Edgar Filing: MIDDLESEX WATER CO

form10k-105753_msx.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2009

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 þ No ¨

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 13,556,579 shares 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.

MIDDLESEX WATER COMPANY

FORM 10-K

INDEX

		PAGE
Forward-Looking Statements		1

PART I		2
Item 1.	Business:	2
	Overview	2
	Financial Information	4
	Water Supplies and Contracts	4
	Employees	6
	Competition	6
	Regulation	6
	Seasonality	8
	Management	8
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	14
Item 2.	Properties	14
Item 3.	Legal Proceedings	16
Item 4.	Reserved	16

PART II		17
Item 5.	Market for the Registrant's Common Equity, Related Stockholder
	Matters and Issuer Purchases of Equity Securities.	17
Item 6.	Selected Financial Data	19
Item 7.	Management's Discussion and Analysis of
	Financial Condition and Results of Operations	19
Item 7A.	Qualitative and Quantitative Disclosure About Market Risk	32
Item 8.	Financial Statements and Supplementary Data	33
Item 9.	Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure	59
Item 9A.	Controls and Procedures	59
Item 9B.	Other Information	61

PART III		62
Item 10.	Directors, Executive Officers and Corporate Governance	62
Item 11.	Executive Compensation	62
Item 12.	Security Ownership of Certain Beneficial Owners	62
	and Management and Related Stockholder Matters	62
Item 13.	Certain Relationships and Related Transactions, and	62
	Director Independence	62
Item 14.	Principal Accountant Fees and Services	62
PART IV		62
Item 15.	Exhibits and Financial Statement Schedules	62

Signatures		64
Exhibit 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

PART I

Item 1.

Business.

Overview

Middlesex Water Company (“Middlesex”) was incorporated as a water utility company in 1897 and owns and operates regulated water utility and wastewater systems in New Jersey, 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.

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.

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		2007
Operating Revenues	$	91,243	$	91,038	$	86,114
Operating Income	$	20,161	$	24,019	$	22,671
Net Income	$	9,977	$	12,208	$	11,843

Operating revenues were earned from the following sources:

	Years Ended December 31,
	2009			2008			2007

Residential		44.9	%		45.1	%		45.0	%
Commercial		9.4			9.6			9.7
Industrial		9.0			9.3			9.9
Fire Protection		10.5			10.4			10.3
Contract Sales		13.1			13.1			12.5
Contract Operations		10.9			10.5			10.3
Other		2.2			2.0			2.3
Total		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.

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.

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.

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

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 Officer
A. Bruce O’Connor	51	Vice President and Chief Financial Officer
Richard M. Risoldi	53	Vice President-Operations and Chief Operating Officer
Kenneth J. Quinn	62	Vice President-General Counsel, Secretary and Treasurer
James P. Garrett	63	Vice President–Human Resources
Bernadette M. Sohler	49	Vice President-Corporate Affairs
Gerard 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

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.

Index

Item 1A.

Risk Factors.

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

The 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

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

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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

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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.

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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.

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

Utility Plant

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

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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.

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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.

Item 3.

Legal Proceedings.

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

Item 4.

Reserved.

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PART II

Item 5.

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

The Company’s common stock is traded on the NASDAQ Stock Market, 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		Dividend

Fourth Quarter	$	17.91	$	14.74	$	0.1800
Third Quarter	$	15.89	$	13.62	$	0.1775
Second Quarter	$	15.29	$	12.61	$	0.1775
First Quarter	$	17.71	$	11.64	$	0.1775

2008	High		Low		Dividend

Fourth Quarter	$	17.93	$	12.05	$	0.1775
Third Quarter	$	18.52	$	15.68	$	0.1750
Second Quarter	$	19.23	$	16.59	$	0.1750
First 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

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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		2009
Middlesex Water Company		100.00		94.80		106.20		110.40		104.40		111.90
Dow Jones Wilshire 5000		100.00		106.90		123.20		130.10		81.60		105.00
Peer Group		100.00		130.50		130.90		125.80		120.30		120.60

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Item 6.

