UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549


FORM
10-K




(Mark
      One)þ
                ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31, 2008OR ̈
                TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from _________________
      to______________________




Commission
File Number     0-422




MIDDLESEX
WATER COMPANY


(Exact
name of registrant as specified in its charter)




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





1500
Ronson Road, Iselin NJ  08830


(Address
of principal executive offices, including zip code)


(732)
634-1500


(Registrant's
telephone number, including area code)




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


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




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


Common Stock, No par
Value


(Title of
Class)






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




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




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.      Yes þ      No
 ̈





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




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


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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).      Yes  ̈      No
þ




The
aggregate market value of the voting stock held by non-affiliates of the
registrant at June 30, 2008 was $211,963,578 based on the closing market price
of $16.59 per share.




The
number of shares outstanding for each of the registrant's classes of common
stock, as of March 13, 2009:


Common
Stock, No par Value 13,419,619 shares outstanding





Documents Incorporated by
Reference


Proxy
Statement to be filed in connection with the Registrant’s Annual Meeting of
Shareholders to be held on May 20, 2009, which will be filed with the Securities
and Exchange Commission within 120 days, is incorporated as to Part
III.





















MIDDLESEX
WATER COMPANY


FORM
10-K





INDEX


PAGEForward-Looking Statements
                  1PART IItem 1.
                  Business:
                  2OverviewFinancial
      Information
                  4Water
      Supplies and Contracts
                  4Employees
                  5Competition
                  6Regulation
                  7Management
                  10Item 1A.
                  Risk Factors
                  14Item 1B.
                  Unresolved Staff Comments
                  14Item 2.
                  Properties
                  16Item 3.
                  Legal Proceedings
                  16Item 4.
                  Submission of Matters to a Vote of Security
      Holders
                  16PART IIItem 5.
                  Market for the Registrant's Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities.
                  16Item 6.
                  Selected Financial Data
                  18Item 7.
                  Management's Discussion and Analysis of Financial Condition
      and Results of Operations
                  18Item 7A.
                  Qualitative and Quantitative Disclosure About Market
      Risk
                  26Item 8.
                  Financial Statements and Supplementary
Data
                  26Item 9.
                  Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
                  49Item 9A.
                  Controls and Procedures
                  49Item 9B.
                  Other Information
                  52PART IIIItem 10.
                  Directors, Executive Officers and Corporate
      Governance
                  53Item 11.
                  Executive Compensation
                  53Item 12.
                  Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
                  53Item 13.
                  Certain Relationships and Related Transactions, and Director
      Independence
                  53Item 14.
                  Principal Accountant Fees and Services
                  53PART IVItem 15.
                  Exhibits and Financial Statement Schedules
                  53Signatures
                  
                  55Exhibit Index
                  56








Index





Forward-Looking Statements




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


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


-
            statements
      regarding strategic plans for
growth;


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


-
            statements
      as to the Company’s expected liquidity needs during the upcoming fiscal
      year 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 rate increase
      requests;


-
            new
      or additional water quality
standards;


-
            weather
      variations and other natural
phenomena;


-
            the
      existence of financially 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 annual
  report.




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


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





Index








PART I




Item
      1.
            Business.




Overview





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





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





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




Middlesex
System




The
Middlesex System in New Jersey provides water services to approximately 59,700
retail customers, primarily in eastern Middlesex County, New Jersey and provides
water under wholesale contracts to the City of Rahway, Township of Edison, the
Boroughs of Highland Park and Sayreville and both the Old Bridge and the
Marlboro Township Municipal Utilities Authorities. The Middlesex System treats,
stores and distributes water for residential, commercial, industrial and fire
prevention purposes. The Middlesex System also provides water treatment and
pumping services to the Township of East Brunswick under contract. The Middlesex
System, through its retail and contract sales, produced approximately 64% of
2008 revenue.





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





Middlesex
provides water service to approximately 300 customers in Cumberland County, New
Jersey.  This system is referred to as Bayview and is not physically
interconnected with the Middlesex system. Bayview produced less than 1% of our
total revenue in 2008.








2
 Index





Tidewater
System




Tidewater,
together with its wholly-owned subsidiary, Southern Shores, provides water
services to approximately 35,500 retail customers for domestic, commercial and
fire protection purposes in over 300 separate community water systems in New
Castle, Kent and Sussex Counties, Delaware. An additional wholly-owned
subsidiary, White Marsh, operates water and wastewater systems under contract
for approximately 7,200 residential customers and also owns the office buildings
that Tidewater uses as its central business office campus. White Marsh’s rates
for water and wastewater operations are not regulated by the Delaware Public
Service Commission (PSC). The Tidewater System produced approximately 24% of
total revenue in 2008.




Utility
Service Affiliates-Perth Amboy




USA-PA
operates the City of Perth Amboy, NJ’s water and wastewater systems under a
20-year agreement, which expires in 2018.  USA-PA serves approximately
9,700 customers, most of whom are served by both systems. The agreement was
effected under New Jersey’s Water Supply Public-Private Contracting Act and the
New Jersey Wastewater Public/Private Contracting Act and requires USA-PA to
lease from Perth Amboy all of its employees who currently work on the Perth
Amboy water and wastewater systems. Under the agreement, USA-PA receives both
fixed and variable fees.  The variable position is based on customer
billing. Fixed fee revenues were $8.0 million in 2008 and are to increase over
the term of the 20-year contract to $10.2 million based upon a schedule of
rates. USA-PA produced approximately 9% of total revenue in 2008.




In
connection with the agreement, Middlesex guaranteed a series of Perth Amboy’s
municipal bonds in the principal amount of approximately $26.3 million, of which
approximately $21.4 million remains outstanding. In connection with the
agreement with Perth Amboy, USA-PA entered into a 20-year subcontract with a
wastewater operating company for the operation and maintenance of the Perth
Amboy wastewater system. The subcontract provides for the sharing of certain
fixed and variable fees and operating expenses.




Pinelands
System




Pinelands
Water provides water services to approximately 2,500 residential customers in
Burlington County, New Jersey. Pinelands Water produced less than 1% of total
revenue in 2008.  Pinelands Water is not physically interconnected
with the Middlesex System.




Pinelands
Wastewater provides wastewater services to approximately 2,500 primarily
residential retail customers. Under contract, it also services one municipal
wastewater system in Burlington County, New Jersey with about 200 residential
customers.  Pinelands Wastewater produced approximately 1% of total
revenue in 2008.




Utility
Service Affiliates, Inc.





USA
provides residential customers in New Jersey and Delaware a water service line
and sewer lateral maintenance program called LineCareSM and
LineCare+SM ,
respectively. These are affordable maintenance programs that covers all parts,
material and labor required to repair or replace specific elements of the
customer’s water service line, customer shut-off valve and sewer lateral in the
event of a failure. USA produced less than 1% of total revenue in
2008.




TESI
System





TESI
provides wastewater services to approximately 1,800 residential retail customers
in Delaware. TESI produced less than 1% of our total revenue in
2008.





3
 Index





Financial
Information





Consolidated
operating revenues and operating income are as follows:





Years Ended December 31,(Thousands
      of Dollars)2008
                  
                  
                  2007
                  
                  
                  2006Operating
      Revenues
                  
                  $
                  91,038
                  
                  
                  $
                  86,114
                  
                  
                  $
                  81,061Operating
      Income
                  
                  $
                  24,019
                  
                  
                  $
                  22,671
                  
                  
                  $
                  21,318





Operating
revenues were earned from the following sources:





Years Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Residential
                    
                    
                    45.1
                    %
                    
                    
                    45.0
                    %
                    
                    
                    42.6
                    %Commercial
                    
                    
                    9.6
                    
                    
                    
                    9.7
                    
                    
                    
                    10.0Industrial
                    
                    
                    9.3
                    
                    
                    
                    9.9
                    
                    
                    
                    10.7Fire
      Protection
                    
                    
                    10.4
                    
                    
                    
                    10.3
                    
                    
                    
                    10.7Contract
      Sales
                    
                    
                    13.1
                    
                    
                    
                    12.5
                    
                    
                    
                    12.3Contract
      Operations
                    
                    
                    10.5
                    
                    
                    
                    10.3
                    
                    
                    
                    11.0Other
                    
                    
                    2.0
                    
                    
                    
                    2.3
                    
                    
                    
                    2.7TOTAL
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %





Water
Supplies and Contracts




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





Middlesex
System




Our
Middlesex System, which produced approximately 16.8 billion gallons in 2008,
obtains water from surface sources and wells, or groundwater sources. In 2008,
surface sources of water provided approximately 71% of the Middlesex System’s
water supply, groundwater sources provided approximately 23% from 31 wells and
the balance was purchased from a non-affiliated water utility. Middlesex
System’s distribution storage facilities are used to supply water to customers
at times of peak demand, outages and emergencies.





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





4
 Index





Tidewater
System




Our
Tidewater System, which produced approximately 2.0 billion gallons in 2008,
obtains 100% of its groundwater sources from 176 wells. In 2008, 13 new wells
were placed into service.  We deactivated, sealed and abandoned 29
wells for either water quality reasons or for the purpose of consolidating
production facilities for more cost-efficient operation. Tidewater continues to
submit applications to Delaware regulatory authorities for the approval of
additional wells as growth, demand and water quality warrants. The Tidewater
System does not have a central treatment facility but has several regional
treatment plants. Several of its water systems in New Castle, Kent and Sussex
Counties, Delaware have interconnected transmission systems.





Pinelands
System




Water
supply to our Pinelands System is derived from groundwater sources from four
wells which provided overall system delivery of 194 million gallons in 2008. The
pumping capacity of the four wells is 2.2 million gallons per day.




Bayview
System




Water
supply to Bayview customers is derived from groundwater water sources from two
wells, which delivered approximately 10 million gallons in 2008.





Pinelands
Wastewater System




The
Pinelands Wastewater System discharges into the South Branch of the Rancocas
Creek through a tertiary treatment plant that provides clarification,
sedimentation, filtration and disinfection. The total capacity of the plant is
0.5 mgd, and the system provided overall treatment to 105 million gallons in
2008.





TESI
System




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





Employees




As of
December 31, 2008, we had a total of 269 employees. In addition, we lease 18
full-time employees under the USA-PA contract with the City of Perth Amboy, New
Jersey. No employees are represented by a union except the leased employees who
are subject to a collective bargaining agreement with the City of Perth Amboy.
We believe our employee relations are good. Wages and benefits, other than for
leased employees, are reviewed annually and are considered competitive within
both the industry and the regions where we operate.





Competition




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





5
 Index





Regulation




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




Regulation
of Rates and Services




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




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





On
January 26, 2009 Tidewater filed an application with the PSC seeking permission
to increase its base rates by 32.54%. Approximately 5.25% of the requested
increase is already collected from customers through a separately PSC approved
rate called a Distribution System Improvement Charge (DSIC).  The
request was made necessary by increased costs of operations, maintenance and
taxes, as well as capital investment of approximately $26.7 million since its
last rate filing in April of 2006. 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 12.79% interim rate
increase subject to refund as allowed under PSC regulations. The interim rate
increase includes the 5.25% DSIC rate.  If approved by the PSC, the
interim rates of 12.79% will go into effect on March 27, 2009 and the DSIC rate
will be set to zero.





The
following table shows the DSIC increases approved by the PSC from January 1,
2008 through January 1, 2009:





Date
                January
      1, 2008
                July
      1, 2008
                January
      1, 2009%
      Increase
                1.45%
                1.32%
                2.31%Cumulative
      %
                1.62%
                2.94%
                5.25%








6
 Index





On
January 12, 2009, Middlesex filed an application with the BPU seeking permission
to establish a Purchased Water Adjustment Clause (PWAC) and implement a tariff
rate sufficient to recover increased costs of $1.0 million to purchase untreated
water from the New Jersey Water Supply Authority and treated water from a
non-affiliated regulated water utility. We cannot predict whether the BPU will
ultimately approve, deny, or reduce the amount of the request.





Effective
December 18, 2008, Pinelands Water and Pinelands Wastewater implemented New
Jersey Board of Public Utilities (BPU) approved base rate increases of 5.53% and
18.30%, respectively. These increases represent a total base rate increase of
approximately $0.2 million for Pinelands to offset increased costs associated
with 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, 2009.  Under the terms of
a contract with Southern Shores Homeowners Association, the increase cannot
exceed the lesser of the regional Consumer Price Index or 3%.





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





Water
Quality and Environmental Regulations




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




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




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





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





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





7
 Index





Management


This
table lists information concerning our executive management team:




Name
              
              Age
              
              Principal
      Position(s)Dennis
      W. Doll
              
              50
              
              President
      and Chief Executive OfficerA.
      Bruce O’Connor
              
              50
              
              Vice
      President and Chief Financial OfficerRonald
      F. Williams
              
              59
              
              Vice
      President-Operations and Chief Operating OfficerKenneth
      J. Quinn
              
              61
              
              Vice
      President-General Counsel, Secretary and TreasurerJames
      P. Garrett
              
              62
              
              Vice
      President–Human ResourcesRichard
      M. Risoldi
              
              52
              
              Vice
      President–Subsidiary OperationsBernadette
      M. Sohler
              
              48
              
              Vice
      President-Corporate AffairsGerard
      L. Esposito
              
              57
              
              President,
      Tidewater Utilities, Inc.





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





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




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




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





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





8
 Index





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





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





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











9
 Index





Item 1A.
            Risk Factors.





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





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





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





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





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





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





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




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







10
 Index







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




We
require financing to fund the ongoing capital program for the improvement of our
utility system assets and for planned expansion of those systems. We expect to
spend between $96 million and $124 million for capital projects through
2011.  We must obtain regulatory approval to sell debt or equity
securities to raise money for these projects. If sufficient capital is not
available or the cost of capital is too high, or if the regulatory authorities
deny a petition of ours to sell debt or equity securities, we may not be able to
meet the costs of complying with environmental laws and regulations or the costs
of improving and expanding our utility system assets to the level we believe
necessary.  This might result in the imposition of fines or
restrictions on our operations and may curtail our ability to improve upon and
expand our utility system assets.





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





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





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





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





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





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





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





11
 Index








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





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





Middlesex
Water Company and USA-PA operate and maintain the water and wastewater systems
of the City of Perth Amboy, New Jersey under a 20-year contract expiring in
2018. This contract does not protect us against incurring costs in excess of
revenues we earn pursuant to the contract. There can be no absolute assurance
that we will not experience losses resulting from this contract. Losses under
this contract or our failure or inability to perform may have a material adverse
effect on our financial condition and results of operations. Also, in connection
with the contract, Perth Amboy, through the Middlesex County Improvement
Authority, issued approximately $68.0 million in three series of
bonds.  Middlesex guaranteed one of those series of bonds, designated
the Series C Serial Bonds, in the principal amount of approximately $26.3
million. As of December 31, 2008, approximately $21.4 million of the Series C
Serial Bonds remain outstanding. If Perth Amboy defaults on its obligations to
pay the bonds we have guaranteed, we would have to raise funds to meet our
obligations under that guarantee.





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





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





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





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





12
 Index








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





Because
of the continuing threats to the health and security of the United States of
America, we procedures to review and modify, as necessary, security measures at
our facilities. We provide ongoing training and communications to our employees
about threats to our water supply. Our security measures include the delivery
and handling of certain chemicals used in our business. We are at risk for
terrorist attacks and have incurred, and will continue to incur costs for
security precautions to protect our facilities, operations and supplies from
such risks.





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





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





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





We have
paid dividends on our common stock each year since 1912 and have increased the
amount of dividends paid each year since 1973. Our earnings, financial
condition, capital requirements, applicable regulations and other factors,
including the timeliness and adequacy of rate increases, will determine both our
ability to pay dividends on common stock and the amount of those dividends.
There can be no assurance that we will continue to pay dividends in the future
or, if dividends are paid, that they will be in amounts similar to past
dividends.





