MIDDLESEX WATER CO - Quarter Report: 2011 September (Form 10-Q)

form10q-118695_msx.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

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

(State of incorporation)

22-1114430

(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)

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 electronically and posted on its 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 such shorter period that the registrant was required to submit and post files).

Yes þ No ¨

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 number of shares outstanding of each of the registrant's classes of common stock, as of October 31, 2011: Common Stock, No Par Value: 15,634,889 shares outstanding.

INDEX

PART I.	FINANCIAL INFORMATION	PAGE

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Statements of Income	1

	Condensed Consolidated Balance Sheets	2

	Condensed Consolidated Statements of Cash Flows	3

	Condensed Consolidated Statements of Capital Stock and Long-term Debt	4

	Notes to Unaudited Condensed Consolidated Financial Statements	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures of Market Risk	22

Item 4.	Controls and Procedures	22

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3.	Defaults upon Senior Securities	23

Item 4.	Removed and Reserved	23

Item 5.	Other Information	23

Item 6.	Exhibits	24

SIGNATURES		25

Index

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010

Operating Revenues	$	28,671		$	29,585		$	78,769		$	77,768

Operating Expenses:
Operations and Maintenance		14,667			14,036			42,760			41,205
Depreciation		2,421			2,387			7,250			6,827
Other Taxes		3,067			3,141			8,737			8,532

Total Operating Expenses		20,155			19,564			58,747			56,564

Operating Income		8,516			10,021			20,022			21,204

Other Income (Expense):
Allowance for Funds Used During Construction		235			143			626			785
Other Income		759			172			1,118			532
Other Expense		(20	)		(129	)		(180	)		(181	)

Total Other Income, net		974			186			1,564			1,136

Interest Charges		1,703			1,819			4,631			5,125

Income before Income Taxes		7,787			8,388			16,955			17,215

Income Taxes		2,644			2,652			5,557			5,495

Net Income		5,143			5,736			11,398			11,720

Preferred Stock Dividend Requirements		52			52			155			156

Earnings Applicable to Common Stock	$	5,091		$	5,684		$	11,243		$	11,564

Earnings per share of Common Stock:
Basic	$	0.33		$	0.37		$	0.72		$	0.81
Diluted	$	0.32		$	0.36		$	0.72		$	0.80

Average Number of
Common Shares Outstanding :
Basic		15,622			15,518			15,599			14,350
Diluted		15,885			15,781			15,862			14,613

Cash Dividends Paid per Common Share	$	0.1825		$	0.1800		$	0.5475		$	0.5400



See Notes to Unaudited Condensed Consolidated Financial Statements.

Index

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited )

(In thousands)

		September 30,		December 31,
ASSETS		2011		2010
UTILITY PLANT:	Water Production	$	125,242	$	118,919
	Transmission and Distribution		320,457		308,468
	General		45,114		44,368
	Construction Work in Progress		16,843		11,715
	TOTAL		507,656		483,470
	Less Accumulated Depreciation		90,427		84,737
	UTILITY PLANT - NET		417,229		398,733

CURRENT ASSETS:	Cash and Cash Equivalents		4,134		2,453
	Accounts Receivable, net		13,068		11,963
	Unbilled Revenues		6,319		4,752
	Materials and Supplies (at average cost)		2,009		2,196
	Prepayments		2,123		1,401
	TOTAL CURRENT ASSETS		27,653		22,765

DEFERRED CHARGES	Unamortized Debt Expense		2,650		2,739
AND OTHER ASSETS:	Preliminary Survey and Investigation Charges		5,453		7,023
	Regulatory Assets		37,421		38,771
	Operations and Developer Contracts Fees Receivable		4,062		4,589
	Restricted Cash		4,552		7,056
	Non-utility Assets - Net		7,511		7,122
	Other		622		387
	TOTAL DEFERRED CHARGES AND OTHER ASSETS		62,271		67,687
	TOTAL ASSETS	$	507,153	$	489,185

CAPITALIZATION AND LIABILITIES
CAPITALIZATION:	Common Stock, No Par Value	$	141,018	$	139,534
	Retained Earnings		36,450		33,745
	TOTAL COMMON EQUITY		177,468		173,279
	Preferred Stock		3,353		3,362
	Long-term Debt		132,641		133,844
	TOTAL CAPITALIZATION		313,462		310,485

CURRENT	Current Portion of Long-term Debt		4,564		4,432
LIABILITIES:	Notes Payable		24,250		17,000
	Accounts Payable		5,789		6,403
	Accrued Taxes		10,671		8,752
	Accrued Interest		895		1,598
	Unearned Revenues and Advanced Service Fees		751		864
	Other		1,412		1,691
	TOTAL CURRENT LIABILITIES		48,332		40,740

COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)

DEFERRED CREDITS	Customer Advances for Construction		21,630		21,261
AND OTHER LIABILITIES:	Accumulated Deferred Investment Tax Credits		1,166		1,225
	Accumulated Deferred Income Taxes		31,112		29,691
	Employee Benefit Plans		26,096		28,562
	Regulatory Liability - Cost of Utility Plant Removal		7,869		7,369
	Other		617		154
	TOTAL DEFERRED CREDITS AND OTHER LIABILITIES		88,490		88,262

CONTRIBUTIONS IN AID OF CONSTRUCTION			56,869		49,698
	TOTAL CAPITALIZATION AND LIABILITIES	$	507,153	$	489,185

See Notes to Unaudited Condensed Consolidated Financial Statements.

