UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549


FORM
10-K


(Mark
One)


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


For
the fiscal year ended December 31, 2009


OR


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


For the
transition period from _________________ to______________________




Commission
File Number     0-422




MIDDLESEX
WATER COMPANY


(Exact
name of registrant as specified in its charter)




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





1500
Ronson Road, Iselin NJ  08830


(Address
of principal executive offices, including zip code)


(732)
634-1500


(Registrant's
telephone number, including area code)




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


Title of Each Class:
            Name of each exchange on which
      registered:Common
      Stock, No Par Value
            The  NASDAQ
      Stock Market, LLC




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


None




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




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




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




Indicate
by check mark whether the registrant has submitted and posted on their corporate
web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrants were required to submit and post
such files). Yes  ̈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, 2009 was $194,315,725 based on the closing market price
of $14.45 per share.




The
number of shares outstanding for each of the registrant's classes of common
stock, as of March 2, 2010:


Common
Stock, No par Value 13,556,579shares
outstanding





Documents Incorporated by
Reference


Proxy
Statement to be filed in connection with the Registrant’s Annual Meeting of
Stockholders to be held on May 25, 2010, which will be filed with the Securities
and Exchange Commission within 120 days of the end of our 2009 fiscal year, is
incorporated by reference into Part III.










MIDDLESEXWATER COMPANY


FORM
10-K





INDEX


PAGEForward-Looking Statements
              1PART
      I
              
              2Item
      1.
              Business:
              2Overview
              2Financial
      Information
              4Water
      Supplies and Contracts
              4Employees
              6Competition
              6Regulation
              6Seasonality
              8Management
              8Item
      1A.
              Risk Factors
              10Item
      1B.
              Unresolved Staff Comments
              14Item
      2.
              Properties
              14Item
      3.
              Legal Proceedings
              16Item
      4.
              Reserved
              16PART
      II
              
              17Item
      5.
              Market for the Registrant's Common Equity, Related
      StockholderMatters and Issuer Purchases of Equity
      Securities.
              17Item
      6.
              Selected Financial Data
              19Item
      7.
              Management's Discussion and Analysis ofFinancial Condition and Results of
    Operations
              19Item
      7A.
              Qualitative and Quantitative Disclosure About Market
      Risk
              32Item
      8.
              Financial Statements and Supplementary Data
              33Item
      9.
              Changes in and Disagreements with Accountants
      onAccounting and Financial Disclosure
              59Item
      9A.
              Controls and Procedures
              59Item
      9B.
              Other Information
              61PART
      III
              
              62Item
      10.
              Directors, Executive Officers and Corporate
      Governance
              62Item
      11.
              Executive Compensation
              62Item
      12.
              Security Ownership of Certain Beneficial
    Owners
              62and Management and Related Stockholder
    Matters
              62Item
      13.
              Certain Relationships and Related Transactions,
      and
              62Director Independence
              62Item
      14.
              Principal Accountant Fees and Services
              62PART
      IV
              
              62Item
      15.
              Exhibits and Financial Statement Schedules
              62Signatures
              64Exhibit Index
              65


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.  Middlesex Water Company (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, including the recovery of certain costs recorded as regulatory
      assets;


-
            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;


-
            other
      factors discussed elsewhere in this annual report;
  and


-
            the
      ability to translate Preliminary Survey & Investigation charges into
      viable projects.




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


PARTI


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, Delaware and Pennsylvania. Middlesex 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”), Tidewater Environmental Services,
Inc. (“TESI”) and Twin Lakes Utilities, Inc. (“Twin Lakes”).





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 United States Securities and
Exchange Commission (the SEC).





Middlesex
System





The
Middlesex System in New Jersey provides water services to approximately 59,800
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 62% of our
2009 consolidated operating revenues.





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 Middlesex System provides treated
surface water under long-term agreements to East Brunswick, Marlboro, Old Bridge
and Sayreville consistent with a plan approved by the New Jersey Department of
Environmental Protection.





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
2009 consolidated operating revenues.


2
 Index


Tidewater
System





Tidewater,
together with its wholly-owned subsidiary, Southern Shores, provides water
services to approximately 33,200 retail customers for domestic, commercial and
fire protection purposes in over 300 separate community water systems in New
Castle, Kent and Sussex Counties, Delaware. White Marsh is an additional
wholly-owned subsidiary that is unregulated as to rates and operates water and
wastewater systems under contract for approximately 7,200 residential customers.
White Marsh also owns the office buildings that Tidewater uses as its central
business office campus. The Tidewater System produced approximately 25% of our
2009 consolidated operating revenues.





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
10,500 customers, most of whom are served by both the water and wastewater
systems. The agreement was effected under New Jersey’s Water Supply
Public-Private Contracting Act and the New Jersey Wastewater Public/Private
Contracting Act. Under the agreement, USA-PA receives fixed fees, and may
receive variable fees, based on customer revenue growth.   Fixed
fee revenues increase over the term of the 20-year contract based upon a
schedule of rates. USA-PA produced approximately 10% of our 2009 consolidated
operating revenues.





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 $19.7 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 collection 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 our 2009
consolidated operating revenues. Pinelands Water is not physically
interconnected with the Middlesex System.





Pinelands
Wastewater provides wastewater services to approximately 2,500 residential
customers. Under contract, it also services one municipal wastewater system in
Burlington County, New Jersey with approximately 200 residential
customers.  Pinelands Wastewater produced approximately 1% of our 2009
consolidated operating revenues.





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 maintenance programs that cover all parts, material and
labor required to repair or replace specific elements of the customer’s water
service line, customer shut-off valve and/or sewer lateral, in the event of a
failure.  The Company’s responsibility for maintenance costs under the
programs is subject to annual limits.  USA produced less than 1% of
our 2009 consolidated operating revenues.




TESI
System





TESI
provides wastewater services to approximately 1,900 residential retail customers
in Delaware. TESI produced less than 1% of our 2009 consolidated operating
revenues.


3
 Index


Twin
Lakes System





In
November 2009, Middlesex acquired the assets of a 120 customer water system in
Shohola, Pennsylvania. Twin Lakes produced less than 1% of our 2009 consolidated
operating revenues.





Financial
Information





Consolidated
operating revenues, operating income and net income are as follows:





Years Ended December 31,(Thousands
      of Dollars)2009
            
            
            2008
            
            
            2007Operating
      Revenues
            
            $
            91,243
            
            
            $
            91,038
            
            
            $
            86,114Operating
      Income
            
            $
            20,161
            
            
            $
            24,019
            
            
            $
            22,671Net
      Income
            
            $
            9,977
            
            
            $
            12,208
            
            
            $
            11,843





Operating
revenues were earned from the following sources:





Years
      Ended December 31,2009
            
            
            2008
            
            
            2007Residential
            
            
            44.9
            %
            
            
            45.1
            %
            
            
            45.0
            %Commercial
            
            
            9.4
            
            
            
            9.6
            
            
            
            9.7Industrial
            
            
            9.0
            
            
            
            9.3
            
            
            
            9.9Fire
      Protection
            
            
            10.5
            
            
            
            10.4
            
            
            
            10.3Contract
      Sales
            
            
            13.1
            
            
            
            13.1
            
            
            
            12.5Contract
      Operations
            
            
            10.9
            
            
            
            10.5
            
            
            
            10.3Other
            
            
            2.2
            
            
            
            2.0
            
            
            
            2.3Total
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %





Water
Supplies and Contracts





Our New
Jersey, Delaware and Pennsylvania 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, Delaware and
Pennsylvania.





Middlesex
System





Our
Middlesex System, which produced approximately 16.6 billion gallons in 2009,
obtains water from surface sources and wells, or groundwater sources. In 2009,
surface sources of water provided approximately 73% of the Middlesex System’s
water supply, groundwater sources provided approximately 20% 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.


4
 Index


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 2.5 mgd of treated water with provisions for
additional purchases.





Tidewater
System





Our
Tidewater System produced approximately 1.8 billion gallons in 2009 from 163
wells. In 2009, 1 new well was placed into service.  We retired 6
wells for either water quality reasons or for the purpose of consolidating
production facilities for more cost-efficient operation. Tidewater expects to
continue to submit applications to Delaware regulatory authorities for the
approval of additional wells as growth, demand and water quality warrant. The
Tidewater System does not have a central treatment facility but has several
regional, as well as several smaller independent, 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 four wells which produced
approximately 152 million gallons in 2009. The pumping capacity of the four
wells is 2.2 million gallons per day.





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 110 million gallons in
2009.





Bayview
System





Water
supply to Bayview customers is derived from two wells, which delivered
approximately 8.0 million gallons in 2009.





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.





Twin
Lakes System





Water
supply to Twin Lakes’ customers is derived from two wells, which delivered
approximately 3.2 million gallons since Twin Lakes was acquired by Middlesex in
November 2009.


5
 Index


Employees





As of
December 31, 2009, we had a total of 285 employees. No employees are represented
by a union. We believe our employee relations are good. Wages and benefits 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 Delaware Public
Service Commission awarding franchises to other regulated water utilities with
whom we compete for such franchises and for projects.





Regulation





Our rates
charged to customers for water and wastewater services, the quality of the
services we provide and certain other matters are regulated by the following
state utility commissions (collectively, the Utility Commissions):


·
            New
      Jersey-New Jersey Board of Public Utilities
  (NJBPU)


·
            Delaware-Delaware
      Public Service Commission (DEPSC)


·
            Pennsylvania-Pennsylvania
      Public Utilities Commission (PAPUC)





Our USA,
USA-PA and White Marsh subsidiaries are not regulated public utilities. However
they are subject to environmental regulation with respect to water and
wastewater effluent quality.





We are
subject to environmental and water quality regulation by the following
regulatory agencies (collectively, the Government Environmental Regulatory
Agencies):


·
            United
      States Environmental Protection Agency
(EPA)


·
            New
      Jersey Department of Environmental Protection (NJDEP) with respect to
      operations in New Jersey


·
            Delaware
      Department of Natural Resources and Environmental Control (DEDNREC), the
      Delaware Department of Health and Social Services-Division of Public
      Health (DEDPH), and the Delaware River Basin Commission (DRBC) with
      respect to operations in Delaware


·
            Pennsylvania
      Department of Environmental Protection (PADEP) with respect to operations
      in Pennsylvania





In
addition, our issuances of equity securities are subject to the prior approval
of the NJBPU and require registration with the SEC.  Our issuances of
long-term debt securities are subject to the prior approval of the appropriate
Utility Commissions.





Regulation
of Rates and Services





For
ratemaking purposes, we account separately for operations in New Jersey,
Delaware and Pennsylvania to facilitate independent ratemaking by the applicable
Utility Commissions.


6
 Index


In
determining our rates, the appropriate Utility Commissions 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 appropriate Utility Commissions do not
guarantee particular rates of return to us for our New Jersey, Delaware and
Pennsylvania operations.  Thus, we may not achieve the rates of return
permitted by the Utility Commissions.  In addition, there can be no
assurance that any future rate increases will be granted or, if granted, that
they will be in the amounts requested.





Middlesex
Rate Matters





On July
1, 2009, Middlesex implemented a NJBPU-approved Purchased Water Adjustment
Clause (PWAC) in order 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.





On August
17, 2009, Middlesex filed an application with the NJBPU seeking permission to
increase its base rates by 26.03%, or $15.1 million.  The request was
made to seek recovery of increased costs of operations, chemicals and fuel,
electricity, taxes, labor and benefits, decreases in industrial and commercial
customer demand patterns, as well as capital investment of approximately $39.0
million since Middlesex’s last rate filing in April of
2007.   The proceeding is ongoing and we cannot predict with
certainty whether the NJBPU will ultimately approve, deny, or reduce the amount
of the request.  A decision by the NJBPU is expected by the second
quarter of 2010.





Tidewater
Rate Matters





On
January 26, 2009, Tidewater filed an application with the DEPSC seeking
permission to increase its base rates by 32.54%, which was necessitated by
increased costs of operations, maintenance and taxes, as well as capital
investment since Tidewater’s last rate filing in April of 2006.  On
September 9, 2009, the DEPSC approved a base rate settlement that had been
reached among the parties that reflects an overall increase of
14.95%.  This rate increase approval is expected to generate
additional annual revenues of $3.0 million based on a 10.0% return on
equity.





Effective
January 1, 2009, Tidewater received approval from the DEPSC to increase their
Distribution System Improvement Charge (DSIC) from 2.94% to
5.25%.  DSIC is a DEPSC approved rate that allows water utilities to
recover their investment in non-revenue producing capital improvements to the
water system between base rate proceedings.  As of March 27, 2009,
this rate was set to zero in conjunction with interim rates approved in the base
rate case described above.  On December 22, 2009, Tidewater received
approval from the DEPSC to increase their DSIC from 0.0% to 1.11% effective
January 1, 2010.





Southern
Shore Rate Matters





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





Water
and Wastewater Quality and Environmental Regulations





Government
Environmental Regulatory Agencies regulate our operations in New Jersey,
Delaware and Pennsylvania with respect to water supply, treatment and
distribution systems and the quality of the water.  They also regulate our
operations with respect to wastewater collection and treatment.


7
 Index


Regulations
relating to water quality require us to perform tests to ensure our water meets
state and federal quality requirements. In addition, Government Environmental
Regulatory Agencies continuously review current regulations governing the limits
of certain organic compounds found in the water as byproducts of the treatment
process. 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 treat the water to the required
standards.   We regularly test our water to determine compliance
with existing government environmental regulatory agencies’ 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, Bayview and Twin Lakes Systems (disinfection
only) is done at individual well sites.





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





Seasonality





Customer
demand for our water during the warmer months is generally greater than other
times of the year 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 timing and overall
levels.  In the event that temperatures during the typically warmer
months are cooler than normal, or if there is more rainfall than normal, the
customer demand for our water may decrease and therefore, adversely affect our
revenues.





Management





This
table lists information concerning our executive management team:





Name
            
            Age
            
            Principal
      Position(s)Dennis
      W. Doll
            
            51
            
            President
      and Chief Executive OfficerA.
      Bruce O’Connor
            
            51
            
            Vice
      President and Chief Financial OfficerRichard
      M. Risoldi
            
            53
            
            Vice
      President-Operations and Chief Operating OfficerKenneth
      J. Quinn
            
            62
            
            Vice
      President-General Counsel, Secretary and TreasurerJames
      P. Garrett
            
            63
            
            Vice
      President–Human ResourcesBernadette
      M. Sohler
            
            49
            
            Vice
      President-Corporate AffairsGerard
      L. Esposito
            
            58
            
            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. He is also chairman for all subsidiaries of
Middlesex.  Prior to joining the Company, Mr. Doll had been employed
in the regulated water utility business since 1985. 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


8
 Index


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.  He is also
Vice President and Chief Financial Officer of Twin Lakes Utilities,
Inc.





