Middlesex Water Company

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2005 Annual Report 

Building on
Our Fundamentals

A   S o l i d   V i s i o n   i n   a n   E v o l v i n g   I n d u s t r y

115340_Greenhouse_Txt_r1  4/3/06  12:43 PM  Page 1

Corporate Profile

Middlesex Water Company,

headquartered in Iselin, 

New Jersey, provides water,

wastewater and related

services in New Jersey and

Delaware.  Established in

1897, the Company and 

its subsidiaries collectively

serve more than 115,000

customers.  The Company’s

common stock trades on the

NASDAQ Stock Market

under the symbol MSEX.

FINANCIAL HIGHLIGHTS

Operating Revenues
Operation and Maintenance Expenses
Taxes
Interest Charges
Net Income
Earnings Applicable to Common Stock
Basic Earnings per Share
Diluted Earnings per Share
Cash Dividends Paid per Share
Utility Plant
Return on Average Common Equity

(Thousands of Dollars Except per Share Data)

2005
$74,613 
42,156
12,016
6,245  
8,476  
8,225
0.72 
0.71 
0.67 
337,922
8.6%

2004
$70,991 
39,984  
12,042  
5,468  
8,446
8,191  
0.74 
0.73
0.66
310,336 
9.4%

Change
$3,622
2,172 
(26) 
777 
30 
34 
(0.02) 
(0.02) 
0.01 
27,586
(0.8%)

OPERATING REVENUES

NET INCOME

EARNINGS AND DIVIDENDS

Earnings

Dividends

8
3
6
,
9
5
$

3
3
9
,
1
6
$

1
1
1
,
4
6
$

1
9
9
,
0
7
$

3
1
6
,
4
7
$

3
5
9
,
6
$

5
6
7
,
7
$

1
3
6
,
6
$

6
4
4
,
8
$

6
7
4
,
8
$

6
6
.
0
$

2
6
.
0
$

3
7
.
0
$

3
6
.
0
$

1
6
.
0
$

5
6
.
0
$

4
7
.
0
$

6
6
.
0
$

2
7
.
0
$

7
6
.
0
$

2001

2002

2003

2004

2005

2001

2002

2003

2004

2005

2001

2002

2003

2004

2005

Our Mission

Middlesex Water Company is committed to providing service in the water,
wastewater and related areas, in a safe, reliable and efficient manner.

Safe Harbor

This Annual Report contains forward-looking statements on a number of subjects.
They are based on the company’s current expectations and are subject to a
number of risks and uncertainties.  Actual results could differ materially.  Our 
SEC filings identify factors that could affect those results.  Please refer to those
documents for additional information.

115340-1_BRC_r1:115340-1_BRC 

Moving Forward - Continuing to Refine the Vision and Execute the Strategies

Q & A with new President and Chief Executive Officer, Dennis W. Doll 

Q.  What is your view of Middlesex Water Company?

A. I am honored to be given the opportunity to carry on a
proud legacy that began when the Company was founded 
in 1897. It is the foresight and commitment of our former
leaders and all employees that has brought the Company to
where it is today, a trusted provider of utility services that
have a direct impact on people  lives. I am very excited
about the passion I see around the Company for this 
business and I intend to do my part to further translate 
that passion into long-term value for our shareholders.

s’

Q.  Where does Middlesex Water Company fit in 
the landscape of investor-owned water and wastewater
businesses?

A. We are now one of a handful of publicly-traded 
traditional utility and utility-related services companies.
We compete for growth in certain areas with publicly-
traded peers and with other privately-held and municipal
entities. We have the technical and management capabilities
to be effective competitors in this business and we intend 
to continue on this path through diligent, disciplined 
attention to our vision and underlying strategies.

Q.  The face of investor-owned water, wastewater 
and related products and services industries continues
to evolve as various entities decide to enter and leave
these industries. What does all of this mean for
Middlesex?

A. The need for critical water and wastewater services 
is clearly not going away. Our ongoing challenge is to 
meet our obligation to the public we serve to make the
investments necessary to provide safe, adequate and proper
service both for present and future generations while 
simultaneously, meeting the obligation to our shareholders
to build long-term value. We need to deliver for the 
shareholder through adequate recovery of our investments
in the regulated utilities through the regulatory process 
and through prudent investments in complementary,
non-regulated products and services that meet our risk 
profile. These are the same businesses that our peers and
others are in. The relevant question for our Company and
for our shareholders is, in this continually evolving 
environment, can we meet our shareholders’ expectations
for adding to long-term value? The answer in my view is 
an unqualified yes. I have chosen to invest my career in t

A

115340-1_BRC_r1:115340-1_BRC 

Company because I have knowledge
of the great work that produced 
past successes and knowledge of the
capabilities and commitment of our
talented employees to build upon those
successes to create additional value.

Q.  What can shareholders look for
under your guidance?

Dennis W. Doll, President 
and Chief Executive Officer

A. Certain fundamental aspects of our
business have to be a given. Anything
short of a diligent focus on high quality utility services for
our customers would be unacceptable. In addition, in this
environment of heightened awareness of the importance 
of solid corporate governance, honesty, integrity and 
transparency on the part of the Board, the management 
team and all of our employees, are at the top of our list.
Our reputation as a trusted provider of utility services was
built over many years and we have every intention to not
only maintain but further develop that reputation.

Beyond our commitment to quality and to effective 
governance, we are further expanding our efforts in three
fundamental areas of both external and internal focus:
1) profitable growth, 2) operational excellence and 
3) development of the technical and management skills 
of our people. Although continuous improvement in these 
areas is fundamental to the success of any business, it is the 

A

discipline with which we are executing our plans in these
areas that will ultimately determine how effectively we 
translate these efforts into bottom-line results.

Q.  What specifically are you doing to further 
improve operational excellence?

A. We are concentrating on the details of every business
process that impacts service levels, the integrity of our 
infrastructure, our ability to grow revenues and our ability 
to understand and manage our costs. We are expanding upon
the metrics that we view as critical for managing these areas
and we are moving ownership and accountability for both 
financial and operational results even further into the organization.

Q.  Do you have plans to invest outside traditional utility
and related products and services businesses?

A. We have no intention to pretend we are something that
we are not. We will continue to keep appropriate attention 
on what we do best, investing in, and managing, water and
wastewater assets and related products and services in our
core markets of New Jersey and Delaware and, in other
states, as these opportunities are becoming available. We
continue to evaluate opportunities in utility and related 
areas and are open to other opportunities that leverage off
our core skills and meet risk criteria that we believe meet 
the expectations of our shareholders.

115340_Greenhouse_Txt_r1  4/3/06  12:43 PM  Page 1

Building on Our Fundamentals

TO OUR SHAREHOLDERS

As the investor-owned water and wastewater industries
evolved in 2005, Middlesex Water Company also
continued to evolve as we further focused on diverse
opportunities that this environment presents to build
shareholder value.

Given this continually changing and dynamic
environment, we devoted considerable effort during
2005 to focus on the fundamental aspects of our
business and to develop solid plans to further
contribute to long-term value. Through our strategic
planning process we reconfirmed who we are, where 
we fit in the landscape of investor-owned water,
wastewater and related businesses, where we are going,
and how we intend to get there. The theme of this
report, Building on Our Fundamentals, is more to 
us than just words — it is the basis on which we are
executing our business plan to enable us to achieve 
our goals.

THE VISION
Our strategy is focused on four key areas:
(cid:1) Serve as a trusted and continually improving
provider of safe, reliable and cost-effective 
water, wastewater and related services.
(cid:1) Provide a comprehensive suite of water and

wastewater solutions in the rapidly developing
Delaware market that result in profitable growth.

(cid:1) Pursue profitable, core growth in New Jersey.
(cid:1) Invest in products, services and other viable
opportunities that complement our core
competencies.

2005 HIGHLIGHTS
This past year brought a number of challenges and
successes in the financial, operational and technical
arenas. Consolidated revenues grew $3.6 million, or
5.1%, however basic earnings per share decreased by
$0.02, or 2.7%, due to the full effect of the 700,000
common stock share offering in 2004 and shares issued
under the Company’s Dividend Reinvestment and
Common Stock Purchase Plan during 2005.
Additional capital investment in utility infrastructure of
$25.3 million, together with increased operating costs,
continued the need for rate relief in the regulated water
businesses. The New Jersey Board of Public Utilities
(BPU) granted Middlesex a $4.3 million rate increase
in December 2005 that will augment revenues
throughout 2006. The second phase of the 2005
Tidewater rate increase, amounting to $0.5 million

J. RICHARD TOMPKINS

DENNIS G. SULLIVAN

annually, was implemented in April 2005. We are
currently managing rate petitions for the Pinelands
Water and Wastewater Companies in New Jersey 
that were filed with the BPU in August 2005. The
perennial challenge for our regulated companies is to
control operating costs and minimize, to the extent
possible, the regulatory lag between the time of
investment in utility plant and recognition of the
expenditure in rates.

Long-term debt for both Tidewater Utilities, Inc.
and Middlesex was financed through low-cost State
Revolving Funds and commercial institutions. Over
$2.2 million of additional equity was raised through 
the 5% discount on optional cash payments and
reinvested dividends through the Company’s Dividend
Reinvestment and Common Stock Purchase Plan
during the year.

OPERATIONAL AND
TECHNOLOGICAL ACHIEVEMENTS
A number of operational projects were completed to
support and strengthen our utility infrastructure and 
to maintain appropriate water quality.

(cid:1) A new 60-inch raw water pipeline from the

Delaware and Raritan Canal supply to our primary
water treatment plant was completed in March

1

115340_Greenhouse_Txt_r1  4/3/06  11:30 AM  Page 2

Middlesex Water Company

2005. This additional supply line, which is over a
mile in length, provides increased capacity and
security for the major water supply serving the
Middlesex customers.

(cid:1) A solar electric generation project was completed 

at our New Jersey water treatment plant that will be
fully operational in 2006. This project is designed to
produce 562 megawatts of power that we anticipate
will produce up to 10% savings in power costs at the
treatment plant. This project was partially funded
by $1.3 million of renewable energy credits that were
granted to the Company by the BPU’s Office of
Clean Energy.

(cid:1) In our continuing efforts to conserve water, a

comprehensive leak detection program was initiated
within our New Jersey water utility system (the
Middlesex System) to eliminate lost water and
reduce costs. During 2005, over 100 miles of
underground water mains were surveyed, with both
large and small leaks identified and corrected. This
program is scheduled to continue for Middlesex’s
entire 730-mile distribution system over the next
several years.

(cid:1) 2005 marked the tenth year of the RENEW

Program, which was established to clean and restore
older water mains that have experienced diminished
capacity due to mineral build-up. More than nine
miles of pipeline were rehabilitated this year making
a total of 60 miles that have been completed over the
ten-year period.

(cid:1) A pilot project for the implementation of a

Geographic Information System (GIS) to provide
locational data for our utility infrastructure was
successfully completed in 2005. This system is to 
be expanded to include the Middlesex distribution
system and will provide data to create efficiencies in
daily operations as well as further improve system
planning capability and security.

Our management team participated in security
exercises sponsored by the U.S. Department of
Homeland Security. These efforts are part of our
planning to identify security risks and mitigate any
identified risks. The Company frequently reviews its
emergency preparedness plans to ensure the health 
and safety of our customers and the continuity of 
our operations in the event of a major incident.

In 2005, we launched a regulated wastewater  

2

business in Delaware through a newly-formed
subsidiary, Tidewater Environmental Services, Inc.
This subsidiary acquired its first regulated wastewater
treatment system in December and has since begun
operations. The demand for regulated wastewater
services in Delaware is strong and we look to further
leverage our existing capabilities in this area for
additional long-term growth. Our innovative solutions
to meet the ongoing needs of developers and others
continue to contribute to strong interest in our services,
both in the areas of regulated water and wastewater
operations as well as in non-regulated contract
operations.

THE HUMAN ELEMENT
We continue to support the communities we serve,
both in New Jersey and Delaware. Our efforts in
customer education and community involvement
provide opportunities to make a difference in our
customers’ lives while also providing personal
development opportunities for our employees.

We will maintain a tight focus on the fundamental
aspects of our business. Our employees demonstrated
in 2005 why we enjoy a reputation for delivering 
high-quality utility and related services. We are also
expending additional efforts on our core business
processes to identify areas where we can further
improve the delivery of services as cost-effectively 
as possible. These efforts include identifying
opportunities for process improvement and further
automation of those processes.

We continue to invest in our employees by refining 
our training programs to ensure that our current and
future needs for both technical and management skills
are met. We value the contributions our employees
make every day. We completed a compensation study
in 2005 to help ensure that we are supporting our
employees and their families with competitive wages.

The Company announced a change in management,
effective January 1, 2006. Dennis W. Doll, who joined
the Company in November 2004 as Executive Vice
President, assumed responsibilities as President and
Chief Executive Officer. Mr. Doll has worked closely
with the management team throughout 2005 to lay a
foundation for transition that is intended to further
leverage our capability for greater financial and
operational performance. Mr. Doll has proven his
leadership and management capabilities throughout
this transition and we are confident that your company
has been placed in the care and trust of his capable 

115340_Greenhouse_Txt_r1  4/3/06  1:56 PM  Page 3

Building on Our Fundamentals

hands. Please note the Question and Answer insert
which outlines Mr. Doll’s vision for the Company.

In closing, we will continue to look at water in new
ways to seize the possibilities that exist in a changing
industry landscape. We are guided by a solid vision 
to focus on opportunities that build long-term value.
We thank you for your loyal support and look forward
to further demonstrating to you why your investment
in Middlesex Water Company is a prudent choice.

J. Richard Tompkins
Chairman of the Board

Dennis G. Sullivan
President and Chief Executive Officer

IN THANKS AND APPRECIATION

Dennis G. Sullivan retired in January 2006 following 
21 years of service to Middlesex Water Company.  
As President and CEO he made numerous contributions
to the Company’s success including expansion of the
customer base in both New Jersey and Delaware,
construction of critical utility infrastructure, and further
expansion into wastewater, related services and 
non-regulated operations.  He served as Chief Executive
Officer since February 2003 and as President of the
Company since May 2001.  Mr. Sullivan has served 
as an Officer and Director for the Company and its
subsidiary operations including Tidewater Utilities, Inc., 
Pinelands Water and Wastewater Companies, 
Bayview Water Company, Utility Service Affiliates 
(Perth Amboy) Inc. and Utility Service Affiliates, Inc.   

Mr. Sullivan has been a dedicated and tireless
ambassador for the Company in the relationships he
has forged and he exemplifies the true commitment to
service that is inherent in the culture of Middlesex Water
Company.  We thank him for his leadership and service.

A Solid Vision in 

an Evolving Industry

3

115340_Greenhouse_Txt_r1  4/3/06  11:32 AM  Page 4

Operational Excellence

YEAR IN REVIEW

As the water industry continues to evolve, Middlesex
Water is guided by a single, steadfast mission — to
provide water, wastewater and related products and
services in a safe, reliable and efficient manner. In
2005, the Company updated its strategic plan and
began re-examining its underlying support processes.
Our focus is on our basic operating mechanisms,
including fundamental business processes, training 
and development, and achieving profitable growth.

(cid:1) Building on Our Facilities and

Infrastructure

Middlesex Water Company invests regularly in its
facilities to improve the reliability and security of 
its utility infrastructure. In 2005, the Company put
capital towards meeting increasingly stringent federal
and state water quality standards and addressing the
water supply needs of new and existing customers.
As part of this investment, a second raw water pipeline
went into operation in early March 2005. The 6,250-
foot, 60-inch pipeline from the raw water pump station
on the Delaware & Raritan Canal in New Brunswick,
NJ, to the Company’s Carl J. Olsen Water Treatment
Plant (CJO Plant) in Edison, NJ, is providing
additional security and reliability and added capacity 
to the Company’s water distribution system.

