The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of the Company included elsewhere herein and with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Forward-Looking Statements

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

- statements as to expected financial condition, performance, prospects and earnings of the Company;
- statements regarding strategic plans for growth;

- statements regarding the amount and timing of rate increases and other regulatory matters;
- statements regarding expectations and events concerning capital expenditures;

- statements as to the Company's expected liquidity needs during fiscal 2008 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 base rate increase requests;
- new or additional water quality standards;

- weather variations and other natural phenomena;
- the existence of attractive acquisition candidates and the risks involved in pursuing those acquisitions;

- acts of war or terrorism;
- significant changes in the housing starts in Delaware;

- the availability and cost of capital resources; and
- other factors discussed elsewhere in this quarterly report.

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 report or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.

For an additional discussion of factors that may affect the Company's business and results of operations, see Item 1A. - Risk Factors in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Overview

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

Our New Jersey water utility system (the Middlesex System) provides water services to approximately 59,700 retail, commercial and fire service 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. Through our subsidiary, USA-PA, we operate the water supply system and wastewater collection system for the City of Perth Amboy, New Jersey. Pinelands Water and Pinelands Wastewater provide water and wastewater services to residents in Southampton Township, New Jersey.

Tidewater and Southern Shores provide water services to approximately 32,700 retail customers in New Castle, Kent, and Sussex Counties, Delaware. Our TESI subsidiary provides regulated wastewater service to approximately 1,800 residential retail customers. White Marsh serves approximately 7,100 customers under unregulated operating contracts with various owners of small water and wastewater systems in Kent and Sussex Counties.

USA provides customers both inside and outside of our service territories a service line maintenance program called LineCareSM. We offer a similar program for wastewater customers called LineCare+SM.

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

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

Recent Developments

Rate Increases
In accordance with the tariff established for Southern Shores, an annual rate increase of 3% was implemented on January 1, 2009. The increase cannot exceed the lesser of the regional Consumer Price Index or 3%. The contracted rate schedule is set to expire on December 31, 2009. The Company is in the process of renegotiating the rate schedule.

Effective January 1, 2009, Tidewater received approval from the Delaware Public Service Commission (PSC) to increase their Distribution System Improvement Charge (DSIC) from 2.94% to 5.25%.

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

On January 26, 2009 Tidewater filed an application with the PSC seeking permission to increase its base rates by 32.54%. Approximately 5.25% of the requested increase is already collected from customers through the DSIC. The request was made necessary by increased costs of operations, maintenance and taxes, as well as capital investment of approximately $26.7 million since our last rate filing in April of 2006. We cannot predict whether the PSC will ultimately approve, deny, or reduce the amount of the request. Concurrent with the rate filing, Tidewater also submitted a request for a 12.79% interim rate increase subject to refund as allowed under PSC regulations. The interim rate increase includes the 5.25% DSIC rate. The interim rates of 12.79% were approved by the PSC and went into effect on March 27, 2009 and the DSIC rate was set to zero simultaneously.

Middlesex is currently evaluating the timing and level of a base rate increase petition with the BPU. As more fully described in the Operating Results by Segment section, there have been declining revenues from commercial and industrial (C&I) customers and higher costs for retirement benefit plans and other operating costs. There can be no assurance that the ultimate rate increase requested will be approved in whole or in part, by the BPU. It is unlikely that any base rate filing by Middlesex would be decided upon in 2009.

Operating Results by Segment

The Company has two operating segments, Regulated and Non-Regulated. Our Regulated segment contributed 87% of total revenues and 80% of net income for the three months ended March 31, 2009. This segment contributed 88% of total revenues and 85% of net income over the same three month period ended March 31, 2008. The discussion of the Company's results of operations is on a consolidated basis, and includes significant factors by subsidiary. The segments in the tables included below consist of the following companies: Regulated-Middlesex, Tidewater, Pinelands, Southern Shores, and TESI; Non-Regulated- USA, USA-PA, and White Marsh.

Results of Operations - Three Months Ended March 31, 2009

                                                                         (In Thousands)
                                                                  Three Months Ended March 31,
                                                        2009                                         2008
                                                         Non-                                         Non-
                                       Regulated       Regulated       Total        Regulated       Regulated       Total
Revenues                              $    17,976     $     2,607     $ 20,583     $    18,422     $     2,433     $ 20,855
Operations and maintenance expenses        10,937           2,106       13,043          10,208           1,890       12,098
Depreciation expense                        2,049              37        2,086           1,902              29        1,931
Other taxes                                 2,391              61        2,452           2,421              58        2,479
 Operating income                           2,599             403        3,002           3,891             456        4,347

Other income, net                             311              98          409             176             122          298
Interest expense                            1,335              57        1,392           1,446              71        1,517
Income taxes                                  489             169          658             920             204        1,124
 Net income                           $     1,086     $       275     $  1,361     $     1,701     $       303     $  2,004

Operating revenues for the three months ended March 31, 2009 decreased $0.3 million, or 1.3%, from the same period in 2008. Revenues in our Middlesex system decreased $0.6 million as a result of lower water consumption across all customer classes. We experienced a 6.5% decline in water use by our general retail metered customers, which includes C&I customers. Several of the larger industrial customer's consumption demands have dropped due to reduced output from their production processes. We have also seen a decline in consumption from our commercial customers, which are generally office facilities, guest facilities and multi-family residential facilities certain of our C&I customers are unable to determine when their water demands may return to previous levels or if the declines will continue. Revenues improved $0.1 million in our Tidewater system due to a combination of customer growth, higher consumption and higher rates. Revenues from our Perth Amboy operations contract rose $0.2 million due to scheduled fee increases.