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-Subsidiary Operations in May 2004,
responsible for regulated and unregulated subsidiary operations and business
development. He was elected Vice President – Operations and designated Chief
Operating Officer in November 2009, effective upon Ronald Williams’ retirement
on January 1, 2010.  He is a Director of Tidewater Utilities, Inc.,
Tidewater Environmental Services, Inc., White Marsh Environmental Systems Inc
and Utility Service Affiliates (Perth Amboy) Inc.  He also serves as
Director and President of Pinelands Water Company, Pinelands Wastewater Company,
Utility Service Affiliates, Inc. and Twin Lakes Utilities, 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. and White Marsh Environmental Systems, Inc. He is
a member of the New Jersey State Bar Association and is also a member of the
Public Utility Law Section of the Bar.





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





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


Item1A.
            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 NJBPU
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 NJBPU and going through a lengthy administrative
process. In much the same way, the DEPSC and the PAPUC regulate our public
utility companies in Delaware and Pennsylvania, respectively. We cannot give
assurance of when we will request approval for any such matter, nor can we
predict whether the NJBPU, DEPSC or PAPUC 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.





General
economic conditions may materially and adversely affect our financial condition
and results of operations.





Recent
economic conditions have negatively impacted our customers’ water usage demands,
particularly the level of water usage demand by our commercial and industrial
customers in our Middlesex System.  We are unable to determine when
these customers’ water demands may return to previous levels, or if the decline
in demand will continue indefinitely.  The decrease in demand by our
commercial and industrial customers in our Middlesex System was one of the
factors that required our rate increase petition with the
NJBPU.  There can be no assurance that the requested rate increase
will be approved in whole or in part by the NJBPU.  If water demand by
our commercial and industrial customers in our Middlesex System does not return
to previous levels and/or our proposed rate increase is not approved wholly or
in part, our financial condition and results of operations could be negatively
impacted.





Recent
economic conditions have also impacted the volume and pace of residential
construction in our Delaware markets and in other states where
developer-projects are in various stages of completion.  The timing
and extent of recovery of our engineering and other preliminary survey and
investigation charges is dependent upon the timing and extent to which such
projects are further developed.





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





Government
Environmental Regulatory Agencies regulate our operations in New Jersey,
Delaware and Pennsylvania with respect to water supply, treatment and
distribution systems and the quality of water. Government Environmental
Regulatory Agencies’ 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 NJDEP regulations for our New Jersey water systems. The NJDEP, DEDPH and
PADEP monitor our activities and review the results of water


10
 Index


quality
tests that we perform for adherence to applicable regulations. In addition,
Government 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 New Jersey,
Delaware and Pennsylvania.  In New Jersey there is no state-wide fire
protection regulatory agency.  However, New Jersey regulations exist
as to the size of piping required regarding the provision of fire protection
services.  In Delaware, fire protection is regulated statewide by the
Office of State Fire Marshal.





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.





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 approximately $89.1 million for capital projects through
2012.  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


11
 Index


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.





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 debt service payments on 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, 2009, approximately $19.7
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


12
 Index


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.





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 employ 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 and to their personal safety.
Our security measures include protocols regarding 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 measures to
protect our facilities, operations and supplies from such risks.





Our
ability to achieve growth in our market area is dependent on the residential
building market.  Housing starts impact our rate of growth and
therefore, 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 anticipated construction and sale of new
housing units.  Although the residential building market in Delaware
has experienced growth in recent years, this growth has slowed due to current
economic conditions.  If housing starts decline further, or do not
increase as we have projected, as a result of economic conditions or otherwise,
the timing and extent of our revenue growth may not meet our expectations, our
deferred project costs may not produce revenue-generating projects in the
timeframes anticipated 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.


13
 Index


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, our operating results could be negatively
impacted.





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 NJBPU 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.





Item1B.
            Unresolved
      Staff Comments.





None.





Item2.
            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.


14
 Index


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





The
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 the 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 86 production plants that vary in pumping
capacity from 26,000 gallons per day to 2.0 mgd. Water is transported to our
customers through 604 miles of transmission and distribution mains. Storage
facilities include 46 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.


15
 Index


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 24 miles of sewer
lines.





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. TESI’s wastewater collection
system is comprised of approximately 30 miles of sewer lines.





Twin
Lakes System





Twin
Lakes owns one well site, which is located in the Township of Shohola, Pike
County, Pennsylvania. Water is transported to our customers through 3.7 miles of
distribution mains.





USA-PA,
USA and White Marsh





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





Item3.
            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.
            Reserved.


16
 Index


PARTII





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, LLC, 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, 2009, there were 1,940 holders of
record.





2009
            
            High
            
            
            Low
            
            
            DividendFourth
      Quarter
            
            $
            17.91
            
            
            $
            14.74
            
            
            $
            0.1800Third
      Quarter
            
            $
            15.89
            
            
            $
            13.62
            
            
            $
            0.1775Second
      Quarter
            
            $
            15.29
            
            
            $
            12.61
            
            
            $
            0.1775First
      Quarter
            
            $
            17.71
            
            
            $
            11.64
            
            
            $
            0.1775





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





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.





On
February 3, 2010, the Company filed a petition with the NJBPU seeking approval
to issue up to 2.0 million shares of its common stock in the form of a follow-on
offering during the second quarter of 2010.  The proceeds from the
common stock offering will be used to retire short term debt.





The
Company periodically issues shares of common stock in connection with its
Dividend Reinvestment and Common Stock Purchase Plan (the DRP). The Company
raised approximately $1.3 million through the issuance of 84,498 shares under
the Plan during 2009.  On December 23, 2009, the Company announced a
5% purchase discount for optional cash purchases and reinvested dividends under
the DRP.  The discount applies to purchases made by the DRP between
February 1, 2010 and June 1, 2010.





The
Company has a stock compensation plan for its employees (the Employee Stock
Compensation Plan). The Company maintains an escrow account for 93,415 shares of
the Company's common stock for the Employee Stock Compensation 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. The maximum number of
shares authorized for grant under the 2008 Restricted


17
 Index


Stock
Plan is 300,000 shares.As of December 31,
2009, there are 248,405 shares available for future awards under the 2008
Restricted Stock Plan.





The
Company has a stock compensation plan for its outside directors (the Outside
Director Stock Compensation Plan). The maximum number of shares authorized for
grant under the Outside Director Stock Compensation Plan is
100,000.  In 2009, 1,554 shares of common stock were granted and
issued to the Company’s outside directors under the Outside Director Stock
Compensation Plan. As of December 31, 2009, there are 98,446 shares available
for future grants under the Outside Director Stock Compensation
Plan.





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, 2004.  The Dow Jones Wilshire 5000 Stock Index measures
the performance of all U.S. headquartered equity securities with readily
available price data.





COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*





Among
Middlesex Water Company, The Dow Jones Wilshire 5000 Index and a Peer
Group








*$100 invested on 12/31/04 in stock or
index-including reinvestment of dividends.





** Peer
group includes American States Water Company, American Water Works, Inc., 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.





December
      31,2004
            
            
            2005
            
            
            2006
            
            
            2007
            
            
            2008
            
            
            2009Middlesex
      Water Company
            
            
            100.00
            
            
            
            94.80
            
            
            
            106.20
            
            
            
            110.40
            
            
            
            104.40
            
            
            
            111.90Dow
      Jones Wilshire 5000
            
            
            100.00
            
            
            
            106.90
            
            
            
            123.20
            
            
            
            130.10
            
            
            
            81.60
            
            
            
            105.00Peer
      Group
            
            
            100.00
            
            
            
            130.50
            
            
            
            130.90
            
            
            
            125.80
            
            
            
            120.30
            
            
            
            120.60


18
 Index


Item6.
            Selected
      Financial Data.





CONSOLIDATED
      SELECTED FINANCIAL DATA(Thousands Except
      per Share Data)2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Operating
      Revenues
            
            $
            91,243
            
            
            $
            91,038
            
            
            $
            86,114
            
            
            $
            81,061
            
            
            $
            74,613Operating
      Expenses:Operations
      and Maintenance
            
            
            52,348
            
            
            
            48,929
            
            
            
            46,240
            
            
            
            43,345
            
            
            
            42,156Depreciation
            
            
            8,559
            
            
            
            7,922
            
            
            
            7,539
            
            
            
            7,060
            
            
            
            6,460Other
      Taxes
            
            
            10,175
            
            
            
            10,168
            
            
            
            9,664
            
            
            
            9,338
            
            
            
            8,779Total
      Operating Expenses
            
            
            71,082
            
            
            
            67,019
            
            
            
            63,443
            
            
            
            59,743
            
            
            
            57,395Operating
      Income
            
            
            20,161
            
            
            
            24,019
            
            
            
            22,671
            
            
            
            21,318
            
            
            
            17,218Other
      Income, Net
            
            
            1,726
            
            
            
            1,302
            
            
            
            1,527
            
            
            
            774
            
            
            
            740Interest
      Charges
            
            
            6,750
            
            
            
            7,057
            
            
            
            6,619
            
            
            
            7,012
            
            
            
            6,245Income
      Taxes
            
            
            5,160
            
            
            
            6,056
            
            
            
            5,736
            
            
            
            5,041
            
            
            
            3,237Net
      Income
            
            
            9,977
            
            
            
            12,208
            
            
            
            11,843
            
            
            
            10,039
            
            
            
            8,476Preferred
      Stock Dividend
            
            
            208
            
            
            
            218
            
            
            
            248
            
            
            
            248
            
            
            
            251Earnings
      Applicable to Common Stock
            
            $
            9,769
            
            
            $
            11,990
            
            
            $
            11,595
            
            
            $
            9,791
            
            
            $
            8,225Earnings
      per Share:Basic
            
            $
            0.73
            
            
            $
            0.90
            
            
            $
            0.88
            
            
            $
            0.83
            
            
            $
            0.72Diluted
            
            $
            0.72
            
            
            $
            0.89
            
            
            $
            0.87
            
            
            $
            0.82
            
            
            $
            0.71Average
      Shares Outstanding:Basic
            
            
            13,454
            
            
            
            13,317
            
            
            
            13,203
            
            
            
            11,844
            
            
            
            11,445Diluted
            
            
            13,716
            
            
            
            13,615
            
            
            
            13,534
            
            
            
            12,175
            
            
            
            11,784Dividends
      Declared and Paid
            
            $
            0.713
            
            
            $
            0.703
            
            
            $
            0.693
            
            
            $
            0.683
            
            
            $
            0.673Total
      Assets
            
            $
            458,086
            
            
            $
            440,000
            
            
            $
            392,675
            
            
            $
            370,267
            
            
            $
            324,383Convertible
      Preferred Stock
            
            $
            2,273
            
            
            $
            2,273
            
            
            $
            2,856
            
            
            $
            2,856
            
            
            $
            2,856Long-term
      Debt
            
            $
            124,910
            
            
            $
            118,217
            
            
            $
            131,615
            
            
            $
            130,706
            
            
            $
            128,175





Item7.
            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.





Management’s
Overview





Operations





Middlesex
Water Company has operated as a water utility in New Jersey since 1897, in
Delaware through our wholly-owned subsidiary, Tidewater, since 1992 and in
Pennsylvania through our wholly-owned subsidiary, Twin Lakes, since November
2009.  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


19
 Index


services,
as to the quality of water service we provide and as to certain other matters in
New Jersey, Delaware and Pennsylvania. Only our USA, USA-PA and White Marsh
subsidiaries are not regulated utilities.





Our New
Jersey water utility system (the Middlesex System) provides water services to
approximately 59,800 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 Bayview
subsidiary provides water services in Downe Township, New Jersey.  Our
other New Jersey subsidiaries, Pinelands Water and Pinelands Wastewater, provide
water and wastewater services to residents in Southampton Township, New
Jersey.





USA
provides residential customers in New Jersey and Delaware a water service line
and sewer lateral maintenance programs called LineCareSM and
LineCare+SM,
respectively.





Our
Delaware subsidiaries, Tidewater and Southern Shores, provide water services to
approximately 33,200 retail customers in New Castle, Kent and Sussex Counties,
Delaware. Our TESI subsidiary provides wastewater services to approximately
1,900 residential retail customers. Tidewater’s subsidiary, White Marsh,
services an additional 7,200 customers in Kent and Sussex Counties through 68
operations and maintenance contracts. We expect the growth of our regulated
wastewater operations in Delaware will eventually become a more significant
component of our operations.





Our
Pennsylvania subsidiary, Twin Lakes, provides water services to approximately
120 retail customers in the Township of Shohola, Pike County,
Pennsylvania.





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.





Rates





Middlesex -On August 17,
2009, Middlesex filed an application with the NJBPU seeking permission to
increase its base rates by 26.03%, or $15.1 million.  The request was
made necessary by increased costs of operations, chemicals and fuel,
electricity, taxes, labor and benefits, decreases in industrial and commercial
customer demand patterns as well as capital investment of approximately $39.0
million since Middlesex’s last rate filing in April of
2007.  Discovery by the intervening parties has begun.  We
cannot predict whether the NJBPU will ultimately approve, deny, or reduce the
amount of the request.  A decision by the NJBPU is expected by the
second quarter of 2010.





On July
1, 2009, Middlesex implemented a NJBPU approved PWAC in order 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.





Tidewater -On January 26,
2009, Tidewater filed an application with the DEPSC seeking permission to
increase its base rates by 32.54%, which was necessitated by increased costs of
operations, maintenance and taxes, as well as capital investment since
Tidewater’s last rate filing in April of 2006.  On September 9, 2009,
the DEPSC approved a base rate settlement that had been reached amongst the
parties that reflects an overall increase of 14.95%.  This rate
increase approval is expected to generate additional annual revenues of $3.0
million based on a 10.0% return on common equity.


20
 Index


Effective
January 1, 2009, Tidewater received approval from the DEPSC to increase their
DSIC from 2.94% to 5.25%.  DSIC is a DEPSC 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.  As of March 27, 2009, this rate was set to zero in
conjunction with interim rates approved in the base rate case described
above.  On December 22, 2009, Tidewater received approval from the
DEPSC to increase their DSIC from 0% to 1.11% effective January 1,
2010.





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





Operating
Results by Segment





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.





The
Company has two operating segments, Regulated and Non-Regulated. Our Regulated
segment contributed 88%, 89% and 90% of total revenues, and 87%, 90% and 94% of
net income for the years ended December 31, 2009, 2008 and 2007, 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, TESI and Twin Lakes;
Non-Regulated- USA, USA-PA, and White Marsh.





