.  Our
Regulated  segment  contributed  89% of total revenues and 94% of net income for
the nine months ended  September  30, 2006 and 89% of total  revenues and 95% of
net income for the nine months ended  September 30, 2005.  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
<PAGE>

Results of Operations - Three Months Ended September 30, 2006

<TABLE>
<CAPTION>

                                                             (Thousands of Dollars)
                                                         Three Months Ended September 30,
                                                         --------------------------------
                                                    2006                                 2005
                                                    ----                                 ----
                                                     Non-                |                Non-
                                      Regulated   Regulated     Total    |  Regulated   Regulated     Total
                                      ---------   ---------     -----    |  ---------   ---------     -----
<S>                                       <C>            <C>      <C>           <C>            <C>      <C>
Revenues                              $  20,388   $   2,244   $  22,632  |  $  18,701   $   2,131   $  20,832
Operations and maintenance expenses       9,468       1,886      11,354  |      9,043       1,788      10,831
Depreciation expense                      1,849          34       1,883  |      1,607          28       1,635
Other taxes                               2,474          63       2,537  |      2,305          48       2,353
                                      -----------------------------------------------------------------------
  Operating income                        6,597         261       6,858  |      5,746         267       6,013
                                      -----------------------------------------------------------------------
                                                                         |
Other income                                205          --         205  |        170          --         170
Interest expense                          1,867          22       1,889  |      1,600          24       1,624
Income taxes                              1,680         117       1,797  |      1,438          97       1,535
                                      -----------------------------------------------------------------------
  Net income                          $   3,255   $     122   $   3,377  |  $   2,878   $     146   $   3,024
                                      -----------------------------------------------------------------------
</TABLE>

Operating  revenues for the three months ended September 30, 2006 increased $1.8
million,  or 8.6%,  from the same period in 2005.  Water sales  improved by $0.6
million in our New Jersey systems,  of which $1.3 million was a result of a base
rate  increase  that was granted to Middlesex  on December 8, 2005.  Unfavorable
weather at the  beginning  and end of the  quarter  resulted  in a  decrease  in
consumption  revenues of $0.7 million when  compared to the same period in 2005.
Revenues rose in our Delaware service territories by $1.1 million.  Higher water
consumption  by our  existing  customers  contributed  $0.4  million in revenue,
customer growth  contributed $0.2 million of water sales, and the implementation
of the 15% interim rate increase on June 28, 2006  provided an  additional  $0.5
million. New unregulated  wastewater contracts in Delaware under our White Marsh
operations provided $0.1 million of additional revenues. Revenue changes for all
other operations were minor when compared to the prior year period.

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.  Customer  growth in both the regulated  water and  wastewater
businesses are dependent  upon economic  conditions  surrounding  new housing as
well as developer  construction  timetables.  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.

Operation and maintenance expenses for the three months ended September 30, 2006
increased  $0.5  million  or 4.8%,  compared  to the same  period  in 2005.  The
continued  growth of our Delaware  systems resulted in $0.3 million of increases
for the  cost of  water  treatment,  business  insurance,  payroll  and  related
employee benefit costs.  Wastewater treatment costs for White Marsh increased by
$0.1 million. USA-PA expenses for subcontractor fees and labor increased by $0.1
million. In New Jersey,  lower consumption led to lower production costs of $0.1
million. All other operation expenses increased $0.1 million.

As  expected,  we are  experiencing  increased  costs in the  areas of  electric
generation costs, pension and other-postretirement costs and payroll and related
employee benefit costs.

                                       16
<PAGE>

Depreciation expense increased $0.2 million, or 15.1%,  primarily as a result of
a higher level of utility plant in service since September 30, 2005.

Other taxes increased $0.2 million,  reflecting increased taxable gross revenues
in New Jersey and higher payroll related taxes.

Interest  expense  increased  $0.3  million,  primarily due to a higher level of
short-term borrowings at higher rates of interest as compared to the prior year.

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

Net income increased $0.4 million. Basic earnings per share increased from $0.26
to $0.29 due to the increase in earnings.  Diluted  earnings per share increased
from $0.26 to $0.28.