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





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





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





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





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





13
 Index





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





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





Item
      1B.
            Unresolved
      Staff Comments.





None.




Item
      2.
            Properties.





Utility
Plant




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




Middlesex
System




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




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





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





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





The
transmission and distribution system is comprised of 732 miles of mains and
includes 23,200 feet of 48-inch reinforced concrete transmission main connecting
the CJO Plant to our distribution pipe network and





14
 Index





related
storage facilities. Also included is a 58,600 foot transmission main and a
38,800 foot transmission main, augmented with a long-term, non-exclusive
agreement with the East Brunswick system to transport water to several of our
contract customers.





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




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





Tidewater
System




The
Tidewater System is comprised of 89 production plants that vary in pumping
capacity from 26,000 gallons per day to 2.0 mgd. Water is transported to our
customers through 594 miles of transmission and distribution mains. Storage
facilities include 49 tanks, with an aggregate capacity of 6.0 million gallons.
Our Delaware operations are managed from Tidewater’s offices in Dover, Delaware.
The Delaware office property, located on eleven-acre lot owned by White Marsh,
consists of two office buildings totaling approximately 17,000 square
feet.




Pinelands
System




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




Pinelands
Wastewater System




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




Bayview
System




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





TESI
System




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





USA-PA,
USA and White Marsh




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








15
 Index








Item
      3.
            Legal
      Proceedings.





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.





Item4.                   Submission
of Matters to a Vote of Security Holders.





None.


PART II





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





The
Company’s common stock is traded on the NASDAQ Stock Market, under the symbol
MSEX. The following table shows the range of high and low share prices per share
for the common stock and the dividend paid to shareholders in such
quarter.  As of December 31, 2008, there were 1,967 holders of
record.





2008
                      
                      High
                      
                      
                      Low
                      
                      
                      DividendFourth
      Quarter
                      
                      $
                      17.93
                      
                      
                      $
                      12.05
                      
                      
                      $
                      0.1775Third
      Quarter
                      
                      $
                      18.52
                      
                      
                      $
                      15.68
                      
                      
                      $
                      0.1750Second
      Quarter
                      
                      $
                      19.23
                      
                      
                      $
                      16.59
                      
                      
                      $
                      0.1750First
      Quarter
                      
                      $
                      19.83
                      
                      
                      $
                      17.25
                      
                      
                      $
                      0.1750





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





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





If four
or more quarterly dividends are in arrears, the preferred shareholders, as a
class, are entitled to elect two members to the Board of Directors in addition
to Directors elected by holders of the common stock. In the event dividends on
the preferred stock are in arrears, no dividends may be declared or paid on the
common stock of the Company.





The
Company maintains an escrow account for 58,775 shares of the Company's common
stock which were awarded under the 1997 Restricted Stock Plan, which has expired
and 21,807 shares of the Company's common stock which were awarded under the
2008 Restricted Stock Plan. 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. Shareholders approved the new 2008 Restricted
Stock Plan at the Company’s May 21, 2008 annual meeting of
shareholders.  The maximum number of shares authorized for grant under
the 2008 Restricted Stock Plan is 300,000 shares.





16
 Index








Set forth
below is a line graph comparing the yearly change in the cumulative total return
(which includes reinvestment of dividends) of a $100 investment for the
Company’s common stock, a peer group of investor-owned water utilities, and the
Dow Jones Wilshire 5000 Stock Index for the period of five years commencing
December 31, 2003.  In 2008, we added American Water Works, Inc. as a
component of our peer group. The current peer group also includes American
States Water Company, Aqua America Inc., Artesian Resources Corp., California
Water Service Company, Connecticut Water Service, Inc., Pennichuck Corp., SJW
Corp., Southwest Water Company, York Water Company and the
Company.  The Dow Jones Wilshire 5000 Stock Index measures the
performance of all U.S. headquartered equity securities with readily available
price data.










2003
                
                
                2004
                
                
                2005
                
                
                2006
                
                
                2007
                
                
                2008Middlesex
      Water Company
                
                
                100.00
                
                
                
                93.30
                
                
                
                85.42
                
                
                
                92.27
                
                
                
                93.35
                
                
                
                84.88Dow
      Jones Wilshire 5000
                
                
                100.00
                
                
                
                110.85
                
                
                
                115.91
                
                
                
                132.02
                
                
                
                137.22
                
                
                
                84.14Peer
      Group
                
                
                100.00
                
                
                
                116.61
                
                
                
                154.40
                
                
                
                153.89
                
                
                
                147.33
                
                
                
                140.97





17
 Index














Item
      6.
            Selected Financial Data.





CONSOLIDATED
      SELECTED FINANCIAL DATA(Thousands
      of Dollars Except per Share Data)2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004Operating
      Revenues
                    
                    $
                    91,038
                    
                    
                    $
                    86,114
                    
                    
                    $
                    81,061
                    
                    
                    $
                    74,613
                    
                    
                    $
                    70,991Operating
      Expenses:Operations
      and Maintenance
                    
                    
                    48,929
                    
                    
                    
                    46,240
                    
                    
                    
                    43,345
                    
                    
                    
                    42,156
                    
                    
                    
                    39,984Depreciation
                    
                    
                    7,922
                    
                    
                    
                    7,539
                    
                    
                    
                    7,060
                    
                    
                    
                    6,460
                    
                    
                    
                    5,846Other
      Taxes
                    
                    
                    10,168
                    
                    
                    
                    9,664
                    
                    
                    
                    9,338
                    
                    
                    
                    8,779
                    
                    
                    
                    8,228Total
      Operating Expenses
                    
                    
                    67,019
                    
                    
                    
                    63,443
                    
                    
                    
                    59,743
                    
                    
                    
                    57,395
                    
                    
                    
                    54,058Operating
      Income
                    
                    
                    24,019
                    
                    
                    
                    22,671
                    
                    
                    
                    21,318
                    
                    
                    
                    17,218
                    
                    
                    
                    16,933Other
      Income, Net
                    
                    
                    1,302
                    
                    
                    
                    1,527
                    
                    
                    
                    774
                    
                    
                    
                    740
                    
                    
                    
                    795Interest
      Charges
                    
                    
                    7,057
                    
                    
                    
                    6,619
                    
                    
                    
                    7,012
                    
                    
                    
                    6,245
                    
                    
                    
                    5,468Income
      Taxes
                    
                    
                    6,056
                    
                    
                    
                    5,736
                    
                    
                    
                    5,041
                    
                    
                    
                    3,237
                    
                    
                    
                    3,814Net
      Income
                    
                    
                    12,208
                    
                    
                    
                    11,843
                    
                    
                    
                    10,039
                    
                    
                    
                    8,476
                    
                    
                    
                    8,446Preferred
      Stock Dividend
                    
                    
                    218
                    
                    
                    
                    248
                    
                    
                    
                    248
                    
                    
                    
                    251
                    
                    
                    
                    255Earnings
      Applicable to Common Stock
                    
                    $
                    11,990
                    
                    
                    $
                    11,595
                    
                    
                    $
                    9,791
                    
                    
                    $
                    8,225
                    
                    
                    $
                    8,191Earnings
      per Share:Basic
                    
                    $
                    0.90
                    
                    
                    $
                    0.88
                    
                    
                    $
                    0.83
                    
                    
                    $
                    0.72
                    
                    
                    $
                    0.74Diluted
                    
                    $
                    0.89
                    
                    
                    $
                    0.87
                    
                    
                    $
                    0.82
                    
                    
                    $
                    0.71
                    
                    
                    $
                    0.73Average
      Shares Outstanding:Basic
                    
                    
                    13,317
                    
                    
                    
                    13,203
                    
                    
                    
                    11,844
                    
                    
                    
                    11,445
                    
                    
                    
                    11,080Diluted
                    
                    
                    13,615
                    
                    
                    
                    13,534
                    
                    
                    
                    12,175
                    
                    
                    
                    11,784
                    
                    
                    
                    11,423Dividends
      Declared and Paid
                    
                    $
                    0.703
                    
                    
                    $
                    0.693
                    
                    
                    $
                    0.683
                    
                    
                    $
                    0.673
                    
                    
                    $
                    0.663Total
      Assets
                    
                    $
                    440,000
                    
                    
                    $
                    392,675
                    
                    
                    $
                    370,267
                    
                    
                    $
                    324,383
                    
                    
                    $
                    305,634Convertible
      Preferred Stock
                    
                    $
                    2,273
                    
                    
                    $
                    2,856
                    
                    
                    $
                    2,856
                    
                    
                    $
                    2,856
                    
                    
                    $
                    2,961Long-term
      Debt
                    
                    $
                    118,217
                    
                    
                    $
                    131,615
                    
                    
                    $
                    130,706
                    
                    
                    $
                    128,175
                    
                    
                    $
                    115,281




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





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





Overview





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





In the
design of water and wastewater systems that we ultimately intend to construct,
own and operate, we invest capital in Preliminary Survey and Investigation
(PS&I) activities.  These costs are recorded as a deferred asset
on the balance sheet in anticipation of recovery of and a return on, these costs
through future rates charged to customers, as these investments are placed into
service as utility plant.  Our future capital expenditures are
discussed in more detail in the Liquidity and Capital Resources Section
below.





Our New
Jersey water utility system (the Middlesex System) provides water services to
approximately 59,700 retail customers, primarily in central New Jersey. The
Middlesex System also provides water service under contract to municipalities in
central New Jersey with a total population of approximately 303,000. In
partnership with our subsidiary, USA-PA, we operate the water supply system and
wastewater system for the City of Perth Amboy, New Jersey. Our other New Jersey
subsidiaries, Pinelands Water and Pinelands Wastewater, provide water and
wastewater services to residents in Southampton Township, New
Jersey.





Our
Delaware subsidiaries, Tidewater and Southern Shores, provide water services to
approximately 35,500 retail customers in New Castle, Kent and Sussex Counties,
Delaware. Our TESI subsidiary provides wastewater services to approximately
1,800 residential retail customers. Our other Delaware subsidiary, White Marsh,
services an additional 7,200 customers in Kent and Sussex Counties through 68
operations and maintenance contracts.




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





18
 Index










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





In
September 2008, we entered into an agreement to own and operate a water and
wastewater facility system that is expected to serve 1,500 people in North
Carolina.  Planning is under way to gain approval from the North
Carolina Public Service Commission to operate these systems as regulated public
utilities, which are expected to be ready to serve customers during the third
quarter of 2009.





On
January 26, 2009 Tidewater filed an application with the PSC seeking permission
to increase its base rates by 32.54%. Approximately 5.25% of the requested
increase is already collected from customers through a separately PSC approved
rate called a Distribution System Improvement Charge (DSIC).  The
request was made necessary by increased costs of operations, maintenance and
taxes, as well as capital investment of approximately $26.7 million since its
last rate filing in April of 2006. 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 12.79% interim rate
increase subject to refund as allowed under PSC regulations. The interim rate
increase includes the 5.25% DSIC rate.  If approved by the PSC, the
interim rates of 12.79% will go into effect on March 27, 2009 and the DSIC rate
will be set to zero.





Our
ability to increase operating income and net income is based significantly on
four factors: weather, adequate and timely rate relief, effective cost
management, and customer growth. These factors are evident in the discussions
below which compare our results of operations from prior years.





Operating
Results by Segment





The
Company has two operating segments, Regulated and Non-Regulated. Our Regulated
segment contributed 89%, 90% and 89% of total revenues, and 90%, 94% and 94% of
net income for the years ended December 31, 2008, 2007 and 2006, respectively.
The discussion of the Company’s results of operations is on a consolidated
basis, and includes significant factors by subsidiary. The segments in the
tables included below are comprised of the following companies: Regulated-
Middlesex, Tidewater, Pinelands, Southern Shores, and TESI; Non-Regulated- USA,
USA-PA, and White Marsh.





Results
of Operations in 2008 Compared to 2007





Years ended December
      31,(Millions
      of Dollars)2008
                    
                    
                    2007Regulated
                    
                    
                    Non-
                      Regulated
                    
                    
                    Total
                    
                    
                    Regulated
                    
                    
                    Non-
                      Regulated
                    
                    
                    TotalRevenues
                    
                    $
                    81.1
                    
                    
                    $
                    9.9
                    
                    
                    $
                    91.0
                    
                    
                    $
                    77.1
                    
                    
                    $
                    9.0
                    
                    
                    $
                    86.1Operations
      and maintenance
                    
                    
                    41.2
                    
                    
                    
                    7.7
                    
                    
                    
                    48.9
                    
                    
                    
                    38.8
                    
                    
                    
                    7.4
                    
                    
                    
                    46.2Depreciation
                    
                    
                    7.8
                    
                    
                    
                    0.1
                    
                    
                    
                    7.9
                    
                    
                    
                    7.4
                    
                    
                    
                    0.1
                    
                    
                    
                    7.5Other
      taxes
                    
                    
                    10.0
                    
                    
                    
                    0.2
                    
                    
                    
                    10.2
                    
                    
                    
                    9.5
                    
                    
                    
                    0.2
                    
                    
                    
                    9.7Operating
      income
                    
                    
                    22.1
                    
                    
                    
                    1.9
                    
                    
                    
                    24.0
                    
                    
                    
                    21.4
                    
                    
                    
                    1.3
                    
                    
                    
                    22.7Other
      income (expense)
                    
                    
                    0.9
                    
                    
                    
                    0.4
                    
                    
                    
                    1.3
                    
                    
                    
                    1.5
                    
                    
                    
                    -
                    
                    
                    
                    1.5Interest
      expense
                    
                    
                    7.0
                    
                    
                    
                    0.1
                    
                    
                    
                    7.1
                    
                    
                    
                    6.6
                    
                    
                    
                    -
                    
                    
                    
                    6.6Income
      taxes
                    
                    
                    5.0
                    
                    
                    
                    1.0
                    
                    
                    
                    6.0
                    
                    
                    
                    5.2
                    
                    
                    
                    0.6
                    
                    
                    
                    5.8Net
      income
                    
                    $
                    11.0
                    
                    
                    $
                    1.2
                    
                    
                    $
                    12.2
                    
                    
                    $
                    11.1
                    
                    
                    $
                    0.7
                    
                    
                    $
                    11.8










19
 Index








Operating
revenues for the year rose $4.9 million, or 5.7% over the same period in 2007.
Revenues in our Middlesex system increased $4.2 million as a result of a 9.1%
base rate increase implemented October 26, 2007.  Middlesex revenues
decreased $1.1 million due to lower consumption by our customers during 2008.
Water sales improved $0.8 million in our Delaware water systems. We recorded
additional revenue of $1.2 million as a result of an additional 12% base rate
increase that was granted to Tidewater February 28, 2007, and Distribution
System Improvement Charge (DSIC) rate increases of 1.62% and 2.94% that went
into effect January 1, 2008 and July 1, 2008, respectively.  DSIC is a
PSC approved rate that allows water utilities to recover their investment in
non-revenue producing capital improvements to the water system in between base
rate increase requests.  Fees charged for initial connection to our
Delaware Water system were $0.4 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 $0.5 million
higher than the same period in 2007, due mostly to scheduled increases in the
fixed fee component of the contract.    Revenues from our
regulated wastewater operations in Delaware increased $0.2 million due to
customer growth.  All other operations accounted for $0.3 million of
additional revenues.





While we
anticipate continued organic customer and consumption growth among our Delaware
systems, such growth and increased consumption cannot be guaranteed. The impact
of the national economic recession has been to reduce the level of activity in
the new residential housing market in our Delaware service
territories.  In addition, our water systems are highly dependent on
the effects of weather, which may adversely impact future consumption despite
customer growth. Appreciable organic customer and consumption growth is less
likely in our New Jersey systems due to the extent to which our service
territory is developed.  The Company expects its 2009 Tidewater
operating revenues to reflect the benefit of the DSIC rate increase effective
January 1, 2009 and interim rate increase expected to be go into effect in late
March 2009.  There can be no assurances that the PSC will accept,
reject or amend the level of the interim rate increase request.