Operation and maintenance expenses for the three months ended March 31, 2009 increased $0.9 million or 7.8%. Labor costs increased $0.4 million due to increases in wages and resources necessary to meet the growing needs of our Delaware service territory. Expenses for our qualified employee retirement benefit plans increased by $0.1 million compared to the first quarter of 2008. Recently completed actuarial valuations indicate that benefit plan expenses could increase by up to $1.1 million for the remainder of 2009 as compared to the same period in 2008. The actual expense will be reduced by the amount of benefits ultimately allocated to capital projects.

Water Production costs were $0.2 million higher due to increased sales in Delaware and higher costs for water, electric power and chemicals in New Jersey. During the quarter we increased our uncollectible account reserve to reflect the current economic conditions, which resulted in additional expense of $0.1 million. We incurred additional inspection fees of $0.1 million for our LineCare program in the first quarter of 2009 compared to the same period in 2008.

Depreciation expense increased by $0.2 million, or 8.0%, primarily as a result of a higher level of utility plant. Since March 31, 2008 our utility plant in service balance has increased by $21.0 million.

Interest expense decreased by $0.1 million due to a substantial decline in interest rates on short-term borrowings compared to the prior year period.

Income taxes decreased $0.5 million as a result of decreased operating income as compared to the prior year.

Net income declined by $0.6 million from $2.0 million to $1.4 million. Basic and diluted earnings per share decrease to $0.10 for the three months ended March 31, 2009 compared to $0.15 for the same period in 2008.

Liquidity and Capital Resources

Cash flows from operations are largely dependent on three factors: the impact of weather on water sales, adequate and timely rate increases, and customer growth. The effect of those factors on net income is discussed in results of operations. For the three months ended March 31, 2009 and 2008, cash flows from operating activities were $5.7 million. Lower earnings were offset by an increase in accounts payable due to timing. The $5.7 million of net cash flow from operations enabled us to fund approximately 91% of our utility plant expenditures internally for the period, with the remainder funded by drawing upon our available lines of credit.

The capital spending program for 2009 is currently estimated to be $28.8 million. Through March 31, 2009, we have expended $6.2 million. For the remainder of 2009 we expect to incur $22.6 million of costs. We expect to spend an additional $6.7 million for additions and improvements to our Delaware water systems; $0.9 million for infrastructure additions for our Delaware wastewater systems; $3.1 million towards implementation of a Company-wide information system upgrade;$0.6 million for other information systems equipment and software; and $3.5 million for the RENEW program, to complete the cleaning and cement lining of approximately nine miles of unlined water mains in the Middlesex system. There remains a total of approximately 109 miles of unlined mains in the 730-mile Middlesex system. The capital program also includes an additional $7.8 million to be incurred over the remainder of 2009 for scheduled upgrades to our existing systems in New Jersey. The remaining spending for scheduled upgrades include $1.5 million for improvements to existing plant, $4.5 million for mains, $0.7 million for service lines, $0.5 million for meters, $0.2 million for hydrants and $0.4 million for other infrastructure needs.

To fund our capital program in 2009, we have utilized internally generated funds, and funds available under existing New Jersey SRF program loans (currently, $3.5 million) and Delaware SRF program loans (currently, $1.9 million). These programs provide low cost financing for projects that meet certain water quality and system improvement benchmarks. If needed, we will also borrow funds through $53.0 million of available lines of credit with several financial institutions. As of March 31, 2009, $37.0 million was outstanding against the lines of credit.

We periodically issue shares of common stock in connection with our dividend reinvestment and stock purchase plan (DRP). From time to time, we may issue additional equity to reduce short-term indebtedness, fund our capital program, and for other general corporate purposes.

We currently project that we may be required to expend between $56.3 million and $73.6 million for capital projects in 2010 and 2011 combined. The exact amount is dependent on customer growth, residential housing sales and project scheduling.

To the extent possible and because of favorable interest rates available to regulated water utilities, we expect to finance our capital expenditures under the SRF loan programs. We also expect to use internally generated funds and proceeds from the sale of common stock through the Dividend Reinvestment and Common Stock Purchase Plan.
In addition to the effect of weather conditions on revenues, increases in certain operating costs will impact our liquidity and capital resources. Changes in operating costs and timing of capital projects will have an impact on revenues, earnings, and cash flows and will also impact the timing of filings for future rate increases.

We received rate relief for our Pinelands Companies in December 2008 and for Tidewater and Southern Shores on January 1, 2009. In addition, we implemented an interim rate increase on March 27, 2009 for Tidewater in connection with their base rate increase request. We are seeking recovery of increased purchased water costs for Middlesex and are also evaluating the need to seek approval to increase base rates for Middlesex customers.

Recent Accounting Pronouncements - See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.