Index

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	11,398		$	11,720
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization		7,767			7,387
Provision for Deferred Income Taxes and Investment Tax Credits		1,297			114
Equity Portion of Allowance for Funds Used During Construction (AFUDC)		(405	)		(488	)
Cash Surrender Value of Life Insurance		(42	)		159
Stock Compensation Expense		315			277
Changes in Assets and Liabilities:
Accounts Receivable		(578	)		(3,503	)
Unbilled Revenues		(1,567	)		(2,549	)
Materials & Supplies		187			(306	)
Prepayments		(722	)		(488	)
Accounts Payable		(614	)		1,168
Accrued Taxes		1,919			3,938
Accrued Interest		(703	)		(1,034	)
Employee Benefit Plans		(1,226	)		(180	)
Unearned Revenue & Advanced Service Fees		(113	)		59
Other Assets and Liabilities		158			(531	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		17,071			15,743
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures, Including AFUDC of $221 in 2011, $297 in 2010		(17,647	)		(22,223	)
Restricted Cash		2,504			505

NET CASH USED IN INVESTING ACTIVITIES		(15,143	)		(21,718	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt		(3,818	)		(3,720	)
Proceeds from Issuance of Long-term Debt		2,747			10,000
Net Short-term Bank Borrowings		7,250			(24,050	)
Deferred Debt Issuance Expense		(34	)		(7	)
Common Stock Issuance Expense		-			(133	)
Repurchase of Preferred Stock		(9	)		(11	)
Proceeds from Issuance of Common Stock		1,168			29,469
Payment of Common Dividends		(8,538	)		(7,672	)
Payment of Preferred Dividends		(155	)		(156	)
Construction Advances and Contributions-Net		1,142			1,067

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(247	)		4,787
NET CHANGES IN CASH AND CASH EQUIVALENTS		1,681			(1,188	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		2,453			4,278
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	4,134		$	3,090


SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
Utility Plant received as Construction Advances and Contributions	$	6,400		$	924

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest	$	5,365		$	6,167
Interest Capitalized	$	221		$	297
Income Taxes	$	2,614		$	2,726

See Notes to Unaudited Condensed Consolidated Financial Statements.

Index

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CAPITAL STOCK

AND LONG-TERM DEBT

(Unaudited)

(In thousands)

	September 30,			December 31,
	2011			2010
Common Stock, No Par Value
Shares Authorized - 40,000
Shares Outstanding - 2011 - 15,633	$	141,018		$	139,534
2010 - 15,566
Retained Earnings		36,450			33,745
TOTAL COMMON EQUITY	$	177,468		$	173,279

Cumulative Preferred Stock, No Par Value:
Shares Authorized - 134
Shares Outstanding - 32
Convertible:
Shares Outstanding, $7.00 Series - 14		1,457			1,457
Shares Outstanding, $8.00 Series - 7		816			816
Nonredeemable:
Shares Outstanding, $7.00 Series - 1		80			89
Shares Outstanding, $4.75 Series - 10		1,000			1,000
TOTAL PREFERRED STOCK	$	3,353		$	3,362

Long-term Debt:
8.05%, Amortizing Secured Note, due December 20, 2021	$	2,354		$	2,456
6.25%, Amortizing Secured Note, due May 19, 2028		7,000			7,315
6.44%, Amortizing Secured Note, due August 25, 2030		5,297			5,507
6.46%, Amortizing Secured Note, due September 19, 2031		5,577			5,787
4.22%, State Revolving Trust Note, due December 31, 2022		566			585
3.30% to 3.60%, State Revolving Trust Note, due May 1, 2025		3,623			3,655
3.49%, State Revolving Trust Note, due January 25, 2027		633			664
4.03%, State Revolving Trust Note, due December 1, 2026		846			865
4.00% to 5.00%, State Revolving Trust Bond, due August 1, 2021		484			522
0.00%, State Revolving Fund Bond, due August 1, 2021		359			397
3.64%, State Revolving Trust Note, due July 1, 2028		372			387
3.64%, State Revolving Trust Note, due January 1, 2028		124			130
6.59%, Amortizing Secured Note, due April 20, 2029		6,133			6,395
7.05%, Amortizing Secured Note, due January 20, 2030		4,583			4,771
5.69%, Amortizing Secured Note, due January 20, 2030		9,402			9,786
3.45%, State Revolving Trust Note, due August 1, 2031		33			17
3.75%, State Revolving Trust Note, due July 1, 2031		1,327			-
3.75%, State Revolving Trust Note, due November 30, 2030		1,404			-
First Mortgage Bonds:
5.20%, Series S, due October 1, 2022		12,000			12,000
5.25%, Series T, due October 1, 2023		6,500			6,500
5.25%, Series V, due February 1, 2029		10,000			10,000
5.35%, Series W, due February 1, 2038		23,000			23,000
0.00%, Series X, due September 1, 2018		375			430
4.25% to 4.63%, Series Y, due September 1, 2018		525			590
0.00%, Series Z, due September 1, 2019		894			1,007
5.25% to 5.75%, Series AA, due September 1, 2019		1,315			1,440
0.00%, Series BB, due September 1, 2021		1,206			1,328
4.00% to 5.00%, Series CC, due September 1, 2021		1,560			1,680
5.10%, Series DD, due January 1, 2032		6,000			6,000
0.00%, Series EE, due August 1, 2023		4,804			5,224
3.00% to 5.50%, Series FF, due August 1, 2024		6,160			6,555
0.00%, Series GG, due August 1, 2026		1,352			1,440
4.00% to 5.00%, Series HH, due August 1, 2026		1,640			1,715
0.00%, Series II, due August 1, 2024		1,150			1,239
3.40% to 5.00%, Series JJ, due August 1, 2027		1,560			1,625
0.00%, Series KK, due August 1, 2028		1,526			1,616
5.00% to 5.50%, Series LL, due August 1, 2028		1,635			1,695
0.00%, Series MM, due August 1, 2030		1,901			1,968
3.00% to 4.375%, Series NN, due August 1, 2030		1,985			1,985
SUBTOTAL LONG-TERM DEBT		137,205			138,276
Less: Current Portion of Long-term Debt		(4,564	)		(4,432	)
TOTAL LONG-TERM DEBT	$	132,641		$	133,844


See Notes to Unaudited Condensed Consolidated Financial Statements.

