The following discussion should be read in conjunction with the accompanying unaudited financial statements and related notes thereto and the audited financial statements and the notes thereto contained in our 2008 Annual Report on Form 10-K.

Regulatory Matters and Inflation

During the three months ended March 31, 2009, there were no material changes under this subheading to any items previously disclosed by the Company in its Annual Report on Form 10-K for the period ended December 31, 2008.

In July 2006, the Company filed a rate application with the Department of Utility Control (DPUC) for Connecticut Water requesting an increase in rates of approximately $14.6 million, or 30%. On January 16, 2007, the DPUC issued its final decision and approved a Settlement Agreement, negotiated with the Office of Consumer Counsel and the DPUC's Prosecutorial Staff; that allowed Connecticut Water an increase in revenues of approximately $10,940,000, or 22.3%. The Settlement Agreement allowed Connecticut Water to defer a portion of the approved rate increase, approximately $3.8 million through December 31, 2007 and $4.8 million through March 31, 2008. The Company recognized that increase through recording deferred revenues and a corresponding regulatory asset, as required by the decision. On January 31, 2008, the Company filed to reopen the case, a procedure required by the Settlement Agreement, to implement the second phase. In addition to the approval for the inclusion in current rates of the previously approved deferred revenues of $4.8 million, the filing includes requested recovery and a return on $15.5 million of additional capital investments made in 2007. On March 28, 2008 an 11.95% increase was approved. The approved rates became effective on April 1, 2008.

On July 23, 2008, the Company announced that it had reached a definitive agreement with Ellington Acres Company (Ellington Acres) to purchase all of Ellington Acres' outstanding stock for approximately $1.5 million. Ellington Acres is a regulated water company serving approximately 750 customers in Ellington and Somers, Connecticut, situated between two systems in the Company's Northern Region that the Company had planned to interconnect. The Company will be able to interconnect the two systems with Ellington Acres, saving the ratepayers of Connecticut Water and Ellington Acres significant capital expenditures. The DPUC approved the acquisition in December 2008 and the Company completed the transaction on January 16, 2009. The $1.5 million purchase price has been preliminarily allocated to amortizable intangible plant, on the Utility Plant line on the Balance Sheet, at March 31, 2009. The Company has not completed its purchase price allocation at this time.

On October 10, 2008, the Company filed its Infrastructure Assessment Report (IAR) under the Water Infrastructure and Conservation Adjustment (WICA) Act which was passed into law in 2007. WICA allows the Company to add a surcharge to customers' bills, subject to an expedited review and approval by the DPUC, to reflect the costs of replacement of certain types of aging utility plant. The purpose of the IAR is to clearly define the criteria for determining the priority of future replacement projects. The first public hearing on the Company's IAR took place on January 16, 2009. The Company received approval of its IAR from the DPUC on March 26, 2009. The Company filed for a 1% surcharge under the WICA mechanism on April 24, 2009. The surcharges can be placed on customers' bills at the start of a calendar quarter following approval. If approved as filed, the surcharge will be effective starting July 1, 2009.

In 2008, the Company entered into negotiations with the Town of Windsor Locks, Connecticut and ultimately agreed to sell a conservation easement on a well field property no longer needed as a source of supply for $2.0 million. Windsor Locks was awarded a grant from the Connecticut Department of Environmental Protection to assist in purchasing the conservation easement in order to permanently protect the approximate 200-acre property from development and guarantee public access to the land for passive recreation. The Company filed an application with the DPUC and submitted the draft agreement and the form of Conservation Easement to the DPUC on April 3, 2009. DPUC approval is expected in the second half of 2009. The Purchase and Sale Agreement between the Company and the Town was executed on May 7, 2009. Subject to successful receipt of DPUC approval, and of final authorization for the Town to proceed with the transaction, the Company expects the transaction to be completed in 2009. If the transaction closes, the Company estimates that it will generate approximately $1 million in net income in the Real Estate segment. The Company currently has no other specific plans for land transactions in 2009 and beyond.