We continued to identify and rehabilitate aging
pipeline under our RENEW Program and invested 
an additional $3.25 million in 2005. RENEW helps 
to enhance water quality and improve water flow 
and pressure. About nine miles of water main were
rehabilitated to nearly new condition in the Iselin 
and Colonia sections of Woodbridge Township 
and portions of Edison and South Amboy, NJ.
Throughout Middlesex’s 730-mile distribution 
system in New Jersey, about 120 miles, or 16% 
of its water mains still need to be rehabilitated.

Clean, renewable solar power is helping Middlesex
Water to address its energy needs. As environmental
stewards, we believe in exploring alternative energy
sources where these efforts make economic sense for
the benefit of our customers. With the help of a grant
from the New Jersey Board of Public Utilities Office 
of Clean Energy’s Renewable Energy Program, the
Company installed a Solar Electric Generation System
at its CJO Plant. The system, which is a combination
of fixed roof panels and a tracker system, is designed to

4

produce about 562 megawatts of power in the first full
year of operation which is approximately 4.0% of the
power used at the Company’s plant. With the savings
on electric costs and the proceeds from the sale of
Renewable Energy Credits, this project meets our
environmental and financial objectives.

During 2005, Middlesex Water provided water service
to approximately 58,500 retail customers in central
New Jersey. In addition, the Company provided water
service under contract to surrounding municipalities
with a population of approximately 267,000.

Total Water Production

Middlesex – 82%

Other – 2%

  9 %

–

U S A - P A  

Tide w ater – 7 %

Under the Company’s Public-Private Partnership
Agreement with the City of Perth Amboy, NJ, its
subsidiary, Utility Service Affiliates (Perth Amboy) 
Inc. (USA-PA), initiated plans to help the city meet
new state regulations regarding its CSO (Combined
Sewer Overflow) System. USA-PA operates Perth
Amboy’s water and wastewater utilities and is currently
developing plans to involve the public in the creation of
a long-term control plan, which is then to be submitted
to the state for approval.

Lost water from leakage is a drain on operating 
results and is an industry-wide challenge. In 2005,
the Company initiated a systematic leak detection
program within its New Jersey water utility system 
(the Middlesex system) to identify leaks in its
distribution infrastructure in an effort to conserve
water and reduce operating costs. During 2005, over 
100 miles of main were surveyed. A preliminary 
estimate of the leaks found during this year’s survey
amounted to 142 million gallons per year or 0.7% of
the Company’s yearly production. The entire system 
is expected to be surveyed over several years.

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 5

Investing in solar power helps meet our energy objectives.

When customers turn on their tap, they expect a
plentiful supply of clean drinking water — and
Middlesex Water met their expectations. The
Company and its subsidiaries capably delivered 
more than 21 billion gallons of water in 2005 to 
meet residential, industrial, commercial and fire
protection needs. Our treatment facilities are
continually upgraded to ensure compliance with federal
and state water quality regulations. In addition, we test
our supplies extensively to ensure that water we deliver 
to customers meets or is better than all federal and
state primary drinking water requirements.

In Delaware, Tidewater Utilities, Inc. (Tidewater),
which provides water service to retail water customers
south of the Chesapeake and Delaware Canal, invested
$11.2 million in capital improvement projects to
maintain its water infrastructure and support growth.
Upgrades and projects included the construction of
new plants and elevated storage facilities, rehabilitation

of several pump house facilities, replacement of pumps,
motors and valves, the addition of new chemical
facilities and several major interconnections in the
southern portion of its service area. Tidewater 
operates 87 stand-alone water plants and 183 wells 
in 271 communities throughout Delaware. Its retail
water supply customer base has consistently grown 
for more than a decade, making it the fastest growing
water utility in the state. In 2005, water supplied by
Tidewater’s subsidiary, Southern Shores Water
Company LLC, obtained regional top honors from 
the Chesapeake Section-American Water Works
Association, in a competition judging water
appearance, odor, flavor and aftertaste.

(cid:1) Maintaining a Strong Balance Sheet

Timely rate relief is a key driver of financial
performance as rate increases allow us to recover and
earn a return on the substantial capital investments 

5

115340_Greenhouse_Txt_r1  4/3/06  9:32 PM  Page 6

Fiscal Accountability

we make in our systems and offset increases in
operating costs. In 2005, Middlesex Water successfully
completed a base rate filing, which allowed the
Company to increase annual rates in its Middlesex
system by $4.3 million, or 8.7%, effective December 8,
2005. Our Pinelands Water and Pinelands Wastewater
subsidiaries filed for modest revenue increases. We

expect a decision on those
matters in mid-2006. The
Company implemented
the second phase of a
Tidewater rate decision in
April 2005 that added
$0.5 million to annual
revenues.

In addition, customers also 

analyzing their consumption patterns. It also has 
an expanded area for important messages about 
utility-related issues.
have the ability to register online for LineCareSM, the
Company’s water service line maintenance program.
Online bill payment provides customers with a choice
in how they transact business with our Company.
Now, as an alternative to paying by mail, customers
can, through the Company’s website, pay their utility
bills by e-check, which electronically transfers funds
from the customer’s checking account or charges their
preferred credit card. With today’s hectic lifestyles,
customers appreciate accommodations that enable them
to manage their transactions more easily and on their
own schedule.

To raise funds for the

(cid:1) Seeking New Opportunities 

continued capital expansion and maintenance of our
Tidewater system, we obtained approval to borrow up
to $2.0 million under the State Revolving Fund
program in Delaware at advantageous interest rates and
repayment terms. In addition, we financed $14.0
million with a term of 25 years and obtained a $7.0
million short-term borrowing facility.

During 2005, we issued shares of Common Stock 
at a 5% discount to participants in the Company’s
Dividend Reinvestment and Common Stock Purchase
Plan (the Plan). The offer applied to all purchases
under the Plan made between June 1, 2005 and
December 1, 2005, by optional cash payment or
dividend reinvestment. The program enabled the
Company to raise an additional $2.2 million 
compared to the prior year.

We continue to focus on our bottom line seeking to
produce profitable and sustainable growth that proves
an investment in Middlesex Water stock is, and
remains, a wise choice. The Company has paid cash
dividends in varying amounts for the past 93 years.
In 2005, we marked the 34th year of consecutive
dividend growth with an increase in the annual
dividend from $0.67 to $0.68.

(cid:1) Enhancing the Customer Experience

To address customers’ needs and enhance their
satisfaction, improvements were implemented in 
our billing format, online registration and customer
payment options. The new bill format helps customers
to more easily locate information on their statement,
including a usage history section to assist them in

6

Success in non-regulated
businesses is an important 
factor in rounding out our
product and service offerings,
as well as our earnings profile.
Middlesex Water provides 
water and wastewater utility
management services through 
its subsidiaries in New Jersey 
and Delaware, including
consulting, contract operations,
maintenance and bulk water
supply. The Company has
significant operational expertise
and is committed to working
with municipalities, developers
and industry to find solutions
that meet their needs and to
pursue opportunities for
profitable growth.

We seek to provide a 
comprehensive suite of water and
wastewater solutions in the rapidly
developing Delaware market.

We continue to focus on building our presence 
in Delaware to provide a comprehensive suite of 
water and wastewater services. In 2005, Tidewater’s
customer base in Delaware expanded by over 9% to
more than 28,000 customers statewide. Conservative
estimates project Tidewater’s customer base could grow
to more than 47,000 customers through build-out 
of existing systems alone. As further evidence of its
accelerating momentum, Tidewater signed 27 new
water agreements to provide service in new residential
developments in 2005.

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 7

Growth and Profitability

Tidewater Environmental Services, Inc. (TESI) 
was established in 2004 as a subsidiary of Middlesex
Water to capitalize on opportunities in the newly
regulated wastewater industry in Delaware. In
December 2005, TESI acquired its first regulated
wastewater treatment system located in the southern
part of the state. Two more facilities are underway and
are scheduled to start up in 2006. Also in 2005, TESI
obtained 18 wastewater franchises which will result in
approximately 8,200 customers at build-out and an
additional 15 franchise petitions await approval from
the Delaware Public Service Commission. In all,
TESI has requests from developers whose build-out
will result in approximately 20,000 customers.

Tidewater’s non-regulated subsidiary, White Marsh
Environmental Systems, Inc. (White Marsh), operates

water and wastewater systems in Delaware under
contract. In the wastewater business for only two
years, White Marsh already operates 37 water and
wastewater systems, including manufactured home
communities, housing subdivisions, commercial and
government properties.

In 2005, the number of subscribers for service 
line maintenance continued to grow. LineCareSM,
offered by the Company’s non-regulated subsidiary,
Utility Service Affiliates, Inc. (USA), protects
customers from costly repairs and aggravation due 
to leaking or broken water service lines. Many
homeowners are unaware they are responsible for
repairs when the break occurs on their property.
LineCareSM offers subscribers the peace of mind that
repairs will be performed promptly and professionally

We are committed to being 
We are committed to being 
a trusted and continually
a trusted and continually
improving provider of safe 
improving provider of safe 
and reliable water service.
and reliable water service.

7

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 8

Professional Development

for an affordable annual fee. The Company is
expanding the program into other areas where 
we provide water service.

(cid:1) Developing Employee Skills

Middlesex Water Company rightfully prides itself 
on the quality, commitment and dedication of its
workforce. The hard work and expertise of our
employees allows us to deliver positive results for
customers and shareholders. As such, we continually
strive to provide a safe, supportive and learning-
oriented environment where all of our employees 
can grow, contribute and succeed.

During the year, we completed a major review of our
wage and salary structure throughout the Company.
Our analysis confirmed that our wages, within our
industry and geographical locations, are competitive.
We also evaluated our health and benefits programs to
ensure that we continue to attract and retain the best
employees possible while keeping the costs of benefits
under control. After a thorough review of competitive
information, we increased all employees’ contributions for
these benefits to keep pace with the rising costs and cost-
sharing trends in general industry. In a related area, we
implemented the employee privacy provisions of the
Federal Health Insurance Portability and Privacy Act to
ensure employee health-related information is restricted to
a need-to-know basis and is otherwise kept confidential.

In the area of training, the Company continues to 
ensure that all employees meet regular requirements 
for compliance training required for OSHA safety,
industry licensing renewal training for various 
specialized positions, and Commercial Driver’s License
requirements. We also conducted specialized group
training sessions for our management staff to enhance
the culture and work environment. Training included
building leadership skills, problem solving, negotiations,
performance management, communications, budgeting
and workplace harassment prevention. Individual
employees also attended a variety of sessions designed to
improve their specific skills. We have recently designed
our management structure to administer safety programs
and ensure consistency in applications of safety practices
across all Company locations. Five long-service
employees retired during the year and we thank them
for their dedication and service.

8

They were:
Dennis G. Sullivan, President and Chief Executive
Officer, and member of the Board of Directors,
21 years of service.
John Remeniski, Construction Inspector, 44 years 
of service.
Catherine Bensco, Senior Accounts Payable Clerk,
42 years of service.
John Liguori, Meter Service Repairman, 34 years 
of service.
Ronald Morgan, Mail/Supply Clerk, 10 years 
of service.

Sadly in 2005, we also mourned the passing of two
long-term active employees, Donald Labno, Meter
Service Repairman, with 34 years of service; and
Douglas Roy, Equipment Operator, with 10 years 
of service. We extend our sincere condolences to 
their families.

Finally, we proudly recognize two of our utility crew
workers who served our country honorably in the Armed
Forces for much of 2005. Sergeant Andrew Lyszyk and
Lance Corporal Joseph Teston, both members of the 
U.S. Marine Corps Reserves, were activated for service 
in January 2005. Both served in Operation Enduring
Freedom in Iraq and returned safely to work at the end
the year. We thank them for the personal sacrifices they
made to support our country and are grateful for their
safe return.

(cid:1) Strengthening Our Relationships

At Middlesex Water Company we share an 
important connection with the communities we 
serve. The Company provides resources to numerous
area organizations with particular emphasis on healthcare
and human services and environmental awareness. The
Company also works with schools and organizations to
promote a greater understanding of water issues.

Achieving our vision means paying attention to the
details and understanding every aspect of our business.
It means analyzing our strengths and improving the
things that matter to customers, shareholders and
employees. It means focusing on core business 
growth and improving productivity. We have a 
strong foundation in place, a clear direction for the
future, and the experienced team to achieve our goals.
At Middlesex Water, the success of tomorrow begins
with building on our fundamentals today.

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 9

2005 Annual Report 

CONSOLIDATED SELECTED FINANCIAL DATA
(Thousands of Dollars Except per Share Data)

Operating Revenues
Operating Expenses:

Operations and Maintenance
Depreciation
Other Taxes

Total Operating Expenses

Operating Income
Other Income, Net
Interest Charges
Income Taxes
Net Income

Preferred Stock Dividend
Earnings Applicable to Common Stock
Earnings per Share:

Basic
Diluted

Average Shares Outstanding:

Basic
Diluted

Dividends Declared and Paid
Total Assets
Convertible Preferred Stock
Long-term Debt

2005
$ 74,613

2004
$ 70,991

2003
$ 64,111

2002
$ 61,933

2001
$ 59,638

42,156
6,460
8,779
57,395
17,218
740
6,245 
3,237
8,476
251
8,225

0.72
0.71

$

$
$

39,984
5,846
8,228
54,058
16,933 
795
5,468
3,814
8,446
255
8,191

0.74
0.73

$

$
$

36,195
5,363
7,816
49,374 
14,737 
358
5,227
3,237
6,631
255
6,376

0.61
0.61

$

$
$

32,767
4,963
7,737
45,467 
16,466 
442
5,144
3,999
7,765
255
7,510

0.73
0.73

$

$
$

31,740
5,051
7,594
44,385
15,253 
502
5,042
3,760
6,953
255
6,698

0.66
0.66

$

$
$

11,445
11,784
0.673
$
$ 324,383
$
2,856
$ 128,175

11,080
11,423
0.663
$
$ 305,634
$
2,961
$ 115,281

10,475
10,818
0.649
$
$ 267,956
$
2,961
$ 97,377

10,280
10,623
0.634
$
$ 251,971
$
2,961
$ 87,483

10,131
10,474
0.623
$
$ 242,512
$
2,961
$ 88,140

STATISTICAL SUMMARY

REVENUES (Thousands of Dollars):

Residential
Commercial
Industrial
Fire Protection
Contract Sales
Contract Operations
Other

TOTAL REVENUES

CAPITALIZATION RATIOS:

Long-term Debt
Preferred Stock
Common Stock Equity
TOTAL

OTHER:

2005
$ 31,289
7,297 
8,183 
7,742 
10,024 
8,082 
1,996 
$ 74,613 

2004 
$ 28,322 
6,771 
7,708 
7,237 
9,086 
7,934 
3,933 
$ 70,991 

2003 
$ 25,272 
6,299 
7,131 
6,830 
8,458 
8,065 
2,056 
$ 64,111 

2002 
$ 24,793 
6,032 
7,368 
6,495 
8,728 
7,465 
1,052 
$ 61,933 

2001 
$ 22,916 
6,054 
7,544 
6,182 
8,806 
7,288 
848 
$ 59,638 

55% 
2 
43
100% 

54% 
2 
44 
100% 

54% 
2 
44 
100% 

52% 
2 
46 
100% 

54% 
2 
44 
100%

Book Value of Common Stock
Customers
Population Served (Retail)
Miles of Main 
Fire Hydrants  
Water Production (million gallons)

$

8.36
119,800 
407,500 
1,250 
6,595 
21,196

$

7.99 
115,000 
400,000 
1,215 
6,306 
20,344

$      7.56
109,700
373,000
1,150
5,953
20,015

$

7.39
104,900 
363,000 
1,118 
5,791 
19,895

$

7.11 
101,700 
351,000 
1,070 
5,663 
20,272

9

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Middlesex Water Company

MANAGEMENT’S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Overview 
Middlesex Water 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 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 in New Jersey and for water services in Delaware, as to the quality of water service we provide and as to
certain other matters. Our TESI subsidiary commenced operations during 2005 as a regulated wastewater utility 
in Delaware. Only our USA, USA-PA and White Marsh subsidiaries are not regulated utilities.