Index

MIDDLESEX WATER COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation and Recent Matters

Middlesex Water Company (Middlesex or the Company) is the parent company and sole shareholder of Tidewater Utilities, Inc. (Tidewater), Tidewater Environmental Services, Inc. (TESI), Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), Utility Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy) Inc. (USA-PA), and Twin Lakes Utilities, Inc. (Twin Lakes). Southern Shores Water Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc. (White Marsh) are wholly-owned subsidiaries of Tidewater. The financial statements for Middlesex and its wholly-owned subsidiaries (the Company) are reported on a consolidated basis. All significant intercompany accounts and transactions have been eliminated.

The consolidated notes within the 2010 Annual Report on Form 10-K (the 2010 Form 10-K) are applicable to these financial statements and, in the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (including normal recurring accruals) to present fairly the financial position as of September 30, 2011, the results of operations for the three and nine month periods ended September 30, 2011 and 2010 and cash flows for the nine month periods ended September 30, 2011 and 2010. Information included in the Condensed Consolidated Balance Sheet as of December 31, 2010, has been derived from the Company’s audited financial statements for the year ended December 31, 2010 included in the 2010 Form 10-K.

Certain reclassifications have been made to the prior year financial statements to conform with the current period presentation.

TESI Purchases Wastewater Systems

During the second quarter of 2011, TESI acquired two Sussex County, Delaware wastewater systems for approximately $0.1 million. These wastewater systems currently serve about 100 customers in total and ultimately expect to serve 360 at build-out. The wastewater plants are among several other nearby TESI-owned facilities providing regulated wastewater services to residential developments within the region. Tidewater provides water service to several communities in the area, including one of the developments where these wastewater systems are located.

USA Enters into Long-Term Marketing Agreement

In August 2011, USA entered into a 10-year marketing agreement (the Agreement) with HomeServe USA (HomeServe), a leading provider of home maintenance service programs to service, develop and grow USA’s LineCare customer base. As part of the Agreement, USA recognized a gain of $0.6 million on the transfer of its existing contracts to HomeServe. Over the next 10 years, USA will receive a service fee for the billing, cash collection and other administrative matters associated with HomeServe’s service contracts.

Recent Accounting Guidance

In the third quarter of 2011, there was no new adopted or proposed accounting guidance that did or could have a material impact on the Company’s financial statements.

Index

Note 2 – Rate Matters

On August 28, 2011, Middlesex implemented a New Jersey Board of Public Utilities (NJBPU) approved Purchased Water Adjustment Clause (PWAC). In January 2011, Middlesex had filed a PWAC application with the NJBPU seeking to recover increased costs of $0.4 million to purchase untreated water from the New Jersey Water Supply Authority and treated water from a non-affiliated regulated water utility.

A Distribution System Improvement Charge (DSIC) is a Delaware Public Service Commission (DEPSC) approved rate-mechanism that allows water utilities to recover investment in non-revenue producing capital improvements to the water system between base rate proceedings. Effective July 1, 2011, Tidewater’s DEPSC approved DSIC was increased from 1.34% to 1.98%.

Effective June 1, 2011, the DEPSC approved a multi-year agreement for a phased-in base rate increase for Southern Shores. This increase was necessitated by capital investment in the upgrade and renovation of Southern Shores’ primary water treatment facilities, as well as by increased operating costs. Under the terms of the agreement, which expires on June 30, 2020, Southern Shores will also increase rates on January 1, 2012, and each successive January 1st through 2015, to generate approximately $0.1 million of additional revenue on an annual basis with each increase. Thereafter, rate increases, if any, cannot exceed the lesser of the regional Consumer Price Index or 3%.

The Pennsylvania Public Utility Commission (PAPUC) held public hearings in October 2011 in connection with the Twin Lakes application seeking permission to increase its base rates by approximately $0.2 million per year. We cannot predict whether the PAPUC will ultimately approve, deny, or reduce the amount of the request. A decision by the PAPUC is not expected until early 2012.

In July 2011, TESI filed an application with the DEPSC seeking permission to increase its base rates by approximately $0.8 million per year. The request was made necessary by capital investments TESI has made or has committed to make as well as increased operations and maintenance costs. We cannot predict whether the DEPSC will ultimately approve, deny, or reduce the amount of the request. A decision by the DEPSC is not expected until mid 2012. On September 28, 2011, TESI implemented a 7.6% interim rate increase subject to refund as allowed under DEPSC regulations.

In September 2011, Tidewater filed an application with the DEPSC seeking permission to increase its base rates by approximately $6.9 million per year. The request was made necessary by capital investments Tidewater has made or has committed to make as well as increased operations and maintenance costs. We cannot predict whether the DEPSC will ultimately approve, deny, or reduce the amount of the request. A decision by the DEPSC is not expected until mid 2012. Tidewater received DEPSC approval to implement a 10.49% interim rate increase, subject to refund, on November 15, 2011.