Operation
and maintenance expenses increased $2.7 million, or 5.8%.  Even though
2008 water production was lower than 2007 in our Middlesex and Tidewater
systems, our expenses increased $0.3 million due to higher costs for water,
electric power and chemicals.  Labor and benefits costs increased $1.3
million, which includes $0.7 million recognized for employee benefits due to
market fluctuations in the cash surrender value of life insurance
policies.  The costs to operate our 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.   Costs for
service claims under our LineCareSM program
were $0.1 million higher due in part to a 9.4% increase in the number of
subscribers in the program during 2008. Operating costs for USA-PA increased
$0.3 million due to higher pass-through charges.  All other expense
categories increased $0.4 million.





Depreciation
expense for 2008 increased by $0.4 million, or 5.1%, due to a higher level of
utility plant in service.





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





Other
income was $0.2 million lower than 2007, primarily due to one-time gains
recorded in 2007 on two transactions related to assets no longer used in our
operations.





Interest
expense increased by $0.4 million, or 6.6%, as a result of a higher level of
average short-term debt outstanding when compared to 2007.





Income
tax expense based on our current year operating results was $0.2 million higher
than 2007 and reflects increased revenues due to higher water rates in New
Jersey and Delaware.





20
 Index








Net
income increased to $12.2 million from $11.8 million in the prior year, and
basic earnings per share increased from $0.88 to $0.90. Diluted earnings per
share increased from $0.87 to $0.89.





Results
of Operations in 2007 Compared to 2006





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





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





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





Depreciation
expense for 2007 increased by $0.4 million, or 5.6%, due to a higher level of
utility plant in service.





21
 Index








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





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





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





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





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





Outlook





In
addition to factors previously discussed under “Results of Operations in 2008
Compared to 2007,” our revenues are expected to increase in 2009 from rate
increases granted to our Pinelands companies in December 2008. Middlesex has
filed a petition with the BPU to implement a purchased water adjustment clause
(PWAC) seeking recovery of $1.0 million of additional costs associated with rate
increases from two non-affiliated water purveyors for our purchases of treated
and untreated water.  There can be no assurances that the BPU will
grant the PWAC in whole or in part.





Revenues
and earnings will also be influenced by weather. Changes in these factors, as
well as increases in capital expenditures and operating costs are the primary
factors that determine the need for rate increase filings.  We
continue to implement viable plans to streamline operations and reduce operating
costs.





We expect
our level of borrowing to increase during 2009 in order to finance a portion of
our capital expenditures during the coming year (see Liquidity and Capital
Resources).  However, current interest rates on short-term borrowings
are significantly below the rates at which we borrowed during much of 2008. We
believe those lower interest rates will continue during 2009 and will result in
lower interest expense.





The
actual return on assets held in our retirement benefit plans during 2008
resulted in a decline in the amount available to fund current and future
obligations.  We expect this will result in higher benefits expenses
and increased cash contributions to the plans in 2009.





As a
result of ongoing delays in new residential home construction throughout the
service territories we serve, there may be an increase in the amount of PS&I
that will not be currently recoverable in rates.





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





Liquidity
and Capital Resources





Cash
flows from operations are largely based on three factors: weather, adequate and
timely rate increases, and customer growth. The effect of those factors on net
income is discussed in results of operations. For 2008, cash





22
 Index





flows
from operating activities increased $0.3 million to $19.1 million, as compared
to the prior year. This increase was primarily attributable to higher net income
and depreciation. The $19.1 million of net cash flow from operations enabled us
to fund approximately 67% of our utility plant expenditures for the period
internally, with the remainder funded with proceeds from equity issued under our
Dividend Reinvestment Plan, long-term borrowings and short-term
borrowings.





For 2007,
cash flows from operating activities increased $2.7 million to $18.8 million, as
compared to the prior year. This increase was primarily attributable to higher
net income and depreciation. The $18.8 million of net cash flow from operations
enabled us to fund approximately 86% of our utility plant expenditures for the
period internally, with the remainder funded with proceeds from equity issued
under our Dividend Reinvestment Plan, long-term borrowings and short-term
borrowings.





Increases
in certain operating costs will impact our liquidity and capital resources. As
described in our results of operations and outlook discussions, during 2008 we
received rate relief for Tidewater and Pinelands and have filed for rate
increases for Middlesex and Tidewater. We continually monitor the need for
timely rate filing to minimize the lag between the time we experience increased
operating and capital costs and the time we receive appropriate rate
relief.  There is no certainty, however, that the BPU or PSC will
approve any or all future requested increases.





Sources
of Liquidity





Short-term
Debt. The Company had established lines of credit aggregating $36.0
million as of December 31, 2008, and increased the established amount to $50.0
million in February 2009. At December 31, 2008, the outstanding borrowings under
these credit lines was $25.9 million at a weighted average interest rate of
2.30%.





The
weighted average daily amounts of borrowings outstanding under the Company’s
credit lines and the weighted average interest rates on those amounts were $16.4
million and $2.6 million at 3.69% and 6.36% for the years ended December 31,
2008 and 2007, respectively.





Long-term Debt.Subject to regulatory approval, the Company periodically finances capital
projects under State Revolving Fund (SRF) loan programs in New Jersey and
Delaware. These government programs provide financing at interest rates that are
typically below rates available in the broader financial markets. A portion of
the borrowings under the New Jersey SRF is interest-free. We participated in the
Delaware and New Jersey SRF loan programs during 2008 and expect to participate
in the 2009 New Jersey SRF program for up to $4.0 million.





During
2008, Middlesex closed on $3.5 million of first mortgage bonds through the New
Jersey Environmental Infrastructure Trust (NJEIT) under the New Jersey SRF loan
program in order to finance our 2009 RENEW program. The proceeds of these bonds,
and any interest earned, are held by a trustee, and are classified as Restricted
Cash on the Consolidated Balance Sheet.





Substantially
all of the Utility Plant of the Company is subject to the lien of its mortgage,
which includes debt service and capital ratio covenants. The Company is in
compliance with all of its mortgage covenants and restrictions.





Common
Stock. The Company periodically issues shares of common stock in
connection with its Dividend Reinvestment and Common Stock Purchase Plan (the
Plan). The Company raised $1.2 million through the issuance of shares under the
Plan during 2008. Periodically, the Company may issue additional equity to
reduce short-term indebtedness and for other general corporate purposes. 
The last public offering of our common stock closed in November
2006.  The majority of the net proceeds of approximately $26.2 million
from that common





23
 Index





stock
offering of 1.5 million shares were used to repay all of the Company’s
short-term borrowings outstanding at that time.





Capital
Expenditures and Commitments





Under our
capital program for 2009, we plan to expend $10.0 million for additions and
improvements for our Delaware water systems, which include the construction of
several storage tanks and the creation of new wells and interconnections. We
expect to spend approximately $1.0 million for construction of wastewater
systems in Delaware. We expect to spend $5.2 million to complete the
implementation of a Company-wide information system and $0.9 million for other
information systems equipment and software. We expect to spend $3.5 million for
our RENEW program, which is our program to clean and cement line unlined mains
in the Middlesex System. There remains a total of approximately 109 miles of
unlined mains in the 730-mile Middlesex System.  In 2008, three miles
of unlined mains were cleaned and cement lined. The capital program also
includes $12.4 million for scheduled upgrades to our existing systems in New
Jersey. The scheduled upgrades consist of $4.0 million for improvements to
existing plant, $5.8 million for mains, $0.9 million for service lines, $0.7
million for meters, $0.3 million for hydrants, and $0.8 million for other
infrastructure needs.




To pay
for our capital program in 2009, we will utilize internally generated funds and
funds available and held in trust under existing NJEIT loans (currently, $4.5
million) and Delaware SRF loans (currently, $1.9 million). The SRF programs
provide low cost financing for projects that meet certain water quality and
system improvement benchmarks. If necessary, we will also utilize short-term
borrowings through $50.0 million of available lines of credit with several
financial institutions.  As of December 31, 2008, we had $25.9 million
outstanding against the lines of credit.




Going
forward into 2010 through 2011, we currently project that we may be required to
expend between $65.0 million and $91.2 million for capital projects. The exact
amount is dependent on customer growth, residential housing sales and project
scheduling. In particular, Middlesex had 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.  A settlement amongst the parties in the prudence review was
approved by the BPU on October 23, 2008.  As part of the settlement,
it was agreed the pipeline is needed but will not be constructed at this
time.  The parties further agreed that it would be effective utility
management and proper long-term planning for the Company to proceed with the
procurement of easements along the agreed-upon pipeline route in anticipation of
a need for the project as customer demand for water increases in the South River
Basin portion of our customer base.





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





Contractual
Obligations





In the
course of normal business activities, the Company enters into a variety of
contractual obligations and commercial commitments. Some of these items result
in direct obligations on the Company’s balance sheet while others are
commitments, some firm and some based on uncertainties, which are disclosed in
the Company’s other underlying consolidated financial statements.





The table
below presents our known contractual obligations for the periods specified as of
December 31, 2008.











24
 Index








Payment
      Due by Period
                        (Millions
      of Dollars)Total
                      
                      
                      Less
      than
                        1 Year
                      
                      
                      1-3
      Years
                      
                      
                      4-5
                        Years
                      
                      
                      More
      than
                        5 YearsLong-term
      Debt
                      
                      $
                      136.0
                      
                      
                      $
                      18.0
                      
                      
                      $
                      6.8
                      
                      
                      $
                      7.0
                      
                      
                      $
                      104.2Notes
      Payable
                      
                      
                      25.9
                      
                      
                      
                      25.9
                      
                      
                      
                      ---
                      
                      
                      
                      ---
                      
                      
                      
                      ---Interest
      on Long-term Debt
                      
                      
                      93.4
                      
                      
                      
                      5.8
                      
                      
                      
                      10.9
                      
                      
                      
                      10.3
                      
                      
                      
                      66.4Purchased
      Water Contracts
                      
                      
                      41.9
                      
                      
                      
                      4.9
                      
                      
                      
                      7.8
                      
                      
                      
                      4.9
                      
                      
                      
                      24.3Wastewater
      Operations
                      
                      
                      47.6
                      
                      
                      
                      4.2
                      
                      
                      
                      8.7
                      
                      
                      
                      9.3
                      
                      
                      
                      25.4Employee
      Retirement Plans (1)
                      
                      
                      5.6
                      
                      
                      
                      5.6
                      
                      
                      
                      ---
                      
                      
                      
                      ---
                      
                      
                      
                      ---Total
                      
                      $
                      350.4
                      
                      
                      $
                      64.4
                      
                      
                      $
                      34.2
                      
                      
                      $
                      31.5
                      
                      
                      $
                      220.3(1) Amount
      not determinable after one year.




Guarantees





USA-PA
operates the City of Perth Amboy’s (Perth Amboy) water and wastewater systems
under a service contract agreement through June 30, 2018. Under the agreement,
USA-PA receives a fixed fee and a variable fee based on increased system
billing. Scheduled fixed fee payments were $8.0 million in 2008 and will
increase over the term of the contract to $10.2 million by the end of the
contract.




In
connection with the agreement, Perth Amboy, through the Middlesex County
Improvement Authority, issued approximately $68.0 million in three series of
bonds. Middlesex guaranteed one of those series of bonds, designated the Series
C Serial Bonds, in the principal amount of approximately $26.3 million. Perth
Amboy guaranteed the two other series of bonds. The Series C Serial Bonds have
various maturity dates with the final maturity date on September 1, 2015. As of
December 31, 2008, approximately $21.4 million of the Series C Serial Bonds
remained outstanding.




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





Critical
Accounting Policies and Estimates




The
application of accounting policies and standards often requires the use of
estimates, assumptions and judgments. Changes in these variables may lead to
significantly different financial statement results. Our critical accounting
policies are set forth below.




Regulatory
Accounting





We
maintain our books and records in accordance with accounting principles
generally accepted in the United States of America.  Middlesex and
certain of its subsidiaries, which account for 89% of Operating Revenues and 98%
of Total Assets, are subject to regulation in the states in which they operate.
Those companies are required to maintain their accounts in accordance with
regulatory authorities’ rules and guidelines, which may differ from other
authoritative accounting pronouncements. In those instances, the Company follows
the guidance provided in the Financial Accounting Standards Board (FASB),
Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting For the
Effects of Certain Types of Regulation” (SFAS 71).





25
 Index







In
accordance with SFAS No. 71, costs and obligations are deferred if it is
probable that these items will be recognized for rate-making purposes in future
rates. Accordingly, we have recorded costs and obligations, which will be
amortized over various future periods. Any change in the assessment of the
probability of rate-making treatment will require us to change the accounting
treatment of the deferred item. We have no reason to believe any of the deferred
items that are recorded would be treated differently by the regulators in the
future.





Revenues




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




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




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




Pension
Plan




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





The
discount rate utilized for determining future pension obligations has increased
from 5.89% at December 31, 2006 to 6.59% at December 31, 2007 and decreased to
6.17% at December 31, 2008. Lowering the discount rate by 0.5% would have
increased the net periodic pension cost by $0.2 million in 2008. Lowering the
expected long-term rate of return on the pension plans by 0.5% (from 8.0% to
7.5%) would have increased the net periodic pension cost in 2008 by
approximately $0.1 million.




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





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




Recent
Accounting Standards




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





Item7A.
            Qualitative
      and Quantitative Disclosures About Market
Risk.





The
Company is subject to the risk of fluctuating interest rates in the normal
course of business.  Our policy is to manage interest rates through
the use of fixed rate long-term debt and, to a lesser extent, short-term
debt.  The Company’s interest rate risk related to existing fixed
rate, long-term debt is not material due to the term of





26
 Index





the
majority of our First Mortgage Bonds, which have final maturity dates ranging
from 2009 to 2038.  Over the next twelve months, approximately $18.0
million of the current portion of 24 existing long-term debt instruments will
mature. Applying a hypothetical change in the rate of interest charged by 10% on
those borrowings, would not have a material effect on our earnings.





Item
      8.
            Financial
      Statements and Supplementary Data.







Report
of Independent Registered Public Accounting Firm




To the
Board of Directors and




Stockholders
of Middlesex Water Company




We have
audited the accompanying consolidated balance sheets and consolidated statements
of capital stock and long-term debt of Middlesex Water Company and subsidiaries
(the Company) as of December 31, 2008 and 2007, and the related consolidated
statements of income, stockholders' equity and comprehensive income, and cash
flows for each of the years in the three-year period ended December 31,
2008.  The Company's management is responsible for these consolidated
financial statements.  Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2008 and 2007, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2008 in conformity with
accounting principles generally accepted in the United States of
America.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Middlesex Water Company’s internal control over
financial reporting as of December 31, 2008, based on criteria established
in Internal Control – Integral
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 13, 2009 expressed an
unqualified opinion.