Results
of Operations in 2009 Compared to 2008





(Millions
      of Dollars)Years
      ended December 31,2009
            
            
            
            
            
            
            
            
            2008Regulated
            
            
            Non-Regulated
            
            
            Total
            
            
            Regulated
            
            
            Non-Regulated
            
            
            TotalRevenues
            
            $
            80.6
            
            
            $
            10.6
            
            
            $
            91.2
            
            
            $
            81.1
            
            
            $
            9.9
            
            
            $
            91.0Operations
      and maintenance
            
            
            44.2
            
            
            
            8.1
            
            
            
            52.3
            
            
            
            41.2
            
            
            
            7.7
            
            
            
            48.9Depreciation
            
            
            8.4
            
            
            
            0.1
            
            
            
            8.5
            
            
            
            7.8
            
            
            
            0.1
            
            
            
            7.9Other
      taxes
            
            
            9.9
            
            
            
            0.3
            
            
            
            10.2
            
            
            
            10.0
            
            
            
            0.2
            
            
            
            10.2Operating
      income
            
            $
            18.1
            
            
            $
            2.1
            
            
            $
            20.2
            
            
            $
            22.1
            
            
            $
            1.9
            
            
            $
            24.0Other
      income, net
            
            
            1.4
            
            
            
            0.3
            
            
            
            1.7
            
            
            
            0.9
            
            
            
            0.4
            
            
            
            1.3Interest
      expense
            
            
            6.5
            
            
            
            0.2
            
            
            
            6.7
            
            
            
            7.0
            
            
            
            0.1
            
            
            
            7.1Income
      taxes
            
            
            4.3
            
            
            
            0.9
            
            
            
            5.2
            
            
            
            5.0
            
            
            
            1.0
            
            
            
            6.0Net
      income
            
            $
            8.7
            
            
            $
            1.3
            
            
            $
            10.0
            
            
            $
            11.0
            
            
            $
            1.2
            
            
            $
            12.2





Operating
Revenues





Operating
revenues for the year ended December 31, 2009 increased $0.2 million from the
same period in 2008.  This increase was primarily related to the
following factors:





·
            Revenues
      in our Middlesex System decreased $1.6 million, primarily as a result of
      lower water consumption across our residential, commercial and industrial
      customer classes. We experienced a
$1.9


21
 Index


million
decline in water use by our general retail metered customers compared to the
same period in 2008. This lower water consumption was attributable to
unfavorable weather as compared to prior years as well as decreased demand by
our large commercial and industrial customers.  We are unable to
determine when these customers’ water demands may return to previous levels, or
if the decline in demand will continue indefinitely.  Increased
revenues of $0.4 million from the PWAC implemented on July 1, 2009, offset some
of the consumption revenue decline.  All other factors affecting
Middlesex system revenues accounted for a $0.1 million decrease in
revenues.


·
            Revenues
      in our Tidewater system increased $1.4 million. Revenue of $1.6 million
      from increased rates helped to mitigate consumption revenue decreases of
      $0.8 million, largely attributable to those same weather and usage
      patterns described above.   New customer growth and other
      fees added $0.4 million of revenue.  All other factors affecting
      Tidewater system revenues accounted for a $0.2 million increase in
      revenues.


·
            USA-PA’s
      fees for managing the Perth Amboy water and wastewater systems were $0.5
      million higher than the same period in 2008, due mostly to higher
      pass-through charges and scheduled management fee
    increases.


·
            All
      other operations accounted for a decrease of $0.1 million in
      revenues.





Operation
and Maintenance Expense





Operation
and maintenance expenses for the year ended December 31, 2009 increased $3.4
million from the same period in 2008. This increase was primarily related to the
following factors:





·
            Labor
      costs at our regulated entities increased $0.9 million in 2009 as compared
      to 2008, primarily due to increases in wages and resources necessary to
      meet the growing needs of our Delaware service territory and increased
      overtime incurred in connection with a higher incidence of water main
      breaks and system maintenance in our Middlesex
    system.


·
            Chemical
      and residuals disposal expenses increased by $0.8 million in 2009 as
      compared to 2008.  Although unfavorable weather patterns and
      economic conditions resulted in a decline in water production in our New
      Jersey and Delaware systems, costs for chemicals and residuals disposal
      increased due to a combination of unit cost disposal rate increases and
      lower quality of untreated water, as influenced by abnormally high
      rainfall during 2009.


·
            Purchased
      water costs in our Middlesex system increased $0.5 million in 2009 as
      compared to 2008, primarily due to the full year’s effect of our
      suppliers’ rate increases that went into effect in the fourth quarter of
      2008.


·
            Employee
      retirement benefit plan expenses increased $0.4 million, primarily
      resulting from increased qualified employee retirement benefit plan
      expenses of $1.2 million, largely attributable to the investment
      performance of the benefit plans’ assets, offset by a decrease of $0.8
      million in life insurance program expenses due to market fluctuations in
      the cash surrender value of life insurance
  policies.


·
            Uncollectible
      accounts expense increased $0.4 million in 2009 as compared to 2008,
      resulting from current economic
conditions.


·
            Operating
      costs for USA-PA increased $0.3 million, which are recovered under the
      pass-through mechanism in the
contract.


·
            All
      other operating and maintenance expense categories increased $0.1 million
      in 2009 as compared to 2008.





Depreciation





Depreciation
expense for the year ended December 31, 2009 increased $0.6 million from the
same period in 2008 due to a higher level of utility plant in
service.


22
 Index


Other Taxes





Other
taxes remained consistent with 2008, generally reflecting decreased taxes on
lower taxable gross revenues offset by increased payroll and real estate
taxes.





Other
Income, net





Other
Income, net for the year ended December 31, 2009 increased $0.4 million from the
same period in 2008, primarily due to increased Allowance for Funds Used During
Construction from higher capitalized interest resulting from our ongoing capital
program.





Interest
Expense





Interest
expense for the year ended December 31, 2009 decreased $0.4 million from the
same period in 2008.  This decrease was primarily related to the
following factors:


·
            Interest
      expense on long term debt decreased $0.5 million in 2009 as compared to
      2008, primarily resulting from lower average long-term debt outstanding in
      2009.


·
            Other
      interest expense increased $0.1 million in 2009 as compared to 2008,
      primarily due to increased interest costs from higher average short-term
      debt outstanding in 2009 ($40.0 million) as compared to 2008 ($16.4
      million) offset by decreased interest costs from lower average short term
      debt interest rates in 2009 (1.73%) as compared to 2008
      (3.69%).





Income
Taxes





Income
taxes for the year ended December 31, 2009 decreased $0.8 million as compared to
2008, primarily resulting from decreased operating income in 2009 as compared to
2008.





Net
Income and Earnings Per Share





Net
income for the year ended December 31, 2009 decreased $2.2 million from the same
period in 2008. Basic earnings per share decreased to $0.73 in 2009 as compared
to $0.90 in 2008.  Diluted earnings per share decreased to $0.72 in
2009 as compared to $0.89 in 2008.


23
 Index


Results
of Operations in 2008 Compared to 2007





(Millions
      of Dollars)Years
      ended December 31,2008
            
            
            
            
            
            
            
            
            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





Operating
Revenues





Operating
revenues for the year rose $4.9 million over the same period in 2007. This
increase was primarily related to the following factors:





·
            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 effective February 28, 2007,
      and DSIC rate increases of 1.62% and 2.94% that went into effect January
      1, 2008 and July 1, 2008, respectively.  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.





Operation
and Maintenance Expense





Operation
and maintenance expenses increased $2.7 million.  This increase was
primarily related to the following factors:





·
            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.


24
 Index


·
            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





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





Other
Taxes





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





Other
Income, Net





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





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





Income
Taxes





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.





Net
Income and Earnings Per Share





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.





Outlook





Our
revenues are expected to increase in 2010 from the full year’s effect of rate
increases granted to Tidewater in September 2009, the January 1, 2010 Tidewater
DSIC rate implementation and an anticipated rate increase for
Middlesex.  There can be no assurances however, that the NJBPU will
grant Middlesex’s filed rate increase request in whole or in
part.


25
 Index


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 in determining the need for rate increase requests.  We
continue to implement plans to streamline operations and reduce operating
costs.





Ongoing
economic conditions continue to negatively impact our customers’ water
consumption, particularly the level of water usage by our commercial and
industrial customers in our Middlesex system.  We are unable to
determine when these customers’ water demands may return to previous levels, or
if a reduced level of demand will continue indefinitely.  The decrease
in demand by our commercial and industrial customers in our Middlesex system was
one of the factors that required our rate increase petition with the
NJBPU.  If water demand by our commercial and industrial customers in
our Middlesex system does not return to previous levels and/or our proposed rate
increase is not approved in whole or in part, our financial condition and
results of operations could be negatively impacted.





As a
result of ongoing challenging economic conditions impacting the pace of new
residential home construction, there may be an increase in the amount of
Preliminary Survey & Investigation costs that will not be currently
recoverable in rates.  In addition, the impact of the depressed
national and local economies on the residential housing market has resulted in
the suspension of construction activities on the North Carolina water and
wastewater facility we agreed to own and operate. We are not obligated to assume
ownership of the facilities until completion of construction by the present
owner and until homes are occupied and customers are connected. We entered into
this agreement in 2008 and have invested approximately $0.6 million.
Construction is expected to resume as demand for new residential housing
improves and we continue to preserve our rights for recovery of our investment
if the project does not move forward in a timeframe acceptable to
us.





On
February 3, 2010, the Company filed a petition with the NJBPU seeking approval
to issue up to 2.0 million shares of common stock in the form of a follow-on
offering during the second quarter of 2010.  The proceeds from the
common stock offering will be used to retire short term debt.  We
expect our level of short-term debt borrowing to decrease in 2010 as compared to
2009.





The
return on assets held in our retirement benefit plans during 2009 resulted in an
increase in the amount available to fund current and future
obligations.  We expect this will help stabilize retirement plan
benefit expenses and retirement plan cash contributions in 2010.





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 we
believe complement existing capabilities and will ultimately increase
shareholder value.





Liquidity
and Capital Resources





Cash
flows from operations are largely based on four factors: weather, adequate
and timely rate increases, effective cost management and customer growth. The
effect of those factors on net income is discussed in results of
operations.





For 2009,
cash flows from operating activities decreased $0.9 million to $18.5 million. As
described more fully in the Results of Operations section above, lower earnings
was the primary reason for the decrease in cash flow.  The $18.5
million of net cash flow from operations enabled us to fund approximately 92% of
our utility plant expenditures internally for the period, with the remainder
funded by bank lines of credit and other loan commitments.


26
 Index


For 2008,
cash flows from operating activities increased $0.3 million to $19.4 million, as
compared to the prior year. This increase was primarily attributable to higher
net income and depreciation. The $19.4 million of net cash flow from operations
enabled us to fund approximately 64% 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.
During 2009, we received rate relief for Middlesex, Tidewater and Southern
Shores and we have filed for a base rate increase for Middlesex. 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
NJBPU, DEPSC or PAPUC will approve any or all future requested
increases.





Capital
Expenditures and Commitments





To fund
our capital program, we use internally generated funds, short term and long term
debt borrowings, and when market conditions are favorable, proceeds from sales
of common stock under our DRP and offerings to the public.





The table
below summarizes our estimated capital expenditures for the years
2010-2012.





(Millions)2010
            
            
            2011
            
            
            2012
            
            
            
            2010-2012Mains
            
            $
            11,105
            
            
            $
            3,913
            
            
            $
            3,831
            
            
            $
            18,849Service
      Lines
            
            
            1,172
            
            
            
            1,112
            
            
            
            1,112
            
            
            
            3,396RENEW
      Program*
            
            
            3,500
            
            
            
            4,000
            
            
            
            4,000
            
            
            
            11,500Information
      Technology Systems
            
            
            4,638
            
            
            
            424
            
            
            
            272
            
            
            
            5,334Meters
            
            
            2,502
            
            
            
            2,440
            
            
            
            2,440
            
            
            
            7,382Hydrants
            
            
            641
            
            
            
            524
            
            
            
            591
            
            
            
            1,756Plant
      Improvements
            
            
            8,606
            
            
            
            10,333
            
            
            
            17,578
            
            
            
            36,517Other
      General Infrastructure Needs
            
            
            2,169
            
            
            
            1,194
            
            
            
            998
            
            
            
            4,361Total
      Estimated Capital Expenditures
            
            $
            34,333
            
            
            $
            23,940
            
            
            $
            30,822
            
            
            $
            89,095


*Program to clean and cement
unlined mains in the Middlesex System





The
actual amount and timing of capital expenditures is dependent on customer
growth, residential new home construction and sales and project
scheduling.





To pay
for our capital program in 2010, we plan on utilizing:


·
            Internally
      generated funds


·
            Proceeds
      from an anticipated common stock offering in the second quarter of
      2010


·
            Proceeds
      from the sale of common stock through the
DRP


·
            Funds
      available and held in trust under existing New Jersey State Revolving Fund
      (SRF) loans (currently, $4.1 million) and Delaware SRF loans (currently,
      $1.9 million) and, if available, proceeds from 2010 Delaware and New
      Jersey SRF programs. The SRF programs provide low cost financing for
      projects that meet certain water quality and system improvement
      benchmarks.


·
            Funds
      available under a Tidewater DEPSC approved loan (up to $10.0 million
      available through June 30, 2010)


·
            Short-term
      borrowings, if necessary, through $58.0 million of available lines of
      credit with several financial institutions.  As of December 31,
      2009, we had $42.9 million outstanding against the lines of
      credit.


27
 Index


Sources
of Liquidity





Short-term
Debt. The Company had established lines of credit aggregating $53.0
million as of December 31, 2009. At December 31, 2009, the outstanding
borrowings under these credit lines were$42.9
million at a weighted average interest rate of 1.53%.  In January
2010, the Company increased its available lines of credit to $58.0
million.





The
weighted average daily amounts of borrowings outstanding under the Company’s
credit lines and the weighted average interest rates on those amounts were $40.0
million and $16.4 million at 1.73% and 3.69% for the years ended December 31,
2009 and 2008, respectively.





Long-term Debt.Subject to regulatory approval, the Company periodically finances capital
projects under 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 SRF loan
program during 2009 and expect to participate in the 2010 Delaware SRF program
for up $1.1 million.We will also participate
in the New Jersey SRF program in 2010 for up to $4.0 million.