Selected Financial Data.

CONSOLIDATED SELECTED FINANCIAL DATA
(Thousands Except per Share Data)

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

Item 7.

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

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

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

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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.

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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						2008
	Regulated		Non-Regulated		Total		Regulated		Non-Regulated		Total
Revenues	$	80.6	$	10.6	$	91.2	$	81.1	$	9.9	$	91.0
Operations and maintenance		44.2		8.1		52.3		41.2		7.7		48.9
Depreciation		8.4		0.1		8.5		7.8		0.1		7.9
Other taxes		9.9		0.3		10.2		10.0		0.2		10.2
Operating income	$	18.1	$	2.1	$	20.2	$	22.1	$	1.9	$	24.0

Other income, net		1.4		0.3		1.7		0.9		0.4		1.3
Interest expense		6.5		0.2		6.7		7.0		0.1		7.1
Income taxes		4.3		0.9		5.2		5.0		1.0		6.0
Net 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

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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.

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.

Index

Results of Operations in 2008 Compared to 2007

	(Millions of Dollars)
	Years ended December 31,
			2008						2007
	Regulated		Non-Regulated		Total		Regulated		Non-Regulated		Total
Revenues	$	81.1	$	9.9	$	91.0	$	77.1	$	9.0	$	86.1
Operations and maintenance		41.2		7.7		48.9		38.8		7.4		46.2
Depreciation		7.8		0.1		7.9		7.4		0.1		7.5
Other taxes		10.0		0.2		10.2		9.5		0.2		9.7
Operating income	$	22.1	$	1.9	$	24.0	$	21.4	$	1.3	$	22.7

Other income (expense)		0.9		0.4		1.3		1.5		-		1.5
Interest expense		7.0		0.1		7.1		6.6		-		6.6
Income taxes		5.0		1.0		6.0		5.2		0.6		5.8
Net 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.

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.

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.

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

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.

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 Years

Long-term Debt	$	128.6	$	3.7	$	8.1	$	8.3	$	108.5
Notes Payable		42.9		42.9		-		-		-
Interest on Long-term Debt		95.0		6.2		12.0		11.3		65.5
Purchased Water Contracts		37.1		5.0		5.3		4.9		21.9
Wastewater Operations		43.4		4.3		9.0		9.5		20.6
Employee 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.

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

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 Plan
Asset Category	2009			2008			2009			2008			Target			Range
Equity 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 Plan
Discount 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	Estimated Increase/ (Decrease) on PBO (000s)	Estimated Increase/ (Decrease) on Expense (000s)
Discount Rate 1% Increase	(4,833)	(482)
Discount Rate 1% Decrease	6,025	608

Index

Other Benefits Plan

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

Item 7A.

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.

Index

Item 8.

Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Middlesex Water Company

We have audited the accompanying consolidated balance sheets and consolidated statements of capital stock and long-term debt of Middlesex Water Company and subsidiaries (the “Company”) as of December 31, 2009 and 2008, 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 LLC

Reading, Pennsylvania

March 8, 2010

Index

MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
		December 31,		December 31,
ASSETS		2009		2008
UTILITY PLANT:	Water Production	$	113,124	$	107,517
	Transmission and Distribution		293,269		283,759
	General		29,631		27,142
	Construction Work in Progress		17,547		11,653
	TOTAL		453,571		430,071
	Less Accumulated Depreciation		77,027		70,544
	UTILITY PLANT - NET		376,544		359,527

CURRENT ASSETS:	Cash and Cash Equivalents		4,278		3,288
	Accounts Receivable, net		10,616		9,510
	Unbilled Revenues		4,424		4,822
	Materials and Supplies (at average cost)		1,618		1,475
	Prepayments		1,109		1,481
	TOTAL CURRENT ASSETS		22,045		20,576

DEFERRED CHARGES	Unamortized Debt Expense		2,856		2,903
AND OTHER ASSETS:	Preliminary Survey and Investigation Charges		6,999		7,187
	Regulatory Assets		33,081		31,910
	Operations Contracts Fees Receivable		3,715		3,708
	Restricted Cash		5,266		7,049
	Non-utility Assets - Net		7,134		6,762
	Other		446		378
	TOTAL DEFERRED CHARGES AND OTHER ASSETS		59,497		59,897
	TOTAL ASSETS	$	458,086	$	440,000