Our New Jersey water utility system (the Middlesex system) provides water services to approximately 58,500 
retail customers, primarily in central New Jersey. The Middlesex system also provides water service under contract
to municipalities in central New Jersey with a total population of approximately 267,000. In partnership with our
subsidiary, USA-PA, we operate the water supply system and wastewater system for the City of Perth Amboy,
New Jersey. Our other New Jersey subsidiaries, Pinelands Water and Pinelands Wastewater, provide water and
wastewater services to residents in Southampton Township, New Jersey.

Our Delaware subsidiaries, Tidewater and Southern Shores, provide water services to approximately 28,300 retail
customers in New Castle, Kent and Sussex Counties, Delaware. Our TESI subsidiary provides wastewater services
to approximately 20 residential retail customers. Our other Delaware subsidiary, White Marsh, services an
additional 4,000 customers in Kent and Sussex Counties.

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.

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

Operating Results by Segment 
The Company has two operating segments, Regulated and Non-Regulated. Our Regulated segment contributed
89% and 86% of total revenues, and 95% and 95% of net income for the years ended December 31, 2005 and 
2004, respectively. The discussion of the Company’s results of operations is on a consolidated basis, and includes
significant factors by subsidiary. The segments in the tables included below are comprised of the following
companies: Regulated- Middlesex, Tidewater, Pinelands, Bayview, Southern Shores, and TESI; Non-Regulated-
USA, USA-PA, and White Marsh.

10

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 11

2005 Annual Report 

RESULTS OF OPERATIONS IN 2005 COMPARED TO 2004

Revenues
Operations and maintenance
Depreciation
Other taxes

Operating income
Other income (expense)
Interest expense
Income taxes 

Net income

Regulated
66.3
$
35.0
6.3
8.6
16.4
0.7
6.1
2.9
8.1

$

$

Fiscal Years ended December 31,
(Millions of Dollars)
2005                                                               2004
Non-
Non-
Regulated
Regulated
$
10.2
$
9.0
0.1
0.3
0.8
0.0
0.1
0.3
0.4

Regulated
60.8
$
31.0
5.8
7.9
16.1
0.8
5.4
3.5
8.0

Total
74.6
42.2
6.4
8.8
17.2
0.7
6.2
3.2
8.5

8.3
7.2
0.1
0.2
0.8
0.0
0.1
0.3
0.4

$

$

$

$

Total
71.0
40.0
5.9
8.2
16.9
0.8
5.5
3.8
8.4

$

$

Operating revenues for the year rose $3.6 million, or 5.1% over the same period in 2004. Water sales improved 
by $3.6 million in our Middlesex system, of which $1.8 million was a result of base rate increases that were granted 
to Middlesex on May 27, 2004 and December 8, 2005, and $1.8 million was due to increased consumption due to
drier weather as compared to the prior year. Customer growth of 9.2% in Delaware provided additional water
consumption sales, facility charges and connection fees of $0.9 million, and higher base rates provided $1.0 million.
New unregulated wastewater contracts in Delaware provided $0.1 million in additional revenues. USA had reduced
revenues of $2.2 million as compared to the prior year period, due to our meter services venture completing its original
contracts during December 2004. This decrease was partially offset by increased revenues for USA’s LineCareSM
maintenance program of $0.1 million. All other operations contributed $0.1 million of additional revenues.

While we anticipate continued organic customer and consumption growth among our Delaware systems, such
growth and increased consumption cannot be guaranteed. Our water systems are highly dependent on the effects
of weather, which may adversely impact future consumption despite customer growth. Appreciable organic
customer and consumption growth is less likely in our New Jersey systems due to the extent to which our 
service territory is developed.

Operation and maintenance expenses increased $2.2 million, or 5.4% as compared to the same period in 2004.
In New Jersey, payroll and employee benefits costs increased by $1.9 million. Water production costs for the
Middlesex system increased by $0.7 million due to higher demand and increased unit costs for electricity, chemicals
and residuals removal. Costs to operate the Tidewater system increased $0.2 million, and increases in our Delaware
employee base, general wage increases and higher costs associated with employee medical and retirement benefits
increased costs by $1.0 million. Costs for providing services under our contract with the City of Perth Amboy
increased by $0.1 million. All other operating costs increased by $0.1 million. The costs of our meter services
venture decreased $1.8 million due to the completion of the original projects during December 2004.

Going forward we anticipate increases in electric generation costs by as much as 40% beginning May 1, 2006 
in Delaware due to deregulation of electricity. Our pension and postretirement costs increased by $1.1 million
during 2005 and we expect these costs to increase by $0.4 million in 2006. Payroll and related employee benefit
costs (excluding pension and postretirement expenses previously discussed) are also expected to be higher in 2006.
These increasing costs, in addition to higher business insurance, required us to file for a base rate increase with the
BPU for Pinelands during 2005 and will require us to file for an increase with the PSC for Tidewater during 2006.
We cannot predict whether the BPU or PSC will approve, deny or reduce the amount of any request.

11

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Middlesex Water Company

Depreciation expense for 2005 increased by $0.6 million, or 10.5%, due to a higher level of utility plant in service.
As our investments in utility plant and operating expenses increase, we continue to seek timely rate relief through
base rate filings as discussed above.

Other taxes increased by $0.6 million generally reflecting additional taxes on higher taxable gross revenues, payroll
and real estate.

Other income decreased $0.1 million, primarily due to reduced Allowance for Funds Used During Construction
(AFUDC) due to reduced capital spending as compared to the prior year.

Interest expense increased by $0.8 million, or 14.2%, as a result of a higher level of long-term debt, and higher
average interest rates and increased weighted average short-term borrowings as compared to the prior year period.

Income tax expense based on our current year operating results was $3.8 million, which was partially offset by $0.6
million of tax benefits.

Net income increased to $8.5 million from $8.4 million in the prior year, however basic earnings per share
decreased from $0.74 to $0.72. Diluted earnings per share decreased from $0.73 to $0.71. The earnings per share
decrease was due to an increase in average shares outstanding as compared to the prior year period as a result of 
the sale of 700,000 shares of common stock on May 12, 2004, and shares issued under the Company’s Dividend
Reinvestment Plan during 2005.

RESULTS OF OPERATIONS IN 2004 COMPARED TO 2003

Revenues
Operations and maintenance
Depreciation
Other taxes

Operating income
Other income (expense)
Interest expense
Income taxes 

Net income

Regulated
60.8
$
31.0
5.8
7.9
16.1
0.8
5.4
3.5
8.0

$

$

Fiscal Years ended December 31,
(Millions of Dollars)
2004                                                              2003
Non-
Non-
Regulated
Regulated
10.2
$
$
9.0
0.1
0.3
0.8
0.0
0.1
0.3
0.4

Regulated
55.7
$
28.9
5.3
7.5
14.0
0.3
5.0
3.0
6.3

Total
71.0
40.0
5.9
8.2
16.9
0.8
5.5
3.8
8.4

8.4
7.3
0.1
0.3
0.7
0.0
0.2
0.2
0.3

$

$

$

$

Total
64.1
36.2
5.4
7.8
14.7
0.3
5.2
3.2
6.6

$

$

Operating revenues for the year rose $6.9 million, or 10.7% over the same period in 2003. Water sales improved by
$2.9 million in our Middlesex system, which was primarily a result of base rate increases. Customer growth of 10.4%
in Delaware provided additional consumption revenues of $1.2 million and higher base rates provided $0.8 million.
Our meter services venture provided $2.0 million of additional revenues for completed meter installations. New
unregulated wastewater contracts in Delaware provided $0.3 million in additional revenues. Base rate increases for
our Pinelands system contributed $0.1 million of additional revenues. Revenues from our operations and maintenance
contracts decreased $0.4 million due to scheduled reductions in fixed fees under the City of Perth Amboy contract.

Operation and maintenance expenses increased $3.8 million or 10.5%. In New Jersey, payroll costs, employee
benefits and corporate governance related fees increased costs by $1.1 million. Source of supply and pumping costs
for the Middlesex system increased by $0.7 million combined due to increased costs for electricity and purchased
water. Costs to operate the Tidewater system, as well as an increase in our Delaware employee base, general wage
increases and higher costs associated with employee medical and retirement benefits increased costs by $0.6 million.

12

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 13

2005 Annual Report 

The costs of our meter services venture increased $1.6 million due to completed installations. The costs of our
non-regulated wastewater operations and maintenance contracts increased $0.3 million due to additional contracts
obtained during the year. These increases were partially offset by $0.4 million of reduced costs related to our City 
of Perth Amboy contract due to reduced water treatment costs and a decrease of $0.1 million for water main repair
costs in our Middlesex system.

Depreciation expense for 2004 increased by $0.5 million, or 9.0%, due to a higher level of utility plant in service.

Other taxes increased by $0.4 million generally reflecting additional taxes on higher taxable gross revenues, payroll
and real estate.

AFUDC rose by $0.3 million for the year, due to large construction projects in New Jersey for the RENEW
program and a new raw water pipeline. Other income increased $0.1 million, primarily due to the recognition of 
a gain on the sale of real estate that had previously been deferred pending the outcome of the Middlesex rate case.

Interest expense increased by $0.2 million, primarily due to higher average long-term borrowings as compared to
the prior year period.

Improved operating results in 2004 compared to 2003 led to higher income taxes of $0.8 million, which was
partially offset by $0.2 million of tax benefits.

Net income increased by 27.4% to $8.4 million from $6.6 million in the prior year, and basic earnings per share
increased from $0.61 to $0.74. Diluted earnings per share increased from $0.61 to $0.73. The increase in earnings
per share was impacted by the higher number of shares outstanding during the current year as a result of the sale 
of 700,000 shares of common stock in May 2004.

Outlook 

In addition to some of the factors previously discussed under “Results of Operations in 2005 Compared to 2004,”
our revenues are expected to increase in 2006 from anticipated customer growth in Delaware for our regulated water
operations and, to a lesser degree, from growth in our regulated wastewater operations in Delaware. We received
approval for an 8.7% or $4.3 million base rate increase for our Middlesex system in December 2005 and implemented
the second phase of the settlement of our 2004 Tidewater rate case in April 2005, from which we expect to fully
realize on an annualized basis in 2006. During 2005, we also filed for a combined 10.3%, or $0.2 million base rate
increase for our Pinelands systems. We expect a decision in the matter during the second quarter of 2006.

We expect to file for a base rate increase for Tidewater during 2006. Revenues and earnings for 2006 will be
impacted by the ultimate timing and outcome of the anticipated filing. Revenues and earnings will also be
influenced by weather. Changes in these factors, as well as increases in capital expenditures and operating costs 
are the primary factors that determine the need for rate increase filings.

We continue to explore viable plans to streamline operations and reduce costs in all aspects of our business.
We have unique challenges in Delaware, where customer growth continues to exceed industry averages. Part of 
this unique challenge is that our Delaware operations are a combination of over 87 stand-alone production and
distribution systems serving 271 communities.

Our new regulated wastewater operation commenced operations during fiscal 2005. Due to the start-up nature of
this operation, we expect our expenses with respect to this subsidiary may marginally exceed its revenues in 2006.

We expect our interest expense to increase during 2006 as a result of incurring a full year of interest expense on 
the approximately $14.9 million of long-term debt we financed during fiscal 2005 and higher expected average
borrowings and interest rates on short-term credit facilities in order to finance a portion of our capital expenditures
during the coming year (see Liquidity and Capital Resources).

13

115340_Greenhouse_Txt_r1  4/3/06  11:34 AM  Page 14

Middlesex Water Company

Our strategy includes continued revenue growth through acquisitions, internal expansion, contract operations and
when necessary, rate relief. We will continue to pursue opportunities in both the regulated and non-regulated
sectors that are financially sound, complement existing operations and increase shareholder value.

Liquidity and Capital Resources 

Cash flows from operations are largely based on three factors: weather, adequate and timely rate increases, and
customer growth. The effect of those factors on net income is discussed in results of operations. For 2005, cash
flows from operating activities decreased $2.1 million to $13.5 million, as compared to the prior year. This decrease
was primarily attributable to the timing of collection of customer accounts and payments to vendors. These
decreases in cash flows were partially offset by receipts of advance service fees and the timing of payments for
interest and employee benefit plans. The $13.5 million of net cash flow from operations allowed us to fund
approximately 53% of our utility plant expenditures for the period internally, with the remainder funded with
proceeds from equity issued under our Dividend Reinvestment Plan and both short-term and long-term borrowings.

For 2004, net cash flow from operations of $15.6 million, which increased over 2003 due to improved profitability
during the period and the timing of payments made toward prepaid expenses, materials and supplies, and employee
benefit plans allowed us to fund approximately 54% of our 2004 utility plant expenditures. Net proceeds from both
short-term and long-term borrowings were used to fund the balance of those expenditures.

Increases in certain operating costs will impact our liquidity and capital resources. As described in our results of
operations discussion, during 2005 we received rate relief for Middlesex and Tidewater. We also plan to file for a
base rate increase for Tidewater in 2006 as a result of continued capital investment in Delaware. We also expect 
to receive a decision on the requested Pinelands base rate increase in 2006. There is no certainty, however, that 
the BPU or PSC will approve any or all of this or other future requested increases.

Sources of Liquidity

Short-term Debt. As of December 31, 2005, the Company has established revolving lines of credit aggregating
$40.0 million. At December 31, 2005, the outstanding borrowings under these credit lines were $4.0 million at a
weighted average interest rate of 5.09%. As of that date, the Company had borrowing capacity of $36.0 million
under its credit lines.

The weighted average daily amounts of borrowings outstanding under the Company’s credit lines and the weighted
average interest rates on those amounts were $9.2 million and $8.9 million at 4.36% and 2.37% for the years ended
December 31, 2005 and 2004, respectively.

Long-term Debt. Subject to regulatory approval, the Company periodically finances capital projects under State
Revolving Fund (SRF) loan programs in New Jersey and Delaware. These government programs provide financing
at interest rates that are typically below rates available in the financial markets. A portion of the borrowings under
the New Jersey SRF is interest free. We participated in the Delaware SRF loan programs during 2005 and expect 
to participate in the 2006 New Jersey SRF program for $4.0 million.

During 2004, Middlesex closed on $16.6 million of first mortgage bonds through the New Jersey Environmental
Infrastructure Trust (NJEIT) under the New Jersey SRF loan program in order to finance the costs of a new raw
water pipeline and our 2005 and 2006 RENEW programs. The proceeds of these bonds and any interest earned
are held by a trustee, and are classified as Restricted Cash on the Consolidated Balance Sheet.

During 2005, Tidewater closed on a $2.0 million loan with the Delaware SRF program and on a $14.0 million
secured loan with CoBank, a financial institution specializing in loans to rural utilities. The proceeds were used 
to fund the ongoing capital program in Delaware.

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115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 15

2005 Annual Report 

Substantially all of the utility plant of the Company is subject to the lien of its mortgage, which also includes debt
service and capital ratio covenants, certain restrictions as to cash dividend payments and other distributions on
common stock. The Company is in compliance with all of its mortgage covenants and restrictions.

Common Stock. The Company periodically issues shares of common stock in connection with its dividend
reinvestment and stock purchase plan. Periodically, the Company may issue additional equity to reduce short-
term indebtedness and for other general corporate purposes. The Company issued shares under its Dividend
Reinvestment and Common Stock Purchase Plan at a 5% discount for a six-month period during 2005.
This allowed the Company to raise $3.7 million through the plan during 2005, an increase of $2.2 million as
compared to the prior year. During 2004, the Company issued $15.1 million of common stock, which included 
a common stock offering of 700,000 shares that was priced at $19.80 in May. The majority of the net proceeds 
of approximately $12.9 million from the common stock offering were used to repay most of the Company’s 
short-term borrowings outstanding at that time.

Capital Expenditures and Commitments

As shown in the following table, we expect our
capital expenditures in 2006, 2007 and 2008 to
increase over the 2005 amount of $25.3
million. These increases are attributable to
anticipated acquisitions and development for
the TESI system and continued customer
growth and service improvement requirements
in our Tidewater systems in Delaware, where
we spent $11.2 million on utility plant in 2005.