In March
2009, Tidewater closed on a $22.0 million DEPSC approved loan and immediately
used $7.0 million of the available funds to retire short-term debt. Terms for
the new long-term debt include an interest rate of 6.59%, final maturity in
April 2029 and equal principal payments over the life of the loan.  In
June 2009, Tidewater borrowed $5.0 million at a rate of 7.05% with a final
maturity in January 2030 and equal principal payments over the life of the loan.
Tidewater can borrow the remaining $10.0 million in whole or in increments at
its discretion until June 30, 2010, at an interest rate based on market
conditions and with a maximum final maturity date of January 2030.





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 DRP. The Company raised $1.3 million through the issuance of
shares under the DRP during 2009. On December 23, 2009, the Company announced a
5% purchase discount for optional cash purchases and reinvested dividends under
the DRP.  The discount applies to purchases made by the DRP between
February 1, 2010 and June 1, 2010. As noted above, we anticipate issuing up to
2.0 million shares of common stock in the second quarter of 2010.





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.


28
 Index


The table
below presents our known contractual obligations for the periods specified as of
December 31, 2009.





Payment
      Due by Period(Millions
      of Dollars)Total
            
            
            Less than 1 Year
            
            
            1-3 Years
            
            
            3-5 Years
            
            
            More than 5 YearsLong-term
      Debt
            
            $
            128.6
            
            
            $
            3.7
            
            
            $
            8.1
            
            
            $
            8.3
            
            
            $
            108.5Notes
      Payable
            
            
            42.9
            
            
            
            42.9
            
            
            
            -
            
            
            
            -
            
            
            
            -Interest
      on Long-term Debt
            
            
            95.0
            
            
            
            6.2
            
            
            
            12.0
            
            
            
            11.3
            
            
            
            65.5Purchased
      Water Contracts
            
            
            37.1
            
            
            
            5.0
            
            
            
            5.3
            
            
            
            4.9
            
            
            
            21.9Wastewater
      Operations
            
            
            43.4
            
            
            
            4.3
            
            
            
            9.0
            
            
            
            9.5
            
            
            
            20.6Employee
      Retirement Plans (1)
            
            
            5.0
            
            
            
            5.0
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            352.0
            
            
            $
            67.1
            
            
            $
            34.4
            
            
            $
            34.0
            
            
            $
            216.5(1) Amounts
      are not determinable after one year due to the volatility of factors we
      use to determine estimated future contributions to our employee retirement
      benefit plans, including market performance, discount rates, long term
      rates of return, healthcare cost trend rates, wage increases, participant
      eligibility and participant turnover.





Guarantees





USA-PA
operates the City of Perth Amboy’s (Perth Amboy) water and wastewater systems
under a service contract agreement through June 30, 2018 (the Agreement). Under
the Agreement, USA-PA receives a fixed fee and a variable fee based on increased
system billing.





In
connection with the Agreement, Perth Amboy, through the Middlesex County
Improvement Authority, issued approximately $68.0 million in three series of
bonds. In 1998, as part of the Agreement negotiations with Perth Amboy,
Middlesex agreed to guarantee debt service payments on 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, 2009, approximately $19.7
million of the Series C Serial Bonds remained outstanding.  To date,
Middlesex has not had to fund any debt service obligations as
guarantor.





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. Our
obligation in that case would be to pay scheduled debt service payments as they
come due. 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.


29
 Index


Critical
Accounting Policies and Estimates





The
application of accounting policies and standards often requires the use of
estimates, assumptions and judgments. The Company regularly evaluates these
estimates, assumptions and judgments, including those related to the calculation
of pension and postemployment benefits, unbilled revenues, and the
recoverability of certain assets, including regulatory assets.  The
Company bases its estimates, assumptions and judgments on historical experience
and current operating environment.  Changes in any of the variables
that are used for the Company’s estimates, assumptions and judgments 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 88% 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 in the Financial Accounting Standards Board Accounting Standards
Codification Topic 980 Regulated Operations
(Regulatory Accounting).





In
accordance with Regulatory Accounting, 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 will 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 and economic
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 material, are recorded upon approval of the amount by
Perth Amboy.





Postemployment
Retirement Benefit Plans





The costs
for providing postemployment retirement benefits are dependent upon numerous
factors, including actual plan experience and assumptions of future
experience.  Future postemployment retirement benefit plan obligations
and expense will depend on future investment performance, changes in future
discount rates and


30
 Index


various
other demographic factors related to the population participating in the
Company’s postemployment retirement benefit plans, all of which can change
significantly in future years.





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





The
Company has a postretirement benefit plan other than pensions (Other Benefits)
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.





The
allocation by asset category of postemployment employee benefit plan assets at
December 31, 2009 and 2008 is as follows:





Pension Plan
            
            
            Other Benefits PlanAsset Category
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            Target
            
            
            RangeEquity
      Securities
            
            
            59.2
            %
            
            
            49.5
            %
            
            
            40.4
            %
            
            
            25.7
            %
            
            
            60
            %
            
            
            30-65
            %Debt
      Securities
            
            
            36.4
            %
            
            
            47.0
            %
            
            
            49.5
            %
            
            
            59.6
            %
            
            
            38
            %
            
            
            25-70
            %Cash
            
            
            4.1
            %
            
            
            3.5
            %
            
            
            9.0
            %
            
            
            14.7
            %
            
            
            2
            %
            
            
            0-10
            %Commodities
            
            
            0.3
            %
            
            
            -
            %
            
            
            1.1
            %
            
            
            -
            %
            
            
            2
            %
            
            
            0
            %Total
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %





The
discount rate, compensation increase rate and long-term rate of return utilized
for determining our postemployment employee benefit plans’ future obligations as
of December 31, 2009 are as follows:





Pension
      Plan
            Other
      Benefits PlanDiscount
      Rate
            5.95%
            5.95%Compensation
      Increase
            3.50%
            3.50%Long-term
      Rate of Return
            8.00%
            7.50%





For 2009,
costs and obligations for our Other Benefits Plan assumed a 9.0% annual rate of
increase in the per capita cost of covered healthcare benefits and assumed a
decline of 1.0% per year through 2012 and 0.5% per year through 2014, resulting
in an annual rate of increase in the per capita cost of covered healthcare
benefits of 5% by year 2014.





The
following is a sensitivity analysis for certain actuarial assumptions used in
determining projected benefit obligations (PBO) and expenses for our
postemployment employee benefit plans:





Pension
Plan





Actuarial
      Assumptions
            EstimatedIncrease/
              (Decrease)
              on
      PBO
              (000s)
            EstimatedIncrease/
              (Decrease)
              on
      Expense
              (000s)Discount
      Rate 1% Increase
            (4,833)
            (482)Discount
      Rate 1% Decrease
            6,025
            608


31
 Index


Other
Benefits Plan





Actuarial
      Assumptions
            EstimatedIncrease/
              (Decrease)
              on
      PBO
              (000s)
            EstimatedIncrease/
              (Decrease)
              on
      Expense
              (000s)Discount
      Rate 1% Increase
            (3,292)
            (422)Discount
      Rate 1% Decrease
            4,192
            577Healthcare
      Cost Trend Rate 1% Increase
            3,540
            419Healthcare
      Cost Trend Rate 1% Decrease
            (2,833)
            (323)





The
discount rates used at our December 31 measurement date for determining future
postemployment employee benefit plans’ obligations and costs are determined
based on market rates for long-term, high-quality corporate bonds specific to
our Pension Plan and Other Benefits Plan’s asset allocation. The expected
long-term rate of return for Pension Plan and Other Benefits Plan assets is
determined based on historical returns and our asset allocation.





Recent
Accounting Standards





See Note
1(n) 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 the majority of our
First Mortgage Bonds, which have final maturity dates ranging from 2018 to
2038.  Over the next twelve months, approximately $3.7 million of the
current portion of 26 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.


32
 Index


Item8.
            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, 2009 and2008, and the
related consolidated statements of income, common stockholders’ equity and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 2009. 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 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, 2009 and 2008, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2009 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), the Middlesex Water Company’s internal control
over financial reporting as of December 31, 2009, based on criteria established
in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 8, 2010 expressed an
unqualified opinion.





/s/
      ParenteBeard LLCReading,
      PennsylvaniaMarch
      8, 2010


33
 Index




MIDDLESEX
      WATER COMPANYCONSOLIDATED BALANCE
      SHEETS(In
      thousands)December
      31,
            
            
            December
      31,ASSETS
            
            
            
            2009
            
            
            2008UTILITY
      PLANT:
            
            Water
      Production
            
            $
            113,124
            
            
            $
            107,517Transmission
      and Distribution
            
            
            293,269
            
            
            
            283,759General
            
            
            29,631
            
            
            
            27,142Construction
      Work in Progress
            
            
            17,547
            
            
            
            11,653TOTAL
            
            
            453,571
            
            
            
            430,071Less
      Accumulated Depreciation
            
            
            77,027
            
            
            
            70,544UTILITY
      PLANT - NET
            
            
            376,544
            
            
            
            359,527CURRENT
      ASSETS:
            
            Cash
      and Cash Equivalents
            
            
            4,278
            
            
            
            3,288Accounts
      Receivable, net
            
            
            10,616
            
            
            
            9,510Unbilled
      Revenues
            
            
            4,424
            
            
            
            4,822Materials
      and Supplies (at average cost)
            
            
            1,618
            
            
            
            1,475Prepayments
            
            
            1,109
            
            
            
            1,481TOTAL
      CURRENT ASSETS
            
            
            22,045
            
            
            
            20,576DEFERRED
      CHARGES
            
            Unamortized
      Debt Expense
            
            
            2,856
            
            
            
            2,903AND
      OTHER ASSETS:
            
            Preliminary
      Survey and Investigation Charges
            
            
            6,999
            
            
            
            7,187Regulatory
      Assets
            
            
            33,081
            
            
            
            31,910Operations
      Contracts Fees Receivable
            
            
            3,715
            
            
            
            3,708Restricted
      Cash
            
            
            5,266
            
            
            
            7,049Non-utility
      Assets - Net
            
            
            7,134
            
            
            
            6,762Other
            
            
            446
            
            
            
            378TOTAL
      DEFERRED CHARGES AND OTHER ASSETS
            
            
            59,497
            
            
            
            59,897TOTAL
      ASSETS
            
            $
            458,086
            
            
            $
            440,000CAPITALIZATION
      AND LIABILITIESCAPITALIZATION:
            
            Common
      Stock, No Par Value
            
            $
            109,366
            
            
            $
            107,726Retained
      Earnings
            
            
            30,265
            
            
            
            30,077TOTAL
      COMMON EQUITY
            
            
            139,631
            
            
            
            137,803Preferred
      Stock
            
            
            3,373
            
            
            
            3,375Long-term
      Debt
            
            
            124,910
            
            
            
            118,217TOTAL
      CAPITALIZATION
            
            
            267,914
            
            
            
            259,395CURRENT
            
            Current
      Portion of Long-term Debt
            
            
            3,710
            
            
            
            17,985LIABILITIES:
            
            Notes
      Payable
            
            
            42,850
            
            
            
            25,877Accounts
      Payable
            
            
            4,348
            
            
            
            5,689Accrued
      Taxes
            
            
            5,686
            
            
            
            7,781Accrued
      Interest
            
            
            1,861
            
            
            
            2,053Unearned
      Revenues and Advanced Service Fees
            
            
            861
            
            
            
            842Other
            
            
            1,352
            
            
            
            1,243TOTAL
      CURRENT LIABILITIES
            
            
            60,668
            
            
            
            61,470COMMITMENTS
      AND CONTINGENT LIABILITIES (Note 4)DEFERRED
      CREDITS
            
            Customer
      Advances for Construction
            
            
            20,806
            
            
            
            22,089AND
      OTHER LIABILITIES:
            
            Accumulated
      Deferred Investment Tax Credits
            
            
            1,303
            
            
            
            1,382Accumulated
      Deferred Income Taxes
            
            
            27,788
            
            
            
            21,733Employee
      Benefit Plans
            
            
            25,723
            
            
            
            25,540Regulatory
      Liability - Cost of Utility Plant Removal
            
            
            6,738
            
            
            
            6,197Other
            
            
            275
            
            
            
            963TOTAL
      DEFERRED CREDITS AND OTHER LIABILITIES
            
            
            82,633
            
            
            
            77,904CONTRIBUTIONS
      IN AID OF CONSTRUCTION
            
            
            
            
            46,871
            
            
            
            41,231TOTAL
      CAPITALIZATION AND LIABILITIES
            
            $
            458,086
            
            
            $
            440,000See
      Notes to Consolidated Financial Statements.


34
 Index




MIDDLESEX
      WATER COMPANYCONSOLIDATED
      STATEMENTS OF INCOME(In
      thousands except per share amounts)Years
      Ended December 31,2009
            
            
            2008
            
            
            2007Operating Revenues
            
            $
            91,243
            
            
            $
            91,038
            
            
            $
            86,114Operating
      Expenses:Operations
            
            
            47,770
            
            
            
            44,782
            
            
            
            42,117Maintenance
            
            
            4,578
            
            
            
            4,147
            
            
            
            4,123Depreciation
            
            
            8,559
            
            
            
            7,922
            
            
            
            7,539Other Taxes
            
            
            10,175
            
            
            
            10,168
            
            
            
            9,664Total Operating Expenses
            
            
            71,082
            
            
            
            67,019
            
            
            
            63,443Operating Income
            
            
            20,161
            
            
            
            24,019
            
            
            
            22,671Other
      Income (Expense):Allowance
      for Funds Used During Construction
            
            
            1,001
            
            
            
            667
            
            
            
            537Other
      Income
            
            
            1,011
            
            
            
            906
            
            
            
            1,153Other Expense
            
            
            (286
            )
            
            
            (271
            )
            
            
            (163
            )Total Other Income, net
            
            
            1,726
            
            
            
            1,302
            
            
            
            1,527Interest Charges
            
            
            6,750
            
            
            
            7,057
            
            
            
            6,619Income before Income Taxes
            
            
            15,137
            
            
            
            18,264
            
            
            
            17,579Income Taxes
            
            
            5,160
            
            
            
            6,056
            
            
            
            5,736Net
      Income
            
            
            9,977
            
            
            
            12,208
            
            
            
            11,843Preferred Stock Dividend
      Requirements
            
            
            208
            
            
            
            218
            
            
            
            248Earnings Applicable to Common
      Stock
            
            $
            9,769
            
            
            $
            11,990
            
            
            $
            11,595Earnings
      per share of Common Stock:Basic
            
            $
            0.73
            
            
            $
            0.90
            
            
            $
            0.88Diluted
            
            $
            0.72
            
            
            $
            0.89
            
            
            $
            0.87Average
      Number ofCommon
      Shares Outstanding :Basic
            
            
            13,454
            
            
            
            13,317
            
            
            
            13,203Diluted
            
            
            13,716
            
            
            
            13,615
            
            
            
            13,534Cash
      Dividends Paid per Common Share
            
            $
            0.713
            
            
            $
            0.703
            
            
            $
            0.693





See Notes
to Consolidated Financial Statements.