CAPITALIZATION AND LIABILITIES
CAPITALIZATION:	Common Stock, No Par Value	$	109,366	$	107,726
	Retained Earnings		30,265		30,077
	TOTAL COMMON EQUITY		139,631		137,803
	Preferred Stock		3,373		3,375
	Long-term Debt		124,910		118,217
	TOTAL CAPITALIZATION		267,914		259,395

CURRENT	Current Portion of Long-term Debt		3,710		17,985
LIABILITIES:	Notes Payable		42,850		25,877
	Accounts Payable		4,348		5,689
	Accrued Taxes		5,686		7,781
	Accrued Interest		1,861		2,053
	Unearned Revenues and Advanced Service Fees		861		842
	Other		1,352		1,243
	TOTAL CURRENT LIABILITIES		60,668		61,470

COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)

DEFERRED CREDITS	Customer Advances for Construction		20,806		22,089
AND OTHER LIABILITIES:	Accumulated Deferred Investment Tax Credits		1,303		1,382
	Accumulated Deferred Income Taxes		27,788		21,733
	Employee Benefit Plans		25,723		25,540
	Regulatory Liability - Cost of Utility Plant Removal		6,738		6,197
	Other		275		963
	TOTAL DEFERRED CREDITS AND OTHER LIABILITIES		82,633		77,904

CONTRIBUTIONS IN AID OF CONSTRUCTION			46,871		41,231
	TOTAL CAPITALIZATION AND LIABILITIES	$	458,086	$	440,000

See Notes to Consolidated Financial Statements.

Index

MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)

	Years Ended December 31,
	2009			2008			2007

Operating Revenues	$	91,243		$	91,038		$	86,114

Operating Expenses:
Operations		47,770			44,782			42,117
Maintenance		4,578			4,147			4,123
Depreciation		8,559			7,922			7,539
Other Taxes		10,175			10,168			9,664

Total Operating Expenses		71,082			67,019			63,443

Operating Income		20,161			24,019			22,671

Other Income (Expense):
Allowance for Funds Used During Construction		1,001			667			537
Other Income		1,011			906			1,153
Other Expense		(286	)		(271	)		(163	)

Total Other Income, net		1,726			1,302			1,527

Interest Charges		6,750			7,057			6,619

Income before Income Taxes		15,137			18,264			17,579

Income Taxes		5,160			6,056			5,736

Net Income		9,977			12,208			11,843

Preferred Stock Dividend Requirements		208			218			248

Earnings Applicable to Common Stock	$	9,769		$	11,990		$	11,595

Earnings per share of Common Stock:
Basic	$	0.73		$	0.90		$	0.88
Diluted	$	0.72		$	0.89		$	0.87

Average Number of
Common Shares Outstanding :
Basic		13,454			13,317			13,203
Diluted		13,716			13,615			13,534

Cash Dividends Paid per Common Share	$	0.713		$	0.703		$	0.693

See Notes to Consolidated Financial Statements.

Index

MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


	Years Ended December 31,
	2009			2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	9,977		$	12,208		$	11,843
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization		9,217			8,530			8,176
Provision for Deferred Income Taxes and ITC		5,522			1,032			399
Equity 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			273
Changes in Assets and Liabilities:
Accounts Receivable		(1,112	)		(807	)		(2,752	)
Unbilled Revenues		398			(213	)		(596	)
Materials & Supplies		(143	)		(270	)		101
Prepayments		372			(118	)		(134	)
Other Assets		(564	)		(351	)		(9	)
Accounts Payable		(1,341	)		147			986
Accrued Taxes		(2,096	)		206			941
Accrued Interest		(192	)		137			36
Employee Benefit Plans		(354	)		(1,146	)		239
Unearned Revenue & Advanced Service Fees		19			84			157
Other Liabilities