Delaware Water Systems
Delaware Wastewater Systems
RENEW Program
Scheduled Upgrades to 

Existing Systems

Total

(Millions of Dollars)
2007
2008
$ 19.4
$ 16.3
30.5
8.8
3.3
3.3
15.3
15.3

2006
$ 20.2
13.9
3.3
7.1

$ 44.5

$ 68.5

$ 43.7

Under our capital program for 2006, we plan to expend $20.2 million for additions and improvements for our
Delaware water systems, which include the construction of several storage tanks and the creation of new wells and
interconnections. We expect to spend approximately $13.9 million for system additions and acquisitions for our
Delaware wastewater systems. We expect to spend $3.3 million for our RENEW program, which is our program to
clean and cement line unlined mains in the Middlesex System. There remains a total of approximately 120 miles of
unlined mains in the 730-mile Middlesex System. In 2005, nine miles of unlined mains were cleaned and cement
lined. The capital program also includes $7.1 million for scheduled upgrades to our existing systems in New Jersey.
The scheduled upgrades consist of $1.4 million for improvements to existing plant, $1.0 million for mains, $0.8 million
for service lines, $0.4 million for meters, $0.3 million for hydrants, and $3.2 million for other infrastructure needs.

To pay for our capital program in 2006, we will utilize internally generated funds and funds available and held 
in trust under existing NJEIT loans (currently, $4.2 million) and Delaware SRF loans (currently, $2.9 million).
The SRF programs provide low cost financing for projects that meet certain water quality and system improvement
benchmarks. If necessary, we will also utilize short-term borrowings through $36.0 million of available lines of
credit with several financial institutions. As of December 31, 2005, we had $4.0 million outstanding against the
lines of credit.

Going forward into 2007 through 2008, we currently project that we will be required to expend approximately
$112.2 million for capital projects. To the extent possible and because of favorable interest rates available to
regulated water utilities, we will 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. We also expect to sell shares of our common stock through a public offering in
late 2006 or early 2007.

Tidewater is appealing a Notice of Violation regarding a plan of correction to a community water system to 
provide fire protection services with an estimated capital investment cost of between $0.9 million and $1.6 million.
Should we not be successful in asserting our defense, over 60 additional community water systems could be subject
to similar corrective plans of action. While we are unable to estimate the potential capital investment costs for 

15

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 16

Middlesex Water Company

these additional community water systems at this time, Tidewater believes these expenditures would be subject to
recovery in rates as set by the PSC. See Item 3. – Legal Proceedings for additional discussion of this matter.

Contractual Obligations

In the course of normal business activities, the Company enters into a variety of contractual obligations and
commercial commitments. Some of these items result in direct obligations on the Company’s balance sheet while
others are commitments, some firm and some based on uncertainties, which are disclosed in the Company’s
underlying consolidated financial statements.

The table below presents our known contractual obligations for the periods specified as of December 31, 2005.

(Millions of Dollars)
Payment Due by Period

Long-term Debt
Notes Payable
Interest on Long-term Debt
Purchased Water Contracts
Wastewater Operations

Total

Guarantees

Total
130.1
4.0
110.0
27.5
59.3
330.9

$

$

$

Less than
1 Year
1.9
4.0
6.5
4.0
3.9
20.3

$ 

1-3 Years
5.0
$
-
12.8
8.2
8.1
34.1

$ 

4-5 Years
5.2
$
-
10.6
8.2
8.5
32.5

$

More than
5 Years
118.0
-
80.1
7.1
38.8
244.0

$

$

USA-PA operates the City of Perth Amboy’s (Perth Amboy) water and wastewater systems under a service contract
agreement through June 30, 2018. The agreement was effected under New Jersey’s Water Supply Public/Private
Contracting Act and the New Jersey Wastewater Public/Private Contracting Act. Under the agreement, USA-PA
receives a fixed fee and a variable fee based on increased system billing. Scheduled fixed fee payments were $7.4
million in 2005 and will increase over the term of the contract to $10.2 million at the end of the contract.

In connection with the agreement, Perth Amboy, through the Middlesex County Improvement Authority, issued
approximately $68.0 million in three series of bonds. Middlesex guaranteed one of those series of bonds, designated the
Series C Serial Bonds, in the principal amount of approximately $26.3 million. Perth Amboy guaranteed the two other
series of bonds. The Series C Serial Bonds have various maturity dates with the final maturity date on September 1,
2015. As of December 31, 2005, approximately $23.9 million of the Series C Serial Bonds remained outstanding.

We are obligated to perform under the guarantee in the event notice is received from the Series C Serial Bonds
trustee of an impending debt service deficiency. If Middlesex funds any debt service obligations as guarantor,
there is a provision in the agreement that requires Perth Amboy to reimburse us. There are other provisions in 
the agreement that we believe make it unlikely that we will be required to perform under the guarantee, such as
scheduled annual rate increases for the water and wastewater services as well as rate increases due to unforeseen
circumstances. In the event revenues from customers could not satisfy the reimbursement requirements, Perth
Amboy has Ad Valorem taxing powers, which could be used to raise the needed amount.

Critical Accounting Policies and Estimates 

The application of accounting policies and standards often requires the use of estimates, assumptions and
judgments. Changes in these variables may lead to significantly different financial statement results. Our critical
accounting policies are set forth below.

Regulatory Accounting

We maintain our books and records in accordance with accounting principles generally accepted in the United
States of America. Middlesex and certain of its subsidiaries, which account for 89% of Operating Revenues and
99% of Total Assets, are subject to regulation in the states in which they operate. Those companies are required to
16

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 17

2005 Annual Report 

maintain their accounts in accordance with regulatory authorities’ rules and guidelines, which may differ from other
authoritative accounting pronouncements. In those instances, the Company follows the guidance provided in the
Financial Accounting Standards Board (FASB), Statement of Financial Accounting Standards (SFAS) No. 71,
“Accounting For the Effects of Certain Types of Regulation” (SFAS 71).

In accordance with SFAS No. 71, costs and obligations are deferred if it is probable that these items will be
recognized for rate-making purposes in future rates. Accordingly, we have recorded costs and obligations, which
will be amortized over various future periods. Any change in the assessment of the probability of rate-making
treatment will require us to change the accounting treatment of the deferred item. We have no reason to believe 
any of the deferred items that are recorded would be treated differently by the regulators in the future.

Revenues 

Revenues from metered customers include amounts billed on a cycle basis and unbilled amounts estimated from 
the last meter reading date to the end of the accounting period. The estimated unbilled amounts are determined by
utilizing factors which include historical consumption usage and current climate conditions. Differences between
estimated revenues and actual billings are recorded in a subsequent period.

Revenues from unmetered customers are billed at a fixed tariff rate in advance at the beginning of each service
period and are recognized in revenue ratably over the service period.

Revenues from the Perth Amboy management contract are comprised of fixed and variable fees. Fixed fees, which
have been set for the life of the contract, are billed monthly and recorded as earned. Variable fees, which are based
on billings and other factors and are not significant, are recorded upon approval of the amount by Perth Amboy.

Pension Plan 

We maintain a noncontributory defined benefit pension plan which covers substantially all employees with more
than 1,000 hours of service.

The discount rate utilized for determining future pension obligations has decreased from 6.00% at December 31, 2003 to
5.88% at December 31, 2004 to 5.52% at December 31, 2005. Lowering the discount rate by 0.5% would have increased
the net periodic pension cost by $0.3 million in 2005. Lowering the expected long-term rate of return on the pension plans
by 0.5% (from 8.0% to 7.5%) would have increased the net periodic pension cost in 2005 by approximately $0.1 million.

The discount rate for determining future pension obligations is determined based on market rates for long-term,
high-quality corporate bonds at our December 31 measurement date. The expected long-term rate of return for
pension assets is determined based on historical returns and our asset allocation.

Future actual pension expense will depend on future investment performance, changes in future discount rates and
various other factors related to the population participating in the pension plans.

Recent Accounting Standards 

See Note 1(m) of the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements.

Qualitative and Quantitative Disclosures About Market Risk

The Company is subject to the risk of fluctuating interest rates in the normal course of business. Our policy is to manage
interest rates through the use of fixed rate long-term debt and, to a lesser extent, short-term debt. The Company’s interest
rate risk related to existing fixed rate, long-term debt is not material due to the term of the majority of our First Mortgage
Bonds, which have final maturity dates ranging from 2009 to 2038. Over the next twelve months, approximately $1.9
million of the current portion of 15 existing long-term debt instruments will mature. Combining this amount with the
$4.0 million in short-term debt outstanding at December 31, 2005, and applying a hypothetical change in the rate of
interest charged by 10% on those borrowings, would not have a material effect on our earnings.

17

115340_Greenhouse_Txt_r1  4/3/06  12:44 PM  Page 18

Middlesex Water Company

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING

The management of Middlesex Water Company (Middlesex or the Company) is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13A-15(f )
and 15d-15(f ). Middlesex’s internal control system was designed to provide reasonable assurance to the
Company’s management and Board of Directors regarding the adequate preparation and fair presentation 
of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to the adequacy of
financial statement preparation and presentation. Middlesex’s management assessed the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2005. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, we believe that 
as of December 31, 2005, the Company’s internal control over financial reporting is operating as designed and 
is effective based on those criteria.

Middlesex’s independent registered public accounting firm has issued their report on our assessment of the
Company’s internal control over financial reporting. This report appears on page 19.

Dennis W. Doll
President and
Chief Executive Officer

A. Bruce O’Connor
Vice President and
Chief Financial Officer

Iselin, New Jersey
March 16, 2006

18

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 19

2005 Annual Report 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Middlesex Water
Company:

We have audited the accompanying consolidated balance sheets

and consolidated statements of capital stock and long-term debt of
Middlesex Water Company and subsidiaries (the “Company”) as of
December 31, 2005 and 2004, and the related consolidated statements
of income, common stockholders’ equity and comprehensive income,
and cash flows for each of the three years in the period ended
December 31, 2005. These consolidated financial statements are 
the responsibility of the Company’s management. Our responsibility 
is to express an opinion on these consolidated financial statements
based on our audits.

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test 
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe 
that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present

fairly, in all material respects, the financial position of the Company 
as of December 31, 2005 and 2004, and the results of its operations 
and its cash flows for each of the three years in the period ended
December 31, 2005, in conformity with accounting principles 
generally accepted in the United States of America.

We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Company’s internal control over financial reporting
as of December 31, 2005, based on the criteria established in Internal
Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our 
report dated March 16, 2006 expressed an unqualified opinion on
management’s assessment of the effectiveness of the Company’s
internal control over financial reporting and an unqualified opinion 
on the effectiveness of the Company’s internal control over financial
reporting.

Parsippany, New Jersey
March 16, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Middlesex Water
Company:

We have audited management’s assessment, included in the

accompanying Management’s Report on Internal Control over
Financial Reporting, that Middlesex Water Company and subsidiaries
(the “Company”) maintained effective internal control over financial
reporting as of December 31, 2005, based on criteria established in
Internal Control—Integrated Framework issued by the Committee 
of Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management’s assessment 
and an opinion on the effectiveness of the Company’s internal control
over financial reporting based on our audit.

We conducted our audit in accordance with the standards of 
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial
reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in 
the circumstances. We believe that our audit provides a reasonable
basis for our opinions.

A company’s internal control over financial reporting is a process

designed by, or under the supervision of, the company’s principal
executive and principal financial officers, or persons performing 
similar functions, and effected by the company’s board of directors,
management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of 
the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of 

financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material
effect on the financial statements.

Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error
or fraud may not be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of the internal control
over financial reporting to future periods are subject to the risk that the
controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may
deteriorate.

In our opinion, management’s assessment that the Company
maintained effective internal control over financial reporting as of
December 31, 2005, is fairly stated, in all material respects, based on
the criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting 
as of December 31, 2005, based on the criteria established in Internal
Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets and consolidated statements of capital stock
and long-term debt of the Company as of December 31, 2005, and 
the related consolidated statements of income, common stockholders’
equity and comprehensive income, and cash flows for the year ended
December 31, 2005 and our report dated March 16, 2006 expressed 
an unqualified opinion on those consolidated financial statements.

Parsippany, New Jersey
March 16, 2006

19

115340_Greenhouse_Txt_r1  4/3/06  11:35 AM  Page 20

MIDDLESEX WATER COMPANY 
CONSOLIDATED  BALANCE SHEETS

ASSETS
UTILITY PLANT:

CURRENT ASSETS:

DEFERRED CHARGES
AND OTHER ASSETS:

Water Production
Transmission and Distribution
General
Construction Work in Progress
TOTAL
Less Accumulated Depreciation
UTILITY PLANT - NET

Cash and Cash Equivalents
Accounts Receivable, net
Unbilled Revenues
Materials and Supplies (at average cost)
Prepayments 
TOTAL CURRENT ASSETS

Unamortized Debt Expense
Preliminary Survey and Investigation Charges
Regulatory Assets
Operations Contracts Fees Receivable
Restricted Cash
Non-utility Assets - Net
Other
TOTAL DEFERRED CHARGES AND OTHER ASSETS
TOTAL ASSETS

3,164,043  
1,774,817  
7,469,190  
685,599
5,782,705  
5,042,207  
519,610  
24,438,171  
$ 324,383,124  

December 31,

2005
$   91,403,549 
217,098,466  
23,292,087  
6,127,634
337,921,736  
54,960,290  
282,961,446  

2004
$   82,340,798  
194,531,035
20,451,215  
13,013,391  
310,336,439  
52,017,761  
258,318,678  

2,983,762  
8,074,929  
3,737,627  
1,259,935  
927,254  
16,983,507  

4,034,768  
6,316,853  
3,572,713  
1,203,906  
823,976  
15,952,216  

3,172,254  
1,032,182
8,198,565  
685,599  

13,257,106
4,552,023  
465,419  
31,363,148  
$ 305,634,042  

CAPITALIZATION AND LIABILITIES
CAPITALIZATION:

CURRENT
LIABILITIES:

Common Stock, No Par Value
Retained Earnings
Accumulated Other Comprehensive Income, net of tax
TOTAL COMMON EQUITY
Preferred Stock
Long-term Debt
TOTAL CAPITALIZATION

Current Portion of Long-term Debt 
Notes Payable
Accounts Payable
Accrued Taxes
Accrued Interest
Unearned Revenues and Advanced Service Fees
Other
TOTAL CURRENT LIABILITIES

$   76,160,949  
23,638,301  
(206,925) 
99,592,325  
3,958,062  
128,174,944  
231,725,331  

$   71,979,902  
23,103,908  
44,841  
95,128,651  
4,063,062  
115,280,649  
214,472,362  

1,930,617  
4,000,000 
6,038,060  
6,466,531  
1,868,962  
473,627  
707,446  
21,485,243  

1,091,351  
11,000,000  
6,001,806  
6,784,380
1,703,131  
387,156  
795,456  
27,763,280  

COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)

DEFERRED CREDITS
AND OTHER LIABILITIES:

Customer Advances for Construction
Accumulated Deferred Investment Tax Credits 
Accumulated Deferred Income Taxes
Employee Benefit Plans
Regulatory Liability - Cost of Utility Plant Removal
Other
TOTAL DEFERRED CREDITS AND OTHER LIABILITIES

17,180,962  
1,617,949  
14,296,620  
6,650,724  
5,647,757  
793,857  
46,187,869  

14,018,006  
1,696,566  
14,556,153  
5,464,056  
5,363,152  
849,551  
41,947,484  

CONTRIBUTIONS IN AID OF CONSTRUCTION

TOTAL CAPITALIZATION AND LIABILITIES

24,984,681  
$ 324,383,124 

21,450,916  

$ 305,634,042 

See Notes to Consolidated Financial Statements.