35
 Index




MIDDLESEX
      WATER COMPANYCONSOLIDATED
      STATEMENTS OF CASH FLOWS(In
      thousands)Years
      Ended December 31,2009
            
            
            2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Income
            
            $
            9,977
            
            
            $
            12,208
            
            
            $
            11,843Adjustments
      to Reconcile Net Income toNet
      Cash Provided by Operating Activities:Depreciation
      and Amortization
            
            
            9,217
            
            
            
            8,530
            
            
            
            8,176Provision
      for Deferred Income Taxes and ITC
            
            
            5,522
            
            
            
            1,032
            
            
            
            399Equity
      Portion of AFUDC
            
            
            (580
            )
            
            
            (348
            )
            
            
            (255
            )Cash
      Surrender Value of Life Insurance
            
            
            (387
            )
            
            
            576
            
            
            
            (271
            )Gain
      on Disposal of Equity Investments
            
            
            -
            
            
            
            (86
            )
            
            
            -Gain
      on Sale of Real Estate
            
            
            -
            
            
            
            -
            
            
            
            (267
            )Stock
      Compensation Expense
            
            
            386
            
            
            
            288
            
            
            
            273Changes
      in Assets and Liabilities:Accounts
      Receivable
            
            
            (1,112
            )
            
            
            (807
            )
            
            
            (2,752
            )Unbilled
      Revenues
            
            
            398
            
            
            
            (213
            )
            
            
            (596
            )Materials
      & Supplies
            
            
            (143
            )
            
            
            (270
            )
            
            
            101Prepayments
            
            
            372
            
            
            
            (118
            )
            
            
            (134
            )Other
      Assets
            
            
            (564
            )
            
            
            (351
            )
            
            
            (9
            )Accounts
      Payable
            
            
            (1,341
            )
            
            
            147
            
            
            
            986Accrued
      Taxes
            
            
            (2,096
            )
            
            
            206
            
            
            
            941Accrued
      Interest
            
            
            (192
            )
            
            
            137
            
            
            
            36Employee
      Benefit Plans
            
            
            (354
            )
            
            
            (1,146
            )
            
            
            239Unearned
      Revenue & Advanced Service Fees
            
            
            19
            
            
            
            84
            
            
            
            157Other
      Liabilities
            
            
            (616
            )
            
            
            (465
            )
            
            
            224NET
      CASH PROVIDED BY OPERATING ACTIVITIES
            
            
            18,506
            
            
            
            19,404
            
            
            
            19,091CASH
      FLOWS FROM INVESTING ACTIVITIES:Utility
      Plant Expenditures, Including AFUDC of $421 in 2009, $319 in 2008 and $282
      in 2007
            
            
            (20,128
            )
            
            
            (30,336
            )
            
            
            (23,777
            )Restricted
      Cash
            
            
            456
            
            
            
            (591
            )
            
            
            444Proceeds
      from Real Estate Dispositions
            
            
            -
            
            
            
            -
            
            
            
            273NET
      CASH USED IN INVESTING ACTIVITIES
            
            
            (19,672
            )
            
            
            (30,927
            )
            
            
            (23,060
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Redemption
      of Long-term Debt
            
            
            (18,244
            )
            
            
            (2,787
            )
            
            
            (2,501
            )Proceeds
      from Issuance of Long-term Debt
            
            
            12,014
            
            
            
            4,652
            
            
            
            3,632Net
      Short-term Bank Borrowings
            
            
            16,973
            
            
            
            19,627
            
            
            
            6,250Deferred
      Debt Issuance Expenses
            
            
            (116
            )
            
            
            (158
            )
            
            
            (50
            )Common
      Stock Issuance Expense
            
            
            -
            
            
            
            -
            
            
            
            (15
            )Restricted
      Cash
            
            
            (25
            )
            
            
            (40
            )
            
            
            (12
            )Proceeds
      from Issuance of Common Stock
            
            
            1,251
            
            
            
            1,187
            
            
            
            1,147Payment
      of Common Dividends
            
            
            (9,582
            )
            
            
            (9,353
            )
            
            
            (9,141
            )Payment
      of Preferred Dividends
            
            
            (208
            )
            
            
            (218
            )
            
            
            (248
            )Construction
      Advances and Contributions-Net
            
            
            93
            
            
            
            (128
            )
            
            
            1,110NET
      CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            2,156
            
            
            
            12,782
            
            
            
            172NET
      CHANGES IN CASH AND CASH EQUIVALENTS
            
            
            990
            
            
            
            1,259
            
            
            
            (3,797
            )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            3,288
            
            
            
            2,029
            
            
            
            5,826CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            4,278
            
            
            $
            3,288
            
            
            $
            2,029SUPPLEMENTAL
      DISCLOSURE OF NON-CASH ACTIVITY:Utility
      Plant received as Construction Advances and Contributions
            
            $
            4,264
            
            
            $
            5,452
            
            
            $
            8,960Transfer
      of Equity Investment to Employee Retirement Benefit Plans
            
            $
            -
            
            
            $
            132
            
            
            $
            -Long
      term Debt Deobligation
            
            $
            1,352
            
            
            $
            -
            
            
            $
            -SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWS INFORMATION:Cash
      Paid During the Year for:Interest
            
            $
            6,887
            
            
            $
            6,864
            
            
            $
            6,542Interest
      Capitalized
            
            $
            (421
            )
            
            $
            (319
            )
            
            $
            (282
            )Income
      Taxes
            
            $
            1,856
            
            
            $
            5,205
            
            
            $
            4,534





See Notes
to Consolidated Financial Statements.


36
 Index




MIDDLESEX
      WATER COMPANYCONSOLIDATED
      STATEMENTS OF CAPITAL STOCKAND
      LONG-TERM DEBT(In
      thousands)December
      31,
            
            
            December
      31,2009
            
            
            2008Common
      Stock, No Par ValueShares
      Authorized -40,000Shares
      Outstanding - 2009 - 13,519
            
            $
            109,366
            
            
            $
            107,7262008 - 13,404Retained
      Earnings
            
            
            30,265
            
            
            
            30,077TOTAL
      COMMON EQUITY
            
            
            139,631
            
            
            
            137,803Cumulative
      Preferred Stock, No Par Value:Shares
      Authorized -    134Shares
      Outstanding -    32Convertible:Shares
      Outstanding, $7.00 Series - 14
            
            
            1,457
            
            
            
            1,457Shares
      Outstanding, $8.00 Series - 7
            
            
            816
            
            
            
            816Nonredeemable:Shares
      Outstanding, $7.00 Series -   1
            
            
            100
            
            
            
            102Shares
      Outstanding, $4.75 Series - 10
            
            
            1,000
            
            
            
            1,000TOTAL
      PREFERRED STOCK
            
            
            3,373
            
            
            
            3,375Long-term
      Debt:8.05%,
      Amortizing Secured Note, due December 20, 2021
            
            
            2,581
            
            
            
            2,6956.25%,
      Amortizing Secured Note, due May 22, 2028
            
            
            7,735
            
            
            
            8,1556.44%,
      Amortizing Secured Note, due August 25, 2030
            
            
            5,787
            
            
            
            6,0676.46%,
      Amortizing Secured Note, due September 19, 2031
            
            
            6,067
            
            
            
            6,3474.22%,
      State Revolving Trust Note, due December 31, 2022
            
            
            622
            
            
            
            6573.30%
      to 3.60%, State Revolving Trust Note, due May 1, 2025
            
            
            3,687
            
            
            
            3,6893.49%,
      State Revolving Trust Note, due January 25, 2027
            
            
            678
            
            
            
            6754.03%,
      State Revolving Trust Note, due December 1, 2026
            
            
            903
            
            
            
            9394.00%
      to 5.00%, State Revolving Trust Bond, due September 1,
2021
            
            
            625
            
            
            
            6600.00%,
      State Revolving Fund Bond, due September 1, 2021
            
            
            436
            
            
            
            5003.64%,
      State Revolving Trust Note, due July 1, 2028
            
            
            395
            
            
            
            3893.64%,
      State Revolving Trust Note, due January 1, 2028
            
            
            132
            
            
            
            1406.59%,
      Amortizing Secured Note, due April 20, 2029
            
            
            6,743
            
            
            
            -7.05%,
      Amortizing Secured Note, due January 20, 2030
            
            
            5,000
            
            
            
            -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
            
            
            -
            
            
            
            15,0005.25%,
      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
            
            
            483
            
            
            
            5384.25%
      to 4.63%, Series Y, due September 1, 2018
            
            
            650
            
            
            
            7100.00%,
      Series Z, due September 1, 2019
            
            
            1,118
            
            
            
            1,2305.25%
      to 5.75%, Series AA, due September 1, 2019
            
            
            1,560
            
            
            
            1,6750.00%,
      Series BB, due September 1, 2021
            
            
            1,447
            
            
            
            1,5664.00%
      to 5.00%, Series CC, due September 1, 2021
            
            
            1,790
            
            
            
            1,8955.10%,
      Series DD, due January 1, 2032
            
            
            6,000
            
            
            
            6,0000.00%,
      Series EE, due August 1, 2023
            
            
            5,642
            
            
            
            6,6933.00%
      to 5.50%, Series FF, due August 1, 2024
            
            
            6,935
            
            
            
            8,0250.00%,
      Series GG, due August 1, 2026
            
            
            1,530
            
            
            
            1,6194.00%
      to 5.00%, Series HH, due August 1, 2026
            
            
            1,810
            
            
            
            1,8800.00%,
      Series II, due August 1, 2027
            
            
            1,619
            
            
            
            1,7083.40%
      to 5.00%, Series JJ, due August 1, 2027
            
            
            1,690
            
            
            
            1,7500.00%,
      Series KK, due August 1, 2028
            
            
            1,705
            
            
            
            1,7505.00%
      to 5.50%, Series LL, due August 1, 2028
            
            
            1,750
            
            
            
            1,750SUBTOTAL
      LONG-TERM DEBT
            
            
            128,620
            
            
            
            136,202Less:
      Current Portion of Long-term Debt
            
            
            (3,710
            )
            
            
            (17,985
            )TOTAL
      LONG-TERM DEBT
            
            $
            124,910
            
            
            $
            118,217





See Notes
to Consolidated Financial Statements.


37
 Index


MIDDLESEX
WATER COMPANY
 CONSOLIDATED
STATEMENTS OF COMMON STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
 (In
thousands)
 
 AccumulatedCommon
              
              
              Common
              
              
              
              
              
              OtherStock
              
              
              Stock
              
              
              Retained
              
              
              ComprehensiveShares
              
              
              Amount
              
              
              Earnings
              
              
              Income (Loss)
              
              
              TotalBalance
      at January 1, 2007
              
              
              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 - Employees
              
              
              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 - Employees
              
              
              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
              
              
              
              -
              
              
              
              137,803Net
      Income
              
              
              
              
              
              
              
              
              
              
              9,977
              
              
              
              
              
              
              
              9,977Dividend
      Reinvestment & Common Stock Purchase Plan
              
              
              84
              
              
              
              1,254
              
              
              
              
              
              
              
              
              
              
              
              1,254Restricted
      Stock Award, Net - Employees
              
              
              29
              
              
              
              365
              
              
              
              
              
              
              
              
              
              
              
              365Restricted
      Stock Award - Board Of Directors
              
              
              2
              
              
              
              21
              
              
              
              
              
              
              
              
              
              
              
              21Cash
      Dividends on Common Stock
              
              
              
              
              
              
              
              
              
              
              (9,582
              )
              
              
              
              
              
              
              (9,582
              )Cash
      Dividends on Preferred Stock
              
              
              
              
              
              
              
              
              
              
              (208
              )
              
              
              
              
              
              
              (208
              )Other
              
              
              
              
              
              
              
              
              
              
              1
              
              
              
              
              
              
              
              1Balance
      at December 31, 2009
              
              
              13,519
              
              
              $
              109,366
              
              
              $
              30,265
              
              
              $
              -
              
              
              $
              139,631


See Notes
to Consolidated Financial Statements.


38
 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), Utility Service Affiliates (Perth Amboy) Inc. (USA-PA) and Twin
Lakes Utilities, Inc. (Twin Lakes).  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, in
Delaware, through our wholly-owned subsidiary, Tidewater, since 1992 and in
Pennsylvania, through our wholly-owned subsidiary, Twin Lakes, since November
2009.  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. Our rates charged to customers for water and
wastewater services, the quality of services we provide and certain other
matters are regulated in New Jersey, Delaware and Pennsylvania by the New Jersey
Board of Public Utilities (NJBPU), Delaware Public Service Commission (DEPSC)
and Pennsylvania Public Utilities Commission (PAPUC), respectively. 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 NJBPU. Tidewater, TESI and Southern Shores
maintain their accounts in accordance with DEPSC requirements.  Twin
Lakes maintains its accounts in accordance with PAPUC requirements.





(c) Utility Plant –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, 2009, 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– 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


39
 Index


major
utility plant categories used to calculate depreciation for the years ended
December 31, 2009, 2008 and 2007. These rates have been approved by the NJBPU,
DEPSC or PAPUC:





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





Non-regulated
fixed assets consist primarily of office buildings, 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) Preliminary Survey and Investigation
(PS&I) Costs–In the design
of water and wastewater systems that the Company ultimately intends to
construct, own and operate certain expenditures are incurred to advance those
project activities. These PS&I costs are recorded as deferred charges on the
balance sheet because these costs are expected to be recovered through future
rates charged to customers as the underlying projects are placed into service as
utility plant.  If it is subsequently determined that costs for a
project recorded as PS&I are not recoverable through rates charged to our
customers, the applicable PS&I costs are recorded as a charge to the income
statement at that time.





(f)Customers’ Advances for Construction
(CAC)–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 CAC. 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 (CIAC) – CIAC include direct
non-refundable contributions of water utility plant and/or cash and the portion
of CAC that becomes non-refundable.





CAC and
CIAC are not depreciated in accordance with regulatory
requirements.  In addition, these amounts reduce the investment base
for purposes of setting rates.