Note 3 – Capitalization

Common Stock

During the nine months ended September 30, 2011, there were 63,816 common shares (approximately $1.2 million) issued under the Company’s Amended and Restated Dividend Reinvestment and Common Stock Purchase Plan (DRP).

Index

The Company maintains a stock plan for its non-management directors (Outside Director Stock Compensation Plan). In May 2011, the Company granted and issued 3,833 shares of common stock (approximately $0.1 million) to the non-management directors under the Outside Director Stock Compensation Plan.

Preferred Stock

In February 2011, the Company repurchased 93 shares of its $7.00 Series, nonredeemable cumulative preferred stock at par value for approximately $9 thousand.

Long-term Debt

In March 2011, Tidewater closed on a $2.8 million loan with the Delaware State Revolving Fund (SRF) program which allows, but does not obligate, Tidewater to draw against a General Obligation Note for a specific project. The interest rate on any draw will be set at 3.75% with a final maturity of July 1, 2031 on the amount actually borrowed. As of September 30, 2011, Tidewater has borrowed $1.3 million under this loan.

In March 2011, Southern Shores closed on a $1.6 million loan with the Delaware SRF program, which allows, but does not obligate, Southern Shores to draw against a General Obligation Note for a specific project. The interest rate on any draw will be set at 3.75% with a final maturity of November 30, 2030 on the amount actually borrowed. As of September 30, 2011, Southern Shores has borrowed $1.4 million under this loan.

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments for which it is practicable to estimate that value. The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, trade receivables, accounts payable and notes payable approximate their respective fair values due to the short-term maturities of these instruments. The fair value of the Company’s long-term debt relating to First Mortgage and SRF Bonds is based on quoted market prices for similar issues. The carrying amount and fair market value of the Company’s bonds were as follows:

	(Thousands of Dollars)
	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
First Mortgage Bonds	$	87,088	$	87,579	$	89,037	$	85,405
SRF Bonds	$	843	$	850	$	919	$	937

For other long-term debt for which there was no quoted market price, it was not practicable to estimate their fair value. The carrying amount of these instruments was $49.3 million at September 30, 2011 and $48.3 million at December 31, 2010. Customer advances for construction have a carrying amount of $21.6 million at September 30, 2011 and $21.3 million at December 31, 2010. Their relative fair values cannot be accurately estimated since future refund payments depend on several variables, including new customer connections, customer consumption levels and future rate increases.

Index

Note 4 – Earnings Per Share

Basic earnings per share (EPS) are computed on the basis of the weighted average number of shares outstanding during the period presented. Diluted EPS assumes the conversion of both the Convertible Preferred Stock $7.00 Series and the Convertible Preferred Stock $8.00 Series.

	(In Thousands Except per Share Amounts)
	Three Months Ended September 30,
	2011					2010
Basic:	Income			Shares		Income			Shares
Net Income	$	5,143			15,622	$	5,736			15,518
Preferred Dividend		(52	)				(52	)
Earnings Applicable to Common Stock	$	5,091			15,622	$	5,684			15,518

Basic EPS	$	0.33				$	0.37

Diluted:
Earnings Applicable to Common Stock	$	5,091			15,622	$	5,684			15,518
$7.00 Series Preferred Dividend		24			167		24			167
$8.00 Series Preferred Dividend		14			96		14			96
Adjusted Earnings Applicable to Common Stock	$	5,129			15,885	$	5,722			15,781

Diluted EPS	$	0.32				$	0.36

	(In Thousands Except per Share Amounts)
	Nine Months Ended September 30,
	2011					2010
Basic:	Income			Shares		Income			Shares
Net Income	$	11,398			15,599	$	11,720			14,350
Preferred Dividend		(155	)				(156	)
Earnings Applicable to Common Stock	$	11,243			15,599	$	11,564			14,350

Basic EPS	$	0.72				$	0.81

Diluted:
Earnings Applicable to Common Stock	$	11,243			15,599	$	11,564			14,350
$7.00 Series Preferred Dividend		73			167		73			167
$8.00 Series Preferred Dividend		42			96		42			96
Adjusted Earnings Applicable to Common Stock	$	11,358			15,862	$	11,679			14,613

Diluted EPS	$	0.72				$	0.80

Index

Note 5 – Business Segment Data

The Company has identified two reportable segments. One is the regulated business of collecting, treating and distributing water on a retail and wholesale basis to residential, commercial, industrial and fire protection customers in parts of New Jersey, Delaware and Pennsylvania. This segment also includes regulated wastewater systems in New Jersey and Delaware. The Company is subject to regulations as to its rates, services and other matters by New Jersey, Delaware and Pennsylvania with respect to utility services within these states. The other segment is primarily comprised of non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in New Jersey and Delaware. Inter-segment transactions relating to operational costs are treated as pass-through expenses. Finance charges on inter-segment loan activities are based on interest rates that are below what would normally be charged by a third party lender.