/s/ Beard
Miller Company LLP







Beard
Miller Company LLP


Reading,
Pennsylvania


March 13,
2009










27
 Index




MIDDLESEX
      WATER COMPANYCONSOLIDATED  BALANCE
      SHEETS(In
      thousands)
  December
      31,
                                                                    
                                                                    
                                                                    December
      31,ASSETS
                                                                    
                                                                    
                                                                    2008
                                                                    
                                                                    
                                                                    2007UTILITY
      PLANT:
                                                                    Water
      Production
                                                                    
                                                                    $
                                                                    107,517
                                                                    
                                                                    
                                                                    $
                                                                    98,942Transmission
      and Distribution
                                                                    
                                                                    
                                                                    283,759
                                                                    
                                                                    
                                                                    
                                                                    264,939General
                                                                    
                                                                    
                                                                    27,142
                                                                    
                                                                    
                                                                    
                                                                    24,874Construction
      Work in Progress
                                                                    
                                                                    
                                                                    11,653
                                                                    
                                                                    
                                                                    
                                                                    9,833TOTAL
                                                                    
                                                                    
                                                                    430,071
                                                                    
                                                                    
                                                                    
                                                                    398,588Less
      Accumulated Depreciation
                                                                    
                                                                    
                                                                    70,544
                                                                    
                                                                    
                                                                    
                                                                    64,736UTILITY
      PLANT - NET
                                                                    
                                                                    
                                                                    359,527
                                                                    
                                                                    
                                                                    
                                                                    333,852CURRENT
      ASSETS:
                                                                    Cash
      and Cash Equivalents
                                                                    
                                                                    
                                                                    3,288
                                                                    
                                                                    
                                                                    
                                                                    2,029Accounts
      Receivable, net
                                                                    
                                                                    
                                                                    9,510
                                                                    
                                                                    
                                                                    
                                                                    8,227Unbilled
      Revenues
                                                                    
                                                                    
                                                                    4,822
                                                                    
                                                                    
                                                                    
                                                                    4,609Materials
      and Supplies (at average cost)
                                                                    
                                                                    
                                                                    1,475
                                                                    
                                                                    
                                                                    
                                                                    1,205Prepayments
                                                                    
                                                                    
                                                                    1,481
                                                                    
                                                                    
                                                                    
                                                                    1,363TOTAL
      CURRENT ASSETS
                                                                    
                                                                    
                                                                    20,576
                                                                    
                                                                    
                                                                    
                                                                    17,433DEFERRED
      CHARGES
                                                                    Unamortized
      Debt Expense
                                                                    
                                                                    
                                                                    2,903
                                                                    
                                                                    
                                                                    
                                                                    2,884AND
      OTHER ASSETS:
                                                                    Preliminary
      Survey and Investigation Charges
                                                                    
                                                                    
                                                                    7,187
                                                                    
                                                                    
                                                                    
                                                                    5,283Regulatory
      Assets
                                                                    
                                                                    
                                                                    31,910
                                                                    
                                                                    
                                                                    
                                                                    16,090Operations
      Contracts Fees Receivable
                                                                    
                                                                    
                                                                    3,708
                                                                    
                                                                    
                                                                    
                                                                    4,184Restricted
      Cash
                                                                    
                                                                    
                                                                    7,049
                                                                    
                                                                    
                                                                    
                                                                    6,418Non-utility
      Assets - Net
                                                                    
                                                                    
                                                                    6,762
                                                                    
                                                                    
                                                                    
                                                                    6,183Other
                                                                    
                                                                    
                                                                    378
                                                                    
                                                                    
                                                                    
                                                                    348TOTAL
      DEFERRED CHARGES AND OTHER ASSETS
                                                                    
                                                                    
                                                                    59,897
                                                                    
                                                                    
                                                                    
                                                                    41,390TOTAL
      ASSETS
                                                                    
                                                                    $
                                                                    440,000
                                                                    
                                                                    
                                                                    $
                                                                    392,675CAPITALIZATION
      AND LIABILITIESCAPITALIZATION:
                                                                    Common
      Stock, No Par Value
                                                                    
                                                                    $
                                                                    107,726
                                                                    
                                                                    
                                                                    $
                                                                    105,668Retained
      Earnings
                                                                    
                                                                    
                                                                    30,077
                                                                    
                                                                    
                                                                    
                                                                    27,441Accumulated
      Other Comprehensive Income, net of tax
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    69TOTAL
      COMMON EQUITY
                                                                    
                                                                    
                                                                    137,803
                                                                    
                                                                    
                                                                    
                                                                    133,178Preferred
      Stock
                                                                    
                                                                    
                                                                    3,375
                                                                    
                                                                    
                                                                    
                                                                    3,958Long-term
      Debt
                                                                    
                                                                    
                                                                    118,217
                                                                    
                                                                    
                                                                    
                                                                    131,615TOTAL
      CAPITALIZATION
                                                                    
                                                                    
                                                                    259,395
                                                                    
                                                                    
                                                                    
                                                                    268,751CURRENT
                                                                    Current
      Portion of Long-term Debt
                                                                    
                                                                    
                                                                    17,985
                                                                    
                                                                    
                                                                    
                                                                    2,723LIABILITIES:
                                                                    Notes
      Payable
                                                                    
                                                                    
                                                                    25,877
                                                                    
                                                                    
                                                                    
                                                                    6,250Accounts
      Payable
                                                                    
                                                                    
                                                                    5,689
                                                                    
                                                                    
                                                                    
                                                                    6,477Accrued
      Taxes
                                                                    
                                                                    
                                                                    7,781
                                                                    
                                                                    
                                                                    
                                                                    7,611Accrued
      Interest
                                                                    
                                                                    
                                                                    2,053
                                                                    
                                                                    
                                                                    
                                                                    1,916Unearned
      Revenues and Advanced Service Fees
                                                                    
                                                                    
                                                                    842
                                                                    
                                                                    
                                                                    
                                                                    758Other
                                                                    
                                                                    
                                                                    1,243
                                                                    
                                                                    
                                                                    
                                                                    1,274TOTAL
      CURRENT LIABILITIES
                                                                    
                                                                    
                                                                    61,470
                                                                    
                                                                    
                                                                    
                                                                    27,009COMMITMENTS
      AND CONTINGENT LIABILITIES (Note 4)DEFERRED
      CREDITS
                                                                    Customer
      Advances for Construction
                                                                    
                                                                    
                                                                    22,089
                                                                    
                                                                    
                                                                    
                                                                    21,758AND
      OTHER LIABILITIES:
                                                                    Accumulated
      Deferred Investment Tax Credits
                                                                    
                                                                    
                                                                    1,382
                                                                    
                                                                    
                                                                    
                                                                    1,461Accumulated
      Deferred Income Taxes
                                                                    
                                                                    
                                                                    21,733
                                                                    
                                                                    
                                                                    
                                                                    17,940Employee
      Benefit Plans
                                                                    
                                                                    
                                                                    25,540
                                                                    
                                                                    
                                                                    
                                                                    13,333Regulatory
      Liability - Cost of Utility Plant Removal
                                                                    
                                                                    
                                                                    6,197
                                                                    
                                                                    
                                                                    
                                                                    5,726Other
                                                                    
                                                                    
                                                                    963
                                                                    
                                                                    
                                                                    
                                                                    459TOTAL
      DEFERRED CREDITS AND OTHER LIABILITIES
                                                                    
                                                                    
                                                                    77,904
                                                                    
                                                                    
                                                                    
                                                                    60,677CONTRIBUTIONS
      IN AID OF CONSTRUCTION
                                                                    
                                                                    
                                                                    41,231
                                                                    
                                                                    
                                                                    
                                                                    36,238TOTAL
      CAPITALIZATION AND LIABILITIES
                                                                    
                                                                    $
                                                                    440,000
                                                                    
                                                                    
                                                                    $
                                                                    392,675
 See
      Notes to Consolidated Financial Statements.




28
 Index








MIDDLESEX WATER
      COMPANYCONSOLIDATED
      STATEMENTS OF INCOME(In
      thousands except per share amounts)Years
      Ended December 31,2008
                                                                          
                                                                          
                                                                          2007
                                                                          
                                                                          
                                                                          2006Operating
      Revenues
                                                                          
                                                                          $
                                                                          91,038
                                                                          
                                                                          
                                                                          $
                                                                          86,114
                                                                          
                                                                          
                                                                          $
                                                                          81,061Operating
      Expenses:Operations
                                                                          
                                                                          
                                                                          44,782
                                                                          
                                                                          
                                                                          
                                                                          42,117
                                                                          
                                                                          
                                                                          
                                                                          39,799Maintenance
                                                                          
                                                                          
                                                                          4,147
                                                                          
                                                                          
                                                                          
                                                                          4,123
                                                                          
                                                                          
                                                                          
                                                                          3,546Depreciation
                                                                          
                                                                          
                                                                          7,922
                                                                          
                                                                          
                                                                          
                                                                          7,539
                                                                          
                                                                          
                                                                          
                                                                          7,060Other
      Taxes
                                                                          
                                                                          
                                                                          10,168
                                                                          
                                                                          
                                                                          
                                                                          9,664
                                                                          
                                                                          
                                                                          
                                                                          9,338Total
      Operating Expenses
                                                                          
                                                                          
                                                                          67,019
                                                                          
                                                                          
                                                                          
                                                                          63,443
                                                                          
                                                                          
                                                                          
                                                                          59,743Operating
      Income
                                                                          
                                                                          
                                                                          24,019
                                                                          
                                                                          
                                                                          
                                                                          22,671
                                                                          
                                                                          
                                                                          
                                                                          21,318Other
      Income (Expense):Allowance
      for Funds Used During Construction
                                                                          
                                                                          
                                                                          667
                                                                          
                                                                          
                                                                          
                                                                          537
                                                                          
                                                                          
                                                                          
                                                                          632Other
      Income
                                                                          
                                                                          
                                                                          906
                                                                          
                                                                          
                                                                          
                                                                          1,153
                                                                          
                                                                          
                                                                          
                                                                          160Other
      Expense
                                                                          
                                                                          
                                                                          (271
                                                                          )
                                                                          
                                                                          
                                                                          (163
                                                                          )
                                                                          
                                                                          
                                                                          (18
                                                                          )Total
      Other Income, net
                                                                          
                                                                          
                                                                          1,302
                                                                          
                                                                          
                                                                          
                                                                          1,527
                                                                          
                                                                          
                                                                          
                                                                          774Interest
      Charges
                                                                          
                                                                          
                                                                          7,057
                                                                          
                                                                          
                                                                          
                                                                          6,619
                                                                          
                                                                          
                                                                          
                                                                          7,012Income
      before Income Taxes
                                                                          
                                                                          
                                                                          18,264
                                                                          
                                                                          
                                                                          
                                                                          17,579
                                                                          
                                                                          
                                                                          
                                                                          15,080Income
      Taxes
                                                                          
                                                                          
                                                                          6,056
                                                                          
                                                                          
                                                                          
                                                                          5,736
                                                                          
                                                                          
                                                                          
                                                                          5,041Net
      Income
                                                                          
                                                                          
                                                                          12,208
                                                                          
                                                                          
                                                                          
                                                                          11,843
                                                                          
                                                                          
                                                                          
                                                                          10,039Preferred
      Stock Dividend Requirements
                                                                          
                                                                          
                                                                          218
                                                                          
                                                                          
                                                                          
                                                                          248
                                                                          
                                                                          
                                                                          
                                                                          248Earnings
      Applicable to Common Stock
                                                                          
                                                                          $
                                                                          11,990
                                                                          
                                                                          
                                                                          $
                                                                          11,595
                                                                          
                                                                          
                                                                          $
                                                                          9,791Earnings
      per share of Common Stock:Basic
                                                                          
                                                                          $
                                                                          0.90
                                                                          
                                                                          
                                                                          $
                                                                          0.88
                                                                          
                                                                          
                                                                          $
                                                                          0.83Diluted
                                                                          
                                                                          $
                                                                          0.89
                                                                          
                                                                          
                                                                          $
                                                                          0.87
                                                                          
                                                                          
                                                                          $
                                                                          0.82Average
      Number ofCommon
      Shares Outstanding :Basic
                                                                          
                                                                          
                                                                          13,317
                                                                          
                                                                          
                                                                          
                                                                          13,203
                                                                          
                                                                          
                                                                          
                                                                          11,844Diluted
                                                                          
                                                                          
                                                                          13,615
                                                                          
                                                                          
                                                                          
                                                                          13,534
                                                                          
                                                                          
                                                                          
                                                                          12,175Cash
      Dividends Paid per Common Share
                                                                          
                                                                          $
                                                                          0.703
                                                                          
                                                                          
                                                                          $
                                                                          0.693
                                                                          
                                                                          
                                                                          $
                                                                          0.683
  See
      Notes to Consolidated Financial Statements.




29
 Index





MIDDLESEX
      WATER COMPANYCONSOLIDATED
      STATEMENTS OF CASH FLOWS(In
      thousands)Years
      Ended December 31,2008
                                                                                        
                                                                                        
                                                                                        2007
                                                                                        
                                                                                        
                                                                                        2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Income
                                                                                        
                                                                                        $
                                                                                        12,208
                                                                                        
                                                                                        
                                                                                        $
                                                                                        11,843
                                                                                        
                                                                                        
                                                                                        $
                                                                                        10,039Adjustments
      to Reconcile Net Income toNet
      Cash Provided by Operating Activities:Depreciation
      and Amortization
                                                                                        
                                                                                        
                                                                                        8,530
                                                                                        
                                                                                        
                                                                                        
                                                                                        8,176
                                                                                        
                                                                                        
                                                                                        
                                                                                        7,761Provision
      for Deferred Income Taxes and ITC
                                                                                        
                                                                                        
                                                                                        1,032
                                                                                        
                                                                                        
                                                                                        
                                                                                        399
                                                                                        
                                                                                        
                                                                                        
                                                                                        897Equity
      Portion of AFUDC
                                                                                        
                                                                                        
                                                                                        (348
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (255
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (259
                                                                                        )Cash
      Surrender Value of Life Insurance
                                                                                        
                                                                                        
                                                                                        576
                                                                                        
                                                                                        
                                                                                        
                                                                                        (271
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (155
                                                                                        )Gain
      on Disposal of Equity Investments
                                                                                        
                                                                                        
                                                                                        (86
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Gain
      on Sale of Real Estate
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        (267
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -Changes
      in Assets and Liabilities:Accounts
      Receivable
                                                                                        
                                                                                        
                                                                                        (807
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (2,752
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (463
                                                                                        )Unbilled
      Revenues
                                                                                        
                                                                                        
                                                                                        (213
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (596
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (276
                                                                                        )Materials
      & Supplies
                                                                                        
                                                                                        
                                                                                        (270
                                                                                        )
                                                                                        
                                                                                        
                                                                                        101
                                                                                        
                                                                                        
                                                                                        
                                                                                        (46
                                                                                        )Prepayments
                                                                                        
                                                                                        
                                                                                        (118
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (134
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (301
                                                                                        )Other
      Assets
                                                                                        
                                                                                        
                                                                                        (351
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (9
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (485
                                                                                        )Accounts
      Payable
                                                                                        
                                                                                        
                                                                                        147
                                                                                        
                                                                                        
                                                                                        
                                                                                        986
                                                                                        
                                                                                        
                                                                                        
                                                                                        (538
                                                                                        )Accrued
      Taxes
                                                                                        
                                                                                        
                                                                                        206
                                                                                        
                                                                                        
                                                                                        
                                                                                        941
                                                                                        
                                                                                        
                                                                                        
                                                                                        197Accrued
      Interest
                                                                                        
                                                                                        
                                                                                        137
                                                                                        
                                                                                        
                                                                                        
                                                                                        36
                                                                                        
                                                                                        
                                                                                        
                                                                                        11Employee
      Benefit Plans
                                                                                        
                                                                                        
                                                                                        (1,146
                                                                                        )
                                                                                        
                                                                                        
                                                                                        239
                                                                                        
                                                                                        
                                                                                        
                                                                                        (84
                                                                                        )Unearned
      Revenue & Advanced Service Fees
                                                                                        
                                                                                        
                                                                                        84
                                                                                        
                                                                                        
                                                                                        
                                                                                        157
                                                                                        
                                                                                        
                                                                                        
                                                                                        127Other
      Liabilities
                                                                                        
                                                                                        
                                                                                        (465
                                                                                        )
                                                                                        
                                                                                        
                                                                                        224
                                                                                        
                                                                                        
                                                                                        
                                                                                        (299
                                                                                        )NET
      CASH PROVIDED BY OPERATING ACTIVITIES
                                                                                        
                                                                                        
                                                                                        19,116
                                                                                        
                                                                                        
                                                                                        
                                                                                        18,818
                                                                                        
                                                                                        
                                                                                        