(g) 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, 2009, 2008 and
2007 approximately $1.0 million, $0.7 million and $0.5 million, respectively of
AFUDC was added to the cost of construction projects.  AFUDC is
calculated using each company’s weighted cost of debt and equity as approved in
their most recent respective regulatory rate order. The AFUDC rate for the years
ended December 31, 2009, 2008 and 2007 for Middlesex and Tidewater is as
follows:





For
      The Year Ended December 31,2009
            
            
            2008
            
            
            2007Middlesex
            
            
            7.65
            %
            
            
            7.65
            %
            
            
            7.65
            %Tidewater
            
            
            8.24
            %*
            
            
            8.33
            %
            
            
            7.94
            %


*8.33%
through August 2009


40
 Index


(h) Accounts Receivable – We
record bad debt expense based on historical write-offs combined with an
evaluation of current conditions. The allowance for doubtful accounts was $0.4
million and $0.2 million at December 31, 2009 and December 31, 2008,
respectively. Bad debt expense for the years ended December 31, 2009, 2008 and
2007 was $0.6 million, $0.2 million and $0.1 million, respectively.





(i) 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 fixed
service charges, 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 and economic
conditions. Actual billings may differ from our estimates. Tidewater customers
are billed in advance for their fixed service charge and these revenues are
recognized as the service is provided to the customer.





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





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





(j) 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.





(k) 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.  For more information on income taxes, see Note 3 –
Income Taxes.





(l) 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.





(m) 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.





(n) Recent Accounting
Pronouncements – In June 2009, the Financial Accounting Standards Board
(FASB) issued guidance on “The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles”, which establishes the
FASB Accounting Standards Codification (ASC) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in preparation of financial statements in conformity with generally
accepted accounting principles in the United States. Under the ASC, new
standards will be issued in the form of Accounting Standards Updates
(ASU).  This guidance is effective for interim and annual periods
ending after September 15, 2009. The adoption of this standard did not have
an impact on our financial position or results of
operations.


41
 Index


Topic
320, Investments – Debt and Equity Securities


In April
2009, the FASB issued guidance on “Recognition and Presentation of
Other-Than-Temporary Impairments”.  This guidance improves
presentation and disclosures in financial statements for other-than-temporary
impairments of debt and equity securities and expands on the factors companies
should consider when evaluating debt securities for other-than-temporary
impairments. The change is effective for interim and annual reporting periods
ending after June 15, 2009.  This was adopted as of June 30, 2009, and
had no effect on results of operations, cash flows or financial
position.





Topic
715, Compensation – Retirement Benefits


In
December 2008, the FASB issued guidance on “Employers’ Disclosures about
Postretirement Benefit Plan Assets” which addresses employer’s disclosures
about plan assets of a defined benefit pension or other postretirement plan,
including information related to a company’s:


·
            plan
      assets


·
            plan
      investment policies and strategies


·
            significant
      concentrations of risk within plan assets,
and


·
            inputs
      and valuation techniques used to measure the fair value of plan assets and
      the effect of fair value measurements using significant unobservable
      inputs on changes in plan assets for the
    period.





The
disclosures about plan assets are required for fiscal years ending after
December 15, 2009.  This was adopted as of December 31, 2009, and had
no effect on results of operations, cash flows or financial
position.  Adoption of the guidance did require additional disclosures
in Note 7 – Employee Benefit Plans.





Topic 820, Fair Value Measurements
and Disclosures(ASC 820)


In
September 2006, the FASB issued guidance on “Fair Value Measurements” (ASC 820),
which establishes a framework for measuring fair value and expands disclosures
about fair value measurements.  This guidance was adopted January 1,
2008 for financial assets and financial liabilities and did not have a material
impact on the Company’s financial statements.  In February 2008, the
FASB issued further guidance which deferred the effective date of ASC 820 to
fiscal years beginning after November 15, 2008 for nonfinancial assets and
nonfinancial liabilities. This guidance was adopted as of January 1, 2009 and
had no effect on results of operations, cash flows or financial
position.





In April
2009, the FASB issued guidance on “Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly.” Fair value has been defined
by FASB as the price that would be received to sell the asset or transfer the
liability in an orderly transaction (that is, not a forced liquidation or
distressed sale) between market participants at the measurement date under
current market conditions.  This guidance provides additional
information for estimating fair value in accordance with ASC 820 when the volume
and level of activity for the asset or liability have significantly decreased.
In addition, it includes guidance on identifying circumstances that indicate a
transaction is not orderly.  This guidance was adopted as of June 30,
2009, and had no effect on results of operations, cash flows or financial
position.





In April
2009, the FASB issued guidance on “Interim Disclosures about Fair Value of
Financial Instruments.”  This guidance requires disclosures about fair
value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements.  This guidance
was adopted as of June 30, 2009, and resulted in additional interim
disclosures of the fair values of financial instruments in our Quarterly Reports
on Form 10-Q, which previously had only been required annually. Adoption of this
guidance resulted in no change to accounting policies and had no effect on
results of operations, cash flows or financial position.


42
 Index


In August
2009, the FASB issued ASU 2009-05. The update provides additional guidance for
measuring the fair value of liabilities and clarifies that the quoted price for
the identical liability, when traded as an asset in an active market, is a Level
1 measurement, providing there are no adjustments to the quoted price.
Alternatively, when no quoted price is available, the ASU affirms the use of
other valuation techniques outlined in ASC 820. ASU 2009-05 is effective for the
first interim or annual reporting period beginning after the ASU’s
issuance.  This guidance was adopted as of October 1, 2009, and had no
effect on results of operations, cash flows or financial position.





Topic
855, Subsequent
Events


In May
2009, the FASB issued SFAS No. 165, Subsequent Events (ASC 855),
which establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. The Company adopted the provisions
effective June 30, 2009, which had no effect on results of operations, cash
flows or financial position.





(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 88% 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 FASB ASC Topic 980 Regulated Operations
(Regulatory Accounting).





In
accordance with Regulatory Accounting, 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 will be treated differently by the regulators in the
future.  For additional information, see Note 2 – Rate and Regulatory
Matters.





(p) Postemployment Employee
Benefit Plans - 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
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.





The
Company’s costs for providing postemployment employee benefits are dependent
upon numerous factors, including actual plan experience and assumptions of
future experience.  Postemployment employee benefit plan obligations
and expense are determined based on investment performance, discount rates and
various other demographic factors related to the population participating in the
Company’s postemployment employee benefit plans, all of which can change
significantly in future years. For more information on the Company’s
Postemployment Employee Benefit Plans, see Note 7 – Employee Benefit
Plans.





Note
2 - Rate and Regulatory Matters





Rate
Matters





On
January 26, 2009, Tidewater filed an application with the DEPSC seeking
permission to increase its base rates by 32.54%, which was necessitated by
increased costs of operations, maintenance and taxes, as well as capital
investment since Tidewater’s last rate filing in April of 2006.  On
September 9, 2009, the DEPSC approved a base rate settlement that had been
reached amongst the parties that reflects an overall increase
of


43
 Index


14.95%.  This
rate increase approval is expected to generate additional annual revenues of
$3.0 million based on a 10.0% return on equity.





On August
17, 2009, Middlesex filed an application with the NJBPU seeking permission to
increase its base rates by 26.03%, or $15.1 million.  The request was
made necessary by increased costs of operations, chemicals and fuel,
electricity, taxes, labor and benefits, decreases in industrial and commercial
customer demand patterns as well as capital investment of approximately $39.0
million since Middlesex’ last rate filing in April of 2007.  Discovery
by the intervening parties has begun.  We cannot predict whether the
NJBPU will ultimately approve, deny, or reduce the amount of the
request.  A decision by the NJBPU is not expected until the second
quarter of 2010.





On July
1, 2009, Middlesex implemented a NJBPU approved Purchased Water Adjustment
Clause (PWAC) in order 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.





Effective
January 1, 2009, Tidewater received approval from the DEPSC to increase their
Distribution System Improvement Charge (DSIC) from 2.94% to
5.25%.  This rate was set to zero in conjunction with the interim
rates approved in the base rate case described above.  On December 22,
2009, Tidewater received approval from the DEPSC to increase their DSIC from 0%
to 1.11% effective January 1, 2010.





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%.





Effective
December 18, 2008, Pinelands Water and Pinelands Wastewater
implemented NJBPU 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.





Effective
October 26, 2007, Middlesex received approval from the NJBPU 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%.





Regulatory
Matters





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





(Thousands
      of Dollars)December
      31,
            
            RemainingRegulatory Assets
            
            2009
            
            
            2008
            
            Recovery PeriodsPostretirement
      Benefits
            
            $
            21,167
            
            
            $
            20,679
            
            VariousIncome
      Taxes
            
            
            11,356
            
            
            
            10,905
            
            VariousTank
      Painting
            
            
            168
            
            
            
            189
            
            3-7
      yearsRate
      Cases and Other
            
            
            390
            
            
            
            137
            
            Up
      to 2 yearsTotal
            
            $
            33,081
            
            
            $
            31,910


44
 Index


Postretirement
benefits include pension and other postretirement benefits that have been
recorded on the Consolidated Balance Sheet in accordance with the guidance
provided in Topic 715,
Compensation – Retirement Benefits.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, 2009 and 2008, the Company has approximately $6.7
million and $6.2 million, respectively, of expected costs of removal recovered
currently in rates in excess of actual costs incurred. These amounts are
recorded as regulatory liabilities.





The
Company is recovering in current rates acquisition premiums totaling $0.7
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.  The
Company expects to recover training costs of approximately $0.6 million
associated with implementation of a new information technology system in future
rates.   These deferred costs have been recorded in construction
work in process as of December 31, 2009.





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:





(Thousands
      of Dollars)Years
      Ended December 31,2009
            
            
            2008
            
            
            2007Income
      Tax at Statutory Rate
            
            $
            5,147
            
            
            $
            6,253
            
            
            $
            6,021Tax
      Effect of:Utility
      Plant Related
            
            
            (247
            )
            
            
            (725
            )
            
            
            (595
            )State
      Income Taxes – Net
            
            
            339
            
            
            
            309
            
            
            
            350Employee
      Benefits
            
            
            (86
            )
            
            
            202
            
            
            
            (49
            )Other
            
            
            7
            
            
            
            17
            
            
            
            9Total Income Tax Expense
            
            $
            5,160
            
            
            $
            6,056
            
            
            $
            5,736


45
 Index


Income
tax expense is comprised of the following:





(Thousands
      of Dollars)Years
      Ended December 31,2009
            
            
            2008
            
            
            2007Current:Federal
            
            $
            (208
            )
            
            $
            4,651
            
            
            $
            4,894State
            
            
            35
            
            
            
            392
            
            
            
            413Deferred:Federal
            
            
            4,933
            
            
            
            1,018
            
            
            
            634State
            
            
            479
            
            
            
            74
            
            
            
            117Investment Tax Credits
            
            
            (79
            )
            
            
            (79
            )
            
            
            (322
            )Total Income Tax Expense
            
            $
            5,160
            
            
            $
            6,056
            
            
            $
            5,736





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 return for 2007 is currently underway.  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.  The Company is not aware of any uncertain
tax positions that could result in a future tax liability.





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:





(Thousands
      of Dollars)December
      31,2009
            
            
            2008Utility
      Plant Related
            
            $
            31,942
            
            
            $
            26,224Customer
      Advances
            
            
            (3,914
            )
            
            
            (4,036
            )Employee
      Benefits
            
            
            217
            
            
            
            (65
            )Other
            
            
            (457
            )
            
            
            (390
            )Total Deferred Tax
Liability
            
            $
            27,788
            
            
            $
            21,733





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 (the 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 2009, 2008 and 2007 were $8.2
million, $8.0 million and $7.8 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. In 1998, as part of Agreement negotiations, Middlesex agreed to guarantee
debt service payments on one of those series of bonds, designated the Series
C


46
 Index


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, 2009, approximately $19.7 million of the Series C Serial Bonds remained
outstanding. To date, Middlesex has not had to fund any debt service obligations
as guarantor.





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. Our
obligation in that case would be to pay scheduled debt service payments as they
come due. 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
            
            2009
            
            
            2008
            
            
            2007Untreated
            
            $
            2.4
            
            
            $
            2.4
            
            
            $
            2.4Treated
            
            
            2.6
            
            
            
            2.1
            
            
            
            2.1Total
      Costs
            
            $
            5.0
            
            
            $
            4.5
            
            
            $
            4.5





Construction –The Company may
spend up to $34.3 million in 2010, $23.9 million in 2011 and $30.8 million in
2012 on its construction program.  The actual amount and timing of
capital expenditures is dependent on customer growth, residential new home
construction and sales and project scheduling. There is no assurance that
projected customer growth and residential new home construction and sales 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.


47
 Index


Note
5 – Short-term Borrowings





Information
regarding the Company’s short-term borrowings for the years ended December 31,
2009 and 2008 is summarized below:





(Millions of
      Dollars)2009
            
            
            2008Established
      Lines at Year-End
            
            $
            53.0
            
            
            $
            36.0Maximum
      Amount Outstanding
            
            
            44.2
            
            
            
            25.9Average
      Outstanding
            
            
            40.0
            
            
            
            16.4Notes
      Payable at Year-End
            
            
            42.9
            
            
            
            25.9Weighted
      Average Interest Rate
            
            
            1.73
            %
            
            
            3.69
            %Weighted
      Average Interest Rate at Year-End
            
            
            1.53
            %
            
            
            2.30
            %





The maturity dates for the $42.9
million borrowings outstanding as of December 31, 2009 are: $7.0 million in
January 2010, $7.0 million in February 2010 and $20.5 million in March 2010 and
$8.4 million in April 2010.In January 2010, the Company
increased its’ available lines of credit to $58.0 million.





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 NJBPU or DEPSC, except where otherwise noted.





Common
Stock


On
February 3, 2010, the Company filed a petition with the NJBPU seeking approval
to issue up to 2.0 million shares of its common stock in the form of a follow-on
offering during the second quarter of 2010.  The proceeds from the
common stock offering will be used to retire short term debt.





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, 2009, is 1,794,801. On December 23, 2009, the Company announced a
5% purchase discount for optional cash purchases and reinvested dividends under
the DRP.  The discount applies to purchases made by the DRP between
February 1, 2010 and June 1, 2010.





The
Company also has shares authorized and outstanding under a restricted stock
plan, which is described in Note 7 – Employee Benefit Plans.





The
Company maintains a stock plan for its outside directors (the Outside Director
Stock Compensation Plan). The maximum number of shares authorized for grant
under the Outside Director Stock Compensation Plan is 100,000.  In
2009, 1,554 shares of common stock were granted and issued to the Company’s
outside directors under the Outside Director Stock Compensation Plan. As of
December 31, 2009, there are 98,446 shares available for future awards under
Outside Director Stock Compensation Plan.