Results of Operations - Nine Months Ended September 30, 2006

<TABLE>
<CAPTION>
                                                                  (In Thousands)
                                                          Nine Months Ended September 30,
                                                          -------------------------------
                                                    2006                                   2005
                                                    ----                                   ----
                                                     Non-                |                 Non-
                                      Regulated   Regulated     Total    |  Regulated   Regulated     Total
                                      ---------   ---------     -----       ---------   ---------     -----
<S>                                   <C>         <C>         <C>           <C>         <C>         <C>
Revenues                              $  55,051   $   6,848   $  61,899  |  $  49,852   $   6,154   $  56,006
Operations and maintenance expenses      26,900       5,645      32,545  |     25,883       5,277      31,160
Depreciation expense                      5,173          90       5,263  |      4,729          75       4,804
Other taxes                               6,932         178       7,110  |      6,427         172       6,599
                                      -----------------------------------------------------------------------
  Operating income                       16,046         935      16,981  |     12,813         630      13,443
                                      -----------------------------------------------------------------------

Other income                                518          --         518  |        588          --         588
Interest expense                          5,140          73       5,213  |      4,514          70       4,584
Income taxes                              3,762         367       4,129  |      2,869         228       3,097
                                      -----------------------------------------------------------------------
  Net income                          $   7,662   $     495   $   8,157  |  $   6,018   $     332   $   6,350
                                      -----------------------------------------------------------------------
</TABLE>

Operating  revenues for the nine months ended  September 30, 2006 increased $5.9
million,  or 10.5%  from the same  period in 2005.  Base rate  increases  in New
Jersey and Delaware  combined to contribute $3.9 million of the higher revenues.
Water consumption and related fees from customer growth,  primarily in Delaware,
added $0.8 million of the increase,  while water sales to our existing customers
grew by $0.4 million. New unregulated  wastewater contracts in Delaware provided
$0.4 million of additional revenues. All other sources contributed $0.4 million.

Operation and maintenance  expenses for the nine months ended September 30, 2006
increased  $1.4  million,  or 4.4%,  compared to the same  period in 2005.  Even
though water  production  was down 2.4% compared to 2005,  water  production and
treatment costs for our Middlesex system increased by $0.2 million due to higher
unit costs for electricity,  chemicals and disposal of residuals.  This increase
was  offset by $0.2  million  of  reduced

                                       17
<PAGE>

maintenance  costs  for the  Middlesex  system.  As  previously  discussed,  the
continuing  growth of our  Delaware  systems  resulted in higher  costs of water
treatment,  additional  employees and related benefit  expenses of $0.4 million.
Costs related to providing services by our non-regulated wastewater operation in
Delaware  increased $0.2 million.  USA-PA  expenses for  subcontractor  fees and
labor increased by $0.2 million.  Business insurance  increased $0.2 million and
bill  production  fees  increased by $0.1  million.  All other  operation  costs
increased by $0.3 million.

Depreciation  expense increased $0.5 million,  or 9.6%, due to a higher level of
utility plant in service since September 30, 2005.

Other taxes increased by $0.5 million,  reflecting taxes on higher taxable gross
revenues in New Jersey.

Other income  decreased $0.1 million,  primarily due to a reduced  Allowance for
Funds Used During  Construction  from less  capitalized  interest as a result of
smaller capital projects with shorter construction cycles in New Jersey.

Interest  expense  increased  $0.6  million,  primarily due to a higher level of
short-term borrowings at higher rates of interest as compared to the prior year.

Income taxes increased $1.0 million as a result of increased operating income as
compared to the prior year.

Net income  increased  $1.8  million,  or 28.5%,  and basic  earnings  per share
increased from $0.54 to $0.69 per share.  Diluted  earnings per share  increased
from $0.54 to $0.68 per share.  The earnings  per share  increase was due to the
higher net income.

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 nine  months  ended  September  30,  2006,  cash  flows  from  operating
activities were $11.5 million,  an increase of $4.5 million from the prior year.
This increase was attributable to increased  earnings and the timing of payments
to  vendors  and  payments  for taxes.  The $11.5  million of net cash flow from
operations enabled us to fund 55% of our utility plant  expenditures  internally
for the  period,  with  the  remainder  funded  with  proceeds  from  short-term
borrowings and equity issued under our Dividend Reinvestment Plan.