                                                                                        16,126CASH
      FLOWS FROM INVESTING ACTIVITIES:Utility
      Plant Expenditures, Including AFUDC of $319 in 2008, $282 in 2007 and $373
      in 2006
                                                                                        
                                                                                        
                                                                                        (28,429
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (21,930
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (30,734
                                                                                        )Restricted
      Cash
                                                                                        
                                                                                        
                                                                                        (591
                                                                                        )
                                                                                        
                                                                                        
                                                                                        444
                                                                                        
                                                                                        
                                                                                        
                                                                                        (1,036
                                                                                        )Proceeds
      from Real Estate Dispositions
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        273
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Preliminary
      Survey & Investigation Charges
                                                                                        
                                                                                        
                                                                                        (1,907
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (1,847
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (1,661
                                                                                        )NET
      CASH USED IN INVESTING ACTIVITIES
                                                                                        
                                                                                        
                                                                                        (30,927
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (23,060
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (33,431
                                                                                        )CASH
      FLOWS FROM FINANCING ACTIVITIES:Redemption
      of Long-term Debt
                                                                                        
                                                                                        
                                                                                        (2,787
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (2,501
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (1,915
                                                                                        )Proceeds
      from Issuance of Long-term Debt
                                                                                        
                                                                                        
                                                                                        4,652
                                                                                        
                                                                                        
                                                                                        
                                                                                        3,632
                                                                                        
                                                                                        
                                                                                        
                                                                                        5,016Net
      Short-term Bank Borrowings
                                                                                        
                                                                                        
                                                                                        19,627
                                                                                        
                                                                                        
                                                                                        
                                                                                        6,250
                                                                                        
                                                                                        
                                                                                        
                                                                                        (4,000
                                                                                        )Deferred
      Debt Issuance Expenses
                                                                                        
                                                                                        
                                                                                        (158
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (50
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (28
                                                                                        )Common
      Stock Issuance Expense
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        (15
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (238
                                                                                        )Restricted
      Cash
                                                                                        
                                                                                        
                                                                                        (40
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (12
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (32
                                                                                        )Proceeds
      from Issuance of Common Stock
                                                                                        
                                                                                        
                                                                                        1,475
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,420
                                                                                        
                                                                                        
                                                                                        
                                                                                        28,088Payment
      of Common Dividends
                                                                                        
                                                                                        
                                                                                        (9,353
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (9,141
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (8,190
                                                                                        )Payment
      of Preferred Dividends
                                                                                        
                                                                                        
                                                                                        (218
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (248
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (248
                                                                                        )Construction
      Advances and Contributions-Net
                                                                                        
                                                                                        
                                                                                        (128
                                                                                        )
                                                                                        
                                                                                        
                                                                                        1,110
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,694NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                                                                                        
                                                                                        
                                                                                        13,070
                                                                                        
                                                                                        
                                                                                        
                                                                                        445
                                                                                        
                                                                                        
                                                                                        
                                                                                        20,147NET
      CHANGES IN CASH AND CASH EQUIVALENTS
                                                                                        
                                                                                        
                                                                                        1,259
                                                                                        
                                                                                        
                                                                                        
                                                                                        (3,797
                                                                                        )
                                                                                        
                                                                                        
                                                                                        2,842CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                                                                                        
                                                                                        
                                                                                        2,029
                                                                                        
                                                                                        
                                                                                        
                                                                                        5,826
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,984CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                                                                                        
                                                                                        $
                                                                                        3,288
                                                                                        
                                                                                        
                                                                                        $
                                                                                        2,029
                                                                                        
                                                                                        
                                                                                        $
                                                                                        5,826SUPPLEMENTAL
      DISCLOSURE OF NON-CASH ACTIVITY:Utility
      Plant received as Construction Advances and Contributions
                                                                                        
                                                                                        $
                                                                                        5,452
                                                                                        
                                                                                        
                                                                                        $
                                                                                        8,960
                                                                                        
                                                                                        
                                                                                        $
                                                                                        3,543Transfer
      of Equity Investment to Employee Retirement Benefit Plans
                                                                                        
                                                                                        $
                                                                                        132
                                                                                        
                                                                                        
                                                                                        $
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        -SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWS INFORMATION:Cash
      Paid During the Year for:Interest
                                                                                        
                                                                                        $
                                                                                        6,864
                                                                                        
                                                                                        
                                                                                        $
                                                                                        6,542
                                                                                        
                                                                                        
                                                                                        $
                                                                                        6,937Interest
      Capitalized
                                                                                        
                                                                                        $
                                                                                        (319
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (282
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (373
                                                                                        )Income
      Taxes
                                                                                        
                                                                                        $
                                                                                        5,205
                                                                                        
                                                                                        
                                                                                        $
                                                                                        4,534
                                                                                        
                                                                                        
                                                                                        $
                                                                                        4,352See
      Notes to Consolidated Financial Statements.




30
 Index








MIDDLESEX
      WATER COMPANYCONSOLIDATED
      STATEMENTS OF CAPITAL STOCKAND
      LONG-TERM DEBT(In
      thousands)
  December
      31,
                                                                                                      
                                                                                                      
                                                                                                      December
      31,2008
                                                                                                      
                                                                                                      
                                                                                                      2007Common
      Stock, No Par ValueShares
      Authorized -    40,000Shares
      Outstanding - 2008
      - 13,404
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      107,726
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      105,6682007
      - 13,246Retained
      Earnings
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      30,077
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      27,441Accumulated
      Other Comprehensive Income, net of tax
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      69TOTAL
      COMMON EQUITY
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      137,803
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      133,178Cumulative
      Preference Stock, No Par Value:Shares Authorized - 100Shares
      Outstanding - NoneCumulative
      Preferred Stock, No Par Value:Shares
      Authorized -   2008 - 134; 2007 - 139Shares
      Outstanding - 2008 - 32;
      2007 - 37Convertible:Shares
      Outstanding, $7.00 Series - 14
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,457
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,457Shares
      Outstanding, $8.00 Series - 2008 - 7; 2007 - 12
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      816
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,399Nonredeemable:Shares
      Outstanding, $7.00 Series - 1
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      102
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      102Shares
      Outstanding, $4.75 Series - 10
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,000
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,000TOTAL
      PREFERRED STOCK
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      3,375
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      3,958Long-term
      Debt:8.05%,
      Amortizing Secured Note, due December 20, 2021
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      2,695
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      2,8006.25%,
      Amortizing Secured Note, due May 22, 2028
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      8,155
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      8,5756.44%,
      Amortizing Secured Note, due August 25, 2030
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6,067
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6,3476.46%,
      Amortizing Secured Note, due September 19, 2031
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6,347
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6,6274.22%,
      State Revolving Trust Note, due December 31, 2022
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      657
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6913.30%
      to 3.60%, State Revolving Trust Note, due May 1, 2025
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      3,689
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      3,1683.49%,
      State Revolving Trust Note, due January 25, 2027
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      675
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6034.03%,
      State Revolving Trust Note, due December 1, 2026
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      939
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      9744.00%
      to 5.00%, State Revolving Trust Bond, due September 1,
2021
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      660
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6950.00%,
      State Revolving Fund Bond, due September 1, 2021
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      500
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      5383.64%,
      State Revolving Trust Note, due July 1, 2028
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      389
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -3.64%,
      State Revolving Trust Note, due January 1, 2028
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      140
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -First
      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
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      538
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      5914.25%
      to 4.63%, Series Y, due September 1, 2018
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      710
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      7650.00%,
      Series Z, due September 1, 2019
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,230
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,3425.25%
      to 5.75%, Series AA, due September 1, 2019
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,675
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,7850.00%,
      Series BB, due September 1, 2021
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,566
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,6854.00%
      to 5.00%, Series CC, due September 1, 2021
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,895
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,9955.10%,
      Series DD, due January 1, 2032
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6,000
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6,0000.00%,
      Series EE, due September 1, 2024
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6,693
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      7,1123.00%
      to 5.50%, Series FF, due September 1, 2024
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      8,025
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      8,3850.00%,
      Series GG, due August 1, 2026
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,619
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,7104.00%
      to 5.00%, Series HH, due August 1, 2026
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,880
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,9500.00%,
      Series II, due August 1, 2027
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,708
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,7503.40%
      to 5.00%, Series JJ, due August 1, 2027
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,750
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,7500.00%,
      Series KK, due August 1, 2028
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,750
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -5.00%
      to 5.50%, Series LL, due August 1, 2028
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,750
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -SUBTOTAL
      LONG-TERM DEBT
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      136,202
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      134,338Less:
      Current Portion of Long-term Debt
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (17,985
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (2,723
                                                                                                      )TOTAL
      LONG-TERM DEBT
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      118,217
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      131,615




31
 Index





MIDDLESEX
      WATER COMPANYCONSOLIDATED
      STATEMENTS OF COMMON STOCKHOLDERS' EQUITY AND
      COMPREHENSIVEINCOME(In
      thousands)AccumulatedCommon
                                                                                                                
                                                                                                                
                                                                                                                Common
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                OtherStock
                                                                                                                
                                                                                                                
                                                                                                                Stock
                                                                                                                
                                                                                                                
                                                                                                                Retained
                                                                                                                
                                                                                                                
                                                                                                                ComprehensiveShares
                                                                                                                
                                                                                                                
                                                                                                                Amount
                                                                                                                
                                                                                                                
                                                                                                                Earnings
                                                                                                                
                                                                                                                
                                                                                                                Income
      (Loss)
                                                                                                                
                                                                                                                
                                                                                                                TotalBalance
      at January 1, 2006
                                                                                                                
                                                                                                                
                                                                                                                11,584
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                76,161
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                23,638
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                (207
                                                                                                                )
                                                                                                                
                                                                                                                $
                                                                                                                99,592Net
      Income
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                10,039
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                10,039Minimum
      Pension Liability, Net of $135 Income Tax
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                262
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                262Change
      in Value of Equity Investments, Net of $20 Income Tax
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                39
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                39Comprehensive
      Income
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                10,340Dividend
      Reinvestment & Common Stock Purchase Plan
                                                                                                                
                                                                                                                
                                                                                                                70
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,321
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,321Restricted
      Stock Award - Net
                                                                                                                
                                                                                                                
                                                                                                                19
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                275
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                275Preferred
      Stock Conversion
                                                                                                                
                                                                                                                
                                                                                                                1,495
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                26,491
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                26,491Cash
      Dividends on Common Stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (8,190
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (8,190
                                                                                                                )Cash
      Dividends on Preferred Stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (248
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (248
                                                                                                                )Common
      Stock Expense
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (238
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (238
                                                                                                                )Balance
      at December 31, 2006
                                                                                                                
                                                                                                                
                                                                                                                13,168
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                104,248
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                25,001
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                94
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                129,343Net
      Income
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                11,843
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                11,843Change
      in Value of Equity Investments, Net of $13 Income
    Tax
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (25
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (25
                                                                                                                )Comprehensive
      Income
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                11,818Dividend
      Reinvestment & Common Stock Purchase Plan
                                                                                                                
                                                                                                                
                                                                                                                61
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,147
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,147Restricted
      Stock Award - Net
                                                                                                                
                                                                                                                
                                                                                                                17
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                273
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                273Cash
      Dividends on Common Stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (9,141
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (9,141
                                                                                                                )Cash
      Dividends on Preferred Stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (248
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (248
                                                                                                                )Common
      Stock Expenses
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (15
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (15
                                                                                                                )Other
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1Balance
      at December 31, 2007
                                                                                                                
                                                                                                                
                                                                                                                13,246
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                105,668
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                27,441
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                69
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                133,178Net
      Income
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                12,208
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                12,208Change
      in Value of Equity Investments, Net of $36 Income Tax
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (69
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (69
                                                                                                                )Comprehensive
      Income
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                12,139Dividend
      Reinvestment & Common Stock Purchase Plan
                                                                                                                
                                                                                                                
                                                                                                                67
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,187
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,187Conversion
      of $8 Covnvertible Preferred Stock
                                                                                                                
                                                                                                                
                                                                                                                69
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                583
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                583Restricted
      Stock Award - Net
                                                                                                                
                                                                                                                
                                                                                                                22
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                288
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                288Cash
      Dividends on Common Stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (9,353
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (9,353
                                                                                                                )Cash
      Dividends on Preferred Stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (218
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (218
                                                                                                                )Other
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (1
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (1
                                                                                                                )Balance
      at December 31, 2008
                                                                                                                
                                                                                                                
                                                                                                                13,404
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                107,726
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                30,077
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                137,803
  See
      Notes to Consolidated Financial Statements.


32
 Index










Middlesex
Water Company




Notes
to Consolidated Financial Statements





Note
1 - Summary of Significant Accounting Policies





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





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





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





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





(c) Utility Plant is stated at
original cost as defined for regulatory purposes. Property accounts are charged
with the cost of betterments and major replacements of property. Cost includes
direct material, labor and indirect charges for pension benefits and payroll
taxes. The cost of labor, materials, supervision and other expenses incurred in
making repairs and minor replacements and in maintaining the properties is
charged to the appropriate expense accounts. At December 31, 2008, there was no
event or change in circumstance that would indicate that the carrying amount of
any long-lived asset was not recoverable.





(d) Depreciation is computed
by each regulated member of the Company utilizing a rate approved by the
applicable regulatory authority. The Accumulated Provision for Depreciation is
charged with the cost of property retired, less salvage.  The
following table sets forth the range of depreciation rates for the major utility
plant categories used to calculate depreciation for the years ended December 31,
2008, 2007 and 2006. These rates have been approved by either the BPU or
PSC:





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








33
 Index





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





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





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





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





(f) Allowance for Funds Used
During Construction (AFUDC) - Middlesex and its regulated subsidiaries
capitalize AFUDC, which represents the cost of financing projects during
construction. AFUDC is added to the construction costs of individual projects
exceeding specific cost and construction period thresholds established for each
company and then depreciated along with the rest of the utility plant’s costs
over its estimated useful life. For the years ended December 31, 2008, 2007 and
2006 approximately $0.7 million, $0.5 million and $0.6 million, respectively of
AFUDC was added to the cost of construction projects.  AFUDC is
calculated using each company’s weighted cost of debt and equity as approved in
their most recent respective regulatory rate order. The average AFUDC rate for
the years ended December 31, 2008, 2007 and 2006 for Middlesex and Tidewater
were 7.55% and 8.07%, respectively.





(g) Accounts Receivable – We
record bad debt expense based on historical write-offs. The allowance for
doubtful accounts was $0.2 million at December 31, 2008, $0.3 million at
December 31, 2007, and $0.3 million at December 31, 2006. The corresponding
expense for the year ended December 31, 2008, 2007 and 2006 was $0.2 million,
$0.1 million and $0.3 million, respectively.





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





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





34
 Index





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





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





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





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





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




(m) Recent Accounting
Pronouncements – In December 2008, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP) FAS132(R)-1, “Employers’
Disclosures about Postretirement Benefit Plan Assets”.  This FSP
amends Statement of Financial Accounting Standards (SFAS)132(R), “Employers’
Disclosures about Pensions and Other Postretirement Benefits”, to provide
guidance on an employer’s disclosures about plan assets of a defined benefit
pension or other postretirement plan.  The disclosures about plan
assets required by this FSP shall be provided for fiscal years ending after
December 15, 2009.  The Company is currently reviewing the effect this
new pronouncement will have on its consolidated financial
statements.
  In
October 2008, the FASB issued FSP FAS No. 157-3,“Determining the Fair Value
of a Financial Asset When The Market for That Asset Is Not
Active”  (FSP 157-3), to clarify the application of the
provisions of SFAS 157 in an inactive market and how an entity would
determine fair value in an inactive market.  FSP 157-3 was
effective immediately. The application of the provisions of FSP 157-3 did
not materially affect the Company’s financial statements.
 