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,
2009, no preferred stock dividends were in arrears.


48
 Index


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, 2009 and
2008, 31,873 and 31,898 shares of preferred stock presently authorized were
outstanding and there were no dividends in arrears.





The
Company may not pay any dividends on its common stock unless full cumulative
dividends to the preceding dividend date for all outstanding shares of preferred
stock have been paid or set aside for payment. All such preferred dividends have
been paid. In addition, if Middlesex were to liquidate, holders of preferred
stock would be paid back the stated value of their preferred shares before any
distributions could be made to common stockholders.





The
conversion feature of the no par $7.00 Series Cumulative and Convertible
Preferred Stock allows the security holders to exchange one convertible
preferred share for twelve shares of the Company's common stock.  In
addition, the Company may redeem up to 10% of the outstanding convertible stock
in any calendar year at a price equal to the fair market value of twelve shares
of the Company's common stock for each share of convertible stock redeemed.
During 2009, the Company repurchased 25 shares of the $7.00 Series Cumulative
and Convertible Preferred Stock.





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





On March
2009, Tidewater closed on a $22.0 million DEPSC approved loan and immediately
borrowed $7.0 million at a rate of 6.59% with a final maturity in April 2029. In
June 2009, Tidewater borrowed $5.0 million at a rate of 7.05% with a final
maturity in January 2030. Tidewater can borrow the remaining $10.0 million in
whole or in increments at its discretion until June 30, 2010, at an interest
rate based on market conditions and with a maximum final maturity date of
January 2030.





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.





First
Mortgage Bonds Series S through W and Series DD are term bonds with single
maturity dates. Principal repayments for all series of the Company’s long-term
debt extend beyond 2014.  The aggregate annual principal repayment
obligations for all long-term debt over the next five years are shown
below:





(Millions
      of Dollars)Year
            
            Annual Maturities2010
            
            $
            3.72011
            
            $
            4.02012
            
            $
            4.12013
            
            $
            4.12014
            
            $
            4.2


49
 Index


The
weighted average interest rate on all long-term debt at December 31, 2009 and
2008 was 5.16% and 5.15%, respectively. Except for the Amortizing Secured Notes
and Series U First Mortgage Bonds, which was repaid in 2009, all of the
Company’s outstanding long-term debt has been issued through the New Jersey
Economic Development Authority ($57.5 million), the New Jersey Environmental
Infrastructure Trust (NJEIT) program ($30.8 million) and the Delaware SRF
program ($6.4 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 KK and LL proceeds can only be used for the
2010 main cleaning and cement lining program.  All other bond issuance
balances in restricted cash are for debt service requirements.





Due to
expenditures being less than anticipated on our Series EE and FF NJEIT SRF loan
programs, in 2009, the NJEIT deobligated $1.4 million of principal payments on
those Series.  As a result of this transaction, long-term debt and
restricted cash decreased $1.4 million.





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, 2009.  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)2009
            
            
            2008
            
            
            2007Basic:
            
            Income
            
            
            Shares
            
            
            Income
            
            
            Shares
            
            
            Income
            
            
            SharesNet
      Income
            
            $
            9,977
            
            
            
            13,454
            
            
            $
            12,208
            
            
            
            13,317
            
            
            $
            11,843
            
            
            
            13,203Preferred
      Dividend
            
            
            (208
            )
            
            
            
            
            
            
            (218
            )
            
            
            
            
            
            
            (248
            )Earnings
      Applicable to Common Stock
            
            $
            9,769
            
            
            
            13,454
            
            
            $
            11,990
            
            
            
            13,317
            
            
            $
            11,595
            
            
            
            13,203Basic
      EPS
            
            $
            0.73
            
            
            
            
            
            
            $
            0.90
            
            
            
            
            
            
            $
            0.88Diluted:Earnings
      Applicable to Common Stock
            
            $
            9,769
            
            
            
            13,454
            
            
            $
            11,990
            
            
            
            13,317
            
            
            $
            11,595
            
            
            
            13,203$7.00
      Series Dividend
            
            
            97
            
            
            
            166
            
            
            
            97
            
            
            
            167
            
            
            
            97
            
            
            
            167$8.00
      Series Dividend
            
            
            56
            
            
            
            96
            
            
            
            66
            
            
            
            131
            
            
            
            96
            
            
            
            164Adjusted
      Earnings Applicable to Common Stock
            
            $
            9,922
            
            
            
            13,716
            
            
            $
            12,153
            
            
            
            13,615
            
            
            $
            11,788
            
            
            
            13,534Diluted
      EPS
            
            $
            0.72
            
            
            
            
            
            
            $
            0.89
            
            
            
            
            
            
            $
            0.87





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, trade receivables, accounts payable and
notes payable approximate their respective fair values due to the short-term
maturities of these instruments. The fair


50
 Index


value of
the Company’s long-term debt relating to First Mortgage and SRF bonds is based
on quoted market prices for similar issues.  The carrying amount and
fair market value of the Company’s bonds were as follows:





(Thousands
      of Dollars)At
      December 31,2009
            
            
            2008Carrying
            
            
            Fair
            
            
            Carrying
            
            
            FairAmount
            
            
            Value
            
            
            Amount
            
            
            ValueFirst
      Mortgage Bonds
            
            $
            87,230
            
            
            $
            84,429
            
            
            $
            105,290
            
            
            $
            95,171State
      Revolving Bonds
            
            $
            1,061
            
            
            $
            1,091
            
            
            $
            1,160
            
            
            $
            1,170





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 $40.3 million and $29.8 million at December 31, 2009 and 2008,
respectively. Customer advances for construction have a carrying amount of $20.8
million and $22.1 million at December 31, 2009 and 2008, 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
Benefits


The
Company’s Pension Plan 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
contribution, the eligible employee must be employed by the Company on December
31st of
the year to which the award relates. In addition, the Company maintains an
unfunded supplemental plan for its executive officers.  The
Accumulated Benefit Obligation for the Company’s Pension Plan at December 31,
2009 and 2008 was $30.8 million and $27.5 million, respectively.





Other
Benefits


The
Company’s Other Benefits Plan covers 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. 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 statement of Financial Accounting Standard
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 asset related to this transition obligation at
December 31, 2009 and 2008 was $0.3 million and $0.4 million,
respectively.





Regulatory
Treatment of Over/Underfunded Pension and Postretirement
Obligations


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 FASB ASC
Topic 980 Regulated
Operations. Based on prior regulatory practice, and in accordance with
the guidance in Topic 980, the Company records underfunded Pension Plan and
Other Benefits Plan obligations, which


51
 Index


otherwise
would be recognized as Other Comprehensive Income under Topic 715, Compensation
– Retirement Benefits, as a Regulatory Asset, and expects to recover those costs
in rates charged to customers.





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 2009 and 2008.





December
      31,(Thousands
      of Dollars)Pension
      Benefits
            
            
            Other
      Benefits2009
            
            
            2008
            
            
            2009
            
            
            2008Change
      in Projected Benefit Obligation:Beginning
      Balance
            
            $
            34,352
            
            
            $
            30,167
            
            
            $
            18,771
            
            
            $
            15,067Service
      Cost
            
            
            1,372
            
            
            
            1,248
            
            
            
            891
            
            
            
            775Interest
      Cost
            
            
            2,101
            
            
            
            1,950
            
            
            
            1,086
            
            
            
            1,010Actuarial
      Loss
            
            
            2,217
            
            
            
            2,637
            
            
            
            2,508
            
            
            
            2,420Benefits Paid
            
            
            (1,731
            )
            
            
            (1,650
            )
            
            
            (520
            )
            
            
            (501
            )Ending Balance
            
            $
            38,311
            
            
            $
            34,352
            
            
            $
            22,736
            
            
            $
            18,771Change
      in Fair Value of Plan Assets:Beginning
      Balance
            
            $
            20,036
            
            
            $
            24,568
            
            
            $
            7,239
            
            
            $
            7,025Actual
      Return on Plan Assets
            
            
            4,110
            
            
            
            (5,390
            )
            
            
            1,066
            
            
            
            (1,085
            )Employer
      Contributions
            
            
            2,883
            
            
            
            2,508
            
            
            
            1,895
            
            
            
            1,800Benefits Paid
            
            
            (1,731
            )
            
            
            (1,650
            )
            
            
            (520
            )
            
            
            (501
            )Ending Balance
            
            $
            25,298
            
            
            $
            20,036
            
            
            $
            9,680
            
            
            $
            7,239Funded
      Status
            
            $
            (13,013
            )
            
            $
            (14,316
            )
            
            $
            (13,056
            )
            
            $
            (11,532
            )Amounts
      Recognized in the Consolidated Balance Sheets consist of:Current
      Liability
            
            
            (346
            )
            
            
            (308
            )
            
            
            -
            
            
            
            -Noncurrent Liability
            
            
            (12,667
            )
            
            
            (14,008
            )
            
            
            (13,056
            )
            
            
            (11,532
            )Net Liability Recognized
            
            $
            (13,013
            )
            
            $
            (14,316
            )
            
            $
            (13,056
            )
            
            $
            (11,532
            )





Years
      Ended December 31,(Thousands
      of Dollars)Pension
      Benefits
            
            
            Other
      Benefits2009
            
            
            2008
            
            
            2007
            
            
            2009
            
            
            2008
            
            
            2007Components
      of Net Periodic Benefit CostService
      Cost
            
            $
            1,372
            
            
            $
            1,248
            
            
            $
            1,296
            
            
            $
            891
            
            
            $
            775
            
            
            $
            821Interest
      Cost
            
            
            2,101
            
            
            
            1,950
            
            
            
            1,807
            
            
            
            1,086
            
            
            
            1,010
            
            
            
            895Expected
      Return on Plan Assets
            
            
            (1,602
            )
            
            
            (1,938
            )
            
            
            (1,819
            )
            
            
            (595
            )
            
            
            (581
            )
            
            
            (481
            )Amortization
      of Net Transition Obligation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            135
            
            
            
            135
            
            
            
            135Amortization
      of Net Actuarial Loss
            
            
            615
            
            
            
            -
            
            
            
            75
            
            
            
            493
            
            
            
            287
            
            
            
            337Amortization of Prior Service
      Cost
            
            
            10
            
            
            
            10
            
            
            
            10
            
            
            
            -
            
            
            
            -
            
            
            
            -Net Periodic Benefit Cost
            
            $
            2,496
            
            
            $
            1,270
            
            
            $
            1,369
            
            
            $
            2,010
            
            
            $
            1,626
            
            
            $
            1,707


52
 Index


Amounts
that are expected to be amortized from Regulatory Assets into Net Periodic
Benefit Cost in 2010 are as follows:





(Thousands
      of Dollars)Pension
              Benefits
            
            
            Other
              BenefitsActuarial
      Loss
            
            $
            506
            
            
            $
            531Prior
      Service Cost
            
            
            10
            
            
            
            -Transition
      Obligation
            
            
            -
            
            
            
            135





The
discount rate and compensation increase rate for determining our postemployment
employee benefit plans’ benefit obligations and costs as of December 31, 2009,
2008 and 2007, respectively, are as follows:





Pension
            
            
            OtherBenefits
            
            
            Benefits2009
            
            
            2008
            
            
            2007
            
            
            2009
            
            
            2008
            
            
            2007Weighted
      Average Assumptions:Expected
      Return on Plan Assets
            
            
            8.00
            %
            
            
            8.00
            %
            
            
            8.00
            %
            
            
            7.50
            %
            
            
            7.50
            %
            
            
            7.50
            %Discount
      Rate for:Benefit
      Obligation
            
            
            5.95
            %
            
            
            6.17
            %
            
            
            6.59
            %
            
            
            5.95
            %
            
            
            6.12
            %
            
            
            6.59
            %Benefit
      Cost
            
            
            6.17
            %
            
            
            6.59
            %
            
            
            5.89
            %
            
            
            6.12
            %
            
            
            6.59
            %
            
            
            5.89
            %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.





For 2009,
costs and obligations for our Other Benefits Plan assumed a 9.0% annual rate of
increase in the per capita cost of covered healthcare benefits and assumed a
decline of 1.0% per year through 2012 and 0.5% per year through 2014, resulting
in an annual rate of increase in the per capita cost of covered healthcare
benefits of 5% by year 2014.





A
one-percentage point change in assumed healthcare cost trend rates would have
the following effects:





(Thousands
      of Dollars)1
      Percentage PointIncrease
            
            
            DecreaseEffect
      on Current Year’s Service and Interest Cost
            
            $
            419
            
            
            $
            (323
            )Effect
      on Projected Benefit Obligation
            
            $
            3,540
            
            
            $
            (2,833
            )


53
 Index


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





(Thousands
      of Dollars)Year
            
            Pension
      Benefits
            
            
            Other
      Benefits2010
            
            $
            1,748
            
            
            $
            6052011
            
            
            1,761
            
            
            
            6652012
            
            
            1,769
            
            
            
            7372013
            
            
            1,872
            
            
            
            8162014
            
            
            1,878
            
            
            
            9052015-2019
            
            
            10,265
            
            
            
            5,807Totals
            
            $
            19,293
            
            
            $
            9,535





Benefit
Plans Assets


The
allocation of plan assets at December 31, 2009 and 2008 by asset category is as
follows:





Pension Plan
            
            
            Other Benefits  PlanAsset Category
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            Target
            
            
            RangeEquity
      Securities
            
            
            59.2
            %
            
            
            49.5
            %
            
            
            40.4
            %
            
            
            25.7
            %
            
            
            60
            %
            
            
            30-65
            %Debt
      Securities
            
            
            36.4
            %
            
            
            47.0
            %
            
            
            49.5
            %
            
            
            59.6
            %
            
            
            38
            %
            
            
            25-70
            %Cash
            
            
            4.1
            %
            
            
            3.5
            %
            
            
            9.0
            %
            
            
            14.7
            %
            
            
            2
            %
            
            
            0-10
            %Commodities
            
            
            0.3
            %
            
            
            -
            %
            
            
            1.1
            %
            
            
            -
            %
            
            
            0
            %
            
            
            0
            %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 (2.7%
of total plan assets) and $0.7 million (3.4 % of total plan assets) at December
31, 2009 and 2008, respectively.





Fair
Value Measurements


Accounting
guidance provides a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value.  The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements).  The three levels of the
fair value hierarchy are described as follows:





·
            Level
      1 – Inputs to the valuation methodology are unadjusted quoted market
      prices for identical assets or liabilities in accessible active
      markets.