20

115340_Greenhouse_Txt_r1  4/3/06  12:45 PM  Page 21

MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME

OPERATING REVENUES

OPERATING EXPENSES:
Operations 
Maintenance
Depreciation
Other Taxes

Years Ended December 31,
2004

2005

2003
$ 64,111,214 

$ 74,613,305

$ 70,991,146 

38,635,382 
3,519,914  
6,460,241 
8,779,325 

36,519,355 
3,464,036 
5,846,191 
8,228,354 

32,666,099 
3,529,113 
5,362,727 
7,815,918 

TOTAL OPERATING EXPENSES

57,394,862 

54,057,936 

49,373,857 

OPERATING INCOME

17,218,443 

16,933,210 

14,737,357 

OTHER INCOME (EXPENSE):

Allowance for Funds Used During Construction
Other Income
Other Expense

547,714 
219,572 
(27,593)

606,019
221,950 
(32,676)

315,919 
131,499 
(89,931)

TOTAL OTHER INCOME, NET

739,693 

795,293 

357,487 

INCOME BEFORE INTEREST & INCOME TAXES

17,958,136 

17,728,503 

15,094,844 

INTEREST CHARGES

6,244,671 

5,468,576 

5,227,030 

INCOME BEFORE INCOME TAXES

11,713,465 

12,259,927 

9,867,814 

INCOME TAXES

NET INCOME

3,237,324 

3,814,418 

3,237,218 

8,476,141 

8,445,509 

6,630,596 

PREFERRED STOCK DIVIDEND REQUIREMENTS

251,286

254,786 

254,786 

EARNINGS APPLICABLE TO COMMON STOCK

$

8,224,855 

$

8,190,723 

$ 6,375,810 

Earnings per share of Common Stock:

Basic
Diluted

Average Number of Common Shares Outstanding:

Basic
Diluted

$
$

0.72 
0.71 

$
$

0.74 
0.73 

$
$

0.61 
0.61 

11,444,785 
11,783,925 

11,079,835 
11,422,975 

10,475,295 
10,818,435 

Cash Dividends Paid per Common Share 

$

0.673

$

0.663

$

0.649

See Notes to Consolidated Financial Statements.

21

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 22

MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to Reconcile Net Income to

Net Cash Provided by Operating Activities:
Depreciation and Amortization
Provision for Deferred Income Taxes and ITC
Allowance for Funds Used During Construction

Changes in Assets and Liabilities:

Accounts Receivable
Unbilled Revenues
Materials & Supplies
Prepayments
Other Assets
Operations Contracts Receivable
Accounts Payable 
Accrued Taxes
Accrued Interest
Employee Benefit Plans
Unearned Revenue & Advanced Service Fees
Other Liabilities

NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:

Utility Plant Expenditures*
Cash Surrender Value & Other Investments
Restricted Cash
Proceeds from Real Estate Dispositions
Preliminary Survey & Investigation Charges
Other Assets

NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:

Redemption of Long-term Debt
Proceeds from Issuance of Long-term Debt
Net Short-term Bank Borrowings (Repayments)
Deferred Debt Issuance Expenses
Common Stock Issuance Expense
Restricted Cash
Proceeds from Issuance of Common Stock
Payment of Common Dividends
Payment of Preferred Dividends
Construction Advances and Contributions-Net

NET CASH PROVIDED BY FINANCING ACTIVITIES
NET CHANGES IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
*Excludes Allowance for Funds Used During Construction.

2005

Years Ended December 31,
2004

2003

$ 8,476,141

$ 8,445,509

$ 6,630,596 

7,159,670 
164,873 
(547,714)

(1,758,076)
(164,914)
(56,029)
(103,278)
(151,166)
-

(17,933)
(323,227)
165,831 
709,988 
86,471 
(143,704)
13,496,933 

(25,287,735)
(294,372)
7,637,175 
-
(742,635)
-

(18,687,567)

(1,214,521)
14,948,082 
(7,000,000)
(166,477)
- 
(162,774)
4,076,047 
(7,690,462)
(251,286)
1,601,019 
4,139,628 
(1,051,006)
4,034,768 
$ 2,983,762 

6,387,808
603,275
(606,019)

(634,245)
(337,925)
215,236 
185,328 
(578,048)
14,207 
1,224,406 
528,715 
(107,508)
377,068 
(215,698)
56,913 
15,559,022 

(28,878,576)
(273,837)
(9,431,686)
-
348,589 
-

(38,235,510)

(1,067,258)
18,995,153 
(1,500,000)
(65,219)
(379,534)
-   
15,055,874 
(7,375,629)
(254,786)
297,045 
23,705,646 
1,029,158 
3,005,610 
$ 4,034,768 

5,633,863 
306,919 
(315,919)

345,694 
(53,697)
(228,805)
(193,912)
275,802 
(699,806)
2,260,431 
333,815 
196,361 
(192,749)
186,265 
(236,431)
14,248,427 

(17,576,634)
(466,290)
2,321,158 
532,922 
(282,303)
(47,264)
(15,518,411)

(884,427)
11,205,723 
(5,150,000)
(194,484)
(103,284)
121 
3,609,859 
(6,791,254)
(254,786)
(99,768)
1,337,700 
67,716 
2,937,894 
$ 3,005,610 

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
Utility Plant received as Construction Advances and Contributions

$ 5,149,990

$ 2,722,121

$ 3,753,037

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

Cash Paid During the Year for:

Interest
Interest Capitalized
Income Taxes

See Notes to Consolidated Financial Statements.

22

$ 5,990,089 
$    (547,714)
$ 3,792,000

$  5,409,803 
$   (606,019)
$  3,074,513 

$   5,061,878 
$    (315,919)
$    2,472,000

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 23

MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND LONG-TERM DEBT

Common Stock, No Par Value:

Shares Authorized    -  20,000,000
Shares Outstanding  -  2005 - 11,584,499
2004 - 11,358,772

Retained Earnings
Accumulated Other Comprehensive Income, net of tax

TOTAL COMMON EQUITY

Cumulative Preference Stock, No Par Value:

Shares Authorized - 100,000
Shares Outstanding - None

Cumulative Preferred Stock, No Par Value:

Shares Authorized - 139,497 in 2005 and 140,497 in 2004

Convertible:

Shares Outstanding, $7.00 Series - 13,881 in 2005 and 14,881 in 2004
Shares Outstanding, $8.00 Series - 12,000

Nonredeemable:

Shares Outstanding, $7.00 Series -   1,017
Shares Outstanding, $4.75 Series - 10,000

TOTAL PREFERRED STOCK

Long-term Debt:

8.05%, Amortizing Secured Note, due December 20, 2021
6.25%, Amortizing Secured Note, due May 22, 2028
6.44%, Amortizing Secured Note, due August 25, 2030
6.46%, Amortizing Secured Note, due September 19, 2031
4.22%, State Revolving Trust Note, due December 31, 2022
3.30% to 3.60%, State Revolving Trust Note, due May 1, 2025
3.49%, State Revolving Trust Note, due January 25, 2027
4.00% to 5.00%, State Revolving Trust Bond, due September 1, 2021
0.00%, State Revolving Fund Bond, due September 1, 2021

First Mortgage Bonds:

5.20%, Series S, due October 1, 2022
5.25%, Series T, due October 1, 2023
6.40%, Series U, due February 1, 2009
5.25%, Series V, due February 1, 2029
5.35%, Series W, due February 1, 2038
0.00%, Series X, due September 1, 2018
4.25% to 4.63%, Series Y, due September 1, 2018
0.00%, Series Z, due September 1, 2019
5.25% to 5.75%, Series AA, due September 1, 2019
0.00%, Series BB, due September 1, 2021
4.00% to 5.00%, Series CC, due September 1, 2021
5.10%, Series DD, due January 1, 2032
0.00%, Series EE, due September 1, 2024
3.00% to 5.50%, Series FF, due September 1, 2024

SUBTOTAL LONG-TERM DEBT

Less: Current Portion of Long-term Debt
TOTAL LONG-TERM DEBT

See Notes to Consolidated Financial Statements.

December 31,

2005

2004

$  76,160,949

$ 71,979,902 

23,638,301 
(206,925)
99,592,325

23,103,908 
44,841 
95,128,651 

1,457,505
1,398,857 

101,700 
1,000,000 
3,958,062

2,983,384
9,415,000 
6,906,667 
7,000,000 
754,164 
3,018,254 
278,144
760,000 
614,436

12,000,000 
6,500,000 
15,000,000 
10,000,000 
23,000,000 
700,280 
870,000 
1,567,367 
1,990,000 
1,926,956 
2,185,000 
6,000,000 
7,715,909 
8,920,000 
130,105,561 
(1,930,617)
$128,174,944 

1,562,505 
1,398,857 

101,700 
1,000,000 
4,063,062 

3,063,389 
9,835,000 
-
-
784,000 
2,348,316 
-
790,000 
652,306 

12,000,000 
6,500,000 
15,000,000 
10,000,000 
23,000,000 
755,006 
920,000 
1,679,979 
2,085,000 
2,048,095 
2,275,000 
6,000,000 
7,715,909 
8,920,000 
116,372,000 
(1,091,351)
$115,280,649

23

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 24

MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS’ EQUITY AND 
COMPREHENSIVE INCOME

Balance at January 1, 2003

Net Income
Change in Value of Equity Investments,

Net of $26,000 Income Tax
Comprehensive Income

Dividend Reinvestment & Common

Stock Purchase Plan

Restricted Stock Award - Net
Cash Dividends on Common Stock
Cash Dividends on Preferred Stock
Common Stock Expenses

Common
Stock
Shares
10,356,489 

Common
Stock
Amount
$ 53,314,169 

Retained
Earnings
$ 23,187,076 

6,630,596 

Accumulated
Other
Comprehensive
Income

$        -

50,808 

192,515 
17,933 

3,263,569 
346,290 

(6,791,254)
(254,786)
(103,284)

Total
$ 76,501,245 

6,630,596 

50,808 
6,681,404 

3,263,569 
346,290 
(6,791,254)
(254,786)
(103,284)

Balance at December 31, 2003

10,566,937 

$ 56,924,028 

$ 22,668,348 

$

50,808 

$ 79,643,184 

Net Income
Change in Value of Equity Investments,

Net of $3,000 Income Tax
Comprehensive Income

Dividend Reinvestment & Common

Stock Purchase Plan

Issuance of Common Stock
Restricted Stock Award - Net
Cash Dividends on Common Stock
Cash Dividends on Preferred Stock
Common Stock Expenses

8,445,509 

(5,967)

76,935 
700,000 
14,900 

1,533,507 
13,257,000 
265,367 

(7,375,629)
(254,786)
(379,534)

8,445,509 

(5,967)
8,439,542 

1,533,507 
13,257,000 
265,367 
(7,375,629)
(254,786)
(379,534)

Balance at December 31, 2004

11,358,772 

$ 71,979,902

$ 23,103,908

$      44,841

$ 95,128,651

Net Income
Minimum Pension Liability,

Net of $135,000 Income Tax

Change in Value of Equity Investments,

Net of $5,000 Income Tax
Comprehensive Income

Dividend Reinvestment & Common

Stock Purchase Plan

Restricted Stock Award - Net
Preferred Stock Conversion
Cash Dividends on Common Stock
Cash Dividends on Preferred Stock

8,476,141

8,476,141

194,777 
18,950 
12,000 

3,640,334 
435,713 
105,000 

(7,690,462)
(251,286)

(262,205)

(262,205)

10,439 

10,439 
8,224,375 

3,640,334 
435,713 
105,000 
(7,690,462)
(251,286)

Balance at December 31, 2005

11,584,499 

$ 76,160,949 

$ 23,638,301 

$

(206,925)

$ 99,592,325 

See Notes to Consolidated Financial Statements.

24

115340_Greenhouse_Txt_r1  4/3/06  12:46 PM  Page 25

2005 Annual Report 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant
Accounting Policies

(a) Organization - Middlesex Water Company
(Middlesex) 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 Bayview Water Company
(Bayview). 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.

Middlesex Water 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 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 in New Jersey and Delaware, as to the quality
of services we provide and as to certain other matters.
Our TESI subsidiary commenced operations during
2005 as a regulated wastewater utility in Delaware.
Only our USA, USA-PA and White Marsh
subsidiaries are not regulated utilities.

(b) System of Accounts - Middlesex, Pinelands Water,
Pinelands Wastewater and Bayview maintain their
accounts in accordance with the Uniform System of
Accounts prescribed by the Board of Public Utilities of
the State of New Jersey (BPU). Tidewater, TESI and
Southern Shores maintain their accounts in accordance
with the Public Service Commission of Delaware
(PSC) requirements.

(c) Utility Plant is stated at original cost as defined 
for regulatory purposes. Property accounts are charged

with the cost of betterments and major replacements 
of property. Cost includes direct material, labor and
indirect charges for pension benefits and payroll taxes.
The cost of labor, materials, supervision and other
expenses incurred in making repairs and minor
replacements and in maintaining the properties is
charged to the appropriate expense accounts. At
December 31, 2005, there was no event or change in
circumstance that would indicate that the carrying
amount of any long-lived asset was not recoverable.

(d) Depreciation is computed by each regulated
member of the Company utilizing a rate approved by
the applicable regulatory authority. The Accumulated
Provision for Depreciation is charged with the cost of
property retired, less salvage. The following table sets
forth the range of depreciation rates for the major
utility plant categories used to calculate depreciation
for the years ended December 31, 2005, 2004 and
2003. These rates have been approved by either the
BPU or PSC:

Source of Supply
Pumping
Water Treatment
General Plant

1.15% -   3.44%
2.87% -   5.04%
2.71% -   7.64%
2.08% - 17.84%

Transmission and Distribution (T&D):
T&D – Mains
T&D – Services
T&D – Other

1.10% - 3.13%
2.12% - 2.81%
1.61% - 4.63%

Non-regulated fixed assets consist primarily of an office
building, furniture and fixtures, and transportation
equipment. These assets are recorded at original cost
and depreciation is calculated based on the estimated
useful lives, ranging from 3 to 40 years.

(e) Customers’ Advances for Construction – Water
utility plant and/or cash advances are contributed 
to the Company by customers, real estate developers
and builders in order to extend water service to their
properties. These contributions are recorded as
Customers’ Advances for Construction. Refunds 
on these advances are made by the Company in
accordance with agreements with the contributing
party and are based on either additional operating
revenues related to the utility plant or as new customers
are connected to and take service from the utility plant.

25

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 26

Middlesex Water Company

After all refunds are made, any remaining balance is
transferred to Contributions in Aid of Construction.

billed in advance for their fixed service charge and
these revenues are recognized as the service is provided
to the customer.

Contributions in Aid of Construction – Contributions
in Aid of Construction include direct non-refundable
contributions of water utility plant and/or cash and the
portion of Customers’ Advances for Construction that
become non-refundable.

(f ) Allowance for Funds Used During Construction
(AFUDC) - Middlesex, Tidewater, Pinelands Water,
Pinelands Wastewater and Bayview capitalize AFUDC,
which represents the cost of financing projects during
construction. AFUDC is added to the construction
costs of individual projects exceeding specific cost and
construction period thresholds established for each
company and then depreciated along with the rest of
the utility plant’s costs over its estimated useful life.
For the years ended December 31, 2005, 2004 and
2003 approximately $0.5 million, $0.6 million and 
$0.3 million of AFUDC was added to the cost of
construction projects, respectively. AFUDC is
calculated using each company’s weighted cost of debt
and equity as approved in their most recent respective
regulatory rate order. The average AFUDC rates for
the years ended December 31, 2005, 2004 and 2003 
for Middlesex, Tidewater and Bayview were 7.39%,
8.37% and 3.11%, respectively. Pinelands Water and
Pinelands Wastewater did not incur AFUDC during
the periods covered by this report.

(g) Accounts Receivable – We record bad debt 
expense based on historical accounts receivable write-
offs. The allowance for doubtful accounts was $0.2
million at December 31, 2005, 2004 and 2003. The
corresponding expense for the year ended December
31, 2005, 2004 and 2003 was $0.2 million, $0.1 million
and $0.2 million, respectively.