 In
September 2006, the Financial 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 FSP FAS No. 157-2, “Effective Date of FASB
Statement No. 157” (FSP 157-2), 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 the Company’s financial
statements.  The Company does not anticipate that adoption of FSP
157-2 will have a material impact on its financial statements.
 
 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, which is effective for fiscal years
beginning after December 15, 2008 will not have an impact on the Company’s
consolidated financial statements.
 
 SFAS 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
acquired business entity.  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.


35
 Index





In
February 2007, the FASB issued FSP FAS 158-1, “Conforming Amendments
to the Illustrations in FASB Statements No. 87, No. 88, and No 106 and
to the Related Staff Implementation Guides.”. This FSP makes conforming
amendments to other FASB statements and staff implementation guides and provides
technical corrections to SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans.” The conforming amendments in
this FSP did not have a material impact on the Company’s consolidated financial
statements or disclosures.
 
 In May
2007, the FASB issued FSP FIN 48-1 “Definition of Settlement in FASB
Interpretation No. 48” (FSP FIN 48-1). FSP FIN 48-1 provides guidance on how to
determine whether a tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective
retroactively to January 1, 2007. The implementation of this standard did not
have a material impact on our consolidated financial position or results of
operations.


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





(n) Other Comprehensive Income
– Total comprehensive income includes changes in equity that are excluded from
the consolidated statements of income and are recorded into a separate section
of capitalization on the consolidated balance sheets.





(o) Regulatory Accounting - We
maintain our books and records in accordance with accounting principles
generally accepted in the United States of America.  Middlesex and
certain of its subsidiaries, which account for 90% of Operating Revenues and 98%
of Total Assets, are subject to regulation in the state in which they operate.
Those companies are required to maintain their accounts in accordance with
regulatory authorities’ rules and guidelines, which may differ from other
authoritative accounting pronouncements.  In those instances, the
Company follows the guidance provided in SFAS No. 71, “Accounting for the
Effects of Certain Types of Regulation.”





(p) Pension Plan - We maintain
a noncontributory defined benefit pension plan which covers substantially all
employees with more than 1,000 hours of service, and who were hired as of March
31, 2007. The discount rate utilized for determining pension costs increased
from 5.52% for the year ended December 31, 2006 to 5.89% for the year ended
December 31, 2007 and increased to 6.59% for the year ended December 31, 2008.
Future actual pension expense will depend on future investment performance,
changes in future discount rates and various other factors related to the
population participating in the pension plans.





Note
2 - Rate and Regulatory Matters





Effective
December 18, 2008, Pinelands Water and Pinelands Wastewater implemented New
Jersey Board of Public Utilities (BPU) approved base rate increases of 5.53% and
18.30%, respectively. These increases represent a total base rate increase of
approximately $0.2 million for Pinelands to offset increased costs associated
with the operation and maintenance of their systems.





36
 Index








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





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





In
accordance with the tariff established for Southern Shores, an annual rate
increase of 3% was implemented on January 1, 2009.  Under the terms of
a contract with Southern Shores Homeowners Association, the increase cannot
exceed the lesser of the regional Consumer Price Index or 3%.





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








December
      31,(Thousands
      of Dollars)Regulatory Assets
                      
                      2008
                      
                      
                      2007
                      
                      Remaining
                        Recovery
                        PeriodsPostretirement
      Benefits
                      
                      $
                      20,679
                      
                      
                      $
                      7,279
                      
                      VariousIncome
      Taxes
                      
                      
                      10,905
                      
                      
                      
                      8,222
                      
                      VariousTank
      Painting
                      
                      
                      189
                      
                      
                      
                      225
                      
                      3-7
      yearsRate
      Cases and Other
                      
                      
                      137
                      
                      
                      
                      364
                      
                      Up
      to 2 yearsTotal
                      
                      $
                      31,910
                      
                      
                      $
                      16,090





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





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





The
Company uses composite depreciation rates for its regulated utility assets,
which is currently an acceptable method under generally accepted accounting
principles and is widely used in the utility industry. Historically, under the
composite depreciation method, the anticipated costs of removing assets upon
retirement are provided for over the life of those assets as a component of
depreciation expense. The Company recovers certain asset retirement costs
through rates charged to customers as an approved component of depreciation
expense. As of December 31, 2008 and 2007, the Company has approximately $6.2
million and $5.7 million, respectively, of





37
 Index





expected
costs of removal recovered currently in rates in excess of actual costs
incurred. These amounts are recorded as regulatory liabilities.





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




Note
3 - Income Taxes




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








Years
      Ended December 31,(Thousands
      of Dollars)2008
                      
                      
                      2007
                      
                      
                      2006Income
      Tax at Statutory Rate
                      
                      $
                      6,253
                      
                      
                      $
                      6,021
                      
                      
                      $
                      5,155Tax
      Effect of:Utility
      Plant Related
                      
                      
                      (725
                      )
                      
                      
                      (595
                      )
                      
                      
                      (338
                      )State
      Income Taxes – Net
                      
                      
                      309
                      
                      
                      
                      350
                      
                      
                      
                      257Employee
      Benefits
                      
                      
                      202
                      
                      
                      
                      (49
                      )
                      
                      
                      (48
                      )Other
                      
                      
                      17
                      
                      
                      
                      9
                      
                      
                      
                      15Total
      Income Tax Expense
                      
                      $
                      6,056
                      
                      
                      $
                      5,736
                      
                      
                      $
                      5,041





Income
tax expense is comprised of the following:





Current:Federal
                  
                  $
                  4,651
                  
                  
                  $
                  4,894
                  
                  
                  $
                  3,846State
                  
                  
                  392
                  
                  
                  
                  413
                  
                  
                  
                  298Deferred:Federal
                  
                  
                  1,018
                  
                  
                  
                  634
                  
                  
                  
                  884State
                  
                  
                  74
                  
                  
                  
                  117
                  
                  
                  
                  92Investment
      Tax Credits
                  
                  
                  (79
                  )
                  
                  
                  (322
                  )
                  
                  
                  (79
                  )Total
      Income Tax Expense
                  
                  $
                  6,056
                  
                  
                  $
                  5,736
                  
                  
                  $
                  5,041





The
statutory review period for income tax returns for the years prior to 2007 has
been closed.  An examination by the Internal Revenue Service of the
Federal income tax returns for 2005 and 2006 was completed during 2008. The
examination resulted in a net refund, including interest of approximately $0.1
million.  The tax refund was recorded to the appropriate current and
deferred tax accounts and the interest was reported as other
income.  In the event that there are interest and penalties associated
with income tax adjustments in future examinations, these amounts will be
reported under interest expense and other expense, respectively. There are no
unrecognized tax benefits resulting from prior period tax
positions.





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











38
 Index











December
      31,(Thousands
      of Dollars)2008
                      
                      
                      2007Utility
      Plant Related
                      
                      $
                      26,224
                      
                      
                      $
                      24,892Customer
      Advances
                      
                      
                      (4,036
                      )
                      
                      
                      (4,117
                      )Employee
      Benefits
                      
                      
                      (65
                      )
                      
                      
                      (2,544
                      )Other
                      
                      
                      (390
                      )
                      
                      
                      (291
                      )Total
      Deferred Tax Liability
                      
                      $
                      21,733
                      
                      
                      $
                      17,940





Note
4 - Commitments and Contingent Liabilities





Guarantees -USA-PA operates
the City of Perth Amboy’s (Perth Amboy) water and wastewater systems under a
service contract agreement through June 30, 2018. Under the
agreement, USA-PA receives a fixed fee and a variable fee based on increased
system billing. Scheduled fixed fee payments for 2008, 2007 and 2006 were $8.0
million, $7.8 million and $7.6 million, respectively.  The fixed fees
will increase over the term of the contract to $10.2 million.





In
connection with the agreement, Perth Amboy, through the Middlesex County
Improvement Authority, issued approximately $68.0 million in three series of
bonds. Middlesex guaranteed one of those series of bonds, designated the Series
C Serial Bonds, in the principal amount of approximately $26.3 million. Perth
Amboy guaranteed the two other series of bonds. The Series C Serial Bonds have
various maturity dates with the final maturity date on September 1, 2015. As of
December 31, 2008, approximately $21.4 million of the Series C Serial Bonds
remained outstanding.





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





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





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





Purchased
water costs are shown below:








Years
      Ended December 31,(Millions
      of Dollars)Purchased Water
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006Untreated
                    
                    $
                    2.4
                    
                    
                    $
                    2.4
                    
                    
                    $
                    2.3Treated
                    
                    
                    2.1
                    
                    
                    
                    2.1
                    
                    
                    
                    1.9Total
      Costs
                    
                    $
                    4.5
                    
                    
                    $
                    4.5
                    
                    
                    $
                    4.2








39
 Index





Construction –The Company may
spend up to $33.0 million in 2009, $47.6 million in 2010 and $43.6 million in
2011 on its construction program.  The
development of these estimates is based in part upon projected housing
development and sales in Delaware.  There is no assurance that the
projected housing development will occur.





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 certain of its officers that
provide compensation and benefits in the event of termination of employment in
connection with a change in control of the Company.





Note
5 – Short-term Borrowings





Information
regarding the Company’s short-term borrowings for the years ended December 31,
2008 and 2007 is summarized below:





(Millions
      of Dollars)2008
                    
                    
                    2007Established
      Lines at Year-End
                    
                    $
                    36.0
                    
                    
                    $
                    40.0Maximum
      Amount Outstanding
                    
                    
                    25.9
                    
                    
                    
                    6.6Average
      Outstanding
                    
                    
                    16.4
                    
                    
                    
                    2.6Notes
      Payable at Year-End
                    
                    
                    25.9
                    
                    
                    
                    6.3Weighted
      Average Interest Rate
                    
                    
                    3.69
                    %
                    
                    
                    6.36
                    %Weighted
      Average Interest Rate at Year-End
                    
                    
                    2.30
                    %
                    
                    
                    5.79
                    %





The
maturity dates for the $25.9 million borrowings outstanding as of December 31,
2008 are: $16.5 million on several dates in January 2009, $3.5 million on
February 9, 2009 and $5.9 million on several dates in March,
2009.  The weighted average interest rate for those loans is
2.30%





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




Note
6 - Capitalization




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





Common
Stock


In June
2007, the number of shares authorized under the Dividend Reinvestment and Common
Stock Purchase Plan (DRP) increased from 1,700,000 shares to 2,300,000
shares.  The cumulative number of shares issued under the DRP at
December 31, 2008, is 1,684,411. The Company also has shares authorized and
outstanding under a restricted stock plan, which is described in Note 7 –
Employee Benefit Plans.





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





40
 Index





In the
event dividends on the preferred stock are in arrears, no dividends may be
declared or paid on the common stock of the Company.  At December 31,
2008, no preferred stock dividends were in arrears.





Preferred
Stock


If four
or more quarterly dividends are in arrears, the preferred shareholders, as a
class, are entitled to elect two members to the Board of Directors in addition
to Directors elected by holders of the common stock. At December 31, 2008 and
2007, 31,898 and 36,898 shares of preferred stock presently authorized were
outstanding and there were no dividends in arrears.





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





The
conversion feature of the no par $8.00 Series Cumulative and Convertible
Preferred Stock allows the security holders to exchange one convertible
preferred share for 13.714 shares of the Company's common stock.  The
preferred shares are convertible into common stock at the election of the
security holder or Middlesex. During 2008, 5,000 shares of the no par $8.00
Series Cumulative and Convertible Preferred Stock were converted into 68,570 of
common stock.





Long-term
Debt


In
November 2008, Middlesex issued $3.5 million of first mortgage bonds through the
New Jersey Environmental Infrastructure Trust under the New Jersey State Revolving Fund (SRF)
program. The Company closed on the first mortgage bonds designated as Series KK
and LL on November 8, 2008.





In
December 2007, Tidewater closed on a loan with the Delaware SRF for two specific
projects and borrowed $0.5 million in 2008. The interest rate is 3.64% with a
final maturity of July 1, 2028.





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




First
Mortgage Bonds Series S through W and Series DD are term bonds with single
maturity dates. With the exception of $15.0 million for repayment for the First
Mortgage Bond Series U which matured on February 2, 2009, principal repayments
for the First Mortgage Bonds extend beyond 2012.  The aggregate annual
principal repayment obligations for all other long-term debt are shown
below:





(Millions of Dollars)Year
                    Annual Maturities2009
                    $3.02010
                    $3.42011
                    $3.42012
                    $3.52013
                    $3.5




The
weighted average interest rate on all long-term debt at December 31, 2008 and
2007 was 5.15% and 5.20%, respectively. Except for the Amortizing Secured Notes
and Series U First Mortgage Bonds, all of the Company’s outstanding debt has
been issued through the New Jersey Economic Development Authority
($57.5





41
 Index







million),
the New Jersey Environmental Infrastructure Trust program ($34.0 million) and
the Delaware SRF program ($6.5 million).




Restricted
cash includes proceeds from the Series Y, AA, BB, CC, EE, FF, GG, HH, II, JJ, KK
and LL First Mortgage Bonds and State Revolving Trust Bonds issuances. These
funds are held in trusts and restricted for specific capital expenditures and
debt service requirements. Series II and JJ proceeds can only be used for the
2008 main cleaning and cement lining program. Series KK and LL proceeds can only
be used for the 2009 main cleaning and cement lining program.  All
other bond issuance balances in restricted cash are for debt service
requirements.




Substantially
all of the Utility Plant of the Company is subject to the lien of its mortgage,
which includes debt service and capital ratio covenants. The Company is in
compliance with all of its mortgage covenants and restrictions.




Earnings
Per Share


The
following table presents the calculation of basic and diluted earnings per share
(EPS) for the three years ended December 31, 2008.  Basic EPS is
computed on the basis of the weighted average number of shares
outstanding.  Diluted EPS assumes the conversion of both the
Convertible Preferred Stock $7.00 Series and $8.00 Series.





(In
      Thousands, Except per Share Amounts)2008
                      
                      
                      2007
                      
                      
                      2006Basic:
                      
                      Income
                      
                      
                      Shares
                      
                      
                      Income
                      
                      
                      Shares
                      
                      
                      Income
                      
                      
                      SharesNet
      Income
                      
                      $
                      12,208
                      
                      
                      
                      13,317
                      
                      
                      $
                      11,843
                      
                      
                      
                      13,203
                      
                      
                      $
                      10,039
                      
                      
                      
                      11,844Preferred
      Dividend
                      
                      
                      (218
                      )
                      
                      
                      
                      
                      
                      
                      (248
                      )
                      
                      
                      
                      
                      
                      
                      (
      248
                      )Earnings
      Applicable to Common Stock
                      
                      $
                      11,990
                      
                      
                      
                      13,317
                      
                      
                      $
                      11,595
                      
                      
                      
                      13,203
                      
                      
                      $
                      9,791
                      
                      
                      
                      11,844Basic
      EPS
                      
                      $
                      0.90
                      
                      
                      
                      
                      
                      
                      $
                      0.88
                      
                      
                      
                      
                      
                      
                      $
                      0.83Diluted:Earnings
      Applicable to Common Stock
                      
                      $
                      11,990
                      
                      
                      
                      13,317
                      
                      
                      $
                      11,595
                      
                      
                      
                      13,203
                      
                      
                      $
                      9,791
                      
                      
                      
                      11,844$7.00
      Series Dividend
                      
                      
                      97
                      
                      
                      
                      167
                      
                      
                      
                      97
                      
                      
                      
                      167
                      
                      
                      
                      97
                      
                      
                      
                      167$8.00
      Series Dividend
                      
                      
                      66
                      
                      
                      
                      131
                      
                      
                      
                      96
                      
                      
                      
                      164
                      
                      
                      
                      96
                      
                      
                      
                      164Adjusted
      Earnings Applicable to Common Stock
                      
                      $
                      12,153
                      
                      
                      
                      13,615
                      
                      
                      $
                      11,788
                      
                      
                      
                      13,534
                      
                      
                      $
                      9,984
                      
                      
                      
                      12,175Diluted
      EPS
                      
                      $
                      0.89
                      
                      
                      
                      
                      
                      
                      $
                      0.87
                      
                      
                      
                      
                      
                      
                      $
                      0.82





Fair
Value of Financial Instruments


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








At December 31,(Thousands
      of Dollars)2008
                                
                                
                                2007Carrying
                                
                                
                                Fair
                                
                                
                                Carrying
                                
                                
                                FairAmount
                                
                                
                                Value
                                
                                
                                Amount
                                
                                
                                ValueFirst
      Mortgage Bonds
                                
                                $
                                105,290
                                
                                
                                $
                                95,171
                                
                                
                                $
                                103,322
                                
                                
                                $
                                104,681State
      Revolving Bonds
                                
                                $
                                1,160
                                
                                
                                $
                                1,170
                                
                                
                                $
                                1,233
                                
                                
                                $
                                1,272








42
 Index





For other
long-term debt for which there was no quoted market price, it was not
practicable to estimate their fair value. The carrying amount of these
instruments was $29.8 million at December 31, 2008 and 2007, respectively.
Customer advances for construction have a carrying amount of $22.1 million and
$21.8 million at December 31, 2008 and 2007, respectively. Their relative fair
values cannot be accurately estimated since future refund payments depend on
several variables, including new customer connections, customer consumption
levels and future rate increases.