On April 30, 2009, the Company filed with the DPUC an agreement negotiated by and between the Company and the Office of Consumer Counsel, Connecticut's consumer advocate, to accomplish three goals: First, a request to equalize depreciation rates across divisions, which would lower depreciation expense, resulting in a temporary 1.81% reduction of rates for all Connecticut Water customers, effective July 1 through December 31, 2009; Secondly, an increase in allowed Operation and Maintenance expense equal to the 1.81% of the Company's previously allowed revenue requirements, effective January 1, 2010; Finally, an extension of the "stay out" period such that Connecticut Water will not file a new general rate adjustment seeking new rates to take effect any sooner than July 1, 2010. The net effect of these three items is a temporary rate reduction of 1.81%, off-set by a reduction in Depreciation Expense, for the last six months of 2009, at which time the Company's rates will revert to their present levels, and a delay of at least six months in Connecticut Water's next general rate filing.

Critical Accounting Policies and Estimates

The Company maintains its accounting records in accordance with accounting principles generally accepted in the United States of America and as directed by the DPUC to which Connecticut Water, the Company's regulated water utility subsidiary, is subject. Significant accounting policies employed by the Company, including the use of estimates, were presented in the Notes to Consolidated Financial Statements of the Company's Annual Report on Form 10-K.

Critical accounting policies are those that are the most important to the presentation of the Company's financial condition and results of operations. The application of such accounting policies requires management's most difficult, subjective, and complex judgments and involves uncertainties and assumptions. The Company's most critical accounting policies pertain to public utility regulation related to Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulations" (SFAS 71), revenue recognition, and pension plan accounting. Each of these accounting policies and the application of critical accounting policies and estimates was discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2008. There were no significant changes in the application of critical accounting policies or estimates during the first three months of 2009. Please see Note 4 of the financial statements for newly adopted and recently announced accounting standards.

Management must use informed judgments and best estimates to properly apply these critical accounting policies. Because of the uncertainty in these estimates, actual results could differ from estimates used in applying the critical accounting policies. The Company is not aware of any reasonably likely events or circumstances which would result in different amounts being reported that would materially affect its financial condition or results of operations.

Outlook

The following modifies and updates the "Outlook" section of the Company's 2008 Annual Report on Form 10-K filed on March 13, 2009.

The Company's earnings and profitability are primarily dependent upon the sale and distribution of water, the amount of which is dependent on seasonal weather fluctuations, particularly during the summer months when water demand will vary with rainfall and temperature levels. The Company's earnings and profitability in future years will also depend upon a number of other factors, such as the ability to maintain our operating costs at or near historical levels, customer growth in the Company's core regulated water utility business, additional growth in revenues attributable to non-water sales operations, and the timing and adequacy of rate relief when requested, from time to time, by our regulated water company. The Company experienced greater decline in residential customer usage in the first quarter of 2009 when compared to prior periods. The approximate 3.4% decline in year over year consumption was greater than a trend that the Company has noted over the past five years. The 2009 decline was larger than experienced over the past five years of 2%. The Company will continue to monitor this sales trend.

The Company believes that these factors and those described in detail in Item 1A
- Risk Factors and in "Commitments and Contingencies" in Item 7 of its Annual Report on Form 10-K may have significant impact, either alone or in the aggregate, on the Company's earnings and profitability in fiscal years 2009 and beyond. Please also review carefully the risks and uncertainties described below under the heading "Forward-Looking Information."

Based on the Company's current projections, assuming normal weather patterns and appropriate regulatory treatment on recovery of infrastructure improvement, and the completion of the Windsor Locks land sale, the Company believes that its Net Income for the year 2009 will increase from the levels reported for 2008. During 2009 and subsequent years, the ability of the Company to maintain and increase its Net Income will principally depend upon the effect on the Company of the factors described above in this "Outlook" section, those factors described in the sections entitled Item 1A - Risk Factor, "Commitments and Contingencies" in Item 7 of the Company's Annual Report on Form 10-K and the risks and uncertainties described in "Forward-Looking Information" sections below.