(h) Revenues - General metered customer’s bills
typically are broken down into two components;
a fixed service charge and a volumetric or consumption
charge. Revenues from general metered service
customers, except Tidewater, include amounts billed in
arrears on a cycle basis and unbilled amounts estimated
from the last meter reading date to the end of the
accounting period. The estimated unbilled amounts
are determined by utilizing factors which include
historical consumption usage and current climate
conditions. Actual billings may differ from our
estimates. Revenues are adjusted in the period that 
the difference is identified. Tidewater customers are 

26

Bayview and Southern Shores are unmetered systems.
Customers are billed a fixed service charge in
accordance with the approved tariff. Southern Shores
service charges are billed in advance at the beginning 
of each month and are recognized as earned. Bayview
service charges are billed in advance at the beginning 
of each calendar quarter and are recognized in revenue
ratably over the quarter. Revenues from the City of
Perth Amboy management contract are comprised of
fixed and variable fees. Fixed fees, which have been 
set for the life of the contract, are billed monthly and
recorded as earned. Variable fees, which are not
significant, are recorded upon approval of the 
amount by the City of Perth Amboy.

USA bills customers on a quarterly or annual basis 
for its LineCareSM service line maintenance program.
Quarterly amounts billed are recognized as earned.
Amounts that are billed on an annual basis are deferred
and recognized as revenue ratably over the year.

(i) Deferred Charges and Other Assets - Unamortized
Debt Expense is amortized over the lives of the related
issues. Restricted Cash represents proceeds from loans
entered into through state financing programs and is
held in trusts. The proceeds are restricted for specific
capital expenditures and debt service requirements.

(j) Income Taxes - Middlesex files a consolidated
federal income tax return for the Company and 
income taxes are allocated based on the separate 
return method. Investment tax credits have been
deferred and are amortized over the estimated useful
life of the related property.

(k) Statements of Cash Flows - For purposes of
reporting cash flows, the Company considers all highly
liquid investments with original maturity dates of three
months or less to be cash equivalents. Cash and cash
equivalents represent bank balances and money market
funds with investments maturing in less than 90 days.

(l) Use of Estimates - Conformity with accounting
principles generally accepted in the United States of
America requires management to make estimates and
assumptions that affect the reported amounts in the
financial statements. Actual results could differ from
those estimates.

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 27

2005 Annual Report 

(m) Recent Accounting Pronouncements – In May
2005, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 154, “Accounting Changes 
and Error Corrections” (SFAS 154), which requires
retrospective application to prior periods’ financial
statements of voluntary changes in accounting
principles unless it is impracticable to determine 
either the period-specific effects or the cumulative
effect of the change. SFAS 154 makes a distinction
between “retrospective application” of an accounting
principle and the “restatement” of financial statements
to reflect the correction of an error. SFAS 154 replaces
Accounting Principles Bulletin (APB) No. 20,
“Accounting Changes” (APB 20), and SFAS No. 3,
Reporting Accounting Changes in Interim Financial
Statements. APB 20 previously required that most
voluntary changes in accounting principles be
recognized by including the cumulative effect of
changing to the new accounting principle in the net
income of the period of the change. SFAS 154
requires that a change in depreciation, amortization 
or depletion method for long-lived non-financial assets
be accounted for as a change in accounting estimate
affected by a change in accounting principle, whereas
APB 20 had required accounting for such a change 
as a change in accounting principle. SFAS 154 carries
forward the guidance in APB 20 for reporting the
correction of an error in previously issued financial
statements and a change in accounting estimate as well
as the requirement for justifying a change in accounting
principle on the basis of a preference. This statement
is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15,
2005 ( January 1, 2006 for the Company).

In December 2004, the FASB issued SFAS No. 123(R),
“Share-Based Payment” (SFAS 123(R)), which replaces
SFAS No. 123, “Accounting for Stock-Based
Compensation” (SFAS 123), and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to
Employees”. The Statement requires that the cost
resulting from all share-based payment transactions be
recognized in the financial statements. The Statement
also establishes fair value as the measurement objective
in accounting for share-based payment arrangements
and requires all entities to apply a fair-value-based
measurement method in accounting for share-based
payment transactions with employees, except for equity
instruments held by employee share ownership plans.
This statement was originally effective for quarters
beginning after June 15, 2005, however on April 14,

2005, the Securities and Exchange Commission
adopted a rule which makes the provisions of SFAS
123(R) effective for the first annual reporting period
beginning after June 15, 2005 ( January 1, 2006 for 
the Company). The Company currently recognizes
compensation expense at fair value for stock-based
payment awards in accordance with SFAS No. 123
“Accounting for Stock-Based Compensation,” and 
does not anticipate adoption of this standard will 
have a material impact on its financial position,
results of operations, or cash flows.

In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets - an amendment 
of APB Opinion No. 29” (SFAS 153). SFAS 153
addresses the measurement of exchanges of
nonmonetary assets and redefines the scope of
transactions that should be measured based on the fair
value of the assets exchanged. SFAS 153 is effective
for nonmonetary asset exchanges occurring in quarters
beginning after June 15, 2005. The adoption of this
standard did not have an impact on its financial
position, results of operations, or cash flows.

On October 22, 2004, the American Jobs Creation Act
(AJCA) was signed into law. Among other provisions,
the AJCA creates a new deduction for qualified
domestic production activities. Certain activities of 
the Company, such as our water treatment activity,
are considered as qualifying production activities for
purposes of determining the deduction for qualified
production activities. In December 2004, the FASB
issued FSP 109-1, "Application of FASB Statement
No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided
by the American Jobs Creation Act of 2004."  In
accordance with FSP 109-1, the Company is treating
the deduction for qualified domestic production
activities as a reduction of the income tax provision in
the period as realized. The adoption of this statement
has not had a material impact on the Company’s
financial position, results of operations or cash flows.

In May 2004, the FASB issued FASB Staff 
Position (FSP) 106-2, “Accounting and Disclosure
Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003”
(FSP 106-2). FSP 106-2 provides guidance on the
accounting for the effects of the Medicare Prescription
Drug, Improvement and Modernization Act of 2003
(Medicare Drug Act) for employers who sponsor
postretirement health care plans that provide

27

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 28

Middlesex Water Company

prescription drug benefits. FSP 106-2 also requires
those employers to provide certain disclosures
regarding the effect of the federal subsidy provided 
by the Medicare Drug Act. The Medicare Drug Act
generally permits plan sponsors that provide retiree
prescription drug benefits that are “actuarially
equivalent” to the benefits of Medicare Part D to 
be eligible for a non-taxable federal subsidy. FSP 
106-2 is effective for the first interim or annual period
beginning after June 15, 2004. FSP 106-2 provides 
that if the effect of the Medicare Drug Act is not
considered a significant event, the measurement date
for the adoption of FSP 106-2 is delayed until the next
regular measurement date. Based on discussions with
its Actuary, Management determined the effect of the
Medicare Drug Act was not a significant event and
thus the Company is accounting for the effects of FSP
106-2 as of its next measurement date. The adoption
of FSP 106-2 on January 1, 2005 did not have a
material effect on the Company’s financial statements.

In March 2004, the Emerging Issues Task Force
(EITF) reached consensus on EITF No. 03-1, “The
Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments” (EITF 03-1).
EITF 03-1 further defines the meaning of an “other-
than-temporary impairment” and its application to
debt and equity securities. Impairment occurs when
the fair value of a security is less than its cost basis.
When such a condition exists, the investor is required
to evaluate whether the impairment is other-than-
temporary as defined in EITF 03-1. When an
impairment is other-than-temporary, the security 
must be written down to its fair value. EITF 03-1 
also requires additional annual quantitative and
qualitative disclosures for available for sale and held to
maturity impaired investments that are not other-than
temporarily impaired. On September 30, 2004, the
FASB issued FSP EITF 03-1-1, “Effective date of
Paragraph’s 10-20 of EITF Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments” (FSP EITF
03-1-1). FSP EITF 03-1-1 delayed the effective 
date for the measurement and recognition guidance
contained in EITF 03-1 until further implementation
guidance is issued. The Company does not expect any
material effects from the adoption of EITF 03-1 on its
financial statements.

In March 2005, the FASB issued Interpretation 
No. 47, “Accounting for Conditional Asset Retirement

28

Obligations” (FIN 47), to clarify the term “conditional
asset retirement obligation” as used in SFAS No. 143,
“Accounting for Asset Retirement Obligations” (SFAS
143). Conditional asset retirement obligation refers to a
legal obligation to perform an asset retirement activity
in which the timing and/or method of settlement are
conditional on a future event that may or may not be
within the control of the entity. The obligation to
perform the asset retirement activity is unconditional
even though uncertainty exists about the timing and/or
method of settlement. Accordingly, an entity is
required to recognize a liability for the fair value of 
a conditional asset retirement obligation if the fair
value of the liability can be reasonably estimated.
The fair value of a liability for the conditional asset
retirement obligation should be recognized when
incurred, generally, upon acquisition, construction,
development and/or through the normal operation of
the asset. Uncertainty about the timing and/or method
of settlement should be factored into the measurement 
of the liability when sufficient information exists.
FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair
value of an asset retirement obligation. FIN 47 is
effective no later than the end of fiscal years ending
after December 15, 2005 (December 31, 2005 for
calendar-year enterprises). The adoption of this
standard did not have a material impact on the
Company’s financial position, results of operations,
or cash flows.

(n) Other Comprehensive Income – Total
comprehensive income includes changes in equity 
that are excluded from the consolidated statements 
of income and are recorded into a separate section 
of capitalization on the consolidated balance sheets.
The Company’s accumulated other comprehensive
income shown on the consolidated balance sheets
consists of unrealized gains on investment holdings 
and a minimum pension liability.

(o) Regulatory Accounting – We maintain our books
and records in accordance with accounting principles
generally accepted in the United States of America.
Middlesex and certain of its subsidiaries, which account
for 89% of Operating Revenues and 99% of Total
Assets, are subject to regulation in the state in which
they operate. Those companies are required to
maintain their accounts in accordance with regulatory
authorities’ rules and guidelines, which may differ 
from other authoritative accounting pronouncements.

115340_Greenhouse_Txt_r1  4/3/06  12:47 PM  Page 29

2005 Annual Report 

In those instances, the Company follows the guidance
provided SFAS No. 71, “Accounting for the Effects of
Certain Types of Regulation.”

lesser of the regional Consumer Price Index or 3%.
The rates are set to expire on December 31, 2006, and
the Company is currently negotiating a new agreement.

(p) Pension Plan – We maintain a noncontributory
defined benefit pension plan which covers substantially
all employees with more than 1,000 hours of service.
The discount rate utilized for determining pension
costs decreased from 6.75% for the year ended
December 31, 2003 to 6.00% for the year ended
December 31, 2004 to 5.88% for the year ended
December 31, 2005. Future actual pension income will
depend on future investment performance, changes in
future discount rates and various other factors related
to the population participating in the pension plans.

Note 2 – Rate and Regulatory Matters

Effective December 8, 2005, Middlesex received
approval from the BPU for an 8.7%, or $4.3 million
increase in its water rates. This increase represents a
portion of Middlesex’s May 2005 request for a total
rate increase of 13.1% to cover the costs of its increased
capital investment, as well as maintenance and
operating expenses.

On August 10, 2005, Pinelands Water and Pinelands
Wastewater filed with the BPU for increases of 16.7%
and 6.1%, respectively. This increase represents a total
base rate increase of approximately $0.2 million to 
help offset the increased costs associated with capital
improvements, and the operation and maintenance of
their systems. A decision on this matter is expected
during the second quarter of 2006. There can be no
assurance that any rate increases will be granted or, if
granted, that they will be in the amounts we requested.

As part of an approved settlement with the PSC on
October 19, 2004, Tidewater implemented the second
phase rate increase of $0.5 million on April 27, 2005.
Tidewater also agreed to waive its right to file
Distribution System Improvement Charges (DSIC)
applications until July 1, 2006 and to defer making 
an application for a general rate increase until after
April 27, 2006. The DSIC allows a utility to promptly
begin recovering depreciation expense and a return on
the capital invested for eligible distribution system
improvements recently placed into service.

In December 2005, the BPU approved a merger of
Bayview into the Middlesex system effective January 1,
2006. As part of the BPU’s stipulation approving the
merger, the water service rates for the customers of
Bayview are to remain at their current levels until the
water service rates for Middlesex customers exceed the
current Bayview rates.

We have recorded certain costs as regulatory assets
because we believe we will be allowed full recovery of,
or are currently recovering, these costs in the rates that
we charge customers. These deferred costs have been
excluded from rate base and, therefore, we are not
earning a return on the unamortized balances.

Years Ended December 31,
(Thousands of Dollars)

Regulatory Assets
Income Taxes
Post-retirement Benefits
Tank Painting
Rate Cases and Other
Total

2005
$ 6,167
610
352
340
$ 7,469 

2004
$ 6,535
697
426
541
$ 8,199

Remaining
Recovery Periods
Various
7 years
3-9 years
Up to 3 years

The recovery period for income taxes is dependent
upon when the temporary differences between tax and
book will reverse.

The Company uses the composite depreciation method
for its regulated utility operations, which is currently an
acceptable method of accounting under generally
accepted accounting principles and is widely used in 
the utility industry. Historically, under the composite
depreciation method, the anticipated costs of removing
assets upon retirement are provided for over the life of
those assets as a component of depreciation expense.
The Company recovers certain asset retirement costs
through rates charged to customers as an approved
component of deprecation expense. As of December 31,
2005 and 2004, the Company has approximately $5.7
million and $5.4 million, respectively, of cost of removal
recovered in rates in excess of actual costs incurred.
These amounts are included in regulatory liabilities.

In accordance with the tariff established for Southern
Shores, an annual rate increase of 3% was implemented
on January 1, 2006. The increase cannot exceed the

Bayview, Pinelands Water and Pinelands Wastewater
are recovering in rates the acquisition premiums

29

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 30

Middlesex Water Company

totaling $0.8 million over the remaining lives of their
Utility Plant. These deferred costs have been included
in their respective rate bases as utility plant and are
earning a return on the unamortized costs during the
recovery periods.

Note 3 – Income Taxes

The Company is required to record deferred income
taxes for all temporary differences regardless of 
the regulatory ratemaking treatment. Because
management believes that it is probable that these
additional taxes will be passed on to ratepayers,
offsetting regulatory assets of $6.2 million and $6.5
million have been recorded at December 31, 2005 
and 2004, respectively.

Income tax expense differs from the amount computed
by applying the statutory rate on book income subject
to tax for the following reasons:

Note 4 – Commitments and Contingent
Liabilities

Income Tax at Statutory Rate of 34%
Tax Effect of:

Utility Plant Related
State Income Taxes – Net
Employee Benefits
Other

Total Income Tax Expense

Current:
Federal
State
Deferred:
Federal
State
Investment Tax Credits
Total Income Tax Expense

Years Ended December 31,
(Thousands of Dollars)
2003
2004
$ 3,355
$ 4,168

2005
$ 3,982

(899)
176
(25)
3
$  3,237

(500)
167
(25)
4
$ 3,814

(171)
106
(67)
14
$ 3,237

$ 2,889
183

$ 3,128
83

$ 2,835
95

160
84
(79)
$ 3,237

512
170
(79)
$ 3,814

321
65
(79)
$ 3,237

The statutory review period for income tax returns 
for the years prior to 2002 has been closed.

Deferred income taxes reflect the net tax effect of
temporary differences between the carrying amounts 
of assets and liabilities for financial purposes and 
the amounts used for income tax purposes.
The components of the net deferred tax liability
are as follows:

Years Ended December 31,
(Thousands of Dollars)

2005
$ 21,827
(4,250)
(3,210)
(70)
$ 14,297

2004
$ 21,293
(4,263)
(2,568)
94
$ 14,556

Utility Plant Related
Customer Advances
Employee Benefits
Other
Total Deferred Tax Liability

30

Guarantees - USA-PA operates the City of Perth
Amboy’s (Perth Amboy) water and wastewater systems
under a service contract agreement through June 30,
2018. The agreement was effected under New Jersey’s
Water Supply Public/Private Contracting Act and the
New Jersey Wastewater Public/Private Contracting
Act. Under the agreement, USA-PA receives a fixed
fee and a variable fee based on increased system billing.
Scheduled fixed fee payments for 2005, 2004 and 2003
were $7.4 million, $7.4 million and $7.2 million,
respectively. The fixed fees will increase over the 
term of the contract to $10.2 million.