	(In Thousands)
	Three Months Ended September 30,						Nine Months Ended September 30,
Operations by Segments:	2011			2010			2011			2010
Revenues:
Regulated	$	26,262		$	27,062		$	70,935		$	70,083
Non – Regulated		2,605			2,826			8,220			8,183
Inter-segment Elimination		(196	)		(303	)		(386	)		(498	)
Consolidated Revenues	$	28,671		$	29,585		$	78,769		$	77,768
Operating Income:
Regulated	$	8,241		$	9,560		$	18,893		$	19,781
Non – Regulated		275			461			1,129			1,423
Consolidated Operating Income	$	8,516		$	10,021		$	20,022		$	21,204

Net Income:
Regulated	$	4,630		$	5,433		$	10,375		$	10,799
Non – Regulated		513			303			1,023			921
Consolidated Net Income	$	5,143		$	5,736		$	11,398		$	11,720
Capital Expenditures:
Regulated	$	6,389		$	6,211		$	17,245		$	22,121
Non – Regulated		219			31			402			102
Total Capital Expenditures	$	6,608		$	6,242		$	17,647		$	22,223
Assets:	As of September 30, 2011			As of December 31, 2010
Regulated	$	504,158		$	486,918
Non – Regulated		8,775			8,116
Inter-segment Elimination		(5,780	)		(5,849	)
Consolidated Assets	$	507,153		$	489,185

Index

Note 6 – Short-term Borrowings

As of September 30, 2011, the Company has established lines of credit aggregating $60.0 million. At September 30, 2011, the outstanding borrowings under these credit lines were $24.3 million at a weighted average interest rate of 1.27%.

The weighted average daily amounts of borrowings outstanding under the Company’s credit lines and the weighted average interest rates on those amounts were as follows:

	($ In Thousands)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010

Average Daily Amounts Outstanding	$	21,995	$	14,902	$	19,629	$	29,297
Weighted Average Interest Rates		1.32%		1.53%		1.50%		1.59%

The maturity dates for the $24.3 million outstanding as of September 30, 2011 are all in October 2011 and are extendable at the discretion of the Company.

Interest rates for short-term borrowings under the lines of credit are below the prime rate with no requirement for compensating balances.

Note 7 – Commitments and Contingent Liabilities

Contract Operations - USA-PA operates the City of Perth Amboy, NJ’s water and wastewater systems under a 20-year agreement, which expires in 2018. 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.

Water Supply

Middlesex has an agreement with the NJWSA for the purchase of untreated water through November 30, 2023, which provides for an average purchase of 27 million gallons a day (mgd). Pricing is set annually by the NJWSA through a public rate making process. The agreement has provisions for additional pricing in the event Middlesex overdrafts or exceeds certain monthly and annual thresholds.

Middlesex also has an agreement with a non-affiliated regulated water utility for the purchase of treated water. This agreement, which expires February 27, 2016, provides for the minimum purchase of 3 mgd of treated water with provisions for additional purchases.

Index

Purchased water costs are shown below:

	(In Thousands)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010

Treated	$	682	$	737	$	1,974	$	2,168
Untreated		672		618		1,794		1,753
Total Costs	$	1,354	$	1,355	$	3,768	$	3,921

Construction

The Company expects to spend approximately $21.9 million on its construction program in 2011. The actual amount and timing of capital expenditures is dependent on customer growth, residential new home construction and sales and project scheduling. There is no assurance that projected customer growth and residential new home construction and sales will occur.

Litigation

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

Change in Control Agreements

The Company has Change in Control Agreements with certain of its officers that provide compensation and benefits in the event of termination of employment in connection with a change in control of the Company.

Note 8 – Employee Benefit Plans

Pension Benefits

The Company’s Pension Plan covers substantially all employees hired prior to March 31, 2007. Employees hired after March 31, 2007 are not eligible to participate in this plan, but do participate in a defined contribution plan that provides an annual contribution into a self-directed retirement account at the discretion of the Company, based upon a percentage of the participants’ compensation. In order to be eligible for contribution, the participating employee must be employed by the Company on December 31st of the year to which the award relates. For the three months ended September 30, 2011 and 2010, the Company made Pension Plan cash contributions of $1.8 million and $0.8 million, respectively. For the nine months ended September 30, 2011 and 2010, the Company made Pension Plan cash contributions of $2.5 million and $1.4 million, respectively. The Company expects to make additional Pension Plan cash contributions of approximately $0.2 million over the remainder of the current year. The Company also maintains an unfunded supplemental retirement benefit plan for certain active and retired Company Officers and currently pays $0.3 million in annual benefits to the retired participants.

Other Benefits

The Company’s Other Benefits Plan covers substantially all of its retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance. For the three months ended September 30, 2011 and 2010, the Company made Other Benefits Plan cash contributions of $1.5 and $0.5 million, respectively. For the nine months ended September 30, 2011 and 2010, the Company made Other Benefits Plan cash contributions of $2.0 million and $1.4 million, respectively. The Company expects to make additional Other Benefits Plan cash contributions of approximately $0.8 million over the remainder of the current year.

Index

The following table sets forth information relating to the Company’s periodic costs for its employee retirement benefit plans:

	(In Thousands)
	Pension Benefits						Other Benefits
	Three Months Ended September 30,
	2011			2010			2011			2010

Service Cost	$	394		$	349		$	326		$	256
Interest Cost		566			557			401			334
Expected Return on Assets		(571	)		(505	)		(256	)		(190	)
Amortization of Unrecognized Losses		141			127			219			133
Amortization of Unrecognized Prior Service Cost		2			2			-			-
Amortization of Transition Obligation		-			-			33			34
Net Periodic Benefit Cost	$	532		$	530		$	723		$	567

	Nine Months Ended September 30,
	2011			2010			2011			2010

Service Cost	$	1,181		$	1,047		$	979		$	769
Interest Cost		1,696			1,671			1,203			1,001
Expected Return on Assets		(1,712	)		(1,515	)		(769	)		(569	)
Amortization of Unrecognized Losses		424			380			658			399
Amortization of Unrecognized Prior Service Cost		7			7			-			-
Amortization of Transition Obligation		-			-			101			101
Net Periodic Benefit Cost	$	1,596		$	1,590		$	2,172		$	1,701

Index

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of Middlesex Water Company (Middlesex or the Company) included elsewhere herein and with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

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, 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;

ability to meet current 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 pace of housing development in Delaware;

the availability and cost of capital resources;

the ability to translate Preliminary Survey & Investigation (PS&I) charges into viable projects; 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, 2010.

