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 current annual fiscal period 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 59,800 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 32,800 retail customers in New Castle, Kent, and Sussex Counties, Delaware. Our TESI subsidiary provides regulated wastewater service to approximately 1,900 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 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%. The contracted rate schedule is set to expire on December 31, 2009. The Company is in the process of renegotiating the contract and the associated 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 26, 2009, Tidewater filed an application with the PSC seeking permission to increase 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. 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.

On July 1, 2009, Tidewater updated its requested base rate increase to 25.2%. This decreased request was based on actual results of operations and capital spending since the filing in January, through May 31, 2009, as well as changes in assumptions for projected expenses and capital investment during the period the new rates are expected to be in effect. On July 27, 2009, a settlement was reached amongst the parties that reflects an overall increase of 15.0%. The settlement is expected to be submitted to the PSC during September for final approval. There can be no assurance that the settlement will be approved in whole or in part, by the PSC.

On July 1, 2009, Middlesex implemented a New Jersey Board of Public Utilities (BPU) 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.

Middlesex expects to file a base rate increase petition with the BPU during the third quarter of 2009. The filing is expected to include approximately $25.0 million of additional capital invested in utility plant since base rates were last established in 2007. In addition, as more fully described under Operating Results by Segment, revenues from commercial and industrial (C&I) customers have declined and costs for retirement benefit plans and other operating needs have increased. 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 concluded in 2009.

Operating Results by Segment

The Company has two operating segments, Regulated and Non-Regulated. Our Regulated segment contributed 89% of total revenues and 88% of net income for the three months ended June 30, 2009. This segment contributed 89% of total revenues and 91% of net income over the same three month period ended June 30, 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 June 30, 2009


                                                                (In Thousands)
                                                          Three Months Ended June 30,
                                               2009                                         2008
                                                Non-                                         Non-
                              Regulated       Regulated       Total        Regulated       Regulated       Total
Revenues                     $    20,489     $     2,594     $ 23,083     $    20,538     $     2,497     $ 23,035
Operations and maintenance
expenses                          10,898           1,995       12,893           9,796           1,931       11,727
Depreciation expense               2,076              35        2,111           1,926              29        1,955
Other taxes                        2,473              59        2,532           2,470              58        2,528
 Operating income                  5,042             505        5,547           6,346             479        6,825

Other income, net                    293              91          384             239              87          326
Interest expense                   1,713              53        1,766           1,752              54        1,806
Income taxes                       1,108             211        1,319           1,573             207        1,780
 Net income                  $     2,514     $       332     $  2,846     $     3,260     $       305     $  3,565

Operating revenues for the three months ended June 30, 2009 increased by less than $0.1 million from the same period in 2008. Revenues in our Middlesex system decreased $0.3 million as a result of lower water consumption across all customer classes. During the second quarter, we experienced a 7.0% decline in water use by our general retail metered customers, compared to the same period last year, which includes C&I customers. Several of the larger industrial customers' consumption demands have declined due to reduced output from their individual production processes. We have also seen a decline in consumption from our commercial customers, which are generally office facilities, hotel and other guest facilities and multi-family residential facilities. A number of our C&I customers have communicated to us that they are unable to determine when their water demands may return to previous levels, or if the declines will continue indefinitely. Also negatively impacting consumption during the quarter was unseasonably cool, wet weather patterns in the mid-Atlantic region. Consumption revenues in our Tidewater system decreased by $0.5 million, largely assumed to be attributable to those weather patterns. Interim rates, as described above, that were effective in March 2009, and customer growth, increased Tidewater revenues by $0.7 million. Revenues from our Perth Amboy operations contract rose $0.2 million due to higher pass-through charges and scheduled management fee increases. There was an equal amount of higher expenses offsetting higher revenue associated with pass-through charges.

Operation and maintenance expenses for the three months ended June 30, 2009 increased $1.2 million or 9.9%. Labor costs increased $0.3 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 $0.4 million compared to the second quarter of 2008. Our 2009 actuarial valuations indicate that expenses for our benefit plans could increase by up to $0.8 million for the remainder of 2009, as compared to

the same period in 2008. The portion of the increase that will ultimately be recorded as Operating Expense in 2009 will be dependent upon the portion of the total that will be allocated to capital projects.

Although water production had declined in the second quarter in our Middlesex system due to unfavorable weather patterns and economic conditions, our costs for chemicals and residuals disposals were $0.3 million higher than the same period in 2008. These increases were due to a combination of: 1) unit cost rate increases and: 2) lower quality of untreated water as influenced by the significant rainfall during the second quarter of 2009. Operating costs for USA-PA increased $0.1 million due to higher pass through-charges. All other expense categories increased $0.1 million.

Depreciation expense increased by $0.2 million, or 8.0%, primarily as a result of a higher level of utility plant. Since June 30, 2008, utility plant in service balance has increased by $31.4 million.

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

Net income declined by $0.7 million from $3.6 million to $2.9 million. Basic and diluted earnings per share decreased to $0.21 for the three months ended June 30, 2009 compared to $0.26 for the same period in 2008.