Liquidity and Capital Resources

The Company is not aware of demands, events, or uncertainties that will result in a decrease of liquidity or a material change in the mix or relative cost of its capital resources.

The Company has three variable rate bonds with principal values totaling $22.05 million. They are secured by irrevocable direct pay letters of credit issued by a financial institution. These bonds are currently remarketed on a weekly basis. On October 7, 2008, the Company was notified that there was a combined remarketing failure of $2.6 million on two of these bonds. The increased volatility of the credit markets during 2008 was the primary cause of the remarketing failure.

As a result of the remarketing failure, the remarketing agent drew upon the letters of credit issued by the financial institution in the amount of $2.6 million. These loan amounts were subject to interest rates at 5.09%, which were 100 basis points over the one-month LIBOR rate. In addition, the letters of credit were reduced by the amounts of these loans, until such time as the bonds could be successfully remarketed. As of the date of filing of this Form 10-Q, these bonds have been, and continue to be, successfully remarketed.

The Company currently maintains an aggregate of $21 million in lines of credit with three banks. The largest line, representing $12 million of our total available line of credit, was renewed in the fourth quarter of 2007 and is due upon demand from the bank. The other two lines of credit have terms of 12 and 24 months, respectively. Interim Bank Loans Payable at March 31, 2009 were approximately $16.2 million and represents the outstanding balance on these lines of credit. Interest expense charged on interim bank loans will fluctuate based on market interest rates. After defining the Company's expected 2009 capital expenditures, described below, the Company determined that additional access to short term capital arrangements may be needed. In November 2008, the Company was authorized by the Board of Directors to increase the available lines of credit to $40 million. The Company expects to finalize the increased lines in the second quarter of 2009.

The Board of Directors has approved a $26.4 million construction budget for 2009, net of amounts to be financed by customer advances and contributions in aid of construction. The Company will use a combination of its internally generated funds, borrowing under its available lines of credit, and, depending on capital market conditions, a long term debt issuance. The Company anticipates utilization of private activity bonds issued through the Connecticut Development Authority, for long term debt issuance in 2009 and beyond, as approved by the Board of Directors.

Standard and Poor's, on March 13, 2009, affirmed their 'A' corporate credit rating on the Company with a stable outlook. The affirmation of the corporate credit rating follows their annual review of the Company and incorporates their expectation of adequate and timely rate relief and maintenance of our current financial risk profile. The stable outlook reflects improving regulation and timely rate relief in Connecticut.

The Company offers a dividend reinvestment plan (DRIP) to all registered shareholders, whereby shareholders can opt to have dividends directly reinvested into additional shares of the Company. During the three months ended March 31, 2009 and 2008, shareholders reinvested $242,000 and $245,000, respectively, as part of the DRIP.

From 1999 through 2003, the Company issued stock options to certain employees of the Company. No stock options have been issued by the Company since 2003. During the three months ended March 31, 2009 and March 31, 2008, no stock options were exercised.

                Connecticut Water Service, Inc. and Subsidiaries

Results of Operations

Three Months Ended March 31
Net Income for the three months ended March 31, 2009 decreased from that of the
prior year by $561,000, which decreased earnings per basic and diluted average
common share by $0.07, to $0.13.

This decrease in Net Income is broken down by business segment as follows:

                 Business Segment                     March 31, 2009       March 31, 2008       Increase/(Decrease)
Water Activities                                     $        935,000     $      1,515,000     $            (580,000 )
Real Estate Transactions                                           --                   --                        --
Services and Rentals                                          209,000              190,000                    19,000
Total                                                $      1,144,000     $      1,705,000     $            (561,000 )

The decrease in the Water Activity segment's Net Income was primarily due to the net effects of variances listed below:

Revenue

Revenue from our water customers declined by $188,000 or 1.4% to $13,381,000 for the three months ended March 31, 2009 when compared to the same period in 2008. Reasons for this decline in revenue are detailed below:

The Company experienced a decline in metered consumption in the first quarter of 2009 of approximately 1.8% for all customer classes and approximately 3.4% per day per residential customer. The Company has experienced declining usage per day, on a weather adjusted basis, over the past five years.