Index

Overview

Middlesex has operated as a water utility in New Jersey since 1897, in Delaware through our wholly-owned subsidiary, Tidewater Utilities, Inc. (Tidewater), since 1992 and in Pennsylvania through our wholly-owned subsidiary, Twin Lakes Utilities, Inc. (Twin Lakes), since 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 services, as to the quality of water service we provide and as to certain other matters in New Jersey, Delaware and Pennsylvania. Only our Utility Services Affiliates, Inc. (USA), Utility Services Affiliates (Perth Amboy), Inc. (USA-PA) and White Marsh Environmental Systems, Inc. (White Marsh) subsidiaries are not regulated utilities as to rates and service.

Our New Jersey water utility system (the Middlesex System) provides water services to approximately 60,000 retail customers, primarily in central New Jersey. The Middlesex System also provides water service under contract to several municipalities in central New Jersey. 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 system provides water services in Downe Township, New Jersey. Our other New Jersey subsidiaries, Pinelands Water Company and Pinelands Wastewater Company (collectively, Pinelands), provide water and wastewater services to residents in Southampton Township, New Jersey.

USA offers 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 Water Company, LLC (Southern Shores), provide water services to approximately 34,000 retail customers in New Castle, Kent and Sussex Counties, Delaware. Tidewater’s subsidiary, White Marsh, services an additional 6,000 customers in Kent and Sussex Counties through various operations and maintenance contracts.

Our Tidewater Environmental Services, Inc. (TESI) subsidiary provides wastewater services to approximately 1,900 residential retail customers. 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.

Index

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

During the second quarter of 2011, TESI acquired two Sussex County, Delaware wastewater systems for approximately $0.1 million. These wastewater systems currently serve approximately 100 customers in total and ultimately expect to serve 360 customers at build-out. The wastewater plants are among several other nearby TESI-owned facilities providing regulated wastewater services to residential developments within the region. Tidewater provides water service to several communities in the area, including one of the developments where these wastewater systems are located.

In July 2011, TESI filed an application with the DEPSC seeking permission to increase its base rates by approximately $0.8 million per year. The request was made necessary by capital investments TESI has made, or has committed to make, as well as increased operations and maintenance costs. We cannot predict whether the DEPSC will ultimately approve, deny, or reduce the amount of the request. A decision by the DEPSC is not expected until mid 2012. On September 28, 2011, TESI implemented a 7.6% interim rate increase subject to refund as allowed under DEPSC regulations.

In August 2011, USA entered into a 10-year marketing agreement (the Agreement) with HomeServe USA (HomeServe), a leading provider of home maintenance service programs to service, develop and grow USA’s LineCare customer base. As part of the Agreement, USA recognized a gain of $0.6 million on the transfer of its existing contracts to HomeServe. Over the next 10-years, USA will receive a service fee for the billing, cash collection and other administrative matters associated with HomeServe’s service contracts.

In September 2011, Tidewater filed an application with the DEPSC seeking permission to increase its base rates by approximately $6.9 million per year. The request was made necessary by capital investments Tidewater has made, or has committed to make, as well as increased operations and maintenance costs. We cannot predict whether the DEPSC will ultimately approve, deny, or reduce the amount of the request. A decision by the DEPSC is not expected until mid 2012. Tidewater received DEPSC approval to implement a 10.49% interim rate increase, subject to refund, on November 15, 2011.

Index

Outlook

Rate relief and favorable weather patterns bolstered our consolidated revenues in 2010. Even though revenues for 2011 are expected to be favorably impacted by the full year effect of the March 2010 Middlesex rate increase, the Tidewater DSIC and the Middlesex PWAC, overall customer water consumption has decreased in 2011 due to less favorable weather as compared to 2010.

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. In the second half of 2010, we began to see an increase in usage by our commercial and industrial customers. However, we are unable to determine when these customers’ water demands may fully return to previous levels, or if a reduced level of demand will continue indefinitely. We were given appropriate recognition for a portion of this decrease in customer consumption in Middlesex’s March 2010 rate increase.

Revenues and earnings are influenced by weather. Changes in water usage patterns, 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 execute plans to streamline operations and reduce operating costs on an on-going basis.

Middlesex has three active base-rate increase applications under review by regulatory commissions in Delaware or Pennsylvania and expects to file its own base-rate increase application during the fourth quarter of 2011. There can be no assurances however, that the regulators of Middlesex or its subsidiaries will approve any such requests in whole or in part. In addition, the timing of approval of these rate requests is presently not known.

As a result of ongoing challenging economic conditions impacting the pace of new residential home construction, there may be PS&I costs that will not be currently recoverable in rates. If it is determined that recovery is unlikely, the applicable PS&I costs will be charged against income in the period of final determination.

To date, the return on assets held in our retirement benefit plans during 2011 have been below the 2010 return, which could impact the amount available to fund current and future obligations and may cause expenses and retirement plan cash contributions to increase in 2012.

Our strategy is focused on four key areas:

•

Serve as a trusted and continually-improving provider of safe, reliable and cost-effective water, wastewater and related services;

•

Provide a comprehensive suite of water and wastewater solutions in the continually-developing Delaware market that results in profitable growth;

•

Pursue profitable growth in our core states of New Jersey and Delaware, as well as additional states; and

•

Invest in products, services and other viable opportunities that complement our core competencies.