The  Company's  capital  program for 2006 is estimated  to be $29.3  million and
includes  $16.0  million for additions and  improvements  to our Delaware  water
systems, including the construction of several storage tanks and the creation of
new wells and  interconnections.  We expect to spend  approximately $5.0 million
for  infrastructure  additions  and  acquisitions  for our  Delaware  wastewater
systems.  We expect to spend $3.5  million for the RENEW  program,  to clean and
cement line  approximately  nine miles of unlined mains in the Middlesex system.
There  remains  a total  of  approximately  120  miles of  unlined  mains in the
730-mile  Middlesex  system.  The capital program also includes $4.8 million for
scheduled  upgrades to facilities in New Jersey.  These upgrades consist of $0.3
million for improvements to existing utility plant, $1.4 million for mains, $0.9
million for service lines,  $0.4 million for meters,  $0.3 million for hydrants,
and $1.5 million for other infrastructure needs.

To fund our capital program in 2006, we will utilize internally  generated funds
and funds available under existing New Jersey Environmental Infrastructure Trust
(NJEIT) loans (currently,  $3.4 million) and Delaware State Revolving Fund (SRF)
loans (currently,  $3.5 million),  which provide low cost financing for projects
that

                                       18
<PAGE>

meet certain water quality and system improvement benchmarks.  We also expect to
utilize short-term borrowings through $37.0 million of available lines of credit
with several financial institutions. As of September 30, 2006, $18.2 million was
outstanding against the lines of credit.

On July 19, 2006,  Middlesex  received approval from the BPU to issue up to $4.0
million of first mortgage bonds through the NJEIT.  The Company expects to close
on the financing in November 2006. The proceeds from this financing will be used
to fund the 2007 RENEW program.

On April 25, 2006, Tidewater received approval from the PSC to borrow up to $1.0
million  under the Delaware SRF program.  The Delaware SRF program  allows,  but
does not  obligate,  Tidewater to draw against a General  Obligation  Note for a
specific  project over a two-year  period ending in April 2008. On May 31, 2006,
the Company closed on the loan with an established interest rate of 4.03%.

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.  On  October  6,  2006 we  filed a
registration statement on Form S-3 covering the offering of 1,495,000 (including
the  over-allotment  option)  shares of our common stock with the United  States
Securities  and Exchange  Commission  ("SEC").  We anticipate  the  registration
statement will be declared effective in November 2006. There can be no assurance
that the registration  statement will be declared  effective in November 2006 or
at any  later  time.  If the  offering  is  completed,  we expect to use the net
proceeds to repay all of our outstanding  short-term  borrowings and to fund our
ongoing construction program.

We expect to spend  between $79 million  and $102  million for capital  projects
through 2008. To the extent possible and because of the favorable interest rates
available to regulated water utilities, we will finance our capital expenditures
under SRF loan  programs.  We also  expect to use  internally  generated  funds,
proceeds from the DRP, and the proceeds from the common stock offering described
above to pay for our capital program.

In  addition  to the effect of weather  conditions  on  revenues,  increases  in
certain  operating  costs will impact our  liquidity and capital  resources.  As
described in our overview  section,  we have  recently  received rate relief for
Middlesex  and  Pinelands.  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 and Qualitative 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 maturity dates ranging from 2009 to 2038. Over the next twelve
months,  approximately  $2.4 million of the current portion of fifteen  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.

                                       19
<PAGE>

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 are effective as of the end of
the period  covered by this Report.  There have been no changes in the Company's
internal  controls,  or in other  factors  which  materially  affected  internal
controls during the quarter ended September 30, 2006.

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.

                           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, 2005 and Quarterly Reports on Form 10-Q filed for the periods ended
March 31, 2006 and June 30, 2006. Note 7 to the unaudited Condensed Consolidated
Financial Statements for the period ended September 30, 2006, included in Part I
of this Quarterly Report on Form 10-Q, is hereby incorporated by reference.

Item 1A. 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,  our revenue
growth  may not  meet  our  expectations  and our  financial  results  could  be
negatively impacted.

Except as described above,  information  about risk factors for the three months
ended September 30, 2006 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, 2005.

Item 2.  Changes in Securities

None.

Item 3.  Defaults Upon Senior Securities

None.


                                       20
<PAGE>

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

None.

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. ss.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.
      ss.1350,  as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of
      2002.


                                       21
<PAGE>

                                   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 COMPANY

                              By:   /s/ A. Bruce O'Connor
                                    ---------------------
                                      A. Bruce O'Connor
                                     Vice President and
                                   Chief Financial Officer


Date: October 27, 2006



                                       22