In addition to the usage decline, the implementation of the Company's second phase of its general rate case on April 1, 2008 led to a timing difference resulting from the equal 15-month accrual of deferred revenue from January 1, 2007 to March 31, 2008. On January 16, 2007, the DPUC issued a decision and approved a Settlement Agreement; negotiated with the Office of Consumer Counsel and the DPUC's Prosecutorial Staff associated with the Company's last general rate filing in 2006. The Settlement Agreement allowed an increase of revenues of approximately $10.94 million, or 22.3%. A unique aspect of the decision was the provision that the Company only increase customer bills by approximately $7.1 million, or two-thirds of the approved rate increase on January 1, 2007, while recognizing the remaining one-third as deferred revenue that would not be reflected on customer bills until April 1, 2008. The Company recognized the $3.8 million of deferred revenue in 2007 and an additional $956,000 in the first quarter of 2008 ratably throughout the fifteen month period called for in the Settlement Agreement. Beginning April 1, 2008, the Company began to bill customers for those revenues that were deferred during the 15 month period January 1, 2007 through March 31, 2008. Those revenues will be collected from customers over a 20 year period. In addition on April 1, 2008 the Company ended its deferral of those revenues and included the approximate $7.1 million of annual revenues on customer bills for the current period. The final component of the Settlement Agreement allowed the Company to begin collection of its capital investment that had occurred from January 1, 2007 through December 31, 2007. That component, approximately 4.5%, or $2.7 million annually also was included on customer bills beginning on April 1, 2008.

The declining usage combined with the expected mismatch between the revenue deferral in 2008 versus actual billing in 2009, more than offset the incremental 4.5% increase in customer rates in 2009 and resulted in a $188,000 decline in quarterly revenues between years.

As noted in the Regulatory Matters and Inflation section above, the Company expects to add a surcharge to customers' bills as a result of the WICA filing. This surcharge, expected in the third quarter, may be partially off-set by the application filed with the DPUC on April 30, 2009 to reduce customers' rates in connection with the equalization of depreciation.

                Connecticut Water Service, Inc. and Subsidiaries

-  Operation and Maintenance expense increased by $1,002,000 primarily due to the
   following components:



                Expense Components                    March 31, 2009       March 31, 2008       Increase/(Decrease)
Labor                                                $      3,010,000     $      2,755,000     $             255,000
Purchased water                                               222,000               22,000                   200,000
Outside services                                              521,000              325,000                   196,000
Water treatment (including chemical costs)                    534,000              402,000                   132,000
Maintenance                                                   394,000              287,000                   107,000
Utility costs                                                 949,000              858,000                    91,000
Vehicles                                                      345,000              290,000                    55,000
Property and liability insurance                              266,000              231,000                    35,000
Employee benefit costs                                      1,281,000            1,310,000                   (29,000 )
Regulatory commission expense                                  62,000               93,000                   (31,000 )
Other                                                         616,000              625,000                    (9,000 )
Total                                                $      8,200,000     $      7,198,000     $           1,002,000

- Labor costs increased in 2009 by approximately $255,000 due to an increase in employees, increased maintenance and repair work in both our Northern and Southern Regions, and regular wage increases effective as of April 1, 2008. Purchased water expense increased primarily due to a negotiated reduction of bills related to 2007 consumption that the Company realized as a reduction of expense in the first quarter of 2008. During 2009, the Company was billed for water as it was purchased from neighboring utilities at the negotiated rates. Outside services increased over prior years primarily due to increased legal expense, primarily due to work on regulatory matters, acquisitions and the 19 Perry Street issue described below in "Commitments and Contingencies." Water treatment costs increased primarily due to an increase in the cost of key chemicals, despite a decrease in production when compared to prior year. Maintenance expense increased over the prior year due to increased main break costs in our Northern and Mansfield divisions and hydrant painting. Utility costs increased over the prior year, primarily due to higher costs for power and communication systems, partially off-set by lower fuel oil costs. Employee benefits costs decreased due to a reduction in post-retirement medical costs associated with the Company's health and welfare plan, partially offset by pension cost increases.