Index

Operating Results by Segment

The discussion of the Company’s operating results is on a consolidated basis and includes significant factors by subsidiary. The Company has two operating segments, Regulated and Non-Regulated.

The segments in the tables included below consist 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 – Three Months Ended September 30, 2011

	(In Thousands)
	Three Months Ended September 30,
	2011						2010
	Regulated		Non- Regulated		Total		Regulated		Non- Regulated		Total
Revenues	$	26,119	$	2,552	$	28,671	$	27,062	$	2,523	$	29,585
Operations and maintenance expenses		12,492		2,175		14,667		12,079		1,957		14,036
Depreciation expense		2,386		35		2,421		2,351		36		2,387
Other taxes		3,000		67		3,067		3,072		69		3,141
Operating income		8,241		275		8,516		9,560		461		10,021

Other income, net		336		638		974		113		73		186
Interest expense		1,680		23		1,703		1,791		28		1,819
Income taxes		2,267		377		2,644		2,449		203		2,652
Net income	$	4,630	$	513	$	5,143	$	5,433	$	303	$	5,736

Operating Revenues

Operating revenues for the three months ended September 30, 2011 decreased $0.9 million from the same period in 2010. This decrease was primarily related to the following factors:

Middlesex System revenues decreased $0.9 million, primarily from decreased contract sales to municipalities ($0.5 million) and decreased sales to general meter service customers ($0.4 million), both resulting from cooler temperatures and higher precipitation in the third quarter of 2011 as compared to 2010; and

Tidewater System revenues remained consistent, primarily due to decreased consumption sales from similar weather patterns experienced in the Middlesex System in the third quarter of 2011 as compared to 2010, offset by fixed service charges for new customers.

Index

Operation and Maintenance Expense

Operation and maintenance expenses for the three months ended September 30, 2011 increased $0.6 million from the same period in 2010. This increase was primarily related to the following factors:

Employee healthcare costs and postretirement benefit plan expenses increased $0.5 million;

Increased net costs of $0.1 million from the implementation of a company wide information technology platform;

Costs associated with main breaks decreased $0.1 million, as we experienced less severe, and a lower number of, water main breaks in 2011 as compared to 2010; and

All other operation and maintenance expense categories increased $0.1 million.

Depreciation

Depreciation expense for the three months ended September 30, 2011 was consistent with the same period in 2010.

Other Taxes

Other taxes for the three months ended September 30, 2011 decreased $0.1 million from the same period in 2010, primarily due to lower gross receipts and franchise taxes resulting from lower revenues in our Middlesex System.

Other Income, net

Other Income, net for the three months ended September 30, 2011 increased $0.8 million from the same period in 2010, primarily related to the following factors:

A gain of $0.6 million as a result of transferring USA’s existing LineCare contracts to HomeServe; and

Increased Allowance for Funds Used During Construction from higher capitalized interest resulting from higher average construction work in progress balances in the third quarter of 2011 as compared to the third quarter of 2010.

Interest Charges

Interest charges for the three months ended September 30, 2011 decreased $0.1 million from the same period in 2010, primarily due to lower interest rates on long term debt outstanding in the third quarter of 2011 as compared to the third quarter of 2010.

Income Taxes

Income taxes for the three months ended September 30, 2011 were consistent with the same period in 2010, primarily due to higher income taxes associated with the gain from the transfer of USA’s LineCare contracts to HomeServe offset by lower income taxes from decreased operating income in the third quarter of 2011 as compared to the third quarter of 2010.

Index

Net Income and Earnings Per Share

Net income for the three months ended September 30, 2011 decreased $0.6 million, or 10.3%, from the same period in 2010. Basic and diluted earnings per share decreased to $0.33 and $0.32, respectively, for the three months ended September 30, 2011 as compared to $0.37 and $0.36, respectively, for the three months ended September 30, 2010. The decreases in net income and earnings per share were due to the factors discussed above.

Results of Operations – Nine Months Ended September 30, 2011

	(In Thousands)
	Nine Months Ended September 30,
	2011						2010
	Regulated		Non- Regulated		Total		Regulated		Non- Regulated		Total
Revenues	$	70,708	$	8,061	$	78,769	$	70,083	$	7,685	$	77,768
Operations and maintenance expenses		36,139		6,621		42,760		35,263		5,942		41,205
Depreciation expense		7,141		109		7,250		6,713		114		6,827
Other taxes		8,535		202		8,737		8,326		206		8,532
Operating income		18,893		1,129		20,022		19,781		1,423		21,204

Other income, net		811		753		1,564		914		222		1,136
Interest expense		4,557		74		4,631		5,018		107		5,125
Income taxes		4,772		785		5,557		4,878		617		5,495
Net income	$	10,375	$	1,023	$	11,398	$	10,799	$	921	$	11,720

Operating Revenues

Operating revenues for the nine months ended September 30, 2011 increased $1.0 million from the same period in 2010. This increase was primarily related to the following factors:

Middlesex System revenues increased $0.7 million, primarily due to the 13.5% rate increase that went into effect in late March 2010 offset by decreased sales to general meter service and contract customers resulting from cooler temperatures and higher precipitation during the summer of 2011 as compared to 2010;

Tidewater System revenues remained consistent, primarily due to decreased consumption sales from similar weather patterns experienced in the Middlesex System in 2011 as compared to 2010 and lower connection fees offset by increased fixed service charges for new customers; and

USA-PA’s revenues increased $0.3 million, primarily from scheduled increases in the fixed fees paid under contract with the City of Perth Amboy.