In connection with the agreement, Perth Amboy,
through the Middlesex County Improvement
Authority, issued approximately $68.0 million in 
three series of bonds. Middlesex guaranteed one of
those series of bonds, designated the Series C Serial
Bonds, in the principal amount of approximately 
$26.3 million. Perth Amboy guaranteed the two 
other series of bonds. The Series C Serial Bonds 
have various maturity dates with the final maturity 
date on September 1, 2015. As of December 31, 2005,
approximately $23.9 million of the Series C Serial
Bonds remained outstanding.

We are obligated to perform under the guarantee 
in the event notice is received from the Series C 
Serial Bonds trustee of an impending debt service
deficiency. If Middlesex funds any debt service
obligations as guarantor, there is a provision in the
agreement that requires Perth Amboy to reimburse us.
There are other provisions in the agreement that we
believe make it unlikely that we will be required to
perform under the guarantee, such as scheduled annual
rate increases for water and wastewater services as well
as rate increases due to unforeseen circumstances. In
the event revenues from customers could not satisfy 
the reimbursement requirements, Perth Amboy has 
Ad Valorem taxing powers, which could be used to
raise the needed amount.

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 31

2005 Annual Report 

Water Supply - Middlesex has an agreement with the
New Jersey Water Supply Authority (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 expired December 31, 2005 and
is expected to be renewed for a five-year term under
the same terms and conditions, provides for the
minimum purchase of 3 mgd of treated water with
provisions for additional purchases.

Purchased water costs are shown below:

Purchased Water
Untreated
Treated 
Total Costs

Years Ended December 31,
(Millions of Dollars) 
2004
$  2.2
2.0
$  4.2

2003
$  2.0
1.8
$  3.8

2005
$  2.3
1.8
$  4.1

Construction – Based on its capital budget, the
Company plans to spend approximately $44.5 million
in 2006, $68.5 million in 2007 and $43.7 million in
2008 on its construction program.

Litigation – A lawsuit was filed in 1998 against 
the Company for damages involving the break 
of both a Company water line and an underground
electric power cable containing both electric lines 
and petroleum based insulating fluid. The electric
utility also asserted claims against the Company.
The lawsuit was settled in 2003, and by agreement,
the electric utility’s counterclaim for approximately
$1.1 million in damages was submitted to binding
arbitration, in which the agreed maximum exposure of
the Company is $0.3 million, for which the Company
has a liability accrued. While we are unable to predict
the outcome of the arbitration, we believe that we have
substantial defenses.

During 2005, the Office of State Fire Marshal in
Delaware issued a Notice of Violation (NOV) to
Tidewater regarding a plan of correction to provide 
fire protection services to one of its community water

systems, based upon a recent interpretation of
regulations that have been effective since 1989.
Tidewater has appealed this NOV in the Superior
Court of the State of Delaware on the grounds that 
the water system was grandfathered under the 1989
regulations and that due process had not been served 
in the application of the recent interpretation. It is the
Company’s position that Tidewater is not required to
provide fire protection service to that water system.
Should Tidewater not be successful in its appeal, it
would be required to install a fire protection system 
in that system with an estimated capital investment
between $0.9 million and $1.6 million. If the
Company is unsuccessful in its appeal, we cannot
predict what further actions, if any, or the costs or
timing thereof, would have on over 60 of Tidewater’s
other community water systems. However, such
amounts could be material. The Company believes 
that any capital investments resulting from an
unfavorable outcome would be a component of its
Delaware rate base and, therefore, included in future
rates. While we are unable to predict the outcome of
our appeal, we believe that we have substantial defenses.

The Company is a defendant in various 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 5 – Short-term Borrowings

Information regarding the Company’s short-term
borrowings for the years ended December 31, 2005 
and 2004 is summarized below:

(Millions of Dollars)

Established Lines at Year-End
Maximum Amount Outstanding
Average Outstanding
Notes Payable at Year-End
Weighted Average Interest Rate
Weighted Average Interest Rate at Year-End

2005
$ 40.0
16.0
9.2
4.0
4.36%
5.09%

2004
$ 33.0 
13.5
8.9
11.0
2.37%
3.42%

31

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Middlesex Water Company

Year-end interest rates on short-term borrowings
outstanding ranged from 4.69% to 5.75% and 2.82% to
3.75% as of December 31, 2005 and 2004, respectively.
The maturity dates for borrowings outstanding as of
December 31, 2005 are: January 3, 2006 - $1.5 million;
and February 27, 2006 - $2.5 million.

The Company has lines of credit for up to $40.0
million. Short-term borrowings are below the prime
rate with no requirement for compensating balances.

Note 6 – Capitalization

All the transactions discussed below related to the
issuance of securities were approved by the BPU,
except where otherwise noted.

Common Stock
In May 2004, the Company sold and issued 700,000
shares of its common stock in a public offering that
was priced at $19.80. The majority of the net proceeds
of approximately $12.9 million were used to repay most
of the Company’s short-term borrowings outstanding
at that time.

In August 2003, the Board of Directors approved a
four-for-three stock split of the Company’s common
stock, effective November 14, 2003 for shareholders 
of record on November 1, 2003. All share, average
number of shares and per share amounts of no par
common stock on the financial statements have been
restated to reflect the effect of the stock split.

The number of shares authorized under the Dividend
Reinvestment and Common Stock Purchase Plan
(DRP) is 1,700,000 shares. The cumulative number 
of shares issued under the DRP at December 31, 2005,
is 1,511,502. For a six month period beginning on 
June 1, 2005 and ending on December 1, 2005,
DRP participants had the opportunity to purchase 
the Company’s common stock at a 5% discount with
reinvested dividends and optional cash payments.
The Company also has a Restricted Stock Plan, which
is described in Note 7 – Employee Benefit Plans.

In the event dividends on the preferred stock are in
arrears, no dividends may be declared or paid on the
common stock of the Company. At December 31,
2005, no preferred stock dividends were in arrears.

32

Preferred Stock
If four or more quarterly dividends are in arrears, the
preferred shareholders, as a class, are entitled to elect
two members to the Board of Directors in addition 
to Directors elected by holders of the common stock.
At December 31, 2005 and 2004, 36,898 shares and
37,898 shares, respectively, of preferred stock presently
authorized were outstanding and there were no
dividends in arrears.

The conversion feature of the no par $7.00 Series
Cumulative and Convertible Preferred Stock allows 
the security holders to exchange one convertible
preferred share for twelve shares of the Company’s
common stock. In addition, the Company may redeem
up to 10% of the outstanding convertible stock in any
calendar year at a price equal to the fair market value 
of twelve shares of the Company’s common stock for
each share of convertible stock redeemed. During
September 2005, 1,000 shares of the no par $7.00
Series Cumulative and Convertible Preferred Stock 
was converted into 12,000 shares of common stock.

The conversion feature of the no par $8.00 Series
Cumulative and Convertible Preferred Stock allows the
security holders to exchange one convertible preferred
share for 13.714 shares of the Company’s common
stock. The preferred shares are convertible into
common stock at the election of the security holder 
or Middlesex.

Long-term Debt
During 2005, Tidewater received approval from the
PSC to finance up to $16.0 million in the form of
long-term debt securities during the current year. Of
this amount, Tidewater received loan approval in April
2005 under the Delaware State Revolving Fund (SRF)
program of $2.0 million. Tidewater closed on this loan
on July 25, 2005. The Delaware SRF program allows,
but does not obligate, Tidewater to draw down against
a General Obligation Note for two specific projects
over a two-year period ending in April 2007. The
interest rate on any draw-down will be set at 3.49%.
On August 25, 2005, Tidewater converted $7.0 million
of short-term borrowings to a $7.0 million mortgage-
type loan to be repaid over a term of 25 years. This
loan bears interest at 6.44%. On September 15, 2005,
Tidewater closed on another $7.0 million mortgage-
type loan. This loan bears interest at 6.46% and is to
be repaid over a term of 26 years.

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 33

2005 Annual Report 

In November 2004, Middlesex issued $16.6 million 
of first mortgage bonds through the New Jersey
Environmental Infrastructure Trust under the New
Jersey SRF program. The Company closed on the first
mortgage bonds designated as Series EE and FF on
November 4, 2004.

First Mortgage Bonds Series S through W and 
Series DD are term bonds with single maturity dates.
The aggregate annual principal repayment obligations
for all other long-term debt are shown below:

(Millions of Dollars)                 

Annual
Maturities
$  1.9
$  2.4
$  2.5

Year
2009
2010

Annual
Maturities
$  2.6
$  2.6

Year
2006
2007
2008

The weighted average interest rate on all long-term
debt at December 31, 2005 and 2004 was 5.36% and
5.26%, respectively. Except for the Amortizing Secured
Notes and Series U First Mortgage Bonds, all of the
Company’s outstanding debt has been issued through
the New Jersey Economic Development Authority
($57.5 million), the New Jersey Environmental
Infrastructure Trust program ($27.2 million) and 
the SRF program ($4.1 million).

Restricted cash includes proceeds from the Series Y,
AA, BB, CC, EE and FF First Mortgage Bonds and
State Revolving Trust Bonds issuances. These funds 
are held in trusts and restricted for specific capital
expenditures and debt service requirements. Series EE
and FF proceeds can only be used for the construction
of a raw water pipeline and the 2005 and 2006 main
cleaning and cement lining programs. All other bond
issuance balances in restricted cash are for debt service
requirements.

Substantially all of the utility plant of the Company 
is subject to the lien of its mortgage, which also
includes debt service and capital ratio covenants,
certain restrictions as to cash dividend payments and
other distributions on common stock. The Company 
is in compliance with all of its mortgage covenants 
and restrictions.

Earnings Per Share
The following table presents the calculation of basic
and diluted earnings per share (EPS) for the three years
ended December 31, 2005. Basic EPS is computed on
the basis of the weighted average number of shares
outstanding. Diluted EPS assumes the conversion of
both the Convertible Preferred Stock $7.00 Series and
$8.00 Series. All share and per share amounts reflect
the four-for-three common stock split, effective
November 14, 2003.

Basic:
Net Income
Preferred Dividend
Earnings Applicable to Common Stock

(In Thousands of Dollars, Except per Share Amounts)

2005
Income     Shares
11,445
$  8,476
(251)
$  8,225

11,445  

2004
Income     Shares
11,080
$  8,446
(255)
$  8,191

11,080

2003
Income     Shares
10,475
$  6,631
(255)
$  6,376

10,475

Basic EPS

$    0.72

$    0.74

$    0.61

Diluted:
Earnings Applicable to Common Stock
$7.00 Series Dividend
$8.00 Series Dividend
Adjusted Earnings Applicable to Common Stock

Diluted EPS

$  8,225
101
96
$  8,422

$    0.71

11,445
175
164
11,784

$  8,191  11,080
179
164
11,423

104
96
$  8,391

$  6,376  10,475
179
164
10,818

104
96
$  6,576

$    0.73

$    0.61

33

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Middlesex Water Company

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
consolidated balance sheets for cash and cash equivalents, marketable securities, and trade receivables and payables
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 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:

At December 31,
(Thousands of Dollars)

2005  

Carrying 
Amount
$ 98,376
$   1,374

Fair
Value
$ 101,080
$     1,402

2004

Carrying 
Amount
$ 98,899
$   1,442

Fair
Value
$ 101,968
$     1,476

First Mortgage Bonds
State Revolving Bonds

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 at December 31, 2005 and 2004 
was $30.3 million and $16.0 million, respectively.
Customer advances for construction have a carrying
amount of $17.2 million and $14.0 million at
December 31, 2005 and 2004, respectively. 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.

Note 7 – Employee Benefit Plans

Pension
The Company has a noncontributory defined 
benefit pension plan, which covers substantially all
employees with more than 1,000 hours of service.
In addition, the Company maintains an unfunded
supplemental pension plan for its executives.
The Accumulated Benefit Obligation for all pension
plans at December 31, 2005 was $24.4 million.

Postretirement Benefits Other Than Pensions
The Company has a postretirement benefit plan 
other than pensions for substantially all of its retired

employees. Coverage includes healthcare and life
insurance. Retiree contributions are dependent on
credited years of service. Accrued retirement benefit
costs are recorded each year.

The Company has recognized a deferred regulatory
asset relating to the difference between the accrued
retirement benefit costs and actual cash paid for plan
premiums in years prior to 1998. Included in the
regulatory asset is a transition obligation from 
adopting SFAS No.106, “Employers’ Accounting for
Postretirement Benefits Other than Pensions,” on
January 1, 1993. In addition to the recognition of
annual accrued retirement benefit costs in rates,
Middlesex is also recovering the transition obligation
over 15 years. The regulatory assets at December 31,
2005 and 2004, respectively were $0.6 million and 
$0.7 million.

The Company uses a December 31 measurement 
date for all of its employee benefit plans. The table 
on the next page sets forth information relating to the
Company’s pension plans and other postretirement
benefits:

34

115340_Greenhouse_Txt_r1  4/3/06  12:47 PM  Page 35

2005 Annual Report 

Years Ended December 31,
(Thousands of Dollars)
Pension Benefits                                    Other Benefits
2004
2005

2005

2004

$ 11,133
621
771
3,130
(408)
$ 15,247

$

$ 23,671
746
1,387
1,516
(1,221)
$ 26,099

$ 26,099
1,126
1,559
2,141
(1,259)
$ 29,666

Reconciliation of Projected Benefit Obligation
Beginning Balance
Service Cost
Interest Cost
Actuarial (Gain)/Loss
Benefits Paid
Ending Balance
Reconciliation of Plan Assets at Fair Value
Beginning Balance
Actual Return on Plan Assets
Employer Contributions
Benefits Paid
Ending Balance
Funded Status
Unrecognized Net Transition Obligation
Unrecognized Net Actuarial (Gain)/Loss
Unrecognized Prior Service Cost
Accrued Benefit Cost
Amounts Recognized in the Consolidated Balance Sheets consist of:
Accrued Benefit Cost
Additional Minimum Liability
Intangible Asset
Accumulated Other Comprehensive Income (pre-tax)
Net Liability Recognized
Separate Disclosure for Plans with Accumulated Benefit Obligation in Excess of Plan Assets:
Projected Benefit Obligation
Accumulated Benefit Obligation
Fair Value of Plan Assets

$ 19,510
885
1,202
(1,259)
$ 20,338
$ (9,328)
–
5,163
81
$ (4,084)

$ 18,587
1,497
647
(1,221)
$ 19,510
$ (6,589)

$ (4,084)
(476)
79
397
$ (4,084)

–
2,655
173
$ (3,761)

$ 25,822
21,500
20,338

$ (3,761)

$ (3,761)

3,430
225
1,419
(408)
$
4,666
$ (10,581)
947
7,533
(3)
$ (2,104)

$ (2,104)

$ (2,104)

$

9,498
426
580
1,028
(399)
$ 11,133

$

2,582
190
1,057
(399)
$
3,430
$ (7,703)
1,082
4,835
(3)
$ (1,789)

$ (1,789)

$ (1,789)

Components of Net Periodic Benefit Cost
Service Cost
Interest Cost
Expected Return on Plan Assets
Amortization of Net Transition Obligation
Amortization of Net Actuarial (Gain)/Loss
Amortization of Prior Service Cost
Net Periodic Benefit Cost
Actual Return on Plan Assets
Weighted Average Assumptions:
Expected Return on Plan Assets
Discount Rate for:

Benefit Obligation 
Benefit Cost

Compensation Increase for:

Benefit Obligation 
Benefit Cost 

Years Ended December 31,
(Thousands of Dollars)

Pension Benefits
2004

2005

2003

Other Benefits
2004

2003

2005

$   1,126
1,559
(1,547)
–
49
92
$   1,279
4.54%

$     746
1,387
(1,492)
–
–
92
$     733
8.18%

$     684
1,356
(1,272)
–
–
92
$     860
17.48%

$      622
771
(275)
135
482
–
$   1,735
5.71%

$     426
580
(213)
135
292
–
$   1,220
6.53%

$     263
485
(175)
135
143
–
$     851
0.77%

8.00%

8.00%

8.00%

7.50%

7.50%

7.50%

5.52%
5.88%

3.50% 
3.50%

5.88%
6.00%

3.50%
3.50%

6.00%
6.75%

3.50%
3.50%

5.52%
5.88%

3.50%
3.50%

5.88%
6.00%

3.50%
3.50%

6.00%
6.75%

3.50%
3.50%

35

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 36

Middlesex Water Company

For measurement purposes, a 9.0% annual rate of increase in the per capita cost of covered healthcare benefits 
was assumed for 2005 and declining by 1.0% per year through 2008 and 0.5% per year to 5% by year 2010.
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plan.
A one-percentage point change in assumed healthcare cost trend rates would have the following effects:

Effect on Current Year’s Service and Benefit Cost
Effect on Benefit Obligation Asset Category

(Thousands of Dollars)
1 Percentage Point

Increase
$    330 
2,430 

Decrease
$    (247)
(1,894) 

The following benefit payments, which reflect expected future service, are expected to be paid:

Year
2006
2007
2008
2009
2010
2011-2015
Totals

Pension Benefits

$    1,249
1,449
1,542
1,565
1,568
8,596
$  15,969

Other Benefits
$     430
471
479
529
544
2,374
$  4,827

Benefit Plans Assets
The benefit plans asset allocations at December 31, 2005 and 2004, by asset category are as follows:

Asset Category
Equity Securities
Debt Securities
Cash
Total

Pension Plan  
2005        2004
63.7%     62.8%
34.5
33.4
2.7
2.9

100.0%    100.0%

Other Benefits
2005        2004 
56.3%      54.0%
41.0

36.9
2.7          9.1
100.0% 100.0%

Target Range
60%        30-65%
38%        25-70%
2%         0-10%

Middlesex utilizes two investment firms to manage its
pension plan asset portfolio. One of those investment
firms also manages the other postretirement benefits
assets. Quarterly meetings are held between the
Company’s Pension Committee of the Board of
Directors and the investment managers to review their
performance and asset allocation. If the current asset
allocation is outside the targeted range, the Pension
Committee reviews current market conditions and
advice provided by the investment managers to

determine the appropriateness of rebalancing 
the portfolio.