Note
7 - Employee Benefit Plans




Pension


The
Company has a noncontributory defined benefit pension plan, which covers
substantially all employees with more than 1,000 hours of service. Employees
hired after March 31, 2007 are not eligible to participate in this plan, but do
participate in a defined contribution plan that provides an annual contribution
at the discretion of the Company based upon a percentage of the participants’
compensation. In order to be eligible for an annual contribution, the eligible
employee must be employed by the Company on December 31st of the
year the award pertains to. In addition, the Company maintains an unfunded
supplemental pension plan for its executive officers.  The Accumulated
Benefit Obligation for all pension plans at December 31, 2008 and 2007 was $27.5
million and $21.6 million, respectively.





Postretirement
Benefits Other Than Pensions


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





The
Company has recognized a deferred regulatory asset relating to the difference
between the accrued retirement benefit costs and actual cash paid for plan
premiums in years prior to 1998. Included in the regulatory asset is a
transition obligation from adopting SFAS No.106, “Employers’ Accounting for
Postretirement Benefits Other than Pensions,” on January 1, 1993. In addition to
the recognition of annual accrued retirement benefit costs in rates, Middlesex
is also recovering the transition obligation over 15 years. The regulatory
assets at December 31, 2008 and 2007 were $0.4 million and $0.4 million,
respectively.





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





The
Company uses a December 31 measurement date for all of its employee benefit
plans. The table below sets forth information relating to the Company’s pension
plans and other postretirement benefits for 2008 and 2007.











43
 Index








December
      31,(Thousands
      of Dollars)Pension
      Benefits
                        
                        
                        Other
      Benefits2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007Reconciliation
      of Projected Benefit ObligationBeginning
      Balance
                        
                        $
                        30,167
                        
                        
                        $
                        31,728
                        
                        
                        $
                        15,067
                        
                        
                        $
                        14,698Service
      Cost
                        
                        
                        1,248
                        
                        
                        
                        1,296
                        
                        
                        
                        775
                        
                        
                        
                        821Interest
      Cost
                        
                        
                        1,950
                        
                        
                        
                        1,807
                        
                        
                        
                        1,010
                        
                        
                        
                        895Actuarial
      (Gain)/Loss
                        
                        
                        2,637
                        
                        
                        
                        (3,081
                        )
                        
                        
                        2,420
                        
                        
                        
                        (852
                        )Benefits
      Paid
                        
                        
                        (1,650
                        )
                        
                        
                        (1,583
                        )
                        
                        
                        (501
                        )
                        
                        
                        (495
                        )Ending
      Balance
                        
                        $
                        34,352
                        
                        
                        $
                        30,167
                        
                        
                        $
                        18,771
                        
                        
                        $
                        15,067Reconciliation
      of Plan Assets at Fair ValueBeginning
      Balance
                        
                        $
                        24,568
                        
                        
                        $
                        23,028
                        
                        
                        $
                        7,025
                        
                        
                        $
                        6,701Actual
      Return on Plan Assets
                        
                        
                        (5,390
                        )
                        
                        
                        1,315
                        
                        
                        
                        (1,085
                        )
                        
                        
                        324Employer
      Contributions
                        
                        
                        2,508
                        
                        
                        
                        1,808
                        
                        
                        
                        1,800
                        
                        
                        
                        495Benefits
      Paid
                        
                        
                        (1,650
                        )
                        
                        
                        (1,583
                        )
                        
                        
                        (501
                        )
                        
                        
                        (495
                        )Ending
      Balance
                        
                        $
                        20,036
                        
                        
                        $
                        24,568
                        
                        
                        $
                        7,239
                        
                        
                        $
                        7,025Funded
      Status
                        
                        $
                        (14,316
                        )
                        
                        $
                        (5,599
                        )
                        
                        $
                        (11,532
                        )
                        
                        $
                        (8,042
                        )Amounts
      Recognized in the Consolidated Balance Sheets consist of:Current
      Liability
                        
                        
                        (308
                        )
                        
                        
                        (308
                        )
                        
                        
                        -
                        
                        
                        
                        -Noncurrent
      Liability
                        
                        
                        (14,008
                        )
                        
                        
                        (5,291
                        )
                        
                        
                        (11,532
                        )
                        
                        
                        (8,042
                        )Net
      Liability Recognized
                        
                        $
                        (14,316
                        )
                        
                        $
                        (5,599
                        )
                        
                        $
                        (11,532
                        )
                        
                        $
                        (8,042
                        )








Years
      Ended December 31,(Thousands
      of Dollars)Pension
      Benefits
                
                
                Other
      Benefits2008
                
                
                2007
                
                
                2006
                
                
                2008
                
                
                2007
                
                
                2006Components
      of Net Periodic Benefit CostService
      Cost
                
                $
                1,248
                
                
                $
                1,296
                
                
                $
                1,311
                
                
                $
                775
                
                
                $
                821
                
                
                $
                756Interest
      Cost
                
                
                1,950
                
                
                
                1,807
                
                
                
                1,703
                
                
                
                1,010
                
                
                
                895
                
                
                
                804Expected
      Return on Plan Assets
                
                
                (1,938
                )
                
                
                (1,819
                )
                
                
                (1,608
                )
                
                
                (581
                )
                
                
                (481
                )
                
                
                (330
                )Amortization
      of Net Transition Obligation
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                135
                
                
                
                135
                
                
                
                135Amortization
      of Net Actuarial (Gain)/Loss
                
                
                -
                
                
                
                75
                
                
                
                258
                
                
                
                287
                
                
                
                337
                
                
                
                443Amortization
      of Prior Service Cost
                
                
                10
                
                
                
                10
                
                
                
                11
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      Periodic Benefit Cost
                
                $
                1,270
                
                
                $
                1,369
                
                
                $
                1,675
                
                
                $
                1,626
                
                
                $
                1,707
                
                
                $
                1,808








44
 Index








Amounts
that are expected to be amortized from Regulatory Assets into Net Periodic
Benefit Cost in 2009 are as follows:


(Thousands
      of Dollars)Pension
                      Benefits
                    
                    
                    Other
                      Benefits2009
                    
                    2009Actuarial
      (Gain)/Loss
                    
                    $
                    601
                    
                    
                    $
                    579Prior
      Service Cost
                    
                    
                    10
                    
                    
                    
                    -Transition
      Obligation
                    
                    
                    -
                    
                    
                    
                    135




Pension
      Benefits
                                    
                                    
                                    Other
      Benefits2008
                                    
                                    
                                    2007
                                    
                                    
                                    2006
                                    
                                    
                                    2008
                                    
                                    
                                    2007
                                    
                                    
                                    2006Weighted
      Average Assumptions:Expected
      Return on Plan Assets
                                    
                                    
                                    8.00
                                    %
                                    
                                    
                                    8.00
                                    %
                                    
                                    
                                    8.00
                                    %
                                    
                                    
                                    7.50
                                    %
                                    
                                    
                                    7.50
                                    %
                                    
                                    
                                    7.50
                                    %Discount
      Rate for:Benefit
      Obligation
                                    
                                    
                                    6.17
                                    %
                                    
                                    
                                    6.59
                                    %
                                    
                                    
                                    5.89
                                    %
                                    
                                    
                                    6.12
                                    %
                                    
                                    
                                    6.59
                                    %
                                    
                                    
                                    5.89
                                    %Benefit
      Cost
                                    
                                    
                                    6.59
                                    %
                                    
                                    
                                    5.89
                                    %
                                    
                                    
                                    5.52
                                    %
                                    
                                    
                                    6.59
                                    %
                                    
                                    
                                    5.89
                                    %
                                    
                                    
                                    5.52
                                    %Compensation
      Increase for:Benefit
      Obligation
                                    
                                    
                                    3.50
                                    %
                                    
                                    
                                    3.50
                                    %
                                    
                                    
                                    3.50
                                    %
                                    
                                    
                                    3.50
                                    %
                                    
                                    
                                    3.50
                                    %
                                    
                                    
                                    3.50
                                    %Benefit
      Cost
                                    
                                    
                                    3.50
                                    %
                                    
                                    
                                    3.50
                                    %
                                    
                                    
                                    3.50
                                    %
                                    
                                    
                                    3.50
                                    %
                                    
                                    
                                    3.50
                                    %
                                    
                                    
                                    3.50
                                    %





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





A 9.0%
annual rate of increase in the per capita cost of covered healthcare benefits
was assumed for 2008 and assumed to decline by 1.0% per year through 2011 and by
0.5% per year to 5% by year 2014. A one-percentage point change in assumed
healthcare cost trend rates would have the following effects:







1
      Percentage Point(Thousands
      of Dollars)Increase
                
                
                DecreaseEffect
      on Current Year’s Service and Benefit Cost
                
                $
                392
                
                
                $
                (299
                )Effect
      on Benefit Obligation
                
                
                2,630
                
                
                
                (2,070
                )





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





Year
                                Pension
      Benefits
                                Other
      Benefits2009
                                
                                $
                                1,630
                                
                                
                                $
                                5462010
                                
                                
                                1,635
                                
                                
                                
                                5612011
                                
                                
                                1,688
                                
                                
                                
                                6012012
                                
                                
                                1,691
                                
                                
                                
                                6452013
                                
                                
                                1,802
                                
                                
                                
                                6912014-2018
                                
                                
                                10,487
                                
                                
                                
                                4,290Totals
                                
                                $
                                18,933
                                
                                
                                $
                                7,334








45
 Index








Benefit
Plans Assets





The
allocation of plan assets at December 31, 2008 and 2007 by asset category is as
follows:





Pension Plan
                  
                  
                  Other BenefitsAsset Category
                  
                  2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  Target
                  
                  
                  RangeEquity
      Securities
                  
                  
                  49.5
                  %
                  
                  
                  59.7
                  %
                  
                  
                  25.7
                  %
                  
                  
                  47.0
                  %
                  
                  
                  60
                  %
                  
                  
                  30-65
                  %Debt
      Securities
                  
                  
                  47.0
                  
                  
                  
                  37.8
                  
                  
                  
                  59.6
                  
                  
                  
                  50.6
                  
                  
                  
                  38
                  %
                  
                  
                  25-70
                  %Cash
                  
                  
                  3.5
                  
                  
                  
                  2.5
                  
                  
                  
                  14.7
                  
                  
                  
                  2.4
                  
                  
                  
                  2
                  %
                  
                  
                  0-10
                  %Total
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %





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





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





Equity
securities include Middlesex common stock in the amounts of $0.7 million (3.4%
of total plan assets) and $0.7 million (3.0 % of total plan assets) at December
31, 2008 and 2007, respectively.





For the
pension plan, Middlesex made total cash contributions of $2.4 million and
contributed $0.1 million in equity securities to the plan in 2008 and expects to
make cash contributions of approximately $3.6 million in 2009.





For the
postretirement health benefit plan, Middlesex made total cash contributions of
$1.8 million in 2008 and expects to make contributions of approximately $2.0
million in 2009.





401(k)
Plan


The
Company has a 401(k) defined contribution plan, which covers substantially all
employees with more than 1,000 hours of service. Under the terms of the Plan,
the Company matches 100% of a participant’s contributions, which do not exceed
1% of a participant’s compensation, plus 50% of a participant’s contributions
exceeding 1%, but not more than 6%.  The Company’s matching
contributions were $0.5 million for the year ended December 31, 2008 and $.04
million for each of the years ended December 31, 2007 and 2006.





For
those employees hired after March 31, 2007 and still employed on December 31,
2008, the Company approved a discretionary contribution that was based on 5% of
eligible compensation. The Company expects to fund the contribution of $0.1
million in March 2009.





Stock-Based
Compensation


The
Company maintains an escrow account for 58,775 shares of the Company's common
stock which were awarded under the 1997 Restricted Stock Plan, which has expired
and 21,807 shares of the Company's common stock which were awarded under the
2008 Restricted Stock Plan. 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. Shareholders approved the new 2008





46
 Index





Restricted
Stock Plan at the Company’s May 21, 2008 annual meeting of
shareholders.  The maximum number of shares authorized for grant under
the 2008 Restricted Stock Plan is 300,000 shares.





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





The
following table presents information on the Restricted Stock Plan:





Shares
              
              
              Unearned
                Compensation
              
              
              Weighted
                Average
                Grant
      PriceBalance,
      January 1, 2006
              
              
              56
              
              
              $
              700Granted
              
              
              21
              
              
              
              405
              
              
              $
              19.24Vested
              
              
              (11
              )Forfeited
              
              
              (2
              )
              
              
              (38
              )Amortization
      of Compensation Expense
              
              
              
              
              
              
              (271
              )Balance,
      December 31, 2006
              
              
              64
              
              
              $
              796Granted
              
              
              18
              
              
              
              344
              
              
              $
              19.10Vested
              
              
              (10
              )Forfeited
              
              
              (1
              )
              
              
              (3
              )Amortization
      of Compensation Expense
              
              
              
              
              
              
              (276
              )Balance,
      December 31, 2007
              
              
              71
              
              
              $
              861Granted
              
              
              22
              
              
              
              377
              
              
              $
              17.30Vested
              
              
              (12
              )Forfeited
              
              
              
              
              
              
              (5
              )Amortization
      of Compensation Expense
              
              
              
              
              
              
              (305
              )Balance,
      December 31, 2008
              
              
              81
              
              
              $
              928




Note
8 – Business Segment Data




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




47
 Index











Years
      Ended December 31,(Thousands
      of Dollars)Operations
      by Segments:
                      
                      2008
                      
                      
                      2007
                      
                      
                      2006Revenues:Regulated
                      
                      $
                      81,118
                      
                      
                      $
                      77,113
                      
                      
                      $
                      71,948Non
      – Regulated
                      
                      
                      10,327
                      
                      
                      
                      9,392
                      
                      
                      
                      9,317Inter-segment
      Elimination
                      
                      
                      (407
                      )
                      
                      
                      (391
                      )
                      
                      
                      (204
                      )Consolidated
      Revenues
                      
                      $
                      91,038
                      
                      
                      $
                      86,114
                      
                      
                      $
                      81,061Operating
      Income:Regulated
                      
                      $
                      22,132
                      
                      
                      $
                      21,351
                      
                      
                      $
                      20,062Non
      – Regulated
                      
                      
                      1,887
                      
                      
                      
                      1,320
                      
                      
                      
                      1,256Consolidated
      Operating Income
                      
                      $
                      24,019
                      
                      
                      $
                      22,671
                      
                      
                      $
                      21,318Depreciation:Regulated
                      
                      $
                      7,798
                      
                      
                      $
                      7,408
                      
                      
                      $
                      6,936Non
      – Regulated
                      
                      
                      124
                      
                      
                      