·
            Level
      2 – Inputs to the valuation methodology that are observable, either
      directly or indirectly, such as quoted prices for similar assets or
      liabilities; quoted prices in markets that are not active; or other inputs
      that are observable or can be corroborated by observable market data for
      substantially the full term of


54
 Index


the
assets or liabilities.  If the asset or liability has a specified
contractual term, the Level 2 input must be observable for substantially the
full term of the asset or liability.


·
            Level
      3- Inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.





Certain
investments in cash and cash equivalents, equity securities, and commodities are
valued based on quoted market prices in active markets and are classified as
Level 1 investments.  Certain investments in cash and cash
equivalents, equity securities and fixed income securities are valued using
prices received from pricing vendors that utilize observable inputs and are
therefore classified as Level 2 investments.





The
following table presents Middlesex’s pension plan and other benefits plan assets
measured and recorded at fair value within the fair value hierarchy as of
December 31, 2009:





(Thousands
      of Dollars)Level 1
            
            
            Level 2
            
            
            Level 3
            
            
            TotalPension
      Plan AssetsEquity
      Securities
            
            $
            10,515
            
            
            $
            4,467
            
            
            
            -
            
            
            $
            14,982Fixed
      Income Securities
            
            
            -
            
            
            
            9,198
            
            
            
            -
            
            
            
            9,198Cash
      and Cash Equivalents
            
            
            435
            
            
            
            598
            
            
            
            -
            
            
            
            1,033Commodities
            
            
            85
            
            
            
            -
            
            
            
            -
            
            
            
            85Total
            
            $
            11,035
            
            
            $
            14,263
            
            
            
            -
            
            
            $
            25,298Other
      Benefits Plan AssetsEquity
      Securities
            
            $
            3,913
            
            
            $
            -
            
            
            
            -
            
            
            $
            3,913Fixed
      Income Securities
            
            
            -
            
            
            
            4,792
            
            
            
            -
            
            
            
            4,792Cash
      and Cash Equivalents
            
            
            -
            
            
            
            873
            
            
            
            -
            
            
            
            873Commodities
            
            
            102
            
            
            
            -
            
            
            
            -
            
            
            
            102Total
            
            $
            4,015
            
            
            $
            5,665
            
            
            
            -
            
            
            $
            9,680





Benefit
Plans Contributions


For the
pension plan, Middlesex made total cash contributions of $2.9 million in 2009
and expects to make cash contributions of approximately $3.0 million in
2010.





For the
postretirement health benefit plan, Middlesex made total cash contributions of
$1.9 million in 2009 and expects to make contributions of approximately $2.0
million in 2010.





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 each of the years ended December 31, 2009
and 2008 and $0.4 million for the year ended December 31, 2007.





For those
employees hired after March 31, 2007 and still employed on December 31, 2009,
the Company approved and funded discretionary contribution of $0.1 million that
was based on 2.5% of eligible 2009 compensation.  For the years ended
December 31, 2008 and 2007, the Company made discretionary contributions of $0.1
million, respectively, for those employees hired after March 31,
2007.


55
 Index


Stock-Based
Compensation


The
Company has a stock compensation plan for its employees (the Employee Stock
Compensation Plan). The Company maintains an escrow account for 93,415 shares of
the Company's common stock for the Employee Stock Compensation 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. The maximum number of
shares authorized for grant under the 2008 Restricted Stock Plan is 300,000
shares, for which there remains 248,405 unissued shares.





The
Company recognizes compensation expense at fair value for the restricted stock
awards in accordance with FASB ASC
Topic 715, Compensation – Retirement Benefits.  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
              (thousands)
            
            
            Unearned Compensation
              (thousands)
            
            
            Weighted Average Grant
PriceBalance,
      January 1, 2007
            
            
            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
            
            
            $
            928Granted
            
            
            30
            
            
            
            448
            
            
            $
            15.11Vested
            
            
            (17
            )Forfeited
            
            
            (1
            )
            
            
            (6
            )Amortization of Compensation
      Expense
            
            
            
            
            
            
            (380
            )Balance, December 31, 2009
            
            
            93
            
            
            $
            990





The fair
value of vested restricted shares was $0.2 million for each of the years ended
December 31, 2009, December 31, 2008 and December 31, 2007.





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, Delaware and Pennsylvania. 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, Delaware and Pennsylvania with respect to utility service within
these


56
 Index


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.





(Thousands
      of Dollars)Years
      Ended December 31,Operations by Segments:
            
            2009
            
            
            2008
            
            
            2007Revenues:Regulated
            
            $
            80,910
            
            
            $
            81,118
            
            
            $
            77,113Non
      – Regulated
            
            
            10,857
            
            
            
            10,327
            
            
            
            9,392Inter-segment Elimination
            
            
            (524
            )
            
            
            (407
            )
            
            
            (391
            )Consolidated Revenues
            
            $
            91,243
            
            
            $
            91,038
            
            
            $
            86,114Operating
      Income:Regulated
            
            $
            18,117
            
            
            $
            22,132
            
            
            $
            21,351Non – Regulated
            
            
            2,044
            
            
            
            1,887
            
            
            
            1,320Consolidated Operating
    Income
            
            $
            20,161
            
            
            $
            24,019
            
            
            $
            22,671Depreciation:Regulated
            
            $
            8,401
            
            
            $
            7,798
            
            
            $
            7,408Non – Regulated
            
            
            158
            
            
            
            124
            
            
            
            131Consolidated
    Depreciation
            
            $
            8,559
            
            
            $
            7,922
            
            
            $
            7,539Other
      Income, Net:Regulated
            
            $
            1,565
            
            
            $
            1,077
            
            
            $
            1,643Non
      – Regulated
            
            
            337
            
            
            
            387
            
            
            
            -Inter-segment Elimination
            
            
            (176
            )
            
            
            (162
            )
            
            
            (116
            )Consolidated Other Income,
    Net
            
            $
            1,726
            
            
            $
            1,302
            
            
            $
            1,527Interest
      Expense:Regulated
            
            $
            6,733
            
            
            $
            6,981
            
            
            $
            6,619Non
      – Regulated
            
            
            193
            
            
            
            238
            
            
            
            116Inter-segment Elimination
            
            
            (176
            )
            
            
            (162
            )
            
            
            (116
            )Consolidated Interest
    Charges
            
            $
            6,750
            
            
            $
            7,057
            
            
            $
            6,619Net
      Income:Regulated
            
            $
            8,652
            
            
            $
            10,976
            
            
            $
            11,120Non – Regulated
            
            
            1,325
            
            
            
            1,232
            
            
            
            723Consolidated Net Income
            
            $
            9,977
            
            
            $
            12,208
            
            
            $
            11,843Capital
      Expenditures:Regulated
            
            $
            20,104
            
            
            $
            29,095
            
            
            $
            23,433Non – Regulated
            
            
            24
            
            
            
            1,241
            
            
            
            344Total Capital Expenditures
            
            $
            20,128
            
            
            $
            30,336
            
            
            $
            23,777





As
      of
              December
      31, 2009
            
            
            As
      of
              December
      31,2008Assets:Regulated
            
            $
            451,734
            
            
            $
            433,109Non
      – Regulated
            
            
            11,022
            
            
            
            11,537Inter-segment
      Elimination
            
            
            (4,670
            )
            
            
            (4,646
            )Consolidated
      Assets
            
            $
            458,086
            
            
            $
            440,000


57
 Index


Note
9 - Quarterly Operating Results - Unaudited





Operating
results for each quarter of 2009 and 2008 are as follows:





(Thousands
      of Dollars, Except per Share Data)2009
            
            1st
            
            
            2nd
            
            
            3rd
            
            
            4th
            
            
            TotalOperating
      Revenues
            
            $
            20,583
            
            
            $
            23,083
            
            
            $
            25,498
            
            
            $
            22,079
            
            
            $
            91,243Operating
      Income
            
            
            3,002
            
            
            
            5,547
            
            
            
            7,324
            
            
            
            4,288
            
            
            
            20,161Net
      Income
            
            
            1,361
            
            
            
            2,846
            
            
            
            4,027
            
            
            
            1,743
            
            
            
            9,977Basic
      Earnings per Share
            
            $
            0.10
            
            
            $
            0.21
            
            
            $
            0.30
            
            
            $
            0.12
            
            
            $
            0.73Diluted
      Earnings per Share
            
            $
            0.10
            
            
            $
            0.21
            
            
            $
            0.29
            
            
            $
            0.12
            
            
            $
            0.722008
            
            1st
            
            
            2nd
            
            
            3rd
            
            
            4th
            
            
            TotalOperating
      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
            
            
            $
            0.89





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.


58
 Index


Item9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.





None.





Item9A.
            Controls
      and Procedures





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





As
required by Rule 13a-15 under the Exchange Act, an evaluation of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures was conducted by the Company’s Chief Executive Officer along with
the Company’s Chief Financial Officer for the quarter ended December 31, 2009.
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, 2009. 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, 2009, 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, 2009 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 8,
2010


59
 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, 2009, based on criteria established in
Internal Control—Integrated Framework issued 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, 2009, 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 and the related
statements of income, common stockholders’ equity and comprehensive income, and
cash flows of Middlesex Water Company, and our report dated March 8, 2010
expressed an unqualified opinion.





/s/
      ParenteBeard LLCReading,
      PennsylvaniaMarch
      8 2010


60
 Index


Item9B.
            Other
      Information.





None.




61
 Index





PARTIII





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 2010 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.





Item11.
            Executive
      Compensation.





This
Information for Middlesex Water Company is included in Middlesex Water Company’s
Proxy Statement for the 2010 Annual Meeting of Stockholders and is incorporated
herein by reference.





Item12.
            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 2010 Annual Meeting of Stockholders and is incorporated
herein by reference.





Item13.
            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 2010 Annual Meeting of Stockholders and is incorporated
herein by reference.





Item14.
            Principal
      Accounting Fees and Services.





This
information for Middlesex Water Company is included in Middlesex Water Company’s
Proxy Statement for the 2010 Annual Meeting of Stockholders and is incorporated
herein by reference.





PARTIV





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, 2009 and 2008.





Consolidated
Statements of Income for each of the three years in the period ended December
31, 2009.


Consolidated
Statements of Cash Flows for each of the three years in the period ended
December 31, 2009.





Consolidated
Statements of Capital Stock and Long-term Debt at December 31, 2009 and
2008.





Consolidated
Statements of Common Stockholders’ Equity and Comprehensive Income for each of
the three years in the period ended December 31, 2009.






62
 Index








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.


63
 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 COMPANY





By:
            /s/ Dennis W. DollDennis
      W. DollPresident,
      Chief Executive Officer and
Director





Date:  March
8, 2010





Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has
been signed below by the following persons, on behalf of the registrant and in
the capacities on March 8, 2010.





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/ Steven M. KleinSteven
      M. KleinDirectorBy:
            /s/ John R. Middleton, M.D.John
      R. Middleton, M.D.DirectorBy:
            /s/ John P. MulkerinJohn
      P. MulkerinDirectorBy:
            /s/ Walter G. ReinhardWalter
      G. ReinhardDirectorBy:
            /s/ Jeffries SheinJeffries SheinDirector


64
 Index


EXHIBITINDEX





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)10.1
            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


65
 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 of September 25, 2003, between the
      Company and the New Jersey Water Supply Authority, filed as Exhibit No.
      10.7 of 2003 Form 10-K.10.8
            Copy
      of Treating and Pumping Agreement, dated April 9, 1984, between the
      Company and the Township of East Brunswick.
            33-31476
            10.1710.9
            Copy
      of Supply Agreement, dated June 4, 1990, between the Company and Edison
      Township.
            33-54922
            10.2410.10
            Copy
      of amended Supply Agreement, between the Company and the Borough of
      Highland Park, filed as Exhibit No. 10.1 of 2006 First Quarter Form
      10-Q.(t)10.11
            Copy
      of Supplemental Executive Retirement Plan, filed as Exhibit 10.13 of 1999
      Third Quarter Form 10-Q.(t)10.12(a)
            Copy
      of 2008 Restricted Stock Plan, filed as Appendix A to the Company’s
      Definitive Proxy Statement, dated and filed April 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 filed April 11,
      2008.(t)10.13(a)
            Change
      in Control Termination Agreement between Middlesex Water Company and
      Dennis W. Doll), filed as Exhibit 10.13(a) of the 2008 Form
      10-K.(t)10.13(b)
            Change
      in Control Termination Agreement between Middlesex Water Company and A.
      Bruce O’Connor), filed as Exhibit 10.13(b) of the 2008 Form
      10-K.(t)10.13(c)
            Change
      in Control Termination Agreement between Middlesex Water Company and
      Ronald F. Williams), filed as Exhibit 10.13(c) of the 2008 Form
      10-K.(t)10.13(d)
            Change
      in Control Termination Agreement between Middlesex Water Company and
      Richard M. Risoldi), filed as Exhibit 10.13(d) of the 2008 Form
      10-K.(t)10.13(e)
            Change
      in Control Termination Agreement between Middlesex Water Company and
      Kenneth J. Quinn), filed as Exhibit 10.13(e) of the 2008 Form
      10-K.(t)10.13(f)
            Change
      in Control Termination Agreement between Middlesex Water Company and James
      P. Garrett), filed as Exhibit 10.13(f) of the 2008 Form
    10-K.(t)10.13(g)
            Change
      in Control Termination Agreement between Tidewater Utilities, Inc. and
      Gerard L. Esposito), filed as Exhibit 10.13(g) of the 2008 Form
      10-K.


66
 Index


EXHIBIT
INDEX




Exhibit
      No.
            Document
      Description
            Previous
              Registration
              No.
            Filing’s
              Exhibit
              No.(t)10.13(h)
            Change
      in Control Termination Agreement between Middlesex Water Company and
      Bernadette M. Sohler), filed as Exhibit 10.13(h) of the 2008 Form
      10-K.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 Environmental
      Infrastructure Trust 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.


67
 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.10.28
            Copy
      of Promissory Notes and Amendment to Combination Water Utility Real Estate
      Mortgage and Security Agreement, by Tidewater Utilities, Inc., Dated March
      19, 2009, filed as Exhibit No. 10.28 of the 2009 First Quarter Form
      10-Q.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.


68
 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),  filed as Exhibit 10.34 of the 2008 Form
    10-K.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)
      ),  filed as Exhibit 10.35 of the 2008 Form
10-K.10.36
            Registration
      Statement, Form S-3, under Securities Act of 1933 filed July 23, 2009,
      relating to the Dividend Reinvestment and Common Stock Purchase
      Plan.
            333-160757*.21
            Middlesex
      Water Company Subsidiaries.*23.1
            Consent
      of Independent Registered Public Accounting Firm, ParenteBeard
      LLC.*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.







69