The investment objective of the Company is to
maximize its long-term return on benefit plan 
assets, relative to a reasonable level of risk, maintain 
a diversified investment portfolio and invest in
compliance with the Employee Retirement Income
Security Act of 1974. The expected long-term rate of
return is based on the various asset categories of the

36

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 37

2005 Annual Report 

investments and the current expectations and historical
performance for these categories.

more than 6%. The Company’s matching
contributions were $0.3 million for each of the 
years ended December 31, 2005, 2004 and 2003.

Equity securities include Middlesex common stock 
in the amounts of $0.7 million (3.3% of total plan
assets) and $0.7 million (3.8% of total plan assets) 
at December 31, 2005 and 2004, respectively.

For the pension plan, Middlesex made total cash
contributions of $1.2 million in 2005 and expects 
to make cash contributions of approximately $1.0
million in 2006.

For the postretirement benefit plan, Middlesex made
total cash contributions of $1.0 million in 2005 and
expects to make cash contributions of approximately
$1.2 million in 2006.

401(k) Plan
The Company has a 401(k) defined contribution plan,
which covers substantially all employees with more
than 1,000 hours of service. Under the terms of the
Plan, the Company matches 100% of a participant’s
contributions, which do not exceed 1% of a
participant’s eligible compensation, plus 50% of 
a participant’s contributions exceeding 1% but not

Stock-Based Compensation
The Company maintains a Restricted Stock Plan,
under which 56,067 shares of the Company’s common
stock are held in escrow by the Company as of
December 31, 2005 for key employees. Such stock is
subject to an agreement requiring forfeiture by the
employee in the event of termination of employment
within five years of the award other than as a result of
retirement, death, disability or change in control. The
maximum number of shares authorized for grant under
this plan is 240,000 shares.

The Company recognizes compensation expense 
at fair value for the restricted stock awards in
accordance with SFAS No. 123 “Accounting for 
Stock-Based Compensation.” Compensation expense 
is determined by the market value of the stock on the
date of the award and is being amortized over a five-
year period.

The following table presents information on the
Restricted Stock Plan:

Balance, January 1, 2003

Granted
Vested
Forfeited
Amortization of Compensation Expense
Balance, December 31, 2003

Granted
Vested
Amortization of Compensation Expense
Balance, December 31, 2004

Granted
Vested
Amortization of Compensation Expense
Balance, December 31, 2005

Unearned
Compensation
$

552,081

Weighted
Average
Grant Price

357,990 

$

18.95

(11,700)
(286,199)
612,172

265,367 

$

17.81

Shares
77,566

18,900
(26,099)
(967)

69,400

$

14,900
(19,067)

65,233

$

(271,298)
606,241

19,000
(28,166)

435,713 

$

22.95

56,067

$

(342,122)
699,832

37

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Middlesex Water Company

Note 8 – 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 and Delaware. It also
operates a regulated wastewater system in New Jersey.
The Company is subject to regulations as to its rates,
services and other matters by the states of New Jersey

and Delaware with respect to utility service within
these states. The other segment is 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.

Operations by Segments
Revenues:

Regulated
Non – Regulated

Inter-segment Elimination
Consolidated Revenues

Operating Income:

Regulated
Non – Regulated

Consolidated Operating Income

Depreciation:
Regulated
Non – Regulated

Consolidated Depreciation

Other Income, Net:

Regulated
Non – Regulated

Inter-segment Elimination
Consolidated Other Income, Net

Interest Expense:

Regulated
Non – Regulated

Inter-segment Elimination
Consolidated Interest Charges

Net Income:
Regulated
Non – Regulated

Consolidated Net Income

Capital Expenditures:

Regulated
Non – Regulated

Total Capital Expenditures

38

Twelve Months Ended December 31,
(Thousands of Dollars)

2005

2004

2003

$  66,317
8,416
(120)
$ 74,613

$ 16,390
828
$ 17,218

$

$

6,357
103
6,460

$       836
-
(96)
$       740

$

$

$

$

6,245
96
(96)
6,245

8,037
439
8,476

$ 25,016
272
$ 25,288

$ 60,745
10,366
(120)
$ 70,991

$ 16,075
858
$ 16,933

$

$

5,762
84
5,846

$       892
(1)
(96)
$       795

$

$

$

$

5,469
96
(96)
5,469

7,993
453
8,446

$ 28,669
210
$ 28,879

$ 55,707
8,500
(96)
$ 64,111

$ 14,025
713
$ 14,738

$

$

5,308
55
5,363

$       506

(33)
(116)

$       357

$

$

$

$

5,227
116
(116)
5,227

6,292
339
6,631

$ 17,005
572
$ 17,577

115340_Greenhouse_Txt  3/30/06  1:37 AM  Page 39

2005 Annual Report 

Assets:

Regulated
Non – Regulated
Inter-segment Elimination

Consolidated Assets

As of December 31,

2005

2004

$ 320,889
5,912
(2,418)
$ 324,383

$ 302,765
4,943
(2,074)
$ 305,634

Note 9 – Quarterly Operating Results - Unaudited

Quarterly operating results for 2005 and 2004 are as follows:

2005
Operating Revenues
Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per Share

2004
Operating Revenues
Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per Share

(Thousands of Dollars, Except per Share Data)

1st

$ 16,743
3,171
1,380
$     0.12
$     0.12

$ 15,876
2,728
1,034 
$     0.09
$     0.09

2nd
$ 18,431
4,259
1,946
$     0.17
$     0.16

$ 17,770
4,128
1,890
$     0.17
$     0.16

3rd
$ 20,832
6,013
3,024
$     0.26
$     0.26

$  19,856
6,212
3,362
$     0.29
$     0.29

4th
$ 18,607
3,775
2,126
$     0.17
$     0.17

$ 17,489
3,865
2,160
$     0.19
$     0.19

Total
$  74,613
17,218 
8,476
$     0.72
$     0.71

$ 70,991
16,933 
8,446
$     0.74
$     0.73

The information above, in the opinion of the Company, includes all adjustments consisting only of normal
recurring accruals necessary for a fair presentation of such amounts. The business of the Company is subject 
to seasonal fluctuation with the peak period usually occurring during the summer months.

39

115340_Greenhouse_Txt_r1  4/3/06  11:49 AM  Page 40

SHAREHOLDER
INFORMATION 

Stock Exchange Listing
The Common Stock of Middlesex
Water Company is listed on the
NASDAQ Stock Market under the
symbol MSEX.

Annual Meeting
The Annual Meeting of Shareholders
will be held on May 24, 2006, at
11:00 a.m. at the Office of the
Company, 1500 Ronson Road, Iselin,
NJ. Each shareholder of record will
receive formal notice of the meeting
together with the proxy statement and
proxy card. The record date for the
Annual Meeting was March 31, 2006.

Shareholders
As of December 31, 2005, there were
2,074 registered shareholders.

Shareholder Services
Registrar and Transfer Company is
the transfer agent for Middlesex
Water Company and can answer
questions concerning your account,
dividend payments, lost certificates,
transfer of stock change of address
and other related matters.

Transfer Agent and Registrar
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ  07016
Telephone: 800-368-5948
Fax: 908-497-2318
Website: www.rtco.com 
E-mail: info@rtco.com

Investor Relations Contact
Bernadette M. Sohler
Director of Communications
Telephone: 732-634-1500
Fax: 732-638-7515
E-mail: bsohler@middlesexwater.com  

Independent Registered Public
Accounting Firm
Deloitte & Touche LLP
2 Hilton Court
Parsippany, NJ  07054
Telephone: 973-683-7000

Mortgage Trustee
Wachovia Bank
21 South Street
Morristown, NJ  07960

Form 10-K
You may request a copy of our 
Annual Report on Form 10-K as 
filed with the Securities and Exchange
Commission free of charge by
contacting the Investor Relations

Department at 1500 Ronson Road,
Iselin, NJ  08830. Filings may 
also be found on our website at 
www.middlesexwater.com.

Dividend Reinvestment
Middlesex Water Company offers a
Dividend Reinvestment Plan which
provides registered shareholders with a
convenient way to purchase additional
shares of stock through investment of
dividends or voluntary cash payments.
A prospectus describing the Plan is
available from the transfer agent or
the Company.

Direct Deposit of Dividends
Middlesex Water Company offers
direct deposit of dividends whereby
dividend payments may be deposited
into shareholders’ checking, savings 
or money market accounts.

Company Headquarters
Middlesex Water Company
1500 Ronson Road
Iselin, NJ  08830
Telephone: 732-634-1500
Fax: 732-638-7515

COMMON STOCK MARKET PRICE AND DIVIDEND PER SHARE

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

High

2005
Low Dividend
$ 0.1675
0.1675
0.1675
0.1700

$ 19.16 $ 17.64
17.07
19.05
17.31

20.00 
23.47
23.34

High

2004
Low Dividend
$ 0.1650
0.1650
0.1650
0.1675

$ 21.32 $ 19.38
18.83
16.65
17.06

21.81
19.50
20.72

SCHEDULE OF DIVIDEND DATES FOR THE YEAR 2006*

Common

Preferred

Declaration
Dates
January 24
April 25
July 25
October 26

Record
Dates
February 15
May 15
August 15
November 15

December 20**
March 28
June 27
September 25 October 13

January 13
April 13
July 14

Payment
Dates
March 1
June 1
September 1
December 1

February 1
May 1
August 1
November 1

Ex. Dividend
Dates
February 13
May 11
August 11
November 13

January 11
April 11
July 12
October 11

*Subject to approval by Board of Directors.

** 2005.

115340-1_BRC_r1:115340-1_BRC 

Dear Stockholder:

Thank you for reading 
our Annual Report.  We 
are interested in your 
view of Middlesex Water
Company and this report. 

Please help us by providing
feedback by filling out and
returning this questionnaire.

Thank you,

Investor Relations 
Department

A

1. Which of the following best describes you?

(cid:1)(cid:1) Individual investor
(cid:1)(cid:1) Investment club
(cid:1)(cid:1) Institutional investor
(cid:1)(cid:1) Employee

2. How many shares of Middlesex Water

Company stock do you own?
(cid:1)(cid:1) None
(cid:1)(cid:1) Less than 100
(cid:1)(cid:1) Between 100 and 500
(cid:1)(cid:1) Between 500 and 1,000
(cid:1)(cid:1) More than 1,000

3. How good of a job is the Company 

doing in communicating its performance?
(cid:1)(cid:1) Excellent
(cid:1)(cid:1) Good
(cid:1)(cid:1) Fair
(cid:1)(cid:1) Poor

4. Which sections of the Annual Report 

did you find most helpful?
(cid:1)(cid:1) Letter to Shareholders
(cid:1)(cid:1) Year in Review
(cid:1)(cid:1) Incoming CEO Q & A
(cid:1)(cid:1) Financial Section

5. What was the impression of Middlesex Water
Company created by the Annual Report?
(cid:1)(cid:1) An evolving and growing company
(cid:1)(cid:1) A progressive company that is a sound 

investment

(cid:1)(cid:1) A solid, well managed company, but not 

too exciting

(cid:1)(cid:1) Not a very interesting company

6. Did reading Middlesex Water Company’s
Annual Report influence your investment 
decision?
(cid:1)(cid:1) I continued to hold the stock
(cid:1)(cid:1) I bought more stock
(cid:1)(cid:1) I sold some or all of my stock

Comment/s
_________________________________________
_________________________________________
_________________________________________
_________________________________________

Please provide suggestions for next year’s Annual
Report or other stockholder communications and/or
comments about the Company’s operations in general.
_________________________________________
_________________________________________
_________________________________________
_________________________________________

115340-1_BRC_r1:115340-1_BRC 

IF MAILED
IN THE
UNITED STATES

BUSINESS REPLY MAIL

FIRST-CLASS MAIL

PERMIT NO.20

ISELIN NJ

POSTAGE WILL BE PAID BY ADDRESSEE

ATTN INVESTOR RELATIONS 
MIDDLESEX WATER COMPANY 
1500 RONSON RD 
ISELIN NJ 08830-9939

A

115340_Greenhouse_Txt_r1  4/3/06  12:43 PM  Page 1

Board of Directors

Seated left to right:  Dennis W. Doll, President
and Chief Executive Officer, J. Richard
Tompkins, Chairman of the Board, Dennis G.
Sullivan, Retired, immediate Past President
and Chief Executive Officer, Middlesex Water
Company.  Standing left to right:  John C.
Cutting, Retired, formerly Senior Engineer,
Science Applications International
Corporation, John P. Mulkerin, Retired,
formerly President and Chief Executive
Officer, First Sentinel Bancorp, Inc., Annette
Catino, President and CEO, QualCare
Alliance Networks, Inc., Jeffries Shein,
Managing Partner, JGT Management Co. LLC,
John R. Middleton, M.D., Chair of the
Department of Medicine and Chief Medical
Officer of Raritan Bay Medical Center, 
Walter G. Reinhard, Member, Law Firm 
of Norris, McLaughlin & Marcus, P.A.  
Not pictured:  Stephen H. Mundy, Director
Emeritus.

Chairman of the Board

J. Richard Tompkins

Officers

Dennis W. Doll, President and Chief Executive Officer

A. Bruce O’Connor, Vice President and Chief 

Financial Officer

Ronald F. Williams, Vice President-Operations and 

Chief Operating Officer

Richard M. Risoldi, Vice President-Subsidiary   

Operations

Kenneth J. Quinn, Vice President, General Counsel, 

Secretary and Treasurer

James P. Garrett, Vice President-Human Resources

115340_Greenhouse_Txt_r1  4/3/06  12:43 PM  Page 1

P.O. Box 1500
Iselin, New Jersey 08830-0452
732-634-1500
www.middlesexwater.com