Results of Operations - Six Months Ended June 30, 2009

                                                                (In Thousands)
                                                           Six Months Ended June 30,
                                               2009                                         2008
                                                Non-                                         Non-
                              Regulated       Regulated       Total        Regulated       Regulated       Total
Revenues                     $    38,465     $     5,200     $ 43,665     $    38,960     $     4,930     $ 43,890
Operations and maintenance
expenses                          21,835           4,101       25,936          20,005           3,821       23,826
Depreciation expense               4,125              71        4,196           3,827              58        3,885
Other taxes                        4,864             120        4,984           4,892             116        5,008
 Operating income                  7,641             908        8,549          10,236             935       11,171

Other income, net                    604             188          792             416             209          625
Interest expense                   3,049             109        3,158           3,198             125        3,323
Income taxes                       1,596             380        1,976           2,493             411        2,904
 Net income                  $     3,600     $       607     $  4,207     $     4,961     $       608     $  5,569

Operating revenues for the six months ended June 30, 2009 decreased $0.2 million or less than 1.0% from the same period in 2008. Revenues in our Middlesex system decreased $1.0 million as a result of lower water consumption across all customer classes. We experienced a 6.7% decline in water use by our general retail metered customers compared to the same period in 2008. Consumption revenues in our Tidewater system decreased by $0.6 million due to unfavorable weather patterns. DSIC rates and interim rates, as described above, that were effective January 1, 2009 and March 27, 2009, respectively, and customer growth, increased Tidewater revenues by $0.9 million. USA-PA's fees for managing the Perth Amboy water and wastewater systems were $0.3 million higher than the same period in 2008, due mostly to higher pass-through charges and scheduled management fee increases. There was an equal amount of higher expenses offsetting higher revenue

associated with pass-through charges. Revenues from our regulated wastewater operations in Delaware increased $0.1 million due to customer growth. All other operations accounted for $0.1 million of additional revenues.

Operation and maintenance expenses increased $2.1 million or 8.9%. Labor costs increased $0.6 million due to: 1) increases in wages and resources necessary to meet the growing needs of our Delaware service territory, and: 2) increased overtime incurred in connection with a higher incidence of water main breaks and leaks in our Middlesex system. Expenses for our qualified employee retirement benefit plans increased by $0.5 million compared to the same period in 2008 largely attributable to the performance related decline in the benefit plans assets.

Although water production was down in our Middlesex system due to unfavorable weather patterns and economic conditions, our costs for chemicals and residuals disposals were $0.3 million higher than the same period in 2008. These increases are due to a combination of: 1) unit cost rate increases and: 2) lower quality of untreated water as influenced by the rainfall during the second quarter of 2009. An increase in our uncollectible accounts reserve to reflect current economic conditions resulted in additional expense of $0.1 million. We incurred additional inspection fees of $0.1 million for our LineCare program in the first six months of 2009 compared to the same period in 2008. Operating costs for USA-PA increased $0.3 million due to higher pass-through charges. All other expense categories increased $0.2 million.

Depreciation expense increased $0.3 million or 8.0% due to the higher level of utility plant in service.

Total Other Income, net increased $0.2 million due to increased Allowance for Funds Used During Construction from higher capitalized interest resulting from our ongoing capital program.

Interest expense decreased $0.2 million, primarily due to a substantial decline in interest rates on short-term borrowings compared to the prior year period. The weighted average interest rate on borrowings was 1.85% for the first six months of 2009 compared to 4.11% for the same period in 2008.

Income taxes decreased $0.9 million as a result of decreased operating income as compared to the prior year.

Net income decreased $1.4 million or 24.5%. Basic and diluted earnings per share decreased to $0.31 for the six months ended June 30, 2009 compared to $0.41 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 six months ended June 30, 2009 and 2008, cash flows from operating activities were $7.4 million and $9.0 million, respectively. As described more fully in the Results of Operations section above, lower earnings was the primary reason for the decrease in cash flow. The $7.4 million of net cash flow from operations enabled us to fund approximately 62% of our utility plant expenditures internally for the period, with the remainder funded by bank lines of credit and other loan commitments.

The capital spending program for 2009 is currently estimated to be $25.5 million. Through June 30, 2009, we have expended $11.9 million. For the remainder of 2009 we expect to incur $13.6 million of costs. We expect to spend an additional $4.6 million for additions and improvements to our Delaware water systems; $0.7 million for infrastructure additions for our Delaware wastewater systems; $0.9 million towards implementation of a Company-wide information system upgrade and $0.4 million for other information systems equipment and software. The capital program also includes an additional $7.0 million to be incurred over the remainder of 2009 for scheduled upgrades and replacements related to existing utility infrastructure in New Jersey. These projected expenditures include: $1.4 million for improvements to existing plant, $4.2 million for water mains, $0.5 million for water service lines, $0.3 million for water meters, $0.2 million for fire hydrants and $0.4 million for other infrastructure needs.

To fund our capital program in 2009, we have utilized internally generated funds, and short-term and long-term debt. If needed, we will also borrow additional funds through $53.0 million of available lines of credit with several financial institutions. As of June 30, 2009, $39.0 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, or for other general corporate purposes.

We currently project that we may be required to expend between $55.7 million and $72.6 million for capital projects in 2010 and 2011 combined. The exact amount is dependent on customer growth, residential housing sales and project scheduling.

Beyond 2009, to the extent possible, and because of favorable interest rates available to regulated water utilities, we expect to finance our capital expenditures under the State Revolving Fund loan programs in New Jersey and Delaware. 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. We implemented an interim rate increase on March 27, 2009 for Tidewater in connection with their base rate increase request. We also implemented a Purchased Water Adjustment Clause on July 1, 2009, which is for the recovery of increased purchased water costs for Middlesex. In addition, we are planning to file a petition during the third quarter of 2009 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.