                      131
                      
                      
                      
                      124Consolidated
      Depreciation
                      
                      $
                      7,922
                      
                      
                      $
                      7,539
                      
                      
                      $
                      7,060Other
      Income, Net:Regulated
                      
                      $
                      1,077
                      
                      
                      $
                      1,643
                      
                      
                      $
                      951Non
      – Regulated
                      
                      
                      387
                      
                      
                      
                      ---
                      
                      
                      
                      (78
                      )Inter-segment
      Elimination
                      
                      
                      (162
                      )
                      
                      
                      (116
                      )
                      
                      
                      (99
                      )Consolidated
      Other Income, Net
                      
                      $
                      1,302
                      
                      
                      $
                      1,527
                      
                      
                      $
                      774Interest
      Expense:Regulated
                      
                      $
                      6,981
                      
                      
                      $
                      6,619
                      
                      
                      $
                      7,012Non
      – Regulated
                      
                      
                      238
                      
                      
                      
                      116
                      
                      
                      
                      99Inter-segment
      Elimination
                      
                      
                      (162
                      )
                      
                      
                      (116
                      )
                      
                      
                      (99
                      )Consolidated
      Interest Charges
                      
                      $
                      7,057
                      
                      
                      $
                      6,619
                      
                      
                      $
                      7,012Net
      Income:Regulated
                      
                      $
                      10,976
                      
                      
                      $
                      11,120
                      
                      
                      $
                      9,417Non
      – Regulated
                      
                      
                      1,232
                      
                      
                      
                      723
                      
                      
                      
                      622Consolidated
      Net Income
                      
                      $
                      12,208
                      
                      
                      $
                      11,843
                      
                      
                      $
                      10,039


Capital
      Expenditures:Regulated
                                
                                $
                                27,188
                                
                                
                                $
                                21,586
                                
                                
                                $
                                30,492Non
      – Regulated
                                
                                
                                1,241
                                
                                
                                
                                344
                                
                                
                                
                                242Total
      Capital Expenditures
                                
                                $
                                28,429
                                
                                
                                $
                                21,930
                                
                                
                                $
                                30,734





As
      of
                        December
      31,
                      
                      
                      As
      of
                        December
      31,2008
                      
                      
                      2007Assets:Regulated
                      
                      $
                      433,109
                      
                      
                      $
                      387,931Non
      – Regulated
                      
                      
                      11,537
                      
                      
                      
                      8,157Inter-segment
      Elimination
                      
                      
                      (4,646
                      )
                      
                      
                      (3,413
                      )Consolidated
      Assets
                      
                      $
                      440,000
                      
                      
                      $
                      392,675








48
 Index





Note
9 - Quarterly Operating Results - Unaudited





Operating
results for each quarter of 2008 and 2007 are as follows:




(Thousands
      of Dollars, Except per Share Data)1st
                    
                    
                    2nd
                    
                    
                    3rd
                    
                    
                    4th
                    
                    
                    Total2008Operating
      Revenues
                    
                    $
                    20,855
                    
                    
                    $
                    23,035
                    
                    
                    $
                    25,653
                    
                    
                    $
                    21,495
                    
                    
                    $
                    91,038Operating
      Income
                    
                    
                    4,347
                    
                    
                    
                    6,825
                    
                    
                    
                    8,384
                    
                    
                    
                    4,463
                    
                    
                    
                    24,019Net
      Income
                    
                    
                    2,004
                    
                    
                    
                    3,565
                    
                    
                    
                    4,715
                    
                    
                    
                    1,924
                    
                    
                    
                    12,208Basic
      Earnings per Share
                    
                    $
                    0.15
                    
                    
                    $
                    0.26
                    
                    
                    $
                    0.35
                    
                    
                    $
                    0.14
                    
                    
                    $
                    0.90Diluted
      Earnings per Share
                    
                    $
                    0.15
                    
                    
                    $
                    0.26
                    
                    
                    $
                    0.35
                    
                    
                    $
                    0.13
                    
                    
                    $
                    0.892007Operating
      Revenues
                    
                    $
                    18,988
                    
                    
                    $
                    21,745
                    
                    
                    $
                    24,135
                    
                    
                    $
                    21,246
                    
                    
                    $
                    86,114Operating
      Income
                    
                    
                    3,722
                    
                    
                    
                    6,279
                    
                    
                    
                    7,729
                    
                    
                    
                    4,941
                    
                    
                    
                    22,671Net
      Income
                    
                    
                    1,769
                    
                    
                    
                    3,313
                    
                    
                    
                    4,158
                    
                    
                    
                    2,603
                    
                    
                    
                    11,843Basic
      Earnings per Share
                    
                    $
                    0.13
                    
                    
                    $
                    0.25
                    
                    
                    $
                    0.31
                    
                    
                    $
                    0.19
                    
                    
                    $
                    0.88Diluted
      Earnings per Share
                    
                    $
                    0.13
                    
                    
                    $
                    0.24
                    
                    
                    $
                    0.31
                    
                    
                    $
                    0.19
                    
                    
                    $
                    0.87


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





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





None.





Item 9A.
            Controls
      and Procedures





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





49
 Index





As
required by Rule 13a-15 under the Exchange Act, an evaluation of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures was conducted by the Company’s Chief Executive Officer along with
the Company’s Chief Financial Officer for the quarter ended December 31, 2008.
Based upon that evaluation the Company’s Chief Executive Officer and the
Company’s Chief Financial Officer concluded:


(a)
Disclosure controls and procedures were effective as of the end of the period
covered by this report.


(b) No
changes in internal control over financial reporting occurred during our most
recent fiscal quarter that has materially affected, or are reasonably likely to
materially affect, internal control over financial reporting.


Accordingly,
management believes the consolidated financial statements included in this
report fairly present in all material respects our financial condition, results
of operations and cash flows for the periods presented.





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





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





All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to the adequacy of financial
statement preparation and presentation. Middlesex’s management assessed the
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2008. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal
Control-Integrated Framework. Based on our assessment, we believe that as
of December 31, 2008, the Company’s internal control over financial reporting is
operating as designed and is effective based on those criteria.





Middlesex’s
independent registered public accounting firm has audited the effectiveness of
our internal control over financial reporting as of December 31, 2008 as stated
in their report which is included herein.








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





Iselin,
New Jersey


March 13,
2009








50
 Index








(3)
Report of Independent Registered Public Accounting Firm





Report
of Independent Registered Public Accounting Firm




To the
Board of Directors and




Stockholders
of Middlesex Water Company




We have
audited Middlesex Water Company’s (the Company) internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  The Company's management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on Internal Control over
Financial Reporting.  Our responsibility is to express an opinion on
the Company's internal control over financial reporting based on our
audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk.  Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.




A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).




We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets and
consolidated statements of capital stock and long-term debt of the Company as of
December 31, 2008 and 2007 and the related consolidated statements of income,
stockholders' equity and comprehensive income, and cash flows for each of the
years in the three-year period ended December 31, 2008.  Our report
dated March 13, 2009 expressed an unqualified opinion on these consolidated
financial statements.






/s/ Beard
Miller Company LLP




Reading,
Pennsylvania


March 13, 2009





51
 Index










Item
      9B.
            Other
      Information.





None.






























































52
 Index











PART III





Item
      10.
            Directors,
      Executive Officers and Corporate Governance.





Information
with respect to Directors of Middlesex Water Company is included in Middlesex
Water Company’s Proxy Statement for the 2009 Annual Meeting of Stockholders and
is incorporated herein by reference.





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





Item
      11.
            Executive
      Compensation.





This
Information for Middlesex Water Company is included in Middlesex Water Company’s
Proxy Statement for the 2009 Annual Meeting of Stockholders and is incorporated
herein by reference.





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





This
information for Middlesex Water Company is included in Middlesex Water Company’s
Proxy Statement for the 2009 Annual Meeting of Stockholders and is incorporated
herein by reference.





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





This
information for Middlesex Water Company is included in Middlesex Water Company’s
Proxy Statement for the 2009 Annual Meeting of Stockholders and is incorporated
herein by reference.





Item
      14.
            Principal
      Accounting Fees and
Services.





This
information for Middlesex Water Company is included in Middlesex Water Company’s
Proxy Statement for the 2009 Annual Meeting of Stockholders and is incorporated
herein by reference.





PART IV





Item
      15.
            Exhibits
      and Financial Statement Schedules.





1.
            The
      following Financial Statements and Supplementary Data are included in Part
      II- Item 8. of this annual report:





Consolidated
Balance Sheets at December 31, 2008 and 2007.





Consolidated
Statements of Income for each of the three years in the period ended December
31, 2008, 2007 and 2006.





Consolidated
Statements of Cash Flows for each of the three years in the period ended December
31, 2008, 2007 and 2006.





Consolidated
Statements of Capital Stock and Long-term Debt at December 31, 2008 and
2007.





53
 Index








Consolidated
Statements of Common Stockholders Equity and Comprehensive Income for each of
the three years in the period ended December 31, 2008, 2007 and
2006.





Notes to
Consolidated Financial Statements.





2.
            Financial Statement
      Schedules





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





3.
            Exhibits




See
Exhibit listing immediately following the signature page.


























54
 Index













SIGNATURES




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





MIDDLESEX
      WATER COMPANYBy:
                                        /s/ Dennis W. DollDennis
      W. DollPresident,
      Chief Executive Officer and DirectorDate:
                                        March
      13, 2009Pursuant
      to the requirements of the Securities and Exchange Act of 1934, this
      report has been signed below by the following persons, on behalf of the
      registrant and in the capacities on March 13, 2009.By:
                                        /s/ A. Bruce O’ConnorA.
      Bruce O’ConnorVice
      President and Chief Financial Officer(Principal
      Financial Officer and Principal Accounting Officer)By:
                                        /s/ Dennis W. DollDennis
      W. DollPresident,
      Chief Executive Officer and Director(Principal
      Executive Officer)By:
                                        /s/ J. Richard TompkinsJ.
      Richard TompkinsChairman
      of the Board and DirectorBy:
                                        /s/ Annette CatinoAnnette
      CatinoDirectorBy:
                                        /s/ John C. CuttingJohn
      C. CuttingDirectorBy:
                                        /s/ John R. MiddletonJohn
      R. MiddletonDirectorBy:
                                        /s/ John P. MulkerinJohn
      P. MulkerinDirectorBy:
                                        /s/ Walter G. ReinhardWalter
      G. ReinhardDirectorBy:
                                        /s/ Jeffries SheinJeffries
      SheinDirector





55
 Index








EXHIBIT
INDEX





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




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







56
 Index




EXHIBIT
INDEX




Exhibit
      No.
            Document
      Description
            Previous
              Registration
              No.
            Filing’s
              Exhibit
              No.10.6
            Copy
      of Supply Agreement, dated as of February 11, 1988, with modifications
      dated February 25, 1992, and April 20, 1994, between the Company and the
      Borough of Sayreville filed as Exhibit No. 10.11 of 1994 First Quarter
      Form 10-Q.10.7
            Copy
      of Water Purchase Contract, dated as ofSeptember
      25, 2003, between the Company and the New Jersey Water Supply Authority,
      filed as Exhibit No. 10.7 of 2003 Form 10-K.10.8
            Copy
      of Treating and Pumping Agreement, dated April 9, 1984, between the
      Company and the Township of East Brunswick.
            33-31476
            10.1710.9
            Copy
      of Supply Agreement, dated June 4, 1990, between the Company and Edison
      Township.
            33-54922
            10.2410.10
            Copy
      of amended Supply Agreement, between the Company and the Borough of
      Highland Park, filed as Exhibit No. 10.1 of 2006 First Quarter Form
      10-Q.(t)10.11
            Copy
      of Supplemental Executive Retirement Plan, filed as Exhibit 10.13 of 1999
      Third Quarter Form 10-Q.(t)10.12(a)
            Copy
      of 2008 Restricted Stock Plan, filed as Appendix A to the Company’s
      Definitive Proxy Statement, dated and filedApril
      11, 2008.(t)10.12(b)
            Copy
      of 2008 Outside Director Stock Compensation Stock Plan, filed as Appendix
      B to the Company’s Definitive Proxy Statement, dated and filedApril
      11, 2008.*(t)10.13(a)
            Change
      in Control Termination Agreement between Middlesex Water Company and
      Dennis W. Doll.*(t)10.13(b)
            Change
      in Control Termination Agreement between Middlesex Water Company and A.
      Bruce O’Connor.*(t)10.13(c)
            Change
      in Control Termination Agreement between Middlesex Water Company and
      Ronald F. Williams.*(t)10.13(d)
            Change
      in Control Termination Agreement between Middlesex Water Company and
      Richard M. Risoldi.*(t)10.13(e)
            Change
      in Control Termination Agreement between Middlesex Water Company and
      Kenneth J. Quinn.*(t)10.13(f)
            Change
      in Control Termination Agreement between Middlesex Water Company and James
      P. Garrett.*(t)10.13(g)
            Change
      in Control Termination Agreement between Tidewater Utilities, Inc. and
      Gerard L. Esposito.*(t)10.13(h)
            Change
      in Control Termination Agreement between Middlesex Water Company and
      Bernadette M. Sohler.








57
 Index





EXHIBIT
INDEX





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











58
 Index





EXHIBIT
INDEX





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








59
 Index








EXHIBIT
INDEX





Exhibit
      No.
            Document
      Description
            Previous
              Registration
              No.
            Filing’s
              Exhibit
              No.10.30
            Copy
      of Supplemental Indenture dated October 15, 2006 between Middlesex Water
      Company and U.S. Bank National Association, as Trustee and copy of Loan
      Agreement dated November 1, 2006 between the State of New Jersey and
      Middlesex Water Company (Series GG), filed as Exhibit No. 10.30 of the
      2006 Form 10-K.10.31
            Copy
      of Supplemental Indenture dated October 15, 2006 between Middlesex Water
      Company and U.S. Bank National Association, as Trustee and copy of Loan
      Agreement dated November 1, 2006 between the New Jersey Environmental
      Infrastructure Trust and Middlesex Water Company (Series HH), filed as
      Exhibit No. 10.31 of the 2006 Form 10-K.10.32
            Copy
      of Loan Agreement By and Between New Jersey Environmental Infrastructure
      Trust and Middlesex Water Company dated as of November 1, 2007 (Series
      II), filed as Exhibit No. 10.32 of the 2007 Form 10-K.10.33
            Copy
      of Loan Agreement By and Between The State of New Jersey, Acting By and
      Through The New Jersey Department of Environmental Protection, and
      Middlesex Water Company dated as of November 1, 2007 (Series JJ), filed as
      Exhibit 10.33 of the 2007 Form 10-K.*10.34
            Copy
      of Loan Agreement By and Between New Jersey Environmental Infrastructure
      Trust and Middlesex Water Company dated as of November 1, 2008 (Series
      KK).*10.35
            Copy
      of Loan Agreement By and Between The State of New Jersey, Acting By and
      Through The New Jersey Department of Environmental Protection and
      Middlesex Water Company dated as of November 1, 2008 (Series
      LL).*21
            Middlesex
      Water Company Subsidiaries.*23.1
            Consent
      of Independent Registered Public Accounting Firm, Beard Miller Company
      LLP.*31
            Section
      302 Certification by Dennis W. Doll pursuant to Rules 13a-14 and 15d-14 of
      the Securities Exchange Act of 1934.*31.1
            Section
      302 Certification by A. Bruce O’Connor pursuant to Rules 13a-14 and 15d-14
      of the Securities Exchange Act of 1934.*32
            Section
      906 Certification by Dennis W. Doll pursuant to 18
      U.S.C.§1350.*32.1
            Section
      906 Certification by A. Bruce O’Connor pursuant to 18
      U.S.C.§1350.








60