- The Company saw a slight increase in its Depreciation expense due to increased Utility Plant balances.

- Income Tax expense associated with Water Activities decreased significantly due to the fixed capital tax credit for the State of Connecticut and the effect of the expected 2009 plan year pension contribution, which is larger than the 2009 pension expense.

Commitments and Contingencies

There were no material changes under this subheading to any of the other items previously disclosed by the Company in its Annual Report on Form 10-K for the period ended December 31, 2008.

19 Perry Street Litigation - Connecticut Water's Unionville division has for many years operated a well field located at 19 Perry Street, Farmington, Connecticut, pursuant to a 99-year lease entered into in 1975 with the property owner. This well field provides approximately half of the daily water supply requirements to the customers of the Unionville division. In 2004, the original property owner ceased business operations. The property is now owned by 19 Perry Street, LLC, which obtained the property through a foreclosure proceeding. In June 2007, the new owner commenced a lawsuit in Hartford Superior Court (Housing Section), asserting that Connecticut Water is in unlawful possession of the property under several theories, including that the lease is invalid and that Connecticut Water has failed to pay rent when due. A trial before a judge was held in November 2007, and a decision was issued on April 30, 2008. In its decision, the Court ruled that the lease is valid. However, in deciding the parties' contentions regarding the proper form and amount of rental payments due, the Court ruled that Connecticut Water was in breach of its obligation to pay rent on the property and therefore entered an order of eviction.

On May 5, 2008, Connecticut Water filed a timely appeal of the decision in the Connecticut Appellate Court. The Connecticut Supreme Court has transferred the appeal to itself. This appeal stays the eviction order until the Connecticut Supreme Court rules on Connecticut Water's claims that the trial court erred. At this time, the outcome of the appeal is uncertain. On August 5, 2008, Connecticut Water was served with a related lawsuit in which 19 Perry Street, LLC seeks the payment of back rent with respect to the property. As of February 23, 2009, the lawsuit for back rent has been stayed pending the resolution of the appeal related to the eviction case. The Company intends to maintain its use of the property to provide water to customers of its Unionville division while the appeal is pending. In addition, Connecticut Water will consider all other options with respect to its well field use of the property, including the outright purchase of the property or the exercise of Connecticut Water's right to take the property by initiating eminent domain proceedings under applicable law.

Forward-Looking Information

This report, including management's discussion and analysis, contains certain forward-looking statements regarding the Company's results of operations and financial position. These forward looking statements are based on current information and expectations, and are subject to risks and uncertainties, which could cause the Company's actual results to differ materially from expected results.

Regulated water companies, including Connecticut Water, are subject to various federal and state regulatory agencies concerning water quality and environmental standards. Generally, the water industry is materially dependent on the adequacy of approved rates to allow for a fair rate of return on the investment in utility plant. The ability to maintain our operating costs at the lowest possible level, while providing good quality water service, is beneficial to customers and stockholders. Profitability is also dependent on the timeliness of rate relief to be sought from, and granted by, the DPUC, when necessary, and numerous factors over which we have little or no control, such as the quantity of rainfall and temperature, customer demand and related conservation efforts, financing costs, energy rates, tax rates, and stock market trends which may affect the return earned on pension assets, compliance with environmental and water quality regulations, and the outcome of litigation matters, including the Unionville division well field dispute. From time to time, the Company may acquire other regulated and/or unregulated water companies. Profitability is often dependent on identification and consummation of business acquisitions and the profitable integration of these acquired businesses into the Company's operations, including the January 2009 acquisition of Ellington Acres. The profitability of our other revenue sources is subject to the amount of land we have available for sale and/or donation, the demand for the land, the continuation of the current state tax benefits relating to the donation of land for open space purposes, regulatory approval of land dispositions (including the Windsor Locks land sale), the demand for telecommunications antenna site leases and the successful extensions and expansion of our service contract work. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.