Operation and Maintenance Expense

Operation and maintenance expenses for the nine months ended September 30, 2011 increased $1.6 million from the same period in 2010. This increase was primarily related to the following factors:

Labor costs increased $0.5 million primarily due to higher average labor rates from annual wage increases and lower capitalized labor;

Index

Employee healthcare costs and postretirement benefit plan expenses increased $0.9 million;

Increased net costs of $0.3 million from the implementation of a company wide information technology platform;

Increased subcontractor charges of $0.3 million at our USA-PA subsidiary;

Increased transportation charges of $0.1 million primarily resulting from higher average gasoline prices;

Variable production costs decreased $0.4 million primarily due to lower purchase power costs resulting from decreased consumption;

Costs associated with water main breaks decreased $0.3 million, as we experienced less severe and a lower number of main breaks in 2011 as compared to 2010; and

All other operating and maintenance expense categories increased $0.2 million.

Depreciation

Depreciation expense for the nine months ended September 30, 2011 increased $0.4 million from the same period in 2010 due to a higher level of utility plant in service.

Other Taxes

Other taxes for the nine months ended September 30, 2011 increased $0.2 million from the same period in 2010, primarily due to increased taxes on higher taxable gross revenues ($0.1 million) and higher payroll taxes on increased employee wages ($0.1 million).

Interest Charges

Interest charges for the nine months ended September 30, 2011 decreased $0.5 million from the same period in 2010, primarily due to the following:

Lower average short term debt outstanding in 2011 as compared to 2010; and

Lower interest rates on long term debt outstanding in 2011 as compared to 2010.

Other Income, net

Other Income, net for the nine months ended September 30, 2011 increased $0.4 million from the same period in 2010, primarily due to:

A gain of $0.6 million as a result of transferring USA’s LineCare contracts to HomeServe; and

Decreased Allowance for Funds Used During Construction ($0.2 million) from lower capitalized interest resulting from lower average construction work in progress balances in 2011 as compared to 2010.

Income Taxes

Income taxes for the nine months ended September 30, 2011 increased $0.1 million from the same period in 2010, primarily due to higher income taxes associated with the gain from the transfer of USA’s LineCare contracts to HomeServe partially offset by lower income taxes on decreased operating income in 2011 as compared to 2010.

Index

Net Income and Earnings Per Share

Net income for the nine months ended September 30, 2011 decreased $0.3 million, or 2.7%, from the same period in 2010. Basic and diluted earnings per share decreased to $0.72 for the nine months ended September 30, 2011 as compared to $0.81 and $0.80, respectively, for the nine months ended September 30, 2010. In addition to the effect of the decrease in net income, earnings per share also decreased from a higher number of average shares outstanding in 2011 due to the Company’s public offering of 1.9 million shares of common stock in June 2010.

Liquidity and Capital Resources

Operating Cash Flows

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 the nine months ended September 30, 2011, cash flows from operating activities increased $1.3 million to $17.1 million. Decreases in accounts receivable and unbilled revenues were the primary reasons for the increase in cash flow. The $17.1 million of net cash flow from operations enabled us to fund 96.7% of our utility plant expenditures internally for the period.

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 Amended and Restated Dividend Reinvestment and Common Stock Purchase Plan (DRP) and common stock offerings. See below for a more detailed discussion regarding the funding of our capital program.

The capital investment program for 2011 is currently estimated to be $21.9 million. Through September 30, 2011, we have expended $17.7 million and expect to incur approximately $4.2 million for capital projects for the remainder of 2011.

We currently project that we may be required to expend approximately $43 million for capital projects in 2012 and 2013. The exact amount is dependent on customer growth, residential housing sales, project scheduling and refinement of engineering estimates for certain capital projects.

To fund our capital program for the remainder of 2011, we plan on utilizing:

Internally generated funds

Proceeds from the sale of common stock through the DRP

Funds available and held in trust under existing New Jersey SRF loans (currently, $2.9 million) and Delaware SRF loans (currently, $2.7 million). The SRF programs provide low cost financing for projects that meet certain water quality and system improvement benchmarks.

Short-term borrowings, if necessary, through $60.0 million of available lines of credit with several financial institutions. As of September 30, 2011, the outstanding borrowings under these credit lines were $24.3 million.

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

Index

Item 3. Quantitative and Qualitative Disclosures of 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 $4.6 million of the current portion of 31 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.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities and Exchange Act of 1934 (the Exchange Act), an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was conducted by the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this Report. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

Index

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

None.

Item 1A.

Risk Factors

The information about risk factors does not differ materially from those set forth in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Removed and Reserved

Item 5.

Other Information

None.

Index

Item 6.	Exhibits

10.4	Copy of Amended Supply Agreement, dated as of July 27, 2011, between the Company and the Old Bridge Municipal Utilities Authority.
10.40	Amended Promissory Note for a committed line of credit between registrant’s wholly-owned subsidiary, Tidewater Utilities, Inc. and CoBank, ACB.

31.1	Section 302 Certification by Dennis W. Doll pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

31.2	Section 302 Certification by A. Bruce O’Connor pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

32.1	Section 906 Certification by Dennis W. Doll pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.2	Section 906 Certification by A. Bruce O’Connor pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document*

101.SCH

XBRL Schema Document*

101.CAL

XBRL Calculation Linkbase Document*

101.LAB

XBRL Labels Linkbase Document*

101.PRE

XBRL Presentation Linkbase Document*

101.DEF

XBRL Definition Linkbase Document*

*XBRL information is furnished, not filed.

Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MIDDLESEX WATER COMPANY

	By:	/s/A. Bruce O’Connor
		A. Bruce O’Connor
		Vice President and
		Chief Financial Officer
		(Principal Accounting Officer)

Date: November 4, 2011